Lois Larson
Airports have various revenue streams, including aeronautical and non-aeronautical sources. Aeronautical revenue includes income generated from activities directly linked to air traffic, such as flights, landing fees, aircraft parking charges, and passenger security fees. Non-aeronautical sources include retail, dining, advertising, and commercial development. Airports also generate revenue through rents and leases of property and facilities, user fees, fuel flowage fees, and sales of goods and services. They also receive income from airlines, who pay rent for counter and gate space, training facilities, storage facilities, hangars, offices, and maintenance facilities. Airports experiencing high aviation demand can also develop hangars and market property to aviation service providers.
| Characteristics | Values |
|---|---|
| Aeronautical revenue | Landing fees, aircraft parking charges, passenger security fees, baggage handling fees, air bridge fees, etc. |
| Non-aeronautical revenue | Retail, dining, advertising, parking, ground transportation fees, rental car-related fees, etc. |
| Diversification of revenue streams | Exploring new sources of private capital, developing revenue-producing facilities, attracting private development on vacant land, etc. |
| Funding sources | Government interventions, private developers, airport improvement projects, etc. |
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What You'll Learn
Aeronautical revenue: landing and parking fees
Aeronautical revenue is a significant source of income for airports, especially those with limited international flights and connectivity. Landing and parking fees are a crucial part of this revenue stream. Airlines are charged landing fees, which can be influenced by various factors such as weight, the number of seats, time of day, aircraft home airport, and operator class. Some airports, like Santa Monica (KSMO), charge landing fees to discourage general aviation pilots from landing. Landing fees can also vary based on the type of flight, with domestic flights typically being cheaper than international flights to promote national connectivity.
In addition to landing fees, airlines are charged for parking their aircraft at airports. The first two hours are usually free, after which charges are calculated based on the amount of time the aircraft remains parked and its weight, which reflects the space occupied. These parking charges are another significant component of aeronautical revenue for airports.
Beyond landing and parking fees, aeronautical revenue also includes passenger security fees and other charges, such as baggage handling and air bridge fees. These fees are often passed on to passengers in the form of Passenger Service Charges (PSC). PSCs can vary depending on the destination, with international passengers typically paying higher rates.
To attract new airlines and define their commercial incentives, airports may offer discounts on aeronautical charges. The structure of these tariffs also allows airports to influence the type of traffic they attract, such as legacy airlines versus low-cost carriers or domestic versus international passengers.
By optimizing aeronautical revenue streams, airports can enhance their financial resilience and sustainability. These revenue streams are essential for the financial viability of airports, especially when balanced with non-aeronautical income sources such as retail, dining, and advertising.
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Non-aeronautical revenue: retail, dining, advertising
Airports have traditionally relied on aeronautical revenue, such as landing and parking fees, as their primary source of income. However, with the aviation industry facing challenges due to the COVID-19 pandemic and other factors, airports are increasingly looking to diversify their revenue streams and boost non-aeronautical income.
Non-aeronautical revenue includes a range of sources, such as retail, dining, and advertising. Retail and concessions sales are a significant contributor to non-aeronautical revenue. Airports are modernizing the retail experience by offering a wider variety of products, from designer clothing and local goods to duty-free shopping. The rise of smartphones and mobile technology has also allowed retailers to customize their offerings and target specific customers. Airports can further enhance the retail experience by providing digital indoor maps that help passengers navigate the terminal and locate shops and dining options.
Dining and food and beverage sales are another important component of non-aeronautical revenue. Airports are expanding their F&B options to include local restaurants and vendors, providing passengers with a diverse range of choices. Security measures implemented after the September 11 attacks have also resulted in passengers spending more time in airport terminals, increasing their likelihood of purchasing food and drinks.
Advertising is a significant source of non-aeronautical revenue for airports. Airports can sell advertising space in terminals, garages, and other locations to generate income. Digital directory screens serve the dual purpose of providing wayfinding information and displaying targeted advertisements. By balancing aeronautical and non-aeronautical revenue streams, airports can achieve financial resilience and sustainability while also prioritizing passenger experiences.
In conclusion, non-aeronautical revenue from retail, dining, and advertising plays a crucial role in the financial success of airports. By diversifying their income sources and adapting to changing trends, airports can increase their profitability and resilience in the face of economic challenges.
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Passenger charges: PSCs, PFCs
Airports generate revenue through aeronautical and non-aeronautical sources. Aeronautical revenue includes income generated from activities directly linked to air traffic, such as flights, landing fees, aircraft parking charges, and passenger security fees. Passenger Service Charges (PSC) are a type of aeronautical charge levied on each passenger taking off from a given airport. PSC charges vary depending on the destination, with national flights generally being lower, followed by regional flights, and international passengers being charged the highest rates. PSCs can account for up to two-thirds of total aeronautical revenue. Airports also generate revenue from airlines through charges for baggage handling, air bridge usage, and security, which may be included in PSCs or charged separately.
Passenger Facility Charges (PFCs) are another type of passenger charge, collected at commercial airports controlled by public agencies. PFCs are capped at $4.50 per flight segment, with a maximum of two PFCs charged on a one-way trip and four PFCs on a round trip, totaling $18. Airports use PFCs to fund projects that enhance safety, security, capacity, or air carrier competition, such as acquiring new equipment or improving infrastructure.
