The Airport Business

245 Pages·1992·3.21 MB·English

by  Rigas Doganis

The airport business
In the 1950s and 1960s airports were seen as just another, fairly inconsequential
arm of government. Over the past 20 years, however, it has become obvious that
airports can actually be run as highly successful and profitable businesses.
Despite this success the industry has, until now, had no defined economic theory
to base itself on. The aim of The Airport Business is to change this. Working on
the basis that airports can and should be run as successful businesses, Professor
Doganis sets the airline business as a whole within a conceptual framework.
The book opens with an overview of the airport business, examining patterns
of ownership and control of the world’s largest airports. The author considers the
key issues which will affect airport managers during the 1990s, such as
privatization, the growing shortfall in airport capacity and the need to develop
new and innovative sources of finance. Another important aspect of the book is
cost strategy. Professor Doganis analyses the traditional cost and revenue
systems that have developed for aircraft landing fees and passenger charges. He
goes on to compare this with more recent strategies, such as marginal as opposed
to average cost pricing. The author also discusses the need for a commercial
strategy and goes on to show how to maximise airport revenue from the various
activities at the airport. Because of the unique system practised in the US a
chapter is devoted to the performance of American airports. Likewise, there are
difficulties peculiar to the Third World, which are also examined in a separate
chapter. As the airport industry continues to grow The Airport Business offers an
insight into how to overcome the major economic and financial problems that
airports will have to confront in the 1990s.
The airport business
Rigas Doganis
London and New York
First published 1992
by Routledge
2 Park Square, Milton Park, Abingdon, Oxon, OX14 4RN
Routledge is an imprint of the Taylor & Francis Group
This edition published in the Taylor & Francis e-Library, 2005.
“To purchase your own copy of this or any of Taylor & Francis or Routledge’s collection
of thousands of eBooks please go to www.eBookstore.tandf.co.uk.”
Simultaneously published in the USA and Canada
by Routledge
270 Madison Ave, New York NY 10016
© 1992 Rigas Doganis
All rights reserved. No part of this book may be reprinted or reproduced or utilized
in any form or by any electronic, mechanical, or other means, now known or
hereafter invented, including photocopying and recording, or in any information
storage or retrieval system, without permission in writing from the publishers.
British Library Cataloguing in Publication Data
A catalogue record for this title is available from the British Library
Library of Congress Cataloguing in Publication Data
Doganis, Rigas.
The airport business/Rigas Doganis.
p. cm.
Includes bibliographical references and index.
1. Airports. 2. Airports—Management. I. Title.
HE9797.D64 1992
387.7′ 36–dc20
91–44797
CIP
ISBN 0-203-97731-9 Master e-book ISBN
ISBN 0-415-07877-6 (hbk)
ISBN 0-415-08117-3 (pbk)
Contents
List of figures vii
List of tables viii
Acknowledgements x
Introduction xi
1 The airport business 1
Improving financial performance 1
Not all airports equally profitable 5
What is an airport? 6
Patterns of ownership 10
Measuring airport output 14
The world’s major airports 21
2 Issues in airport management 25
Objectives of airports policy 25
Trend to airport privatization 26
Benefits and risks of privatization 28
Growing runway shortage 33
Financing airport expansion 41
European airports and 1993 42
3 Airport cost and revenue structures 47
Structure of airport costs 47
Economic characteristics of airports 50
Sources of airport revenue 54
Trends in revenue development 59
v
4 Aeronautical charges and pricing policies 63
Importance of aeronautical charges 63
Traditional structure of aeronautical charges 64
Traditional pricing policies 70
ICAO and IATA views on airport charges 72
Levels of airport charges 76
5 Alternative pricing strategies 79
Airports’ legal constraints 79
Shortcomings of traditional charging structures 81
Towards cost-related pricing 86
The application of cost-related pricing 87
Peak charging in practice 94
A rationing strategy 99
Grandfather rights or slot auctions 100
6 Developing a commercial strategy 113
Strategic options 113
Potential sources of commercial revenues 118
The right organizational structure 122
Rental policies and recharges to tenants 128
7 Maximizing concession revenue 133
Impact of traffic characteristics 134
Size and location of spaces available 137
Skill of concessionaires 144
The portfolio approach 147
Choice of concessionaires and contract terms 150
The competitors 157
The key to success 158
8 Monitoring airport performance and efficiency 161
The need for performance indicators 161
vi
To monitor or to compare 163
Measuring airport outputs and inputs 166
Data comparability problems 167
Aggregate and disaggregate indicators 172
Measures of overall cost performance 173
Labour productivity 177
Productivity of capital employed 180
