Lecture 6: Airport Financial Management

1. Lecture 6:Airport Financial Management By: Zuliana Ismail

2. Learning Outcome Student able to: • Explain how do airport generates revenues • Compare the aeronautical and non-aeronautical revenues • Explain how airport services and facilities are priced

3. Airport Financial • Airport financial management is important to manage the balance of operating revenues & expenses. • In general, revenues from the operation of airport are used to cover airport's operating expenses. • What means by airport expenses??? • What means by airport revenue???

4. What is Airport Expenses • Expenses means the cost or money that must be spent for something. • Expenses for airports include • Capital improvements • Operating expenses

5. Airport Expenses • Capital improvement expenses • Capital improvement expenses include costs of major construction projects such as airside & terminal expansion. • Operating expenses • Some sources of operating expenses are: • Labor (salaries), • Supplies, • Utilities (water / power supply), • And maintenance costs

6. Airport Expenses

7. What is Airport Revenue? • Airport revenue is income that an airport receives from its business activities.

8. Revenue • In business, revenue is income that a company receives from its normal business activities. • Usually from the sale of goods and services to customers. • Some companies also receive revenue from interest, dividends or royalties paid to them by other companies. • Revenue may refer to business income in general, or it may refer to the amount, in a monetary unit, received during a period of time, as in "Last year, Company X had revenue of $32 million.“ • Airports revenue supports airports expenses & provides for the operations, maintenance, and capital improvements.

9. How do Airport generate Revenues?

10. How do Airport generate Revenues? • Airports generate revenue from its business activities that can be classified into two categories, which are: • Aeronautical = Related to aircraft operation • Non-Aeronautical = Non related aircraft operation

11. aeronautical vs non-aeronautical revenues AERONAUTICAL REVENUES • Landing Fees • Air Navigation Fee • Aircraft Parking & Hangar Charges • Airport Noise Charge • Passenger Service Charge(PSC) • Security Charge (SC) • Ground Handling Charges • Night flight fees NON-AERONAUTICAL REVENUES • Concession fees for Commercial Activities • Car Parking & Car Rentals • Rental of Airport Land, Space in Buildings & Assorted Equipment • Fees charged for Airport Tours, Admissions etc.

12. Aeronautical Revenues • Aeronautical revenue is generated from aircraft related activities in the airside area or airport land. • Aeronautical revenue is mainly derived from landing fees and aircraft parking fees, lighting and aerobridge charges (paid by airlines). • Landing fee is a charge paid by an airline for using the runway. • Parking fee is for using the tarmac and taxiway.

13. Example

14. Non-aeronautical revenue • Non-aeronautical revenue is generated from non-aircraft related commercial activities in the terminals and on airport land. • The commercial activities including: • Concession fees (e.g., rentals and profit-sharing arrangements with concessionaires such as restaurants and retail shops) • Revenue derived from rental of land, premises and equipment (e.g., hotels, and airline cargo space and office space rent), • Management of parking facilities • **Concession is the payment that the owner of commercial activities in the airport have to pay to the airport authority. Airport concessionaires (such as restaurants, banking) typically pay rent for the space they occupy.

15. aeronautical vs non-aeronautical revenues • In most busy airports, Non-Aeronautical revenues are about 50% of total revenues.

16. The taxes/fees on my ticket helps to support airports . How?

17. Ticket Taxes • The portion of a ticket that is composed of taxes and fees depends upon the airfare and the passenger's journey distance • Normally, airports charge a Passenger Facility Charges (PFCs)& Security Charge (SC). • PFC is a service charge for using the airport facilities & SC is a service charge for using security facility.

18. PFC & SC • PFC also referred as Passenger Service Charge (PSC) • For example, airport in Malaysia, passengers are required to pay a Passenger Service Charge (PSC) as well as a Security Charge (SC). • For Example:

19. Airport Revenues Airport Operator Aeronautical Charges Property Rents, unregulated charges etc. Property Rents, unregulated charges etc. Retail, car parking, hotels etc. Service Providers Airlines Fees Passengers Fares

21. Question How are Airport Facilities & Services priced ?

22. Aeronautical charges • Landing Fees - based on MTOW of aircraft • Aircraft parking charges – based on Aircraft size • Passengers charges/Terminal Fees - Based on Maximum • Seating Capacity of aircraft • Aerobridges – per embarkation or disembarkation. • Hangar charges – rental monthly • Navigation charges – per mile per aircraft within control zone. 22

23. Aeronautical charges Landing Fees • Fee imposed based on each landing of an aircraft • Usually the largest source of income at an airport • Same rate for both International vs Domestic arrival • Based on Maximum Takeoff Weight of Aircraft (MTOW) • DOW=Dry Operating Weight (aircraft basic weight) • Payload=Passenger + Cargo

24. Aeronautical charges Aircraft Parking Fees • Charge per day (24 hours) • Based on the Aircraft size –wing span x fuselage dimension.

25. Aeronautical charges List of Fees and Charges applicable in Changi Airport

26. Aeronautical charges Passengers charges / Terminal Fees • Imposed on scheduled and charter passenger carrying aircraft that use the Terminal Building • Normally one of the largest sources of revenue for an airport • Separate rate for International versus Domestic Arrival • Based on Maximum Seating Capacity of the Aircraft

27. Non-Aeronautical charges • Hotel – building rental • Offices – to airlines and businesses monthly rental sq ft • Rental of check in counters - per counter per flight • Car parking – per car per hour • Retail shop outlets - rentals monthly based sq feet size of the retail outlet (the biggest non-aeronautical revenue) 27

28. Quick Test • The airport revenues are derived from ____________ and __________________`. • Aeronautical revenues are come from______________ while non-aeronautical revenues come from___________ • Aircraft parking are charged per hour and calculated based on aircraft sizes which are _________ X ________. • The format to calculate the landing charge of an aircraft is based on the aircraft’s weight or MTOW. MTOW is stand for ____________________________-.