FLUG REVUE March 2006: German airports face problems

March 2006

GERMAN AIRPORTS UNDER PRESSURE

By Volker K. Thomalla

The airport landscape in Germany has well and truly started to move, due to the conversion of former military airfield into regional airports. Of all the EU states, Germany is today the country with the most international airports. This density brings with it a phenomenon that has hitherto passed many airports by: competition. In actual fact, competition between different service providers is generally a good thing for the customer, as in a normal competitive environment it promotes efficiency and low prices for the consumer. However, in the case of airports the situation is different, since some of the smaller airports especially are massively subsidised from public funds, thus distorting the competition. The recent headlines in the German press about subsidies to the tune of millions of euros in Dortmund and allegedly falsified passenger figures in Erfurt show that the air transport market of Germany is saturated with airports and has now entered a consolidation phase.

Deutsche Bank Research recently published a study on the German airport landscape, and the title alone, “Expansion of regional airports: misallocation of resources”, expresses the explosive nature of the subject. The Deutsche Bank economists come to the conclusions in their analysis that regional airports lack the critical size essential for success, the expansion of regional airports is devouring subsidies and Germany needs a fully co-ordinated national airport policy. Moreover – and this is no surprise in an analysis conducted by a financial institution – the Deutsche Bank believes that private funding would lead to greater efficiency.

One can and must contest the purpose and idiocy of some airport projects. One has to ask oneself why more airport projects are being tackled, for the success story of Frankfurt Hahn airport, which in 2005 after only seven years in operation boasted 3.1 million passengers, is probably a one-off occurrence and not repeatable ad infinitum. However, no one would dispute that an airport does constitute an infrastructure project for a region. But the consequences of a central “fully co-ordinated national airport policy” as called for in the study, would not mean more competition but more government regulation. And that cannot be in the interests of the passenger.

The “concentration on large airports” called for in the study is in my view problematic, as air transport is a growth industry and even large-scale extension of Frankfurt and Munich airports alone will not be able to cover the capacity needed over the coming decades. Additional airports will be needed to enable point-to-point connections and relieve the hubs.

The EU Commission has also taken up the subject and in September 2005 it passed its own guidelines on the promotion of regional airports. In my opinion, they are sensible and easy to understand and they apply for a limited period of time. They will prevent taxpayers' money from being wasted. The EU Commission has already shown that it is prepared to enforce its regulations in Charleroi, Belgium, where a proliferation of subsidies have been blocked.

From page 4 of FLUG REVUE 3/2006

Last updated 10 February 2006

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