Are transfer passengers at Schiphol airport really that beneficial to the Dutch economy?

Published on: 23 June 2022

Topical issues in the field of economy, (responsible) investment, pension and income: every week, one of APG's experts provides a clear answer to this week's question. In this edition: Thijs Knaap, Chief Economist at APG, on the benefits of the much-discussed hub function of Schiphol airport for the Dutch economy.

Personnel shortages, long queues, the cancellation of flights. Schiphol airport has been a hot topic in the news again lately. An element of discussion here is whether or not the airport should fulfil a hub function. For a significant portion of the passengers, Schiphol airport is not their starting point or final destination but they only use the airport to transfer flights. In 2019 this involved more than one third of the 71 million passengers calling in at Schiphol airport. Are all of those transfer passengers really that beneficial to the Netherlands?

Network effect
According to Knaap, two elements are of importance. “The first element are the transport costs, meaning how much it costs to travel from the Netherlands to a foreign destination and vice versa. When a country has a large airport, such as the Netherlands has with Schiphol, the transport costs to that country are low because there's a bigger chance of direct flights and several airlines are competing with one another. Good accessibility is an advantage, economically speaking. The second element are the so-called network effects. That network effect enables a city or country to attract activities. If you are the first or most important company somewhere, the rest will come to you. There's not a lot to gain from the transfer passengers themselves, but the hub function does ensure that many airplanes travel through Schiphol, meaning we are well accessible as a country. Thanks to that network effect, more companies settle in the Netherlands providing more growth. If that's the goal, good connections are essential.”

It's difficult to say what the gain of such hub function is in a direct sense, Knaap says. “The few euros you earn for each transferring passenger will not make the difference. You could say that accessibility is the gain that eventually ends up with, for example, companies that benefit from it, with the Dutch holidaymaker who flies abroad easily and quickly and with the government by means of extra tax income. A part of that gain can be attributed to an increase of prosperity and that is difficult to measure. That also brings us to the point that the many flights from and to Schiphol airport also contribute to environmental pollution and noise nuisance. Those arguments are mainly presented when it comes to the transfer passengers at Schiphol airport, because they don't generate money for the Dutch economy. That's why many people ask themselves: ‘What is the actual usefulness of the hub function?’ But the goal is not the people transferring flights, the goal is the fact that the airplane flies to Amsterdam. The fact that an airplane departing from America or Asia arrives in Amsterdam is what makes the transport costs lower for the Netherlands and that's what it's all about.”

The considerations in favor of and against a hub function are changing over time though, Knaap says. “Thirty years ago, the general tenor was: ‘Let's build yet another landing strip’. The argument used in the past to make Schiphol airport grow, more employment opportunities, is less powerful since there are enough jobs available in the Netherlands. At the same time, we are currently dealing with housing shortages and more attention is paid to the environmental pollution and noise nuisance caused by Schiphol airport. That can also be seen in the debates where the general tenor now is: Just have Schiphol airport shrink.”

The millions of transfer passengers at Schiphol airport are therefore not directly beneficial to the Dutch economy. The hub function does ensure low transport costs and a possible network effect, advantages that are difficult to quantify. A balance between, on the one hand, the desire to maintain the hub function and, on the other hand, to decrease the number of flights, is difficult, according to Knaap. “You cannot say that by cancelling 50 percent of the flights, you will still have half of your hub. It would mean the hub no longer exists, because you need a minimum number of transfer flights. But it continues to be a guess how many flights would be needed to maintain the hub function.”