Eleftherios KATARELOS - Redactie Radio...

Eleftherios KATARELOSUniversity of the Aegean

6th Annual Aviation Conference “AVIATION: PRESENT AND FUTURE”

Challenges and threats for the Greek airports

Topics of presentation

n An overview of the airport privatization in the international context

n The Government intentionsn An overview of the Greek airportsn The possibilities of Greek airports in the international n The possibilities of Greek airports in the international

contextn Some concluding remarks

Topics of presentationn An overview of the airport privatization in

the international contextn The Government intentionsn An overview of the Greek airportsn The possibilities of Greek airports in the

An overview of the airport privatization in the international context

international contextn Some concluding remarks

The largest countries in passengers

1.6001.4001.2001.000

800

2007 (Million Passengers)

800600400200

0

1009080706050

2008 (Million Passengers)

The largest airports in passengers

50403020100 U

S

EU

Asi

a

EU

US

US

Asi

a

EU

US

US

Source: ACI July.2009

2009 (Changes in 30 major airports)

Airport2009

Passengers Ranking2008-2009

Change

Beijing Capital (Κίνα) 65 εκ. # 3 5� 16,8%

The largest airports in passengers

Πηγή: ACI Απρ. 2010

Soekarno-Hatta (Ινδονησία) 36 εκ. # 23 ↑� 13,3%

Guangzhou Baiyun (Κίνα) 37 εκ. # 22 ↑� 10,8%

Dubai (Ηνωµ. Αραβικά Εµιράτα) 41 εκ. # 15 5� 9,2%

Suvarnabhumi (Ταϊλάνδη) 40 εκ. # 16 2� 4,9%

Sydney (Αυστραλία) 33 εκ. # 28 ↑� 0,4%

San Francisco (ΗΠΑ) 37 εκ. # 20 1� 0,2%


Basic conceptual clarifications

n Privatization includes the change in ownership, land and facilities, namely the transfer from one government agency to a group of investors.government agency to a group of investors.

n This definition causes misunderstanding when applied in the case of airports.

n Most major airports privatization does not include the sale of real property.

n The formal privatization include long-term lease.

Source: Profilidis, 2010


Basic conceptual clarifications

n Privatization and deregulation are two terms referring to the releasing of an industry from state control, a process known as liberalization.

n Privatization is the transfer of state property to private n Privatization is the transfer of state property to private investors, but actually the idea is more complex.

n Liberation is the restriction of State control on the business decisions. The term refers to economic liberalization in which companies do not required to get approval, for example to increase/decrease prices or to enter/leave a market.

n The trend to privatization characterizes the airports, while the liberation the airlines.

n However the factors that influencing the behavior of the airlines, have also significant impact to the airports.

Source: Neufville and Odoni, 2009


Privatization of airports

n The airports are losing their local character becoming part of international organizations.

n International companies take the total or partial n International companies take the total or partial operation and are giving their own trading stamp operation.

n They develop international “airport chains” similar to “hotel chains”.

n As in the hotel business, management is based either on long-term management contracts or in the form of co-ownership.



What large firms can do

Large firms of international airports can reduce costs and increase efficiency, reduce costs and increase efficiency, by:n exploiting economies of scale,n negotiating discounts for large orders with suppliersn smart-investing in operating systems, andn experimenting with new services

Distribution of control between state and private investor

RIGHTS TO PROFITS

Government Private group

MANAGEMENT CONTROL

Government Entirely government control

Distributedcontrol

Private group Distributedcontrol

Entirely private control



The advantages of airport privatization

n Reduction of public finances, n Scope for increased private investment, n Scope for increased private investment, n Relaxation of state control, n Improving organization and efficiency, n More commercial orientation, responding to

the requirements, expectations of both passengers and airlines



The disadvantages of airport privatization

n risk for poor investments by the private (that will reduce the level of services)

n Effects on employment (many state airports have n Effects on employment (many state airports have overstaffing)

n Ignoring the environmental implications, n The private operator is tempted to reduce the available

space for passengers and goods in order to fully exploit it for commercial use,and

n Possibility to acquire private dominance over competing airports that put its private interests rather than the interests of the state or region or even the airline industry in general.



A profitable airport

n Airports with traffic volumes greater than 0.5 million passengers, have a rate of income / million passengers, have a rate of income / expenditure well above the unit, thus it is an activity attractive from the private sector.

n Moreover these airports usually are monopolistic and therefore face little or no competition.


