Lecture 7: Airport Financial Management

1. Lecture 7: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. • In airport, there are two types of expenses which are: • Capital improvement expenses • Capital improvement expenses include costs of major construction projects such as airfield & terminal expansion. • Operation & Maintenance (O&M) costs. • O&M costs consist expenses for regular basis & are required to maintain the current operations at the airport. • For example: salary of airport employees, costs of utilities such as power(electricity), water & telecommunications

5. What is Airport Revenue? • Airport revenue is income that an airport receives from its business activities. **In business, revenue or revenues 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.

6. How do Airport generate Revenues?

7. How do Airport generate Revenues? • Airports generate revenue from its business activities that can be classified into two categories, which are ‘aeronautical revenue’ and ‘non-aeronautical revenue’. • Aeronautical revenue is that from aviation activities which is dealing with aircraft operations. For example, landing fees and aircraft parking fees, lighting and aerobridge charges (paid by airlines) • Non-aeronautical revenue is generated from non-aircraft related commercial activities in the terminal building. For example , concessions, parking, rental car facilities, and advertising).

8. aeronautical vs non-aeronautical revenues Aeronautical • 2. Non-Aeronautical • Landing fees • Passenger fees • Aircraft parking fees • Aerobridges • Hangar • Navigation • Rental of land & space in terminal buildings(ex: office space ,hotels & airline cargo space) • Concessions(ex: Retail shops & restaurants, bookstores ,ATM space, game rooms, flight insurance booths, rental car counters, gyms, salons, spas) • Car Parking & Car Rental

9. Concessions • 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.

10. How do Airport generate Revenues? • According to survey, • 54% of airport revenue worldwide comes from aeronautical sources. • 46% is derived from non-aeronautical sources

11. Airport Revenues

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

13. 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.

14. 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:

15. Airport Revenues Shareholders 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

18. Question How are Airport Facilities & Services priced ?

19. Aeronautical charges • Landing Fees • Passengers charges • Aircraft parking charges • Aerobridges – per embarkation or disembarkation. • Hangar charges – rental monthly • Navigation charges – per mile per aircraft within control zone. 19

20. Aeronautical charges Landing Fees • Fee imposed based on each landing of an aircraft • Usually the largest source of income at an airport • Normally charged to jet and turbo prop aircraft only • Same rate for both International vs Domestic arrival • Based on Gross Takeoff Weight of Aircraft:

21. Aeronautical charges

22. 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

23. Aeronautical charges • Aircraft Parking Fees • Normally charged to aircraft that are parked for periods greater than one day. • Based on the Gross Take Off Weight of the aircraft & size –wing span x fuselage dimension. • Rates are normally by the day, month or year

24. 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 • Bus rental • Retail shop outlets rentals monthly based sq feet size of the retail outlet (the biggest non-aeronautical revenue) • Collect royalties from retail outlets 24

25. 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 GTOW. GTOW is stand for ____________________________-.