The Cost Of AENA Privatisation

Ryanair has been on tour in Spain this week. In Mallorca, the press was able to report the thoughts of commercial director David O'Brien. They were similar to those he had spoken in Tenerife. Ryanair, the largest airline operator in Spain in terms of passenger numbers, does things for a reason. It uses its presence to make its feelings known. In Mallorca there was all the stuff about winter flights. Yes, were landing fees and airport charges to be reduced in the off-season, then Ryanair would put on more flights from the UK and Ireland. Yes, AENA should apply differential rates for summer and winter. Yes, the Balearics should have ownership of the local airports, as decisions taken in Madrid are too distant. Ryanair said everything the local press would have wanted to hear, but Ryanair knows that none of this will happen.

In Tenerife, and so before coming to Mallorca, O'Brien had expressed his concerns about the privatisation of AENA. He said that it was likely to lead to higher airport charges, not lower. He noted that the privatisation was simply a case of swapping a publicly owned monopoly for a privately owned monopoly, which is only partly true, as the Spanish Government will keep 51%. It is true, however, as O'Brien suggested, that the privatisation process has been something of a shambles. The three key institutional shareholders, including Mallorca's Banca March, have been known for some time. They are in for 21%. The remaining 28% of shares may now finally go out for public subscription in February; there is now an auditor in place, which there hadn't been when the public sale was meant to have occurred last year.

Though the government will retain a majority of AENA shares, it will now have to take into account the requirements of its shareholders. A suggestion here that the government could simply call for a lowering of airport fees in the hope that these would bring more flights in the off-season and so more tourists, more hotels open etc. is fanciful. The development ministry, which oversees the airport infrastructure, will know that even more than before that the airports have to perform. Most of them don't. Palma airport does. Along with Barcelona, it turns in a profit way in excess of other airports in the AENA network, most of which run at a loss. The ministry is therefore interested solely in optimising airport performance and realising shareholder value; wider economic considerations are secondary.

Airport fees may indeed increase and not just because of privatisation. The Spanish airports seem likely to be operated according to the principle of the dual till in the not too distant future. This refers to the two revenue streams at an airport: those for direct airline activities and those for non-airline activities, such as car parking and retailing. Dual till would mean that the latter no longer in effect subsidise the former, and the non-airline activities are more profitable; investors are generally more interested in their value generation and not the actual airline operations. 

AENA rightly point out that increasing passenger numbers (2014 has seen another record set in this regard) should offset the need for increased airport charges because of the added profit these passengers will bring, but the possibility exists that because of the shift to dual till and because of shareholder needs for a return, the charges will rise, thus dealing a blow to any potential lowering in the off-season, and especially at Palma, which is so important in the business mix of the AENA network.

What O'Brien had to say does of course make a lot of sense. The Balearics should have ownership of the airports, but this will not happen. There was a time when co-management by local government was a possibility; it surely can no longer be, thanks to privatisation. The Ryanair tour has been mainly about publicising the risk of those higher charges through a privatisation it considers to have been a mess (rightly so). It fears they will come, so as the largest operator in Spain it has been seeking to use its muscle to impress upon the government a need for restraint. As for lower charges in winter for Palma airport, they must remain highly unlikely.