Managing Airports

Butterworth-Heinemann An imprint of Elsevier Linacre House, Jordan Hill, Oxford OX2 8DP 200 Wheeler Road, Burlington MA 01803 First published 2001 Reprinted 2002 Second edition 2003 Copyright © 2001, 2003, Dr Anne Graham. All rights reserved The right of Dr Anne Graham to be identified as the author of this work has been asserted in accordance with the Copyright, Designs and Patents Act 1988. No part of this publication may be reproduced in any material form (including photocopying or storing in any medium by electronic means and whether or not transiently or incidentally to some other use of this publication) without the written permission of the copyright holder except in accordance with the provisions of the Copyright, Designs and Patents Act 1988 or under the terms of a licence issued by the Copyright Licensing Agency Ltd, 90 Tottenham Court Road, London, England W1T 4LP. Applications for the copyright holder’s written permission to reproduce any part of this publication should be addressed to the publisher Permissions may be sought directly from Elsevier’s Science and Technology Rights Department in Oxford, UK: phone: (+44) (0) 1865 843830; fax: (+44) (0) 1865 853333; e-mail: permissions@elsevier.co.uk. You may also complete your request on-line via the Elsevier homepage (http://www.elsevier.com), by selecting ‘Customer Support’ and then ‘Obtaining Permissions’ British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloguing in Publication Data A catalogue record for this book is available from the Library of Congress ISBN 0 7506 5917 3 For information on all Butterworth-Heinemann publications visit our website at www.bh.com

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Managing Airports
An international perspective
Second edition Anne Graham

AMSTERDAM BOSTON HEIDELBERG LONDON NEW YORK OXFORD PARIS SAN DIEGO SAN FRANCISCO SINGAPORE SYDNEY TOKYO

Contents

List of figures List of tables Preface Acknowledgements Abbreviations 1 2 Introduction The changing nature of airports Traditional airport ownership and management Moves towards commercialization Why privatization? The privatization timetable Types of privatization The globalization of the airport industry Impact of airport globalization on users Airport economics and performance benchmarking Industry profit levels Revenue and cost structures Factors influencing costs and revenues Measuring economic performance Service quality and its measurement Increasing emphasis on quality Measuring the quality of service Service level agreements Level of delays Quality management at airports

vii ix xii xiii xv 1 8 8 10 12 17 18 37 48 54 54 56 59 61 74 74 76 82 85 91

3

4

Contents 5 The airport–airline relationship The structure of aeronautical charges The level of aeronautical charges The impact of aeronautical charges on airline operations The airport regulatory environment Regulation of privatized airports Slot allocation Ground handling issues The US experience A new airport–airline relationship The provision of commercial facilities The importance of commercial facilities The market for commercial facilities Approaches to the provision of commercial facilities The commercial contract and tender process The ending of EU duty. and induced impacts Airports and economic development The environmental impact of airports Growing concerns for the environment The main impacts The role of other transport modes The social consequences Environmental management Sustainability and environmental capacity The impact of 11 September 2001 and future prospects Overall effect on the air transport industry Airport traffic levels Airport financial performance Security issues The insurance problem Future prospects Index 98 98 104 104 111 112 120 126 129 132 140 140 142 149 153 158 163 178 178 180 182 188 199 203 203 204 206 212 219 219 220 229 236 237 245 251 251 253 255 259 264 265 272 6 7 8 9 10 vi . indirect.and tax-free sales The impact of 11 September 2001 The role of airport marketing The birth of airport marketing The nature of airport competition Marketing concepts Airport marketing techniques Norwich airport The economic impact of airports The wider picture Airports as generators of economic activity Measuring the direct.

5 3. 2002 Financial results of TBI. 2001 Airport aircraft movement by world region. 1979–2001 Total revenues – Vienna Airport Group.3 2. 2000 External capital funding at small US hub airports.1 2. 2001 Airport cargo tonnes by world region.6 4.2 2.12 2.5 1. 1979–2001 Traffic at Australian airports. 2000–01 Total factor productivity for world airports.7 2. 1996–7 External capital funding at large US hub airports.3 1.2 3.13 2. 1989–2001 Organizational structure within the Schiphol Group.4 1. 2001 Revenue per WLU for European airports.8 2. 1994–2002 Percentage share of aeronautical revenue at ACI airports by world region. 2001 The world’s 20 largest airports by air transport movements.5 2.1 Airport passengers by world region. 1989–2001 Profitability – Schiphol Group.1 3. 1996–7 Profitability at Australian airports.7 2. 2001–02 2 3 3 4 4 4 5 15 15 15 16 16 16 32 32 35 35 38 38 40 44 57 67 67 68 69 70 90 . 2001 Revenue per employee for world airports.4 2.4 3.Figures 1.6 2.10 2. 2001 WLU per employee for European airports. 1999 Passenger survey results at Brisbane airport. 2001 The world’s 20 largest airports by cargo tonnes. 2001 The world’s 20 largest airports by international terminal passengers.14 3.1 1. 2001 The world’s 20 largest airports by total passengers.6 1.11 2.2 1. 2000 Ownership of Vienna airport until 1992 Ownership of Vienna airport after IPO in 1992 Ownership of Vienna airport after secondary offering in 1995 Ownership of Vienna airport after changes in 2001 Total passengers at Vienna airport.3 3. 2000 Total passengers at Amsterdam airport.9 2. 2001 Cost per WLU for European airports.

9 Profitability – BAA.2 Employment at European airports in 1996 8. 2002–21 5. 2001 6. 1990–2002 7.2 Average annual pax-km forecasts of main regional flows. 2001 6. 1998–2001 6. 2001 6.2 Concession revenue: Brussels airport. 2001 9.2 Landing and passenger charges as a share of total costs for UK airlines.1 105 107 147 147 148 159 163 167 169 171 172 199 201 205 207 210 231 232 233 233 254 268 viii .8 Revenue sources for BAA.4 Mode of surface transport used by employees at London Heathrow airport in 1999 10.2 Total passengers at Norwich airport.7 Retail space at BAA UK airports. 1999–2001 7. 1990–2002 6.1 The economic impact of airports 8.1 Non-aeronautical revenue per passenger at ACI airports by world region. 1992–2000 6. 1990–2002 8.4 Airport retail revenue per square metre in 2000/2001 6.1 Existing and planned rail links to airports 9.3 Concession revenue: Washington airports.5 Non-aeronautical revenue share (%) at European airports.1 Total passengers at Southampton airport. 1999–2002 6.Figures Aeronautical charges and taxes for an international B737–800 turnaround in 2002 at world airports 5.3 Employment at Gatwick airport in 1997 9.3 Mode of surface transport used by passengers at London Heathrow airport in 2001 9.2 Public transport usage by passengers to and from the airport.1 Airport passenger growth by world region since 11 September 2001 10.6 Profitability – Aer Rianta. 2000 6.

9 3.7 2. 1987–2001 Privatization details of Australian airports TBI’s expansion into the airport business.8 2.5 2.6 2.4 2.1 2.1 3.Tables 1. 1983–2001 Revenue and cost structures at a selection of European airports.3 3.1 4.4 3.6 4.1 2.3 4.4 4.2 3. 2001 Performance indicators commonly used to assess economic performance Service standards used by Manchester airport Criteria most frequently used to measure quality of service at ACI airports Summary of QSM scores 2001–02 at BAA London airports Overall passenger satisfaction levels: best performing airports from IATA’s 2001 global airport monitor by size of airport BAA London airport ‘best endeavours’ service level targets. 2003 Traffic and profitability growth at main UK airports. 2002 6 20 22 24 25 29 31 33 44 50 55 56 58 58 64 76 79 80 81 83 84 86 87 .2 2.3 2.5 4. 2001–02 Airport operating revenue sources Average revenue and cost structures at European airports.8 Growth in passenger numbers at the world’s 20 largest airports Airport privatization through share flotations Airport privatization through trade sales Airport privatization through concession agreements Airport privatization through project finance Ownership patterns at main UK airports. 1995–2002 PlaneStation airports operated by Wiggins in 2003 Profitability for 30 major airport operators. 1999 GSSs agreed at Manchester airport in 2002 Increasing scheduled journey times at congested airports Delays at major European airports on intra-European scheduled services.5 4.7 4.2 4.

1 9. 1999 Employment impacts at European and North American airports Economic impacts at Washington. and social expenditure and savings at Heathrow airport. 2000 Passenger profile at Norwich airport. 2001–02 Static quality indicators at Brisbane airport. Geneva.5 5.3 9.4 9.10 6. landing.7 7.10 4.8 7. 1994–9 on airport fees Discounts given to each airline at Aer Rianta airports. economic. 2002 Key environmental performance indicators at airports Environmental. 2002 Key developments in BAA’s retail strategy in the 1990–2000s Number employed in airport marketing at selected regional airports Alternative low-cost airports within Europe The airport’s customers Factors affecting the choice of airports Passengers reasons for choice of UK airport in 1998/99 Airline and tour operators marketing support costs at Manchester airport.1 5. 1998–2001 Aer Rianta’s involvement in international retailing activities.6 9. Brisbane.4: 5.9 5.6 5.2 6.10 8.5 6.11 5. and parking fees IATA’s criteria for airport economic regulation The ‘X’ value used for the UK airport price caps The ‘X’ value used for the Australian airport price cap for 5 years after privatization in 1997–8 Slot co-ordination status of major airports in the EU Key features of the 1993 EU slot allocation regulation Key features of the 1996 EU ground handling directive The different markets for commercial facilities at airports Concession income at BAA London airports.5 9.2 7.1 8.5 7. 1998–2003 Elements of agreement between Ryanair and BSCA Main catchment areas of London City airport.6 7.4 7.3: 5.9 4. and Vienna airports Emission charges at Swedish airports in 2002 Targets and commitments – Heathrow airport surface access strategy. 2002 Passenger profile at Southampton airport.2 9.4 6.8 5.3 6. 1998–2001 New route discounts available at Aer Rianta Airports 2001–03 on passenger.1 6.7 5.6 7.7 Proposed service quality elements to be included in the regulation of BAA London airports Survey results of seven major airlines at Brisbane airport. 2001–02 Main aeronautical charges at airports New growth and new route discounts available at Aer Rianta airports.1 7. 2000–01 Short-term impact of the loss of intra-EU duty.3 7.and tax-free sales on airport revenues Changes in non-aeronautical revenue at UK airports.2 9. 2001/2002 Key events in the development of Manchester airport’s second runway Manchester airport’s ‘green charter’ Main environmental indicators used by Copenhagen airport A/S 88 90 91 103 109 109 110 116 117 119 122 123 128 146 157 161 164 166 171 179 181 183 184 185 190 192 197 198 200 211 216 226 234 238 239 241 242 244 x .2 5.Tables 4.9 7.

8 10.2 10.6 10.3 10.1 10.4 10.Tables 9. 2001–02 Funding of security at European airports.5 10.7 10.8 The impacts of different options for optimizing noise capacity at Amsterdam airport Change in passenger numbers at major European airports since 11 September 2001 Change in financial performance of the US airport industry since 11 September 2001 Change in financial performance at major European airports since 11 September 2001 Share prices of airport companies since 11 September 2001 Important dates for new security measures in the United States. 2002 IATA forecasts of international scheduled passengers Long-term forecasts of global traffic growth 247 255 257 258 258 260 262 267 267 xi .

Airport operators are no longer just operating within the scope of their national boundaries. the Iraq War. The book provides an overview of all the key management challenges facing airports. The aim of this book is to provide a comprehensive appreciation of the key management issues facing modern-day airport operators. or is already working. By necessity the scope has to be very farreaching and so it cannot offer an in-depth treatment of every issue. . they nevertheless have relevance to airport operators throughout the world. which has witnessed the fastest pace of change. The emphasis here is on the economic. An international approach has been adopted reflecting the increasingly international nature of the industry. commercial and planning areas at a strategic level. in the airport sector. While most of the case studies are from the developed world.Preface In most of the published literature the airport industry has received relatively little attention and has traditionally been very much overshadowed by the airline sector. The book uses material from a wide range of airports and has a very practical focus. The first edition of this book was published before these developments – hence the reason for this second edition. and the whole industry is becoming global. commercially oriented business. Airports are now complex businesses requiring a range of business competencies and skills. Instead it is intended that the book should enable the reader to acquire a broad and up-to-date insight into the workings of the industry which will meet the needs of anyone who wishes to work. At the same time there is a growing recognition of the need to balance the wider economic benefits that airport expansion can bring with the increased environmental costs. Attitudes towards airports have changed dramatically as their role has shifted from that of public utility to that of a dynamic. rather than on the detailed operational and technical aspects. the outbreak of SARS and the continuing threat of terrorism. In addition to facing these important challenges airports have had to cope with the unparalleled consequences of the events of 11 September 2001.

Special thanks must go to Professor Rigas Doganis who was largely responsible for introducing me to the world of airports and who has remained supportive of my airport work ever since. John Riordan from the Bank of Ireland International Finance. Stan Maiden and Mike Toms from BAA plc. Hartmut-Ruediger Simon and Rolf Ewald from Dusseldorf Airport. Over the years at ACI-Europe. Professor Brian Graham from the University of Ulster. Thanks are also due to Paul Behnke at ACI. she spent much time and effort replying to my endless questions and searching out relevant documents. I wish to express my . Amongst the many other airport experts who have helped with this book I must give a special thanks to Wendy O’Connor. I particularly want to express my appreciation to the following individuals who have always willingly given up their valuable time to contribute on our industry seminars: Sigi Gangl formerly from Vienna Airport. I would like to begin by thanking my colleagues at the University of Westminster for their continual support and encouragement. as I struggled to write the book with numerous other deadlines approaching. I have learned much from their presentations and informal discussions. During this time I have been very fortunate in meeting a large number of industry professionals who have provided me with invaluable insights into the management of airports. Jan Veldhuis from Amsterdam Aviation Economics and John Twigg from Manchester Airport. Edward Clayton from Hochtief Airport. I am particularly grateful to Dr Nigel Dennis for his guidance and constructive advice. Nigel Mason from York Consulting. So many people have helped me over the years that it is difficult to name them all. I have also benefited enormously from discussions with my own students.Acknowledgements I am indebted to many individuals and organizations for helping this book come to fruition and for co-operating with the writing of this book. Stan Abrahams formerly from the UK Civil Aviation Authority. This book draws heavily upon these experiences. Thanks are due to all these people. as well as tolerance and patience. I have spent over 15 years undertaking research into airports and teaching about airport-related topics. and with participants from airport management training programmes organized by the University.

Special mention must go to Jason Vallint. I am grateful as well to Dr Ian Humphreys at Loughborough University. Callum.Heinemann. too numerous to mention individually.Acknowledgements gratitude to Ian Stockman and Dr Romano Pagliari at Cranfield University who have always been most supportive and helpful in sharing their knowledge and expertise and very willing to provide research material. I must thank my family and friends for putting up with the disruption to their lives while I have been writing this book. who has shown a keen interest in my work and has provided an invaluable press-cutting service. I must thank all the staff at Butterworth. I am very much indebted to many other airport financial professionals. Ivo Favotto from URS Corporation. I also very much appreciate the help given by Patrick Alexander from Southampton Airport. and Peter Mackenzie-Williams. and Ewan. I am a novice at book writing and they have given me much helpful advice and assistance. Dr Brigitte Bolech from Vienna Airport. Richard Lewin from Wiggins. who have tirelessly responded to my frequent requests for data over the years. I am very appreciative of the support from my mother Barbara Miller. Professor Tae Oum from the University of British Columbia and Hans-Arthur Vogel from Fraport. my children. Lorna. Above all. A special thanks must go to Ian from the public library in Brighton. have been very patient with my preoccupation with this book – although they still do not understand why anyone would want to write or read about airports! They have tolerated my unreasonable behaviour and brought me quickly back to reality whenever the writing threatened to take over my life. Trevor Eady from Norwich Airport. with whom I spent long hours debating about the WLU concept. xiv . In addition. both of the Transport Research Laboratory. I owe a special debt of gratitude to Sandra Bollard. and from the rest of the Miller family. Finally. and to the Daswani family for their help and encouragement. for always being there to look after my children when I tried to juggle writing and family life.

Abbreviations ACCC Australian Competition and Consumer Commission ACI Airports Council International ACSA Airports Company South Africa AdP Aeroports de Paris AEA Association of European Airlines AENA Aeropuertos Espanoles y Navegacion Aerea AGI Airports Group International AIA Athens International Airport SA AIP Airport Improvement Program ANSconf Conference on the Economics of Airports and Air Navigation Services ARI Aer Rianta International ASAS airport surface access strategy ATC air traffic control ATF airport transport forum ATM air transport movement ATU airport throughput unit BA British Airways BCIA Beijing Capital International Airport BOOT build–own–operate–transfer BOT build–operate–transfer BRT build–rent–transfer BT build–transfer CAA Civil Aviation Authority Capex capital expenditure CDG Charles de Gaulle CIPFA Chartered Institute of Public Finance and Accountancy carbon dioxide CO2 CPH Copenhagen Airport A/S CRI Centre for Regulated Industries dB decibel DCMF design–construct–manage–finance .

depreciation and amortization environmental impact assessment environmental impact statement Eco Management and Audit Scheme Establishing a Network for European Airports European Travel Research Foundation European Union enterprise value Federal Aviation Administration Federal Airports Corporation general aviation gross domestic product International Air Transport Association International Civil Aviation Organization International Duty Free Confederation initial public offering International Standards Organization Los Angeles International landing and take-off Manchester Airport plc maximum authorized weight minimum connect time majority in interest management information system million passengers per annum maximum take-off weight nitrogen oxide Official Airline Guide passenger facility charge Philippine International Air Terminals Co.Abbreviations DDF EBIT EBITDA EIA EIS EMAS ENEA ETRF EU EV FAA FAC GA GDP IATA ICAO IDFC IPO ISO LAX LTO MA MAW MCT MII MIS mppa MTOW NOx OAG PFC PIATCO PNR POS ppa QSM ROCE ROR ROT SARS SLA SPA TDENL TFP TJ TQM VAT WLU YVRAS xvi Dubai Duty Free earnings before interest and tax earnings before interest. preferred noise route passenger opinion survey passengers per annum quality of survey monitor return on capital employed rate of return rehabilitate–own–transfer Severe acute respiratory syndrome service level agreement strategic partnership agreement total-day-evening-night-level total factor productivity Tera Joule total quality management value added tax work load unit Vancouver Airport Services . tax.

Growing awareness of general environmental issues has heightened the environmental concerns about airports. They provide all the infrastructure needed to enable passengers and freight to transfer from surface to air modes of transport and to allow airlines to take off and land. These services include air traffic control. taxiways. apron space. Airports can bring greater wealth. airports have a strategic importance to the regions they serve. Airports bring together a wide range of facilities and services in order to be able to fulfil their role within the air transport industry. fire and rescue in the airfield. Handling facilities are provided so that passengers. and ground transport interchanges. Airports also offer a wide variety of commercial facilities ranging from shops and restaurants to hotels. and freight can be successfully transferred between aircraft and terminals. passenger and freight terminals. and processed within the terminal. both on the environment in which they are located and on the quality of life of residents living nearby. provide substantial employment opportunities and encourage economic development – and can be a lifeline to isolated communities. gates. In a number of countries they are increasingly becoming integrated within the overall transport system by establishing links to highspeed rail and key road networks. their baggage. However. conference services and business parks. . they do have a very significant effect.1 Introduction Airports are an essential part of the air transport system. security. As well as playing a crucial role within the air transport sector. The basic airport infrastructure consists of runways.

Others include shareholders.Managing Airports The focus of this book is on management issues facing airport operators. and funding. the airport industry is dominated by North America and Europe (Figures 1. North America 43% Africa 2% Asia/Pacific 17% Middle East 2% Latin America 5% Europe 31% Figure 1. The way in which operators choose to provide the diverse range of airport facilities can have a major impact on their economic and operational performance and on their relationship with their customers. North American airports handled 1 354 million passengers in 2001 which represented 43 per cent of the total 3 212 million passengers. For example. The providers of services are just some of the airport stakeholders which operators need to consider. According to the Airports Council International (ACI). Each airport operator will thus have a unique identity – but all have to assume overall control and responsibility at the airport. handling agents. As regards cargo. environmental lobbyists. local residents.1 Airport passengers by world region. as ultimately this will largely determine the air services on offer at the airport. North America is again the largest market with 26 million tonnes of the global 62 million tonnes – again with a market share of 43 per cent. concessionaires. reflecting the importance of this area in the global economy. The rest of these activities will be undertaken by airlines. Asian/Pacific airports have the second highest volume of cargo with a global share of 27 per cent. out of the 20 largest global airports. All the stakeholder relationships will be important but. degree of autonomy. the development of a good relationship with the airlines will be critical. Typically. Globally. government bodies. There were 994 million passengers in Europe. accounting for a further 31 per cent of the total traffic. clearly. 2001 Source: ACI. and government bodies. The importance of the North American region is reflected in the individual traffic figures of the various airports. These operators vary considerably in their ownership. Each will be faced with the challenging task of co-ordinating all the services to enable the airport system to work efficiently. A complex situation exists with many of these groups having different interests and possibly holding conflicting views about the strategic role of the airport. 2 .1–1. the actual airport operators themselves only provide a small proportion of an airport’s facilities and services. management structure and style. and other specialist organizations. employees. North America has a larger share of the total 60 million aircraft movements (56 per cent) since the average size of aircraft tends to be smaller due to competitive pressures and the dominance of domestic traffic. airport users.3).

Memphis is the world’s largest cargo airport because Federal Express is based here. In the longerturn. while Atlanta.7). 2001 Source: ACI. whether measured in passengers.Introduction Africa 1% North America 43% Asia/ Pacific 27% Middle East Latin America 4% 4% Europe 21% Figure 1. The aviation industry has been growing virtually continuously since the Second World War but this growth was dramatically halted recently due to the events of 11 September 2001.2 Airport cargo tonnes by world region. The cargo market is more widespread with six of the important cargo airports situated in Asia. when just international traffic is being examined. cargo or movements are in North America.3 Airport aircraft movement by world region. or Asia/Pacific. combined with a global economic downturn. North America 56% Africa Asia/ Pacific 2% 9% Europe 27% Latin America 5% Middle East 1% Figure 1. which is dominated by domestic traffic. with none in any other global region. Not all the major cargo airports coincide with the major passenger airports.6). 13 are US airports in terms of passenger numbers. and Los Angeles have the largest passenger throughput. 2001 Source: ACI. the European region’s significance becomes much more important (Figure 1. Chicago. The larger than average aircraft size in Asia means than none of the busiest airports in terms of movements are situated in this region. nine with cargo and 17 when air transport movements are being considered (Figures 1. Heathrow has the most international traffic.4–1. All the 20 busiest airports. UPS has its base at Louisville. Europe. The largest passenger airport in Asia is Toyko Haneda. However. Similarly. growth will return and so the subsequent need for additional airport capacity 3 .

6 The world’s 20 largest airports by aircraft movements. 4 Air transport movements (thousands) .Managing Airports 80 000 Terminal passengers (thousands) 70 000 60 000 50 000 40 000 30 000 20 000 10 000 0 North America Europe Asia Pacific Pa Am D L At C Lo Lo To D Fr P M H Sa M H D M L a en ho as h o o e G o in a i a la st ne us n F dri ng tro am at ndo nt ica s A ndo yko llas nk ris ve en V e w n i go ng a Ko it ap ton ra d n ix eg H Fo furt CD rda r ic nc as k ol ng O ele He an G m is is ’H e rt at co ar s hr da Wo e rth ow Figure 1. 2001 Source: ACI.5 The world’s 20 largest airports by cargo tonnes. 2001 Source: ACI. 3 000 Cargo (in thousand tonnes) 2 500 2 000 1 500 1 000 500 0 North America Europe Asia / Pacific M Ta In P Lo Am In C L S N M O Ba N Fr T A L H h e on nc oy s ia em os c d an ing ew ari ou is ica ndo ste he ipe ian aka ngk w Y s a kf ph An g K hor ko mi i go ap n rd on ur po Yor CD vill or ge Ka ok is on ag Na re t k k ol O He am G e le rit e ns g JF N is ’H a s a ew ai ar thr K e ar ow k Figure 1. 1 000 900 800 700 600 500 400 300 200 100 0 k ar ew N rk Yo ew gh N r bu tts Pi n o st Bo furt k an w Fr tte hro rlo eat ha C nH o nd hia Lo elp d ila Ph on st ou H i m ia M is u Lo St r ve s en D ega V lis s La apo ne in M it ro G et D CD ris Pa ix n oe les h Ph nge ort A tW s r Lo Fo s la al re D C At c hi la a a nt ’H O o ag North America Europe Figure 1.4 The world’s 20 largest airports by total passengers. 2001 Source: ACI.

traditionally were state owned and often subsidized by their government owners. However. In some places this has been the result of the adoption of more liberal bilateral air service agreements. airline ownership patterns have changed. The average annual growth was 6 per cent in the 1980s and 5 per cent in 1990s. but now this sector. In the European Union (EU). as has occurred on a number of the North Atlantic and Pacific routes. is developing into a fundamentally different business. The other most significant development within the airline industry. too. 2000 Source: BAA. was the most significant package and has had the most farreaching impact. which did not become fully operational until 1997. 1990. Most airlines. The growth in demand for air transport has had very significant economic and environmental consequences for both the airline and airport industries. since the 1970s there have been major regulatory and structural developments. primarily to reduce the burden on public sector expenditure and to encourage greater operating efficiency. will undoubtedly be one of the major influences on the airport business. and 1993. partly due to deregulation and privatization trends. which has had major consequences for certain airports. this situation has substantially changed as an increasing number of governments have opted for partial or totally private sector airline ownership. At the same time. Many more markets subsequently have been liberalized or deregulated. It may been seen that most airports experienced a decline in traffic in 2001 with the largest decreases being in the United States. is the globalization of the industry and the 5 r te es ch an M i m ia M d n ri ad ge M ha en op C to n ro To i e es ip l Ta ge An s Lo l FK ou k J r Se Yo ew N ok k ng Ba h ric Zu ls se ita r us Br Na o yk e To por ick a w ng at Si n G o nd ng Lo Ko g m on H rda e st Am urt kf an G w Fr CD hro t ris ea Pa n H o nd Lo . The 1993 package. Moreover.Introduction 60 000 Terminal passengers (thousands) 50 000 40 000 30 000 20 000 10 000 0 North America Europe Asia/Pacific Figure 1. in 1987. The pace of change was slower in the airport industry.1 shows the growth at the major international airports of the world for the last 20 years. deregulation has been achieved with a multilateral policy which has evolved over a number of years with the introduction of the three deregulation packages. privatization and globalization trends. This European deregulation has allowed a new low-cost airline industry to develop. Table 1.7 The world’s 20 largest airports by international terminal passengers. with the notable exception of those in the United States. Initially most change was experienced within the airline sector as a consequence of airline deregulation. The trend towards airline deregulation began in 1978 with the deregulation of the US domestic market. which have affected dramatically the way in which the two industries operate.

6 10.3 0.4 7. Sky Team.2 6.2 5.8 4.8 12. or other co-operative arrangements.8 2.0 5.9 2.3 5. emergence of transnational airlines.3 5.0 3.Managing Airports Table 1.1 7.1 1.5 4.5 5.3 2.6 5.2 Average Sources: ACI. Moreover. franchising.6 4.6 8. The transfer of the management of an airport. BAA and annual accounts.5 4.4 2. Some of these 6 .9 9. 2 Airport privatization.2 8.3 3.2 6.3 4. Radical restructuring has occurred. Three key developments have been witnessed within the airport sector: 1 Airport commercialization.4 3.9 1.0 6.3 8. These are dominating the airline business – accounting for two-thirds of all traffic. the adoption of strategic partnerships or the introduction of private management contracts.1 6. to the private sector by a variety of methods.8 4.1 5.1 9.9 6.7 6.1 7.8 8. and ‘Wings’. and in many cases the ownership as well.6 3.1 Growth in passenger numbers at the world’s 20 largest airports 1980 1990 2000 2001 % average annual change 1990/80 2000/1990 2001/00 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Atlanta Chicago O’Hare Los Angeles London Heathrow Toyko Haneda Dallas Fort Worth Frankfurt Paris CDG Amsterdam Denver Phoenix Las Vegas Minneapolis/ St Paul Houston San Francisco Madrid Hong Kong Detroit Miami London Gatwick 40 180 44 425 33 038 27 472 20 810 21 951 16 873 10 091 9 401 20 849 6 586 10 302 9 252 10 695 21 338 10 146 6 829 9 883 20 505 9 707 48 015 60 118 45 810 42 647 40 188 48 515 28 862 22 506 16 178 27 433 21 718 18 833 20 381 17 438 30 388 15 869 18 688 21 942 25 837 21 047 80 162 72 144 66 425 64 607 56 402 60 687 49 361 48 246 39 607 38 752 36 040 36 866 36 752 35 251 41 041 32 893 32 752 35 535 33 621 32 066 75 849 66 805 61 025 60 743 58 693 55 151 48 560 47 996 39 538 36 087 35 482 35 196 35 171 34 795 34 627 33 984 32 553 32 294 31 668 31 182 1. Four major alliance groupings.6 0.8 3.3 5.2 3.3 1.6 2.6 9. These include share flotations. many other airlines are aligning themselves to these groupings with code-sharing. The transformation of an airport from a public utility to a commercial enterprise and the adoption of a more businesslike management philosophy.5 7.5 8.0 4. The airports have now found themselves being caught up in this environment of change.8 4.0 5.1 3. oneworld.4 5.3 15. which in many ways mirrors that which has fundamentally changed the airline industry.8 3.4 8.5 0.7 4. have emerged with global networks.5 6. namely Star.3 1. 3 Airport globalization. The emergence of a few global airport companies who are operating at an increasing number of airports around the world.

into a new era of airport management which is dominated by the private sector and global players. Marketing. focusing primarily on airport charging. and slots issues.Introduction global players are traditional airport operators whereas others are new to airport management. Airport competition. Chapter 2 describes the privatization and globalization processes that are taking place. Airports can no longer see their role simply as providers of infrastructure but. The sweeping changes. This book discusses the implications of the development of the airport sector. regulation. Chapter 5 looks at this. This role needs to be clearly understood if future growth in the airport industry is to continue. instead. Chapter 9 goes on to consider the environmental impacts and ways in which airports are attempting to minimize the adverse effects. Airports are now complex enterprises that require a wide range of business competencies and skills – just as with any other industry. Chapter 6 looks in detail at this area of operation. hardly considered to be a relevant issue by many airports just a few years ago. Chapter 7 considers airport marketing. Finally. which for so long has been a basic business competence in most other industries but ignored by many airports. 7 . is now a firmly accepted management practice at airports. Chapter 8 discusses the economic impacts of airports and how airports can act as a catalyst for business and tourism development. which is moving from an industry characterized by public sector ownership and national requirements. The concept of sustainability and environmental capacity is introduced. This is considered in Chapters 3 and 4. Chapter 10 looks specifically at the impact of 11 September 2001 and then brings together the key issues of each chapter in order to make predictions for the coming years and to assess the future prospects for the industry. The remaining chapters of the book take a broader view of the airport business and consider the role that airports play on the environment and surrounding community. as providing facilities to meet the needs of their users. A major consequence of airport commercialization and privatization trends is that airport operators are devoting much more time and effort to building up the non-aeronautical or commercial areas of the business. is also becoming increasingly important. occurring concurrently within both the airline and airport industries mean that the traditional airline–airport relationship has been irreversibly changed. These developments are having a major impact on both economic performance and service provision.

Singapore. This was the situation with most US airports. European airports serving major cities such as Paris. local governments. Manchester airport. was owned by a consortium of local authorities with 55 per cent ownership resting with Manchester City Council and the remaining 45 per cent split evenly among eight councils of other nearby towns. The impact of such fundamental changes will be assessed from the point of view of the airport industry itself. and the passengers. for example. and Johannesburg.2 The changing nature of airports Traditional airport ownership and management It is the aim of this chapter to discuss the development of the airport sector as it moves from an industry characterized by public sector ownership and national requirements into a new era of airport management which is beginning to be dominated by the private sector and global players. Sydney. Copenhagen. either at a regional or municipal level. Virtually all airports traditionally were owned by the public sector. Regional airports in the United Kingdom also followed this pattern. Elsewhere. and Geneva were all owned by national governments. London. as were many other airports outside Europe such as those in Tokyo. Bangkok. Düsseldorf airport was jointly owned by the governments of North Rhine Westfalia state and the city of . In Germany. Dublin. Madrid. were the airport owners. the airlines. Stockholm.

The only privately owned airports traditionally. situated on the border between Switzerland and France. was a rather unique airport being jointly owned by the national governments of both Switzerland and France. Milan). Palermo). In Canada. tended to be the very small general aviation or aeroclub airports and so the influence of the private sector on the airport industry was very limited. Africa. The strictest form of control existed when the airport was operated directly by a government department. which was owned by the Canton of Zürich. the concessions were given to the local chambers of commerce with the national government retaining some control over the airfield facilities.g. and the federal government (26 per cent). the city of Frankfurt (29 per cent).g. In a few cases there were multipurpose transport authorities. as was the situation in Europe with the British Airports Authority (BAA) and Aer Rianta Irish Airports. there may have been both local and national government interest. airport authorities also existed for some of the airports. For example. in a few cases. typically the Civil Aviation Authority (CAA). owned airports. Ministry of Transport or. the way in which the government owners chose to operate or manage the airports varied quite significantly and had a major impact on the airport’s degree of independence and autonomy. the province of Lower Austria (25 per cent). Amsterdam was owned by the national government (76 per cent) and the municipalities of Amsterdam (22 per cent) and Rotterdam (2 per cent). managed and constructed the terminal infrastructure. while the joint owners of Hanover airport were the governments of the state of Lower Saxony and the city of Hanover. Turin) or just some of the services such as terminal management and handling (e. 9 . Vienna airport was another example. but still under public ownership. or partially privately. Venice. FIG. At the larger Italian airports (e. In some instances. public ownership – either at a local and/or national level – used to be the norm. the Zürich Airport Authority. At Zürich airport. operated the airports. This was the common practice for airports in areas such as Asia. the state department Transport Canada directly operated the 150 commercial Canadian airports. Greece was a good example of a country where airports were effectively run by the CAA. This was the case at Amsterdam airport and many of the German airports. There were also airport authorities or companies that operated just one major airport. However. these organizations managed more than one airport.g. the military.The changing nature of airports Düsseldorf. and South America. such as the Minneapolis-Saint Paul Metropolitan Airports Commission. In other cases. With a number of airports. which operated other transport facilities as well as airports. Thus. such as the Port Authority of New York and New Jersey or Massport in Boston. owned by the republic of Austria (50 per cent). There were also a few examples of airports being operated on a concession basis for central government. companies with public (usually local) shareholdings and perhaps some private shareholdings as well held the operating concession for a long-term period. At French regional airports also. Within Europe. and the city of Vienna (25 per cent). Similarly. the Middle East. Milan. The concession could cover management of the total airport and handling services (e. semi-autonomous bodies or companies. such as 60 years at Milan airport. while a mixed public private company. Frankfurt airport was jointly owned by the state of Hesse (45 per cent). Basel-Mulhouse or EuroAirport. It was only in the 1990s that there was a significant presence of privately. was responsible for the planning and overall operation of the airport and the airfield infrastructure. In the United States.

