Chapter 1: Introduction

Date: 16-07-2015

In the past few decades flying has become more important as a mode of transport. There are more flights, more people flying and the plains are increasing in size. This resulted in the fact that at the moment European airports collectively handle almost 2 billion passengers. In that way they are connecting places, people and products. While aviation was developing, the airports did so as well; airports have evolved from being just infrastructure providers into real businesses of their own (www.aci-europe.org)

The majority of commercial flights depart from large airports but there are also a lot of regional airports, some of which are growing at a rapid paste. These regional airports are an interesting topic to research, especially because they have been in the news a lot during recent years. A lot of these news topics were about the financial positions of the airports and the subsidies they are receiving or about nuisance for the surrounding community. Regional airports have been subsidised a lot by the European Union, governments and municipalities. Nowadays the over 400 regional airports in Europe get 2 to 3 billion on subsidies a year (www.transportenvironment.org). The reason for this is that the policy makers believe that airports have a positive effect on the local economy in a number of ways (Europees Parlement, 2012; Hulst, 2015). Some believe that a lot of the regional airports only survive because of these subsidies (Zwam, 2013). Is the positive effect on the economy big enough to justify supporting an unprofitable airport? Some members of the European parliament answer yes to this question, because in Poland airports were built, financed by subsidies, in places where there is not enough demand. Therefore so called “ghost airports” appear in these places (Lowe & Szary, 2014). Another hot topic is the discussion between the benefits for the local economy and the disadvantages for local communities who live next to the airport. To know more about these issues the following research question needs to be answered:

What is the effect of regional airports on the local economy?

This question will be answered by conducting a literature review in which journal articles and other scientific sources are used. Each chapter in this paper will answer a sub question; the answers to all these questions taken together will help to answer the research question.

-What are the characteristics of a regional airport?

-What is the impact of an airport on the region?

-What is the regional effect of Rotterdam The Hague Airport (RTHA) and Eindhoven Airport?

In the first part will focus on the characteristics of regional airports. The term will be defined, benefits will be discussed and the legal structure will be looked at. In the third chapter one looks at how an airport influences a local community, the positive as well as the negative aspects will be viewed. In the fourth chapter two specific airports, namely Eindhoven and RTHA will be looked at. Their characteristics will be discussed and the theoretic framework created in the other chapters will be used to look at the positive and negative externalities of these specific airports. In the conclusion the answers to the sub-questions will be used to answer the research question.

Chapter 2

To be able to find out what the effects of a regional airport are on a region, one first has to gather more information about regional airports itself. This chapter provides this information in a clear and structured way. First the definition is given, then the characteristics are defined and the legal structure is looked into and in the end the different ways regional airports make money are stated.

There are two kinds of air transportation; freight and passenger transport. In this paper the focus will mainly be on passenger transport. This may be more interesting to look at, because there are different sources that show that the effect of passenger transport on the regional economy is larger than that of freight transport.

2.1 Definition of regional airport

An airport is “a place where aircrafts take off and land, usually equipped with surfaced landing strips, a control tower, hangars, aircraft maintenance and refuelling facilities, and accommodations for passengers and cargo” (www.thefreedictionary.com/airport). There are a lot of different kinds of airports though, with different characteristics and therefore different definitions. One can make a division between different kinds of airports according to passenger volume, cities of destination and the kind of air transport the airport is used for. The subsections below first look at these characteristics separately, starting with destination, before looking at the all of them together to form a complete definition.

In this paper the focus lies on the term ‘regional airport’. This term is not a legislative one and there is no universally accepted definition, still it is widely used in the (academic) literature. A definition found in Longmans dictionary is “an airport that serves a particular area but that has few international flights” (Longman Business English Dictionary, 2007). This definition looks fine at first glance but for countries in Europe the term ‘international’ probably has to be changed to “intercontinental’ for it to be valid. In small countries national flights are often not really needed and often hardly used, therefore almost no airports would classify as regional ones. This means that a characteristic of a regional airport (from a European or Dutch point of view) is that it has few intercontinental flights. Also it is not a hub-airport, that are airports used by airlines as a transfer point to get passengers to their intended destination. Regional airports do not offer enough flights and destinations to fulfil that role.

