Are airport parking charges too high?

Introduction The traveller’s perception Parking – a major role in the airport experience A service or a business? The role of the ACCC Locational vs monopoly rents The economics of airport parking The upward trend How prices are (should be?) set Some examples Conclusion

Introduction

The traveller’s perception

Parking – a major role in the airport experience

A service or a business?

The role of the ACCC

Locational vs monopoly rents

The economics of airport parking

The upward trend

How prices are (should be?) set

Some examples

Conclusion

Introduction AIRPORT PARKING CHARGES – A HEADLINE ISSUE People around the world complain about Airport parking fees…

September 20th, 2005 “ Rocketing Cost of Heathrow Parking” The cost of parking in the short-term car park has already risen 50% in the last decade and could rise even more.

“ Motorists are upset by a rise in car park fees at Cairns Airport” August 12th, 2009

“ Airport parking fees take off” Parking fees at Sydney Airport have doubled for international travellers leaving their vehicle for more than a day. July 20th, 2008

“ Abu Dhabi Airport's hourly parking fees doubled” April 30th, 2009

“ Travel surge makes airport parking tricky” Many frequent flyers complain that airport parking rates are too high. The cost… can exceed the price of an airline ticket. May 23 rd , 2006

The traveller’s perception More sensitive to increases in airport parking charges than in kerbside or off street car parks Public interest is fed by the media (normally in a negative context) Parking cost and convenience are important elements of the overall travel experience Advent of low cost airlines results in parking cost exceeding the air fare More likely to be attacked where there is lack of other options Hardest hit: private travellers, elderly, non computer literate, students Different attitude between business travellers vs holiday makers

More sensitive to increases in airport parking charges than in kerbside or off street car parks

Public interest is fed by the media (normally in a negative context)

Parking cost and convenience are important elements of the overall travel experience

Advent of low cost airlines results in parking cost exceeding the air fare

More likely to be attacked where there is lack of other options

Hardest hit: private travellers, elderly, non computer literate, students

Different attitude between business travellers vs holiday makers

The traveller’s perception

Parking - a major role in the airport experience Information about parking, parking charges and other transport options figures as an important element in assessing overall airport excellence All of the world’s top ten airports according to the 2009 Skytrax survey provide excellent parking services.

Information about parking, parking charges and other transport options figures as an important element in assessing overall airport excellence

All of the world’s top ten airports according to the 2009 Skytrax survey provide excellent parking services.

Skytrax 2009 World Airport Awards Source: www.worldairportawards.com (2009 results) Ranking Airport Country Traffic Volume (millions of passengers) 1 Incheon Seoul South Korea 15.0 2 Hong Kong China 47.7 3 Changi Singapore 36.7 4 Zurich Switzerland 32.2 5 Munich Germany 34.6 6 Kansai Osaka Japan 16.7 7 Kuala Lumpur Malaysia 26.9 8 Amsterdam Holland 47.4 9 Centrair Nagoya Japan 10.8 10 Auckland New Zealand 13.0

How does Parking affect overall excellence Note: cost of parking is not an evaluation factor! SELECTION CRITERIA 1 Website Parking / Transportation information 2 Ground Transport Access by car / car parking facilities Short term car park facilities Long term car park facilities 3 Arrival - Transit - Departure 4 Security and Immigration 5 Terminal Comfort - Facilities 6 Food and Beverage 7 Shopping Facilities

A service or a business? Historically car parking within airport sites has been considered a service because airports were government owned and operated Therefore ROI on new parking investments was not a consideration in price setting Private ownership, shortage of land and high cost of multi storey car parks places emphasis on ROI and cash flow Parking income is a major contributor to operating income of airports Adjusting car parking rates is the easiest and most immediate way to increase revenues for airports

Historically car parking within airport sites has been considered a service because airports were government owned and operated

Therefore ROI on new parking investments was not a consideration in price setting

Private ownership, shortage of land and high cost of multi storey car parks places emphasis on ROI and cash flow

Parking income is a major contributor to operating income of airports

Adjusting car parking rates is the easiest and most immediate way to increase revenues for airports

Parking – a major revenue generator ** Calculated as aeronautical charges + other income – operating expenses Source: BAA (British Airports Authority) Annual report Y/ended 31.12.07 BAA (UK) Millions % Income % Profit FX rate 1.935 Sterling AUS$ Airside shops 74 143 15% 10% Landside shops 48 93 10% 6% Catering 60 116 12% 8% Bureaux de Change 57 110 12% 8% Car Parks 164 317 33% 22% Car Rental 22 43 5% 3% Advertising 36 70 7% 5% Other retail 29 56 6% 4% Net Retail Income 490 948 100% 66% Aeronautical income ** 257 497 34% Operating Profit 747 1,445 100%