There had always been a number of airports. which had been run by airport corporations or companies. By contrast airports in areas such as those in Africa and South America generally held on to more traditional attitudes towards airports and experienced less change. and often strictly controlled. both formed in 1991. Moves towards commercialization were reflected in a number of different interrelated developments. For example. In the 1970s and 1980s. airports was historically that of a public utility with public service obligations (Doganis. such as with Copenhagen airport (1991) or the South African airports (1994). Many airports gradually started to be considered much more as commercial enterprises and a more businesslike management philosophy was adopted. Greater attention began to be placed on the commercial aspects of running an airport such as financial management. while in 1986 the domestic airports came under the control of the National Airports Authority. However. and as the first steps towards airline privatization and deregulation took place. such as Amsterdam and Frankfurt. The aim behind this was to improve efficiency and integrate each airport more closely with the local economy. previously under the direct central control of Transport Canada. 1992). This was achieved with the establishment of more independent airport authorities or. control of over 100 Canadian airports had been transferred to local organizations (Caves and Gosling. the establishment of an airport corporation was primarily undertaken as an interim step towards airport privatization. was passed over by way of long-term leases to individual non-profit-making authorities in the 1990s.Managing Airports Moves towards commercialization Attitudes towards these publicly owned. Canada is an interesting example where the management of many of the country’s major airports. Thus ‘commercialization’ of the airport industry began to take place. and Edmonton in 1992. however. First. the Federal Airport Corporation of Australia set up 1988. As a consequence commercial and financial management practices were not given top priority. changing attitudes in the 1970s and 1980s led to many more airport authorities and companies being established. non-aeronautical revenue generation and 10 . Other examples include the Polish Airport State Enterprise established in 1987. Such developments generally gave the airports more commercial and operational freedom. various airports loosened their links with their government owners. with Europe generally leading the way. in charge of the airports in the east and west of the country. Vancouver. The pace of change varied considerably in different parts of the world. In some cases. in 1972 the International Airports Authority of India was established to manage the country’s four international airports. and Aeropuertos Espanoles y Navegacion Aerea (AENA) in Spain and the Kenya Airports Authority. in some cases. 1999). as the air transport industry grew and matured. Calgary. respectively – became public enterprises in 1987 and limited liability companies in 1993. In Indonesia. The first airport authorities were set up for Montreal’s two airports. by corporatization. By 2000. views about airport management began to change. which involved the setting up of an airport company with public sector shareholders. These two authorities merged in 1995. and sometimes opened the door to private sector investment and partnerships. two organizations – Angkasa Pura I and II.

the quality being improved and the range of commercial activities being expanded.The changing nature of airports airport marketing. it was sometimes very difficult to obtain financial accounts that gave a true indication of an airport’s financial and economic performance. the commercial functions of an airport gradually were recognized as being equally important and. operations. Relatively underused practices. For instance. non-aeronautical sources overtook aeronautical sources as being the most important revenue. as a result. many of the airports set up marketing departments. This meant that the airport’s costs and revenues were treated as just one item within the government department’s overall financial accounts and rarely were they matched together to assess the profitability of the airport. this occurred at Amsterdam airport in 1984. An increasing number of airports started adopting more commercial accounting practices in the 1970s and 1980s. For a number of airports. One of the most visible indications of moves towards commercialization and an increased focus on treating the airport as a business was greater reliance being placed on non-aeronautical or commercial revenues. for example. Aeronautical revenues. In certain cases no separate balance sheet existed for the airport. also began to be accepted – albeit rather slowly at the start – by a growing number of airports as essential management tools. A more businesslike approach to airport management. The operational aspects of the airport traditionally had overshadowed other areas and most airport directors and senior management were operational specialists. because of government controls. started to use pricing tactics and promotional campaigns to attract new customers. The airport industry historically had played a rather passive role towards marketing and only responded to customer needs when necessary. This development was primarily the result of greater space being allocated to retail and other non-aeronautical facilities. and began to undertake market research (Humphreys. encouraged airports to take a much more active and proactive role. Similarly. coupled with a more commercially driven and competitive airline industry. such as landing and passenger fees from the airlines. such as airline or passenger services. Moreover. when Geneva airport became an independent authority in 1994 it began to show a balance sheet and asset values in its annual accounts. had been traditionally by far the most important source. This meant that the airports adopted commercial private sector accounting procedures. 1999). some of the airports were not considered as a separate accounting unit. Often an airport would adopt public accounting practices specific to the country and would use public sector rather than more standard commercial procedures. administration. such as the benchmarking of financial performance and quality management techniques. In some airports the typical functional organization structure with different departments for finance. 11 . One example of this was that for the first time they showed depreciation as a measure of cost of capital. notably in Europe. and so on was replaced with departments or business units more focused on customers’ needs. This meant that comparisons with other organizations could not easily be made. which had previously been omitted. However. the resources and staff numbers employed in these areas were expanded. In the United Kingdom. This was often the direct result of the loosening of government links with the establishment of an airport authority or corporation. In the past. For instance. in the United Kingdom in 1987. all the major regional airports became public limited companies.

but what is certain is that some additional infrastructure will have to be built. and in many cases the ownership as well. The transformation from a predominately publicly owned and state controlled airline industry to a global business with much more commercial freedom has forced many airports to have a much more customer-focused outlook when coping with their airline customers. the demand for air transport has continued to grow and is predicted to grow well into the future. such as health and education. There have been a number of developments in the 1980s and 1990s that occurred within the air transport industry which have specifically strengthened the case for airport privatization in some countries (Croes. Increased commercialization has brought about healthy profits and market-oriented management. ICAO. notably Europe and North America. particularly when a share flotation is being considered. It may bring about improved efficiency. has become increasingly scarce in the modern-day global economic climate as governments have striven to reduce their public sector spending or to shift their focus onto non-revenue-earning activities which appear to be more worthy. Less favourable employment conditions may be adopted and redundancies may occur. Airports have shown that they have the proven ability to meet private sector requirements – albeit from a rather protected position in many cases. Privatization will reduce the need for public sector investment and free access to commercial markets. 1998. In its broadest sense. Moreover. it is usually associated with the transfer of the management of an airport. 1997). From one viewpoint. Beesley. airport privatization can be seen as just an evolutionary stage of airport development. Airports have evolved from public sector utilities to commercial enterprises and privatization can be considered as commercialization taken to its limits. airport privatization has been seen as a way of injecting additional finance into the airport system to pay for future investment. invests inadequately and gives insufficient consideration to externalities such as controlling environmental impacts and maintaining social justice. namely public sector funds. 12 . the changes within the airline industry have inevitably had a major impact on the airport sector. 1994. delivers poor standards of service. 2000a). On the other hand. It will reduce government control and may increase an organization’s ability to diversify. are well known. But what is meant by ‘airport privatization’? It can have various meanings. The current airport capacity cannot cope with this growth. the 1990s were the decade when airport privatization became a reality.g. greater competition and wider share ownership. deregulation has encouraged growth. First. In some markets. The theoretical arguments for and against privatization of publicly owned organizations. Within this context. At the same time. 1997. it may create a private monopoly which overcharges. see Jackson and Price. Whether all this demand can or should be provided for is debatable. They have been fiercely debated over the years and are well documented (e. Freathy and O’Connell. The increasing number of airport privatizations which are taking place throughout the world demonstrate the growing acceptance of this process as a method of tackling some of the challenges which many airports face in the twenty-first century.Managing Airports Why privatization? While the 1970s and 1980s were dominated by airport commercialization. to the private sector. one of the major traditional sources of airport financing.

A new functional organization structure with main departments of airport traffic operation. further commercialization took place with the replacement of the functional organization structure with a new system which allowed the airport authority to respond more effectively to its customers. 1995). commercialization does by no means always have to lead to privatization and there are a number of examples of airports. As a result. To some opponents. Between 1978 and 1985.9 million passengers and had begun to pay dividends to its three public sector shareholders. safety and security. airports have a greater tendency to be natural monopolies which cannot be duplicated.8 million passengers. and administration was set up. which is in effect the air transport ‘infrastructure’. and finance and accounting) and central offices (such as legal affairs. the authority was being run very much as a public utility. New planning and management procedures were introduced and the airport began to proactively market itself to airlines. airport ownership and control is always likely to be a controversial area.The shareholders were the Federal Republic of Austria (50 per cent). which are run on a very commercial basis but have no desire to become totally private organizations. Unlike the situation with the airlines. and cargo facilities and by 1978 was handling 2. the airport was handling 3. The fear is that priority will be given to shareholders or investors and that user and community needs will be neglected. The business units were required to make profits while the service units were there to provide services in the most cost-effective manner. making losses and receiving subsidies from the public sector owners (Gangl. It set up business units or customer divisions separately for airlines and passengers. financial/accounting. communications and environment. planning and construction. human resources). air transport ‘operators’. maintenance and infrastructure services. the privatization of airports. the airport authority went through a major organizational restructuring which meant that the airport began to be considered much more as a business enterprise. that is. By 1985. In the next two decades. and supported these with service divisions (such as construction. For many countries. During this time. As a result the airport made a profit for the first time in 1979 and has remained in profit ever since. In the late 1980s.The changing nature of airports However. Management practices with greater emphasis on 13 . the city of Vienna (25 per cent) and province of Lower Austria (25 per cent). where competition can more easily be encouraged. The evolution of the airport business at Vienna airport Vienna airport authority was created in 1954 when the airport handled just 64 000 passengers annually. in different countries and even between local and central government bodies in individual countries. Views about privatization vary considerably in different regions of the world. transferring airports which are considered to be national or regional assets to the private sector remains a politically sensitive policy. the airport embarked on major expansion projects of the runway. passenger terminal. does not make sense. such as Manchester in the United Kingdom. The inherently monopolistic position of many airports will also continue to be of concern to politicians and airport users. maintenance and technical service.

which was used by the airport company to partly finance its expansion plans. On the other hand. This included changing the corporate status from a limited liability company to a joint stock company. This was primarily because it did not want the large loan servicing costs right through until the next capacity expansion. the airport decided on a share flotation for 1992. Eighty per cent of this capital was available through cash flow and retained profits but other sources were needed for the remaining 20 per cent.2 billion proceeds itself. Employee shareacquisition programmes and investor relations programmes were set up and sales support undertaken through marketing.The airport also had to ensure that it developed a private sector and market-oriented management approach with an appropriate corporate culture and image – a process which had begun in the 1980s and was further developed during the privatization process (Gangl. Switzerland. technical services. Budget constraints meant that increasing the equity of the public shareholders was out of the question. and road shows in areas such as Austria. advertising. land development and real estate) both being supported by central services. were set up.6 per cent (Figure 2. marketing and service quality provision (Gangl. In order to be floated on the stock exchange. and handling services) and non-aviation units (consumer services. like most others throughout the world. with aviation units (airside services. and increasing the share capital by 50 per cent. In spite of the poor stock market conditions.4). Attention was also given to developing the nonaeronautical side of the business. the airport authority had to implement a number of very significant changes. the airport handled 11. This gave private shareholders 47 per cent of the airport. In 1990 it became apparent that a capital expenditure programme of AS8 billion was needed to extend the airport’s annual capacity from 6 to 12 million passengers. the Vienna stock market.The organizational structure was further refined to be more customer focused. and Taiwan.5 per cent stake in the airport in a secondary offering in 1995 – this time retaining the AS2. Germany.1–2. Business appraisals for valuing the company were undertaken and consultations held with capital market analysts. this arrangement was terminated in 1998 (Figures 2.and long-term loans as well as bonds were high. However. Amsterdam airport also bought 1 per cent of the airport with the aim of establishing a strategic alliance to encourage commercial and technical co-operation. the public shareholding in the company was reduced to 40 per cent. the United Kingdom. Japan.The sale brought in AS1. such as retail and catering. Eventually. In 2001. A comprehensive management information system (MIS) was launched.5).9 million passengers the same number as in 2000 due to the decline in traffic 14 . which followed a share buy-back in 2000 that resulted in 10 per cent of shares being placed in an employee foundation. In 1995. the flotation or initial public offering (IPO) took place in June 1992 and was oversubscribed three times in Austria and five times internationally.8 billion. and then further debt requirements. Since the first year of profits in 1978. airline and terminal services. At that time Austrian interest rates for medium. In 2001. and training programmes focused on customer orientation and effective business practices. The realistic options were either raising the money through loans/bonds or raising equity on the capital markets.The success of the flotation meant that the Austrian government opted to sell half its remaining 36. which was planned in 2000. 1998). 1994). was in a poor trading situation. passenger numbers have increased by an average annual growth of 6.Managing Airports private sector practices in the area of business and strategic planning and cost control were introduced.

During the same period revenues have grown by 8.1 Ownership of Vienna airport up until 1992 Source: Annual report.3 Ownership of Vienna airport after secondary offering in 1995 Source: Annual report.7 per annum (Figure 2.9 per cent. Since 1991 when new accounting procedures were adopted the profit before interest and tax increased from AS409 million in 1991 to AS1157 million in 1999 – an annual average growth of 13.5 per cent in 2001. Private shareholders 27% City of Vienna 37% Federal republic of Austria 18% Province of lower Austria 18% Figure 2.6) with a decline of 2. In 2000 profit was up by 4 per cent but it declined by 8.2 per cent in 2001.The changing nature of airports Federal republic of Austria 25% City of Vienna 50% Province of lower Austria 25% Figure 2. 15 . since 11 September in that year.2 Ownership of Vienna airport after IPO in 1992 Source: Annual report. Private shareholders 48% Amsterdam airport 1% City of Vienna 17% Province of lower Austria 17% Federal republic of Austria 17% Figure 2.

5 Total passengers at Vienna airport. 1979–2001 Source: Annual reports.4 Ownership of Vienna airport after changes in 2001 Source: Annual report. Figure 2. 1979–2001 Source: Annual reports. 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 20 20 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 16 .Managing Airports Private shareholders 50% Employee foundation 10% City of Vienna 20% Province of lower Austria 20% Figure 2.6 Total revenues – Vienna Airport Group. 14 Total passengers (million) 12 10 8 6 4 2 0 19 700 Revenues (Index: 1979=100) 600 500 400 300 200 100 0 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Figure 2.

and Cuba. Sandford Orlando. 1999). for a new international terminal and car park at Istanbul airport which was opened in 2000. Brisbane. the airport has been keen to become involved in international projects. and Zürich Airport. the Dominican Republic. Further privatizations took place in 1998 in Australia as well as in South Africa. Edinburgh. Melbourne. East Midlands which was totally privatized in 1993. with other investors. The first partially privately financed Indian airport was opened in Cochin. As the pace to privatize has gathered momentum. Airports as diverse as Düsseldorf. In that year. and Belfast International which was subject to a management buyout in 1994. privatization occurred at airports as varied as Frankfurt. Glasgow. In the United Kingdom. as were the small US airports of Stewart and Niagara Falls. This successful privatization opened up the debate at many other airports as to whether they too should be privatized. with the notable exceptions of Vienna and Copenhagen airport. There were also share flotations for Malaysia Airports Beijing Capital International Airport. it has been partly responsible. Auckland. In 2001. a number of airports in central and southern America countries. in the next few years only a handful of airports actually were privatized. For example. and Prestwick). Seeb and Salahah in Oman. 35 per cent from individual investors. The year 1996 appeared to be a turning point for the airport industry and the following few years saw airport privatization becoming a much more popular option in many areas of the world. Kerala in southern India. In 2001. Naples. Chile. and Stansted) and four Scottish airports (Aberdeen. Rome. As previously mentioned. Newcastle. 27 per cent of shares in Vienna airport were floated in 1992 followed by a secondary offering of a further 21 per cent in 1996. It is a member of the consortium which is to develop and operate the new Berlin Brandenburg airport. Inevitably. Argentina and other destinations such as Luton. Elsewhere in Europe and in other continents there was little evidence of definite moves towards privatization. Gatwick. were privatized. and Sharm El Sheikh in Egypt. such as Mexico. Birmingham. this included Liverpool airport which was partially privatized in 1990. Stockholm Skavsta. In 1999 and 2000. it joined a joint team to build a new Cuidad Real airport in Spain and in 2002 a consortium led by Vienna airport won a 40 per cent stake in a 65-year concession to operate Malta airport. this has meant that in some cases purchase prices have been inflated and that some 17 . more and more investors and companies have become interested in becoming potential purchasers. Similarly. and Perth were partially or totally privatized in 1997.The changing nature of airports Like many major airports in Europe. Costa Rica. Bournemouth and Cardiff airports were privatized in the United Kingdom and private involvement in the new Athens airport at Spata was agreed. The privatization timetable The first major airport privatization took place in the United Kingdom in 1987. for instance. However. and 30 per cent from companies supplying goods and services at the airport (Barker. and Hanover. This was the total flotation of shares of BAA plc. at Copenhagen airport there were share flotations of 25 per cent in 1994 and a further 24 per cent in 1995. Wellington. Bristol. having been financed 35 per cent from local government. which at that time owned three London airports (Heathrow.

and Sydney were postponed or cancelled. Privatization was also being considered for a number of South American countries such as Venezuela. For earlier privatizations such as BAA plc. Aviation Strategy. EBITDA. For later privatizations multiples of up to 15 have been achieved in countries such as Mexico. In the United States. Malaysia. Vienna. and amortization. leasing. Brussels. Not all privatizations have been successful. The EV/EBITDA multiples were particularly high. Brazil. First. with the successful privatizations of Sydney and Malta airport. for a number of reasons. the Frankfurt airport company Fraport was involved with a privatization project at Manila Airport in the Philippines but problems with this investment meant that in 2003 the company withdrew from this venture. EV) in relation to profit (earnings before interest. both from other 18 . O’Connor. By mid-2002. for example. for the Australian airport sales. Other privatizations were being planned or considered although investors generally appeared much more cautious (Forbes. the events of 11 September coupled with an economic downturn and airline failures in some areas meant that airport privatization temporarily became a less attractive option and various privatizations at airports such as Milan. Analysts typically will consider the price of the airport (enterprise value. These included European countries such as the United Kingdom (Belfast City. and Madras for a 30-year period by 2003. or concession arrangements was expected to grow significantly in the future (ICAO. or earnings before interest and tax. In 2001. In Berlin. 2002. Types of privatization Airports are generally seen as attractive organizations to investors. it has taken three attempts to privatize the airports since 1991. all evidence points to the continuation of this privatization trend well into the twenty-first century. The long-term viability of the airports in question in this privatized form may also be in doubt and it could be that certain airports may be reoffered to investors. though there were signs that airport privatization was back on the agenda for a number of airports. the Czech Republic. Bombay. Calcutta. face limited competition. Germany.Managing Airports buyers are thought to have overpaid for their airport acquisitions. and Russia (Moscow). However. An International Civil Aviation Organization (ICAO) survey of 82 countries covering 303 airports found that privatization through sales. This is of particular concern to airlines that fear charges will have to be raised to compensate for the high purchase cost. the airport industry has strong growth potential. Cyprus (Larnaca and Paphos). Deutsche Bank. Norwich) Portugal. tax. up to 20 in some cases. Panama and Peru. India was expected to have leased its four major airports in Delhi. Ireland (the Aer Rianta company). For example. Many of the airports. 2000b). South Africa. particularly the major ones. depreciation. EBIT) when deciding whether to invest. 1999. BAA had a management contract at Harrisburg airport which was terminated early. 2002). and Copenhagen the EV/EBITDA multiples were in the region of five to ten. Indonesia. This was due to a combination of factors such as an excessive number of bidders and the attractiveness of the airports on offer with regard to their traffic and commercial potential. 2000). Spain. Korea. Italy. and Argentina. 1999. the relatively low investment needs and the economic and political stability of the country (Bennett. and in Asian countries such as Thailand. and Japan.

and potential commercial opportunities influencing their views. limited competition because of high barriers to entry and minimal threats of substitutes. ABN Amro Ventures bought another 8 per cent. with positive factors such as strong growth prospects. Total or partial privatization of this type will totally eliminate or certainly reduce the need for state involvement in the financing of airport investment. Other partially floated airport companies include Vienna airport (Flughafen Wien AG). generate funds from the airport sale. The selection of the most appropriate type of privatization involves a complex decision-making process which will ultimately depend on the government’s objectives in seeking privatization. and institutional and retail investors a further 17 per cent – leaving the Chinese government with a 65 per cent share (Beechener. Malaysia Airports (an organization owning 37 airports in the country). further investment requirements and the financial robustness of the airports under consideration all have to be taken into account. the types of privatization models which have been adopted have become increasingly diverse. project finance privatization. Auckland Airport. the stock markets have viewed purchases of shares in airport companies in a favourable light. trade sale. concession. For example. increase share ownership or encourage greater efficiency. namely Aeroport de Paris (AdP). There are very high barriers to entry within the industry due to the large capital investment needed and the difficulties in finding appropriate. 2000). competition or management expertise within the airport sector? In reaching a decision. the government owner will give up total or partial ownership. The proceeds from such a privatization could be used for funding future investment at the 19 . Zürich. As airport privatization has become more popular. while transferring the economic risks and effective control to the new shareholders. factors such as the extent of control which the government wishes to maintain. such as political interference in the form of airport regulation and control over airport development and the changing nature of the airline industry with developments such as deregulation and greater collaboration through alliances. is the type of privatization required to lessen the burden on public sector finances.The changing nature of airports airports and other modes of transport. Risks clearly exist as well. Fraport. and Beijing Capital International Airport (BCIA) (Table 2. management contract. They broadly fall into five categories: 1 2 3 4 5 share flotation. By the end of the 1990s. Copenhagen Airports A/S. With this ‘cornerstone’ approach AdP bought 10 per cent of the airport. With a share flotation.1). convenient locations where airport development is allowed. Share flotation The first option is a share flotation with the airport company’s share capital being issued and subsequently traded on the stock market. The BCIA flotation is interesting as it is the first airport where a share flotation has come after an initial trade sale to a strategic partner. the quality and expertise of the current airport operators. Generally. the only 100 per cent share flotation which had taken place was with BAA plc in 1987.

To prevent domination by any individual shareholder. Source: Compiled by author from various sources. for example. The airport company will have to get used to daily scrutiny of its financial performance by its shareholders and other investors and. In order to be floated on the stock market. or can go directly to the government. may find it hard not to become preoccupied with the share price. Trade sale With this option.1 Airport UK: BAA Austria: Vienna Denmark: Copenhagen Italy: Rome New Zealand: Auckland Malaysia: Malaysia Airports China: BCIA Switzerland: Zürich Italy: Florence Germany: Fraport Airport privatization through share flotations Date 1987 1992 1995 2001 1994 1996 2000 1997 1998 1999 2000 2000 2000 2001 Type of sale 100% IPO 27% IPO 21% Secondary offering Further secondary offeringa 25% IPO 24% Secondary offering 17% Secondary offering 45. However. which may not be the situation in certain areas of. South America and Africa.5% IPO 51. as a consequence. as with the IPO of 27 per cent at Vienna airport.6% IPO 18% IPO 35% IPO and trade sale 22% IPO and 28% secondary offering 39% IPO 29% IPO Note: a In 2001 at Vienna airport a further sale of shares following a re-purchase of some shares which were transferred to an employee foundation resulted in 40% of the airport remaining under government ownership. airport. All the trade sales which took place in the 1990s involved strategic partners rather than just passive investors. However. as with BAA plc.Managing Airports Table 2. the UK government had a golden share in BAA which gives it the right of veto over undesirable takeovers deemed to be against national interests and caps the amount of shares that any one shareholder can hold at 15 per cent. This meant that the management 20 . Fully developed capital markets also need to be in existence. some or all of the airport will be sold to a trade partner or consortium of investors. the European Court of Justice declared this type of shareholding to be illegal in 2003 because it prevents capital movements within the EU. issuing shares to employees may give them an incentive and make them feel move involved in the affairs of the airport company. the airport company will be required to have a track record of minimum profits to make the airport attractive enough to investors. a degree of government influence can theoretically be maintained by issuing a golden share to the government so that in extreme cases national interests can be protected. Even when total privatization takes place. For instance. limits can be placed on the maximum shareholding. Airports not performing well clearly would find it hard to be successfully privatized in this way.

and Humberside airports. For example. Another example is the 30-year concession for the 33 Argentinian airports.The changing nature of airports and technological expertise of the partners as well as financial capabilities were taken into account when agreeing on a sale. which was awarded to the consortium. 20 per cent of the Airports Company South Africa (ACSA) has been sold to a strategic partner. and Southend have been totally sold off to a trade partner. Elsewhere in Europe.2). has been successfully involved in the partial privatization of Birmingham. was sold to British Aerospace (Table 2. The most notable example here is the Australian airports. SEA. there was an airport interest within the successful consortia. BAA plc is the strategic partner in the Naples airport sale and Aeroporti di Roma belongs to the consortium which bought part of the ACSA. Similarly the government owned Schiphol group. Santa Cruz. Many of the participating airports in these airport privatizations are not actually privatized airports themselves which leads to further complications in the definition of a ‘private’ airport. For example. With most of the Australian airport sales. was awarded the 30-year concession during which time it guaranteed to upgrade the three airports and pay an annual fee of 21 per cent of gross revenues. such as East Midlands. and Düsseldorf airports. which it wants to develop as an alternative venue for freight activities. Hanover. the majority of which have been sold on long-term leases (50 years with a further possible option of 49 years) to different consortia. commonly between 20 and 30 years. In the case of Birmingham. an airport management company or consortium will purchase a concession or lease to operate the ‘privatized’ airport for a defined period of time. and Cochabamba. a strategic partner has been brought in through a partial sale. the Milan 21 . Outside Europe. Aeroports de Paris has a 25 per cent share of Liège airport in Belgium. Bournemouth. an airport management company. Newcastle. Aer Rianta Irish Airports. Cardiff. One of the earliest concession arrangements were agreed in 1997 for the three main airports of Bolivia. Hamburg. which has among its partners. Durban. which owns Amsterdam airports. namely La Paz. Aeroportuertos Argentinos 2000. Düsseldorf. Two-thirds of Wellington airport in New Zealand has been sold through a trade sale. Airports Group International. the strategic partner is an established airport operator or the purchasing consortium will contain a member with airport management experience. previously owned by local government. The first significant trade sale was in 1990 when 76 per cent of Liverpool airport. has a number of interests in other airports around the world. Financial terms and the types of lease will vary but typically this option will involve an initial payment and a guaranteed level of investment and/or payment of an annual fee. and Cape Town. The ACSA owns and manages nine South African airports including the three major international airports of Johannesburg. which is a public corporation. In many of these cases. and Naples airports have also been partially privatized through a trade sale. Airports which have been leased on long-term arrangements to strategic partners or consortia can also be included in this category – as effectively all control will be transferred from the publicly owned airport to the trade partner. Concession With this type of arrangement. Privatization has been discussed for both these airport groups but has not yet occurred. Subsequently a number of other UK airports.

the airport services company. primarily at the two Buenos Aires airports (Gray. 22 . Melbourne. After that time.1 billion at the airports in the 30 years. and Ogden. b Ninety-nine-year lease. The consortium has agreed to pay an annual US$171 million a year for the first 5 years of the agreement. The consortium has also agreed to invest US$2.2 Airport Airport privatization through trade sales Date Share of airport sold (%) 76 100 100 100 100 100 100 51 51 76 100 50 65 100 100 90 20 30 66 100 83 100 25 100 51 41 36 49 100 Main buyer UK: Liverpool UK: Prestwick UK: East Midlands UK: Southend UK: Cardiff UK: Bournemouth UK: Belfast International UK: Birmingham UK: Bristol UK: Liverpool UK: Kent International Germany: Dusseldorf Italy: Naples Australia:a Brisbane. the concession fee will be related to traffic growth. 1998). Perth Sanford Orlando Skavsta Stockholm South Africa: ACSA Germany: Hanover New Zealand: Wellington Australia:a 15 remaining major Australian airports (except Sydney) UK: Humberside US: Stewart Internationalb Belgium: Liege US: Niagara Fallsb Italy: Rome Italy: Turin Germany: Hamburg UK: Newcastle Australia:a Sydney 1990 1992 1993 1994 1995 1995 1996 1997 1997 1997 1997 1997 1997 1997 1997 1998 1998 1998 1998 1998 1999 1999 1999 2000 2000 2000 2000 2001 2002 British Aerospace British Aerospace National Express Regional Airports Ltd TBI National Express TBI Aer Rianta/Natwest Ventures (40%) Other investors (11%) Firstbus Peel Holdings Wiggins Hochtief and Aer Rianta consortium BAA Various TBI TBI ADRI South Africa consortium (Aeroporti di Roma had 69% share) Fraport Infratil Various Manchester airport National Express AdP Cintro Leonardo consortium Benetton Group consortium Hochtief and Aer Rianta consortium Copenhagen airport Macquarie/Hochtief consortium Notes: a Most of the Australian airports have been sold on a 50-year lease with an option for a further 49 years.Managing Airports Table 2. with over US$800 million being spent in the first five years. airport company.

traffic growth is predicted to be high but in many cases the infrastructure is inadequate and the governments are unwilling or unable to invest in the airports (Ricover. When it is built. for example. the company will build the facility. Generally such an arrangement will require no upfront payment but the operating company will bear all the costs of building or re-developing the facility. and it is planned that there will be a subsequent flotation of remaining government shares as well – this has already happened with the Southeast Group ASUR. the concessionaire will take full economic risk and will be responsible for all operations and future investment. There will be a strategic partner with each group.3). since the local government owners had promised not to relinquish total control of this publicly owned asset to private hands. as the name suggests. Peru. with this type of arrangement. Cintra. the company will have to cover the operating costs but will also retain all revenues until the facility is handed back. This has proved more politically acceptable in some countries. Thus. the Pacific Group. and Tanzania (Table 2. namely the North-Central Group. and then transfer ownership back to the government. At the end of this period. or design– construct– manage–finance (DCMF). Other countries which have concession agreements for their airports include the Dominican Republic. 1998). the Southeast Group. and AGI (which was subsequently bought by TBI in 1999) was given the 30-year concession to run the airport in 1998. Since the privatized airport will only be handed over for a fixed period of time. 15 per cent of the Pacific Group of twelve airports was sold to a consortium with AENA. rather than a flotation or trade sale. a company will usually build or redevelop and then operate an airport or specific facility. Other options may actually involve the ownership of the facility such as build–own–operate–transfer (BOOT) 23 . as a key partner. an identical share of the North Central Group was sold to an AdP consortium. the airport company will take full economic risk for investment and operations. Project finance privatization With this option. Here. At Luton airport in the United Kingdom. Other similar models include build–transfer (BT). The situation is rather different in Mexico where the country’s 58 airports have been divided into four groups. In 1998. ownership will revert back to the government owners. in South America where a number of concession arrangements were negotiated in the late 1990s. Uruquay. Costa Rica. 15 per cent of this group (which includes the airports of Cancun and Merida) was sold to a consortium which included Copenhagen airport and the construction company. Barclays have subsequently sold off their interest in this airport. There are a number of project finance privatization methods with the most popular being build–operate–transfer (BOT) when. Concession contracts have been awarded or are planned for each group for an initial 15-year period with an underlying 50-year agreement. the government owner will have a greater degree of control than with an outright sale. a consortium originally consisting of Barclays Investment.The changing nature of airports Generally. 1999). Chile. and the Mexico City Group. This arrangement involves paying an initial annual concession fee of US$19 million which will increase as passenger traffic grows (Communique Airport Business. for a certain length of time. Bechtel Enterprises. operate it for a certain length of time. the Spanish airport group. A concessionaire-type arrangement was chosen. In 1999. such as a terminal. In 2000. build–rent–transfer (BRT).

Cochabamba UK: Luton Mexico: South East Groupb Mexico: Pacific Group Argentinean Airport System Tanzania: Kilimanjaro International Airport Dominican Republic: 4 airports including Santo Domingo Chile: Terminal at Santiago International Airport Uruguay: Montevideo Costa Rica: San Jose Columbia: Cali Mexico: North Central Group Peru: Lima Oman: Seeb and Salahah Malta Jamaica: Montega Bay 1996 1997 1998 1997 1998 1998 1999 1998 1998 1999 1999 1999 1999 2000 2000 2000 2001 2002 2003 Schiphol consortium AENA consortium AENA consortium AGIa AGIc Bechtel/Barclays consortium Copenhagen airport consortium AENA consortium Aeropuertos Argentina 2000 consortium (including SEA Milan and Ogden) Mott Macdonald consortium with minority government share Vancouver Airport Services (YVRAS) and Odgen consortium YVRAS consortium YVRAS consortium TBI AENA consortium AdP consortium Fraport /Bechtel consortium BAA consortium Vienna airport consortium YVRAS consortium Notes: a AGI was bought by TBI in 1999. c Fifteen-year contract but underlying 50-year concession.Table 2. The ASUR company which operates the South East Mexican airports was subsequently floated on the stock market in 2000. Santa Cruz. Source: Compiled by author from various sources.3 Airport Airport privatization through concession agreements Date Length of concession (years) 15 15 15 25 30 15c 15c 33 25 20 15 25 20 20 15c 20 25 65 30 Concessionaire Columbia: Barranquilla Columbia: Caratagena Bolivia: La Paz. b .

9 per cent) (Lambert.4 Airport Airport privatization through project finance Date Length of agreement (years) Terminated Terminated Contractor Canada: Toronto Terminal 3 UK: Birmingham Eurohub 1987 1989 Lockheed consortium Various including Birmingham airport. 1999). 1999). however. This terminal is now a fully owned and managed facility of Birmingham International Airport plc. 1995). Another example of a BOT project was the international passenger Terminal 3 at Ninoy Aquino International Airport in Manila. local authorities (14. British Airways (21.4 per cent). This was the first project finance model of its kind in the Asia/Pacific region. 25 . 45% Hochtief consortium Aeroport de Montreal Consortium Fraport consortium Schiphol consortium YVRAS consortium Greece: Athens 1996 30 12 25 20 25 Hungary: Budapest International Terminal 1997 Philippines: Manila International Terminal 1999 US: New York JFK International 1997 Arrivals Terminal Egypt: Sharm El Sheikh 2001 Source: Compiled by author from various sources. National Car Parks (21. The remaining share 45 per cent share belongs to an international consortium. are often referred to by the generic term BOT (Ashford. the international terminals at airports such as Budapest and New York JFK are all being developed through BOT projects (Table 2. Elsewhere. Pearson International Airport which was developed as a BOT project by Huang and Danczkay and Lockheed Air Terminals (Ashford and Moore.4). This type of arrangement is often used when relatively large investments are needed for totally new airports or perhaps for new passenger terminals or other major facilities. which is being led by the German construction company. and Frankfurt airport.4 per cent). British Airways. One of the first major projects of this type was Terminal 3 at Toronto’s Lester B. All these methods. Forte (6 per cent). and John Laing Holdings (11. The Greek government holds 55 per cent of the shares in the new company. National Car Parks 55% Greek state.3 per cent). Hochtief.The changing nature of airports or rehabilitate–own–transfer (ROT) projects. The consortium which was involved with this twenty Table 2. Athens International Airport SA (AIA). Airports Group International/TBI now have a management contract for this terminal The Eurohub at Birmingham airport was build under a BOT-type arrangement by a company comprising Birmingham airport (25 per cent). The new Athens airport at Spata Eleftherios Venizelos was built under a 30-year BOT arrangement.

