Airports: Revenue Streams And Business Models Explored

Airports are big business, with global revenues hitting $131 billion in 2013, a figure that rose to $172.2 billion in 2019. Airport revenues come from aeronautical and non-aeronautical sources. Aeronautical revenue includes airline terminal space rentals, airline landing fees, and usage fees for terminals, gates, services, and passengers. Aeronautical revenue comprises the majority of airport income. Non-aeronautical revenue includes concession sales from duty-free, bookstores, restaurants, and money exchange, as well as car parking, ground leases, and fuel sales. Airports are owned by government bodies and operated by private corporations, and they also receive funding from federal and state governments.

Aeronautical and non-aeronautical revenue

Non-aeronautical revenue is generated from commercial activities within the airport, such as parking garages, car rentals, restaurants, shops, hotels, and lounges. Airports earn money by charging these non-aeronautical companies for their use of space on the airport premises. In 2013, US airports generated $587 million from food and beverage sales, accounting for about 7.2% of non-aeronautical revenue. Airport retail has also evolved to include a wider range of offerings, from designer clothing to local goods, transforming terminals into "travel megastores". Duty-free shops, bookstores, and money exchange services are other significant sources of non-aeronautical revenue. Airports have also started opening their doors to non-travelling locals to increase revenue from these commercial outlets.

The proportion of aeronautical and non-aeronautical revenue varies across airports and countries. For example, Finnish airports have a higher reliance on aeronautical revenue, with 72% of their income coming from aeronautical sources compared to a worldwide average of 60%. Airports with a higher proportion of non-aeronautical revenue may be more vulnerable to economic downturns or disruptions to travel, as experienced during the COVID-19 pandemic, which significantly impacted commercial aviation.

In addition to these primary revenue streams, airports also generate income through other avenues. Airports can receive funding from public and private sources, with many airports being owned by government bodies and leased to private corporations for operation. Airports can also receive grant money from federal or state governments for improvements and upgrades to infrastructure.

Landing fees

In 2013, aeronautical revenue, which includes landing fees, accounted for approximately 55% of total operating revenue for US airports, according to Federal Aviation Administration (FAA) data. This highlights the importance of landing fees in the overall revenue structure of airports.

The rates for landing fees can vary depending on the airport and the specific characteristics of the aircraft. For example, larger aircraft like the Airbus A380 and Boeing 748 may incur higher landing fees due to their increased size and weight. Additionally, congested, slot-controlled airports, such as London Heathrow, may have higher landing fees due to the limited number of slots available.

While landing fees are a crucial source of income for airports, they are just one component of aeronautical revenue. Aeronautical revenue also includes airline terminal space rentals, usage fees for terminals, gates, services, and passenger counts. Airports generate additional revenue through non-aeronautical sources, such as concession revenue from duty-free shops, bookstores, restaurants, and car parking, which together contribute to the overall financial health of the airport.

Commercial revenue

Concession revenue is a significant component of commercial revenue for airports. This includes income from duty-free shops, bookstores, restaurants, and money exchange services. Airports have been expanding their food and beverage options beyond national franchisers to include local restaurants and vendors, increasing their concession revenue. In 2013, US airports generated $587 million from food and beverage sales, contributing to about 7.2% of their non-aeronautical revenue. Airport retail has also evolved to include designer clothing and locally produced goods, transforming terminals into "travel megastores."

Parking garages are another important source of commercial revenue for airports. As more people use airport parking facilities, this revenue stream continues to grow. Additionally, airports generate income from car rentals, with companies paying to operate within the airport premises.

Some airports have taken innovative approaches to increase their commercial revenue. For example, Singapore Changi Airport opened its doors to non-traveling Singaporeans, encouraging them to visit its various outlets. This strategy aimed to boost revenue by attracting customers who may not necessarily be flying but could still contribute to the airport's commercial success.

Grants

In the US, airports are usually publicly owned and receive funding from public and private sources. Local funding is often provided through a general fund allocation, and other local sources may be available. Local funding will vary depending on how the airport is owned and operated, but it is generally provided through tax revenue and usage fees collected by the sponsor or airport operator. Airports that are part of port/airport/special districts and authorities are funded by taxes and fees levied by the entity, and revenues produced by airport activities and other assets.

Smaller airports that are sponsored by cities, counties, and states typically do not generate enough revenue to cover their costs and, as a result, receive some or all of their operating budget from the sponsor’s general fund. Airports that use their sponsor’s general fund often compete with other departments (e.g. schools, emergency services, and public works) for funding. This makes it important for airport managers to convey the airport’s economic benefit, role in emergency and disaster response, and place in the national transportation system to sponsor decision-makers.

State governments may provide funding for aviation as part of their transportation program. State government funding varies greatly across the country depending on how state grants are funded and distributed. Common entities for aviation funds are departments of transportation and aviation. State grants can sometimes be used to fund projects that are not eligible for federal funding, and can be used to make up part or all of the local match for a federal grant.

The Federal Aviation Administration (FAA) also provides funding to airports through the Airport Improvement Program (AIP). This competitive grant program assists airport owners and operators in the development and improvement of the nation's airport system. For example, in one round of funding, the FAA announced $1.9 billion for 519 grants in 48 states and US territories.

Retail

Airports have evolved from being mere infrastructure providers to becoming sophisticated, business-oriented service providers. While aeronautical revenue (income from airline terminal space rentals, airline landing fees, and usage fees for terminals, gates, services, and passenger counts) comprises the majority of airport income, non-aeronautical revenue is becoming increasingly important.

Non-aeronautical revenue includes concession revenue from duty-free shops, bookstores, restaurants, and money exchange, as well as income from car parking. Airport retail, in particular, is evolving from chocolate bars and magazines to designer clothing and locally produced goods, transforming the terminal into a "travel megastore".

In 2013, US airports generated $587 million from food and beverage sales, accounting for about 7.2% of non-aeronautical revenue. The prevalence of smartphones, apps, and other mobile technology has allowed retailers to customize their offerings to target specific customers. For example, Singapore Changi Airport opened its doors to non-travelling Singaporeans to encourage them to visit its various outlets.

In addition to concession revenue, airports also generate income by charging commercial fees to non-aeronautical companies such as parking garages, car rentals, restaurants, shops, hotels, and lounges for their use of space on the airport premises. Airports can also earn money through ground leases, a percentage of fuel sales, and taxes.

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