This content highlight you with how airport generate it's revenue and cost of airport. It will help the reader to understand the overall activities in generation of income in airports

1. UNIT 6
AIRPORT ECONOMICS

2. Unit Objectives
At the end of this unit, you should be able to:
 Explain Airport economic characteristics
 Identify Airport aeronautical charges
 Identify Airport commercial revenues
 Understand Airport regulation and ownership
 Perform Airport performance benchmarking

3. (a) Airport Economic Characteristics
 Economics of air transport infrastructure consists of
airports and air traffic services required by airlines to
operate air transport services.
 Airports provide runways, taxiways, apron and
terminal building facilities for airlines carrying
passengers or cargo.
 Airlines must pay for the costs of these infrastructure
through a set of airport user charges.

4. Air Traffic Services (ATS)
 Air Traffic Services include communication,
navigation and Air Traffic Control (ATC) provided to
airlines flying between two airports.
 Again ATS costs are in most cases covered by user
charges paid by airlines (and in turn, by its passengers
and shippers).
 User charges is the key of both airports and air traffic
services economics.

5. ATS
 In some countries ATS is separated from airports
authorities.
 In Tanzania ATS is provided by the Regulator of sector,
TCAA
 ICAO recommends that ATS must be separated from
the Regulator of the sector.

6. Principles of Establishing User
Charges
 1. Airports can collect full costs of the services provided
from users, including a reasonable rate of return on
investment.
 2. Users should be consulted before significant
changes are made to the fee structure or level of user
charge
 3. Airports should make financial information
available to the users to ensure that the charges relate
to the costs of providing services.

7. Principles of Establishing User
Charges
 4. providers must not discriminate between foreign
and national air carriers, or carriers of different
countries in applying the charges.
 5. Movement towards full cost recovery, or any
increases in user charges, should be gradual.
 6. The structure of user charges should be as simple as
possible.

8. Airport Costs
 Expenses incurred by airports are of two types –
operating and capital. Operating costs these are the
ones incurred by airports to meet their daily
operational costs while capital involves management
of capital its self in its structure.

9. Airport Costs as “Cost Items”
 ICAO has developed an airport cost
categorization scheme that recommends that
airport costs be classified both by cost item
and by area of service (or cost
center).

10. Cost Items
 Cost Items include the following:
 Direct personnel costs (wages and benefits)
 Supplies and externally provided services
 Depreciation and amortization
 Taxes
 Interest
 Administrative overheads
 Other expenses

11. Area of Service (Cost Center)
 The ICAO airport cost classification scheme requires that
airports operators to allocate each of the cost items to the
following areas of service or cost center:
 Aircraft Movement Areas (runways, taxiways, apron etc)
 Hangar and Maintenance Areas
 Air Traffic Control and Communications
 Meteorological services
 Fire-fighting, ambulance and security services
 Passenger and cargo terminal facilities
 Other facilities and services

12. (b) Sources of Revenue for Airports
 Airports Revenue are Categorized to revenue centers
which establishes a basis for the type of financial
transparency suggested in the overall principles of air
transport infrastructure charges.

13. Objectives of Revenue Centers
 These revenue centers are used by airport operators to:
 Group services or facilities together to set revenue
targets and collect user charges
 Allocate costs associated with services or facilities
in each revenue center in order to establish user
charges that can be defended as being related to the
airports operating costs.

14. Examples of Airport
Cost Centers & Revenue Centers
Cost Centers Revenue Centers
 Airfield Area
 Passenger terminal
 Hangars
 Cargo terminals
 Landside area
 General and
Administrative
 Landing/Air traffic
charge
 Rentals or concessions
 Airline Leasing charges
 Other leased charges
 Car Parking fees/rentals
 Other Operating areas

15. Types of Airport Revenues
Regardless of how an airport defines its revenue centers,
airports have essentially two sources of revenues:
 Aeronautical Revenues: These revenues are paid
by airlines operators that used the airport airside
services and facilities, in the form of user charge.
 Non-aeronautical revenues: These are collected
from concessionnaires, meaning businesses that use
the airport land side to make their own profit such as
restaurants, duty free shops, other shops, car
parking, hotels, office premises, display,
amusements, etc.