Competition issues The amount of influence that a government can exert over a private airport clearly depends upon the type of privatization model chosen. such as retail. the Cook Islands and the Turks and Caicos Islands. the Brussels Airport Terminal Company. Qatar. and some of the Australian and South American airports. AENA. For example. may be seen as too great a risk. this company merged with the public company operating the rest of the airport to become the Brussels International Airport Company. The Spanish airport company. Kuwait. Vancouver Airport Services (YVRAS) has contracts with the main Bermuda airport. Management contract The least radical privatization option is a management contract when ownership remains with the government and the contractors take responsibility for the dayto-day operation of the airport. More common is for European airports to have management contracts in other areas of the world. For the government owner this may be politically more acceptable. the terminal of Brussels airport was under a management contract to a private company. Russia. Vienna. BAA plc. through a trade sale. has a general management contract at Indianapolis airport in the United States and in Mauritius and has retail contracts with Pittsburgh and Boston. from 1987. however. Cyprus. the Irish operator has retail contracts at various airports including Greece. This has occurred. Pakistan. Beirut. Therefore economic regulation has been introduced at a number of airports when the privatization process has taken place. the Philippine International Air Terminals Co. A government may hold on to a considerable amount of control if a management or private finance contract is chosen. while AGI (now TBI) has management contracts at some US airports such as Burbeck and Albany. whereas for the contractor such an arrangement may be attractive in countries where greater financial exposure. while very little state influence may remain after an airport company has been floated on the stock market or sold to a strategic partner. and Canada. In 1998. Syria. (PIATCO) was led by Fraport which actually withdrew from the project in 2003. Investment will normally remain the responsibility of the government owner and so the overall economic risk will be shared between the owner and the management company. for example. Bordeaux airport has contracts in Togo and Mauritania.Managing Airports five year project. at BAA plc London airports. Hamburg. usually related to the performance of the airport. Elsewhere. Aer Rianta. and Marseilles airport has an involvement with the airports in Gabon and Côte d’Ivoire (Carre. 1999). Bahrain. Such arrangements can cover all airport operations or just one aspect. AdP has management contracts in Cameroon and Madagascar. has management contracts for Cayo Coco airport in Cuba and three major airports in Columbia. for example. for instance. In these latter cases it is often feared that the privatized airport will become a private monopoly and will not always operate with the best interests of the airport users in mind. 26 . Within Europe. Chapter 5 explains in detail the type of regulation introduced and the rationale behind it. The contractor will pay an annual management fee.

Edinburgh. In response. This was the case with the Australian airports and also in a number of South American countries prior to privatization. 27 . 2000b). and Cork – and is likely to be privatized in the early 2000s. selling off airports in this manner may inhibit competition. Critics of BAA plc privatization argue that the group sale has given BAA plc much less incentive to provide any extra capacity than would have been the case with individual airport sales. the government had to amend its plans to privatize Narita. Glasgow. which owns three airports – Dublin. Shannon. In India. and if generally this group as a whole has a good financial track record. reaching an agreement to lease out the four major airports on long-term agreements has been a long and difficult process since these airports provide the bulk of the profits of the whole Indian airport network. This debate is also relevant for Aer Rianta. In addition. a few years after BAA plc privatization. After a long debate in the United Kingdom. while in Mexico the airports have been divided into four different groups. the government decided on individual privatizations for the major international airports but with packages of some of the smaller ones. the Irish airport company. In Australia. owning London Heathrow. This was an interesting example as BAA plc airports in London were in many ways in direct competition with each other. Unsurprisingly. Restrictions were imposed to stop the same operator from having overall control at a number of airports. Kansai. and Prestwick airports in Scotland. If the airport group is sold as a single entity. Interestingly. However. Over the years. and a new airport in Central Japan near Nagoya as an airport group. a higher sale price may be achieved – primarily because of the lack of perceived competition from other airport operators.The changing nature of airports There is also another competition issue which has to be taken into account if a group of airports rather than a single individual airport is being considered for privatization: should the airports be sold off together as a group or should they be split up into different companies? This is particularly an issue when the airport group or system may contain a few large international airports which are profitable and a number of smaller regional or local airports which are loss makers. In South America. the sale proceeds from the group privatization was much higher than would have been achieved otherwise. there have been various reviews into BAA investigating whether it should be split up but these have generally concluded that the additional benefits of competition would be more that offset by the disbenefits of loss of economies of scale and fragmentation of financial strength together with the dispersion of expertise. BAA plc. typically in some remote area which they do not use (IATA. fearful that they will be paying charges at one airport which will finance the development of another airport. was sold off as a single entity in 1987. and Stansted airports in the South East and Aberdeen. Airlines tend to be suspicious of airport groups. Gatwick. although the extent of competition which exists between airports in a group is always debatable. any unprofitable parts of the airport system (usually the smaller airports) will not have to remain under public ownership and raising capital on the commercial money markets for future investments may be easier for a larger company. all 33 Argentinian airports are covered under the same concession agreements. In Japan in 2002. Belfast International airport wanted to buy the neighbouring Belfast City airport but was prohibited from doing so by the government as it was seen as anti-competitive. airports often argue that they are making best use of resources and expertise by operating as an airport group.

namely London Heathrow. the Airports Act. The United Kingdom: paving the way for airport privatization The United Kingdom is worthy of special attention when privatization is being considered. Italy. property management and hospital shops.This was the Conservative government’s ultimate aim. which it did in its first few years of operation (Doganis. Airport privatization came about because of a major piece of legislation. 1999). the United States. owned by a consortium of local authorities which at that time had a throughput of 9 million passengers.2 billion going to the government. This reflected the overall aim of the conservative Thatcher government of the time to privatize nationalized industries such as utilities and communications. BAA plc was floated in 1987 with £1. The Act also introduced economic regulation at these airports which is discussed in Chapter 5 (UK Government. the new situation at the regional airports had also given them considerable more opportunity to commercialize their activities. owned by Southend Borough Council and handling just over 100 000 passengers. Edinburgh. which was introduced in 1986. meant that the government decided to privatize each airport separately instead. Meanwhile. 1992).5). and Oman. who feared that Narita would be used to subsidize the debts of the other two airports. The Act made provision for the British Airports Authority to become a private company through a subsequent 100 per cent share flotation in 1997. and to increase share ownership among the UK population. London Gatwick. to Southend airport.Managing Airports Opposition particularly from the airlines. Prior to this these. the regional airports were finding it increasingly difficult to obtain permission to borrow funds for 28 . The most significant impact of the Airports Act has been the change in ownership patterns which have emerged (Table 2. London Stansted. Sixteen airports were covered by this part of the Act. airports had been run directly by their local government owners.The first part of the Act was concerned with the then government-owned BAA which operated seven UK airports. Mauritius. and Prestwick. Glasgow. but also because subsequent privatizations have been quite varied in nature. The second part of the Act required all airports with a turnover of more that £1 million in two of the previous 3 years to become companies. As a result the share of non-aeronautical revenue has increased at the majority of these airports and more resources have been devoted to commercial activities such as marketing (Humphreys. By the early 1990s. 1986). The shareholders of these airport companies were initially to be the local government owners but the shares could then be sold off to private investors if desired by the public sector owners. not only because the first major airport privatization took place in this country. ranging from Manchester airport. This gave BAA plc the freedom to borrow from commercial markets and diversify into areas of operations such as hotels. BAA plc has subsequently dramatically expanded the retail part of its business and has become a global player in airport management by having interests in airports in as diverse areas as Australia. and the four Scottish airports of Aberdeen.

e The private investors have a 30-year concession contract. Source: Compiled by author from various sources. b Nine airports including Inverness and Sumburgh with over 100 000 passengers. investment and. Ownership remains with the local authorities. 29 . undoubtedly played a major role.The changing nature of airports Ownership patterns at maina UK airports. c Privatization was planned for 2003. not necessarily the first private sector owner. The only alternative for airports that wished to invest was privatization. 2003 Present ownership Private interest (%) 100 100 51 100 100 100 100 100 0 100 0 83d 0 76 100 100 100e 100 0 49 0 100 100 0 Privatization date Table 2. a All airports with more than 100 000 annual passengers. which an increasing number of airports had no choice but to adopt. d Eighty-three per cent share is held by Manchester airport which is under local authority ownership. the table shows the most recent owner. in 1993. Political pressures from a Conservative central government. the government announced that there would be no further spending allocation for airports. which was very much ideologically attracted to the transfer of public service to the private sector whenever possible.5 Airport Aberdeen Belfast International Birmingham International Bournemouth International Bristol International Cardiff International East Midlands Edinburgh Exeter and Devon Glasgow Highlands and Islands Airportsb Humberside Internationalc Leeds Bradford International Liverpool London Gatwick London Heathrow London Luton London Stansted Manchester Newcastle International Norwich Prestwick Southampton International Teesside Internationalc BAA TBI Local authorities/Aer Rianta/Macquarie Airport Group/Employees Manchester airport Cintra/Macquarie Airport Group TBI Manchester airport BAA Local authorities BAA Highlands and Islands Airport Ltd Local authorities/Manchester airport Local authorities Local authorities/Peel Holdings BAA BAA TBI/Alterra BAA Local authorities Copenhagen airport Local authorities Infratil consortium BAA Local authorities 1987 1994 1997 1995 1997 1995 1993 1987 N/A 1987 N/A 1999 N/A 1990 1987 1987 1998 1987 N/A 2001 N/A 1987 1961 N/A Notes: N/A not applicable.

and Prestwick. however. By 2000. in addition to providing a new investment opportunity. has indeed improved efficiency. means that it has not been free to expand internationally on equal terms with competing private airports. The relatively newly developed London City. operates nine airports in Scotland with the help of a government subsidy. Birmingham airport is an interesting example which initially overcame funding difficulties by establishing a joint venture company to build the additional Eurohub terminal with a BOT project without a change in overall ownership. and Stansted airports. 1999). and Norwich) to be able to borrow money on the open market (DETR. Bristol. London Stansted. From April 1999. It was involved with the successful consortium in the sale of Adelaide/Parafield and Coolangetta airports in Australia but because of its status could only act on a consultancy basis with no equity share involved. this situation changed with legislation introduced to allow for the larger profitable regional airports which were still in local governments hands (Manchester. Its public sector status. all airports were in a profitable situation with the exception of Liverpool and the Highland and Islands Airports.6). such as Exeter. 1998). Humberside.Managing Airports Various airports have chosen full privatization through a trade sale to a strategic partner. Some airports such as Newcastle and Liverpool have opted for a partially privatized approach which gives them access to finance but also enables some local public control to be maintained. Highlands and Islands Airports Ltd. Belfast City. and Bournemouth. This enabled Manchester to purchase 83 per cent of the nearby Humberside airport soon afterwards. Some of the privatized airports have performed better than those remaining in public sector ownership. Traffic has grown substantially at all these airports over these years. Belfast International was privatized by means of a management buyout in 1994 and was subsequently sold to TBI in 1996. it is difficult at this relatively early stage to draw any conclusions as to whether privatization. Leeds-Bradford. recorded a loss before depreciation and interest (results after depreciation charges were not available) (Table 2. Liverpool. Southend airport has also been totally privatized but in this case the sale was undertaken to ensure the survival of the airport rather than to give access to finance for expansion as with many of the other airports (Humphreys. The smallest average traffic growth of just over 3 per cent was recorded at Belfast International and Aberdeen airport whereas growth in excess of 10 per cent annum was experienced for Birmingham. it may be seen that a number of airports. while others have not. 30 . a state-owned company. Liverpool. Manchester is one such airport and financed the whole of its second runway project from retained profits. Some local authority airport owners have remained strongly opposed to privatization moves – arguing that the airport should remain in public sector hands to maintain its role as a regional public asset. such as East Midlands. Most of the smaller regional airports in the United Kingdom remain under public sector ownership.Thus. Looking back to 1986 before the Airports Act. There are also a small number of other airports in the United Kingdom which have had a different history. however. Cardiff. Norwich. and Sheffield City airports have always been in private hands.This solved the short-term problem of funding but subsequent traffic growth meant that there was once again pressure for additional investment and this time the airport opted for a partial privatization. Newcastle.

At the beginning of 1997. Source: Chartered Institute of Public Finance and Accountancy (CIPFA). The FAC corporate office undertook various central services and imposed a common charging policy on its airports. b Australia: a phased privatization process Between 1988 and 1997.The changing nature of airports Traffic and profitability growth at maina UK airports. and annual accounts. Centre for Regulated Industries (CRI). the FAC operated 22 airports and handled over 60 million passengers annually.6 Airport Notes: a All airports with more than 100 000 annual passengers. most of Australia’s airports were operated by the stateowned Federal Airports Corporation (FAC). BAA. Discussions relating to the privatization of the FAC began in the early 1990s with a firm decision to privatize being made in 1996. interest. and tax ( 1 000 UK£) 1986–7 2000–01 Profit before interest and tax ( 1 000 UK£) 2000–01 Aberdeen Belfast International Birmingham International Bournemouth International Bristol International Cardiff International East Midlands Edinburgh Exeter and Devon Glasgow Highlands and Islands Humberside International Leeds Bradford International Liverpool London Gatwick London Heathrow London Luton London Stansted Manchester Newcastle International Norwich Prestwick Southampton International Teesside International 1 452 1 882 1 725 137 436 436 941 1 756 105 3 200 N/A 118 508 263 16 751 32 092 1 635 577 7 596 1 165 191 330 267 297 2 431 3 175 7 712 279 2 210 1 547 2 237 5 645 330 7 022 782 461 1 608 2 071 32 242 64 670 6 364 12 399 19 112 3 376 371 1 232 869 757 1 500 3 935 6 781 164 1 131 689 3 637 2 800 59 5 500 N/A 34 2 134 2 053 53 200 119 000 4 003 1 800 18 715b 3 526 56 500 N/A 135 12 443 14 864 43 513 1 529 13 224 10 723 15 967 23 760 1 366 33 740 102 1 526 7 013 2 666 160 000 464 600 6 640 46 153 98 606 15 405 1 857 N/A 4 627 1 435 10 913 13 864 30 474 840 10 490 9 699 12 372 17 868 542 25 441 1 179 997 4 600 4 369 119 500 349 200 1 173 28 049 49 869 8 425 659 N/A 3 357 438 Table 2. 1985–6 data. 1987–2001 Total passengers (thousands) 1986–7 2000–01 Profit before depreciation. Considerable attention was given to whether the airports should be sold off as a system (as had happened with BAA plc which was the only other airport group at that time that had been privatized) or to whether they should be sold off 31 .

particularly as government forecasts had shown that separate sales would generate more income (Knibb.Managing Airports individually.8 Profitability at Australian airports. After Sydney. it was decided that the airports would be leased off individually on long-term 50-year leases. Potential buyers had to have a majority Australian interest and airport management experience. 1996–7 Source: Annual accounts. 1999). It was the government’s intention to bring competition and diversity into the airport system and so there were strict cross-ownership limits associated with the airport sales.7 Traffic at Australian airports. namely Melbourne. In phase 1 of the privatization process. 1996–7 Source: Annual report.8). Issues relating to the national interest.7 and 2. 120 100 EBIT (A$million) 80 60 40 20 0 Sydney Melbourne Alice springs includes Tennant Creek. As in the United Kingdom. the privatized airports were initially price regulated. Banktown includes Camden and Hoxton Park Total passengers (million) 20 15 10 5 0 Sydney Melbourne Brisbane Adelaide Coolangatta Canberra Darwin Hobart Alice Springs Townsville Launceston Mount Isa Moorabbin Bankstown Parafield Essedon Archerfield Jandakot Perth Figure 2. efficiency and competition were fiercely debated. Eventually. In addition. Political factors played a key role. and Perth. they are required 25 Alice springs includes Tennant Creek. with a further option for 49 years. were sold in 1997. three airports. Brisbane. 32 . Banktown includes Camden and Hoxton Park Brisbane Perth Adelaide Coolangatta Canberra Darwin Hobart Alice Springs Townsville Launceston Mount Isa Moorabbin Bankstown Parafield Essedon Archerfield Jandakot –20 Figure 2. these three airports were the most profitable airports in the FAC system and they handled the most traffic (Figures 2.

Amsterdam. Macquarie Airport Group. Hobart Ports. Deutsche Asset Management and Hastings Fund) Westralia Airports Corporation Ltd (AGI. AMP. Hambros) Jandakot Airport Holdings (property investors and former FAC employees) Australia Pacific Airports Pty Ltd (BAA. Amsterdam and AGI were each partners in winning consortia (Table 2. the EV/EBITDA multiples Table 2. Vienna.7). AMP. Manchester.7 Privatization details of Australian airports Airport Ownership Privatization date: sale price (million A$) July 1997: 1 397 Brisbane Melbourne Perth Adelaide/Parafield Alice Springs/Darwin/ Tennant Creek Archerfield Canberra Colangatta Hobart Jandakot Launceston Moorabbin Townsville/Mount Isa Sydney Brisbane Airport Corporation Ltd (Schiphol Group. Hastings Fund. Parafield Airport Ltd (Unisuper. John Laing.They also had to provide development guarantees by preparing five-yearly master plans and pledging a certain sum for investment. and others) July 1997: 1 307 July 1997: 639 May 1998: 365 May 1998: 110 May 1998: 3 May 1998: 66 May 1998: 104 May 1998: 36 June 1998: 7 May 1998: 17 May 1998: 8 May 1998: 16 June 2002: 5 588 Source: Compiled by author from the individual airport regulation reports and other sources. and AGI. Infratil) Adelaide Airport Ltd. Deutsche Asset Management and Hastings Fund) Metropolitan Airport Consortium (property investors and former FAC employees) Australian Airports Ltd (former FAC CEO and financial investors) Southern Cross Airports Consortium (Macquarie Airport Group. and others) Northern Territories Airports Ltd (AGI/Infratil) Archerfield Airport Corporation Ltd (Miengrove Pty) Capital Airports Group (local company) Gold Coast Airport Ltd (Unisuper. Serco and others) Hobart International Airport Corporation (AGI. Aer Rianta. Macquarie Airport Group. 33 . National Express. A number of airport companies were interested in operating the Australian airports including BAA plc. Commonwealth Investments. Serco. Hochtief. Port of Brisbane and others) Australia Pacific Airports Pty Ltd (BAA.The changing nature of airports to undertake quality of service monitoring and to provide evidence of this to the regulator. In the end BAA plc. As previously mentioned.

2001 meant that the privatization of Sydney airport was postponed until 2002 when it was bought by a consortium led by the two companies Macquarie Airports Group and Hochtief AirPort.Managing Airports were particularly high for the Australian airports. Moorabbin. First. and Hoxton Park) were excluded from these two phases of privatization because of unresolved issues related to noise control at Sydney Kingsford airport and continuing controversy over if. such as BAA plc and AGI. It was decided that a further group of airports would be privatized in 1998. In 1998. 34 . Some airport companies which were involved with the phase 1 airports. Camden. Former FAC employees also gained interest in a number of airports such as Jandakot. which detail the charging and conditions for the use of both airfield and terminal facilities. the general aviation airport in Victoria which had been withdrawn from the privatization process. Sydney Airports Corporation. In 2000 plans to develop a second Sydney airport were shelved for at least a decade clearing the way for privatization in 2001. The airports. Whereas the phase-1 airports had been relatively independent profitable entities. 1997). and Mount Isa. Townsville. gained further airports under this phase-2 privatization. the collapse of the Australian carrier Ansett and the events of 11 September. but also because high growth was being forecast and the infrastructure needs were relatively small. Parafield and Jandakot. These ‘phase-2’ airports included Adelaide which was the largest airport with just under 4 million passengers and general aviation airports such as Archerfield. Crossownership restrictions prevented certain neighbouring airports coming under single ownership. operate very closely with the airlines and the airlines have a considerable amount of influence as regards future developments at the airports. 1997). This is not the case. a separate state-owned entity. In spite of the fact that these airports were smaller and not in such a healthy position. over half of these smaller airports were making losses and were much more reliant on the services of the FAC corporate office. was established to run the four Sydney airports and Elldeson. in reality. US airports: the slow pace towards privatization Since the United States has always possessed a private airline industry. There are two key factors which make US airports unique when possible privatization is being considered. which was not only due to the fact there were a large number of binders. known as airport use agreements. it is often assumed that the airport industry must be primarily driven by private sector considerations as well. when and where a second Sydney airport would be built (Ballantyne. Sydney Kingsford airport and the general aviation airports in the Sydney basin (Bankstown. US airports enter into legally binding contracts with their airline customers. Nearly all US airports remain under local public ownership – with the pace towards privatization being much slower than in many other parts of the world. Considerable preparation was therefore involved in getting the airports reading to be stand-alone entities (FAC. again there was considerable interest in the sales and relatively high purchase prices were paid. Airlines are also not allowed to have greater than a 5 per cent share in any airport. However.

and from grants from the Airport Improvement Program (AIP) which comes from the federal government’s Aviation Trust Fund. financed primarily by a national passenger tax. 1995).The changing nature of airports Airline approval would be needed. 2000 PFCs 16% State 4% Other 4% Bonds 39% AIP 37% Figure 2. In 1995. 2000 35 .9 External capital funding at large US hub airports. The major criticism of the federal grants is that they are subject to congressional spending procedures and that the amount of funds available is not enough. Inevitably. and all the major ones. However.9 and 2. 1999). In the United States. the privatization of John Wayne Airport in California’s Orange County was discussed as part of the solution to the county’s bankruptcy (Poole. privatization has been considered as an option. Funding is also available from passenger facility charges (PFCs) which are generated by the passengers at individual airport.10). therefore. with airports being seen as a popular investment particularly because of their tax-exempt status due to their public ownership. Most airports. The PFC and AIP were raised in value in 2000 but shortfalls in investment funds are still thought to exist. it is not an easy process. the likelihood of litigation by the airlines – who argued that federal law prohibited the use of airport revenues State 2% Other 13% Bonds 40% PFCs 33% AIP 12% Figure 2. At major airports tax-exempt commercial bonds and PFCs make up the bulk of the investment funds whereas at smaller airports the AIP funds are proportionally more important (Figures 2. the airports are funded through a mixture of private and public funds. Second. There is a growing concern that in the future there will not be enough funds to meet investment needs – estimated to be in the region of US$3 billion (GAO. already have access to the commercial bond markets. if privatization were to take place. as elsewhere where airport funding has become an issue. though.10 External capital funding at small US hub airports.

Other airports which have been involved with the scheme and are at various stages of approval are Brown Field (a GA facility in San Diego). who hold very powerful positions. namely the inability of airport owners to reap the financial benefits from the airports. in 1995 BAA plc won the 10-year management contract for Indianapolis airport. 1998). which was given a 99-year lease to the British company. Aguadilla in Puerto Rico and New Orleans Lakefront (McCormick. However. This makes provision for five airports to be exempt from some of the legal requirements that impede their sale to private entities (GAO. Also many local politicians. Airports Group International had some management contracts before the 1990s. Such privatizations need approval of the majority of airlines using the airport. 2000. For example. This issue. moves towards airport privatization with the introduction of the airport privatization pilot programme in October 1996.Managing Airports (including sale proceeds) for non-airport purposes (so-called ‘revenue diversion’) – led to the conclusion that airport privatization was not feasible. and payroll costs. the use agreements with the airlines could mean that the airports could only be privatized as the agreements expire or that privatization would have to be limited within the bounds of the agreement. would private airports survive if they could not use trust fund. there must be a general aviation (GA) airport and only one large hub airport. General aviation airports may be leased or sold but larger airports can only be leased. 2000a). more radical privatization still seems fairly remote. There has been only limited interest in this scheme particularly because of slow and rather complex approval procedures and the majority airline consensus rule. In 1998 an amended new 10-year contract was signed. Under the scheme. There has been some. 1996b). The airport transferred management in April 2000 (Federal Aviation Administration. the financing. 2000b). The first airport to be approved under the scheme was Stewart International Airport in New York. albeit rather limited. The company guaranteed average annual savings of more than US$3 million (US$32 million over a 10-year agreement) and would not be paid any fees until after it produced average annual savings of nearly US$6 million (US$58 million over a 10-year agreement). but mostly at small airports with the exception of the international terminal at Atlanta airport. greater private participation has been achieved with the adoption of management contracts and project finance schemes at some airports. Under the scheme. construction and operation of the international arrivals building at New York 36 . National Express. In another development in 1997. BAA plc expected to save the airport $100 million during the 10-year contract by increasing non-aviation revenue and reducing expenditure from energy supply. Various other issues would have to be resolved if such privatization were to take place. The airport board would continue to set policy enforce agreements and control rates and charges (Ott. or tax-exempt debt financing? Would they have to pay back the federal grants? At many of the airports. do not wish give up control of their airports. equipment. the restrictions on prohibiting revenues to be used for non-aeronautical reasons have been waived. In spite of these developments. However. BAA plc also has retail management contracts at Pittsburgh and Boston. BAA plc was not to receive any fixed management fee but would share in the savings it generated. For example. PFC. McCormick.7 million passengers. which was an airport of considerable size with a throughput of 6. is seen as one of the key obstacles to airport privatization in the United States. Niagra Falls.

BAA plc. Frankfurt airport has been involved with ground-handling contracts and baggage systems in as diverse areas as Spain. Indonesia. and Kenya. AdP. The notable example here is the airport of Harrisburg where BAA lost a management contract after only managing the airport for three years of the ten year agreement primarily because the airport’s administration changed (Gethin. AdP. and Aer Rianta (Ireland). This expansion has occurred not only with well-established airport companies such as BAA plc and Amsterdam Schiphol. The opportunities for international expansion have increased substantially with airport privatization. Bennett. Similarly. such as Rome. Some of these airports. Zürich. and the Lebanon. The globalization of the airport industry Privatization has enabled a number of airport companies to expand beyond previously well-defined national barriers. For example. also have involvement in other airports in their own country. with the exception of some Canadian airports such as Vancouver with interests in a number of South American airports and Sharm El Sheikh airport in Egypt. and the United States. for example. Australia. AENA (Spain). 1999. this will accelerate the pace of globalization of the industry. the United States. and to a lesser extent Montreal which is involved with the Europort-Vatry cargo airport in France and Budapest Ferihegy airport. Traditional airport companies There are a number of airport operators who are well established in providing services for other airports. Cyprus. international airport companies are less involved. Aer Rianta. Fraport has set a business target for 2005 which aims for 50 per cent sales to be generated by external business (Frankfurt Airport. Aer Rianta has mostly specialized in retail contracts.The changing nature of airports JFK airport was handed over to a private consortium (which includes Amsterdam Schiphol airport) for 20 years. Most of these European airports have ambitious plans to expand their external operations. the Schiphol Group has involvement in other airports in the Netherlands. Copenhagen. and the airports of Amsterdam Schiphol and Frankfurt have always been very active in providing consultancy services and running management contracts for certain activities at some airports.. however the fiscal and political constraints which exist at US airports have meant that private sector involvement has in some cases been difficult to maintain successfully. Outside Europe. Other European airports or airport groups with international interests include Rome. and Manchester. the United States. Vietnam. and Oman. 2002). US 37 . Generally. Manchester. Vienna. As further opportunities for privatization occur. the Philippines. but also with a number of non-airport companies whose previous experience in running airports was rather limited or non-existent (Schneiderbauer et al. Tennessee because of administrative constraints. Milan. 1998. Bates. The Wiggins group also withdrew its interest at Smyrna airport near Nashville. 2002a). Aeroport de Paris has built a reputation in the management of engineering and construction projects in countries such as China. With most global industries. Fraport. For example. Fraport. 2000b). Mauritius. Australia. Milan. BAA plc. now has airport interests in countries such as Italy.

Figure 2. Since 1958 the company has operated as an independent. it handled 40 million passengers and 1.2 million tonnes of freight.11 Total passengers at Amsterdam airport. and the city of Rotterdam (2 per cent). unusually. its passenger traffic has grown by an 45 Total passengers (million) 40 35 30 25 20 15 10 5 0 1989 800 Profit before interest & tax (Index: 1989 =100) 700 600 500 400 300 200 100 0 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Figure 2. 1989–2001 Source: Annual accounts. However. The shares are held by the state of the Netherlands (76 per cent). because of the unique situation of US airports. there is little competition from US companies with the exception of Houston airport which in 2002 was involved in the bidding consortium for Ecuador’s existing and new airport in Quito and San Francisco which has provided management services at various Honduran airports. the city of Amsterdam (22 per cent).Managing Airports companies tend to play a major role. 1989–2001 Source: Annual reports. In 2001. The Schiphol Group: attempting to expand from Amsterdam airport to a global airport company The Schiphol Group is a publicly owned company. In the last 12 years. (Note: accounting practices changed in 1999) 38 . self-sufficient business.12 Profitability – Schiphol Group.

One of its first management contracts was in Curacao. namely Schiphol Project Consult and Schiphol International were set up for the consultancy and international undertakings. Thailand. It aims to do this by reinforcing Amsterdam Airport Schiphol’s international 39 . these units became independent. Bulgaria. Up until 1991. the profit increased by 6 per cent and then subsequently increased by 12 per cent in 2001 in spite of the events of 11 September. it made the decision to expand by offering more general airport consultancy and managing commercial airport operations. The overall company name became Schiphol Group. In 1998. Russia. Portugal. St Maarten. the Schiphol Group has also been pursuing a policy of acquiring equity shares and other interests in both domestic and international airports. It also had management contracts with other airports such as Cartagena in Columbia and St Maarten. The airport company has been adapting its organizational structure to reflect this increasing involvement in other airports. the consortium chosen to run Brisbane airport. Lithuania. In this year. the Philippines. Then. there are the three independent subsidiaries – Schiphol Project Management. and Schiphol Real Estate and the two support units – Schiphol Support Services and Information and Communications Technology (Figure 2. the name of the airport company was also changed to reflect the increasing diversity of activities. Schiphol has also been involved in a number of unsuccessful bids. in 1998. Schiphol’s international involvement was confined to providing training and education at other airports. France. which was agreed in 1993. while its profit figures before tax and interest increased by 19 per cent between 1989 and 1999 (Figures 2. South Africa. Lithuania. Greece. Schiphol International.12).11 and 2. for example in South Africa. Lelystad was bought with the aim of making it into as a business airport for general aviation. Mexico. Since 1990. which is being developed into an airport offering short-haul scheduled flights for the business community.This BOT project was due to be completed by 2001 and then the JFKIAT consortium. In 2000. and Georgia. whose other partners are a property developer LCOR (40 per cent) and the American financial institution Lehman Brothers (20 per cent) will operate the facility until 2015. Schiphol has had a 13 per cent shareholding in the Brisbane Airport Corporation. Separate business units. Schiphol’s first international involvement came in 1997 when it took a 40 per cent share in the JFKIAT company which was selected to provide a new international arrivals terminal at New York JFK airport. In addition.The changing nature of airports average annual increase of 8 per cent. Curaçao. Malaysia. Egypt. Schiphol acquired a 51 per cent shareholding in the regional airport of Eindhoven where it plans to attract scheduled European airlines to the airport. and Stewart in the United States. rather than Amsterdam Airport Schiphol which is now just one organization within the structure.13). Malaysia. China. It is the Schiphol Group’s stated mission to be a leading international airport operator. In 1999. and in the CIS in countries such as Russia. to optimize feeder flights with Amsterdam and to develop charter traffic. In 1993. the Gambia. By the mid-1990s it had considerable consultancy experience particularly in the developing areas of South East Asia in countries such as Indonesia. China. and the Philippines. limited liability companies. The first domestic airport to come under Schiphol’s control was Rotterdam airport in 1990. Since 1997. Further expansion meant that by the end of 1999 it had active consultancy and management projects being undertaken in a wide range of countries including the United States.

2002 .40 Schiphol Group Board of Management Corporate Staff Participations Schiphol Real Estate Schiphol Project Management Amsterdam Airport Schiphol Information and Communication Technology Schiphol Support Services Schiphol International Business Unit Passengers Business Unit Retail Business Unit Airlines JFKIAT Brisbane Airport Figure 2.13 Organizational structure within the Schiphol Group.

the government stated that in principle it was in favour of privatization and the company began to prepare for privatization. it formed the Pantares alliance with Frankfurt airport (Fraport) and started looking at co-operation in areas such as information technology. although a government decision at the end of 1999 confirmed that the airport would be allowed to expand at a controlled pace (Schiphol Group. and Wellington airports. Parchim and Lahr (Germany). The airports consider that synergies in airport operations and combined financial strength will help in the acquisition of further international airports (Schiphol Group. The other key issue for the group is its public ownership. Hochtief which has interests 41 . New airport operators The other organizations which have taken advantage of the privatization trend to become airport management companies are quite varied. and manages further small airports in Odense (Denmark). and Wiggins which owns the Manston airport in the United Kingdom. hotels and recreation. property development. cost efficiency. 2002). has involvement with Prestwick. subsequent changes in government meant that no privatization occurred by 2002 – although it is still being talked about as an option for the future (Piling. there is uncertainty about long-term growth at Amsterdam airport. in the areas of retail performance. 1999b). 1 per cent in Vienna airport. Moreover. This consortium. and North America. Perth. One of the reasons for why the Schiphol group wants to have a strategy of expanding overseas and entering into alliances is its relatively small home market. It is particularly keen to develop alliances with other airports to optimize management skills and knowledge (Schiphol Group. Infratil. and information. with the aim of sharing expertise. There are also traditional construction companies such as Vinci which has a close partnership with AdP on international projects. In the same year. Also in this year a consortium of financial and industrial organizations was formed with both the Schiphol Group and Fraport having a 1 per cent shareholding. 2000). handling and cargo. In 2000. The utility and property company. it became the first airport company to take a shareholding in another company. 1999a). It wants to market this concept internationally. However. retail. Borgond (Hungary). but was subsequently unsuccessful. Pilsen (Czech Republic). Other UK companies include Peel Holdings which has a majority share in Liverpool airport and has plans to develop Finningley airport in the North of the United Kingdom. and international activities. for example. In 1995. and Ajman (UAE).The changing nature of airports competitive position particularly by developing its concept of an ‘AirportCity’ which provides services 24 hours a day in the form of shops and catering. and property development. They include property developers such as TBI (which took over AGI in 1999) which has interests in airports in the United Kingdom. It has worked with Brussels International Airport Company to develop a new flight information system and with other information technology projects. More recently in 2002 Schiphol also had plans to buy 30 per cent of the Malaysian Airports company but in the end this did not happen. Cuneo (Italy). called Establishing a Network for European Airports (ENEA) expressed interest in gaining a share in the Aeroporti di Roma company. communication and business activities. Sweden.