While aeronautical charges are a significant revenue stream, airports also focus on non-aeronautical sources like retail, dining, and advertising. Airports aim to provide a smooth and enjoyable passenger experience by offering various services and amenities, including an array of food and beverage options, designer clothing, local goods, and duty-free shopping. The time passengers spend in terminals has increased due to heightened security measures, providing more opportunities for airports to generate income from retail and concessions sales. Airports also utilize digital maps and targeted advertising to enhance the passenger experience and drive business to retail and dining outlets.
A well-managed airport balances aeronautical and non-aeronautical revenue streams to ensure financial resilience and sustainability. By optimizing various income sources, including parking, retail, and dining, airports can maintain a consistent income flow and positively impact the local economy through job creation and business attraction. Additionally, airports can attract new airlines and influence the type of traffic they want by offering discounts and structuring tariffs accordingly.
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Commercial development: property and facility rents and leases
Airports have two primary types of revenue streams: aeronautical and non-aeronautical. Aeronautical revenue includes income generated from activities directly linked to air traffic, such as flights, landing fees, aircraft parking charges, and passenger security fees. Non-aeronautical revenue, on the other hand, comes from sources not directly related to air traffic, such as retail, dining, advertising, and parking.
Commercial development through property and facility rents and leases is a significant aspect of airport revenue generation, especially in the context of non-aeronautical income streams. Airports can lease their properties and facilities to various tenants, including airlines and non-aviation businesses, to generate rental income.
For airlines, the typical arrangement involves a Use and Lease agreement. Airlines pay rent for counter and gate space, training facilities, storage facilities, hangars, offices, and maintenance facilities. They also incur additional charges, such as landing and parking fees, baggage handling fees, and air bridge fees. These charges contribute significantly to the overall aeronautical revenue for airports.
When it comes to non-aeronautical leases, airports can attract a diverse range of tenants. These leases often take the form of warehouses, light manufacturers, professional and technical centers, hotel facilities, and retail outlets. Airports establish lease rates for these non-aeronautical tenants based on fair market value. By doing so, airports can increase their revenue, reduce their dependency on fluctuating aeronautical revenues, and promote economic development in the surrounding areas.
Additionally, airports can generate revenue through strategic commercial management. This involves maximizing revenue and reducing expenses through innovative operations and contract agreements. It includes negotiating agreements with prospective tenants, interacting with potential tenants to understand their needs and long-term plans, and ensuring compliance with various regulations and grant assurances from authorities like the Federal Aviation Administration (FAA).
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Airlines: tenant fees, baggage handling, air bridge usage
Airlines are a significant source of revenue for airports, with a range of fees and charges contributing to their financial performance. One key area is tenant fees, where airlines act as tenants of the airport and pay rent for various facilities. This includes counter and gate space, training facilities, storage, hangars, offices, and maintenance facilities. Landing and parking fees are also included in this category, with airports generating significant aeronautical revenue from these charges.
Baggage handling is another area where airports generate revenue. The market for airport baggage handling systems is expected to reach USD 2.51 billion by 2025 and continue growing, driven by technological advancements and the increasing focus on operational efficiency. Airports invest in advanced, automated baggage handling solutions to boost efficiency and improve the passenger experience. This includes destination-coded vehicles and self-bag drop systems, which streamline the baggage management process.
Air bridge usage is also a factor in airport revenue generation. Jet bridges, which allow passengers to board and disembark directly from the terminal, come with associated costs for airlines. Low-cost carriers often avoid using jet bridges to save money, as they incur charges for both the usage and the staff required to operate them. Additionally, the infrastructure and operational considerations of using jet bridges can be complex, and they may slow down aircraft turnaround times. However, jet bridges offer advantages for passengers and airlines, providing a more seamless boarding and disembarking experience.
While tenant fees, baggage handling, and air bridge usage are important revenue streams, airports also generate significant income from other sources. These include retail and concessions sales, food and beverage offerings, parking and ground transportation fees, and rental car-related charges. By diversifying their revenue streams, airports can maximize their financial performance and cater to the diverse needs of their passengers and airline partners.
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Frequently asked questions
Aeronautical and non-aeronautical revenue. Aeronautical revenue includes income generated from activities directly linked to air traffic, such as flights, landing fees, aircraft parking charges, and passenger security fees. Non-aeronautical revenue includes income from retail, dining, advertising, and parking.
Aeronautical revenue includes landing fees, aircraft parking charges, and passenger security fees. Airlines act as tenants and pay rent for counter and gate space, training facilities, storage facilities, hangars, offices, and maintenance facilities.
Non-aeronautical revenue includes retail sales, food and beverage sales, advertising, parking, and ground transportation fees. Airports are increasingly focusing on retail and dining experiences, offering a wide range of options to passengers.
Passenger volumes significantly impact airport revenue. Higher passenger traffic means more opportunities for income from various sources, such as retail, dining, and parking. Airports aim to enhance the passenger experience and provide a smooth journey to encourage spending.
Airports can diversify revenue by exploring new sources, such as modernizing the retail experience, attracting private investments, and partnering with other airports or governments. They can also develop revenue-producing facilities, such as warehouses, transportation facilities, and commercial developments adjacent to the airport.