16. (i) Aeronautical Revenues
 The Airport Aeronautical Revenues are also called
Airport Aeronautical Charges
 These revenues are paid by air transport operators as
fees for the use of the airport airside/airfield services
and facilities provided by the airport operators.
 They are paid in the form of user charges.
 They are being used by airports operators as source of
revenues.
 The most common types of user charges are:

17. Cont..
 Landing Fees
 Aircraft Parking fees
 Air Navigation Charges
 Passenger service fees
 Aviation security charge
 Lighting charge
 Aerobridge charge

18. Cont..
 Airport noise fees
 Airport emission fees
 Fuel flowage fees
 Hangar fees
 Cargo service fees
 Ground Handling fees

19. (ii) Non-aeronautical Revenues
 The Airport Non-aeronautical Revenues are also
called Airport Commercial Revenues.
 These are revenues collected from concessionnaires,
meaning businesses that use the airport land side to
make their own profit.
 These business are such as restaurants, office
premises, duty free shops, other shops, display
advertising, amusements, car parking, hotels and
motels,, ground transportation, etc.

20. Examples of aeronautical charges in Tanzania
(i) Passenger Service charges
 Domestic Flight = Tshs. 10,000.00
 International Flight = USD 40.00
(ii) Air Navigation Charges
 Various rates between USD 60 - USD 104
depending on aircraft weight and time of the day.

21. Cont..
(iii) Landing charges
Airport Charge Per 1,000kg
Dsm, Klm, Zb, Pemba USD 5.00
Dodoma, Kigoma, Mtwara,
Mwanza, Songea, Tabora, Tanga.
USD 4.5
Arusha, Bukoba, Iringa, Kilwa, … USD 4.00
Other government aerodromes USD 3.00

22. Cont..
(iv) Parking charges
Aircraft Weight Charge Per Aircraft (After the first 2 hours)
Aircraft Registered
in Tanzania
Foreign Registered
Aircraft
Up to 20,000kg Tshs. 1,000 per 6hrs
or part thereof
USD 5.00 per 12hrs
or part thereof
20,000 –
60,000kg
Tshs. 1,000 per 6hrs
or part thereof
USD 5.00 per 6hrs
or part thereof
More than
60,000kg
Tshs. 1,000 per 6hrs
or part thereof
USD 5.00 per hrs
or part thereof

23. Aeronautical Charges in other countries
Country Passenger service fee Parking fees
International Domestic
Uganda USD 40 Ushs.
3000
> 270,000kg
USD 100 per 24hrs
Kenya
(Wilson airport)
USD 20 Kshs. 300 > 300,000kg
USD 130 per 24hrs
UK
(Heathrow airport)
£44.41 £31.63 Wide bodied aircraft
£ 52.49 per 15min.

24. (c) Airport regulation and ownership
 There are several different governance models being
used to operate airports.
 In many countries, airports are still the responsibility
of some level of government either directly, by the
Department of Transport, or indirectly, by an agency
or corporation.
 Elsewhere, models embrace some degree of
privatization such as the Airport Authority model or
private corporation governance. The major models are
summarised below.

25. (i) Operation by Federal Government
Department
 This was the model used in Canada and has been the
traditional model in most other countries, with the
Federal Government owning and operating airports.
 Typically, airports are the responsibility of a
Department/Minister of Transport.
 The Department will generally oversee regulation, air
traffic control, and air navigation and in some case
operate a national airline in addition to airport
operations.

26. (ii) Operation by Municipal Governments
 This model has been unique to the U.S. Many
airports, large and small are run directly by the city as
an administrative department. Chicago, San Francisco
and Los Angeles are examples.
 In some cases, the city run airports and establish
boards which provide an advisory role.
 However, the board has limited powers and is
specifically excluded from day to day operation
decisions of the airport. City Council and the Mayor
are the ultimate decision makers.

