Impact of Investment Activity on European Regional Airports Performance

Abstract

ABSTRACT. The accession of ten new countries into the structures of the European Union in May 2004 resulted in their airspaces being covered by the Open Skies agreements. Deregulation and the entry of low cost carriers into these markets contributed to dynamic growth in the air traffic, which most strongly influenced the operations of regional airports. Growing passenger air transport market resulted in an investment projects which enlarged the capacity of the airports. The theory states that after the investment projects have been introduced, there should appear a fall in airports efficiency in a short term perspective. The scale of airport projects oversize the demand just after the project (a new terminal or a new runway). The principal aim of this paper is to examine the impact of investment projects on the efficiency of regional airports in Poland, Czech Republic and Slovakia. The German airports' projects were analysed as the benchmark.JEL Classification: L25Keywords: airport performance, airport investment projects, deregulation of the air transport.IntroductionThe studies on the economic effect of the Open Skies agreements are based on the theory of trade and investment. This implies that a full liberalisation of the international air transport services market will increase the efficiency of airports and airlines. An additional effect is benefits to the other market participants. The key factors of these changes include expansion of the aviation market, the use of economies of scale to reduce unit costs, as well as a replacement of less efficient organisations by more efficient ones (Brattle Group, 2002; Alford, Champley, 2007).First of all, the positive effects of liberalisation emerge from increased competition and the appearance of new products which opens new market segments. In this way Low Cost Carriers (LCC) created a demand for air services in a segment which was not previously covered by Full Service Carriers (FSC). European experience shows that after the market deregulation there has been only a slight increase in competition between full service carriers. The entry of low cost carriers into the market triggered a rapid increase in the demand for passenger transport and the development of airports (Forsyth, King, Rodolfo, 2006; Franke, 2004). Empirical studies produced arguments for the hypothesis that increasing competition in the aviation market favourably influences the efficiency of airports. Among others, such conclusions were reached by a study conducted on a group of airports in the Baltic region during the period 2003-2007 (Pavlyuk, 2009).The implementation of the Open Skies agreements and the expansion of LCC airlines have a positive impact on airports' efficiency, mostly by the increase of demand. However, growing share of low cost carriers decreases unit revenues per one passenger (R PAX). Naturally, an increased volume of passengers allows an operator to increase also the revenue from non-aviation services. At the same time airports have to face a considerable pressure to reduce unit charges for aviation services as well as the risk of routes being discontinued if a carrier decides that the charges are too high. Declining unit revenues from aviation sources force airport managers to invest in the expansion of commercial areas which can become new sources of revenue (Francis, Fidato, Humphreys, 2003). An increase in activity by LCCs results in expanding the catchment area of an airport. It is also assumed that because low cost airlines do not offer free meals, their passengers are more likely to use the dining facilities at airports. This generates an even greater increase in revenues from non-aviation sources (Fig. 1).It is agreed, that implementation of the Open Skies agreements and the liberalisation of the air transport market improve the efficiency of airports. It should be also emphasized that a rapidly growing market creates the inevitability of the investment projects increasing the capacity of the airports. …