Operating cost airport in conjunction with traffic volumes

The unit cost of operation (cost per passenger of the

airport) is a declining function in relation to the transport

performance of airport



Operating cost airport in conjunction with traffic volumes

n We see a vertical reduction in unit cost of operation up to an annual throughput of around 3 to 4 million passengers, beyond which it remains constant.

n The reason lies in the fact that certain operating costs of an airport are approximately constant, regardless of the number of passengers.approximately constant, regardless of the number of passengers.

n Analysis of ICAO gave for the year 1999 the following airport's average unit operating cost, depending on the number of passengers per year:n $ 15 / passenger on an annual work <0.3 million passengersn 9.5 $ / passenger on an annual work from 0.3 to 2.5 million

passengersn 8.0 $ / passenger on an annual work from 2.5 to 25 million

passengers



The revenues of the airport

The airport's revenues fall into two categories:n Aeronautical revenues, which are directly relative to the

number of aircraft and passengers served. These revenues are number of aircraft and passengers served. These revenues are inelastic due to air transportation is not primary, but derivative. Therefore, the private operator comparing to that of a governmental one, only limited improvement could expect.

n Non-aeronautical revenues (or commercial), which are not directly relative to the number of aircraft and passengers served. These revenues originate to commercial activities carried out mainly within the terminal, and it is the sector where the private operator excells against the governmental.


Commercial revenues

n For airports in Europe, revenues from commercial uses (non-aeronautical commercial uses (non-aeronautical revenues) represent 44% of total revenue, while aeronautical revenues by 56%.

n The corresponding percentage of revenue from commercial uses for GREEK airportsother than the Athens airport is just 6.3%.


% participation of commercial revenues to total revenues of the airport

Concessions of

the remainder up to 100% is aeronautical revenues


Million passengers per year

Concessions of shops, parking, restaurants

Rent spaces


Ways of engaging in commercial activity

n The business operated by the airport itself. n The airport gives property space to specialized n The airport gives property space to specialized

firms that pay concession fees. n The airport rents property space without any

further involvement in the commercial activity carried on.


Methods to finance airports

n Low cost loans by international or national development banks. Issued by airports that are able to cater the total debt through their future own revenues.

n Loans from commercial banks. Short and medium term loans n Loans from commercial banks. Short and medium term loans (3-10 years) for projects of airports.

n Bonds proceeds. The revenue bonds are not supported by taxpayers.

n Private funding on specific rights to revenues of the airport.A private BOT (Build, Operate and Transfer) contract to finance all or part of the project against specific rights from future income.

Required surface (m2) for commercial premises at an airport

Correlation plot of commercial space and arriving passengers of an airport

Annual arriving passengers



n The Government intentionsn An overview of the Greek airports

The possibilities of Greek airports in the international

The Government intentions

n The possibilities of Greek airports in the international context

n Some concluding remarks


n The government seeks for ways to create investor interest in private sector.

n In this procedure can not participate the Athens Airport and new airport under construction Kastelli.Airport and new airport under construction Kastelli.

n The ownership of airports remains in the public sector.

n The private investor will take over the administration, operation, management, expansion, development, maintenance and exploitation.


n The model of concession contracts, provides that the state will assign a long period of certain assets (or rights) over investments to be made by the private sector to exploit these assets.The presidency and the majority stake will belong to n The presidency and the majority stake will belong to the public sector, but the management and a minority stake will pass to private sector.

n Standard for the operation of the system will be the Athens International Airport “Eleftherios Venizelos”.


n The government grants the rights of management that will be introduced in the Stock Exchange Market.

n Grouping of airports has been decided and will be based on: n The location of airports (eg, Ioannina,

Alexadroupolis).Alexadroupolis).n Passenger traffic (eg, Chania, Kos, Zakynthos,

etc).n From this concession process of the airports the

government expects, the new management scheme:n to bring significant revenues,n to change the mode of management, andn to attract airlines to enlarge the economic results.



n The Government intentions

n An overview of the Greek airportsThe possibilities of Greek airports in the international

An overview of the Greek airportsn The possibilities of Greek airports in the international

contextn Some concluding remarks

• Greece is due to its geographical diversity (many islands) has 39 civil airports

An overview of the Greek airports

An overview of the Greek airportsn The main feature of Greek airports is the

strong seasonality of demand, that is concentrated during May to October and especially the four months from June to September.September.

n Productivity in August is more than twice of the average productivity during the winter months and the 1/5 of the average annual.

n This means that the resources of the airport underemployed at the low and middle season.

Source: Katarelos & Lagoudis, 2011Profilidis 2010


n All airports, except the Athens airport, are purely state and are being operated by the Greek Civil Aviation Authority.

n The CAA does not decide neither in matters pricing policy nor in matters of expenditure, eg. procurement, policy nor in matters of expenditure, eg. procurement, recruitment, projects etc.

n The CAA operates profitable and unprofitable or loss-making airports. In this sense, we can say that it offers social work and contributes to regional development, but without any compensation from the state.

n Operation of loss-making airports is a social contribution that CAA produces, since under strict criteria of economic efficiency would not work.