EasyJet. Skavsta airport is a small airport about 100 km south of Stockholm.5 million to be paid when certain goals 42 .Managing Airports in Athens. Thomas Bailey Investment. The only recent developments have been the terminal facilities developed exclusively for BA at Manchester airport and Lufthansa’s joint venture partnership with Munich airport in developing the second terminal. there would be a number of regulatory and competition issues which would need to be considered. Another construction company Bechtel has teamed up with Singapore Changi airport to form Alterra Partners which has an interest in Luton airport. unsuccessfully tried to buy the airport when it was up for sale. and Niagara Falls airport. Its first airport acquisition outside of the United Kingdom was in 1997 when it purchased Orlando Sanford International. It was listed on the stock exchange in 1994. the third busiest international airport in Florida. This shows that perhaps the synergies from airport operations which these transport operators had hoped for were not as significant as was first thought. however. Bristol. handling just under 1 million passengers. This means that the airlines get exclusive rights to parts of the terminal and/or they may receive substantial discounts on usage. an airport handling around 1 million passengers. Berlin. Finally. based at Dublin airport has also proposed building its own low-cost terminal. and Düsseldorf airports and Cintra which has involvement in the Mexican airports. and Rome airports. Birmingham. UK transport operators Firstgroup and Stagecoach also each owned one UK airport in the late 1990s but have now sold these. TBI: from property management to global airport operations TBI began life as a Wales-based property company. In the United States. which has developed services out of London Luton airport. in August 1996 from the management owners. airlines already partially or totally lease terminals and in Australia the domestic terminals are leased to the domestic carriers. which was handling around 2 million passengers. Sydney. in April 1995 from the local government owners. If an individual airline or alliance grouping wanted to buy a substantial share of an airport to obtain more control and develop a stronger brand presence. Lima airport in Peru and San Jose airport in Costa Rica. when TBI acquired 90 per cent of Stockholm Skavsta airport in Sweden. Elsewhere. Then there are international financial investors such as Macquarie Bank which is involved with Bristol. such practice is rare. there have been transport companies. An unusual example is the Birmingham Eurohub which was partially financed by British Airways (BA). Ryanair. It subsequently went on to buy Belfast International Airport.TBI initially paid US$27. There has been considerable discussion as to whether airlines could buy and operate airports. Bournemouth. Hamburg. At all three airports it embarked on major capital investment programmes. Low cost carriers have also expressed an interest in running their own facilities in order to keep the service simple and keep down costs. most notably National Express which had interests in East Midlands. It first became involved with airports when it bought Cardiff International. Further expansion into the airport business occurred in June 1998.5 million for the airport with a further US$6. and Stewart International until 2001 when it sold its UK airports to concentrate on other transport activities.

5 million paid upfront and the rest in annual payments.The changing nature of airports are achieved. flying mostly on lowcost carriers and charter. Consorcio AGI. it took the decision to concentrate on its airport business and so disposed of all its £190 million property interests except the Cardiff Hilton Hotel.5 million when passengers numbers exceed 600 000. TBI has subsequently gone on to expand its business further. AGI had a 25 per cent equity share in the concession consortium which was managing Luton airport. Two major changes occurred in 1999 to the company’s focus and operations in line with the company’s declared strategic objective of becoming an established airports group with a substantial international presence. and GE Capital. non-controlling equity shares at another six and contracts to manage or to provide services at another 24 locations (TBI. These goals relate to passenger and freight throughout. Alice Springs. a 20-year management contract was agreed for Juan Santamaria International Airport in Costa Rica which served around 2 million passengers. In 1998. Acquiring AGI changed TBI into a company which had controlling equity shares at seven airports.8). it had management contracts for Terminal 3 at Toronto Pearson International airport. respectively. In North America. AGI was a large private airport operating company backed by the US financier George Soros. TBI has subsequently developed new terminal facilities allowing the airport to handle 1 million passengers annually and has lobbied for the airport to achieve ‘Stockholm Second Airport’ status. 2000). In June 1999. 43 . Airports Group International had involvement with 29 airports worldwide when it was acquired by TBI. In 1996–7 when it began to enter into the airport business its profit from airports was £10 million compared with £15 million from the property business. In November 1999.25 million when both goals are achieved (Graham. and 25 000 tonnes of freight (ACI Europe. Its turnover and profit before interest and tax has increased by 40 and 30 per cent. US$2. At a number of other US airports it had contracts for handling and other airport services. Perth. 2000). TBI has grown very rapidly from a property company with interest in a couple of small airports to a major global airport company in less than 5 years (Table 2. namely US$2.TBI owns 82 per cent of the equity in management company. there were 213 000 passengers.5 million when freight exceeds 71 120 tonnes and US$1. Santa Cruz. approval was given to TBI for a 30-year management contract to operate Orlando Sanford airport’s domestic terminal. 1999). and has guaranteed to implement the master plan which will increase the capacity of the airport to around 4 million passengers at a cost of around US$20 million (TBI. New York.14). It had equity shares in a number of Australian airports (Darwin.The annual payments are matched by Federal Aviation Authority and Florida Department of Transportation funding (Orlando Sanford Airport Authority. This meant that its stock market classification was changed from property to transport. Tennant Creek. 1999). it acquired Airports Group International (AGI) for £86 million (TBI. and Cochabamba airports in Bolivian airports. 1998). and Hobart) and equity interests in a concession contract for La Paz.This involved TBI paying US$10 million towards the US$25 million cost of the terminal expansion to handle up to 3 million passengers – US$7. Finally. Then in September 1999. By 1997–8. Lockheed Martin. At around the same time as the AGI acquisition. for the international concourse at Atlanta Hartsfield and for the small airports of Burbank airport in California and Albany airport. per annum (Figure 2. Bechtel. 1999).

2002). Bolivia. 1995–2002 Development Acquisition of Cardiff International Airport Acquisition of Belfast International Airport Acquisition of Orlando Sanford International Airport (long leasehold interest) Acquisition of 90% share of Stockholm Skavsta Airport Disposal of entire property business (except Cardiff Hilton Hotel) Purchase of Airport Groups International (AGI) acquiring airport interests in Australia.14 Financial results of TBI. TBI’s financial position remained relatively strong in 2001–02 in spite of the events of 11 September. Perth and Northern Territories) Acquisition of controlling share (71%) of Luton airport 2001 Source: Compiled by author from various sources.8 Date 1995 1996 1997 1998 1999 TBI’s expansion into the airport business.Managing Airports Table 2. the additional expense of defending a hostile bid for the company and the loss of the major services of BA and British Midland at Belfast International airport (TBI. 200 000 180 000 160 000 Revenue Profit before interest and tax ×1000 UK£ 140 000 120 000 100 000 80 000 60 000 40 000 20 000 0 1994/5 1995/6 1996/7 1997/8 1998/9 1999/0 2000/1 2001/2 Figure 2. US Canada and Luton Acquisition of management contract for domestic terminal at Orlando Sanford Airport Acquisition of 82% share of Consorcio AGI which has management contract for Juan Santamaria International Airport in Costa Rica Disposal of airport interests in Australia (Hobart. however. £21 million profits came from airports while £17 million came from property. 2001. 44 . The disposal of the property business in 1999 meant that subsequently nearly all profits in that year were airport related.The gap widened in 1998–9 with £24 million from airport profit and only £14 million from property. 1994–2002 Source: Annual reports.

in Australia and South America. security and safety operations. Once the airport company has bought or acquired effective control of the ‘privatized’ airport it then has to demonstrate additional skills to those just associated with the core competencies of airport operations and commercial management. Gangl. 2002). Many of the airports that have been privatized. and master planning. They include overall management of the airfield and terminal areas. The core competencies in traditional airport operations are familiar to any airport manager. and technological development opportunities to 45 . skills in running the airport as a business as well as operational expertise are equally as important. it is clearly not just a question of transferring the core skills and competencies which have already been gained through airport management in the home country to the new airport. marketing expertise in meeting the needs of airlines. in Australia previous aviation management experience was required and in Mexico a major local partner was essential. facility and utility management. In some cases. these core skills will have to be adapted for an airport perhaps in another part of the world. In addition. These include skills in the management and development of retail and other commercial facilities. In order to take advantage of these new opportunities it will also have to have expertise in change management and global business skills. the tender authorities may stipulate the type of expertise required in the consortia. which have always held a rather privileged. it will need to be competent in bid and project management. To be successful.The changing nature of airports Skills needed to become a global airport player For a traditional airport company to become a global player. are being controlled by various consortia partners rather than individual companies. passenger and other customers. and bid preparation and negotiation. surface access planning and co-ordination. Nichols et al. consortia formulation and management. which may involve identifying new opportunities and marketing and developing new business. In any bidding process there is always considerable debate as to the best mix of partners. This may be hard to achieve for some of the large state-owned European airport operators. cost control and optimizing organization and productivity. It must be able to achieve success and add value at the new airport. for example. there are a number of new areas of expertise which must be acquired if the airport operator is to become a successful international organization (Schneiderbauer et al. 1998. which may operate within a different competitive environment and regulatory regime. In addition. in this modern age of airport management. and competence in quality management techniques. Why go global? Globalization is a dominant trend within the world’s economy bringing cost savings. For example. If the airport company is to compete within the global airport industry. This means that it will need to have skills in investment evaluation and business planning.. (1999) suggest that an airport operator plus an engineering company to control the master project management and a financing partner to structure project financing may be the optimal solution. marketing advantages. quasi-monopolistic position by serving the capital city of the country.

For airport companies. There certainly do not seem to be such obvious synergies in controlling a global group of airports as there are with airlines. and Vienna) which are seeking to become international companies. Also risks may be reduced by going global. One of the major general benefits that international or global companies have is that they may be able to reduce costs through bulk buying and joint purchasing in some areas. however. it seems quite logical that the commercially minded airports might next seek to acquire other interests to expand and add value to their company. This factor may be partly responsible for increasing the competition at the bidding stage at a number of airports in the late 1990s. some quite persuasive general arguments for encouraging any business to aim for a global or worldwide presence. There are. Financial growth in the home market may be hindered by a regulatory system which may limit the amount of revenue generated from aeronautical sources. and AENA. which are not responsible to private shareholders. there are many perceived advantages of such a development such as marketing strength. For example. Specifically for airports there may be distinct advantages in expanding internationally if their own core infrastructure (e. For airlines. as is the case with BAA plc. Once privatization has proved to be successful. In addition. Perhaps for some airports there may be an element of fear of being left behind in the race to globalize. brand loyalty. Copenhagen. Globalization can be seen as a natural progression for airport companies that have gone through the processes of commercialization and then privatization. The airline industry is a high-profile example of an industry which has been developing alliance and globalization strategies for a number of years. This could be the situation of the airport industry although the savings would probably not be very substantial. the motivation for globalization is somewhat less well defined. just the privatized or partially privatized airports (such as those of BAA plc. There is no guarantee that successful management practices at one airport will work in a similar manner at another airport. travel agents. network spread and product integration. Frankfurt.and taxfree sales in 1999 has also made commercial opportunities outside the EU more attractive. and tour operators. thereby placing less relevance on any one national economy and lessening exposure to downturns in individual economies. The abolition of EU duty. too. Milan.Managing Airports many industries – including travel-related businesses such as hotels. for example. as is the situation with the London. terminal or runway) is physically or environmentally constrained. Benefits can include higher returns and increased shareholder value. are increasingly under greater pressure to perform well and many are expected eventually to be privatized. the Schiphol Group. It is not. and in some cases inflating the prices being paid. cost reductions could be 46 . particularly when the airports are operating in different regulatory environments. and Amsterdam airports. There are also companies such as AdP. international expansion can provide the much needed finance for development in the home market and may safeguard the success of the core business.g. and reduction in costs. of course. have claimed that a globalization objective is that much more difficult if the airport company is under public ownership and have used this argument to encourage privatization of the group. The motivation for such expansion is less clear – though it is true that such airports. but are just as keen to acquire other airports. Some airport companies.

which are particularly relevant to the airport industry given the industry’s high political profile. or inherent cultural and business differences. as with all collaborations. conflicts can also arise through incompatible vision. This has meant that airports themselves face increased competition and are under greater pressure to reduce costs. particularly in the light of increased competition in the airline industry and more advanced globalization strategies. Airport alliances and co-operation The main driving force behind the globalization of airport networks has been airport privatization which has enabled a growing number of airports to be purchased outright or at least managed on a long-term basis by an external airport operator. to a cover a broader scope of activities. However. Too high a price may be paid. which was agreed in late 1999 was the first major alliance agreement witnessed by the airport industry. they were at similar levels of globalization and they shared the same strategic approach. and add value to their organizations – all of which. there are also many risks. In addition. In some cases this may be just a question of developing informal links. Joint training programmes could be arranged and there may be cost advantages through combined marketing. Schiphol and Fraport believed that there was scope for cooperation because the two airports were both European hubs but serving different airlines alliances. can be helped by airport co-operation.The changing nature of airports achieved with joint purchasing of equipment such as ramp buses and fire engines. the advantages of being ‘big’ may help the airport company keep up to date with technology developments and the latest airport management tools and techniques around the world. The Schiphol–Fraport ‘Pantares’ alliance. They identified seven 47 . particularly if the bidding process is highly competitive. Co-operating in international projects can share both the risk and investment needed. which is primarily driven by a need to expand networks and increase market accessibility. There are also political risks. a lack of common strategy or objectives. particularly involving partners from different countries. This seems inevitable. theoretically. they had complementary competencies. Even if a government has relinquished all effective control of an airport to a private operator. and through negotiation of more favourable insurance policies. expertise. There may be some fundamental flaw in the business plan which has been put together. airport globalization also looks likely to occur as a result of greater co-operation between airport operators or through the establishment of airport alliances. airport co-operation is likely to be encouraged by a desire to benefit from shared knowledge. skills and technology which can produce synergies and economies of scale. which already exist for information exchange or marketing support. In the future. As with any expansion. improve quality. and financial resources. As with other industries. Standard commercial contracts could be agreed with core partners at the airports. alliances can enable the transfer of knowledge. a change in the air transport regulatory system or the introduction of more stringent environmental legislation could have a fundamental impact on the way in which the airport operates. Unlike airline co-operation. Costs could also be saved by having a single head office and through centralizing many functions such as accounting and information technology.

Most passengers. training and recruitment. From the airport operator’s point of view. marketing. Other examples of co-operation include Schiphol assisting Fraport to improve its spend per passenger in the commercial areas. research. the airports have agreed not to compete against each other on international contracts. however very questionable. are. Impact of airport globalization on users Passengers One of the major advantages of globalization for airlines and other companies is the advantage of being able to sell one common product or one global brand to the customer. marketing. encouraged by the heightened security requirements because of 11 September. but it will not be until the global airport companies have established a much stronger presence that a ‘global brand’ will be recognizable by most passengers.Managing Airports areas where co-operation seemed possible (Endler. project management and technical services. standardization of equipment and technology. 2002). however. environmental issues. branding involves the use of similar signposting. Tradeport. colour schemes and interior design for the entire airport. BAA plc has traditionally used a common and constant brand image for its seven UK airports. 5 Information technology: system and equipment standardization. As part of the alliance partnership. The merits of branding within the airport industry. 3 Facility management: purchasing. there may be some advantage in aiming to provide a common brand image in that a well defined level of quality of service can be defined and guaranteed for all airports. product and technology development. 2000): 1 Aviation ground services: ground and cargo handling logistic systems. Since Pantares was established Fraport has taken a share in Brisbane airport. e-business and intermodal strategies. 2001. particularly leisure passengers who travel infrequently. and the alliance is operating a new logistics centre. would probably not be aware of any common branding and would find it very difficult to define any distinguishing features of a certain airport brand. financial risk sharing. at Hong Kong airport. Branding could make passengers feel more familiar with the airport services and facilities they use. has been on developing automated passenger control and passenger guidance (Fraport. The companies have also formed a joint venture company. 48 . For international or global airport companies. 2 Retail and passengers: retail business at home and international airports. bidding for international projects. 4 Real estate: site development at home and other airports. For example. 6 International projects: privatization projects. Examples of this have existed for many years with national airport groups. 2000. Pantares Systems to serve the information technology and communications needs of the two organizations and to offer related services outside the alliance. project management. Verboom. bidding for international projects. Much of the focus in this area. 7 Other: marketing.

1998). particularly the airlines. However. for example. The airline industry body. founded in 1919 which became listed on the stock exchange in 1964. The transfer of skills in the management and development of retail and other commercial facilities may increase non-aeronautical revenue and may reduce the airport’s reliance on aeronautical sources. For example. In 1998 it bought Manston airport. check-in desks and other office space. not all relevant prices are regulated. there could be benefits to an individual airline or airline alliance in operating out of more than one airport which is owned by a global airport company. airport charge increases at Belfast International airport (owned by TBI) and Luton airport (operated as a concession by TBI and other partners) were bitterly opposed – notably by British Midland at Belfast and easyJet at Luton. An additional fear is that sophisticated systems not really necessary for certain smaller airports may be adopted merely because they are available (IATA. It is in favour of such developments if the resultant lower costs bring lower charges. In the United Kingdom. the International Air Transport Association (IATA). that prices will rise once privatization has occurred and profit maximization becomes the key business driving force and motivation. Moreover. 2000b). which is situated 65 miles southeast of London. The airline industry does also not appear to be in total support of moves towards airport globalization. have remained fixed by regulation (Gill. This is the idea behind the Wiggin’s Group expansion into airports. while the direct airside charges. in some cases. For example Lufthansa – one of the airlines most affected by the Pantares agreements – has expressed concern that airport globalization will just lead to global airport groups exploiting their monopoly position which will bring no benefits to airlines (Gethin. for example. for example. regulation has been introduced to control charges – but this may not always be satisfactory to users if. It has 49 . For instance. IATA has also expressed concerns that globalization could lead to management attention and funds being diverted away from core airports. from the UK Ministry of Defence. quantity discounts on charging could be negotiated and there could be common agreements on the use of gates and other facilities. the availability of new sources of funding may enable the quality of airport facilities to be improved which would generally be welcomed by the airlines – as long as it does not push up airport charges.The changing nature of airports Airlines As with most industry privatizations there has been concern from users. with the Argentinian airports the airlines have claimed that there have been unreasonable increases in charges in the non-regulated areas such baggage handling. Wiggins: developing the PlaneStation global branding concept The Wiggins Group is a property company. On the other hand. 2001). Chapter 5 describes how. joint purchasing and shared development costs of new systems. has acknowledged that airport globalization may bring beneficial economies of scale due to. such as landing and passenger fees. standard contracts could be agreed for the whole airport network.

These partnerships with the public sector often allow access to grants and infrastructure loans. Tennessee in the United States but eventually withdrew its interest from this airport in 2003. The ideal airports are former military bases or those with disused or underutilized facilities with ample availability of surrounding land which can developed using the real estate experience of Wiggins. 2001. Wiggins claims that common standards and processes at all the network airports along with one single administrative system provides the potential for improving the quality and 50 . just-in-time assembly locations and for supporting all the freighter operations. Wiggins intends to use its network airports particularly to serve low cost and dedicated all freighter airlines who demand quick handling and rapid turnaround facilities which the PlaneStation airports can provide. Wiggins expects that projects such as local community centres with shops.9). The overall objective is to develop a global network of over 20 regional airports under its so-called PlaneStation concept. It also tried to gain control of Smyrna airport near Nashville. At most Wiggins airports there is no or very little traffic when Wiggins gets involved. Wiggins believes that the power of the PlaneStation brand will significantly benefit the airports within this network and will bring the resources needed to improve their performance which have previously been unavailable under individual. With most of the Wiggins contracts. public ownership. primarily because it found the political and regulatory obstacles. which exist if an airport is taken over by a different operator. Wiggins is hoping to operate more airports in the future (Gethin.Wiggins therefore has a very different strategy to most of the other emerging global airport companies who tend to buy up airports which already are successful or appear to have great potential.Managing Airports Table 2. were too great. Other potential benefits include the general lack of congestion and availability of slots compared to alternative airports plus the ownership of adjacent land which is ideal for business park development.9 PlaneStation airports operated by Wiggins in 2003 Airport London Manston Odense Pilsen Lahr Black Forest Schwerin-Parchim Cuneo-Levaldigi Ajman Borgond Location UK Denmark Czech Republic Southern Germany Northern Germany Northern Italy United Arab Emirates Hungary subsequently acquired long-term contracts at a number of other regional airports in Europe and also one in the United Arab Emirates (Table 2. increased land values and generally considerable regional economic development to the surrounding areas of the airport in the network. the public or private operators of the airport have retained ownership whilst Wiggins has taken over full operational and development control. hotels and leisure facilities or business and light industrial activities will bring jobs. 2002b). Wiggins believes that their smaller sized airports and more straightforward security operations will be a distinct advantage. Specifically with increased security measures at major airports since 11 September.

(2000). N. 10–21. Carre. How to sell an airport. J. worldwide and in Africa. A. Airport privatization: cleared to take off. Sovereign. 36. Airport privatization: competition for management project intensifies. March. Aviation Strategy. F. A New Deal for Transport. (1997). (1999). J. Ashford. October. 58–61. T. Athens International Airport: Preopening Special Report.). H. Airport privatization – no stopping the juggernaut. November/December. Caves. Transport and the Regions (DETR) (1998). (1997). Loughborough Airport Consultancy. Ashford. Jane’s Airport Review. Jane’s Airport Review. (1999). 10–13. Bennett. October.The changing nature of airports effectiveness of the facilities offered to the airline operators and logistic organizations who plan to operate from a number of airports in the network. Taking on the world. risk sharing. particularly biometric systems. January. References and further reading ACI Europe (1999). Senegal. Aviation Strategy (1999b). (1999). P. Ashford. Aviation Strategy. Communique Airport Business (1998). Summer. 51 . Possible forms of state intervention. Airport World. too. G. ed. Experiences with airport privatization. 28. (1997). Strategic Airport Planning. Sydney syndrome. Croes. (1999). Changes in airport management. (1999). ACI Europe. June. will benefit from this new technology. which will simplify their travel experience whilst providing high levels of security and also from the familiarity and consistency which the global airport brand will bring (Lewin. Elsevier. April–May.There will also be scope for the building of close relationships with airlines and other operators with. Airport Traffic Report. Passengers. 8–9. Our best deal ever – AGI and London Luton. 2nd edn. M. Collet. Beesley. 2nd edn. Beijing rides market downturn. 46–58. and Gosling. 2002). Senegal. Aviation Strategy (1999a). Airline Business. Global airport developers: risky business. and Moore. December. C. and common tariffs. Airline Business. Bates. In Airport 2000: Trends for the New Millennium (N. Aerlines. May. Communique Airport Business (2000). Department of the Environment. Routledge. (1999). Regulation and Deregulation. Beechener. 8–9. Privatization. Winter.-D. Ballantyne. for example. Aviation Strategy (2000). Wiggins believes that not only will the individual airports benefit from increased traffic as the result of being part of an airport network. simplified negotiation. N. R. Airport Finance. 28–30. E. Institute of Air Transport Airport Management Symposium. (1999). but they will also have the ability to share best practice ideas across the network and to introduce new technology over the entire network which will reduce costs at each airport. Private interest in India. Institute of Air Transport Airport Management Symposium. November. J. Aviation Strategy. 14–17. Barker. November. (2002). HMSO.

Managing Airports

Deutsche Bank (1999). European Airports: Privatization Ahead. Deutsche Bank. Doganis, R. (1992). The Airport Business. Routledge. Endler, J. (2000). Global alliances and privatization. Tenth ACI Europe Annual Assembly, Rome, June. Federal Airports Corporation (FAC) (1997). Annual Report 1997. FAC. Federal Aviation Administration (2000). Fact Sheet: Stewart International Airport Privatization, 21 March. Feldman, J. (2001). Airports: sell, sell, Air Transport World, February, 65–8. Forbes, P (2002). Airport privatization – How should airport operators and investors react to changing market conditions? European Transport Conference, Cambridge, September. Frankfurt Airport (2000a). Flying into the 21st century: the Frankfurt airport authority is major partner in Terminal 3 project Manila International airport. Press release, 28 June. Frankfurt Airport (2000b). Annual Report 1999. Frankfurt Airport. Fraport (2002). Annual Report 2001, Fraport. Freathy, P. and O’Connell, F. (1998). European Airport Retailing. Macmillan. Gangl, S. (1994). Financing a partially-privatized airport. Airports as Business Enterprises Conference, April. Gangl, S. (1995). Going to market – Vienna Airport’s share flotation. In Sources of Finance for Airport Development in Europe (J. Amkreutz, ed.), ACI Europe. Gangl, S. (1998). Experiences of privatization. University of Westminster/Cranfield University Airport Economics and Finance Symposium, London, March. Gangl, S. (2002). The globalization of airport companies. University of Westminster/Cranfield University Airport Economics and Finance Symposium, March. General Accounting Office (GAO) (1996a). Funding Sources for Airport Development. GAO. General Accounting Office (GAO) (1996b). Airport Privatization: Issues Related to the Sale or Lease of US Commercial Airports. GAO. General Accounting Office (GAO) (1998). Funding of Airport Development. GAO. General Accounting Office (GAO) (1999). Annual funding as Much as $3 Billion Less than Planned Development. GAO. Gethin, S. (2001). Twist in the tale for Pantares, Jane’s Airport Review, September, 15. Gethin, S. (2002a). BAA faces a profit squeeze, Jane’s Airport Review, July–August, 10–11. Gethin, S. (2002b). Looking for the next PlaneStation, Jane’s Airport Review, July–August, 12. Gill, T. (1998). Stampede to market. Airline Business, April, 50–3. Graham, E. (1998). TBI buys Stockholm-Skavsta in Sweden’s first privatization. ACI Europe Communique, October, 8. Gray, S. (1998). SEA consortium prepares $2.1 billion Argentinian plan. ACI. Europe Communique, August–September, 7. Hanlon, J. P. (1999). Global Airlines, 2nd edn. Butterworth-Heinemann. Humphreys, I. (1999). Privatization and commercialization changes in UK airport ownership patterns. Journal of Transport Geography, 7, 121–34. International Air Transport Association (IATA) (2000a). World Air Transport Statistics, 6/44, IATA.
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The changing nature of airports

International Air Transport Association (IATA) (2000b). Airport networks and airport cross ownership. ANSConf Working Paper No. 18, ICAO. International Civil Aviation Organization (ICAO) (2000a). Privatization in the provision of airports and air navigation services. ANSConf Working Paper No. 6, ICAO. International Civil Aviation Organization (ICAO) (2000b). Organisational aspects of the provision of airports and air navigation services. ANSConf Working Paper No. 18, ICAO. Jackson, P. M. and Price, C. P. (eds) (1994). Privatization and Regulation. Longman. Jane’s Airport Review (2000). Stockholm’s third airport. Jane’s Airport Review, March, 14. Knibb, D. (1999). Australia’s road to privatization. Airline Business, August, 40–1. Lambert, R. (1995). Birmingham’s public–private finance partnership. In Sources of Finance for Airport Development in Europe (J. Amkreutz, ed.), ACI Europe. Lewin, R. (2002). Developing a global network of airports. University of Westminster/Cranfield University Airport Economics and Finance Symposium, March. McCormick, C. (2000a). Private partners. Airports International, March, 36–41. McCormick, C. (2000b). US privatisation program to expand? Airports International, September, 9. Nichols, W. K., Koll, E., and Stevins, A. (1999). Airport internationalisation: the time is now, Airports International, June, 16–20. O’Connor, A. (2002). Cross equity deals win support, Jane’s Airport Review, May, 8–10. Orlando Sanford Airport Authority (1999). Sanford Airport Authority approves deal – TBI US to Operate Orlando Sanford airport’s domestic terminal. Press release, 30 August. Ott, J. (1998). Indianapolis serves as a privatization testbed. Aviation Week and Space Technology, 14 December, 52. Piling, M. (2002). Amsterdam: forward thinking, Airport World, August–September, 42–7. Poole, R. W. (1995). How to Privatize Orange County’s Airports. Policy study 194, Reason Foundation. Ricover, A. (1999). Airport privatization of Latin American airports. In Airport 2000: Trends for the New Millennium (N. Ashford, ed.), Sovereign. Schiphol Group (1999a). Schiphol Group and FAG seek close co-operation. Press release, 21 December. Schiphol Group (1999b). Dutch government gives go-ahead for further growth. Press release, 17 December. Schiphol Group (2000). Annual Report 1999. Schiphol Group. Schneiderbauer D., Feldman D., and Horrex, M. (1998). Global Airport Management: Strategic Challenges in an Emerging Industry. Mercer Management Consulting. TBI (1999). Interim Report 1999, TBI. TBI (2000). Annual Report 2000, TBI. TBI (2002). Annual Report 2002, TBI. UK Government (1986). Airports Act 1986. HMSO. Verboom, P. (2000). Schiphol Group: creating airportcities. Tenth ACI Europe Annual Assembly, Rome, June.
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3
Airport economics and performance benchmarking
Industry profit levels
This chapter considers the economics of the airport industry. The modern-day commercial and business pressures being placed on most airports mean that a thorough understanding of the economics of airports is now, more than ever before, a fundamental prerequisite for all airport managers. The chapter begins by looking at profit levels within the industry and describing the revenue and cost structures. It then goes on to discuss some of the key factors which influence the economics of airports. This leads to a discussion of how economic performance can be measured and whether it is possible to produce a single efficiency measure for each airport. Table 3.1 shows the profit levels at thirty of the largest airports or airport groups in the world in 2001–02. All the airports produced an operating profit (i.e. profit before interest and tax) and most airports also recorded a net profit (i.e. after interest and tax payments are taken into account). The few exceptions were mostly North American airports and Zürich airport which were clearly significantly affected by the events of 11 September 2001 and the difficulties faced by the airlines during this time – particularly the failure of Swissair. Overall, the net profit margin, that is net profit as a percentage of revenues, for the 50 leading airport groups in 2001

Airport economics and performance benchmarking

was 11 per cent. In comparison, the 50 major airlines recorded a negative profit margin of 4 per cent (Pilling and O’Toole, 2002). A broader assessment of overall profitability can be obtained from the ACI which produces the most comprehensive global economic surveys. The 2001 survey covered 620 airports which collectively handled over 2.1 billion passengers, or about two thirds of all ACI members traffic in 2001 (ACI, 2002). The survey identified trends in airport economics by geographical region but some distortions may have arisen because of the composition of the sample used. This seemed to be particularly the case with the Africa/Middle East airport where the influence of the performance of a few large airports may have resulted in a disproportionate effect on the results of this region or with the Latin America/Caribbean airports where the Brazilian airports dominated the sample. Overall, the ACI survey found that in 2001 a net profit of US$ 630 million was made at all the airports which represented
Table 3.1 Profitability for 30 major airport operators, 2001–02 Total revenues (million US$) 2716.1 1535.8 1427.1 1416.9 1215.2 1111.8 955.1 676.6 632.7 543.2 510.9 493.0 485.9 485.4 481.0 475.9 467.1 460.4 450.7 414.9 392.1 372.0 334.0 319.0 314.6 287.1 286.9 274.1 274.1 267.4 Operating profit (million US$) 803.2 276.6 363.1 201.2 180.1 297.2 170.9 84.6 189.3 150.1 60.1 13.9 55.8 172.8 60.9 82.5 80.3 63.5 227.3 33.1 65.1 146.0 94.6 4.6 27.4 166.6 76.4 117.0 28.9 38.4 Net profit after tax (million US$) 461.9 90.6 336.4 90.4 6.3 N/A 145.9 30.3 163.8 N/A 33.0 1.3 3.4 183.9 114.8 11.3 23.6 16.8 25.8 65.6 10.4 30.0 8.9 21.5 N/A 80.5 59.4 75.0 79.4 7.4

Airport operator

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

BAA Fraport Port Authority of New York and New Jersey AENA Spanish Airports Aeroports de Paris New Tokyo International Airport Authority Kansai International Airport Company Hong Kong Airport Authority Schiphol Group City of Chicago Department of Aviation Flughafen Munchen Luftfartsverket Sweden SEA Aeroporti di Milano Civil Aviation Authority of Singapore Los Angeles World Airports Miami-Dade County Aviation Department Aeroporti di Roma Norwegian Air Traffic and Airport Management City and County of Denver San Francisco Airports Commission Aer Rianta Irish Airports Manchester Airport Group Greater Toronto Airports Authority Unique Zürich Airport Washington Airports Authority Airports Division, Hawaii Flughafen Wien Massachusetts Port Authority Dallas/Fort Worth International Flughafen Dusseldorf

Source: Airline Business and annual reports.

55

Managing Airports

about 1.5 per cent of total revenues – down from about 2 per cent in 2000 – with the North American airports as a group making a loss of nearly 1 billion dollars after a modest profit of US$ 160 million in 2000. The overall net margin was much lower than for the 50 major airports because this survey covered many smaller airports which tend to be less profitable. Profits before tax, interest, depreciation and amortization (in international accounting terms known as EBITDA) were around US$ 12.6 billion which represented about a 30.0 per cent margin of total revenues in 2001, down from 32.4 per cent in 2000. The Asia/Pacific airports had the highest EBITDA margin of just over 43 per cent. Predictably, given the 11 September, 2001 events, the North American airports had the lowest margin of 18 per cent – although the profit levels of many US airports tend to be relatively low in most years because of the unique way in which they are financed.

Revenue and cost structures
Airport revenue is usually classified into two main categories: aeronautical (or aviation) and non-aeronautical (or commercial) revenues (Table 3.2). Aeronautical revenues are those sources of income that arise directly from the operation of aircraft and the processing of passengers and freight. Non-aeronautical revenues are those generated by activities that are not directly related to the operation of aircraft, notably income from commercial activities within the terminal and rents for terminal space and airport land. The International Civil Aviation Organization (ICAO) has a long list of activities which can be classified as non-aeronautical including cattle farming, concrete-post manufacturing, baseball training camps, mannequins and models show, and pipeline inspection shows (ICAO, 1991)! Then there are a few categories of income that can be classified as either type of revenue. For example, handling revenues are usually treated as aeronautical revenues unless handling is undertaken by handling agents or airlines when the associated revenue (rent or fee based on turnover) is included under rents or concession revenue items. Income received by the airport from aircraft fuel companies or from airlines as a fuel throughput fee could be regarded as directly related to aircraft operations and hence an aeronautical revenue. Alternatively, this income could be considered as

Table 3.2 Airport operating revenue sources Aeronautical Landing fees Passenger fees Aircraft parking fees Handling fees (if handling is provided by the airport operator) Other aeronautical fees (air traffic control, lighting, airbridges etc.) Non-aeronautical Concessions Rents Direct sales (shops, catering and other services provided by the airport operator) Car park (if provided by the airport operator) Recharges (for gas, water, electricity etc.) Other non-aeronautical revenue (consultancy, visitor and business services, property development etc.)

