Roberta Aguirre
Airports are businesses, and like any other business, they need to make money. Aviation is a lucrative industry, with global airport revenues hitting $131 billion in 2013, a 5.5% increase from the previous year. Airports generate revenue through aeronautical and non-aeronautical sources. Aeronautical revenue includes fees charged to airlines and passengers for the use of airport facilities, while non-aeronautical revenue comes from sources like retail, property rentals, and advertising. With increasing demand for air travel, airports are exploring new ways to diversify their income streams and enhance the passenger experience.
| Characteristics | Values |
|---|---|
| Aeronautical Revenue | Per-passenger charges, movement charges, parking fees, landing fees, terminal usage fees, airline office space rentals, aircraft maintenance and repair services |
| Non-Aeronautical Revenue | Retail and concession sales, vehicle rental and valet services, parking fees, in-airport advertising, food and beverage sales, property development, slot allocation |
| Other Sources | Government grants, property tax, fuel sales, hangar rent |
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What You'll Learn
Aeronautical and non-aeronautical revenue
Airports generate revenue through aeronautical and non-aeronautical means. Aeronautical revenue is the money made from operating planes and includes airline terminal space rentals, airline landing fees, and usage fees for terminals, gates, services, and passenger counts. Airports charge per-passenger fees, movement charges, and parking fees. Per-passenger fees are assessed for each passenger leaving the airport and may vary depending on the route. Movement charges are calculated based on the aircraft's weight, with adjustments made for noise and emissions ratings to encourage the use of environmentally-friendly planes.
Non-aeronautical revenue refers to income from sources other than operating planes, such as retail and concession sales, vehicle rental, parking fees, and advertising. Airports have been exploring new retail and property opportunities to diversify their revenue streams. For example, Singapore Changi Airport has attracted locals who aren't flying to shop at its stores. Airports also generate non-aeronautical revenue by charging commercial businesses, such as parking garages, car rentals, restaurants, shops, and hotels, for their use of space on the airport premises.
The distribution between aeronautical and non-aeronautical revenue varies across airports and regions. According to ACI's estimations, airports worldwide earn approximately 60% of their income from aeronautical sources and 40% from non-aeronautical sources. However, this ratio can differ significantly, such as in Finland, where aeronautical income accounts for 72% of airport revenue. Non-aeronautical revenue plays a crucial role in airport economics and can often determine an airport's financial viability.
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Landing fees and terminal usage fees
The cost of landing fees can vary depending on the airport and its facilities, with some smaller airports opting not to impose these charges. Aircraft operators are generally required to pay landing fees on demand or before the aircraft departs. Landing fees are an essential source of income for airports, helping to cover the costs of runway maintenance, air traffic control, and other services necessary for safe and efficient flight operations.
Terminal usage fees, on the other hand, are charged for the use of airport infrastructure such as check-in counters, luggage conveyor belts, and boarding gates. Airlines act as tenants, paying rent for counter and gate space, training facilities, storage, hangars, offices, and maintenance facilities. These fees contribute significantly to the airport's revenue, especially at congested, slot-controlled airports where the demand for slots can drive up prices.
In addition to landing and terminal usage fees, airports may also charge various other aeronautical fees, such as per-passenger charges, movement charges, and parking fees for aircraft. These fees are an essential component of the airport's overall income, ensuring they can cover the costs of providing the necessary infrastructure and services for airlines and passengers.
While landing fees and terminal usage fees are a significant source of revenue, airports also rely on non-aeronautical income, such as retail sales, property rentals, parking fees, and advertising. By diversifying their revenue streams, airports can mitigate the impact of fluctuations in air traffic and ensure their financial viability.
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Commercial revenue
One of the primary sources of commercial revenue for airports is retail and concession sales. Airports offer a wide range of shopping options, from duty-free shops and bookshops to designer clothing and local speciality stores. By transforming their terminals into "travel megastores," airports have been able to increase their commercial revenue significantly. Additionally, airports generate income from food and beverage sales, with an increasing focus on offering a diverse range of options, including local restaurants and vendors, to cater to the varying preferences of travellers.
Another important source of commercial revenue is the fees charged to non-aeronautical companies operating within the airport. This includes parking garages, car rental services, hotels, restaurants, shops, and lounges. Airports earn income by providing these businesses with space and charging them for their use of the airport premises. Airports may also generate revenue through property development, constructing and renting out commercial real estate, office buildings, and hotels on airport property.
Furthermore, airports are leveraging technology to enhance their commercial revenue. They are integrating digital marketplaces into their airport apps, allowing travellers to pre-order and pick up items, making duty-free shopping more convenient. Airports are also using passenger flow technologies to understand high-traffic zones, enabling strategic advertising placements and providing a tailored experience for travellers.