27. (iii) Operation by Government Agency
 This is a variation of the Government Department
format. In this model all aviation matters are assigned
to a semi-independent government agency, rather than
being a direct responsibility of the
department/Minister of Transport.
 The department is responsible for the establishment of
broad policy toward aviation, but the Agency is
responsible for day to day establishment of
regulations as well as operations.

28. (iv) Operation by a Government Corporation
 This format vertically separates the airport system by
disconnecting operations from regulatory functions.
 The Department of Transport retains direct
responsibility for the establishment and enforcement
of regulations for airports but operations are assigned
to a government owned corporation, eliminating
conflict of interest.
 Although the corporation will report to the
Department of Transport, it has a degree of
independence due to its corporate structure.

29. Cont..
 While a departmental operation requires that all
airport expenditures must go through the annual
government budget review process, a government
corporation has some independence in its financial
planning.
 In some cases the government corporation has the
ability to issue bonds to finance major projects,
removing it somewhat from the vagaries of the federal
budgeting and political process.

30. (iv) Airport Authority
 It is used in Canada as a private sector corporate
alternative to the government corporation.
 Here, the airport authority governance concept is that
of a private sector corporation which operates an
airport.
 To distinguish the airport authority concept from the
private corporation concept discussed later, the term is
applied to the governance model where the private
sector corporation is not-for-profit, and thus has no
shareholders (or shareholder paid in equity).

31. (vi) Joint Government/Private Corporations
 Under this model, the airport is governed via the
corporate format, but there is some private
participation in the ownership of the airport.

32. (vii) Private Corporation
 This is when the airport corporation is wholly owned
by a private for-profit corporation.
 The airport may be publicly traded with ownership
dispersed among a number of shareholders (e.g., BAA
plc which operates the London UK airports, among
others), or closely held (e.g., TradePort Corporation
which leases and operates the Hamilton Ontario
airport).

33. PPP Options for Airports Infrastructure
 Public Private Partnership (PPP) process, is a process
in which government or airport authority transfers the
exclusive rights to a private operator or investor
through a development contract to develop and/or
operate the airport or airport facility under certain
conditions for a fixed period.

34. Cont..
 Governments offer traditionally public assets to
private sector lease holders and operators to boost
cash flow.
 This is due to lack of capacity of governments to
finance the capital expenditures needed to expand and
modernize airport infrastructure

35. PPP Models
PPP can be done in the following ways:
 Individual facility vs. entire airport contract
 Build Operate and Transfer (BOT) contract
 Build Operate and Own (BOO)
 Concession contracts
 Management contracts

36. PPP Models None Revenues Airports
Again, the PPP for non revenue airports can be done in
the following ways:
 Built, Operate, and Lease (BOL )
For airports not generating enough revenues
 Built, Design, and Finance

37. Objectives of PPP
PPP is considered to serve the following purposes:
 To obtain capital to modernize and expand
infrastructure; (Private Equity)
 To recover public funds invested on an operating asset
 To achieve the efficiency improvements and
innovations typically associated with private sector
management; or
 To achieve clearer separation among policymaking,
regulation, and operations.

38. Advantages of PPP
 Reduction of operating costs
 Improved marketing and ability to attract more airline
services and passengers
 Improve the competitive position of an airport within
its region
 Consideration of innovative designs and more cost-
saving approaches in construction programs

39.  Improve quality of services
 Flexibility and ability to respond more rapidly to
market changes
 Higher labor productivity
 Ability to increase concession revenues from
commercial operations
 Flexibility in procurement and operating procedures
Cont..

40. (d) Airport Performance Benchmarking
 Airports operate under very different circumstances in
terms of aviation activities, commercial activities, site
constraints, governance and ownership structure, etc.,
and as a result, individual airports will find different
performance indicators to be most relevant and useful.
 For example, privatized airports are likely to focus on
different financial PIs than non-profit government-
owned airports.