56

The Asia/Pacific and European airports generated around half their revenues from non-aeronautical sources and are generally considered to the regions where airport non-aeronautical or commercial policies are the most developed.1). The dominant trend up until 1998 was a decline in the importance of aeronautical revenues with a subsequent increase in reliance on non-aeronautical sources. The situation changed in 1999 because of the impact of the abolition of EU duty. The African/Middle East and Latin American/Caribbean regions appeared to have the lowest share of non-aeronautical revenues. 2002. are usually included under a different ‘non-operating’ revenue category.1 Percentage share of aeronautical revenue at ACI airports by world region. The table shows that aeronautical revenues account for around half the total revenues within Europe which is very similar to the results of the ACI survey. A breakdown of revenues for a sample of European airports is shown in Table 3.Airport economics and performance benchmarking commercial income and hence a non-aeronautical revenue. landing and passenger fees are by far the most important aeronautical revenue sources. Revenues.and tax-free goods in this year with the average 80 70 60 50 40 30 20 10 0 /L an be ib a ar ric C me A As Eu N ta To id M a/ ric Af ast E or ia p ro th /P l e er Am ac Aeronautical share of total revenue (%) ifi dl e c ic Figure 3. mostly due to the lower income per capita. at Copenhagen airport the share increased from 41 to 54 per cent and at Geneva airport it rose from 40 to 51 per cent. This not only reflected pressures from airlines and regulatory bodies to keep airport charge increases to a minimum but also the increased focus being placed on commercial activities. The North American airports had the lowest share of aeronautical revenues which reflects the low level of US airport charges because of the unique way in which these airports are financed. Most of the non-aeronautical revenue comes from concessions and rents. One of the most notable increases in commercial revenues has been with BAA plc airports – Chapter 6 outlines how this was achieved. 2001 Source: ACI. such as interest received and income earned from subsidiary companies. Overall. in at a 57 . From the 2001 ACI survey. At some airports. the generally smaller sized airports which had less non-aeronautical opportunities. it was apparent that aeronautical revenues represented just under half of all revenues (Figure 3. the increase in the proportion of non-aeronautical revenue over the 15 years from 1983 to 1998 had been considerable – for example.3 for 1983–2001. and because the non-aeronautical policies tended to be less developed than in many other parts of the world.

9 100.6 23.1 100.2 100.0 100.4 100. labour costs account for an average 33 per cent of total costs with depreciation representing a further 24 per cent.Managing Airports Table 3.0 34.4 40.3 Average revenue and cost structures at European airports.6 43. it is usually possible to identify the three separate cost items associated with labour.8 42.0 45. capital. Unlike with revenues.9 24.6 44.0 55. This value remained fairly constant in 2000 and 2001.6 100. and other operating costs.9 100.0 56.1 23.6 18.6 39. 2001 Airport Revenue shares (%) Aero Amsterdam Basel-Mulhouse Birmingham Brussels Copenhagen Dusseldorf Frankfurt Geneva Glasgow Milan London Gatwick London Heathrow Manchester Marseilles Paris Rome Oslo Vienna Zürich Source: Annual reports.0 39. Cost shares (%) Labour Depreciation Other Total 23 22 33 24 38 41 49 38 35 55 27 22 24 26 33 39 21 57 24 21 38 21 21 29 21 15 22 18 11 21 25 22 29 22 22 40 17 34 56 40 46 55 33 38 36 40 47 34 52 53 54 45 45 39 39 36 42 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 Non-aero 53 55 36 38 44 33 30 52 38 28 59 60 44 56 56 38 49 25 48 Total 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 47 45 64 62 56 67 70 48 62 72 41 40 56 44 44 62 51 75 52 non-aeronautical share declining slightly to around 44 per cent.6 100.0 54. however.9 43.9 44. Over the years the labour costs have decreased in importance (Table 3.2 21.4 Revenue and cost structures at a selection of European airports.0 32.0 43.0 100.0 52. From published accounts.6 35. 1983–2001 1983 Revenue shares (%) Aeronautical Non-aeronautical Total Cost Shares (%) Labour Depreciation Other Total Source: Annual reports. In part this is due to more 58 .0 34.3).9 41.0 55.0 55.2 100.5 21.0 48. 1988 1993 1998 1999 2000 2001 58.1 100.1 45.4 100.2 36.0 36.5 100.8 20.2 42. Within Europe.0 Table 3. there is no industry standard for the reporting of airport operating costs.1 100.5 44.

(Pels et al. measured in costs per passenger handled or per work load unit (a WLU is equivalent to one passenger or 100 kg of freight) fell dramatically as total traffic increased to around 1 or 1. again reflecting their heavy involvement in the labour-intensive handling activity. Studies of British airports in the 1970s showed that unit costs. This suggests that there might be an optimal size of airport in economic terms – but as yet the evidence is far from conclusive. Gatwick and Heathrow.Airport economics and performance benchmarking outsourcing being undertaken by airport operators and in some cases a more productive labour force. and Oslo which are not involved with so many activities. Amsterdam. have much lower staff costs. 1995). Studies of Australian and Spanish airports have produced similar findings (Assaily.4 for airports with WLUs between 300 000 and 2. the volume and nature of the traffic. 59 . which the airport operator only has limited control over. It is likely that for small airports there will be certain fixed costs associated with the provision of infrastructure and services which will be incurred at the airport irrespective of the traffic levels. Then at a traffic level of around 3 million passengers or WLUs. Doganis et al. Milan. In 1999 an ICAO airport economics study found that costs per WLU or unit costs for airports of less than 300 000 WLUs averaged US$15. Pels et al. 2000). declines.5 million passengers or WLUs. for example with a number of different terminals. More complex analyses also suggest that airports experience economies of scale – with the effects being most significant for smaller airports (Gillen and Lall.. Frankfurt. with their aeronautical charges regulated. were US$9.5 million and 25 million (ICAO.4 shows these values for a number of European airports. There may also be higher depreciation charges due to additional investment at the airports to cope with the traffic growth and a more accurate representation of depreciation at some airports because of their transfer from public sector accounting procedures to more commercial practices. By contrast. First. Table 3. Some of these are more easily influenced by airport management than others. airports such as Basel-Mulhouse. 1989. For example. Factors influencing costs and revenues There are many factors that affect an airport’s level and structure of costs and revenues. the unit costs tended to flatten out and ceased to exhibit a strong relationship with airport size (Doganis and Thompson. can have a major impact on the airport’s economic performance.. There has also been some limited research which shows that as airports get very large their unit costs start to rise again because the airport system becomes more and more complex. and Vienna in 2001 were heavily involved in handling. which is more costly to operate. These average values hide the variation between individual airports which in some cases in quite considerable. 1997.. were much more dependent on commercial activities. or unit costs.5 million WLUs and were US$8. 2000). At Vienna and Frankfurt.00 for airports between 2. Many small airports experience poor utilization which will also push up unit costs. London Heathrow. The revenue figures reflect differences in strategies towards aeronautical and commercial activities and also differences in the functions carried out by the airport operator itself. Düsseldorf. As airports increase their traffic throughput the costs per unit of traffic. 2000). labour costs account for around half the total costs. The labour costs also vary quite considerably at airports. 1973).

with no provision of airbridges. car parking.5 for domestic passengers. Beyond the basic operational functions. Moreover. Charter passengers also have different spending patterns to scheduled terminal passenger as do transfer passengers at hub airports (a more detailed description of different spending patterns is given in Chapter 7). in order to keep down the cost of airport charges. hub airports with a true ‘wave’ pattern of flights will have well-defined crests and troughs of traffic which will be more costly to handle than a more evenly spread distribution of flights. this will clearly have resource implications. air traffic control. duty-free shops. the Milan airport operator traditionally has been heavily involved in handling and generated over 50 per cent of gross revenues from this source. These passengers tend to spend more money at the airport on commercial facilities such as retail and catering which will push up unit revenues – particularly if they have access to duty. while others will contract these out. All this will impact on both cost and revenue levels. say. In the extreme case. For example. handling.20 (Toms. a number of low-cost carriers such as Ryanair and EasyJet have expressed preferences for operating out of low-cost terminals with only basis facilities. different airports have little in common. the cost associated with an international passenger is likely to be 1. Nevertheless.Managing Airports Larger airports are normally in a better position to provide a greater range of commercial facilities for passengers and other consumers and tend therefore to have a greater reliance on non-aeronautical revenues.and tax-free shopping.62 times greater than the cost of domestic passengers. if an airport does decide to aim. SEA. and heavy maintenance. Costs associated with international passengers tend to rise as this type of traffic requires more space in the terminal for customs and immigration. airports serving holiday destinations may have a problem with peakiness and uneven capacity utilization which may push up costs. Some airport operators will provide activities such as security. At the other extreme. cleaning. International passengers also have more luggage. terminals may also be leased as is the situation in the United States and Australia. 2000). This is very different from airports such as London Heathrow or Amsterdam Schiphol which generate a relatively 60 . Likewise. The ICAO survey found that on average airports with more than 25 million passengers generated 58 per cent of their revenue from non-aeronautical sources compared with the sample average of 36 per cent. There is no ‘typical’ airport when it comes to looking at the services and facilities an airport provides. For example. namely 1. for a more exclusive product. which gives a cost multiple between international and EU traffic of 1. More space for passengers than is strictly necessary may be deliberately provided at some airports which are keen to develop their retail and catering activities in order to increase their non-aeronautical revenue. in Heathrow’s Terminal 1 it has been estimated that international passengers on average have 1. as with the business airport London City which put leather seats in the departure lounge. Airports operators are relatively free to choose their own physical and service standards which are considered desirable to provide an acceptable level of service to passengers although in practice many of the standards at airports are fairly similar. BAA plc has estimated that for a hypothetical terminal of 8 million passenger capacity. The cost multiple for EU passengers is less.3 bags compared with 0. Charter passengers will not usually need certain facilities such as airline lounges which will influence the airport’s cost and revenue levels.36. these passengers spend longer in the terminal.

BAA plc depreciates runways for up to 100 years while Amsterdam airport uses 30–40 and AdP uses just 10–20 years. such as snow removal and deicing facilities. For example. An airport may be forced to close at night even if there is sufficient demand to make night flying feasible. The ownership patterns can also influence other factors such as funding arrangements and the cost of capital. Economic comparisons in any industry have to acknowledge the accounting policies adopted by individual operators. For instance. as is typically the case with the provision of policing. capital costs are likely to be high and poor utilization may push up the operating costs. to find that the airport’s land will not be considered to be an airport’s asset and hence will not appear in any balance sheet. Measuring economic performance Growing interest in performance assessment Until the 1980s. an airport may require two or more runways not to meet traffic needs. For example. In addition. Environmental limits. With government-owned airports it is possible. an airport’s performance is likely to depend very much on where it is positioned in the investment life cycle. Moreover. weather-related expenses. the capital costs will reduce and utilization will hopefully improve. with many public sector airports. since investment at airports tends to be large and ‘lumpy’ rather than continuous and gradual. This will have an impact on any comparative analysis of net profit levels. imposed to reduce noise or other adverse impacts of air transport. to a large extent. In some cases. Location is also likely to influence the actual layout and design of the airport and the positioning of both airfield and terminal facilities. the systematic monitoring and comparing of airport economic performance was not a widely practised activity within the airport industry. The ICAO 1999 economic survey found that one-third of airports did not show realistic costs associated with depreciation and interest. Within the airport industry accounting procedures vary quite considerably particularly since some airports adopt government or public authority accounting methods rather than commercial practices. may also mean that the airport cannot make the most efficient use of all resources. the situation may be even more complicated as the government may choose to pay for the provision of certain services.Airport economics and performance benchmarking small amount of revenues from this activity in the form of rents and concession fees paid by the airlines and handling agents. being exempt from most business taxes. security or fire and rescue. for instance those in the United States. In a more general sense. Later in the cycle. This can largely be attributed to insufficient commercial and business pressures for 61 . airports will be subject to different taxation regimes. There are many other factors dependent on an airport’s location and geographic situation which. will be beyond the airport operator’s specific control. locational factors may also effect the cost and quality of labour and the availability of capital for investment. will only be incurred at certain airports. but because of wind conditions or some other particular climatic or geographic characteristic. Views related to how assets should be depreciated differ. When major developments have taken place. for example.

g. hence. ICAO listed 10 indicators which it identified as being some of the key measures for assessing economic performance (ICAO. These noneconomic areas are considered in detail in the next chapter but the inter-relationships between these different aspects of performance must be recognized. traditionally much more used to using financial ratios and other benchmarking techniques than airport operators. Irish Commission for Aviation Regulation. baggage delivery. directly or indirectly. in 1991. what is the best organizational framework for an airport and whether airports operated as part of national networks or systems perform better than individual airports. such as varying involvement in airport activities and different accounting policies. The difficulties involved with producing meaningful comparisons. the ACI-Europe Economics Committee started work on producing comparative airport performance indicators for its member airlines. equipment availability. of course. now operating in a much more cost-conscious and competitive environment. There is. Airlines. Such organizations will have a different ultimate objective for comparing performance and. are anxious to identify possible business opportunities and to ensure that their chosen airport investments continue to perform well. Many other organizations external to the airport sector are also showing a keen interest in using performance measures to compare achievements between airports. In the late 1990s. thus. 2001. only further discouraged most airports from seriously attempting to analyse their comparative performance. The growing acceptance of airport performance monitoring is further illustrated by various international industry bodies showing an interest in such activities. CAA. they have been keen to identify the strong performers in the industry and adopt what are seen as best practices. Senior managers can use performance measures to help them define goals and targets. with the airport industry. only one aspect of airport performance which needs to be assessed. see also Chapter 5). have an interest in identifying which airports are being inefficiently managed – particularly to add substance to any lobby against increases in user charges. Clearly any decision on service levels or operational procedures will greatly influence an airport’s cost and manning levels and vice versa. Comparative performance analysis can also give valuable insight into issues such as whether privatized airports are more efficiently run than public sector airports. are likely to view the findings from a different perspective. For example. Economic performance appraisal is. In addition consumer satisfaction levels also need to be assessed.Managing Airports airports and the general lack of experience of benchmarking techniques within the public sector as a whole. There are a wide range of operational activities which need to monitored by looking at measures relating to airside delays. With airport commercialization and privatization has come a marked interest in performance comparisons and benchmarking. typically through passenger surveys. 1991). 62 . Economic regulators of privatized or autonomously managed airports also have good reason to monitor airport performance to ensure that users are being fairly charged and that the airports are run efficiently and increasingly a number of regulators have commissioned airport benchmarking studies (e. As airports become more commercially oriented. Investors and bankers. 2002. terminal processing times. a growing recognition of the value of continuous performance appraisal within the airport industry. Analysing an airport’s economic performance has therefore become an important task for many of those involved. see National Economic Research Associates. 2001. and so on.

Determining a reliable measure of the capital input is much more difficult.e. namely employee wages and salaries. and freight (Vallint. The WLU originated from the airline industry and uses a weight criteria for combining these two types of traffic (i. The simplest physical measure of the labour input is the total number of employees. Some argue. reflect the accounting policies of the specific airport and may not always be closely related to its economic production capability. These will. Capacity can be measured on an hourly. gates. this suggests the use of an output measure which combines the two. The capacity of the runways. 2000) has suggested 63 . This relationship can be expressed in both financial and physical terms.Airport economics and performance benchmarking Performance concepts Performance measures analyse the relationship between inputs and outputs at an airport. labour and capital are the major inputs of the airport system. namely aircraft movements. The financial measurement of output is relatively straightforward and can be measured by considering the total revenues generated. therefore. cross-subsidies between different traffic. The Transport Research Laboratory (TRL. regulation and government interference and. for example. its role as a retail facility. and so on all have to be considered. the WLU formula should. There is the additional problem that there are even different costs and revenues associated with different passenger types. Costs or employee numbers associated with the different outputs could theoretically be used to determine the scaling factor but there is the major problem of joint costs or joint tasks undertaken by the staff. but they do capture the key outputs. There has been some research undertaken in this area to investigate whether a more appropriate output measure can be found which takes into account all three key outputs of an airport. These measures do not cover all aspects of an airport. that the focus should be on passenger numbers since freight handling at airports is very much an airline activity and has little impact on an airport’s economic performance. The WLU. include an aircraft movement element. To capture the effect of the cost of labour as well as productivity per head. passengers or freight. Depreciation or asset values can be used to measure the financial capital input. Since most airports handle both passengers and freight. the output of an airport can be assessed in three ways: in terms of quantities of aircraft. sometimes. In physical terms. the labour input can also be measured in financial terms. perhaps. however. one WLU one passenger or 100 kg of freight). 1998). is a rather arbitrary method of linking the two outputs since the same weight of passengers and freight does not involve using the same resources. reflect the relative importance or value of the different outputs and. Physically. or annual basis. As with other businesses. daily. Ideally. The use of aircraft movements is not ideal as such measures will not differentiate between different sizes and different types of aircraft. terminal. At an airport this cannot be assessed by one measure. however. Any part-time and temporary staff should be converted to full-time equivalents. An alternative scaling parameter is the relative prices of the outputs but this assumes a close relationship between price and cost which is not usually the case because of market imperfections. capital input is measured by the production capability or capacity of the system. such as the WLU. passengers. although probably the most widely accepted aggregate measure. the most notable examples being international and domestic passengers and terminal and transfer passengers.

Managing Airports

that the use of the airport throughput unit (ATU) which combines output measures of WLUs per ATM and WLUs and is defined as:

ATUs

(WLUs)2 ATMs

(WLUs)

(WLUs) ATMs

ATUs have subsequently been adopted in TRL’s more recent performance assessments and have also been used by IATA (TRL, 2002). To summarize, performance measures or indicators are all about relating one or more of the outputs to one or more inputs. By using a number of these indicators, an airport can assess different aspects of its performance and identify where its strengths and weaknesses lie. These indicators can be grouped into certain categories such as cost-efficiency, labour and capital productivity, revenue generation and commercial performance, and profitability. In addition to these input : output ratios, a few other key measures such as the share of revenue from aeronautical sources or the percentage of costs which are allocated to staff can give further insights into comparative performance. There are around fifteen to twenty indicators which are commonly used (Ashford and Moore, 1999; Doganis, 1992; Humphreys and Francis, 2000). Table 3.5 presents the most popular indicators. Some of these have been used for the analysis of specific markets such as France (Assaily, 1989), Australia (Doganis et al., 1994) or the UK (CRI, 2002) or more generally to compare airport performance within Europe (Doganis and Graham, 1987; Doganis et al., 1995; Graham and Lobbenberg, 1995) or around the world (TRL, 2002). In 2000, a survey of 200 of the world’s largest airports was undertaken by Loughborough University and the UK
Table 3.5 Performance indicators commonly used to assess economic performance 1 Cost efficiency Costs excluding depreciation per WLU Costs including depreciation per WLU Depreciation costs per WLU Labour costs per WLU Depreciation share of operating costs Labour share of operating costs 2 Labour productivity WLU per employee Revenues per employee 3 Capital productivity WLU/ total assets Revenues/total assets Total assets per employee 4 Revenue generation Revenues per WLU Aeronautical revenues per WLU Non-aeronautical revenues per WLU Aeronautical share of total revenues 5 Commercial performance Concession plus rental revenues per passenger Concession revenues per passenger 6 Profitability Revenues: costs ratio Operating profit excluding depreciation per WLU Operating profit including depreciation per WLU Operating profit including/excluding depreciation/total assets Net retained profit after interest and taxation per WLU

Notes: 1 Only operating revenues and cost have been included (i.e. interest, extraordinary items, taxation, and dividends are excluded) with the exception of last indicator (net retained profit after interest and taxation per WLU) 2 Some analysts use passenger numbers rather than WLUs and may include aircraft movements as an airport output measure as well.

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Open University to investigate how airports themselves were measuring their performance (Francis et al., 2001). Some of the most popular measures used were found to be cost per passenger and total, aeronautical and non-aeronautical revenue per passenger whilst revenue per WLU, for example, was a less used indicator. While airport managers will be very keen to understand how efficiently the airport is using its infrastructure and how cost-effectively it is doing so, the financial sector will be more focused on ratios related to the business potential of the airport such as profit levels, liquidity ratios and capital expenditure levels. In the international financial markets, profit excluding depreciation is known as EBITDA and profit including depreciation is known as EBIT. Another indicator which can be used is the EBITDA or EBIT margin which is earnings expressed as a percentage of revenue. Operating profit:total assets is commonly referred to as return on capital employed (ROCE) or return on assets. Putting the traditional indicators in these financial terms enables comparisons to be easily made with other business sectors. Other standard financial ratios such as the interest cover (EBIT:interest) the dividend cover (post-tax profit/dividends), or gearing (debt as a share of shareholders funds) can be used to assess the financial well-being and capital structure of the airport company. Capital expenditure (Capex) per WLU, employee, or revenues can also give an indication as to the amount of investment which is taking place. For the few publicly quoted airport companies such as BAA plc and Vienna, additional indicators associated with the value of the company can be used. A number of these ratios relate the enterprise value (EV), which shows the market value of the company’s core businesses, to sales, earnings or throughput (e.g. EV:total revenues; EV : EBITDA; EV : EBIT; EV : WLU). Reference has already been made to these ‘value’ ratios in Chapter 2 when privatization trends were considered. The price earnings ratio (PER), which shows the relationship between the price of the share and earnings attributable to that share, can also be used (Vogel, 1997; ABN AMRO, 1998; WDR, 1998). The information needed for these basic performance indicators is normally available from sources in the public domain, such as published reports and accounts. More detailed and disaggregate performance measures can usually only be produced internally within an airport unless airports agree to voluntarily provide additional information. For this reason London, Paris, and Amsterdam airports in Europe have an agreement to swap data on a regular basis. The availability of more disaggregate data enables more specialized comparative analyses to be undertaken for different areas of operation. For example, indicators commonly used by the retail industry such as sales per square metre of space and sales by location and type of outlet can be applied to airport commercial areas (ICAA, 1985; CAS, 1998).

Inter-airport performance
Producing meaningful inter-airport performance indicators is fraught with difficulties because of serious problems of comparability – particularly due to the varying range of activities undertaken by airport operators themselves. Comparing indicators from the raw data can give misleading impressions as airports involved with more activities would inevitably have higher cost and revenues levels. This problem can be overcome by standardizing or normalizing the airport data so that each airport’s performance is presented as if it undertook a uniform set of
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activities by taking into account the typical profit margins associated with each separate airport activity. For example, if an airport operator undertakes ground handling activities itself, the assumed costs, revenues and staff numbers associated with this can be deducted in order to make the data more comparable with airports with no involvement with this activity. A hypothetical concession income from handling agents can then be added to the airport’s revenues. Similar adjustments can be made for car parking and other commercial activities. Whilst there will obviously be an element of subjectivity in the assumptions which are made, a sensitivity analyses of adjusted standardized data for a sample of 29 global airports in 1999–2000 showed that, for example, total costs were not very sensitive to the assumed profitability of the various activities which required adjustments, with the exception of ground handling (National Economic Research Associates, 2001). Ideally, the accounts of each airport could also be adjusted to conform to a common treatment of depreciation, asset values and so on as well, but normally this is too difficult a task. It is never possible to achieve total comparability between airports but at least making adjustments when large discrepancies exist enables more meaningful assessments to be made. The measures must be viewed as ‘indicators’ of performance to be used as a management tool to aid performance improvement, rather than as precise and accurate absolute values of economic performance. Another issue to be faced in comparing airport performance is the difference in cost of living between countries. Official exchange rates may not be a close reflection of relative prices at different airports in different countries. This problem can be addressed by using purchasing power parity exchange rates, rather than market exchange rates. Purchasing power parity exchange rates are calculated by dividing the cost of a given basket of goods in one currency by the cost of the same basket of goods in another country. So, effectively, they convert currencies on the basis of equalizing buying power rather than on the basis of prevailing market conditions. They also overcome problems of currency fluctuations during the period under investigation.

European comparisons
To illustrate how individual airport performance may be measured on an inter-airport basis, a selection of the three indicators have been calculated for a sample of European airports. The 16 airports represent a cross-section, from the largest European airport, London Heathrow, to smaller airports such as Marseille and Birmingham . The airports come from seven different countries, five of which are within the EU. The sample includes privately owned airports such as Glasgow, partially privatized airports such as Copenhagen, publicly owned but independent corporations such as Amsterdam and airports run as concessions such as Nice. The sample also includes the unique bi-national airport of Basel-Mulhouse, the smallest airport, which has two check-in concourses and arrivals halls, one of each in France and Switzerland. The data has been normalized and converted into purchasing power parities. It may be seen from Figure 3.2, which shows the costs per WLU, that even when the data is normalized that the values for each airport are very different, with some of the lower cost airports having almost half the costs of higher-cost airports. The revenue figures are as varied and the ranking of the airports is fairly similar – which is hardly surprising given that all the airports are profitable (Figure 3.3). There is also a wide spread of values of WLU per employee with
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Airport economics and performance benchmarking

20 18 16 Cost per WLU (Euros) 14 12 10 8 6 4 2 0
o sl O a ev en G k ic w at G w ro th ea h ric Zu t ur kf an Fr am gh in H e n ic ge N ha en op m C da er st Am e ill se ar M na en f Vi or ld se us D ow sg la G M
25 20 Revenue (Euros) 15 10 5 0
O G Bi rm in gh am H ea th ro w M an ch Fr an es te r Ba Vi G G N M Am D Zu C ic us op sl en at la ar en ric se e o st sg w se se en ev na kf h er l ic ow

Figure 3.2 Costs per WLU for European airports, 2001
Source: Annual accounts.

Figure 3.3 Revenue per WLU for European airports, 2001
Source: Annual accounts.

some of the large airports such as Heathrow and Amsterdam achieving high labour productivity while at other large airports such as Frankfurt and Manchester the staff do not seem to be so productive (Figure 3.4).

The global picture
A similar methodology is used in the annual global study of performance which is undertaken by the TRL. The study looks at 35 different indicators. One of these indicators, total revenue per employee, is shown in Figure 3.5 for the global sample of airports. This indicator combines the effects of both staff productivity and the revenue generation ability of the airport. Most of the airports with high values have larger than average revenue-earning capabilities, with the exception of Vancouver and
67

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Managing Airports

30 000 25 000

WLU per employee

20 000 15 000 10 000 5 000 0
o sl O m en G Am st ea H th e ic N Zu ric h M ar se at G op C en s la G us D Ba se rm Bi M an en Vi Fr an k ic w se ev ch na g in go kf er da l ro w ille o ld ur a n ha ge

es

Figure 3.4 WLU per employee for European airports, 2001
Source: Annual accounts.

Calgary where there are flexible working practices which brings down staff numbers. The Japanese airports of Osaka Kansai and Toyko Narita (not shown in the Figure 3.5) have even higher index values of 657 and 399, which is primarily the result of very high aeronautical revenues and also higher than average non-aeronautical revenues. Indeed, over the years these two airports have come under considerable criticism from the airline industry regarding the higher level of their airport charges.

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A single efficiency measure?
The performance measures in Table 3.5 are partial measures in that they give an indication of performance which relates specifically to the inputs and outputs that have been chosen. They can highlight strengths and weaknesses in certain areas but they cannot give an overall picture or identify the ‘best in class’. This shortcoming can be overcome by investigating the relationship between the combined inputs and combined outputs to produce a single efficiency measure. In contrast to other transport operations and public sector organizations there has been little exploration of the use of such methodologies until the 1990s, with the airport sector preferring to concentrate mostly on partial measures (Lemaitre, 1998). There are various different ways in which overall efficiency can be assessed (CAA, 2000). A parametric or statistical approach can be adopted by using stochastic frontier analysis. This method involves the estimation of a ‘frontier’ and the airport is only efficient if it operates on the frontier. The model is based on the estimation of a production or cost function which recognizes several variables influencing performance. Examples of this approach include an assessment of the performance of BAA plc airports and a sample of European airports (Tolofari, 1989; Pels et al., 2000). Alternatively, a non-parametric index numbers approach, called Tornqvist total factor productivity (TFP), can be used. This requires the aggregation of all outputs into a weighted outputs index and all inputs into a weighted input index. The prices of the inputs and outputs are the weights which are applied to the quantities of outputs and inputs. Such a technique has been used to assess the performance of Australian airports (PSA, 1993; Hooper and Hensher, 1998).
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2000–01 North America Europe Asia/Pacific st up ro pe G da ts Bu A or S Airp AC sh i nn Fi up A ro AN g G n rli Be rio a nt O A N t AE ur kf a an ta m Fr ian i Ro p r R ti d ou Ae por n Gr ro age rts Ae nh rpo e Ai op C ish r ed ste Sw he c m ris a an a M gh P in de rm rts Bi po up ro les ro Ae ng G A ts s or Lo a p ev Air en n G iia sco a i aw nc H Fra n Sa a n en Vi h c up e ui r M Gro Ha A O’ BA go ca hi olm ick C kh atw oc G St on es nd ne ull Lo our n D b to el M hing p as W h rou ric l G Zu ho p hi e Sc an b is d Br n la ck l Au na io rth at N Pe i m ton ia M hing as W o sl O ey dn Sy o nt ro re row To apo ath e ng H Si on nd u Lo olul on H ry ga r al ve C ou ng Ko 69 . 50 250 200 150 Revenue per employee (index value.5 Revenue per employee for world airports.H on g Source: TRL. average=100) 100 0 Va nc Figure 3.

1999 1.2 1 0 70 Source: ATRS.4 North America Europe Asia/Pacific t ur kf an Fr h ic rts un M irpo A ai Th o nd n o rla O ngt hi as W t i ro i et D nat n ci m in C rda e st Am al tre on th M o or nt W ro rt To Fo o s/ sc la al nci D a Fr n Sa o g ca hi C on st g ou H Kon g on u H ul ol r te ob H es ch is l an M apo ne in re M o ap n ng ge Si ha en op C i m ia M y r ga al C ka sa er O uv o nc s Va gle An s Lo h ric Zu y e dn Sy on st Bo tle at Se l ou 1. Total factor productivity (index value.6 0.8 0.Se Figure 3.4 0. Vancouver = 1) .6 Total factor productivity for world airports.2 0.

Europe and North America. Frankfurt and Munich performed particularly poorly which must partly be the result of these airports’ direct involvement in ground handling activities. namely: EBITDA. 2nd edn. European Airports Review. DEA is therefore a more attractive technique than the Tornqvist TFP because it has less demanding data requirements. However. Airport Retail Survey 1998 Edition. which was adjusted to eliminate the effects of airport size and the proportion of international traffic characteristics is shown in Figure 3. Ashford. The key advantage of DEA is that the weights for the inputs and outputs are not predetermined but instead are the result of the programming procedure. ATUs per employee. By contrast. called data envelopment analysis (DEA). 2002). This combines a number of partial performance measures as a weighted sum of inputs. Institute of Air Transport. Airport Finance. Air Transport Research Society (2002). ATUs per unit of asset value. This looked at partial and total measures of various aspects of performance for up to 70 airports in Asia Pacific. C. The most efficient airport appeared to be Seoul’s Gimpo which outsourced a number of activities and was congested with a high utilisation rate. (1989). 2002). ACI. Airport Benchmarking Report. TRL. the data was not adjusted to take account of involvement in different activities unlike the other data sets which have already been shown. The overall TFP measure. ACI Airport Economics Survey 2001. A production function was adopted to develop the so-called endogenous-weight TFP method which was used in this research. Assaily. Gillen and Lall (1997) and Vasigh and Hamzaee (2000) used DEA to assess US airports and Martin and Roman (2000) used it with Spanish airports. ATRS. ABN AMRO. N. CAS. DEA techniques have been used to undertake a comparison of the performance of 25 European and 12 Australian airports with the results showing that generally the Australian airports on average achieved higher efficiency scores than was the case for European airports (Graham and Holvad. The weighted sum of these scores gives an overall summary efficiency measure. For each measure airports are measured according to how they perform relative to other airports – with a score of 1 for best performer and 0 for worst performer.6. Centre for Airport Studies (CAS) (1998). Loughborough Airport Consultancy. and Moore. and operating costs per passenger (Jessop. Airport Council International (ACI) (2002). Parker (1999) also used DEA to study BAA plc and concluded that there has been no noticeable change in efficiency since privatization. 71 . A linear programming technique. Airport Productivity. concession revenues per passenger. aeronautical revenues per ATM. References and further reading ABN AMRO (1998). also produces a weighted output index relative to a weighted input index similar to the non-parametric TFP measure.Airport economics and performance benchmarking One of the most comprehensive studies of total factor productivity in the airport sector was undertaken by the Air Transport Research Society (ATRS) with its Global Airport Benchmarking Report (ATRS. A multi-attribute approach has also been used to assess airport performance. This method has been used with a sample of around thirty five global airports with six performance measures. (1999). C. 1999. 1997).

November. P. Transport Studies Group Research Report 13. and Lobbenberg. A. Doganis. Transportation Research Board. and Lobbenberg. Open University Business School Working Paper 01/4. Humphreys. First Air Transport Research Group Conference. Francis. Fry. A multiattribute assessment of airport performance. Department of Air Transport Research Report 3. University of Westminster (formerly Polytechnic of Central London). G.Managing Airports Centre for Regulated Industries (CRI) (2002). (1987).. J. F. Report on the reasons for the determination. and Graham. Doganis. A. and Francis. and Holvad. D. (1997). Graham. (1995). Vancouver. CAA. (1994). I. Traditional Airport Performance Indicators. A Comparative Study of Value for Money at Australian and European Airports. Institute of Transport Studies Working Paper ITS-WP-98-2. 3. R. Lemaitre. and Roman. Irish Commission for Aviation Regulation. Twenty-fifth Euro Working Group on Financial Modelling of the Institut für Finanzierung und Finanzmarkte.. Monash University. July. S. A. Efficiency variations for European and Australian airports. Benchmarking European airports. July. Graham. (1973). A. 2003–2008: CAA recommendations to the Competition Commission.. The development of performance indicators at airports. Vancouver. Jessop. Martin. Developing measures of airport productivity and performance: an application of data envelopment analysis. The use of benchmarking in airport reviews. 72 . Financial situation of airports and air navigation services. 12–14. Journal of Air Transport Management. (1995). Airports International. 9562. C. Airport Economics Manual. ICAA. 149–57. Cranfield University. CAA. A. 7. D. Barcelona. Airport Management: The Role of Performance Indicators. A. Measuring Total Factor Productivity of Airports – An Index Number Approach. (2000). T. Civil Aviation Authority (CAA) (2002) Manchester Airport’s price cap. (1998). and Lobbenberg. and Humphreys I. Doganis. A. Routledge. (1992). R. and Thompson. ICAO. Hooper. and Lall. R.. The Airport Business. The Economics of British Airports. International Civil Aviation Organization (ICAO) (1991). (1998). R. Cranfield University. July. Doganis. Irish Commission for Aviation Regulation (2001). G. An International Survey of Performance Measurement in Airports. Graham. A. (1999). International Civil Aviation Organization (ICAO) (2000). and Hensher. The Economic Performance of European Airports. Doganis. Doc. (2001). (2000). A. Air Transport Research Group Conference. International Civil Airports Association (ICAA) (1985).. Consultation paper. ANSConf Working Paper No. Airports Statistics 2000/2001. Commission recettes extra-aeronautiques. Transport Studies Group Research Report 1. A. Open University. Gillen. R. Civil Aviation Authority (CAA) (2000). An application of DEA to measure the efficiency of Spanish Airports prior to privatization. Graham. Vienna. May. EURO XV/INFORMS Joint International Conference. ICAO. CRI. 1703. (1997). J. G.. University of Westminster (formerly Polytechnic of Central London). no. A.

