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12.11.2018

Ordinance on Airport Charges: FOCA jeopardising future investments in airport infrastructure

The Federal Office of Civil Aviation (FOCA) has presented its proposals on the revision, announced in June, of the Ordinance on Airport Charges. If FOCA's proposal is implemented, aviation revenues at Zurich Airport in the next regulatory period will be reduced by around 25%, or by more than 150 million Swiss francs. As airline ticket prices in the air travel industry are set flexibly in line with supply and demand, this reduction would not benefit passengers. However, it would have major ramifications for investments in the aviation infrastructure. Therefore, Flughafen Zürich AG will vigorously oppose this incomprehensible proposal.

The current Ordinance on Airport Charges has been in force since 2012 and is the basis for setting the current airport charges. At Zurich Airport, there have been no increases to landing charges since 1995 or to passenger charges since 2003. Despite having Europe's highest building costs and cost of living, and the widely acknowledged high quality of Zurich Airport, the charges are about average for Europe.

Baffling proposal
Under the new proposal, instead of the current 30%, 50% of the economic added value from commercial activities on the airside, along with 75% instead of the current 30% of parking revenues, would be skimmed off for cross-subsidisation (transfer payment) of airport charges. Rather than abolishing cross-subsidisation, which is a questionable practice under a political point of view, it has been massively increased. Conversely, there is to be no revision of the calculation formula for reasonable capital interest for the airport operator which, in light of persistently low or even negative interest rates, would cause imputed capital costs to fall to an all-time low in the forthcoming regulatory period. 

Stephan Widrig, CEO Flughafen Zürich AG: “The charges levied by Flughafen Zürich AG are moderate and about average in Europe. Even by global standards, the quality of Zurich Airport is outstanding and, as the dominant airline in Zurich, SWISS is financially very successful. This model owes much of its success to the fact that we regularly invest in renewing and developing the airport infrastructure. So it is incomprehensible that FOCA, in its proposal, should massively weaken the investment capability of the airports in Zurich and Geneva. The chief beneficiaries of these measures are the airline companies, while passengers stand to gain nothing and the airports will lose out on substantial funds for important investments. Coupled with the capacity issues we are currently facing, this would create needless yet considerable funding problems for aviation infrastructures.” 

Higher margins for airlines – Passengers don't benefit
The passenger charge at Zurich Airport is currently 21 Swiss francs for local passengers and 8 Swiss francs for transfer passengers (excluding the security charge). These charges go towards financing services and infrastructures for passengers at Zurich Airport. The airlines demand additional, substantially higher charges which are not regulated (including booking fees, additional fees for paying by credit card, seat reservation charges and international surcharges). Plane ticket prices are set on the basis of supply and demand. This means that, if the airport charges are lowered, ticket prices will not change to reflect this. Consequently, rather than benefiting flight passengers, the change will principally boost the profits of the airlines at the expense of investments in airport infrastructure. This sort of cross-subsidisation does not apply to any of the airport’s main competitor hubs. 

Not enough money for investments in infrastructure and distributions to the public authorities

The airport charges are the basis for funding the airport's aviation infrastructure and services and enable the constant renewal and expansion of Zurich Airport, to the high standards for which it is known. Since its privatisation in 2000, Flughafen Zürich AG has invested on average around a million Swiss francs per working day in the infrastructure of Switzerland's biggest airport. Without any subsidies, it has managed to maintain and progressively improve upon the high levels of quality, security and competitiveness at Zurich's intercontinental aviation hub. Furthermore, since it was established in 2000, Flughafen Zürich AG has distributed around one billion Swiss francs to the public sector in the form of taxes and dividends. 

High quality and accessibility under threat
If, however, FOCA's latest proposal were implemented, this would have major ramifications for long-term investment capability and, by extension, for quality at Zurich Airport. Flughafen Zürich AG would be forced to reconsider a large amount of future investment needed to maintain a high level of quality and competitiveness for Zurich Airport over the long term and create the conditions necessary to meet the anticipated demand for air transport. Both of these are important to preserving Switzerland's high accessibility and its attractiveness as a business location. 

Rejection
Therefore, Flughafen Zürich AG emphatically rejects the revision of the Ordinance on Airport Charges proposed by FOCA. Furthermore, if the Confederation wants to achieve the goals stated in its aviation policy report, the revision of the Ordinance must take account of the effects of negative rates of interest.

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