Valuing Airports: Key Factors And Complexities

Valuing an airport is a complex process that has evolved over time. Airports are no longer public utilities but commercial enterprises, and their valuation is based on the value of their component assets. Traditional cost approaches to valuation are being challenged, and new methods are being explored. The volatile nature of the aviation industry and the impact of privatisation have also affected how airports are valued.

The separability of assets

Airports are no longer public utilities but commercial enterprises, and so traditional cost approaches may not apply to their valuation. Instead, the value of an airport is based on the valuation of its component assets according to common property valuation methods.

A peer group analysis shows that only a few sector multiples applied by the investors’ community are significantly correlated with key performance indicators based on business fundamentals. By contrast, market multiples are affected by stock market fluctuations and do not adequately reflect the financial position and true value.

Therefore, airports should be valued by recognising key success factors. This involves taking into account the underlying key value drivers and deriving a model that accounts for these drivers.

Commercial vs. public enterprise

Airports are no longer public utilities but commercial enterprises. This means that traditional cost approaches to valuation may not be appropriate. Instead, airports can be viewed as specialist property companies consisting of a series of separable components which can be valued using common property valuation methods based on value rather than cost.

The value of an airport is based on the valuation of its component assets according to common property valuation methods. A peer group analysis shows that only a few sector multiples applied by the investors' community are significantly correlated with key performance indicators based on business fundamentals. By contrast, market multiples are affected by stock market fluctuations and do not adequately reflect the financial position and true value.

One paper argues that airports should be valued by recognising key success factors. It reviews traditional and alternative valuation measures, illustrated by a sample of eight publicly quoted European airports. The main objective is to derive a model that takes account of the underlying key value drivers.

Another paper explores the business model, ownership and the importance of non-aviation business for an airport. It examines the principles of company valuation and International Accounting Standards in determining an airport's value.

The role of non-aviation business

Airports should be valued by recognising key success factors. This includes the importance of non-aviation business, which can be viewed as a specialist property company consisting of a series of separable components. These components can be valued using common property valuation methods based on value rather than cost.

A peer group analysis of eight publicly quoted European airports showed that only a few sector multiples applied by the investors’ community are significantly correlated with key performance indicators based on business fundamentals. By contrast, market multiples are affected by stock market fluctuations and do not adequately reflect the financial position and true value.

Therefore, the role of non-aviation business in airport valuation is to recognise the underlying key value drivers and to value the airport's component assets accordingly.

Company valuation principles

Airports are no longer public utilities but commercial enterprises. This means that traditional cost approaches to valuation may not apply. Instead, airports can be viewed as specialist property companies consisting of separable components which can be valued using common property valuation methods based on value rather than cost.

The value of an airport is based on the valuation of its component assets according to common property valuation methods. A peer group analysis shows that only a few sector multiples applied by the investors’ community are significantly correlated with key performance indicators based on business fundamentals. By contrast, these market multiples are affected by stock market fluctuations and do not adequately reflect the financial position and true value.

Therefore, airports should be valued by recognising key success factors. This includes the business model, the ownership and the importance of non-aviation business for an airport.

The highly volatile nature of the aviation industry should also be taken into account when valuing an airport. Despite this, it is one of the fastest-growing industries in the world, and global airline profitability has increased over the last five years.

Key success factors

As airports are no longer public utilities but commercial enterprises, they should be valued by recognising key success factors. An airport's value is based on the valuation of its component assets according to common property valuation methods.

• Business model: An airport can be viewed as a specialist property company consisting of separable components. Each component should be valued using common property valuation methods based on value rather than cost.
• Ownership: The ownership structure of an airport will impact its value.
• Non-aviation business: The importance of non-aviation business for an airport should be considered when valuing an airport.
• Global airline profitability: Global airline profitability has increased over the last five years, which has likely impacted the value of airports.
• Competition: Airport privatisation has increased competition by diluting monopolies and reducing governmental control on costs. This increased competition may impact the value of airports.

Frequently asked questions