| The economic market power of Amsterdam Airport Schiphol: A review |
Page 1 of 3 Airneth Column March 2010 By David Starkie The regulation of Amsterdam Airport Schiphol’s charges was first formulated nearly a decade ago and since then a great deal has happened to change the face of European aviation. Consequently, it is understandable that the Dutch competition authority, NMa, should have decided to instigate a review of Schiphol’s market power and it has done so by commissioning an academic consortium under the nomenclature German Airport Performance (GAP) to undertake a study, the report of which was released in January. The report is a long one, 185 pages (with annexes) and it is difficult to do justice to its analysis and conclusions in this short appraisal. It is a well-written report set within the traditional framework of an investigation in the context of competition law. Competition law often provides a difficult framework for economists to exercise their skills because of its pro-forma approach and this report belies these difficulties. As a consequence, its analysis and conclusions, unfortunately, beg a number of important questions. DominanceFirst, is the issue of whether dominance per se really matters; the world is replete with imperfect markets in which different degrees of dominance abound but, on the whole, society takes a relaxed view because to do otherwise would invoke numerous interventions that, in their totality, would change the paradigm under which market economies operate. What does matter is the exercise of dominance leading to abuse and it is this that is the central concern of European competition law. On this point, the report unfortunately skirts this issue: “[T]he question whether the airport abuses its market position has to be left open, as such an assessment cannot be inferred from the available data” (45)1,2. However, in 145, the report makes the general point that: “...the airport might decide not to increase charges and other aviation-related costs in order to increase the number of passengers (i.e. the number of potential customers for shops and restaurants)”. This, of course, is a powerful argument as to why airports in general might not abuse market power but, curiously, such non-aviation revenues are judged “beyond the scope of this study” although “...these revenues play an important role in the strategic decision making process of an airport...”. Indeed, the restraining effect of the non-aviation revenues on airport charges was viewed by the Australian Productivity Commission as a major factor when it recommended the removal of formal price-cap regulation from major Australian airports in 2002, ironically, at the time that the imposition of such controls was being considered for Schiphol. Overall, the extent to which Schiphol, if unregulated, would seek to exercise market power is an important issue because economic regulation also has costs and dis-benefits; it is not a seamless process imbued with perfect information, although some bureaucrats and many politicians appear to think otherwise.
A second issue is one of market definition. The study aptly unbundles the market for the provision of infrastructure services to airlines into four sub-markets and for each a geographical market, defined by the respective catchment areas, is analysed. This is a major advance on the analysis conducted in 2001 (de Wit, 20043) but arguably the unbundling into four sub-markets namely the provision of infrastructure: to airlines serving O-D passengers; to airlines serving transfer passengers; to airlines providing for cargo; and the market for local and instructional flights, does not go far enough. What is particularly arguable is to treat all passenger-serving airlines as being, de facto, in the same market for infrastructure services and to argue in this context that: “[T]here exists no alternative airport comparable to Schiphol capable of taking over almost all traffic at short duration in the case of a price increase” (21) (emphasis added). This is to ignore the fact there is now a single European market in aviation so that a commercially driven airline will now operate on a pan-European basis and seek out the best financial return across Europe as a whole. As a consequence, airlines e stablished (or largely so) since liberalisation of European aviation, such as easyJet, have operating bases throughout Europe; Ryanair for example has no less than 36 bases across 9 nations 4. The longer established airlines are following suit: Lufthansa has recently established a base at Milan Malpensa and Aer Lingus has a base at London Gatwick. Thus, Schiphol as an operating base for downstream airlines is, in effect, in competition with hundreds of airports across Europe. |