1. 1 Changes in the Structure of German Airports Charges  Marius Barbu (FHW Berlin),  David B. Heinz (FHW Berlin)  Prof. Dr. Jürgen Müller (FHW Berlin) Berlin 10th October, 2008 Research Workshop G erman A irport P erformance

2. 2  Objective of the study: >Analyse the structure of charges for German airports, levels and trends  Results: >The structure of charges have changed >Share of variable charges is higher than in the past and it follows and ascendant trend  Further analysis: >Causes >Effects Introduction

3. 3 Homogenous Clusters of Airports 2005 Total Length of Runway(s) Nr. of Runways Terminal Size (sqm) Nr. of Gates Nr. Of Check In Counters Passengers Aircraft Movements Small Bremen BRE203813600010401.7 Mio33600 Dresden DRS250815500012241.78 Mio29000 Münster FMO217013500018381.5 Mio28600 Medium Köln CGN81373200000558010 Mio140000 Hamburg HAM69162900005510811.8 Mio134000 Stuttgart STR334511210007011610 Mio140000 Tegel TXL54472270001810311.7 Mio137000 Big Frankfurt Frau12000380000017438652 Mio476000 München MUC8000250000021831130.6 Mio386000 Düsseldorf DUS570022850008414216.5 Mio189000 Source: Airports website‘s, internet open databases, GAP databases

4. 4 Relevant fleet mix Small Airports Medium-sized Airports Big Airports Airport Aircraft FamilyAverage2007 BREB737 94,4%98,3% DRSA320 95,7%96,8% FMOCRJ 95,4%97,8% LEJBAE146 85,4%71,3% * For Frankfurt Airport, the number of B747 was not taken into consideration Airport Aircraft FamilyAverage2007 FRA* B737 68,4%69,1% MUCA320 86,6%89,0% DUS CRJ 83,3%92,3% BAE146 Airport Aircraft FamilyAverage2007 CGNB737 74,1%73,5% HAMA320 74,9%88,9% STRCRJ 79,1%83,8% TXLBAE146 86,3%92,5% Share of the fleet mix, in the total number of flights Source: Own calculations using Arbeitsgemeinschaft Deutscher Verkehrsflughäfen (ADV) data Fleet Mix Four aircraft families cover the majority of Flights, for all clusters ---------------------------------- Representative fleet mix

5. 5 Levels of variabilization, 2007 Clusters comparison Small AirportsMedium-sized AirportsBig Airports 0% 20% 40% 60% 80% 100% BREDRSFMOLEJCluster Average Variable ChargesFixed Charges 0% 20% 40% 60% 80% 100% CGNHAMSTRTXLCluster Average 0% 20% 40% 60% 80% 100% DUSFRAMUCCluster Average Share of variable charges is considerably high for big airports Charges tend to be more variable as the dimension of airports increases – Reasons ?? Source: Own calculations using Public Charges Manuals Aircraft characteristics were taken from manufacturer‘s official webpage Assumptions: Seat Loading Factor = 80% Ground Handling was excluded

6. 6 8 Trends in variabilization, 2003-2007 Clusters comparison The variabilization process follows similar patterns inside clusters All airports increased the share of variable charges, over the period Share of variable charges – Cluster detail Source: Own calculations

7. 7 Trends in variabilization, 2003-2007 Cluster Comparison - Averages Share of variable charges - Cluster Weighted Average 0,20 0,30 0,40 0,50 0,60 0,70 0,80 20032004200520062007 Small Airports Medium-sized Airports Big Airports The variabilization process is less pronounced in the case of small airports All clusters show an increase in the share variable charges In the case of medium and big airports, this increase is close to 50% Source: Own calculations

8. 8 Reasons (a) 123 Increase in demand Airline efficiency Seat Loading Factor (SLF) Are airlines pushing? Do aircrafts become lighter? +?+? +?+? Other?!

9. 9 Reasons (b) Source: Airbus Official Website There is not evidence that aicrafts become lighter which can induce a shift towards more passenger related charges 3. Do aicrafts become lighter?

10. 10 Effects  Risk Sharing Between Airlines and Airports is changing – Airports now bear more risk than in the past >Are the airports aware? >Is it a real risk or just a theoretical one?  Infrastructure developments may get under stress >Does it affect the decisions regarding new infrastructure projects? (is this supplementary airport risk playing a role or not)

11. 11 Conclusions From an economic point of view the development of the charges structure can give us important clues about the welfare and allocative efficiency of pricing policies in the aviation industry. Airport charges, in Germany, became more passenger related in the last period. This move towards variabilization increases the risk on the airports side It is not clear what is the main cause and/or if the risk shifting puts the airports under stress (now or in the near future) Futher research: Identify other possible causes Try to quantify the risk (making it measurable) – simulation based

12. 12 Thank you for your attention. A Joint Project of: University of Applied Sciences Bremen Berlin School of Economics (FHW) Int. University of Applied Sciences Bad Honnef G ERMAN A IRPORT P ERFORMANCE Jürgen Müller (FHW Berlin) jmueller@fhw-berlin.de Marius Barbu (FHW Berlin) ms.barbu@gmail.com David Ben Heinz (FHW Berlin) davidbenheinz@googlemail.com Contact:

13. 13 Discussions  Why small airports present the lowest degree of variabilization?  How plausible are the first two causes we identified? (increase in demand, airlines are pushing to pass the risk)  What other causes can be identified?  How much relevant is the risk the airports are facing, as charges become more passenger related? Can it be quantified?  Are infrastructure developments affected?

14. 14 Comments and Feedback from The Audience (a)  Differences in Seat Loading Factor (SLF) can be an explanation why small airports have lower degree of variabilization than medium&big ones  Include Real LCC airports also in research (as small airports), to have a better view on the power exerted by airlines on small airports –The problem is that would be hard to analyze the various incentive schemes, like subsidies (especially those that are not published)  Try to look also to the levels of charges (expensiveness), not only structure  Add some case studies to the paper, which might confirm or not the results  Try also a step analysis and cluster the airports not only by scale, to get a more relevant view. Suggestions for clustering: –congestion level, regulation (how they are regulated), Competition, LCC.  Other possible reasons for why airports switched towards more passenger related charges: –capacity restraints –they simply adapted to the cost structure

15. 15 Comments and Feedback from The Audience (b)  It would be interesting to see also how the share of different types of aircrafts changed over time, inside the fleet mix and not only  Analyse again if aircrafts really become lighter or not. There might be evidence that aircrafts do become lighter if we keep the same seating.  The risk discussed in the paper, may exist only in the short-term, represented by a decrease in the SLF. In the medium term, the SLF might be restored by the airlines, which will also decrease in the number of flights. This, in turn would bring the airports to the initial cost-revenue balance.  Try to change the fleet mix for big airports cluster, because the present one is not enough relevant. There (big airports), the most revenues are brought by big aircrafts (B747, A330, A340).  One big problem is that charges manuals published by airports, may not reflect the real pricing schemes that are applied in practice. Are airlines really paying according to the charges manuals?