FROM MAGAZINE: African Aviation Gets Ready For The Future
Angela Gittens, Director General of Airports Council International (ACI World), highlights burning issues in Africa’s airport's industry including frictions between airports and airlines. Gittens, in the current role since 2008, sheds light on the recurring airport-airline squabbles, and way forward for African airlines in a liberalised market
Angela Gittens, Director General of Airports Council International (ACI World), highlights burning issues in Africa’s airport's industry including frictions between airports and airlines. Gittens, in the current role since 2008, sheds light on the recurring airport-airline squabbles, and way forward for African airlines in a liberalised market. She spoke to Roy Ezze on the sidelines of the ACI-Africa conference recently in Lagos, Nigeria.
Why do we keep having airports, airlines conflicts over taxes and charges? How can this be resolved?
Well, let’s take that in two different cases. There are charges which are what airports charge to reimburse it for the costs of providing facilities and services to airlines; and airports go by the ICAO principles on those charges. I think the reason for the continued dissention is that most airports and airlines are still treated as children with the government and so it’s like siblings in rivalry, children squabbling in front of their parents.
Now in many countries, airlines have become private businesses, they are no more government departments. Airports are also private businesses although some are still managed by the government. So now you have two commercial entities -- airports and airlines -- that really should be dealing with each other as commercial entities but they are being treated like children and so they go to the parent and point at the other and say ‘mummy, daddy, brother, sister is not treating me right’. But until parents go out of their way and start treating these two entities like the adults, we will continue to have this.
Now airlines have a lot of costs, they have labour, fuel, equipment and the airplanes. Many supplies they have to incur; plus facilities, airports and services, the Air Navigation Services Providers (ANSPs). But somehow it is the airport charge, the smallest cost, that becomes the biggest problem even though costs of fuel, labour, aircraft are far bigger. But because we have this dysfunctional situation which is a holdover from 50 years ago when both airports and airlines in many countries were governmental entities, we have this holdover of squabbling.
Now taxes are a different story. Taxes are imposed by the government and are not related to costs; they are not related to any service provider. Well this happens elsewhere, they tend to get confused either on purpose or unknowingly. You have a levy that is based on the cost of the service you are asking for and you are receiving and then the other is a tax that other people have to pay as well. We all pay taxes in one way or the other whether we receive services or not or whether we receive services to the extent to which we pay taxes you know that varies by how much you get from the government and various things; but it is a completely different entity. The fact that it might be levied in the same way doesn’t mean it is for the same purpose. So, when airlines talk about airport charges and when they say airport charges and taxes, it is completely the wrong conversation to have. Taxes are one thing, charges are another.
It would be like saying airfare and taxes and putting them together. The airline is not deciding on the taxes. That amount is decided by the government. Now the airline charges you for it because it’s the collector of the taxes, it’s not the designator of the taxes. So, they have a fare that they determine and then on top of that is what the government has decreed as the tax, that’s the same thing for the airports. The airport has a charge which is based on its costs and the government decides on a levy, that’s a tax. It may be through the airports, so the airports may be sending the bill, but the airport is just the collector as the airline is also a collector.
Now the airlines argue that the services they get from the airports are not commensurate with the charges that they pay and again, that the airports do not consult with the airlines to arrive at some of these charges.
They are two different things, because they put charges and taxes together, of course it is not commensurate because a tax is not commensurate with service, it’s a tax. The charge is commensurate with service because it is based on costs and as far as consultation is concerned, consultation doesn’t mean agreement so you can tell the airline: ‘This is how I have calculated the charge, this is the cost to me of various things, and I have paid for infrastructure that may or may not be used. I built that infrastructure because you, the airline, had an A380 coming and I had to change my runway, my taxi way, my runway light, navigation systems to accommodate this A380 and I spent four million dollars to do that and you decided that you no longer want to put the A380 at my airport, you want to put it somewhere else and so there’s no longer an A380. However, I have changed the facilities, I have spent the four million dollars and so they are still in my cost even if you don’t use them.’ So you saying that you are being charged for something you are not using is because I built it for your use and you have decided later not to use it; but when I make decisions on capital investment, I’m paying for those for thirty years, you may be using it for thirty days and it is still a cost to me.
Now when you look at some of these issues airlines complain that airport charge them for future development projects, how does that align with the current issues and realities of the airlines?
