2 GROUP MEMBERSTahmeena Faruqui Vishakha Soni Ila Indoria Monisha Saikia Ajay Pratap Prachi Bharti Annu FrancisAirport revenues are classified as ‘aeronautical’ and‘non-aeronautical’:Aeronautical revenue is that derived from aviation activities: charges to private and commercial aircraft operators, fuel sales, hangarage and airfreight facilities.Non-aeronautical revenue is all other income: from parking, shops, rents from offices and other buildings on the airport and other tenants.In all commercial airports, the major costs are fixed and relate to aeronautical operations and regulatory compliance (air traffic, fire & rescue, safety, security and environmental impacts). These airports therefore typically incur losses on their aeronautical activities and balance these with healthy surpluses on the non-aeronautical, to achieve profitability.
3 Airport Finance Mgmt.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 does airport expenses mean???What does airport revenue mean???
4 What is Airport Expenses Expenses means the cost or money that must be spent for something.Expenses for airports includeCapital improvementsOperating expensesAirport ExpensesExpenses for airports include capital improvements, operating expenses, and non-operational expenses.
5 Airport Expenses Capital improvement expenses Operating expenses Capital improvement expenses include costs of major construction projects such as airside & terminal expansion.Operating expensesSome sources of operating expenses are:Labor (salaries),Supplies,Utilities (water / power supply),And maintenance costs
7 What is Airport Revenue? Airport revenue is income that an airport receives from its business activities.Airport revenues are classified as ‘aeronautical’ and ‘non-aeronautical’:Aeronautical revenue is that derived from aviation activities: charges to private and commercial aircraft operators, fuel sales, hangarage and airfreight facilities.Non-aeronautical revenue is all other income: from parking, shops, rents from offices and other buildings on the airport and other tenants.
8 RevenueIn 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.
10 How do Airport generate Revenues? Airports generate revenue from its business activities that can be classified into two categories, which are:1.Aeronautical Revenue2.Non- Aeronautical RevenueAirport revenues are classified as ‘aeronautical’ and ‘non-aeronautical’.Aeronautical revenue is that derived from aviation activities which is dealing with aircraft operations.Non-aeronautical revenue is generated from non-aircraft related commercial activities.Aeronautical = Related to aircraft operationNon-Aeronautical = Non related aircraft operation
11 aeronautical vs non-aeronautical revenues Landing FeesAir Navigation FeeAircraft Parking & Hangar ChargesAirport Noise ChargePassenger Service Charge(PSC)Security Charge (SC)Ground Handling ChargesNight flight feesNON-AERONAUTICAL REVENUESConcession fees for Commercial ActivitiesCar Parking & Car RentalsRental of Airport Land, Space in Buildings & Assorted EquipmentFees charged for Airport Tours, Admissions etc.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)
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.Revenue BaseThe company's revenue base is divided into 2 main categories - aeronautical and non-aeronautical revenue. Aeronautical revenue is mainly derived from landing fees, aerobridge charges, check-in-counter charges, parking fees and the passenger service charges.Traffic Growth –increases in passenger movements or in the number and size of aircraft movementsFees charged to Airlines–the level of aeronautical charges is driven by airport costs, the charges at alternative or comparable airports and commercial considerations such as attracting high-value traffic.
13 ExampleCHARGESAeronautical charges, or commonly known as 'Airport Charges,' which are approved by the government can be divided into two categories:Passenger Service Charge (PSC) (formerly known as 'Airport Tax') which is paid by departing passengers.Charges to the airlines which includes parking, landing, aerobridge and check in counters.The level of aeronautical charges are determined and approved by the Government authorities and are applied on a standard basis across all airports in Malaysia. Any increases or decreases in these charges are within the purview of the Government authorities and MAHB fully respects this, as can be seen in the case of the current LCCT, where the Government reduced the PSCs.It has been contended that the higher the cost of building a terminal, or for that matter, an airport, will result in higher charges to airlines operating into that particular airport. This is not the case. For example, when KLIA was built and the airlines moved from Subang, aeronautical charges at KLIA were not increased; similarly, the case for Langkawi, Kota Bharu, Alor Setar, Bintulu, Tawau and Limbang Airports. This will therefore also not be the case for newly upgraded airports in Kuala Terengganu, Melaka, Labuan, Kuching and Kota Kinabalu. Any increase is applied uniformly across all airports.Charges paid by airlines at Malaysia's airports are already low and discounted against those charged by neighbouring competing airports. These charges are intentionally kept low to provide low cost operations for airlines operating in and to Malaysia. Therefore, the issue of high aeronautical charges applicable to airlines does not arise.In fact, it needs to be emphasised that the landing and parking charges in Malaysia have not been increased for the past 27 years.Airport charges applicable to airlines constitute only a small proportion of their total costs. For example, in the case of AirAsia, it is believed that this constitutes approximately only 2.5 percent of their total annual costs. When incentives are given, this percentage is further reduced.
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.Non-aeronautical revenue comprises revenue generated from commercial activities, including duty free operations, hotel operations, free commercial zone operations, management of parking facilities and the lease of commercial space.Non-aeronautical activities includeConcession 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, kitchens and office space rent),Income derived from the airport's shops and services (e.g., baggage handling, and parking), and various fees charged to the public.Normally more than 50% of the total revenue of the airport generate by Non-aeronautical charges .
