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ACI World director general, Luis Felipe de Oliveira, provides his thoughts on investing in airports for a sustainable future.
Despite the unprecedented downturn in the aviation sector, global passenger traffic is expected to reach close to 18 billion by 2040 and investing in airports continues to be key to a thriving air transport system, which as we know, provides many social and economic benefits to the world.
While the good news is that air travel is in full recovery and on the path to restoring its full socio-economic impact, the pandemic has magnified the long-standing airport challenge of meeting future capacity, particularly in light of aviation’s environmental goal of achieving net zero carbon emissions by 2050.
Creating fertile grounds for investment
Changes in industry ownership structures have been in constant evolution over time, with both challenges and opportunities along the way, such as defining solid regulatory frameworks for the airport business and adapting to modern Environmental, Social and Governance (ESG) standards.
ACI does not prescribe to any specific type of ownership or business model and airports should be permitted to operate under a range of ownership models. The type of ownership, and any participation of private capital, varies from airport to airport depending on local circumstances.
However, in an economic climate where governments have ballooning debt levels following the pandemic, government financing and ownership of airports are not always viable and sustainable options. By the same token, many national governments find themselves in a predicament where surges in air transport demand outstrip the infrastructure available to accommodate the markets in their jurisdictions.
If government spending cannot be relied upon as it has been in the past, there is ample evidence of the value created by private investment in airports around the world.
A time to be flexible
Concession contracts are a key part of investing in airports. The pandemic-induced crisis has brought a clear opportunity to rethink and modernise the various components of these contracts to provide a level of flexibility. Some of the instruments used for this re-equilibrium include the reduction in concession fee payments to the government, as well as temporary adjustments to airport charges.
Additionally, several governments around the world have opted to implement adjustment measures such as extending the years of the concessions, direct financial support to airports, or modification in the cost of capital structure.
All these instruments are valid tools that should be considered within the regulatory framework of current and future concession contracts. However, the implementation of such measures varies across jurisdictions with many airport operators continuing to face considerable financial challenges.
Investing for a sustainable future
Considering the industry’s long-term environmental goal and the substantial decline in airport revenues during the pandemic, concession contracts must consider pre-funding mechanisms that allow for airports to keep investing in the decarbonisation of existing infrastructure as well as net zero greenfield projects.
In addition, the availability of green finance will undoubtedly support the industry’s sustainability targets and are crucial to the future of the industry.
A light-handed approach
Light-handed formats such as trigger-regulation or charges monitoring should be favoured in airport privatisation processes as they provide the necessary responsiveness and flexibility airports need to swiftly respond to external shocks.
Additionally, commercial agreements between airports and airlines can be efficient risk-sharing mechanisms to bring certainty to both users and operators during periods of low traffic volume – a win-win approach for the benefit of passengers and the whole aviation ecosystem.
Even though the pandemic brought many negative consequences for the aviation community, it has become a valuable learning opportunity for governments and regulators around the world.
The opportunity of modernising the airport investment process, including terms and conditions in concession contracts, should be taken advantage of today.
Fortunately, the airport industry is in constant evolution, and I have no doubt concessions will keep making progress to provide the necessary tools for airports, and all involved stakeholders, so that the industry can keep growing sustainably for the benefit of travellers and communities worldwide.