While commercial revenue plays a crucial role in airport profitability, it is important to note that aeronautical revenue, which includes fees charged to airlines and passengers, still accounts for a larger proportion of airport income. However, the importance of commercial revenue cannot be understated, especially in mitigating the effects of traffic downturns and diversifying revenue streams.
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Property development
Airports have traditionally relied on aeronautical revenue, which includes fees charged to airline passengers, airline landing fees, and usage fees for terminals, gates, services, and passenger counts. However, with increasing competition and changing market dynamics, airports are exploring new sources of income, including property development.
Successful airports adopt a customer-focused approach, known as airport urbanism, where they prioritize the needs and desires of prospective customers in their property development plans. This strategy involves identifying sites within the airport area that are unlikely to be needed for future expansion projects and developing them into profitable ventures. Leading global hubs like Amsterdam Schiphol generate a significant portion of their income through landside real estate, including hotels, office parks, shopping centres, tourist attractions, and even university campuses.
To ensure the success of property development projects, airports engage with specialized firms that have expertise in airport operations, local market economics, and community engagement. These partnerships enable airports to develop integrated strategies that maximize revenue, enhance their regional economic impact, and foster public-private collaboration. Additionally, airports can outsource development to third-party companies, allowing them to focus on their core business while still collecting a predictable income stream from their landside investments.
In summary, property development has become an increasingly important aspect of airport revenue generation. By embracing innovative strategies, partnerships, and a customer-focused approach, airports can transform their landside areas into thriving commercial hubs, driving economic growth for the airport and the surrounding community.
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Government grants and funding
Federal Grants and Funding
The US federal government, through the Federal Aviation Administration (FAA), offers various grants and funding opportunities for airports. The Airport Improvement Program (AIP) is a prominent example, providing grants for public agencies and, in certain cases, private owners or entities, to plan and develop public-use airports included in the National Plan of Integrated Airport Systems (NPIAS). The AIP supports capital improvement projects, enhancing airport infrastructure and safety.
Additionally, the FAA also administers the Passenger Facility Charge (PFC) program, where airports can collect PFCs with approved applications. These charges are levied on airline passengers and contribute to funding various airport projects, including those not eligible for AIP grants. PFCs offer airports additional financial flexibility to pursue eligible projects.
State and Local Funding
State and local governments also contribute to airport funding, although the availability and distribution of these funds can vary significantly across different states and localities. Common sources of state funding include departments of transportation and aviation, which may provide grants or allocate funds from fees and taxes levied on aircraft owners and airport users, such as fuel flowage fees. State grants may be used to support projects that are ineligible for AIP funding, filling funding gaps and ensuring the completion of critical infrastructure projects.
The competitiveness of state funding, with more projects than available funds, leads states to prioritize projects based on various metrics. Cost-benefit ratios, need and justification, geographic location, and the potential to receive other types of funding are all factors considered in the prioritization process. Local funding, on the other hand, is often provided through general fund allocations, tax revenue, and usage fees collected by the airport operator or sponsor.
The degree of reliance on federal grants by airports varies, with larger airports generally depending less on federal grants than smaller national system airports. Federal grants may contribute a smaller portion of funding for major airports but can make up a significant proportion, sometimes even half, of the funding for smaller airports.
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Frequently asked questions
Airports make money through aeronautical and non-aeronautical revenue. Aeronautical revenue includes airline terminal space rentals, airline landing fees, and usage fees for terminals, gates, services, and passenger counts. Non-aeronautical revenue includes retail and concession sales, vehicle rental and valet services, parking fees, and in-airport advertising.
Aeronautical fees include per-passenger charges, movement charges, and parking fees. Per-passenger charges are assessed for each passenger leaving the airport and may vary depending on the route. Movement charges are calculated based on the aircraft's weight, with adjustments for noise and emissions ratings to encourage the use of environmentally-friendly planes. Parking fees are determined by the aircraft's size and parking duration.
Airports generate non-aeronautical revenue through various commercial activities, such as duty-free shops, bookshops, cafes, currency exchange, and car rentals. They also earn income from advertising, property rentals, and partnerships with local businesses. Airports like Changi Airport in Singapore attract non-travelling locals to their retail and food and beverage outlets.
Yes, airports may also receive government grants for refurbishing and upgrading their facilities, including runways, taxiways, and aircraft control towers. Additionally, publicly-owned airports may collect property taxes and hangar rent, and some airports generate revenue by renting out office space and providing aircraft maintenance and repair services.