Regional airports are usually not the biggest ones and have a lower passenger volume than a lot of other airports. Some sources mention the upper boundary of 3 million passengers a year. This is a rough line because there are some airports which are universally seen as regional airports which cross this line, like Eindhoven Airport (almost 4 million) (www.cbs.nl) and Charleroi (around 6 million) (www.charleroi-airport.com).

A complete definition is designed with help from a white paper from 1978 that determines airport categories. It mentions the following categories: A: International Airports, B: Regional Airports, C: General Aviation Airports (Butcher, 2014). Airport in the first category have a high passenger volume and a lot of different destinations, including intercontinental ones. The last category contains airports that are generally smaller than the other two categories, but most importantly, they have a different purpose. They have no commercial scheduled airline services as the other two categories do. There are more of these airports than you would know of, in the US three out of four airports belong to this category. “In these airports there are corporate jets, medical evacuation helicopters, flying schools and airplanes owned by individuals for business and personal use and more” (General Aviation Airports: A national asset, 2012). Both regional airports as the international airports mainly have commercial scheduled airline services, meaning the aircrafts are operated for hire to transport passengers or cargo. Furthermore the regional airport has few international destinations, less destinations in general, is not a hub-airport and has a lower passenger flow.

One can divide the 15 airports in the Netherlands according to the principle explained above. Only one airport belongs to category A, obviously this is Amsterdam Airport Schiphol. This airport is the biggest in the country with over 50 million passengers each year (www.cbs.nl). Furthermore it is the only airport that offers commercial intercontinental flights (North Africa excluded). Groningen Airport Eelde Airport , Rotterdam The Hague Airport, Eindhoven Airport and Maastricht Aachem Airport are classified as regional airports, Lelystad is joining them in this category in 2018 (www.lelystadairport.nl). At this moment Lelystad still belongs to Category D, together with nine other airports including Texel, Seppe and Drachten. These airports can arrange business, medical and sport flights and most of them provide flying lessons (CBS, 2014).

From the definition of a regional airport more is known about the destinations, kind of traffic and number of passengers. But a regional airport has more to it; there are the characteristics of the physical building and the overall experience when departing from a specific airport. These characteristics that will be linked to regional airports are general, this means they might not apply to every single regional airport.

Location is the first characteristic. Regional airports are generally located near small and mid-sized cities and big towns instead of next to big (capital) cities. Therefore these airports give the local people the option of flying form a place closer to home which makes their journey shorter, this saves time and money. Off course this does not hold if people want to choose an airport that is located further away.

Internal accessibility of the airport is a second characteristic. As the passenger flow is lower, the physical building of the airport is usually smaller. Therefore it is easier to navigate through the building and the distances to overcome inside the building are shorter. Another benefit that comes with having fewer passengers is that it is less crowded, which means waiting lines are shorter and procedures takes less time. Procedures, especially security, don’t take as long because most destinations are located in Europe and destinations in the Schengen area do not need immigration. These factors taken together give passengers the opportunity to arrive later for a flight so they have less time between arrival at the airport and departure of their plane and makes sure passengers are less likely to be late for their flight.

Airport accessibility is another characteristic to look at. At regional airports parking facilities are usually located closer to the building which is an advantage. A disadvantage is that public transport is usually not as good as the demand is not high enough to start profitably improving it.

Less destinations and a lower frequency of flights is also a characteristic of regional airports. This disadvantage is there due to the physical size and lower demand. These factors are important for the customers as one usually first picks a destination and as a second step looks for airports that provide the flights going there. Also if a passenger has a specific preference for a departing time the frequency will play a big role, more times to choose from means freedom.

The price also plays a role, regional airports that have enough demand often attract low cost carriers (LCC) which can give low flight fares. LCC choose for regional airports because landing fees are often low, partly because airports use subsidies. Another attractive point for the LCC’s is shorter turnaround times. These are short because taxi times are shorter, the luggage system is less complex and passengers are less likely to be late (Europe’s regional airports runway or another, 2013).

Recreational possibilities at the airport are better at bigger airports. The smaller size of the airport and lower number of traffic have the disadvantage of a lower variety of shops and eating facilities which might make spending time at the airport less pleasurable (www.justtheflight.co.uk).

In figure one, presented below, the characteristics described in the paragraphs above are summarized.

