ACI Europe has said the region’s airports must be ready for change, as the European market continues to boom against a backdrop of challenges.

“We are enjoying the party, but there are a lot of clouds in the sky, a lot of uncertainty,” ACI Europe DG Olivier Jankovec said, delivering his state of the industry address to the ACI Europe and World General Assembly in Brussels June 19.

“Clearly these are good times,” he said, referring to Europe’s 8.5% traffic growth to reach “an absolute record” 2.2 billion passengers. Despite the challenges of accommodating this growth, customer satisfaction levels have improved across the last five years.

“I think we are now revisiting the assumption that the EU is a mature market” he said. “Passengers growing at three times GDP growth is not what you’d normally see from a mature market.”

European airports’ financial performance has also been improving, with return on invested capital at 8.5%, up from 5.1% in 2011. But EU airports are underperforming against their peers in other regions and the latest results have been driven by 13.8% cost reduction, not revenue growth. This has led to questions about whether Europe has reached a tipping point.

“There are only so many ways you can press a lemon,” Jankovec said. “I think we have reached the limit on how much we can cut costs.” He warned that further reductions could start compromising quality and efficiency.

Interest rates are set to rise and, by 2022, the introduction of new screening technology is expected to require €15 million ($17.4 million) investment. Rising oil prices, economic storms, geopolitical unrest and security risks could also take their toll on the market. Jankovec described these factors as “worrying,” especially as 46% of Europe’s airports are already loss making.

“We need to build resilience to minimize risk. We need to embrace disruption. It all boils down to one thing: change readiness. We must be ready for change and we must look to change,” Jankovec said.

However, the outlook is still “pretty good.” Last year EU and Chinese airports were the largest contributors to global aviation growth, with traffic rising by 20.4% and 22.8%, respectively. Over the same period, North American airports grew by 11.2% and ASEAN airports 10.8%.

Over the year to date, European traffic rose 6.9%, with 84% of this being driven by LCC growth. There was also evidence of a continuing trend towards hub bypass, with more point-to-point flights.

“Hub bypass is real. Our hubs are being challenged. I don’t think they are doomed, but they are clearly facing increasing competition. That competition is coming from the Gulf hubs and the European niche and smaller hubs.”

Jankovec said the airport business model is “challenged,” with a squeeze on both aeronautical and non-aeronautical revenues. Since 2011, airports commercial revenues per passenger have fallen by 4.8%.

Airports have transitioned from being business-to-business providers, to business-to-consumer providers. “It is now time for airports to contemplate being business-to-people,” Jankovec said, playing a stronger role in society.

He called on airports and airlines to work more closely to better-meet passenger needs. “At the moment, we fight to divide the pie. I think we have an opportunity to work together, so we can grow the pie by leveraging data jointly,” Jankovec said.

Victoria Moores