Incentives for Airlines

Originally airports were operated as passive infrastructure providers. During the last two decades airports have introduced airport incentive schemes as a means for generating additional demand for airport facilities and services. With these programs, airports offer discounts on certain fees, bonus payments or joint marketing initiatives for a limited period of time to airlines, which in turn introduce new routes or generate passenger or cargo growth. Alternatively, airports might also bilaterally agree on certain growth commitments and incentive payments, or local and regional governments could engage into such agreements with airlines.

An investigation conducted by the University of Cologne1 among the 200 biggest airports in the European Union shows that more than 60 % of the airports offer incentives, approximately one third of the 200 assessed airports has introduced an official incentive program, the rest employs bilateral agreements between the airlines and the airport itself or the relevant local government. Some airports employ more than one incentive.

Airport incentive programs are the dominant incentive vehicle in EU countries such as France, Germany, Poland, Finland, Portugal and a lot of smaller countries, such as Austria. In Italy, airports usually do not establish official incentive schemes but engage into bilateral agreements, which can be found in France and Great Britain, as well. Some Spanish airports have also made bilateral agreements. However, they primarily rely on regional governments closing deals with airlines.

There are two main types of incentive mechanisms, the first is a reduction on airport charges, which might either come by means of an ex-ante discount or ex-post rebate on payments already made, the second type are promotional payments to airlines that realize route or passenger growth. They are either granted without earmarking or specifically aimed at financing a part of an airline’s marketing efforts.

Some of these incentives are subsidies, some simple rebates, others are kickbacks. In whatever way they function, they all have in common that they create artificial demand, establish non-transparent market conditions and thus distort the economy.

We demand the prohibition of any form of incentive schemes at airports, such as subsidies, kick-backs and rebates. Infrastructure services of airports have to be provided on the basis of general, comprehensive and transparent tariffs.

 

--------

1 Malina, Robert; Albers, Sascha; Kroll, Natalie: Airport incentive programs – A European perspective Working Paper 107 of the Department of General Management, Business Policy and Logistics, University of Cologne, Cologne, 2011.