	Characteristics of a regional airport
1.	Location close to home	+
2.	Easy Internal accessibility	+
3.	Less recreational possibilities	-
4.	Airport accessibility
a.	Easy access by car	+
b.	Public Transport could improve	-
5.	Low flight fare	+
6.	Low Number of Destinations & low flight frequency	-

Figure 1: summary of the characteristics of a regional airport

Different research using stated preference data over the years dealt with the issue of why people choose particular airports. Air fare and access time are significant in all the papers. Other important factors are ground-level distance, flight frequency, the probability to be on time, convenience of parking and availability of international flights (Adler, Falzarano, & Spitz, 2005; Hess, Adler, & Polak, 2007; Marcuccia & Gatta, 2011). Figure 1 showed in what factors region airports have an advantage and in which ones they have a disadvantage. But how do passengers choose the airport they will use? A traveller makes the decision based on all different aspects but they all distribute different weights to different factors. The specific reason of why travellers make a certain final decision differs but the increase of passengers choosing regional airports is a fact. In the years between 1997 and 2013 the number of people flying from the Netherlands increased with 81 percent. For Schiphol this number increased with 69 percent, this seems a lot but Groningen, Rotterdam and Maastricht increased with 112, 217 and 86 percent respectively and Eindhoven is really doing well with an increase of almost 1200 percent (CBS, 2015)!

In the third chapter of this paper the effect of a regional airport will be looked at. In the decision to expand or build an airport there are different stakeholders. There is the local community, the people that get employment, the companies in the region who experience benefits and the municipalities and governments who want the positive effects for the region. But off course the owner is also a large stakeholder. Who are these owners? This might play a role in their plan for the future, do they look at the region as a whole or only at the financial benefits.

In the past all airports were owned by the government or municipalities. In the last decades there is a trend towards more privatisation of airports; this trend began in 1986 with the privatisation of Heathrow airport. Today there are already about 450 airports around the world with a certain type of private sector participation. Most of these airports are located in Europe and Latin America and almost none in Asia-Pacific countries (www.airport-world.com). If we look at the Netherlands we see that they are not going along in this trend and at the moment none of the large and regional airports are privately owned. Let’s see how the ownership structure for the Dutch airports looks like.

Schiphol Groups main activity is the exploitation of Amsterdam Airport Schiphol but it also owns The Hague Airport, Lelystad Airport and it has a majority stake of 51 percent in Eindhoven Airport. The Province of Noord-Brabant and the municipality of Eindhoven both hold 24.5 percent of this airport. Next to this it also owns parts in some foreign airports such as in Paris, New York and Brisbane (www.schiphol.nl).

But who has shares in Schiphol Group? There is 8% cross-shareholding with Aéroports de Paris, since 2008. The other 92% is owned by the Dutch government and the municipalities of Amsterdam and Rotterdam. This 92% is divided in the following way; 69.8% Dutch state, 20.0% municipality Amsterdam and 2.2 % municipality Rotterdam (www.schiphol.nl).

These numbers show that these airports are owned and operated by public agencies, which in turn are owned by state or local governments. This is also the case for Groningen Airport Eelde, the public company is owned by local provinces and municipalities (www.groningenairport.nl). In these (semi) government enterprises the government is the (biggest) stakeholder. Often it is a government enterprise because of a certain reason; the company has an essential role in the economy. Airports have an important logistic role; the government wants to safeguard the public interest. The country needs to be assured of the quality and safety of aviation.

Maastricht was owned by the government, Limburg and municipalities until it was privatised in 2004. The owners became the British airport operator Omniport and the building group Dura Vermeer (Sijmen, 2004). Later the airport got into financial trouble and when even the extra financial help from the government was not enough, the province of Limburg took over the airport in 2013. At the moment they are looking for new companies to exploit the airport. Therefore at the moment none of the regional airports in the Netherlands are privately owned (www.luchtvaartnieuws.nl/nieuws).

Privatization of Schiphol group, and with this other airports, has been a discussion for about 20 years. An actual privatization never happened though; a reason is that the government and municipalities want to hold control (www.vlieghinder.nl/nieuws). These parties believe that tariffs will be held up artificially when ownership changes because the Schiphol group will be have a monopoly then. They are also afraid that choices will be made that do not serve the general interest. A reason in favour of privatisation is that the private sector has better options to invest in capacity, which is needed since air traffic is growing at rapid rates (Gillen, 2011). Privatisation would also provide the government with an enormous money inflow right away. Another argument in favour is that with privatisation the company is performing more efficiently. It turns out this has more to do with if there is competition or not. The literature shows that if there is competition, public and fully private airports operate equally efficiently, if not private airports do a bit better (Adler & Vanessa, 2014). In the Netherlands there is competition so there is no real need for privatisation especially because it is about more than performance for municipalities. A research says maybe privatisation with a minority interest would work (Haverkate, 2010).

