2.2 Operational Characteristics
2.2.4 Airport Management
Airports of any size are essential elements of the air-transportation system, provid- ing infrastructure that most of the time enables passengers, baggage, and freight to be readily transferred. And major airports have evolved into mini-cities, with the attendant operating procedures and problems that all big cities face. Traffic control, security and fire protection, shopping, restaurant, lodging, parking, trash collection, and fueling are among the many functions performed, and all functions have an environmental as well as economic impact on the surrounding region. In a major hub like Atlanta, for instance, more than a thousand flights a day with around 128 planes landing every hour on five parallel runways are operated.
Airports are, in brief, the nodes of a physical Internet—energized by global considerations of time and cost rather than space—through which one-third of all
the goods traded in the world ($3.5 trillion in 2016) travels via airfreight.29As such, their geographical and financial destinies are deeply entwined with those of the nearby cities that they serve and sometimes spawn.
Because of these characteristics, airports are operated and financed through many different private and public ownership and management configurations. In the United States, which has the largest and most extensive aviation system, there are more than 3,000 national system airports that qualify for federal assistance, 400 primary airports, and 2,700 general aviation facilities. Whereas airports in most other countries are owned and operated by national governments, commercial airports in the US are publicly owned by a municipality or public agency and are usually financed by issuance of tax-exempt general airport revenue bonds (GARBs) supported by a varying mix of aviation revenues, user-specific taxes, and passenger facility charges (PFC). The various fees paid by airlines would typically account for 40–60 % of total airport revenues.
On an operational basis, revenues are usually categorized as either aeronautical (i.e., fees for passenger arrivals, landing, aircraft parking, etc.) or non-aeronautical (i.e., terminal concessions, rents, shopping, car parking, etc.). Overall, landing and passenger fees are by far the most important sources within the first category and concessions and rents are the most important in the second.30A 2015 ACI Airport Economics Survey covering more than 652 airports carrying around 70 % of the world’s passenger traffic, for instance, found that charges as a percent of total revenues of US$130.9 billion could be categorized as:
29For Lindsay (2011) and Kasarda and Lindsay (2011), the largest of such airport cities, formed over the last decade for the specific purpose of becoming important international long-haul transport hubs, is anaerotropolis.Creation of on-site hotel complexes, as described in Zipkin (2015b) have accordingly become necessities. An early prototype was Dallas/Fort Worth Interna- tional Airport, designed in the 1970s to be a planned city, hub, and office park that would generate economic growth. Measurement of economic and environmental impacts are typically approached through use of input–output (I/O) tables and economic multipliers relating to employment, incomes, etc. and are often stated, for example, in terms of jobs (or whatever) per million passengers per annum (mppa). Multiplier and I/O analysis are discussed in Chap.7in relation to tourism impacts. The importance of time, cost, and accessibility and the $3 trillion airfreight estimate appear in Kasarda and Lindsay (2011, pp. 10–17). See also Carey (2011b), Gillan (2013), and Mouawad (2014b).
30According to a 1999 survey by the Airport Council International (ACI), just under half of all airport revenues were aeronautical, with the highest non-aeronautical percentages of total revenues in the wealthier North America and Europe markets and the lowest in Africa, Central, and South America. Wayne (2009) writes that in the US two-thirds of all airport revenue comes from nonairline sources such as retail concession-fees, car rental surcharges, and facilities charges.
See Cohen (2006), in which the privatization and fee-structure battles at Charles De Gaulle Airport in Paris are reviewed. Also see Michaels (2008c) about the benefits of British Airway’s move to new Heathrow Terminal 5, Michaels (2005), and McCartney (2006b, 2008b). McCartney (2010d) discusses more efficient takeoff reservations. Hammer (2015) writes about the problems in opening Berlin’s new Brandenburg Airport. The Airports Council International (www.aci-na.
org) represents more than 1700 airports in 170 countries and provides research and data on various airport management topics. See also McCartney (2016) on costs at LAX.
2.2 Operational Characteristics 71
Passengers 42 %
Landing 21
terminal rentals 12
ground handling 4
other 13
Source:Airport World, April 2015 available at:http://issuu.com/airportworldmagazine/docs/aw1- 2015
Meanwhile, total operating costs amounted to US$106.5 billion (operating 62 %/
capital 38 %), with the distribution of non-aeronautical income being 27 % from retail concessions, 20 % from car parking, and 18 % from real estate income or rent.
Another more pragmatic categorization, however, breaks revenues into three mainopportunities: aviation services for airlines: retailing for passengers, and real- estate. The steadiness of retail and real-estate revenues will often offset the vola- tility from aviation service income.