41. Cont..
 Larger airports are likely to focus on different PIs than
smaller airports. Airports with large developable land
areas are likely to focus on different PIs than tightly
constrained airports in large urban areas.
 Even among airports with similar characteristics,
managers will have different views regarding which
PIs are most important, and how many PIs the
airport should track.

42. Cont..
 A smaller set of closely-monitored PIs is likely to be a
more effective performance management tool than a
larger set of PIs that attracts less focus.
 And over time, the set of PIs of most importance to
the individual airport will change as new issues arise.
A key example of this is the currently evolving area
of Environmental PIs, which until recently was not a
key performance management area for many airports.

43. Types of airport benchmarking
Airport benchmarking is divided into two types of
comparisons:
 Internal (or self-benchmarking): An airport compares
its performance with itself over time.
 External (or peer benchmarking): An airport compares
its performance against other airports, either at a
single point in time or over a period of time.

44. Classification of Performance Indicators
There are five classes/categories of performance
indicators
 Key/Core performance indicators
 Safety and Security performance indicators
 Service Quality performance indicators
 Financial/Commercial performance indictors
 Environmental performance indicators

45. Core/Key Performance Indicators
Core indicators are used to track the fundamental
measures of airport activity, such as passengers and
operations.
There are five types which are:
 Passengers
 Origination and Destination Passengers
 Aircraft Movements
 Freight or Mail Loaded/Unloaded
 Destinations—Nonstop

46. (i)Passengers (total annual)
 Definition
Passengers, including embarking and disembarking,
measured over the course of a year.
 Applicability
All commercial service airports

47. Cont..
 Drivers
Primary drivers are local demand and airline route
planning and pricing decisions (which will influence,
among other things, number of transfer passengers).
 Benchmarking
As a Core PI, most useful for internal benchmarking
to track growth or decline from year-to-year, and to
identify other airports of similar size for further study.

48. (ii)Origination and Destination Passengers
(total annual)
 Definition
Passengers whose air travel begins or ends at the
airport, measured over the course of a year. Excludes
passengers who are changing planes at the airport to
embark on a flight to another destination. A passenger
who makes a round-trip is counted as two Origination
and Destination (O&D) Passengers.

49. Cont..
 Applicability
Applicable primarily to airports with a significant
number of connecting passengers. For other airports,
the number of O&D passengers will be approximately
the same as the number of total passengers.

50. Cont..
 Drivers
Primary drivers are local demand, competing airports
in the same catchment area, and airline route planning
and pricing decisions.
 Benchmarking
As a Core PI, most useful for internal benchmarking to
track growth or decline from year-to-year, and to
identify other airports of similar size for further study.

51. (iii) Aircraft Movements (total annual)
 Definition
Aircraft take-offs or landings at an airport, measured
over the course of a year. One arrival and one
departure are counted as two movements.
 Applicability
All airports

52. Cont..
 Drivers
Primary drivers are local demand and airline route
planning and pricing decisions.
 Benchmarking
 As a Core PI, most useful for internal benchmarking to
track growth or decline from year-to-year, and to
identify other airports of similar size for further study.

53. (iv) Freight or Mail Loaded/Unloaded
(total annual tonnes)
 Definition
Freight or mail loaded or unloaded at the airport,
measured in metric tonnes over the course of a year.
 Applicability
All airports with freight

54. Cont..
 Drivers
Primary drivers are local demand and airline route
planning and pricing decisions.
 Benchmarking
As a Core PI, most useful for internal benchmarking to
track growth or decline from year-to-year, and to
identify other airports of similar size for further study.

55. (v) Destinations - Nonstop
 Definition
Number of airports with nonstop service, including
destinations with only seasonal service, measured over
the course of a year.
 Applicability
All commercial service airports

56. Cont..
 Drivers
Primary drivers are local demand and airline route
planning and pricing decisions.
 Benchmarking
As a Core PI, most useful for internal benchmarking to
track growth or decline from year-to-year, and to
identify other airports of similar size for further study.

57. THE END