Transport Research Laboratory (TRL) (2002). NERA. (2000). Airports Review 1998. Critique of cost benchmarking. S. Journal of Transport Economics and Policy. and Rietveld. 73 . Parker. R. The Netherlands. Pilling. and Hamzaee.Airport economics and performance benchmarking National Economic Research Associates (2001). December. 133–46. Vallint. The performance of BAA before and after privatization: a DEA study. Prices Surveillance Authority (PSA) (1993). July. J. Privatization of European commercial airports: motivations. PSA. Loughborough University. Inquiry into the Aeronautical and Non-aeronautical Charges of the Federal Airports Corporation. R. Emery-Riddle University. Unpublished MSc transport thesis. M. Airport efficiency: an empirical analysis of the US commercial airports. (1997). CAA Workshop on Benchmarking of Airports: Methodologies. 33(2). London. P. WDR. Transport Research Laboratory (TRL) (2000). Problems and Relevance to Economic Regulation. valuations and implications. Tolofari. Airport Performance Indicators 2000. (2000). September. (1989). (1999). and O’Toole. H. Fourth Air Transport Research Group Conference. The Netherlands. Airport Cost and Productivity Analysis: Summary of Research Results. TRL. (1998). Nijkamp. (2002). Airports: gloves off. Inefficiencies and scale economies of European airport operations. M. P. The suitability of the work load unit as a measure of airport output. STM. (2000). Vogel. B. University of Westminster. TRL.. Warburg Dillon Read (WDR) (1998). Unpublished MBA thesis. Pels. Vasigh. 38–39. Symonds Travers Morgan (STM) (1998). Toms. Department of Transport Technology. July. D. K. Fourth Air Transport Research Group Conference. The Application of Benchmarking to Airports Phase 1: Date Collection and Assessment. Review of Airport Performance 1998. E.. Airline Business. Airport Performance Indicators 2002.

encouraged airports to place more emphasis on quality. which had evolved from manufacturing industries and had been based on the conformance to standards defined by operations management. considered to be the gap between perceived and expected service. Traditional ideas of quality. privatization. and globalization. The airport industry was not immune to this ‘quality revolution’ which was taking place – although it was rather late in adopting some of the principles. together with increased competition between airports. also found that their service . Different dimensions of service were defined and customer satisfaction. This required close consideration of what the customers wanted and how their needs could be met. Structural changes such as commercialization. Quality management began to be viewed as an overall process which involved everybody from top management down to junior staff rather than just to do with concentrating on the employee customer interaction. was assessed. such as the London and Australian airports. Airports which had become regulated in their post-privatization stage. began to be replaced by customer-focused notions.4 Service quality and its measurement Increasing emphasis on quality The 1980s saw many service industries placing increased emphasis on managing quality. 1999). New approaches such as total quality management and continuous improvement programmes began to be applied by an increasing number of service industries (Lockwood and Wright.

the airport operator only has partial control of all the processes which make up the final product. handling agents. Moreover. This lounge. cartoons. very little segmentation has taken place at airports. The expanding use of airline lounges has also helped to separate business and leisure travellers. therefore. Areas of responsibility. a reserved premium short-stay car parking space. there were separate areas for refreshments. In this lounge. a number of other airport operators have opened pay-as-you-go lounges.Service quality and its measurement quality became the subject of increased scrutiny. Airports have the additional problem that the overall service is produced as a result of the combined activities of various different organization such as airlines. passengers could have access to a special lounge. Airports tend to serve passengers with very different expectations – and so it is very difficult to please everybody! Traditionally. and provide other services such as valet parking. a clothes valet. With most service industries there is a particular problem with measuring the quality of service because of the characteristic uneven spread of demand. and hot and cold drinks. with the most notable differentiation being separate check-in for economy and business-class passengers and remote stands rather than air-bridges for passengers travelling on charter or low-cost airlines. London Heathrow opened its first pay-as-you-go lounge which gave passengers. most of the time airports still tend to offer one overall product which has to appeal to a very heterogeneous collection of passengers. In effect. consisted of three seating areas. customs and immigration officials. have to be very clearly identified and the airport operator must define a common goal for all as regards service quality. In spite of these developments. which had an entrance fee of £15. and other activities. pressure was coming from the travelling public who were becoming more experienced and demanding consumers of the airport product. electronic games. Another example was Manchester airport which opened a new premier lounge in its Terminal 2 in 2000. The third area was the ‘oasis of calm’ with comfortable seating and a calm water feature! Another interesting concept launched by KLM ground services at London Heathrow in 2001 was the ‘Holideck’ which was the first full-scale lounge to cater for families with children. Likewise. Then there was the ‘comfort zone’ where shops and catering facilities were available. The level of segmentation has now increased with more and more businesses travellers having access to fasttrack systems which guide them swiftly through various processes such as immigration and customs. for instance. concessionaires and so on. a terminal will look and feel very different on a quiet Tuesday in winter compared to a busy summer Saturday in the school holidays. It is not just the airlines which are providing such services now. In 2000. With many airports. currency exchange at reduced rates. express security clearance. for a £25 entrance. These different bodies may have different ultimate objectives and conflicting views on what determines satisfactory or good service (Lemer. passenger flows in the early morning or evening at an airport dominated by short-haul business traffic will be considerably greater than at other times of the day. toys. Subsequently. This is bound to play a major role in influencing the passenger’s perception of the quality of service provided. London Stansted launched an interesting airport upgrade product on its website which meant that for a fee of £20. and a range of other additional offers. In 1999. shower facilities. There was the ‘hot desk’ business area where office facilities including internet access were available. Some passengers may want to get through the airport as quickly as possible 75 . shoe shine. 1992).

and operational research surveys of factors such as queue length. They can also link into the passenger service standards which many airports adopt. 2002).Managing Airports with a minimum of distractions while others enjoy the opportunity of being able to shop and take refreshments. With growing congestion at airports and increased emphasis on security because of 11 September 2001. Actors have been employed to entertain passengers waiting in security checks and there is live music every Friday afternoon. The standards are set and revised in the light of customer levels of satisfaction by surveying passengers to find out. waiting time. Measuring the quality of service Quality of service can be assessed with both objective and subjective measures. for example. An example of the service standards used by Manchester airport is given in Table 4.1 Service standards used by Manchester airport Space Queuing space Holding lounge 0. Some airports have started to look at how they can keep their passengers entertained as they wait.6 m2 per passenger without baggage or accompanying visitor 0. escalators and trolleys. To be accurate. ‘Mystery shoppers’ who sample the airport product by anonymously pretending to be passengers can also be used. At Amsterdam airport. Also a sufficient number to achieve queuing times of less than 3 minutes for 95% or. there is a manager of Entertainment and Services who is in charge of these activities. The CNN airport network is shown 24 hours a day on 80 screens around the terminal and there are also educational touch screens throughout the airport for the children (Airport World. say.6 m2 per passenger with baggage or awaiting reclaim 1. availability of lifts. and baggage reclaim time.9 m2 standing passengers 20% space allowance for circulation excluding major through corridors Check-in desks Scheduled services Sufficient check-in desks will be provided to allow handling agents to offer a multi-class service. Objective indicators measure the service delivered and can cover areas such as flight delays.1. The advantages of these measures is that they are precise and easy to understand (Maiden. when they become Table 4. an area of particular concern as regards the quality of service has become the queuing and waiting processes. 2000). these surveys need to be undertaken regularly and at varying time periods when different volumes and types of passengers are being processed through the airport. space provision. peak periods less than 5 minutes for 80% of passengers Charter services Sufficient check-in desks will be provided to allow a minimum of 1 check-in desk per 130 passengers at peak periods Seating Concourse Departure lounge Seating will be provided for 25% of people present including general catering areas Seating will be provided for 75% of people present including general catering areas 76 .2 m2 per passenger seated and 0.

Last bag within 15 minutes of arrival time on 90% of occasions Baggage trolleys Target availability for total system to be 98% Trolleys to be available for all passengers who require one Vehicles and plants Target availability for all lifts.1 (Continued ) Seating will be provided for 70% of people present. Maximum queuing times under normal operating circumstances are as follows: UK passports – 15 minutes EC passports – 20 minutes Other passports – 30 minutes Passengers should queue for less than 3 minutes after collection of their hand baggage from security check A maximum of 5% of passengers in any one year to be handled on remote stand Minimum connection times: International to international – 45 minutes International to domestic – 45 minutes Domestic to international – 45 minutes Domestic to domestic – 30 minutes (maximum) No customer is to wait on average more than 5 minutes for a courtesy coach A maximum queuing of 3 minutes for customers at any pay station An automated failure of less than 5%. and air-bridges to be 98% including planned maintenance Target availability for all operations vehicles to be 92% including planned maintenance Source: Competition Commission (2002b). Last bags within 35 minutes of arrival time on 90% of occasions Domestic flights – first bag within 12 minutes of arrival time on 90% of occasions. Gate areas where departures are predominately short-haul international or domestic scheduled flights may be reduced to a figure of 65% Given present security regulations 95% of passengers will queue for less than 3 minutes or at peak periods. 77 .e.Service quality and its measurement Table 4. passenger conveyors. 80% will queue for less than 5 minutes The acceptable queuing times have been detailed by HM immigration services. i. less than 5% of car park users should arrive at the barriers with invalid out tickets To provide a level of service at least comparable with off airport parking companies Gate lounges Security Outbound control Immigration Arrivals Departures Bussing Connection/ transfer times Car parking Courtesy coach Pay stations Barriers Level of service Equipment Baggage processing Outbound: baggage acceptance process can always proceed by take away belts immediately accepting baggage into the system Inbound: international flights – 90% of first bags to be delivered within 20 minutes of declared arrival time. escalators.

and Tokyo to some very small regional airports. 2000). Typically. Some of the most popular objective measures were related to the availability of trolleys. These measures will enable the quality of service to be assessed through the eyes of users rather than airport management. Hong Kong. In 1998. but tired arriving passengers may be less co-operative – being anxious to find their luggage and return home. the survey findings can be used to investigate relationships between usage and satisfaction of services with demographics. Focus groups may also be used to investigate important or topical issues in greater detail. assured and satisfied with their use of the equipment. and taxi services. Also. looking at passenger satisfaction ratings. Clearly consideration has to be given to the sample size. The airport operator. however. lifts. such surveys will ask passengers about their usage of facilities and services. There are two key types of subjective measures. interview time. The assessment of waiting time and queue length at check-in. security and immigration was a fairly common practice. it is not systematic enough to be used for quality improvement programmes or target-setting. are also needed. ACI investigated quality of service measurement at airports through a survey of its members (ACI. a passenger’s perception of the time that they have spent waiting in a queue may be very different from the actual waiting time. while 62 per cent used subjective criteria. These objective measures can only cover a limited range of issues and service dimensions. conveyors. attitudes and experiences of travellers. and most appropriate place to survey. Similarly. has very little control over this type of feedback. they cannot tell whether consumers feel safe. and their opinion of them in terms of comfort. Houston. Fortythree per cent of respondents said that they used objective criteria. Comment cards are cheap and immediate. comment/complaints cards and customer surveys.Managing Airports dissatisfied with the waiting time that they experience. Sydney. The comments will not come from a representative sample of travellers at airports and will usually only record extreme views since customers will not be motivated to comment unless they feel very strongly about their experience at the airport. Subjective measures. their high cost. moving walkways. Both criteria were adopted by 32 per cent of all the airports. value for money. Amsterdam. One hundred and twenty airports responded with the sample ranging from large airports such as Cairo. while they can measure the reliability of equipment. Rome. Copenhagen. Baggage delivery was also measured by a large number of 78 . Johannesburg. While such a system may be able to identify a weakness which can be rectified swiftly. The main drawback of surveys is. Paris. of course. cleanliness. If the comments are favourable they may provide a positive public relations opportunity. the airport is faced with the dilemma that not all types of passenger groups will have the same expectations and so a compromise standard in most cases has to be reached. congestion. Consumer surveys are more suitable. and so on. Chicago. 2000). Departing passenger may be keen to participate while waiting in their departure lounge having completed all the major essential processes. For instance. Dallas. Direct observations or camera shots can also be used to assess real-life situations when queue lengths start to have a negative impact on passenger behaviour. The results are also not so immediate as comment cards and may require careful interpretation (Maiden. escalators. All geographical regions were fairly well represented except for South America. Frankfurt. As with all the service measures. if passenger profile information is collected.

3 reproduces the survey results from BAA plc’s annual report of 2001–02 for the London airports. Whilst Heathrow and Gatwick generally improved their Table 4. the results should be made available to all interested parties so that corrective action can be taken and targets can be set. mostly as a public relations exercise.) Baggage delivery Ground access Delivery time Taxi availability/waiting time Source: ACI (2000).Service quality and its measurement airports. etc. Some airports publish summaries of their results. The subjective measures which were identified considered overall satisfaction with all the general processes at the airport together with more detailed measurements looking at specific service dimensions (Table 4. The quality of survey monitor (QSM) is based on a sample of over 60 000 passengers for the UK airports and uses a rating scale which gives a value of 5 for an excellent score and 1 when the aspect of service is considered extremely poor. commercial services (banks. as was cleanliness.2 Criteria most frequently used to measure quality of service at ACI airports Airport process General Objective criteria Response to/analysis of complaints/mail comments Availability of lifts/escalators/ moving walkways etc Availability of trolleys Cleanliness Subjective criteria Overall customer satisfaction in terms of attractiveness/ convenience/quality Flight information displays. 79 . Table 4. information desk/telephone service Check-in Security check Immigration Catering Quality of public announcements Terminal atmosphere/temperature Availability/quality of trolleys Cleanliness (especially toilets) Seating areas Telecommunication facilities Security/airport safety Overall satisfaction Waiting time/queue Waiting time/queue Waiting time/queue Overall satisfaction Overall satisfaction Quality of goods Value for money Choice Overall satisfaction Range of goods Value for money Staff courtesy Overall satisfaction Waiting/delivery time Overall satisfaction: ground access/public transport Shops. With any performance analysis. Analysis of complaints and comments was viewed as important as well. post offices.2).

2 – Note: Rating scale: 5 Source: BAA (2002). Variance 0. 2002).6 4. While most of the focus in the past with quality monitoring has been within internal performance.1 – – 0.8 3. 80 .3 Summary of QSM scores 2001–02 at BAA London airports Heathrow 2001–02 Cleanliness Mechanical assistance Procedures Comfort Congestion BAA staff 3.1 – – Poor.8 3.8 3. For example in the United Kingdom. business travellers. the operational perspective (the objective quality measures) and the marketing perspective (the subjective quality measures) (Lemaitre. BAA plc also uses its QSM at the international airports where it has an involvement.9 Variance 0.9 3. Some passenger types are likely to complain more than others. This is not just because smaller airports seem more personal but also because they are usually served by smaller national or regional populations which may view their airport as a local asset and have a much greater pride in it.Managing Airports position in 2001–02.0 3. and male passengers tend to be far more critical than foreign leisure travellers. An airport’s performance in any one of these four areas will inevitably be linked to its performance in other areas – so none of the performance monitoring systems should be considered in isolation.6 4.9 4. 1998). Systems of performance measures at airports can be defined from different management perspectives such as the financial perspective.1 Extremely poor.1 Good.1 0.1 0.1 – 0. Some of the questions are related to what is called ‘Airport Service’ which are the services provided by the airport operator.1 0. It is worth reiterating that service quality is just one area of performance at an airport which should be assessed alongside economic or financial efficiency. Table 4.0 3.1 – – Excellent. 3 Average. airports are now appreciating that it is equally important to make international comparisons and to benchmark themselves against other airports – just as with economic performance analysis.0 3. 1 2001–02 4. IATA has undertaken quality of service passenger surveys for a sample of airports around the world. Also certain airports such as small airports and single terminal airports tend to inherently perform better in quality of service surveys. first-time users.0 3. Such an exercise is particularly problematic because of the lack of consistency or common format of each airport’s consumer survey. and female passengers (Maiden. The environmental perspective and the measurement of environmental good practice are also becoming increasingly important.8 4. This global airport monitor survey began with just over 30 airports and a sample size of 40 000 passengers but now covers 52 airports and over 80 000 passengers. such as Naples and Melbourne. Since 1993.1 0. frequent travellers.9 4.1 0. 2 Stansted Variance 0.9 3. the rapid growth at Stansted due to the low-cost airlines put pressure on the facilities and caused a decline in four out of the six key service dimensions. 4 Gatwick 2001–02 3.5 3.

Dubai achieved the overall highest ranking in the survey followed by Singapore Changi and Copenhagen. Other airports such as San Francisco. as is demographic data in order to give a greater insight into the satisfaction levels of the different market segments. 2002). The more detailed IATA survey information can indicate to the airport how it is performing as regards different market segments and each service element or dimension. class and frequency of travel and transfer details is also collected. Dubai was not included in the study and Singapore Changi was first amongst the airports which handled over 25 million passengers. Birmingham. In 2001. Stockholm. for example.Service quality and its measurement airport concessionaires and tenants and includes such measures as ease of finding one’s way through the airport and quality of the shopping and washroom facilities. The BAA QSM has also found that way-finding is the most important individual service element that links with the overall satisfaction scores (Maiden. and Copenhagen scored highest in the courtesy/helpfulness of airport staff category (Competition Commission. The least important services were eating and parking facilities. The regularity with which the IATA survey is undertaken has meant that it has been generally accepted within the industry. that it depends on which airlines participate in the Table 4. Manchester. in 2001. For European airports. flight information schemes. and Vancouver were noted for their significant improvements in rankings. handling agents or the airport operator itself. with airports which perform well using the findings to publicize and sell their airport to their customers. 2002a). Helsinki was ranked first by business travellers whilst Copenhagen had the highest ratings from leisure passengers. Zürich. and courtesy of airport staff was very important.4). The 2001 IATA survey identified the three highest rated service items for the top three airports of each different size category and found that way-finding. Copenhagen. Madrid.4 Overall passenger satisfaction levels: best performing airports from IATA’s 2001 global airport monitor by size of airport Airports 25 million annual passengers 1 2 3 4 5 Singapore Hong Kong Minneapolis Amsterdam Atlanta/Seattle Airports 15–25 million annual passengers 1 2 3 4 5 Sydney Copenhagen Manchester Vancouver Zürich Airports 15 million annual passengers 1 2 3 4 5 Helsinki Vienna Birmingham Oslo Geneva Source: Radia and Morris (2002). In 2002. However some airports do feel that the sample size is too small. Sydney had the highest overall rankings for airports with 15–25 million passengers and Helsinki was ranked top amongst the smaller airports (Table 4. 81 . Its role in airport marketing has become important. and Amsterdam airports were considered ‘best in class’ as regards ground transport to and from the airport whilst Helsinki. These cover areas such as the efficiency and experience of check-in or the efficiency and punctuality of boarding. Travel profile information such as purpose. Then there are ‘Airline Service’ questions which are services associated with airline activities which can be provided by airlines. Düsseldorf.

Areas covered include quality and cleanliness of common areas. There has been increased use of SLAs in the service industries in recent years. cost of local labour force. Such SLAs can be incorporated into more broader use agreements or strategic partnership agreements (SPAs) between airports and airlines (see Chapter 5) (Cruickshank. visitors. 2000. for airline customers the exact quality of service for facilities which are covered by airport charges is rarely specified. 1998). A tenant survey involves interviewing the property managers of each organization to assess the managers’ views on whether they think their needs are met. and there is a growing interest in the air transport industry to use such agreements in order to formalize service provision between airport operators and airlines and other key users. In general terms. these are arrangements between the service provider and its customers. 2000). Individual airport operators obviously need to consider all their customers. informal meetings. and the reliability of air traffic control for a sample of 26 airports in Western Europe. Performance targets are set. based on penalty payments for poor performance. the image of the building. They have two types of surveys. North America. Most comparative studies of airport quality look at quality from a passenger’s point of view (Lemaitre. feedback from their tenants is assessed through formal surveys. freight forwarders. 2002). or just a ‘best endeavours’ commitment based on performance targets. This problem can be overcome by having service level agreements (SLAs). airlines. the effectiveness of the heating. In addition there is also an occupier survey which deals with the actual user of the property. handling agents. including passengers. for instance. concessionaires. The information obtained from the airlines was used in a data envelopment analysis to rank airports relative to their quality level. and hospitality events. runway capacity. the Airports Council International (ACI) has been looking at the option of developing its own worldwide survey (ACI. Service level agreements A key airport customer is clearly the airlines – in fact many airlines will argue that they are the only true customers at the airport! However. One rare example was a study undertaken by Adler and Berechman (2000) which looked at airline factors such as delays. 82 . 1998). At BAA plc airports.Managing Airports survey and that it lacks sufficient detail. the efficiency of the relevant BAA plc processes. As a result. These agreements can be contractural and incentivized. BAA plc aims to resolve 95 per cent of all faults within four working hours and to issue 95 per cent of draft standard tenancy documents within 5 days of terms being agreed (Le Marquand. and the Far East. IATA. For example. Research into the airlines’ point of view is less common. 1996). the quality and value for money of the accommodation and the overall performance of BAA plc as a landlord. SLAs can involve a one-way commitment when the airport aims to achieve defined service quality levels or a two-way reciprocal commitment when both parties in the agreement aim to achieve service quality levels. The agreement requires the service to be quantified and the acceptance of minimum levels – taking into account the interests of both parties (Van Looy et al. the effectiveness of the building security and BAA plc’s speed of response.. and so on. focus groups.

Gatwick. In addition BAA tried to introduce a SLA related to connecting passengers but this proved difficult because of the joint responsibility of both airlines and airport in this area (Competition Commission. for the transfer baggage systems and for the baggage tunnel between these terminals. excalators. This has been partly due to pressure from the regulatory body which felt that the absence of quality standards in the regulatory regime could mean that the price cap imposed on the airports might produce inadequate.5). BAA has abandoned this target at Heathrow and Gatwick. and Stansted. They were not legally binding and no penalty payments had to be made for poor performance. The basic GSSs are shown in Table 4. Manchester airport developed some new-style incentivized SLAs or so-called Generic Service Standards (GSS) with the airlines. 2002b). 1996).5 BAA London airport ‘best endeavours’ service level targets. Although all these SLAs were initially negotiated between BAA and BA. transits. Various other airports have also looked at SLAs and ACI and IATA have been working together to develop a common thinking on SLAs. Manchester airport and its ground handling agents. Manchester airport also began experimenting with best endeavours SLAs in the late 1990s – again partly due to regulatory pressures. b 83 . jetty availability. By early 2000. The aim of the GSSs was to provide a framework for monitoring service delivery and to establish appropriate levels of rebates to the airlines should satisfactory standards of service delivery not be achieved. or reductions in. BAA plc began developing SLAs with BA and by 1999 four SLAs were in place at London Heathrow. ACI particularly has stressed the need for Table 4. Targets vary for different equipment.Service quality and its measurement One airport operator to introduce SLAs is BAA plc. and Manchester airport and its other external providers (Competition Commission. and the availability of ‘people movers’ (Table 4. The agreements were one-way best endeavours types based on agreed minimum service levels and targets. 2002a).6. 1999 Heathrow Stand availability (%) Jetty availability (%) Security queues length less than 10 minutes (%) People movers:a Availability (%) Mean time to repairb Transits (hours) Other (hours) 99 98 95 98–99 1 2 Gatwick 98 98 95 97–99 1 2 Stansted 98 98 95 97–99 1 5 Notes: a Includes passenger conveyors. The areas covered were stand availability. However in response to the regulatory review which was undertaken in 2002. Incentivized SLAs have also been introduced at Heathrow for the departures baggage systems in Terminal 1 and 4. To support these primary agreements it was aimed to have secondary agreements covering Manchester airport and its other subsidiary companies. security queuing. In the late 1990s. levels of quality (Monopolies and Mergers Commission. there were effectively multilateral agreements with all the airlines. Source: CAA (2000a). For a number of reasons these did not prove to be a success.

6 GSSs agreed at Manchester airport in 2002 Service level target Check-in desks Inbound baggage Outbound security queuing Airbridge availability In-feed baggage belt to be available for 100% of critical operational periods Baggage reclaim carousels to be available for 100% of critical operational periods Queue for security will be no longer than 4 minutes at any time Airbridges on pier-served stands to be available for 100% of critical operational periods An aircraft stand. will be available for arriving aircraft on 100% of occasions Coaches to be available for planned transport to/from remote stands for 1005 of critical operational periods as follows: 1 Domestic departures – coaches at gate at 30 minutes to estimated time of departure (ETD) 2 International departures – coaches at gate at 60 minutes to ETD or 60 minutes for wide-bodied aircraft 3 All arriving passengers to be coached within 25 minutes of the aircraft arriving on stand and the steps being positioned FEGP that is provided on stands will be available for 100% of critical operational period Compensation/rebate 100% rebate of check-in desk charge 100% rebate of baggage sortation charge Rebate of 10% of passenger security charge will be given for each passenger who queues more than 4 minutes All airlines that are allocated airbridgeserved stands where the airbridge is not available will be compensated by £25 per movement If an aircraft waits more than 15 minutes for a suitable stand there will be a 7. including marshalling and lighting.Table 4. If FEGP is required but not available the following penalties will apply: Rebate of the FEGP charges that the aircraft would have incurred had the FEGP been available To be agreed .5% rebate of the runway charge If coaches late for a pre-planned arriving or departing flight the following rebate will apply: 1 Coach up to 5 minutes late – no rebate 2 Coach delayed for 5–10 minutes – rebate of 50% of coaching cost 3 Coach delayed more than 10 minutes – rebate of 100% of coaching cost Stand availability Airside coaching operations Fixed electrical ground power (FEGP) Outbound baggage system Source: Competition Commission (2002b). To be agreed Airlines will be required to use FEGP where it is supplied.

that airport operators often prefer not to focus on. A good example of this is the rebate given at some airports for remote stands which involve transferring the passengers by bus to the aircraft. Level of delays A crucial measure of airport performance for airlines and passengers. en route air traffic control. At the day-to-day level. In the United States. Such an arrangement. for example.Service quality and its measurement balance with incentivized models. Some airlines may be prepared to pay more for premium service whereas others may be willing to accept lower service levels in return for lower airport charges. however. flights may also be held awaiting crew or transfer passengers. it is common practice for the last flight of the day from a hub to be held much longer than earlier ones as it does not present reactionary problems for subsequent flights and enables as many passengers as possible to get home that night. 2002a). It is therefore inevitable that aircraft will deviate from the published schedule. Shortcomings in terminal capacity can also delay aircraft. 2002). is the level of delays. This may be because there are many factors that lead to flights being delayed which are outside the airport operator’s remit (e. as with passengers. when the airlines complained of paying for airport facilities which they do not want. bad weather or technical problems with the aircraft). If there are insufficient stands available. and Ryanair and its airport base. airports have the opportunity to expand or upgrade facilities to address these problems. where airports can be penalized for underperformance but should also be rewarded for overperformance (ACI. Maximum runway throughput can only be achieved with queuing of aircraft (on the ground for departing flights or through speed control and ‘stacks’ in the air for arriving flights) so that there is always an aircraft ready to use the runway. has been favoured by the UK CAA (CAA. creating a knock-on of delays from one flight to another. The airlines can take account of expected queuing times related to shortages of airport runway capacity in planning their schedule. 2000c. Congestion within the terminals may lead to passengers who have checked in failing to reach the aircraft in time thus delaying departure. Considerable friction has arisen between both EasyJet and its airport base. In the longer term. An airport with spare runway capacity has more scope to accommodate delayed aircraft without disrupting other flights and may be able to avoid queuing aircraft in most cases. is that they all have different demands of service quality. These problems could be overcome by identifying a standard quality product and then also by having additional individual agreements with different airlines which want lower or higher service levels. Luton. This enables them to maintain 85 . this may be an airline operational decision to await the availability of a preferred gate or avoid bussing passengers from a remote stand.g. Dublin. arriving aircraft may be held on the taxiways or apron before they are able to unload. which adds an unpredictable element to the time at which any given flight will wish to use the runway. Airports which are operating close to their runway capacity are therefore likely to impose additional delays on flights and exacerbate delays originating from other causes. Many of the new low-cost carriers have shown that they are prepared to accept a trade-off between service standards and cost by choosing to fly from airports with a less-developed product. One of the problems with airline customers.

scheduled for 1 hour 25 minutes in 1982 had increased to 1 hour 50 minutes by the year 2000 (Table 4. If one considers the Frankfurt–London Gatwick route it can be seen that a morning flight from Frankfurt to Gatwick. Airlines thus include a contingency allowance for delays in their schedule. Frankfurt was better with less than one-fifth of flights delayed more than 15 minutes.8 shows delay figures for 2002 which were at a lower level than in the last 4 years primarily since traffic was reduced because of events of 11 September 2001. This means that Ryanair can accomplish four round trips per day with one aircraft but the same aircraft could manage only three round trips if operating on the Frankfurt–Gatwick route. The worst affected airports were Madrid and Rome with a third of the flights significantly delayed. As a slightly faster aircraft type is now being operated.Managing Airports a similar level of punctuality performance at congested airports. There is thus a penalty of about a quarter in aircraft and crew costs from operating to the more congested major airports. Comparisons between airports and airlines. 86 . using secondary airports at each end and scheduled for 1 hour 20 minutes. The London and Paris airports came next. Ryanair’s low-cost alternative on the Frankfurt–London route is a Hahn–Stansted service. The Scandinavian airports had the best punctuality as well as Brussels where traffic levels were very much depressed due to the demise of Sabena. Table 4.7 Increasing scheduled journey times at congested airports From To Milesa Year Depart Arrive Aircraft type Sector time (hours : minutes) 1 : 25 1 : 50 1 : 20 1 : 25 Frankfurt (FRA) Frankfurt (FRA) Frankfurt (HHN) Copenhagen (CPH) London (LGW) London (LGW) London (STN) Amsterdam (AMS) 396 396 396 393 1982 0735 2000 0725 2000 0940 2000 0900 0800 0815 1000 1025 BAe1-11 B737 B737 B737 Note: a IATA ticketed point mileage. therefore. This means that published comparisons of schedule performance tend to understate the total time wasted compared with the theoretical minimum journey time and airlines can improve their punctuality performance by extending their scheduled journey times. Source: OAG Flight Guide/ABC World Airways Guide. have to be treated with caution.7). this must be due primarily to airport-related delays on a sector where the actual flying time is only about 1 hour. If one compares the Copenhagen–Amsterdam route of the same distance but with less congested airports this is still scheduled for 1 hour 25 minutes. Table 4. but at the expense of longer scheduled flight times and the resultant increase in costs from poorer utilization of aircraft and crew.

9 12.4 25. London Gatwick.2 28.9 26. service quality has come under close scrutiny and.6 13.0 16.6 Madrid Rome London LGW Paris CDG London LHR Paris Orly Milan MXP Amsterdam Munich Zürich Frankfurt Vienna Copenhagen Brussels Stockholm Helsinki Oslo Source: Association of European Airlines (2003). and delays (QD). when the two UK regulators.5 18.9.8 15.8 Delays at major European airports on intra-European scheduled services. both recommended that this situation should change as it was considered that the current situation at London Heathrow. namely the Civil Aviation Authority (CAA) and the Competition Commission.2 18. and the major carrier at Heathrow and Gatwick. It was not until 2002. to passengers (QP).6 11.1 19.2 14. It was suggested that the standards of service should include measures of quality of service to airlines (QA.9 15. Service quality and regulation at UK airports When the British airport regulatory system was established following the privatization of BAA in 1987.Service quality and its measurement Table 4.7 25. The components of the Q factor as proposed by the CAA. 2002 Airport % departures delayed more than 15 minutes 30.5 17.8 11.3 26.8 29. and Manchester as regards the lack of formal quality of services requirements linked to pricing was against the public interest. The CAA recommended that up to 3 per cent of the regulated charges should be subject to meeting these particular standards of service. 87 . The CAA initially recommended a ‘Q’ factor for Heathrow and Gatwick under which the price cap would vary according to performance against a number of measures of service quality.0 27.1 25. BA.2 24. it was recommended that the airports should look at SLAs as a means to improving their quality of service. for example in the reviews undertaken in 1996–7. are shown in Table 4.7 15.0 14.5 18.4 16.6 21. However during each five yearly regulatory review of BAA London airports and Manchester airport. there was no formal regulation related to quality of service – although it was clearly recognized that a price cap could produce a strong incentive to cut service levels.8 26.0 23.3 23.).5 % arrivals delayed more than 15 minutes 26.8 12.2 15.8 21. BAA.

9 Proposed service quality elements to be included in the regulation of BAA London airports Initial views of key organizations: CAA BAA BA CAA draft recommended performance measure Target value: Heathrow QA Stand availability Jetty availability Pier service Fixed electrical ground power People movers Transit system Security queues Arrivals reclaim Runways Taxiways Departure baggage QP Departure lounge seat availability Cleanliness Way-finding Flight information QD Delay ($ to be used. On the other hand. with the rebates being purely negative with no reward to the airport for performance above the standard set. and pier service should be excluded because BAA did not undertake stand allocation. $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ % fully equipped availability % fully equipped availability % passengers pier served Serviceability vs agreed target % serviceability Cars available Waiting time 10 minutes Baggage carousel serviceability % serviceability % serviceability Measure excluded Monthly QSM score Monthly QSM score Monthly QSM score Monthly QSM score 98% 97% 90% 98% 98% N/A 95% 98% To be decided To be decided $ $ $ $ $ $ $ $ $ $ 3. It also argued that FEGP should be excluded because this was not covered by regulated airport charges. The maximum impact of these rebates was recommended to be 2 per cent of the regulated airport charge revenue initially increasing 88 .6 3. Subsequently.7 3.8 4. BA felt that the 3 per cent figure for the Q factor should be increased to as much as ten per cent but objected to the inclusion of the passenger measures primarily because they would come from the BAA’s own QSM which BA felt would bias the results. the CAA accepted the alternative Competition Commission recommendation of a system of rebates to users rather than price cap adjustments. BAA claimed that baggage measures would be unnecessary as incentivized agreements were being developed in this area.Managing Airports Table 4. In addition. BAA argued that the Q factor was unnecessary and queried the inclusion of the delay factor because it was difficult to measure and largely outside the control of BAA.0 To be decided not to be used) Source: Competition Commission (2002a) and Civil Aviation Authority (2003).

