European airports and airlines: Evolving relationships and the regulatory implications

This paper questions the need for a special regulatory framework for European airports in the light of recent developments in the relationship between airlines and airports. Three factors underlie the changed relationship. These are: the creation of a single European aviation market; the development of airline business models operating on a pan-European basis; and the increasing use of the internet which has reduced the costs of entry for airlines into local markets. In combination these factors have had a profound effect on the dynamics of the airline industry. These dynamics have increased the business risk faced by airports and highlighting the increased buyer power of the airlines. The result has been a shift to bespoke long term contacts between airports and airlines. We argues that the bespoke contracts are also incentive-compatible from the passenger’s point of view and, in combination with the incentive that airports have to secure high-margin commercial sales to passengers, produce an outcome that is favourable to the passenger; direct airport competition merely guilds the lily. Any residual concerns regarding market dominance and possible abuse have then to be set against the significant disadvantages and costs of sector-specific economic regulation; increasingly the remaining competition issues are of a type better handled through the application of normal competition law.

► EU airlines can enter airports on a pan-European basis and have buyer power.
► Airports compete for base aircraft.
► To counteract market volatility, parties have negotiated long-term contracts.
► Economic regulation of airports is complex and costly and not required.
► General competition law should be used for any residual anti-trust concerns.