Truck and Barter: Low-Cost Airports for Low-Cost Airlines

June 24, 2004

Low-Cost Airports for Low-Cost Airlines

By Kevin

Geneva airport plans to charge budget airlines smaller fees than standard airlines.

Low-cost travellers would have taxes reduced to SFr14 ($11) while others would see the rate upped by SFr3 to at least SFr19.

The move is designed to cement Geneva’s position as a hub for budget airlines, which are continuing to capture a larger share of the market.

But this is NOT price discrimination; instead airport authorities justify it as cost allocation. The low-cost terminal will be inexpensively remodeled, and the savings will be passed onto the low-cost airlines.

Naturally, entrenched interests do not like this one bit:

Despite the claim, airlines such as Air France, KLM and Lufthansa have cried foul.

The three traditional carriers, which account for about 20 per cent of all passenger traffic at Geneva, said that the two-tier fee system grants low-cost carriers an unfair competitive edge.

“It’s very apparent that this is a solution designed to suit easyJet,” Werner Kellerhals of Lufthansa told the "Tribune de Genève".

The "unfair competition" line will be a tough sell to anybody trained in standard price theory.

The airport jointly produces standard and budget airline flights; if its managers can demonstrate that budget airlines are cross-subsidizing larger airlines, I don't think there's an easy way to stop the airport from charging different prices.

Posted at June 24, 2004 02:00 PM

Comments

How about charging small planes for the landing/takeoff slots they consume at major airports?

Comment by John Doe at June 24, 2004 06:04 PM | Permalink

Let the winds blow and the best man win.
Free market.....

Comment by Ben Tower at November 28, 2004 05:36 AM | Permalink

Currently researching LOW COST AIRPORTS and belatedly came across your website. Believe there is a strong case for moving towards semi / totally automated airports; the technology is available for most elements of processing, just requires some lateral thinking by decision makers and operators. Equates to movement from corner shops to supermarket trading! In case anyone queries my credentials, yes I've previously managed airports in the UK and advised on overseas locations. Would be pleased to receive comments / debate from other readers.

Comment by Graham Greaves at March 26, 2005 01:05 PM | Permalink

Graham,

Semi or total automation is an intruiging but rather ill-defined proposition; still it's one I'd be interested in exploring further.

Which functions of airports are to be automated? Right now I have my doubts about the feasibility of automation outside of baggage systems.

Even supermarkets have only begun eliminating cashiers! The movement and stocking of goods is still labor intensive, and the use of RFID in tracking them is in its infancy.

However, I'm a newbie at this type of research, and before making silly analogies with no first-hand information, I'd like to know, bluntly, if there is a profit (or even a total cost savings) to be had in semi-automated airports. Perhaps the European market differs from the American one in the profitability, due to market structure, labor costs, or the scale of airports.

I have checked your credentials, and as an experienced pro, you must know much more about airports than I ever will.

I would be very interested in reading your Difficulties in the Era of Privatisation and Low Cost Airlines, especially since I'm not sure who -- the airlines, the government, travelers -- is supposed to be having the difficulties...

As an aside, my economics training really made me appreciate the sensibility of what you told the BBC, "We need to go to airlines and show them the attractions of using it, that the demand is here and that they can make some money by utilising it."

This is the type of talk that must make CEO's of low cost airlines vary happy.

Comment by Kevin Brancato at March 26, 2005 03:51 PM | Permalink