The role of the ACCC

The role of the ACCC Regulatory role introduced in 1997 2002: Price Monitoring for: Adelaide Brisbane Canberra Darwin Melbourne Perth Sydney April 08: monitor prices, costs and profits re. car parking at Adelaide, Brisbane, Melbourne, Perth and Sydney

Regulatory role introduced in 1997

2002: Price Monitoring for:

Adelaide Brisbane Canberra Darwin Melbourne Perth Sydney

April 08: monitor prices, costs and profits re. car parking at Adelaide, Brisbane, Melbourne, Perth and Sydney

The role of the ACCC Objective is to improve the transparency of airports’ behaviour to: discourage operators from increasing prices excessively and providing unsatisfactory standards of parking service provide information on airport car parking facilities that would not otherwise be available facilitate comparisons across the monitored airports and over time

Objective is to improve the transparency of airports’ behaviour to:

discourage operators from increasing prices excessively and providing unsatisfactory standards of parking service

provide information on airport car parking facilities that would not otherwise be available

facilitate comparisons across the monitored airports and over time

Locational vs. Monopoly Rents Locational rents are premium rents for preferred locations; the amount depends on the scarcity of the space. In most airports the most convenient spaces are those closest to the terminals and some users are prepared to pay a premium to park there Monopoly rents comprise revenue over and above locational rents; indicators include: control of landside access to terminal allocation of kerbside space levies on alternative transport control over number of spaces close to the terminal

Locational rents are premium rents for preferred locations; the amount depends on the scarcity of the space. In most airports the most convenient spaces are those closest to the terminals and some users are prepared to pay a premium to park there

Monopoly rents comprise revenue over and above locational rents; indicators include:

control of landside access to terminal

allocation of kerbside space

levies on alternative transport

control over number of spaces close to the terminal

Locational vs. Monopoly Rents Airports, when they raise their parking charges, take pains to describe the resulting profits as being locational rents, even though their ability to raise charges could be symptomatic of market power. P. Forsyth “ Locational and monopoly rents at airports: creating them and shifting them”, Journal of Air Transport Management, 10, 2004, p. 52

The economics of airport parking Total car parking revenue - $244 million in 2007/08 (from $12million in Adelaide to $91 million in Melbourne) Quality of airport parking decreased from 2003/04 to 2007/08 Caveat on comparing prices – different airports have different configurations Influence cost of alternatives by imposing levies on them (eg. taxis) Investment in multi storey car parks - $165 million (Brisbane, Melbourne and Sydney) Short term spaces increased by 4% and daily throughput by 9% Long term spaces increased from 9,800 to 27,000 Source : ACCC Airport Monitoring Report 2007-08, March 2009

Total car parking revenue - $244 million in 2007/08 (from $12million in Adelaide to $91 million in Melbourne)

Quality of airport parking decreased from 2003/04 to 2007/08

Caveat on comparing prices – different airports have different configurations

Influence cost of alternatives by imposing levies on them (eg. taxis)

Investment in multi storey car parks - $165 million (Brisbane, Melbourne and Sydney)

Short term spaces increased by 4% and daily throughput by 9%

Long term spaces increased from 9,800 to 27,000

Parking – a major revenue generator in Australia Melbourne’s parking revenue as a share of total revenue was the highest at 21% and Sydney’s the lowest at 7%. Source: ACCC Airport Monitoring Report 2007-08, March 2009 Combined Adelaide, Brisbane, Melbourne, Perth & Sydney Aero Non-Aero Total Revenues $ 911,458 41% $ 1,287,237 59% $ 2,198,695 Operating Profit $ 411,481 29% $ 1,014,154 71% $ 1,425,635 % 45% 79% 65% Highest Proportion Non-Aero revenue to total Bris/Perth 64% Lowest Proportion of Non-Aero revenue to total Adelaide 42% Highest profit margin of Non-Aero Sydney 82% Lowest profit margin on Non-Aero Adelaide 42%

The upward trend Inflation over the period: 19.2% Data: average of 5 Australian Airports (from ACCC report) Short term parking prices

The upward trend Long term parking prices Inflation over the period: 19.2% Data: average of 5 Australian Airports (from ACCC report)

The upward trend PARKING FEE INCREASES ARE NEEDED TO: Cover rising cost of security Compensate for decreasing passenger volumes Investment in multi-storey parking facilities Higher expectations: Parking guidance systems Licence plate recognition equipment Covered walkways Improved lighting

PARKING FEE INCREASES ARE NEEDED TO:

Cover rising cost of security

Compensate for decreasing passenger volumes

Investment in multi-storey parking facilities

Higher expectations:

Parking guidance systems

Licence plate recognition equipment

Covered walkways

Improved lighting

The upward trend Note: the Sydney Airport price for 4 hours is valid up to 24 hours Airport Millions of passengers Private or Govt Return taxi fare Short Term Long Term 1 hour 4 hours 24 hours 24 hours 3 days 7 days AUSTRALASIA Cairns 3.8 P $ 35 $ 5 $ 10 $ 16 $ 16 $ 44 $ 100 Christchurch 5.9 P $ 65 $ 3 $ 9 $ 18 $ 20 $ 61 $ 143 Adelaide 6.7 P $ 32 $ 4 $ 14 $ 30 $ 25 $ 50 $ 70 Perth 9.2 P $ 70 $ 5 $ 9 $ 26 $ 17 $ 51 $ 79 Auckland 13 P $ 114 $ 8 $ 18 $ 31 $ 31 $ 57 $ 103 Brisbane 19.0 P $ 69 $ 12 $ 20 $ 50 $ 30 $ 70 $ 140 Melbourne 22.9 P $ 85 $ 12 $ 36 $ 49 $ 49 $ 99 $ 99 Sydney 32.5 P $ 50 $ 15 $ 52 $ 52 $ 25 $ 60 $ 114 EUROPE Edinburgh 9 P $ 58 $ 8 $ 14 $ 31 $ 14 $ 42 $ 97 Heathrow 66.9 P $ 212 $ 8 $ 27 $ 87 $ 30 $ 91 $ 204 Madrid 40 G $ 93 $ 17 $ 37 $ 65 $ 65 $ 119 $ 214 Southampton 1.9 P $ 7 $ 15 $ 43 $ 19 $ 57 $ 133 Zurich 22.1 P $ 135 $ 7 $ 17 $ 47 $ 47 $ 117 $ 234 ASIA Bangkok 41.2 G $ 21 $ 1 $ 3 $ 8 $ 8 $ 25 $ 59 Hong Kong 47.8 G $ 90 $ 3 $ 12 $ 36 $ 21 $ 63 $ 147 Kansai 16.7 P $ 426 $ 5 $ 20 $ 50 $ 50 $ 150 $ 351 USA Dallas/FW 57.9 G $ 100 $ 2 $ 6 $ 13 $ 16 $ 49 $ 114 JFK 47.8 G $ 105 $ 7 $ 28 $ 38 $ 21 $ 63 $ 147

Forbes survey – most expensive US Airports Source: forbes.com – 15/12/2006 – Australian prices current as of Oct 09 US $ Daily rate US $ Weekly rate Chicago O'Hare $ 50 $ 350 Washington National $ 36 $ 252 LA International $ 30 $ 210 New York La Guardia $ 30 $ 210 Boston Logan $ 24 $ 168 Newark $ 24 $ 168 Phoenix Sky Harbor $ 20 $ 140 Denver $ 18 $ 126 Minneapolis St Paul $ 18 $ 126 Orlando $ 17 $ 119 Dallas Forth Worth $ 17 $ 119 Melbourne (multi level L/T) $A 49 $A 99 Sydney Domestic (multi level) $A 52 $A 364 Sydney International $A 50 $A 139

Airport vs CBD prices - Sydney ** Refer previous note for Sydney Airport Sources: current rates from car park websites Sept 09; 2004 rates from PCI file data and ACCC report Sydney CBD Car Parks 2004 Rates Current Rates 1 hour 4 hours All day 1 hour 4 hours All day 131 Macquarie Street $ 18 $ 46 $ 53 $ 28 $ 63 $ 70 Governor Phillip Tower $ 12 $ 36 $ 45 $ 27 $ 63 $ 69 Chifley Tower $ 17 $ 44 $ 53 $ 25 $ 65 $ 65 Australia Square $ 16 $ 52 $ 52 $ 25 $ 68 $ 68 155 George Street $ 15 $ 44 $ 49 $ 17 $ 55 $ 55 Average $ 16 $ 44 $ 50 $ 24 $ 63 $ 65 Sydney Airport (Short Term) $ 12 $ 25 $ 37 $ 15 $ 52 $ 52 1 hour 4 hours All day CBD % Increase 2004 - 2009 56% 41% 30% Airport % Increase 2004 -2009 25% 108%** 41%

How prices are (should be?) set Competitor and alternative transport prices Expected return on investment for new parking development Market pricing

Competitor and alternative transport prices

Expected return on investment for new parking development

Market pricing

How prices are (should be?) set “ Propensity to Park” % of car park transactions/passenger movements (inbound/outbound)

Competitor and alternative transport prices Example 1: Melbourne Airport Return taxi fare to CBD $86 7 days’ parking in remote long term car park (outdoor) $69 7 days’ parking in multi level long term car park (undercover) $99 7 days’ parking in short term car park (undercover) $280 Skybus link to CBD (return) $26 Andrews’ Car Park: 7 days’ parking (undercover) $89 or (open air) $69 1 day parking in CBD $35 - $48 1 day parking in short term car park $49