15 aeronautical vs non-aeronautical revenues In most busy airports, Non-Aeronautical revenues are about 50% of total revenues.Airport – Operating Revenues vs. Operating ExpensesSummaryAirport revenue provides for the operations, maintenance,and capital improvements of the Pierce County Airport –Thun Field. The three-year goal is for airport operations tobe self-supporting through user fees and tenant charges.The operating expenses: associated with the airport include maintenance of airport systems and facilities, power and other utilities, and supplies and administration.The operating revenues come from leases and rental charges for land, hangers, tie-downs, and other facilities at the airport and a share of concessions.Performance GoalThe Airport Operating Revenues will cover all Operating Expenses (excluding depreciation).Capital costs consist of the component costs (e.g., labor, materials and equipment) of construction of the airport and its component parts.An airport seeking to expand its facilities must raise sufficient capital to finance such infrastructure development from public or private sources.Sources of capital for airport development include:Governmental or international organization loans and grants,Commercial loans from financial institutionsDebt (typically, bonds) from commercial capital markets, including private investors, banks investment houses, or fund pools, and theExtension of credit from contractors and suppliers.Operating CostsSuch operating costs include expense items as interest and reduction on debt, taxes, and maintenance and administrative costs, including salaries, power, and repairs.Cash FlowAir side revenue streams include landing fees, fuel taxes, and maintenance and cargo facility leases.Land side revenue streams include terminal rents and gate leases, concessions, parking fees, and various taxes, such as, in the United States, Passenger Facility Charges.In addition to government grants and subsidies, the airport turns to its tenants -- the airlines, concessionaires, parking -- and the passengers they serve to finance its maintenance and operating costs, and debt service.Airports derive revenue streams from rents, charges and fees imposed upon airlines, various concessionaires, such as car rental companies, restaurants, newsstands, taxi and van services, catering and baggage services, fuel providers, and parking.
16 The taxes/fees on the ticket helps to support airports . How?
17 Ticket TaxesThe portion of a ticket that is composed of taxes and fees depends upon the airfare and the passenger's journey distanceNormally, 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.The portion of a ticket that is composed of taxes and fees depends upon the airfare and the passenger's itinerary.Airports receive a portion of the federal excise tax and segment tax included in the price of a ticket from the Airport Improvement Program (discussed in the next section).As referenced previously, airports may also charge a PFC.An excise or excise tax (sometimes called an excise duty or special tax) is a type of tax charged on goods produced within the country (as opposed to customs duties, charged on goods from outside the country). It is a tax on the production or sale of a good.Typical examples of excise duties are taxes on gasoline, tobacco and alcohol (sometimes referred to as sin taxes).
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 Service Providers Airlines Property Rents, unregulated charges etc.Aeronautical ChargesProperty Rents, unregulated charges etc.Service ProvidersRetail, car parking, hotels etc.Fundamentally, in order to deliver an attractive return on investment, airports must increase their revenues; &where these revenues are subject to price regulation, airport operators will seek to:find ways to realise revenues outside the scope of regulation; &find ways to realise increased regulated revenues, where the regulatory system allows this; &‘outside the scope of regulation’ might mean:through commercial activities; &through vertical integration; &through common interest; ®ulatory systems may reward ‘efficiency’ & so airports may over-forecast expenditure in order to benefit from this.AirlinesFeesPassengersFares
21 How are Airport Facilities & Services priced ? QuestionHow are Airport Facilities & Services priced ?
22 Aeronautical charges Landing Fees - based on MTOW of aircraft Aircraft parking charges – based on Aircraft sizePassengers charges/Terminal Fees - Based on MaximumSeating Capacity of aircraftAerobridges – per embarkation or disembarkation.Hangar charges – rental monthlyNavigation charges – per mile per aircraft within control zone.Sources of RevenuesLanding 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:Terminal FeesImposed on scheduled and charter passenger carrying aircraft that use the Terminal BuildingNormally one of the largest sources of revenue for an airportSeparate rate for International versus Domestic ArrivalBased on Maximum Seating Capacity of the AircraftAircraft 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•Rates are normally by the day, month or yearOther Operating FeesExamples of other fees are listed below. Airports may or maynot choose to levy these fees:•Loading Bridge Fee – Flat Rate (Calgary is $51 perconnection)•Customs Pre-clearance Fee – Rate per passenger (Calgary is$2.14 per originating passenger)•Aircraft Plug in Fee: Flat Rate•Flight Information Display Fee: Flat Rate per line•Police and Security Fee: Based on maximum seating capacityof aircraft (Ottawa is $0.95 per landed seat)Fuel Flowage (normally AVGAS)Piston aircraft (smaller single engine and twin) do notpay landing feesAirport derives revenue from piston aircraft via FuelConcession Fee charged to fuel companiesAirport will charge fuel companies 4 cents to 8 cents(normal range) per litre for AVGAS sales22
23 Aeronautical charges Landing Fees Fee imposed based on each landing of an aircraftUsually the largest source of income at an airportSame rate for both International vs Domestic arrivalBased 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.The Parking charges arecharged per 24 hours or part thereof, with the first 3 hours free.
25 List of Fees and Charges applicable in Changi Airport Aeronautical chargesList of Fees and Charges applicable in Changi AirportAirlines pay rental charges for the space they occupy at ticket counters, gates, baggage handling, maintenance, and catering facilities, and also pay takeoff and landing fees, parking fees, and fuel fees.Two methodologies dominate computation of airline fees and charges under airport use agreements – the residual method, and the compensatory method
26 Aeronautical charges Passengers charges / Terminal Fees Imposed on scheduled and charter passenger carrying aircraft that use the Terminal BuildingNormally one of the largest sources of revenue for an airportSeparate rate for International versus Domestic ArrivalBased on Maximum Seating Capacity of the Aircraft
27 Non-Aeronautical charges Hotel – building rentalOffices – to airlines and businesses monthly rental sq ftRental of check in counters - per counter per flightCar parking – per car per hourRetail shop outlets - rentals monthly based sq feet size of the retail outlet (the biggest non-aeronautical revenue)27