Well, how does it align with the current realities of the airports is the question to ask. It may be cheaper in the long-run. Remember, airports think in the long-run while airlines think in the short-run. We are in two different businesses, they’re in a business where their assets and their costs can go away and move. Airports are in a business where the assets and the costs stay in one place no matter what the circumstance is. When an airline has a change in circumstances it can change where its assets and costs go, but when an airport has a change in circumstance, it is going nowhere, it stays in one place. So, when you want to have a capital investment you look at how best to finance it, it may be cheaper in the long-run and the airports have to think in the long-run to start charging what they call pre-financing before that asset is put into service because if you don’t, you’re paying what they call capitalised interest because you have to start paying when you’re actually spending the money before the facility is put in service. So let’s say you are building a terminal, it may take you three years to build that terminal; you may have to do earthwork, you have to build a structure and do the finishing. Let’s say it takes you three years. You are paying people, and companies to do this work; how do you get that money? You could either borrow it and during that three-year period where there is no income, so, you are paying interest on something without getting any revenue or you can start getting revenue and start paying for it as your accumulating cost. So, remember, for the airport, when it comes to aeronautical, you are just trying to reimburse your cost, you are not making a profit. So you are actually spending this money and the fact that the airline is not using the facility yet doesn’t mean you are not spending the money. I mean it is very simple arithmetic.
There are a lot of challenges as some airports tend to remain stagnant. Most airports in Africa are beyond two or three decades and they need to be refurbished or new airports built. How can African airports move away from these old facilities to be more attractive and be more up-to-date?
Well, we have talked about why we don’t because the airlines don’t want to pay for capital improvement and although we hear these complaints about old facilities, the very same people are saying don’t raise my charges; so where is the money supposed to come from? I mean governments have roads, schools, hospitals to build and the airlines would like to go back to the way it was fifty years ago when government paid for these things but many governments are no longer willing and able to pay for something that the private sector can pay for. An airport can recoup these investments by both charging as well as getting other revenue from commercial sources. That’s what this (59th ACI-Africa) conference is about - to show that there are non-aeronautical ways of raising revenue; but you are still going to need aeronautical sources.
Well, the problem on this continent is many of the airports are small, airports that serve fewer than a million passengers a year, have hard a time making money. Most of them lose money. So, unless they are part of a network where there is a larger airport in the network that can generate funds to help pay and to help subsidise the smaller airports then the airports are going to lose money.
I am aware that the PPP model, has been stifled on the continent, you hardly find a PPP project flourishing in Africa. Issues of non-transparency in agreements and other challenges make these PPPs that are seen as more viable for airports not to work out in the continent.
Well, I mean the airport is just a manager, the owner is the government and the airport managers don’t make those decisions.
Why then do they make representations on the way to go in order to have transparent agreements?
Yes, I agree, but you know every country is different. Different countries have different histories when it comes to private involvement; some countries have had bad experiences in their economy and not necessarily the airports, where maybe the population is suspicious of private investment. What is the country’s record on transparency? I mean some countries are very comfortable with transparency while some are not used to it and when you have something like an airport and huge capital asset that has to be operated in a commercial way that lack of transparency can really hurt because again it is a long term engagement. So, these concessions of PPPs run for 25, 30, 35, 40 years and if you get it wrong, that’s a long-term wrong and it is very important to the country, to the community in which it is set and to the travelling public.
Africa is moving to the Single African Air Transport Market (SAATM) where there would be a liberalisation of traffic and opening up of the borders. Now, from the airport’s perspective, how do you think African airports can get more of the benefits rather than the challenges that come from liberalisation?
I think it will primarily be a benefit. The challenge will probably spur the growth of air traffic and then you will see congestion in certain airports and then we will have to deal with that congestion and really make decisions on how to make the right investments. But there will be market forces, and there will be winners and losers. Some airports may actually get less traffic at least for a while because if they don’t have a good market and network connectivity, then they would lose traffic and other airports well positioned will gain traffic because the market needs that connectivity. Also, they would have to be more commercially-minded because you have to deal with the airlines and the passengers on commercial basis.
So, what is your advice to African airports going forward?
Well, this is why we are having this conference about business transformation to get ready to operate as a business as airports in other parts of the world have, and to understand your market, fight for your market and be transparent and try to gain commercial success by looking at the non-aeronautical sources of revenue.