Competitor and alternative transport prices Example 2: Adelaide Airport Return taxi fare to CBD $40 7 days’ parking in long term car park $70 7 days’ parking in short term car park $210 Off airport (AS Parking) $95 Skybus link to CBD (return) $16 1 day parking in CBD $15 - $20 1 day parking in short term car park $30 Note: all parking at the airport is outdoors

Competitor and alternative transport prices Example 3: Christchurch Airport (NZ$) Return taxi fare fare to CBD $100 7 days’ parking in remote long term car park (outdoor) $57 7 days’ parking in short term car park (outdoor) $110 7 days’ parking in premium car park (undercover) $175 Shuttle bus link to CBD (return) $40 Off airport (Craddocks) : 7 days’ parking (undercover) $105 or (open air) $70 1 day parking in CBD $8 1 day parking in short term car park $22

Return on Investment ROI for new car parks: construction costs access control equipment other finishes (lighting, painting, wayfinding) cost of land (opportunity cost) availability of land operating expenses parking charges expected demand

ROI for new car parks:

construction costs

access control equipment

other finishes (lighting, painting, wayfinding)

cost of land (opportunity cost)

availability of land

operating expenses

parking charges

expected demand

Return on Investment Issues to consider in the ROI: at-grade vs. multi storey terminal parking or remote parking LONG TERM CAR PARKING IS LAND INTENSIVE SHORT TERM CAR PARKING IS CAPITAL INTENSIVE

Issues to consider in the ROI:

at-grade vs. multi storey

terminal parking or remote parking

Market Pricing Parking is about three things: SPACE, TIME and MONEY ** Prof. Don Shoup “The High Cost of Free Parking” p. 471

Market Pricing Criteria for market-priced parking system (Adapted for airport situations) Charges should be closely related to the amount of use made of the area It should be possible to vary prices for different areas for different times of the day, week, year or different classes of vehicles Prices should be stable and readily accessible by users before embarking on journey Payment in advance and by credit card should be possible The costs for individual users should be accepted as fair The system should be simple for users to understand The equipment for charging should possess high degree of reliability System should be reasonably free from fraud and/or evasion Source: Smeed Report on Congestion tolls, Britain 1964

Criteria for market-priced parking system

(Adapted for airport situations)

Charges should be closely related to the amount of use made of the area

It should be possible to vary prices for different areas for different times of the day, week, year or different classes of vehicles

Prices should be stable and readily accessible by users before embarking on journey

Payment in advance and by credit card should be possible

The costs for individual users should be accepted as fair

The system should be simple for users to understand

The equipment for charging should possess high degree of reliability

System should be reasonably free from fraud and/or evasion

Marketing

Marketing Marketing with regard to parking prices at airports needs to relate to: Marketing of the “product” Use of website is very important Ability to pre book/pre pay on line Ability to check availability of parking spaces in preferred area via mobile or PDA prior to arrival at airport Clear and concise car park plans showing location of parking options Clear and concise signage and wayfinding when on site (including parking guidance) Offer discounts to “frequent parkers”

Marketing with regard to parking prices at airports needs to relate to:

Marketing of the “product”

Use of website is very important

Ability to pre book/pre pay on line

Ability to check availability of parking spaces in preferred area via mobile or PDA prior to arrival at airport

Clear and concise car park plans showing location of parking options

Clear and concise signage and wayfinding when on site (including parking guidance)

Offer discounts to “frequent parkers”

Marketing Marketing with regard to parking prices at airports needs to relate to: Marketing of the “concept” (counter-intelligence) Anticipate customer queries regarding parking prices (eg. Sydney Airport Fact sheet published July 2009) Provide ability to check prices for alternative modes of transport via own website (eg. taxi prices) Highlight benefits and value added services (valet, car wash, free newspaper, water, pet boarding facilities, etc.)

Marketing with regard to parking prices at airports needs to relate to:

Marketing of the “concept” (counter-intelligence)

Anticipate customer queries regarding parking prices (eg. Sydney Airport Fact sheet published July 2009)

Provide ability to check prices for alternative modes of transport via own website (eg. taxi prices)

Highlight benefits and value added services (valet, car wash, free newspaper, water, pet boarding facilities, etc.)

Interviewed for the Forbes article, Pat Gleason, vice president of the Center for Airport Management (Portland, Oregon) said: “ Some airport parking rates are determined by contract; at other airports, the average parking rate as to equal or exceed that of competitive airports around a specific formula. And some airport parking pricing is driven by the market. The greater the demand for on-airport parking, the higher the rate.”

According to Prof. Donald Shoup: “ When many parking spaces are empty at any location, the price is too high. When all the parking spaces are full, the price is too low. When a few vacant spaces are available everywhere, prices are just right.” The right price for parking is thus like the US Supreme Court's definition of pornography: "I know it when I see it”.

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