The monitoring concentrated on facilities or services provided by. To compensate for the lack of formal regulation.This was in order to prevent the airport operators underinvesting and lowering the quality of services provided. Canberra. or strongly influenced by. Australian Customs Surveys and Airservices Australia. Adelaide. to improve transparency of airport performance and to discourage operators from abusing their market power by providing unsatisfactory standards. The regulation reports of the airports showed the quality of service information which was provided through passenger perception surveys and they also published ‘static indicators’ as was required by the Airport Act 1996. Melbourne.1 and Tables 4. It stipulated that records had to be kept in relation to quality of service and that the ACCC should publish the results of the quality of service monitoring exercise (ACCC. the Australian Competition and Consumer Commission (ACCC). 1998b). 1998a).Service quality and its measurement to 3 per cent after 2 years. and Darwin) and decided that these airports would continue to have their quality monitored – although some changes to the detailed measurements have been suggested (ACCC. Post-privatization experience in Australia When the Australian airports were privatized in 1997 and 1998 (see Chapter 2). aprons. 2002). in 2002 the Federal Government replaced price regulation with price monitoring at the major airports (Sydney. The Airports Act 1996 provided for the regulator. It also made specific quality reporting requirements unlike the UK situation immediately after privatization. taxiways) than the terminal facilities.6). Brisbane airport has developed a new pricing regime with its airline customers which is a legally binding 5-year agreement.This could well have been an issue since the airports were not only having to produce commercial returns to satisfy private investors. Brisbane. Perth. a regulatory framework comprising a package of measures was introduced.The CAA and Competition Commission also decided on a system of rebates at Manchester airport which could be based on the new-style GSSs which the airport has developed (see Table 4. the summary results of this quality assessment for Brisbane airport in 2001–02 are presented in Figure 4. Part of this agreement relates to a service charter and 89 .The services to airlines measures would largely be based on the existing SLAs with the passengers services being based on BAA’s QSM. baggage trolleys. The airlines were generally more satisfied with the airfield facilities (runways. As discussed in Chapter 4. It was apparent that passengers were most satisfied with the gate lounges. the ACCC also undertook surveys among airlines. and security clearances.The CAA also decided that regular independent audits of the QSM should be undertaken to ensure that the methodology was in accord with best market practices and that representative samples were used. the airport operator. This covered aeronautical charges and financial accounting reporting. In addition.11. and least pleased with inbound government inspection and airport access. By way of illustration. but also were being faced with declining aeronautical charges because of post-privatization economic regulation (ACCC. the air traffic control agency. to monitor the quality of services against criteria defined by the ACCC.The quality-monitoring programme in Australia was introduced to assist in the review of prices at the airports.10 and 4.

and Singapore Airlines. Cathay Pacific Airways.10 Facility Runways Survey results of seven major airlinesa at Brisbane airport. Royal Brunei. Source: ACCC (2003). Qantas Airways. Japan Airlines. Eva Airways. Malaysian Airlines. 2001–02 Source: Australian Competition and Consumer Commission. Table 4.1 Passenger survey results at Brisbane airport. 2001–02 Aspect Very poor Poor Satisfactory 1 1 1 2 2 2 2 2 4 2 2 1 1 4 3 3 3 1 Good 5 5 5 7 5 5 6 5 6 3 3 3 3 3 3 4 3 3 6 Excellent 2 2 2 1 1 1 1 1 1 1 1 1 1 2 2 1 Availability Standard Aprons Availability Standard Taxiways Availability Standard Gates Availability Standard Aerobridges Availability Standard Ground service Availability Standard Flight equipment Availability Standard Check-in facilities Availability Standard Baggage Availability processing Standard Addressing airline concerns 1 Note: a Air New Zealand.Managing Airports Check-in Government inspection waiting time inbound Government inspection – customs and outbound Security clearance Gate lounges Baggage Baggage trolleys Flight information displays Washrooms Car parking – waiting time Car parking – standard and availability Airport access Airport access – space provided for taxis 66 68 70 72 74 76 78 80 Satisfaction level (%) 82 84 86 88 Figure 4. 90 .

Service quality and its measurement
Table 4.11 Indicator Number of international aircraft parking bays Number of aerobridges Percentage of passengers (embarking) using an aerobridge Percentage of passengers (disembarking) using an aerobridge Number of check-in desks Number of baggage inspection desks Number of inbound immigration desks Number of outbound immigration desks Number of security clearance systems Number of seats in gate lounges Capacity of outbound baggage handling equipment (bags per hour) Capacity of inbound baggage reclaim system (bags per hour) Throughput of the car park per year
Source: ACCC (2003).

Static quality indicators at Brisbane airport, 2001–02 Value 13 10 99.2% 99.1% 54 24 26 20 4 1 522 6 000 9 000 1 916 264

Brisbane airport’s continued commitment to the measuring of quality services along the lines of the ACCC monitoring.

Quality management at airports
At an increasing number of airports, measuring quality of service is just part of the overall quality management system which has become all about the continuous process of identifying customers needs, assessing their level of satisfaction and taking corrective action when necessary. All employees and all processes are considered to contribute to the long-term success of this system. Effective total quality management is now considered to be key element in many services businesses and is viewed as giving companies a competitive edge and a way to increase customer confidence. Potential benefits include increased employee motivation, enhanced communication and teamwork within the organization and increased productivity and efficiency. Theoretically, the ‘cost of quality’ does not have to be expensive as good quality management through quality appraisal and prevention schemes aim to minimize the costly situation when the service is unacceptable and has to be rectified (Lockwood and Wright, 1999). A wide range of different quality approached have been adopted by various airports. For example, in 1998 Nice airport launched a quality policy based on the European Foundation for Quality Management (EFQM) scheme of reference for their total quality management approach which was based on four priorities (Nice Cote D’Azur airport, 2002): 1 Objective quality indicators: 28 objective indicators were monitored each month and a quality representatives committee analysed all the services offered to passengers.
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Managing Airports

2 Customer satisfaction measures: Customer satisfaction measures were taken at least once yearly from passengers, airlines, on-site services providers and administration bodies, companies of the region, and local residents. 3 Quality certification: It was the objective to formally certify the quality system of various areas of the airport’s operation. In 2001, this occurred with the commercial flight handling, the passenger services and the access and parking areas. 4 Benchmarking and local airport quality committee: The local airport quality committee was set up to jointly promote quality and comprised of airlines, the chamber of commerce, government services such as the CAA, police and customs, shops, and rental companies. Working parties were established to report twice yearly to the committee with research and benchmarking results related to specific areas and to recommend improvements. A similar example to this airport quality committee is the Passenger Services Council which was established at Dublin airport in 2002. This is concerned with service standards for passengers, people accompanying or meeting passengers and other visitors. It has an independent chairman and members representing passengers, persons with special needs, business travellers, the travel trade, and the airport operator (Aer Rianta, 2002). In some cases, airports have chosen to certify their quality system and gain external recognition by using the International Standards Organization’s (ISO’s) ISO 9000 family of standards. ISO 9001 is the most comprehensive standard and it covers the following elements: management responsibility; quality system; contract review; design control; document and data control; purchasing; customer supplied product; product identification and traceability; process control; inspection and testing; inspection, measuring and test equipment; inspection and test status; control of non-conforming product; corrective and preventive action; handling, storage, packaging and delivery; quality record; internal quality audits; training; and servicing and statistical techniques. ISO 9002 does not include the design requirements. ISO 9003 has the least requirements as it concentrates very much on the final inspection and test. The ISO standard does not tell the airports how they should set up their system but simply gives guidance on the elements which should be included. Certification involves inspection by an independent registration body (ACI, 2000). There are diverse examples of services at airports which have been certified. The Milan Airport company SEA had its ramp operations and baggage handling certified with ISO 9001 in 1997, followed by the security and emergency areas in 1998 and cargo areas in 2001. In 2001, Marseille gained ISO 9001 certification for its public reception and information centre, its operations co-ordination centre and its technical co-ordination centre whilst Geneva was similarly accredited in 2001 for its operations, passenger and security divisions, Frankfurt airport has ISO 9001 for its handling services, whilst Singapore airport has it for its training processes. Vienna airport was the first airport to receive ISO 9001 creditation for the total organization. More recently in 2002, Sharjah is an example of an airport which has been accredited in many areas of operation namely ground handling; management information systems; travel agency; freight handling; administration and commercial; aircraft maintenance, engineering and development; purchasing control stores; and ground services, equipment and vehicle maintenance. Examples of
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Service quality and its measurement

ISO 9002 accretitation include centralized technical management at Brussels airport, the aircraft noise monitoring system at Aeroport de Paris (AdP) and the emergency services at Singapore airport. The ACI survey of quality of service asked airports about whether they had any ISO certification for their services. Out of 120 airports, only seventeen had ISO certified services – 10 of which were in Europe. ISO 9002 was the most popular. A further 24 airports were planning to be certified in the future. Four airports had equivalent quality systems such as the Malcolm Baldridge Award in North America but the majority, 75, of airports had no services certified. Another survey of the top 200 busiest passenger airports found a fairly similar result – namely that 23 per cent of the airports had quality certification (Francis et al., 2002). There is a considerable debate as to the merits of becoming ISO certified. As well as giving external recognition and guarantees, certification is often thought to help improve the quality management system of an organization by clearly identifying roles, responsibilities, and processes within the business and encouraging a quality culture. However, the certification process is a costly one, requiring much paperwork and extra workload. For example, when Munich airport was preparing for certification of its terminal and passenger services department in 1998, it prepared a very detailed 104-page quality manual which identified all the responsibilities and processes associated with the 214 employees within the department to do with activities such as information services, telephone exchange, VIP special handling services and other services such left luggage, dry cleaning, sale of underground train tickets, and so on (Penner, 1999). One of the fundamental principles of the ISO certification concept is that every process should be written down and regularly updated. This procedure is often criticized as being more suitable to the manufacturing industries, where it originated, rather than the services industries where many process are more difficult to formally identify and more flexibility is preferred.

Total quality management at Vienna airport
Vienna airport is a partially privatized airport which handled nearly 12 million passengers in 2001 (see case study in Chapter 2). It is worthy of consideration in relation to quality issues since it has been a leading airport in the implementation of total quality management (TQM) systems. In 1995, it was the first airport in the world to gain ISO 9001 certification for its entire airport operations. This required the culture of the airport company to be changed. The TQM philosophy, such as the focus on customer and employee satisfaction and the continuous improvement of all airport processes, was communicated to all staff through a series of training courses, workshops, meetings, and informal discussions. In 1997, the airport re-organized its processes to be more focused on customer needs and efficiency. This entailed introducing a new organizational structure. One of the central service divisions or corporate units, which supported the business and service units of the organization, was made responsible for TQM. The TQM corporate unit was to be involved with supporting the management board, heads of departments, middle management and all staff in achieving their quality-related goals.The overall quality policy and evaluation of the quality management systems, 93

Managing Airports as with all total-quality focused companies, was given highest priority and was made direct responsibility of the management board. In addition, TQM co-ordinators were appointed to each business, service and corporate units to facilitate communication with the TQM unit and to look after the quality management system in their area of expertise. A number of different elements are incorporated into Vienna airport’s TQM model and corporate philosophy. An effective targeting system is considered crucial for all employees. The airport aims to keep all employees informed about the targets, such as how and why they were formulated and current progress, through various communication channels including the airport’s intranet. In fact, staff knowledge of all TQM developments is considered to be very important and the airport uses a variety of different methods for communicating information – ranging from the intranet and TQM newsletter to TQM workshops and annual forums. Within TQM philosophy, a high degree of staff motivation and satisfaction is considered to be essential. With this in mind, a nursery is available for employees’ children and free transport is provided to Vienna and surrounding towns. At Vienna airport, a staff satisfaction survey in 1998 found that 29 per cent of staff felt that they had enough information to be able to do their job well and 35 per cent were satisfied with the work routines in their department.Twenty-eight per cent felt that ideas regarding an improvement of the working situation were suitably appreciated by their managers. The survey was used as a starting point for more extensive surveys and for target setting (Kotrba, 1999). A target of 50 per cent of employees being highly satisfied or satisfied with communications, work processes, and appreciation of their ideas was set for 1999. Some targets have been exceeded, for example, the ‘work processes satisfaction’ score was 55 per cent in 2000. In 2001, another target was reached, namely that 50 per cent of employees believed that work flows with other units in the organization were good or very good.This annual employee survey is considered to be a crucial tool for informing management about levels of staff motivation (Vienna Airport, 2002). Another important feature of Vienna airport’s approach is the processes which it uses to find out about its customers and their needs and requirements. It started regularly interviewing its passengers in 1995 with two main surveys. First, there is the ‘Passenger Map’ which collects passenger profile information related to characteristics such as age, sex, residence, mode of transport to the airport, transfer details, ticket used, time spent at the airport, services used, and purchasing patterns of departing passengers. The airport also undertakes a quality monitor in which passengers have to rate their opinion of airport facilities and services. In addition, every other year the airport undertakes a ‘conflict detector’ which helps investigate, from a passenger viewpoint, the relative importance of facilities and services and to identify any conflicts which exist. Information from these surveys is also supplemented by ad hoc surveys of meeters, greeters and employees at the airport and regular feedback from other businesses at the airport. The results of this market research are used to analyse passenger and other customer requirements, define target groups, identify problems areas, support product development, and to set quality targets (Pongratz, 1999). Another way in which the airport has tried to improve its emphasis on customer orientation has been in encouraging its customers to get involved in the planning of future developments at the airport – so-called ‘customer imagineering’ or the airport’s ‘one step ahead’ approach. A prime example of this policy has been with 94

Service quality and its measurement the development and expansion of the terminal, the VIE Skylink terminal. The airport has worked very closely with Austrian Airlines to define requirements for the expansion of the terminal and to ensure that the new facilities will enable Austrian Airlines to use the airport as a hub by offering quick and efficient transfers. This co-operation was based on joint overall responsibility between the airport and airline with a mixed steering committee, mixed working groups and equal status project managers. Phase 1 involved two working groups ‘Traffic Development’ and ‘Visions’ preparing the groundwork for the future project work by considering forecast traffic levels and the activities and functions of the terminal and how these would affect the design. During phase 2, six other working groups, ‘Airside Operations’, ‘Terminal and Aircraft Handling’, ‘New Information Technologies’, ‘Non Aviation’, ‘Working with Authorities’, and ‘Ecology and Infrastructure’, then worked out the detailed requirements on the basis of the results from phase 1, which eventually led to the selection of the design of the terminal extension. The planning and construction stages are also being co-ordinated jointly by Vienna airport and Austrian Airlines. As regards external standards, Vienna airport was ranked second in the category for airports up to 15 million passengers, eighth overall with all the 48 airports included, and first in the availability of connecting flights category in the IATA 2001 quality of service survey. Its on-time performance for intra-European services in 2001 was also above average (see Table 4.7). In addition, the airport undertakes it own quarterly passenger survey, the Terminal Performance Index and business-to-business surveys with its other customers and tenants. For example, from this it was observed that in 2001, 68 per cent of rental tenants were very satisfied or satisfied with personal attention. (Vienna Airport, 2002).

References and further reading
Aer Rianta (2002). Passenger services council to be established, Press release. Airports Council International (ACI) (2000). Quality of Service at Airports. ACI. Airports Council International (ACI) (2002). Activities and Achievements, September 2001–September 2002, ACI. Airport World (2002). Are we having fun yet? February–March, 45–6. Alder, N. and Berechman, J. (2000). Measuring airport quality from the airlines’ viewpoint. Fourth Air Transport Research Group Conference, The Netherlands, July. Association of European Airlines (AEA) (2003). Fewer airline delays in Europe in 2002, Press release, 13 February, 2003. Australian Competition and Consumer Commission (ACCC) (1998a). Economic Regulation of Airports – An Overview. ACCC. Australian Competition and Consumer Commission (ACCC) (1998b). Quality of Service Monitoring for Airport – Statement of the ACCC’s Approach to Analysis, Interpretation and Publication of Quality Information. ACCC. Australian Competition and Consumer Commission (ACCC) (2002). Draft Guide: Quality of Service Monitoring for Airports. ACCC. Australian Competition and Consumer Commission (ACCC) (2003). Brisbane Airport Regulatory Report 2001/2002. ACCC.
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Measuring service quality at airports. J. A. (2000). (1996). C. Civil Aviation Authority (CAA) (2002b). Civil Aviation Authority (CAA) (2000b). CAA. (1998). G. Airport–airline agreements: what is the way forward? University of Westminster/Cranfield University Airport Economics and Finance Symposium. T. 5–6. (2002). Nice Cote D’Azur Airport Handbook. 96 . I. The Stationery Office. S. ANSConf Working Paper No. CAA. Kotrba. Civil Aviation Authority (CAA) (2002c). Prentice-Hall. Civil Aviation Authority (CAA) (2000a). CAA recommendations to the Competition Commission. The CAA Approach to Economic Regulation and Work Programme for the Airport Reviews. The development of performance indicators for airports: a management perspective. Civil Aviation Authority (CAA) (2003). March. Maiden. Penner. (2000).Managing Airports BAA (2002). (1992). ACI Europe Communique. Civil Aviation Authority (CAA) (2002a). Service level agreements. CAA. Gatwick and Stansted airports. ICAO. March. L. MMC. CAA. A Report on the Economic Regulation of the London Airport Companies. Le Marquand. Consultation paper. 37–45. and Fry. Eighth World Conference on Transport Research. (1999). 239–47. Pleasing the airport property customer. Monopolies and Mergers Commission (1996). Bologna. Maiden. Competition Commission (2002b). A report on the economic regulation of the London airports companies. Service quality proposals: specification of standards and rebates. University of Westminster Marketing and Market Research for Air Transport. Position paper. University of Westminster/Cranfield University Airport Economics and Finance Symposium. 8. Lemer. Consultation paper. Competition Commission (2002a). How BAA uses its market research. 85. Francis. Consultation paper. London. CAA. CAA proposals for consultation. Monopolies and Mergers Commission (1997). C. MMC. Delivering quality in a globalized market. June. Antwerp. and Wright. The benchmarking of airport performance. CAA proposals for consultation. Ninth ACI Europe Annual Congress. (1999). Civil Aviation Authority (CAA) (2000c). Transportation Research. Humphreys. A report on the economic regulation of Manchester airport plc. Lemaitre. S (2002). Heathrow. London. Pisa. BAA London Airports: A Regulatory Report. Gatwick and Stansted price caps 2003–2008. Manchester airport. Journal of Air Transport Management. Nice Cote D’Azur Airport (2002). Principles of Service Marketing and Management. July. December. F. CAA. April. P. (1999). A Report on the Economic Regulation of Manchester Airport plc. Cruickshank. Heathrow. A. The Stationery Office. A. Consultation paper. ACI Europe Good Communication and Better Airport Marketing Conference. Terminal and passenger services certified according to ISO 9001. Measuring performance of airport passenger terminals. Annual Report 2001/2002. CAA. BAA.. Lockwood. July. Quality of Service Issues. International Air Transport Association (IATA) (2000). 26A (1)..

. 31–3. Airport World. Van Dierdonck. and Gemmel. Radia. 97 . B. Market research and total quality management at Vienna International Airport.. Annual Report 2001. and Morris. P. ACI Europe Communique. Vienna Airport. Van Looy. B. (2002). Vienna Airport (2002). July. P. Financial Times Management. 9–10. S.Service quality and its measurement Pongratz. R. Services Management: An Integrated Approach. (eds) (1998). (1999). A measure of success.

more than ever before. This reflects the increasingly commercial and competitive airport environment and the contemporary challenges faced .5 The airport–airline relationship The relationship between the airport operator and airlines is clearly fundamental to the success of any airport business. The sweeping changes which have occurred within the airline industry mean that airlines. the events of 11 September. with most revenue coming from a weight-based landing charge and a passenger fee dependent on passenger numbers. At other airports charging practices have become more complex and more market based. The structure of aeronautical charges Aeronautical charging traditionally has been relatively simple. are trying to control their costs in order to improve their financial position in an ever increasing competitive and deregulated environment. Moreover. This is having an impact on the aeronautical policies of airports and their regulation. All these issues are considered in this chapter. an ongoing problem is that demand is outstripping capacity at a growing number of airports and so the traditional mechanism for allocating slots has had to be revisited. Many airports still generate their aeronautical revenue in this way. In addition. 2001 have meant that airport charges have come under even greater scrutiny from the troubled airlines.

A fixed unit rate will favour smaller aircraft types since tonnage tends to increase faster than aircraft capacity or payload. most airports tend to stick to a very simple fixed unit rate. Very few airports have adopted a movement-related charge which clearly will tend to be very unpopular with airlines flying small aircraft types. namely Menorca and Ibiza. Landing charges Most airports have a weight related landing charge based on maximum takeoff weight (MTOW) or maximum authorized weight (MAW). Frankfurt airport has a minimum landing charge set at 35 tonnes. It will also benefit airlines which have high load factors or seating capacities. Toronto.g. Some other airports also have differential landing charges by season or time of day to reflect peaking of demand. the airport attempted to introduce a movement-related element into its landing charge. Sometimes charges for air traffic control (ATC) 99 . This simple method is used at many airports throughout the world including the US and Australian airports. This charging mechanism uses ‘ability to pay’ principles. increase their landing fees slightly in the summer months. and Copenhagen. Some costs such as runway wear and tear do increase with weight and also larger aircraft require vortex separations. for example. Overall. For example. In the United States. many of the German airports. however. Kuala Lumpur and the Italian. which can reduce the number of aircraft movements during a certain period. Dublin airport has differential charging by both season and time of day. and rising security costs. and Indian airports. At other airports. Spanish. At a few airports. particularly at congested airports. the unit rate increases for larger aircraft. A flat rate landing charge for all aircraft types may be more appropriate. For example.The airport–airline relationship by airports such as the growing pressure on facilities. Mexico City. there is not a strong relationship between aircraft weight and airfield cost. Some airports have a unit landing charge which declines as the weight of the aircraft increases such as Manchester airport. One such airport which was experiencing acute runway congestion in the late 1980s was Boston Massport. Each aircraft movement will consume the same resource. in Greece (excluding Athens). Some of the Spanish airports. since airlines using larger aircraft are in a better position to pay higher charges. Vienna airport has a large fixed movement element in its landing charge as well as a variable fee. BAA plc’s fixed landing charge for all aircraft only applies to peak early morning and evening flights in the summer. but have made an attempt to charge the smallest aircraft more to encourage general aviation traffic particularly to move away from congested major airports. As a result of this. the variable rate successively increases and decreases as the weight of the aircraft rises. for example. The simplest method is to charge a fixed amount unit rate (e. US$X per tonne) regardless of the size of the aircraft. This is because the cost of occupying the congested runway is movement related and independent of aircraft size. but was forced to abandon such a policy when its airline and general aviation customers questioned the legality of this in the law courts. Düsseldorf at 32 tonnes. and Brussels airports have higher charges in the early morning. environmental concerns. Notable exceptions are Heathrow and Gatwick airports which have a fixed runway charge at peak times. Brussels. Other airports have not gone this far.

2000a). By 2002. This will naturally favour the established home carrier at the airport and European airports particularly have been subject to considerable criticism from the European Commission concerning such policy. and Korean airports. with the notable exception of Zürich and Geneva airports in Switzerland and the Stockholm airports of Arlanda and Bromma which introduced emissions charges in the late 100 . the landing charges are higher at night. Chapter 4 classifications will come into force in 2006 – see Chapter 9. Switzerland and Belgium. ACI-Europe. The International Air Transport Association. the airport operator may levy a separate charge. is strongly opposed to such practices (IATA. which are comparatively expensive to operate. As a result by 2002 all EU airports had discontinued such discounts. more standard ICAO ‘chapter’ classifications are used. Elsewhere. Airports may adopt different sub classifications within the chapter 3 group. related to the weight of the aircraft. all EU countries had abandoned such practices (TRL. like the landing charge.Managing Airports or terminal navigational facilities will be incorporated into the landing charge. There are currently three classifications: chapter 1 aircraft which were banned from airports in 1990. there is no logical cost rationale for this since each aircraft movement. the airline will pay the air traffic control agencies direct and the airport operator will not involved in the financing of ATC services at all. ‘base’. Brussels and Macau airports and those in Spain and Portugal. The European Commission has been against landing charge differentials for domestic and intra-EU traffic claiming that they are contrary to the principles of the Single Market and recently exerted pressure on Finland. regardless of the size of the airport. and chapter 3 aircraft which are the quietest aircraft. Manila. Sometimes such services will have a social role in linking together regional communities and so in effect the discount will be an unofficial subsidy. the airline organization. for example. There may be a cost rationale for such charging when the noise related revenue is used for noise protection and insulation projects but this is not often the situation. and Portugal which had such policies. This is not a cost-related charge since the cost to land an aircraft is independent of its origin. Most airports in Germany have chapter 3 ‘bonus’ or ‘non-bonus’ aircraft. Clearly. Alternatively. Sweden. 2002a). and ‘high’ categories. A growing number of airports have noise-related surcharges or discounts associated with their landing charges as a result of increasing concerns about the environment. have traditionally offered a volume discount on the landing fee. At a number of airports such as Brussels. Typically this charge will be. imposes the same costs on the ATC infrastructure. domestic or short-haul services have traditionally paid a reduced landing fee. In addition to noise disturbance effects there are increasing concerns about the impact that aircraft emissions are having on the environment (see Chapter 9 for a fuller discussion). whereas at London there are ‘minus’. and those in Germany. Some of these are based on airport or country specific aircraft acoustic group classifications as is the case with airports in France. Seychelles. At some airports. chapter 2 aircraft which were banned in 2002 from most countries. Italian.) This is the practice at the German and London airports and those serving the cities of Stockholm. Oslo. At other airports. Sometimes there is a separate noise tax as well as is the case at the French. and Oslo. As yet this has not been reflected in airport charges. Spain. Italy. it tends to exist to support local and regional services. (These classifications are based on the level of noise which aircraft make and the areas on the ground which are affected by the aircraft noise. A few airports. Instead. 2001.

that domestic passengers have less potential for generating commercial revenues and hence do not justify the lower passenger charge. They may be paid for by the government via general taxation or via a special government departure tax. Since 11 September. In many cases responsibility may be shared between these different bodies. It can be argued. and very often will not need check-in. 2001. Tokyo. however. In Europe. The provision of security services may be performed by the airport’s own employees. and Luton airports in the United Kingdom which charge more in the summer. At most airports. and Taipei) to encourage this type of traffic. In the United States. transfer passengers still require facilities such as baggage handling and may require special facilities in order that a rapid transfer is achieved. such policies are often maintained to subsidize the national carrier which has a large domestic operation. business. namely domestic. On the other hand. neighbouring countries are charged less. Dublin.The airport–airline relationship 1990s. and immigration facilities either. Frankfurt. Passenger charges Passenger charges are the other main source of aeronautical revenue. Passengers at London City airport pay more in the morning and evening peak times. regional. Manchester.g. and international. Vienna. security. or waive the fee completely in certain circumstances (e. and international charges. The French airports have three types of charges. or by private company under contract to the airport. there tends to be a lower charge for domestic passengers to reflect the lower costs associated with these types of passengers. Helsinki. or a government agency. Pakistan airports have different fees for passengers who are travelling first. This results in different systems being in place to finance the security measures. the responsibility for airport security has passed from 101 . As with the landing charge in some cases. EU. A lower transfer charge can be justifiable on cost grounds as such passengers will have no surface access requirements. Amsterdam. These charges are most commonly levied per departing passenger. the airlines. Stockholm. Historically. will not have associated meeters and greeters. there may be political or social reasons for keeping down the cost of domestic travel as well. or economy class. In India. such as East Midlands. At Zürich airport there is even a noise charge related to passengers! Security charges The responsibility for the provision and financing of airport security varies considerably from country to country. Some other airports also have differential charges to reflect peaking. there have been signs that the European Commission would like to harmonise the ways in which noise and emissions charges are levied although as yet there has been no direct action in this area. and Copenhagen). Similarly Johannesburg airport in South Africa has domestic. A number of airports charge a smaller fee for transfer passengers (e.g. In other countries security costs may be financed directly by the airport operator who will have a special security charge or include it in the passenger charge. the whole issue of airport security has become a top priority and many airports throughout the world have been enhancing security levels.

First.Managing Airports private security contractors to federal employees after 11 September. such as BAA plc’s London airports. Manchester. There a few notable exceptions. Sometimes. and other airport specific activities. on aircraft wingspan as in the case of Singapore. Malaysia. Malta. For those airports which have a 24-hour charge. There may be additional charges related to services such as fire-fighting. sometimes. Most airports have a free parking charge. 2002b). with a US$2. Oman. there are the fuel charges which are levied by the fuel companies which are normally independent of the airport operator. storage facility. BAA plc’s airports charge per quarter hour and during peak times each minute counts as three. Finally. at the French and Italian airports there is a lighting charge. have no free parking charge to encourage the airlines to minimize turnaround time. such as Brussels and Amsterdam. A few airports. Houston. other airport fees. and some US airports such as Boston. have increased their security charge. there is the parking charge which is usually based on the weight of the aircraft or. There may be a lower fee for all-cargo aircraft. which have already been discussed. they pay landing and passengers and. the governments have covered some of the additional costs (ACI-Europe. as an alternative to the passenger charge. sometimes. as is the case at Amsterdam airport. First. and Miami. such as Amsterdam. such as certain Middle Eastern airports like Abu Dhabi 102 . typically ranging from 1 to 4 hours to allow the airline to turnaround at the airport without incurring any charges. There may be other charges for certain facilities or services which airports choose to price separately rather than including in the landing or passenger charge. Vienna. The European Commission is keen to harmonise the provision and financing of security services to produce equity within Europe and ensure that airports can compete fairly with US airports (see Chapter 10 for full details).50 charge per passenger to cover some of the increased costs of this and other enhanced security measures. There is normally an hourly or daily charge with. Elsewhere. 2001. a rebate for using remote stands. perhaps. there may be an air-bridge fee typically charged per movement or based on the length of time that the bridge is occupied. Then there are ground handling fees which the airport operator may levy if it chooses to provide some of these services itself rather than leaving it to handling agents or airlines. Other charges There are also a number of other charges which tend to be fairly small compared with the landing and passenger fees. and the Canadian airports. Düsseldorf. there are cargo charges based on the weight of loaded or unloaded cargo as is the case at the Spanish and Swiss airports. At other airports. Ground handling and fuel charges Airlines incur three types of charges when they use an airport. or a higher charge as at Belfast International or the airports in Cyprus. Frankfurt and Hong Kong. a number of airports. there is clearly no incentive for airlines to make the most effective use of the apron space. hangar use. In Europe. For example.

a ‘Tourism Tax’. such taxation is just used as means of supplementing general government taxation income from other sources. a departure tax Table 5. Elsewhere.The airport–airline relationship where the fuelling is provided by a government agency.1 Main aeronautical charges at airports Charge Common basis for charging Weight of aircraft Included in landing charge or based on weight of aircraft Included in landing charge or based on aircraft movement Departing passenger Included in passenger charge or based on passenger numbers Weight of aircraft per hour or 24 hours after free period Different charges for different activities Volume of fuel Departing passenger Income to airport operator? Yes Sometimes Yes Yes Yes Yes Sometimes No No Landing Terminal navigation Air-bridge Passenger Security Parking Ground handling Fuel Government taxes 103 .1). apron buses. In some cases there may be just one or two charges that cover everything. Jamaica. The Republic of Yemen has a ‘Development Tax’. and so on. ground power. whereas elsewhere there may be a multitude of individual fees. Mexico City has a tourist tax on international arriving passengers and a number of other countries such as Malta. and Pakistan impose a tax on departing passengers. 1998). Sometimes these taxes may have a travel-related objective as is the case with a number of taxes in the US or Australia where some of the tax directly funds the national tourist board. and a ‘National Aid Tax’. until 2002 there was a tax to help national transport links. it is very difficult to distinguish between these government taxes or airport passengers charges as both are usually shown as ‘airport taxes’ on the ticket. This income does not directly go to the airport operator but does impact on the overall cost of the ‘turnaround’ from an airline’s point of view (Pagliari. aircraft cleaning. the scale of its operation at the airport in question. The taxes may also cover the provision of some security services. and whether other airports used by the airline are served by the same handling and fuel companies. For the passenger. In the United Kingdom. It is rare to find published data relating to handling and fuel charges. Further complexities occur since there are a variety of ways of charging for activities such as ramp handling. passenger handling. In Norway. Hence. all services at the airport can be offered to the airline in one overall package. These are usually negotiable and the agreed prices will depend on various factors such as the size of the airline. pushback. Government taxes There is one final charge which airlines or their passengers sometimes experience at an airport – government taxes (see Table 5.

in 2000 fares as low as £30 were on offer by low-cost carriers such as Ryanair and EasyJet to European destinations with one-third of this (£10) being the airport tax. especially from the new breed of low-cost carriers who complain that it is too large in proportion to the fares that are being offered. Singapore has relatively low charges in spite of having a good reputation for service as was illustrated in the IATA Global Monitor (see Chapter 4). There is a wide spread of charges (excluding taxes) ranging from less than 300 Euros at Dubai airport to over 5000 Euros at New York Newark. reductions in staff numbers. Since then there has been some discussion as to whether this tax should be substantially increased to reflect the environmental costs of the flight. The costs are divided between aircraft-related costs which include landing charges as well as ATC and air-bridge charges. passenger-related costs which include passenger charges and any security charges. For example. As a compromise. A more competitive airline environment and falling yields has forced airlines to focus on major cost-saving initiatives such as outsourcing. for example.1). and demanding that airports adopt such cost-cutting and efficiency saving measures themselves. 2001). so the figures do not take account of any discounts that may be available. if these exist. The situation changes somewhat when government taxes are included and Los Angeles takes second position. and pegging the level of wages. the low-cost carriers feel it would be fairer to base it on a percentage of the ticket price (Gill. These are all internal costs over which the airlines have a considerable degree of control. 2001. Kansai. This has been greeted with considerable opposition. in 2001. To overcome this problem. airlines have also been looking at their external costs such as airport charges. 1998). 1998). The impact of aeronautical charges on airline operations In recent years. 2001 combined with economic recession in the 104 . Dubai has not increased its charges for many years and reduced them after 11 September. Only published charges were used. A sample of 24 airports from around the world has been chosen. The level of aeronautical charges It is very difficult to compare the level of charges at different airports because of the varied nature of the charging structures. Moscow. comparisons have to be made by examining the representative airport charges for a Boeing 737 on an international route (Figure 5. Low airport charges may also be compensated for by relatively high handling charges as is thought to be the case. at Madrid airport (Air Transport Group. a differential tax system with different amounts for economy and business-class passengers was introduced. and government taxes. rather than raising their charges (Doganis. was introduced in 1994. The data was not sufficient to allow ground-handling and fuel costs to be added. and Athens. Reduced passenger demand and the poor financial position of airlines as a result of the events of 11 September.Managing Airports which goes directly to the treasury. However. airport charges have become subject increasingly to scrutiny from the airlines – particularly from the new breed of low-cost airlines in Europe. If such a tax has to be levied.

M Yo Aircraft related Passenger related Government taxes Figure 5.105 Charges and taxes (Euros) N ew 10 000 12 000 2 000 4 000 6 000 8 000 0 Source: Cranfield University.1 Aeronautical charges and taxes for an international B737–800 turnaround in 2002 at world airports rk os EW co R w SV O Ka ns a Lo At i s he An ns ge le s Am LA X st er da Bu m en os Ma Ai cau re s EZ E Li Lo sb o nd on n LH R Ab id M ex jan ic o Pa Ci ris ty C Se DG ou lI C N H el si nk Si i ng ap or e Ka ra H on chi g Ko R om ng e FC O M ad r Pa id Jo pe ha et nn e es bu rg C ai ro D ub ai .