Among the factors that most affect the level and structure of costs and revenues, but over which airport managers have the least control, are the volume and nature of traffic. These elements, in turn, depend on location (i.e., mountains, plains, usual weather conditions, etc.), environmental restrictions (i.e., night-flight and noise limitations); peak-to-trough traffic differentials if the facility is a hub; and the mix of international versus domestic passenger loads. Domestic traffic, of course, does not require additional space for customs and immigration and for the larger number of bags usually carried by international passengers.31In 2016, the world’s top 25 busiest airports handled more than 50 % of global traffic.
Three important trends in airport management have become evident in recent years: commercialization, privatization, and globalization. Each of these trends has been driven by traffic growth and the ongoing needs for large-scale capital investments.32
Commercialization is a means of capturing additional revenues from the pas- sengers and freight that pass through an airport’s facilities. By providing convenient shopping, maintenance, and other services to airlines and their customers, an airport
31To measure and compare efficiency, airport managers will generate metrics related to the number of passengers or tons of freight loaded and aircraft moved but may also use a unit cost measure known as awork load unit(WLU), defined as carriage of one passenger or 1 kg of freight.
Airport throughput units (APU) are then equal to WLUs divided by air transport movements (ATM), that is, APU¼WLU/ATM. For purposes of financial analysis, it is also often useful to make airport efficiency comparisons for labor productivity in terms of WLU per employee, capital productivity in terms of WLU per total assets, and revenues per WLU, cash flow (Ebitda) per WLU, or enterprise value (EV) per WLU. See Graham (2001; Graham and Glaister 2002), Wells and Young (2003), Ashford et al. (1996), and Forsyth et al. (2004) on regulation of airports and McCartney (2006b) about air taxi congestion concerns. Mouawad (2012f) notes that departure delays are related to the number of slots and proximity of other major airports. See also Donohue and Shaver (2008), Clark (2012b, c), and Mouawad (2012a).
32This was noted by Graham (2001), Graham and Glaister (2002). See also Jorge-Calderon (2014) and Ashford and Moore (1992).
is also able to build a brand that can be used to build share of market and can be extended to other managed or owned airports in other cities or other countries. Such standardization leads to globalization from which administrative and financing as well as operating costs can be reduced on a per unit basis. Training of personnel, bulk buying of insurance, joint vehicle purchases, and centralized accounting may all be consolidated to achieve cost savings; economic risk is meanwhile reduced by diversification to other country or regional environments where business cycle and political conditions may be different and offsetting.
And because development of other local business enterprises is supported by such efforts, airports also have an incentive to compete for carriers, luring them with special discounted fee arrangements (that might include lower taxes and reduced landing fees, servicing, and parking charges). Yet, even so, around 67 % of the world’s airports operated at a net loss, according to a 2013 Airports Council International report. These losses are primarily concentrated in the 80 % of airports handling less than one million passengers a year: Size and traffic flows and geography clearly matter.
Still, globalization often further leads to airport privatizations of which there are five basic types: issuance of shares to the public (i.e., flotations), trade-sales; conces- sions; management contracts; and project financings. With issuance of public shares, the original owner, usually a governmental body relinquishes most, if not all, operating control to managers selected by the new private owners. This differs considerably from the situation in a so-called trade-sale in which some or all of an airport’s assets are sold to a trade partner or consortium of strategic investors with operational as well as financial capabilities. Concession purchases, in contrast, provide a lease to operate airport facilities over a long period, say 20–30 years and require payment of a large initial fee followed by annual fees based on a percentage of airport revenues and/or profits. Such arrangements are, in effect, long term management contracts, the least radical and perhaps most common of the privatization options.
Project finance privatizations that would be used to build or redevelop existing facilities will also often play important roles in airport management planning.
Although there might not be any upfront payment requirements in a project finance deal structure, the builder-operator would usually bear all costs and retain most, if not all, revenues for an extended period of time. Such arrangements are generically denoted as build, operate, and transfer (BOT) deals, although several variants exist.33The attraction to private investors is that competition from other airports
33Important variants include build-transfer (BT), build-rent-transfer (BRT), and design-construct- manage-finance (DCMF). Unlike elsewhere, in the United States airports and airlines enter into unique binding contracts known as airport use and lease agreements which detail the fees and rental rates that airlines are obligated to pay for use of airfields and terminals. Such agreements may further relate to allocations of landing slots and whether runway fees are based on maximum takeoff weight (MTOW) or are fixed per landing, no matter what the type of aircraft. The reason for this structure in the US is that private bondholders require detailed information concerning such formal arrangements. More details appear in Ashford and Moore (1992). See also Pitt and Norsworthy (1999), Schoenberger (2003), Williams (2006), Carey and Nicas (2013a), and Carey (2014b). Michaels and Merrick (2009) discuss airport debt problems. Barboza (2013) writes about China’s airport building spree. Witz (2013a) is about problems at Ontario, California.
2.2 Operational Characteristics 73
and other modes of transportation is usually limited, there are significant barriers to entry, and airports have potential to benefit from long-term growth of air travel.