Small airports cleared for take-off

Europe's small and medium-sized airports are notching up double-digit growth rates as they lure passenger and cargo business from gridlocked major hubs.

With big airports facing increasing congestion and fierce resistance to expansion plans, the small and medium-sized sector has enormous upside. That's why Florence airport's share price has more than doubled since it was floated on the Milan stock exchange in early July and why TDI, the British small airport operator, is being stalked by a predator.

Investors will get a chance to buy into this growth industry as an increasing number of publicly-owned regional airports are being privatized via stock market flotations, private placements or trade sales. Italy is spearheading the sell off with Venice, Bari, Catania, Genoa and Bologna slated for initial public offerings before the end of the year along with SEA, which operates Milan's Linate and Malpensa airports.

Small airports are attracting big investors: Benneton's holding company, Edizioni Holding and Sanpaolo IMI head a consortium that will take a 41.33% stake in Turin airport in October, while Stagecoach, the British-based global bus operating company, owns Prestwick airport near Glasgow.

Rather than fight head on with the big hubs, small and medium-sized airports are chasing new business generated by low-cost passenger carriers attracted by their low landing and handling charges, and freighter operators that are the first to suffer when bigger airports run into capacity and environmental restraints.

Ireland's Ryanair, Europe's biggest low cost carrier, has pioneered the use of small airports across the continent, linking them to its two mainstream hubs, Dublin and London Stansted. Most will most likely remain purely regional airports like Bournemouth on the English south coast, which has a regular service to Dublin and is also the home base of medium-sized carrier Channel Express, or Charleroi, which doubles as Ryanair's "Brussels" airport. But the very presence of scheduled passenger carriers and freight operators adds value to the local economies, primarily benefitting small and medium-sized enterprises.

However, hopes that other low-cost carriers would also opt for smaller airports have been dashed by the decision of Go, British Airways' no frills offshoot, and Buzz, KLM's low-cost subsidiary, to concentrate on the major European airports from their London Stansted hubs.

Small and medium-sized airports have the best opportunities in Britain, the Netherlands and Germany where the main hubs, London Heathrow, Amsterdam Schiphol and Frankfurt, face severe capacity restraints. And the big airports are taking defensive action: Frankfurt tried to establish a joint marketing company for all German airports but was rebuffed by its smaller rivals which feared it was simply trying to neuter them.

Dusseldorf and Munich have become sizeable regional airports with blanket European coverage, and several long haul connections as well as growing cargo operations. Hannover is specializing in freight traffic to central and eastern Europe and Russia. Amsterdam Schiphol, which is facing serious capacity and environmental constraints, mulled setting up a second cargo base in Britain by taking over Teeside airport but the plan was dropped.

The rapid spread of air express and overnight delivery, and the growth of the all-cargo market have put a premium on small and medium sized airports that are cheaper and more flexible than major hubs. Another major selling point is that most small airports can instantly offer space, something that's in short supply in most European hubs, with the exception of Paris Charles de Gaulle. Liege airport in Belgium created a sizeable business overnight by luring TPG, the global logsitics, transport and mail group from Cologne by building an entire new facility. The airport also promised not to impose noise and night flying restrictions, unlike most German airports.

The big express and freight operators prefer to go to smaller airports where they are guaranteed red carpet treatment: UPS, the giant US parcel delivery firm, has put its European hub in Cologne and also uses smaller national airports such as Britain's East Midlands airport, rather than congested and expensive Heathrow.

Small airports are also increasingly popular with operators of large freighters like Boeing 747-200Fs and converted Airbuses. Luxembourg is the home hub for Cargolux, one of the world's biggest scheduled all-cargo carriers, while Basel is Swissair's freighter base, and KLM uses Skvasta rather than Stockholm Arlanda for its Swedish cargo.

Most small airports have limited growth opportunities but some are striving to become established intercontinental all-cargo hubs. Hahn airport, a former military airbase north of Frankfurt, is close to building up a critical mass with Air France Cargo, Lufthansa Cargo and Malaysian Airlines running scheduled services to the Far East. And as airlines truck their cargo around Europe, smaller airports can compete against the big hubs for long haul all-cargo carriers. But as most freight is still carried in the "bellies" of passenger jets, the hubs have an inbuilt-advantage over small and medium-sized airports.

Smaller airports are also at the mercy of large freight carriers which can transfer to rivals much more easily than passenger airlines. Stagecoach, for example, was forced to write down the value of Prestwick by 30 million pounds in April after FedEx transfered its transatlantic operation to Stansted.

But medium-sized airports become harder to push around as they build up a following with air travellers. Luton airport, north of London, is standing firm in a row with easyJet over landing charges despite threats by its biggest customer to grow its business elsewhere because its an important factor in the carrier's spectacular success.