Revenue-generation performance 181
Performance of commercial activities 184
Profitability measures 188
Conclusions 190
9 Airports in the United States by Anne Grabam
Relationship with the airlines 191
Sources of capital investment 195
Airport revenues 200
Airport costs 203
Effects of airline deregulation 203
Future sources of finance 205
10 Airports in the developing world 211
Increasing emphasis on profitability 211
Need for better accounting practices 213
Improving aeronautical revenues 215
Maximizing commercial opportunites 217
Labour costs and manpower issues 220
References 223
Index 227
Figures
2.1 Average aircraft size of AEA member airlines (European and 36
domestic services)
2.2 Accommodation of passenger growth on US domestic services 1971– 37
86
2.3 Accommodation of passenger growth by AEA member airlines 1977– 38
89
3.1 Average cost structures of western European airports 48
3.2 Average cost structures: (a) large US airports 1989–90; (b) European 51
airports 1989
3.3 Airport long-run cost curve 51
3.4 Relationship between short- and long-run average costs of airports 54
3.5 Average revenue structures among European airports 56
3.6 Revenue split as traffic grows among most European airports 57
3.7 Average revenue structures of medium/large US airports 1989–90 58
5.1 Short-run marginal-cost pricing with no peak congestion 88
5.2 Short-run marginal-cost pricing in peak period 89
5.3 Short-run marginal-cost pricing when peak demand exceeds runway 91
capacity
6.1 Traditional airport organization 123
6.2 Commercially oriented airport organization: Gatwick Airport Ltd in 125
1990
6.3 The commercial department of Gatwick Airport Ltd in 1990 125
7.1 Impact of shop location on percentage of passengers making a 140
purchase
7.2 Departing passenger flows: (a) the traditional airport; (b) the 143
commercial airport
7.3 Alternative layouts for duty- or tax-free shops or other shopping 146
concessions: (a) non-directed flow; (b) directed flow; (c) open flow
7.4 Sales of landside and airside shops at French airports in 1987 151
Tables
1.1 Reported surplus or deficit of major European airports 1983 and 2
1989
1.2 Revex ratio for major European airports 1988 3
1.3 Reported profit or loss for selected airports 1989 4
1.4 World’s top forty airports 1989 in terms of commercial air-transport 16
movements (ATMs)
1.5 World’s top forty airports 1989 in terms of terminal passengers 16
1.6 World’s top forty airports 1989 in terms of cargo traffic 18
1.7 World’s top forty airports 1989 in terms of work-load units 22
3.1 Categorization of airport revenue sources 56
3.2 Income structure of Los Angeles International airport (financial year 59
to June 1990)
3.3 Profit or loss by activity area at selected UK airports 1989–90 61
4.1 Impact of airport charges on airline costs: airport charges as a 64
percentage of total operating costs
4.2 Airport charges at selected airports March 1991 73
4.3 ICAO and IATA recommendations on airport charges 75
4.4 Representative charges February 1991 for Boeing 747–300 (with 77
280 passengers)
4.5 Relative importance of aircraft and passenger charges February 77
1991: passenger charges as a percentage of total aeronautical
revenue from Boeing 747
5.1 Passenger charges at London Heathrow April 1991–March 1992 95
5.2 Charge on landing at London Heathrow April 1991–March 1992 96
5.3 Aircraft parking charges at London Heathrow April 1991–March 96
1992
5.4 Airport charges at London Heathrow for Airbus A320 on 97
international flight by time of day
6.1 Sources of concession-fee income at London Gatwick and Frankfurt 121
airports (excluding rents)
6.2 Impact of alternative approaches to operation of airport concessions 126
6.3 Bases used by airports for establishing rental charges 130
7.1 The process for successful letting of concessions 155
7.2 Duty-free sales and airport concession income 1987–8 157
8.1 Costs per WLU in 1989 for sample of European airports 174
ix
8.2 Labour costs and labour productivity in 1989 for selected European 176
airports
8.3 Value-added ratios for European airports 1989 179
8.4 Total revenues per WLU in 1989 for selected European airports 182
8.5 Aeronautical and non-aeronautical revenues of selected European 183
airports in 1989
8.6 Concession and rent revenue per passenger for selected European 187
airports in 1989
8.7 Profitability measures for selected European airports in 1989 189
9.1 Illustrative calculation of US airline charges under residual and 193
compensatory approaches
9.2 The financial management approach of large US airports 1990 194
9.3 Airport bonds of large US hub airports 1990 197
9.4 Bonds and federal grant financing at US commercial airports 199
9.5 Revenues at large US airports 1989–90 201
9.6 Costs at large US airports 1989–90 203
9.7 Passenger facility charge revenues at selected US airports 1990 207
9.8 Landing charges at Boston Logan airport 208
10.1 Profit or loss of selected Third World airports (financial year 1989) 212
10.2 Third World airport charges compared to European February 1991: 216
charges for Boeing 747 with 280 passengers
10.3 Concession revenue and rents as percentage of total revenue 1989 217
10.4 Concession and rental income per passenger in 1989 218