Airports have changed; these days they are more than just a collection of runways. The ways of generating money changed as well because of this. At first the only source of income was landing fees, which are usually based on the landing weight of the aircraft. These days this is only a (small) part of the income, especially for big international airports (Christopher, 2013). Another source of income is the selling of gate rights, the better the location of the gate the higher the price. This is not always a source of income at regional airports as all gates are relatively close. A third income source is selling concessions, the money earned from renting out space to stores and restaurants and a percentage of their revenue, these amounts can be pretty high in high traffic airports. For regional airports this source provides less income as there are less shops and there is less traffic in the airport. Renting out parking spaces also generates revenue.

Besides all these sources of income there are also high costs involved. In the end balance some airports, especially regional ones, get a negative number. Therefore they are often financed by grant money from governments. This or renovations and infrastructure around the airport are subsidized or paid for. Often subsidies are paid to regional airports to help them survive as they are supposedly good for the regional and overall economy. People often say that these subsidies are only benefitting the low-cost airlines flying from these airports as they get offered lower landing fees and other benefits. The European Union is trying to create rules that prohibit too much subsidies being given(www.transportenvironment.org/news).

Chapter 3

3.1 Trade-off

One cannot remove aviation from the picture of the modern world these days as airports play a key role in connection places and people. The aviation sector is still growing in demand, this because of economic growth, globalisation, and decreasing costs of tickets. Together with a growing aviation sector comes the decision of cities and regions to develop an airport or expand it. An airport is one of the largest investments for them, is it one worth making? It is a trade-off between the economic benefits for the region and the negative external effects of the region such as noise and pollution, this shadow side is there especially for the community living close to the airport. (Hakfoort, Poot, & Rietveld, 2001). This debate is there for regional airports in particular because with a city airport people feel the negative consequences more and if it is in a remote area it is important that the airport stays even if it is economically not beneficial.

There are not only positive sides to having an airport in the region. Airplanes are motor vehicles that move through the air. They produce sound emission and pollution especially during landing and take-off. These are negative effects for the community that is living close to the airport. The effects will separately be discussed below.

An airport is also likely to have a negative effect on the prices of both commercial and residential real estate. The value of the property is negatively affected by noise caused by the airport. Of course there are also other noises, especially in densely populated areas, but different research shows that airports have a significant effect. Most research estimates the effect on real estate by looking at a zone with a certain dB range and compares the prices of properties here with the prices of comparable properties at locations without the noise nuisance. Data is collected of house sales over a few years, by looking at the price at which a property is sold at, you can infer the value people assign to the property in the market. This is the case because according to bid-rent theory, environmental externalities are capitalized into property prise. The price difference is called the price discount, which is

the negative effect on real estate.

Papers are looked into to see what the extent of the effect is. A meta-analysis of 20 studies which used data from Canada and the U.S showed that the noise discount on housing prices was about 0.5 to 0.6 per cent per dB. Caution should be there for estimates of the effect on areas really close to airports when the noise exceeds 75 dB (Nelson, 2004). The researchers are only taking areas into account where the noise exceeds 40dB, so the discounts shown above are only applicable to those areas. A German study looking at the three city airports of Berlin, came to similar results as the meta-analysis but it also showed that properties that are exposed to sounds of over 70dB sell at a discounts of more than 4 per cent per dB. The study found that in monetary terms the sales reduction could exceed 88.000 euros (Ahlfeldt & Maennig, 2013).

If the total effect on real estate is negative is hard to say, because there are also positive effects as can be read later. The closer to the airport the houses are the more likely it is that the negative effects will be bigger than the benefits.

Space: Airports take up a lot of space. Often airports are not too far from big cities or places where a lot of people live, otherwise there would not be enough demand for flights and the airport could not exist. Therefore the airport takes up space where there could also have be houses or businesses. Off course the airport needs to be located somewhere, but it will still have an effect. Another argument is that it can have a negative effect on the view and that it ruins the landscapes.