Key Results of the 2007 ATRS Global Airport Benchmarking Report

1. Key Results of the 2007 ATRS Global Airport Benchmarking Report Prof. Tae H. Oum Sauder School of Business, University of British Columbia And The Air Transport Research Society (ATRS) www.atrsworld.org The ATRS Global Airport Benchmarking Task Force Asia Pacific: Peter Forsyth, Japhet Law, Yeong-Heok Lee, Jia Yan Yuichiro Yoshida Europe: Jaap de Wit, Nicole Adler, Hans-Martin Niemeier, Eric Pels North America: David Gillen, Tae Oum, Bijan Vasigh, Chunyan Yu

2. Outline • Objective of the Benchmarking Study • Methodology • Key Results on Efficiency and Costs • Airport User Charge Comparisons • Effects of Business Strategies and Ownership forms • Conclusions

3. Objective of the Study • To provide a comprehensive, unbiased comparison of airport performance, including: • Productivity and Efficiency • Unit Cost Competitiveness • Aviation User Charges Levels • Financial Performance

4. Objective of the Study – Cont’d • Identify effects of • Business environment within which an airport operates • Ownership and Institutional forms • Extent of focus on non-aviation (commercial) activities • Extent of outsourcing On productivity, unit cost, financial performance, and Airport User Charges

5. Many Previous Studies have one or more of the following shortcomings • Limited to analysis of airports in a certain country or continent. • Used less than comprehensive measures; • Ignored Multiple Outputs/Services –especially ignoring Non-Aeronautical Services (Commercial; Development, etc) • Ignored so-called soft-cost inputs including outsourcing services • Did not control for the factors beyond managerial control

6. Airports Included in the 2007 Report* Canada-U.S. 63 airports Europe 43 airports and 10 airport groups Asia 27 airports and 5 airport groups Australia and NZ 9 airports ------------------------------------------------------------- Total 142 airports and 14 airport groups ***Need your help in order to include more airports; Can you help us with the data?

7. Data Sources: 2001-05 • Airport’s Annual Reports, Financial Statements, and direct data requests; • US FAA, DOT statistics; • Association of European Airlines (AEA) Statistics • ICAO Digest of Statistics: • annual and monthly traffic data • annual financial data -- not for all airports • ACI; IATA • annual traffic statistics; Capacity information • general information surveys (Asia Pacific and Europe) occasional and not complete • IMF and World Bank – various price indices including GDP deflators for service sectors and PPP

8. Characteristicsof Sample Airports

9. Passenger volumes – N. America

10. Passenger Volumes - Europe

11. Passenger Volumes : Asia-Pacific

12. Concession Revenue Shares – N. America

13. Concession Revenue Shares – Europe

14. Concession Revenue Shares – Asia-Pac

15. Share of Non-Aeronautical Revenue YYZ

16. International Passenger Share Europe Asia-Pac Asia Pacific N. America

17. Airport Productivity • Labour • Other non-capital (soft cost) inputs • Runways • Terminals • Gates • Aircraft movement • Passengers • (Cargo) • Other revenues including concessions

18. Methodology for productivity MEASUREMENT • Partial Factor Productivity (PFP) Measures: • Labor Productivity • Capital Input Productivity - capital input accounting problem • Productivity of Soft Cost Inputs • PFP does not tell the whole story • Need to go beyond PFPs • Variable Factor Productivity (VFP) • Total Factor Productivity (TFP: capital input accounting problem) • Unit Cost Competitiveness

19. Methodology for productivity MEASUREMENT – cont’d • Multiple Outputs: Aircraft movements, passengers, Cargo Tonnes, and non-aeronautical services output • The first step for computing any productivity is to aggregate these multiple outputs into a single output index • Similarly, airports use multiple inputs which need to be aggregated into a single input index.

20. Efficiency Measurement Method:Our Choice Index number approach: Productivity = Output Index / Input Index VFP = Output Index / Variable Input Index Variable Factor Productivity • Revenue shares use as weights for output aggregation • Cost shares are used as weights for input aggregation.

21. Potential Reasons for the Measured Productivity (gross VFP) Differentials (A) Factors Beyond Managerial Control: • Airport size (Scale of aggregate output) • Average aircraft size using the airport • Share of international traffic • Share of air cargo traffic • Extent of capacity shortage - congestion delay • Connecting/transfer ratio We compute ‘residual (net)’ productivity measures after removing effects of the Factors Beyond Managerial Control (A) (B) Factors within Managerial Control: • Emphasis on commercial activities (non-aeronautical) • Quality of Service (incl. passenger satisfaction) • The Extent of outsourcing activities • Managerial and technical efficiency (which we are trying to measure)

22. Results on Effects of Airport Characteristics on ‘gross’ VFP • (Airport size: some mixed results on the effects of airport output scale: larger airports are expected to have higher ‘gross’ VFP, however, the effects may level off once airports reach certain size); • %International:airports with higher proportion of international passengers are likely to have lower ‘gross’ VFP. • %Cargo:airports with larger proportion of cargo traffic are expected to have higher VFP. • Capacity Constraints: congested airports are likely to have higher ‘gross’ VFP. These factors beyond airport’s managerial control have been removed from our VFP measure before computing the ‘residual VFP’.