1. London LHR 5. Amsterdam AMS

The largest European airports


2. Paris CDG 3. Frankfurt FRA

4. Madrid MAD

Five largestRank 6-30 (2009)

Source: ACI 2010

∆ιάγραµµα .. : Ποσοστιαία κατανοµή αροπορικών επιβατών στα Ελληνικά νησιά

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Percentage distribution of domestic and international passengers

3,0 6,4 13

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Επιβάτες Εσωτερικού Επιβάτες ΕξωτερικούDomestic International

Source: Katarelos, 2009

ThessalonikiSantorini

ZakynthosRodosMytilini

Seasonality of selected Greek airport (2007)


MytiliniKos

IraklionKerkyra

ChiosChaniaAthens

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%Source: Katarelos & Lagoudis, 2011

Capacity selected airports, discrimination in three seasons

Thessaloniki

Santorini

Zakynthos

Rodos

Mytilini

PeriodHigh

MediumLow


Mytilini

KosIraklion

Kerkyra

Chios

Chania

Athens

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Low

Source: Katarelos & Lagoudis, 2011

Capacity scenarios of selected Greek airports in 2030

ThessalonikiSantorini

Zakynthos

Rodos

Mytilini Optimistic


Mytilini

KosIraklion

Kerkyra

Chios

Chania

Athens

0% 50% 100% 150% 200% 250% 300%

RealisticPessimistic

Source: Katarelos & Lagoudis, 2011



n The Government intentionsn An overview of the Greek airports

n The possibilities of Greek airports in the nThe possibilities of Greek airports in then The possibilities of Greek airports in the international context

n Some concluding remarks

nThe possibilities of Greek airports in then international context

46%

20,50%


Classification of GREEK AIRPORTS according passengers transported (2011)

46%

19,90%

12,80%

18 airports (< 100.000 passengers)7 airports (Between 100.000 and 300.000 passengers)5 airports (Between 300.000 and 500.000 passengers)8 airports (> 500.000 passengers)

Source: HCAA, 2011

Total passengers of the 39 Greek airports

100.000300.000500.0005.000.000

4.90

7.33

7

3.91

0.75

1

3.58

6.57

2

3.000.000

4.000.000

5.000.000

6.000.000

Attractive Neutral

Non

attractive

Limited

attractive

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18airports

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Source: Data HCAA, 2011

15

20

25

Rank of Greek airports based on capital invested and passengers carried (Index) (2009)


Airports with a high investment per passenger

-20

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Airports with a low investment per passenger

Source: Katarelos, unpublished



n The Government intentionsn An overview of the Greek airportsn The possibilities of Greek airports in the international n The possibilities of Greek airports in the international

context

n Some concluding remarksn Some concluding remarks

Some concluding remarks

n Greece has many airports, whose transportable result, both in absolute numbers and as average, should be considered relatively small.

n Overall Greece manages about 40 million passengers at 40 airports. But excluding Athens, this number is reduced to 24 million, in other words an number is reduced to 24 million, in other words an average of 600 thousands per airport, when, for example only the Paris airport handles 60 million.

n Most GREEK airports plagued by strong seasonality, which affects negatively their attractiveness.

n The majority of GREEK airports have sufficient capacity, which affects positively their attractiveness.


n More than 50% of Greek airports seem that can not attract the private sector interest.

n The idea of grouping the airports, perhaps isn’t a very well documented proposal that could give the expected results.

n It is obvious that in case that an investor asked to undertake a loss-making airport, he will seek ways to compensate this loss. One of them would be to offer a higher bid for taking up a group of profitable and non-profitable airports against that would has offered only for those airports that objectively considered as profitable.

n An by far unprofitable airport that today is operated by the CAA, it is sure that will continue to be unprofitable and by the private sector, perhaps to a lesser extent.


n Greek airports suffer dramatically in their commercial development, thereby losing substantial revenue.

n One question however is whether these airports have the ability to actually be commercially oriented.

n To this end there are many problems, one of them is the possibility of commercial development to very To this end there are many problems, one of them is the possibility of commercial development to very small airports.

n Government may seek also to explore and to exploit the modern methods of the airports' finance.

n The government will also need to avoid as much as can the disadvantages of privatization that have been mentioned.


n In conclusion, expression of interest from private investors seem that could be expected only for almost the 10 largest airports of them.

n Under certain circumstances, interest could be expanded for a few more, maybe for 5 - 10.expanded for a few more, maybe for 5 - 10.

n At those airports for which no interest will be manifested by private investors, the government could look at these airports to give only the commercial exploitation to specialized companies.

Thank you very much for your attention

Questions?

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