The Economics and Regulation of On-Board Carriage of European
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-------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------The economics -------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------and regulation of -------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------on-board carriage -------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------of European airport -------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------retail sales -------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------A policy research study -------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------for the European Travel -------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------Retail Confederation -------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------September 2013 -------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------Authors Dr Harry Bush & Daniel Storey -------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- Contents Executive Summary 4 Introduction 8 Chapters 1 Airport retailing in Europe 10 2 Airport retail in the context of the European aviation market 18 3 Passengers’ retail experience 26 4 Impact of the ‘one bag rule’ 33 5 Policy issues and proposals 46 2 Dr Harry Bush CB was educated at Oxford University and then worked for 23 years in the UK Treasury. He joined the UK Civil Aviation Authority (CAA) in 2003 as Group Director Economic Regulation, the Board member responsible for the CAA’s economic output and specifically the economic regulation of designated airports and air traffic control. Since 2011 he has been an independent consultant, undertaking assignments in a variety of regulated industries, in the UK and overseas. He is Vice-Chairman of University College London Hospital Foundation Trust, one of the UK’s foremost specialist hospitals. Daniel Storey was educated at Oxford University and the London School of Economics and then worked for 17 years in the UK Government, primarily in the UK Treasury as well as the Cabinet Office, Department of Trade and the telecoms regulators. He joined the UK CAA in 2005 as head of price control regulation within the Economic Regulation Group. Since 2009 he has been an independent consultant, undertaking assignments in a variety of regulated industries, in the UK and overseas. 3 Executive Summary Introduction Recommendations Commissioned by the European Travel Retail Regulating simply to improve transparency for the Confederation (ETRC), and supported by passenger addresses only one of the issues raised ACI Europe, this study considers the impact and is unlikely to be effective. that restrictions imposed by some airlines on passengers carrying airport shopping on-board The most effective solution is to incorporate a are having on passengers’ experience at passenger right to carriage of airport shopping airports and on their longer term interests in the in addition to their hand baggage. It would level of service and connectivity provided by credibly deal with the information gap by the European aviation system. The report also restoring passenger choice and certainty identifies potential detriments from this practice, regarding airport retail to that in place before the considers policy solutions and recommends introduction of strictly enforced ‘one bag rules’. that proposals from the European Parliament to accord passengers the right to carry on board Airports - in particular those smaller regional airport shopping in addition to hand baggage airports facing large airlines with buyer power - should be pursued as the most effective solution. would not have a legitimate area of commercial activity circumscribed. By preventing any one airline from gaining Report Findings - In brief commercial advantage through a practice which undercuts the benefit created by retail activity for all airlines and passengers, it would Strict enforcement of the ‘one bag rule’ by help the air travel sector as a whole co-ordinate particular airlines risks a market outcome where, around an equilibrium which creates higher value over time, there are higher costs and less added in the sector. connectivity for passengers as the voluntary, value-creating contribution to airports from airport A partnership approach would better safeguard retail is reduced. The impact is likely to be most the connectivity of Europe’s regions at a time marked at smaller, regional airports - precisely when this is more than ever necessary to stimulate those which contribute to regional growth and spread growth and prosperity. and yet, are most likely to be affected by the proposed stricter state aid regime. Treating the ‘one bag rule’ as simply an issue to be settled between individual airport and airline businesses risks giving insufficient weight to these systemic impacts, including the presence of airline buyer power, and the potential for passenger confusion where there are differing approaches by airline and airports. 4 Benefits from airport retail (only 38% of passengers travelling with lower cost airlines check in luggage, compared to 66% of activity in Europe passengers on full service carriers). European aviation over the last 50 years has For some passengers, the disconnect between grown in parallel with, and been supported general custom and practice which has by, the growth of airport retailing. European permitted airport shopping to be carried on companies have led the way in airport retail and board and this new approach, has led to the as a result