23. Residual (Net) Variable Factor Productivity: Overall operating efficiency measure –Asia-Pacific

24. Residual (Net) Variable Factor Productivity: Overall operating efficiency measure - Europe

25. Residual (Net) VFP: Overall operating efficiency measure – North America

26. Global Comparison – Net VFP

27. Cost Competitivenessconsists of: • Productive Efficiency – Residual (Net) VFP • Input Prices: • Labor price • Soft cost input price (incl. outsourcing price)

31. Top Performers Top Operating Efficiency Performers based on Net VFP (Labor + Soft cost inputs only): • Canada/US: Atlanta,Raleigh-Durham , Tampa, • Europe: Oslo,Athens, Geneva • Asia: Hong Kong,Singapore • Oceania: Sydney, Brisbane Top Performers Based on Unit Cost Competitiveness Index • Canada/US: Atlanta, Raleigh-Durham, Tampa • Europe: Athens, Tallinn, Sofia • Asia: Guangzhou, Shenzhen, AOT, • Oceania: Wellington, Adelaide

32. Outline • Objective of the Benchmarking Study • Airports Included • Methodology • Key Results on Efficiency and Costs • Airport User Charges Comparison • Conclusions

35. Air Transport Research Society (ATRS)

36. B747 Landing fee -2005 KIX NRT

40. A320 Landing Fees - Global KIX NRT

41. Ave. Terminal Fee per Pax – N.America- 2005

42. User Charge vs. Service Quality Trade Off • Airport should be run as efficiently as possible • But when it comes to User Charge vs. Service Quality trade-off ? Go for providing high service quality to airlines and passenger even if you raise user charges

43. Summary – Landing/Takeoff Charges • Global Results: Airports charging highest aircraft movement charges: • Boeing 747: Toronto, Narita, Kansai, Birmingham • Airbus 320: Toronto, Kansai, Narita, Birmingham • North American Results (both B747 and A320): • Highest charges: Toronto, LaGuardia, Newark, JFK • Lowest aircraft movement charges: Nashville, Atlanta, Charlotte, Tampa, Salt Lake City

44. Summary – Landing Charges (cont’d) • Asia-Pacific Results: • Highest charges for B747: Kansai, Narita, major Chinese airports, Incheon; • Highest charges for A320: Kansai, Narita, Chrischurch, Major Chinese airports, Hong Kong • Lowest charges: Kuala Lumpur, Thailand airports, Dubai, Adelaide, Jakarta Soekarno-Hatta, Singapore

45. Summary – Landing Charges (cont’d) • European Results: • Highest charges for B747: Brimingham; Amsterdam, Bratislava, Tallinn, Warsaw • Highest charges for A320: Ljubljana, Oslo, Heathrow-Peak, Vienna • Lowest charge for B747: Gatwick-offpeak; Manchester-offpeak; Berlin Tegal, Gatwick-offpeak, Stansted; Heathrow-offpeak; • Lowest charges for A320: Berlin Tegal, Milan Malpensa, Rome Fiumicino, Rome Ciampino, Gatwick-offpeak, Frankfurt, Malta

46. Outline • Objective of the Benchmarking Study • Airports Included • Methodology • Key Results on Efficiency and Costs • Airport User Charge Comparisons • Effects of Business Strategies and Ownership Forms • Conclusions

47. Results on Business Strategies • Diversification of Revenue Source is good: • Airports with larger share of non-aeronautical revenue achieves higher Net VFP (efficiency) • Outsourcing: • Airports who contract out their terminal operations to outside operator achieve higher efficiency • Outsourcing entire terminal operations to expert firms improve efficiency

48. Effects of Ownership and Institutional Forms of Airport Organization Method:Advanced econometric work: translog stochastic cost frontier method which allows for individual heterogeneity in the cost frontiers Alternative methods: Residual VFP, DEA, conventional SFM, etc.

49. Empirical Results on Ownership Forms • Cost Efficiency Ranking: 1. Airports with private majority ownership (>50%);BAA, Australia, some NZ, Copenhagen, Rome, etc. 2. U.S. & Canadian Airport Authority 3. 100% Public Corporation (Crown Corp.) 4. U.S. City Run Airports 5. Mixed enterprise with government majority ownership 6. Airports with shared multiple govt ownership 7. U.S. Port Authority run Airports – the least efficient form (3 NY-NJ; Boston; Seattle; Portland; Oakland) • Airports with private majority ownership achieves highest profit margin, and pays employees well

50. Thank You