The Spanish Airport-System: a critical evaluation of the effectiveness of the Spanish Government’s management of Public Resources

Ane Elixabete Ripoll-Zarraga is an external senior auditor, consultant and lecturer in higher and executive education. Ane is a fellow of the Higher Education Academy (FHEA) and preparing her application to become a senior fellow (SFHEA). Her last position was at the LSE, where she taught in the undergraduate programmes and in the accounting introductory sessions for the MSc in Economics and Management. She is currently on a sabbatical year in Barcelona, where she aims to finish her thesis focused on data envelopment analysis and stochastic frontier analysis in the airport industry. Ane’s doctorate has been awarded as industrial based on the use of critical auditing and accounting techniques (February 2016). Ane is combining her research with management audits for projects granted by the European Commission in Teaching and Learning process in Higher Education (TEMPUS and ERASMUS MUNDUS Programmes).

Ane’s paper, The Spanish Airport-System: a critical evaluation of the effectiveness of the Spanish Government’s management of Public Resources, is published in the 2017 edition of The Public Sphere, available to read online here. This piece is part of a series of articles contributed by authors featured in this year’s issue.


The Spanish airport system contains 49 airports (including two heliports and four general aviation airports), located in areas connected to alternative modes of transport (railway; high-speed and motorways). All the airports in Spain are government owned and managed and, in recent years the government has invested significantly in airport infrastructure, though there hasn’t been an according increase in air traffic. It is not clear if this investment has been efficiently applied and infrastructure is sometimes built on the basis of forecasts that cannot be justified.

In typical national airport systems, profitable airports cross-subsidise the unprofitable ones. In the Spanish case, only the 14 largest airports in terms of traffic – defined as those with more than 3.5 million passengers per year – are profitable. The other 35 airports are a burden on the system’s financial resources. In my paper, published in the 2017 edition of the Public Sphere, I discuss whether all the airports should remain operational to maintain connectivity across the nation and with the rest of the world, for instance because there are no other modes of travel, such as on the islands and in remote areas, or whether they could be closed down without losing connectivity.

Spanish airport catchment areas and efficiency levels. (Source: author / Battese and Coelli, 1995)

The situation in Spain is complicated because airport management is fully centralised under the control of a government owned company named AENA. Individual airport managers have no flexibility to decide commercial policies to make their airports competitively attractive. AENA not only has the mandate to set accounting policies (such as the rate of asset depreciation), but also the fees  charged to airlines. Elsewhere, airline fees are often decided by independent bodies, such as the Civil Aviation Authority (CAA) in the UK, and regulated to avoid monopolistic practices among airports. It has also been shown that in periods of infrastructure expansion unaccompanied by an increase in air traffic, the airline fees have also been increased seemingly randomly and unfairly. The fact that AENA does not publish disaggregated financial statements makes it hard to work out precisely what is going on, though these results suggest that while depreciation rates have increased after investments, financial margins have remained positive because of rising air fares, not because of increases in passengers or cargo.

Spanish airport catchment areas and efficiency levels. (Source: author / Battese and Coelli, 1995)

In a recent report, the European Commission (European Court of Auditors, December 2014) identified an excess of investment in public infrastructure in Europe. This is arguably true in Spain, for instance, where some airport construction projects are excessively proportioned for the number of passengers and aircraft likely to use them. Cordoba Airport is a clear example of this. The airport was forecast to serve 179,000 passengers per year, but had only 7,000 in 2013. Further examples include the airports in Badajoz; Burgos; La Palma and Vigo, which will struggle to remain open unless they receive higher and sustained public funding. The European Commission report argues that investments should go to profitable airports or those with a real need for investment, aligning them with the priorities of the EU’s growth strategy. It has been estimated that airports with fewer than 100,000 passengers lose 130 euros per passenger each year. These airports are not financially self-sustainable and will struggle to remain in operation without injections of public funding.

It is not clear why the Spanish government is determined to keep all the airports open even when they operate inefficiently due to low-levels of traffic. Further analysis beyond my paper has identified airports that are not only unprofitable, but also technically inefficient. There is over-capacity because the airports’ infrastructure does not correspond to the current and forecasted traffic. Analysis of these inefficiencies and respective airport catchment areas, defined as a distance of 150 kilometres (approximately two hours or fewer driving from the airport), has been applied to provide closure recommendations. On this basis, I recommend closing 14 small airports (including two general aviation airports, one of them not included in this study); seven medium and three large airports. The remaining 25 airports (11 large; six medium and eight small) would efficiently serve the areas where the airports to be closed are located. Some of the loss-making small and medium airports would need to stay open for connectivity purposes. These usually have public service obligation routes (PSOs), such as the airports located in the islands (La Gomera; La Palma; El Hierro), are important in connecting Africa with Europe (Ceuta and Melilla), or are isolated in regions from where it would be difficult to get to another an airport (Badajoz). Spain’s public deficit could be reduced by the net book value of the airports recommended for closure.

Following the submission of my paper to the Public Sphere Journal, I continued my research to build on the insights already gained. Following further investigation, I estimate that closing the airports outlined above would reduce the costs of maintaining the system by more than 50%, saving 447.46 million euros per year, with the airports that remain open costing just 331.79 million euros per year to maintain. Furthermore, the airports that remain open would absorb the traffic of the airports located nearby that have closed, meaning there would be little disruption in service provision. Consequently, the savings from consolidating the airport system will grow in the long run because the remaining airports will experience an increase in traffic and attract more passengers and airlines to operate.  Additionally, the closure recommendations may also balance concerns around airports with significant seasonal variations in traffic, ensuring year-round financial viability and limiting the effect of airlines moving their main destinations, such as when Ryanair made Barcelona a major destination at the expense of Girona (2010). I believe that the Spanish Government should carefully consider investing in airport infrastructure to prevent increasing the public deficit, and contend that it could be more efficient to make the Spanish airports more attractive by allowing competition rather than by investing in them while they are under-capacity. This would give flexibility to the airport managers to decide commercial policies regarding the price and quality of the services provided, which would ultimately allow them to stabilise their finances on a case-by-case basis. Finally, having an independent regulator, such as the Civil Aviation Authority (CAA) in the UK, would not only ensure a fair price policy, but also regulate the industry and help to prevent monopolistic practices.

 

Corresponding author

Affiliation: Universitat Autònoma de Barcelona (UAB); email: ane_rz@yahoo.com;

Acknowledgements

With the support of the Research and University Secretary, Department of Business and Knowledge of the Generalitat de Catalunya.

Funding Body: Generalitat de Catalunya under the Grant Call Industrial Doctorates http://doctoratsindustrials.gencat.cat/en/pages/home

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