Figure 5. Other short-term measures included Copenhagen reducing its landing fees by 10 per cent for intercontinental flights. postponed charge increases which had been planned and Hong Kong airport maintained the 15 per cent reduction in landing and parking charges which it had introduced in 2000 to strength its position as a major hub airport in the Asian region. charges went up. These charges account for around 13–14 per cent of all costs for carriers with short-haul and mostly domestic services. For the charter airlines of Britannia and Airtours.5 per cent reduction in total demand – although 106 . particularly to cover the increased security costs. In spite of this growing concern over the level of charges. Munich and Stockholm. which has a range of domestic and European services. They are least important when long-haul operations are being considered. Some airports lowered their charges in order to encourage the airlines to maintain or even grow their airport operations. British Airways. since the charges are levied relatively infrequently.and on other costs which might be incurred if operations were changed to avoid certain airports or airport charges. resulted in increased pressure from airlines and the airline organization.2 does. Dubai airport halved its landing charges. with a mix of long and short haul flights. airport costs generally represent a relatively small part of an airline’s total operating costs. Pilling and O’Toole. Singapore. Airport charges are the most significant for the charter and low-cost carriers as these airlines have minimized or completely avoided some of the other costs which traditional scheduled airlines face. on airport operators regarding the level of charges. Only landing and passenger charges are shown and so these figures do not represent the total turnaround costs for the airlines. Most low-cost airlines operate short sectors which means that they pay airport charges more frequently. Charges for the low cost carriers are around 8–9 per cent but this share would be higher if it was not for the fee discounts which are obtained at various airports. in 2002. however. would outweigh the impact on costs due to the airport charges. has the lowest share of costs at around 4 per cent. and 15–23 per cent. However. 10. A study of UK traffic suggested that a 50 per cent increase in all airport charges would only result in a 7. 2002). For most airlines the impact on demand. (Pilling. the airport charges represent around 20 per cent of total costs. It is hardly surprising that it is this type of airline which has been most active in attempting to bring down their airport costs by negotiating incentive deals at airports or operating out of secondary or regional airports which have lower charges. Amsterdam. show the situation for UK airlines. 2002. such as British Regional and Brymon. This share is double for British Midland. it is difficult to see how airport charges can have a major impact on airline behaviour. In fact in some cases increases in security charges at airports had the effect of cancelling out all or at least some of the reductions in the normal charges as was the case at Amsterdam airport for example when reduced landing charges were introduced at the same time that security charges were increased. Accurate international figures illustrating this are difficult to obtain because many airlines do not now report the passenger fee as an airport charge and very often the airport charges may be combined with some other cost item.5. in a general sense. respectively. and Athens airports reduced their landing charges by 4. for example. Cyprus airports temporarily waived landing fees for all flights and the Moroccan airports waived them for all charter carriers. IATA.Managing Airports United States and various other countries in 2001. At other airports. For example. Other airports.

will pay the price for using it. 2000 Source: CAA airline statistics. pay for the peak capacity infrastructure costs. The airport operator faced widespread opposition from the airlines. 2000). If the airline were to shift operations to outside the peak period. In theory marginal cost pricing leads to the most efficient allocation of resources as only the users. particularly the US carriers. In practice such pricing policies are complex and very difficult to implement. these schedule constraints coupled with the fact that charges make a relatively small contribution to airline total costs. which are generating the peak demand. and a peak passenger and parking charge based on marginal cost principles at Heathrow and Gatwick airports. In effect. Most peak pricing has very little impact on airline operations other than making it more expensive for airlines to operate in the peak. airport curfews and environmental restrictions. Peak charges have been introduced by some airports to make the airlines. It proved to be ineffectual in shifting any demand largely because of the scheduling problems already described. crew availability. BAA plc introduced a peak surcharge on runway movements on certain summer days. peak profiles at other airports. who value a facility at least as much as the cost of providing it. They have also been used with the intent of shifting some of the peak operations into the off-peak.2 Landing and passenger charges as a share of total costs for UK airlines. mean that demand is fairly inelastic to changes in airport fees. and so on. to such 107 . the impact on passenger behaviour also tends to be marginal since generally the different airport charges tend to be averaged out. In the 1970s.The airport–airline relationship Share of total costs (%) 25 20 15 10 5 0 o G t Je sy Ea sh d iti an Br idl M sh s iti ay Br irw A ym Br s ur rto Ai ia nn ita Br l sh a iti ion Br eg on R Figure 5. this could well mean that the peak is merely shifted to another time. This is unlikely to occur unless the differential between peak and off-peak pricing is very much higher than current practice. it has abandoned the more complex peak passenger charges. but also because the charging system was so complex that it was very difficult for the airlines to react. clearly the effects will differ according to both airport and traffic characteristics (DETR. Moreover. Airline scheduling is a complex task which has to take into account factors such as passenger demand patterns. While BAA plc has retained the landing and parking peak charge. BAA plc is the only airport operator to have used a peak pricing charging system based on a detailed assessment of marginal costs.

At Norwegian airports. Such discounts have. IATA remains opposed to peak pricing as it feels that it could lead to discriminatory practices and could be ineffective in addressing capacity problems (IATA. which probably represented around 1 per cent of an airline’s costs in most circumstances.2). Between 1994 and 1999.6 per cent in the same year although. the typical fee surcharge for a chapter 2 aircraft in the 1990s was about 20–25 per cent of the normal landing fee. the airline will pay very little. This is due to the existence of airport incentive schemes or discounts. It is equally as difficult to influence an airline’s choice of aircraft as it is to shift their schedules by using pricing mechanisms. for a 120-tonne aircraft. Aer Rianta. These are most likely to be offered at smaller airports which want to encourage growth and provide inducements to airlines which might otherwise not choose to use the airport. Of course. 1994). An airport charging policy probably has its greatest impact on airline operations when new routes are being considered – especially when being operated by lowcost airlines or on short regional sectors. To have any meaningful impact the surcharge probably should have been at least double the equivalent chapter 3 charge. the Irish operator had one of the most complex published discount schemes in existence (Table 5.Managing Airports charges which were considered discriminatory. the chapter 2 landing surcharge was 6075 Dutch guilders per landing compared with a basic runway charge (landing and take-off) of 2290 Dutch guilders. the airports are now effectively full in most hours and so the concept of the peak hour has become far less relevant. BAA plc claims that the new policy takes into account both economic pressures and the preferences of its airlines (Toms. At many airports. One of the most popular methods is to waive or reduce the landing fee in the first few years of operation so that the airline only pays for the passengers it carries. Between 1995 and 2000. In reality. In general. In the first year of operation. This has been particularly the case when there have been a number of neighbouring or equally suitable airports from which to choose. More sophisticated approaches include that of Belfast City airport which introduced a dual charging process in 1993. Amsterdam airport increased its surcharges for chapter 2 aircraft between 50 and 100 per cent every 6 months. If demand at the start of a service is initially low. incentive schemes are not always popular with all airlines – particularly the full fees paying ones who may be unhappy about effectively subsidizing the new carriers. BAA and the US airlines finally resolved their differences through international arbitration which required BAA to phase out the peak passenger charges. clearly. As a result chapter 2 aircraft at the airport reduced from 15 per cent in 1999 to 0. This was too insignificant alone to alter a carrier’s choice of equipment (Dennis. which reduced over 108 . discounts on both landing and passenger charges are available for new international services. been a critical factor when low-cost carriers are selecting suitable airports for their operations. 2000). Airlines themselves could choose to come under a conventional charging structure or be charged an inflated passenger fee but with no landing charge. This means that the airport will share more of the risk when the airline is developing the route. In 2000. 2000c). in many cases. 1996). some of this fleet replacement might well have happened without such a charging policy – particularly with the banning of chapter 2 aircraft within Europe from 2002 (see Chapter 9) (Schiphol Group. The airport operator gave discounts on new routes and growth on existing routes. there may be nothing to pay with the discount tapering in the second year to 70 per cent of the first year’s discount and to 40 per cent in the third year.

9 16.7 40.The airport–airline relationship time.8 28. 1995 1996 1997 1998 1999 80a 70 80 60 70 90 50 60 90 90 90 40 50 70 90 90 90 80 80 90 30 40 70 70 90 90 90 Table 5.6 3. After 11 September.0 32. and parking fees Note: a Passenger fees only. largely in preparation for the demise of EU duty.7 30.3 Discounts given to each airline at Aer Rianta airports. Various airlines.7 45.7 11. benefited significantly from this scheme – particularly because of the short-haul nature of their services and the price sensitivity of their leisure passengers (Table 5.4 9.8 7. 1999 2000 2001 (to Oct) 32. 1994–9 on airport fees Discount rate (%) 1994 New growth – landing and passenger fees 93–94 growth 95–94 growth 96–95 growth 97–96 growth 98–97 growth 99–98 growth New route – passenger. especially Ryanair. Source: Aer Rianta.3 109 .8 21.3 8.0 6.2 44.6 13.7 4.5 14. Aer Rianta terminated their discount scheme at the end of 1999.5 50.0 29.and tax-free sales.0 2.4).3 34. 2001 new discounts schemes were introduced to stimulate new routes particularly at Cork and Shannon airports where the discounts were more generous and available for a longer time period (Table 5.6 23. Table 5.6 14. This was greeted with considerable opposition from Ryanair. airlines could be paying as little as 10 per cent of the standard landing and passenger charge. In the initial years.5 7.3).4 20. landing.2 New growth and new route discounts available at Aer Rianta airports.3 30. 1998–2001 % of initial calculated charges 1998 Dublin Aer Lingus Ryanair British Midland Lufthansa Shannon Aer Lingus Ryanair Cork Aer Lingus Ryanair Source: Doganis (2002).

2000a. in the United Kingdom. to pay for the financing of the new Athens airport.4 New route discounts available at Aer Rianta airports 2001–03 on passenger. Airports claim that pre-financing also avoids large increases in airport charges when the infrastructure comes on stream as was experienced at Narita and Kansai airports in Japan or was initially proposed at the new Chek Lap Kok airport in Hong Kong – but was not fully implemented because of fierce opposition from the airlines. some airports have introduced fees for prefinancing purposes.b). the regulator takes into account the fact that some pre-financing will take place when setting the appropriate level of charges. and parking fees Discount rate (%) 2001–02 Year 1 Dublin Cork/Shannon 100 for 3 years 100 for 4 years 100 100 Year 2 65 80 2003 Year 3 50 60 Year 4 0 40 Year 5 0 20 A particular area of concern for airlines as regards charging policies is crosssubsidization within an airport group under common ownership. A fundamental principle of the long established cost recovery policy in ICAO guidelines on airport charges is that charges should not be levied for any facilities until they become operational. there may be no certainty that the airport charges will be efficiently spent to provide new facilities. the airlines tend to be fearful that they will pay twice for the infrastructure. however. The recommendations do. 110 . usually serving primarily domestic services. This typically occurs when a large international airport provides financial support for a smaller airport. that they should be supported by government funds instead (IATA. higher passenger fees were levied. Operators of airport groups argue that the individual airports need to operate as a system to make the most efficient use of resources and to produce cost savings. Another important issue is the pre-financing of future airport infrastructure through airport charges. A similar situation exists at some Canadian airports. with the growing commercialization within the industry and diminishing dependence on government sources for financing. landing. In Greece.Managing Airports Table 5. both before it is built and once it is operational (IATA. Moreover. in spite of airline opposition. 2000e). The airlines tend to be strongly opposed to such cross-subsidizing and argue that if the smaller airports really need financial help for social or economic reasons. In spite of these airline concerns. allow for airports to make a reasonable return on assets to contribute towards capital improvements. Pre-financing has traditionally not been an acceptable principle for a number of reasons. Also. The ICAO has acknowledged that. First. there is no guarantee that the airlines paying the charges will actually be the airlines which will benefit from the new infrastructure. 2000d). cheaper source for funding investment in addition to loans and equity which can also be used as security for raising extra finance (ACI. The most notable example is the United States where PFCs go towards future development projects. Elsewhere. for example. Airports argue that self-financing in certain circumstances can provide a useful.

The airport regulatory environment Airports are subject to a number of different regulations at both international and national level. however. On a worldwide basis. the 1944 Chicago Convention. This would only occur if there was adequate economic regulation. states that airport charges must be related to costs and should allow only reasonable profits. always opposed to the Commission’s 111 . ironically. Other economic aspects of operation such as handling activities and slot allocation are also regulated in some areas of the world. Bermuda 2. safety and security aspects of managing an airport. which established an international regulatory air transport system. The airports were. Then there is economic regulation with the main focus being on charge or tariff control. the airlines business is being progressively deregulated. particularly from different countries. 2002a. cost relatedness and transparency (European Commission. were revised as a consequence of ANSConf 2000 and give greater flexibility as regards the use of non-aeronautical revenues (ICAO. They are. for example. being broadly related to average cost pricing combined with some market or ability-to-pay pricing. Such principles. Article 15 gives international authority for the levying of charges by ICAO member states and specifies that there shall be no discrimination between users. the UK/US bilateral air service. and then there were several different attempts to seek approval for such legislation. 2001). only guidelines and are open to different interpretations but nevertheless have generally led to fairly similar overall pricing regimes being adopted by most airports. The first proposal appeared in 1985. effective accounting practices and prior consultation with users to ensure that such financing was considered fair and appropriate (ICAO.b). 1992). This resulted in a lengthy dispute over Heathrow charges in the 1980s and 1990s between the US and UK governments with an eventual agreement in 1994 which provided for compensation of nearly $30 million in settlement (Competition Commission.The airport–airline relationship pre-funding could perhaps be considered for the future. The ICAO Conference on the Economics and Airports and Air Navigation Services (ANSConf 2000) therefore recommended that countries could consider prefunding through airport charges but only in specific safeguarded circumstances and this has been incorporated into new charging guidelines (ICAO. Overall. 2001). The final proposal had three basic principles related to non-discrimination. For example. The ICAO produces more detailed guidelines which have an overriding principle that charges should be cost related. 2000a). 2000a). provides a basis for airport charging. Many of these are technical regulations related to the operational. These environmental issues are discussed in detail in Chapter 9. the European Commission has proposed introducing an airport charges regulatory framework for the whole EU. In addition. Airport charges can also be subject to the international obligations of bilateral agreements. the economic regulatory interest in airports seems to be increasing at a time when. in principle. These also recommend that the charging system should be transparent and non-discriminatory and that consultation should take place between airport operators and their customers if changes are proposed (ICAO. Airports are also increasingly becoming subject to environmental regulations which may. restrict aircraft movements due to noise considerations or limit airport infrastructure development.

In general. there can also be some kind of control at a national level. and the maintenance of standards of service. By contrast the airlines were more in favour of the proposals (Clayton. particularly if the airports are privatized. 2 price cap regulation. the European Commission does still wish to harmonize policies related to environmental and security charges and eliminate other differences between charges which are seen as discriminatory and contrary to the articles of the Treaty of Rome such as the domestic: intra-EU service differentials and volume discounts which have already been discussed. They claimed that there was no need for such regulation since airports are adequately regulated by their own national governments and EC competition law. In addition to international regulation. Fifty-seven per cent of countries stated that charges were determined by the airport operator with government approval. 1997). A suitable review process also has to be established. the European Commission eventually decided to withdraw the proposal in December 2001 (ACI-Europe. it may be the government’s responsibility to set charges – perhaps after receiving recommendations from the airports. However after the proposal was blocked by the Council of Ministers for various political reasons. A considerable amount of effort was exerted by all interested parties in discussing the proposals – especially related to how to define cost relatedness. as is the case at Brussels airport. This has resulted in new regulatory frameworks being established at a number of airports. 2002a). the government was directly responsible for setting the level of fees to be charged (ICAO. the treatment of commercial revenues. what costs should be used as a basis for charge setting and the whole issue of self-financing. For the remaining countries. consideration has to be given as to the best incentives to encourage appropriate investment. Regulation of privatized airports The basic principles There are often serious concerns that airports with considerable market power will abuse this situation. Most airports still under public sector ownership usually need to seek government approval before changing their charging level or structure. the ICAO reviewed the situation at 76 member countries throughout the world. This has involved using regulatory authorities which are already in existence or creating new bodies specifically for this purpose. the level of charges may be automatically linked to the consumer price index. and a further 16 per cent of airport operators determined their charges independently. Elsewhere. there are four key ways in which organization with monopolistic characteristics can be regulated: 1 rate of return (ROR) regulation. their common purpose is to allow the regulated airports a reasonable rate of return on capital while providing the correct incentives for an efficient operation and an appropriate investment policy.Managing Airports plans. 112 . However. airport fees are considered as taxes and there are actual laws associated with them. In choosing the most suitable regulatory system. At the other extreme. In some cases this may be just a formality. In Italy. While the regulatory systems at different airports vary. The degree of control varies considerably at different airports. 2000b). In 1999.

individual users are permitted to set up alternative contracts with the airport operator outside the price cap condition if both parties are agreeable. 1998). alternative regulatory systems have been sought. in the United Kingdom where a number of the state utilities such as gas and electricity. 113 . It works by establishing a formula which provides a maximum price which can be set. The ROR mechanism. Typically. as well as other factors such as operational efficiency. forms of price setting and any specific infrastructure developments. Thus. Opponents to such a system. planned investment and the competitive situation. To ensure that this does not occur. In spite of this shortcoming. Such a method tends to be simpler to administer as companies can change their level or structure of prices as long as they still conform to the price cap without any justification from the regulator – which would be the situation with the ROR system. any efficiency gains which the regulated company can make in excess of the required X will directly benefit the company. or so-called cost-based or profit control regulation. Since there is no cap on the profit levels. A certain rate of return is established and price increases can only be justified when an increase in costs is incurred. This type of regulation was considered to be more favourable as it can provide the regulated company with incentives to reduce costs while simultaneously controlling price increases. to regulate natural monopolies. The operator will be guaranteed a certain rate of return irrespective of efficiency. Cost inefficiencies can be built into the cost structure which can be passed on to the consumers through increased prices.The airport–airline relationship 3 default price cap. which will only be discouraged by careful scrutiny of the regulator. the formula will be adjusted for inflation and an efficiency factor: Price cap CPI X or RPI X where CPI is the consumer price index. it provides no incentives to reduce costs. when setting the price cap. The aim is to prevent regulated companies from setting prices that bear no relation to costs. were privatized (Helm and Jenkinson. argue that price cap regulation is not actually an effective alternative to cost-based regulation since the regulator will take into account the rate of return of the company. price cap regulation has been the most popular approach adopted for privatized airports. 4 reserve regulation. however. While such a system can ensure that the prices are related to costs. the regulated company may still have an incentive to overstate the capital expenditure needed. Costs which are beyond the control of the company can be excluded from the regulation: Price cap CPI X Y where Y is the external costs. and X the efficiency gain target. However. is the traditional mechanism which has been used extensively. In the 1980s. price cap regulation began to be used – for example. for example. the regulator has to scrutinize carefully the financial operations and development plans of the regulated companies. unlike the ROR method. Such a system can also encourage over investment. in the United States and Australia. RPI the retail price index. Independent arrangements could therefore be established relating to levels of service quality. To overcome these shortcomings. A ‘default’ price cap system works by having a price cap which is available to all users.

the single till principles will tend to pull down airport charges. 2000g). most congested airports are likely to be in the best position to significantly offset commercial revenues against airport charges. 2001). In this case it is the threat of regulation. European Commission. Here the regulator will only become involved in the price-setting process if the airport’s market power is actually abused or if the company and its customers cannot reach agreement. 2001. the dual till concept treats the aeronautical and non-aeronautical areas as separate financial entities. 1992). some major concerns about this approach have been voiced (Starkie. 2000a. This is a difficult task because of having to allocate many fixed and joint costs between the 114 . are widespread. the airport industry argues that using commercial revenues to offset aeronautical fees prevents these revenues from being used to help finance capital investment. namely the single till approach when all airport activities are included. 2001). When airports are regulated using price caps. The rationale for the single till is that without the aeronautical activities. 2001). when commercial activities are used to reduce aeronautical charges. in theory. rather than actual regulation. negotiate this with the airport operator. Sometimes. There is less incentive to develop commercial operations to their full potential (ACI. In addition within Europe the airports argue that a single till approach is contrary to the European Commission’s White Paper on European Transport Policy which advocates the user pays principle (ACI-Europe. As traffic increases. Within the airport industry such single till practices. There are two alternative approaches. there would be no market for the commercial operations and hence it is appropriate to offset the level of airport charges with profits earned from non-aeronautical facilities. However. and focuses on the monopoly aeronautical airport services. The busiest. the X factor is established by just considering the aeronautical revenues and costs rather than the total airport operation. 2001a). 2000c). or to aid the development of better commercial facilities. In this case.Managing Airports Any users wishing for a different level of service could. decisions have to be made as to which airport facilities and services are to be considered under the pricing regime. Bringing down the airport charges for such scarce resources makes no economic sense. there may be a predetermined regulatory model which will become effective at this stage. which is used to provide an effective safeguard against anti-competitive behaviour (Toms. for the airport regulator the setting of the price cap will be a complex process which will involve a thorough investigation of both the aeronautical and non-aeronautical areas of operation. A further type of regulation is the ‘light-handed’ approach or reserve regulation. Such an approach has yet to be used but would clearly lessen the direct regulatory involvement (CAA. This may encourage growth and have the effect of increasing congestion and delays at the airport. In addition. Therefore. with so-called ‘shadow’ reserve regulation. The single till principles were traditionally accepted by the ICAO in its charging recommendations (ICAO. and the dual till approach when just the aeronautical aspect of the operation are taken into account. By contrast. This process could also allow for direct contracting for terminal facilities or up-front payment for specific facilities. These contracts could have different duration for different users. Yet it is these airports which need to manage their limited capacity the most. With the single till concept growth in non-aeronautical revenue can be used to offset increases in aeronautical charges. This is the justification which the airlines use in favouring such a system which is clearly likely to bring the lowest level of actual charges for them (IATA.

1997. The adoption of such ‘regulatory benchmarking’ is fraught with difficulties because of the extensive problems of comparability associated with such an exercise. replace an assessment of accounting costs as the basis for setting the price cap. This could lead to the setting of some charges below the marginal costs of the corresponding services. Companies might. 1996). The main choice is whether to use a revenue yield or tariff basket methodology. in theory. and their relative strengths have been fiercely debated by regulators and the industry. Both methods have their drawbacks. be encouraged to put the largest increases on the faster growing traffic since the weights used in the tariff basket are from a previous period. At the London airports it was calculated that the transfer from a single till to a dual till approach could mean that airport charges would have to be increased by 35 per cent (Monopolies and Mergers Commission. 2001). With the revenue yield methodology. the subjective nature by which some of the associated problems are overcome and the lack of general consensus as to the optimal method of benchmarking (see Chapter 3). With the tariff basket definition. CAA. 2000. additional costs related to improvements in the quality of service and a reasonable rate of return. Kunz and Ng.The airport–airline relationship aeronautical and non-aeronautical areas. ICAO amended its guidelines on charging in 2001 and states that it may not always be appropriate to use commercial income to offset airport charges (ICAO. This has already been used by the utility regulators for both England and the Netherlands (Burns. Alternatively. however. There has been some debate. There is also the fundamental issue that such an approach assumes 115 . In addition to establishing whether a single or dual till approach is to be adopted. however. the regulator must also decide how the ‘price’ element of the formula is to be set. such as inflating the asset base. As a result of the fierce debate of the merits of the single versus dual systems in recent years. as to whether industry benchmarking could have a much more active role in this process (CAA. Industry best practice could. In general the tariff basket approach is considered to give airports greater incentives to move to a more efficient pricing structure (Monopolies and Mergers Commission. however. which will include consideration of any proposed investment programme. 2001b). The revenue yield formula means that the predicted revenue per unit (usually passengers. 2000 d. provide airports with incentives to develop the commercial side of their business which effectively are uncontrolled. unlike with the single till approach when any development in the commercial areas may well be accompanied by a reduction in aeronautical charges. This would mean that the regulatory control would be independent of any company action inappropriately influencing the key variables used in the regulatory formula. benchmarking could be used much more as a cross-check to internal methods of setting the price. 2000 c). in the case of airports) in the forthcoming year will be allowed to increase by the CPI X or RPI X percentage. Clearly there is a major logical argument in not including commercial activities within the regulatory framework since they cannot be considered as monopoly facilities. The method does. estimating investment costs or assessing the scope for efficiency and service quality improvements. The tariff basket approach tends to be simpler since it operates directly on charges and is independent of any forecasts. 2000). It is common practice to set the price cap in relation to the average costs. the weighted average price of a specified ‘basket’ of tariffs or charges will be allowed to be raised by CPI X. an artificial incentive may be created to increase passengers to inflate the denominator in the definition.

Another area of major concern within any regulatory framework is often the quality of service (as discussed in Chapter 4). 2000). financial performance and future plans has been undertaken. Regulation examples In the United Kingdom. the initial regulatory framework which was set up when the airports were privatized included some formal service quality monitoring and reporting. both BAA plc London and Manchester airports have been subject to single till price cap regulation since 1987–8. This could be overcome. all regulatory requirements. there may be little incentive for the airport operator to optimize quality. Table 5.Managing Airports Table 5. defining service dimensions and attempting to adopt a standardized quality level is extremely difficult – particularly given the different expectations of different types of airlines and passengers. in theory.5 summarizes the airlines views about the airport regulation. although there are no explicit regulations until 2003. the approach has tended to drift 116 . overcome some of these problems. should only be agreed after close consultation with the airlines and there should always be an independent review process. argue the airlines. In practice. by ensuring that there are measures of congestion and delays to assess the adequacy of the airport facilities and by assessing passenger and airline feedback to determine the operational efficiency of the airport. understandably. Over the years. the operator could be able to soften the blow of the price control. in theory. The default price cap mechanism can. The review of service quality at London airports has played a major role in encouraging airports to consider entering into service-level agreements with their customers. The airlines are. When the regulation does not formally establish service standards or require an appropriate quality monitoring system. The other smaller regional airports do not have direct price control as they are not considered to have sufficient market power to warrant this. in favour of some formal regulatory process to guarantee that service levels are maintained (Competition Commission. At BAA airports service quality comes under close scrutiny during the review process. In Australia. 2002a).5 IATA’s criteria for airport economic regulation 1 2 3 4 5 6 7 The starting base charges to be set at an acceptable level Airlines to share the benefits of traffic growth and improved productivity Commercial revenues to be taken into account All charges to be regulated The regulation to be transparent and simple to understand and administer An effective and meaningful consultation process must be established There must be an independent regulatory review process Source: IATA (2000). More generally. whereas in reality they may be due to a number of other factors. The price cap is reviewed every 5 years after an extensive assessment of the airport’s operations. Only a very detailed assessment of the benchmarking data may be able to identify these factors (Shuttleworth 1999. In reducing the service standards at the airport. as outlined in Chapter 4. high costs are in fact the result of inefficiency.

For 1997–2002. namely the Civil Aviation Authority (CAA). Source: Centre for the Study of Regulated Industries (1999). A major impact of this single till regulation at the London airports has been that the commercial aspects of the business have been considerably expanded which has simultaneously led to a substantial reduction in real charges to airline users. being RPI 1 (Table 5. There is the sector regulator with detailed knowledge of the aviation industry. The revenue yield method has been adopted at these airports. 117 . the London airport formula did not take account of the loss of EU duty.6). During the second 5-year review period in the early 1990s the price cap was far more restrictive. At Manchester airport.The airport–airline relationship much more closely to a ROR method with very detailed consideration of the asset base and cost of capital – which tends to be one of the shortcomings of the price cap approach. airport changes still remained comparatively high which is one of the key reasons for the more restrictive price cap for the 1998–2002 period. in the 1991 review of BAA they had very different views on assumptions concerning the cost of capital which led to substantially different values of ‘X’ in the pricing formula being suggested until a compromise was eventually reached (Toms. the two bodies have not always been in agreement. a compensatory 15 per cent increase in charges over two years following abolition of sales was allowed. and the Competition Commission (previously known as the Monopolies and Mergers Commission) which is a very experienced more general trading regulator. At Manchester. The CAA then makes the final decision on the price cap after consultation with the industry and other interested parties. Instead.and tax-free sales in 1999. Initially the price cap was the same at all airports. the abolition was considered when setting the value of X. For example. The regulation process is somewhat complex because there are two regulators involved. These airports could allow most increases in security costs to be passed straight through to the airline. 2002). Initially 75 per cent of costs were permitted to be passed through with this percentage rising to 95 per cent after the first 5-yearly review.6 The ‘X’ value used for the UK airport price caps Airport X value (%) 1987–91 1 1 1988–92 1 1992–3 8 8 1993–4 3 1994 4 4 1995 3 1995–6 1 1 1996–7 3 1997–2002a 3 1 1998–2002 5 Heathrow and Gatwick Stansted Manchester Note: a The normal 5-year charging period was extended to 6 years because of the timing of decisions related to the possible development of Terminal 5 at Heathrow. Whilst the skills of these two regulators should be complementary. Table 5. particularly for the London airports. It is the Competition Commission which undertakes the detailed review of the airports’ operations every five years which then offers advice to the CAA concerning the most appropriate level of price control.

respectively. When there is a loss in traffic or no growth. Above growth of 11 per cent. Initially. However. In the first 2 years after private participation in the South African airports.Managing Airports The latest review of BAA and Manchester took place in 2002 for the years 2003–8 and again there were some significant differences in views between the two regulators. a slightly different approach has been adopted taking into account both inflation rates and traffic growth patterns. Hamburg airport also uses a sliding scale related to traffic growth with a dual till price cap regulatory system (Niemeier. 2003b).9 per cent suggested by the Competition Commission which the CAA felt could damage Manchester’s service provision and overall development as well as the emerging competition from other airports (CAA. It was also decided that at all the airports there should be rebates for users if certain service quality standards were not achieved.5 per cent to take account of £7. A number of the other privatized airports have a more relaxed regulatory regime. 2000b). 2002a. price cap regulation. Cork. Other airports which have adopted a similar price cap regulatory mechanism include those of Argentina and South Africa. 2003a). In Ireland also. 2003). 0. However this price cap was lower than the 8.b). the price cap was set at RPI 6.b). for instance. 2002a. in that there was a CPI X formula which also had a security element – but in this case 100 per cent of the charges were allowed to be passed through to the airlines and a dual till was adopted. For Heathrow. These airports are owned by the public sector Aer Rianta company which has considerable market power and handles over 97 per cent of all passenger traffic in Ireland (Hogan. a price cap of RPI 5 per cent was set which reflected the higher charges at this airport and the extra capacity because of the additional second runway. 2002). were set. to provide better use of existing scarce capacity and to enhance incentives to deliver capacity additions particularly at the congested London airports (CAA. In Copenhagen. prior to the Competition Commission’s review. the charges must decrease (WDR. The initial regulatory framework for the privatized Australian airports was fairly similar to that adopted by the UK airports. there is a set of guidelines which stipulates that the company is allowed to alter its charges in line with costs subject to the company ensuring that it continues to improve the efficiency of its operation. For 2001–02 and the following 4 years X values of 7. 6. When the annual traffic growth is up to 7 per cent the sliding scale is used with the permitted charge increases being less than the CPI. 2002). eventually the CAA decided that the single till should be retained – as this was the approach favoured by the Competition Commission and the users (Competition Commission. There is a sliding scale which protects revenues when there is slow growth. A considerable debate occurred related to the merits of the single versus the dual till (CAA. 6. At Manchester. At Vienna airport. was introduced in 2001 (and subsequently revised in 2002) for the airports of Dublin. while requiring productivity gains to be made when traffic growth is high. and 1.7. 1998). no increase is allowed. and Shannon (Commission for Aviation Regulation. the charges can be increased in line with the CPI. The 118 . aeronautical charges were allowed to increase at the same rate as inflation before an X value to increase efficiency was introduced. the CAA recommended a dual till approach to reduce the scope of regulation to just the core monopoly activities. 2001.4 billion investment needs (particularly Terminal 5) whilst at Gatwick and Stansted it was set at equal to RPI (CAA.4 per cent. The regulation is applied directly to the charges. If the growth is between 7 and 11 per cent. with different limits related to off-peak periods and cargo.

7 The ‘X’ value used for the Australian airport price cap for 5 years after privatization in 1997–8 Airport Adelaide Alice Springs Brisbane Canberra Coolangatta Darwin Hobart Launceston Melbourne Perth Townsville X value (%) 4. the Australian Productivity Commission was required to undertake a review after it had been in force for 5 years. The problems of inadequate investment under such regulation were also recognized and so provision was made for an upward adjustment to the price cap if approved investment was undertaken. Price surveillance was maintained at Sydney airport and at Melbourne. The Australian airports used the basket tariff rather than the revenue yield approach.7). 2001 and the collapse of Ansett. was larger for Brisbane than for Melbourne because Brisbane had higher forecasts (Table 5. The final report of the Commission was published in 2002 (Productivity Commission. It was recommended that price regulation should be replaced by a much more lighted handed price monitoring or surveillance approach although the price control could be re-introduced if the airports abused their pricing freedom. and Brisbane the price caps were adjusted upwards which allowed the airports to substantially increase their charges. for example. As in the United Kingdom.0 4. As a consequence in October 2001.0 4.5 1. 2002). The only major airport which was not controlled in this way was Sydney airport. Amongst some of the arguments used to support this change in regulatory approach (i. This price regulation of Australian airports was identified as causing a number of problems.0 2. X value was set with reference to a number of factors including traffic growth and.5 1. the Australian government suspended the price regulation at all but the four largest airports. reserve regulation) was the fact that the price 119 .e.0 5. which was not privatized when this regulation was introduced and was subject to a rate of return type of regulation which just involved the surveillance or monitoring of prices rather than more restrictive price control (Forsyth.5 3.0 3. particularly the requirement of detailed and cumbersome regulatory intervention if investment was planned and overall profit volatility. but the Australian regulatory framework had more formal conditions relating to relating to airport access and quality of service monitoring which did not apply to the UK airports. 2002 a).5 4. Perth.0 Source: Australian Competition and Consumer Commission (1998). Under the regulatory system.The airport–airline relationship Table 5. the price cap was set for an initial 5 years. Australia’s second largest domestic airline.0 3. These problems became acute with the events of 11 September.

this light-handed approach led to much conflict between the airport operators and users regarding the level of charges particularly at Auckland airport and in 2001 it was recommended that price control should be introduced at Auckland airport. Mackenzie-Williams. Moreover. Theoretically. namely Auckland and Wellington. Instead. 2001.4 million (Mackenzie-Williams. Slot allocation The steady rise in air traffic in most recent years has put increasing pressure on airport capacity. however. It is argued that most of the current regulatory systems are time-consuming. However. There is a view that given the fact that airports are operating in an increasingly competitive environment that they should no longer be considered as monopoly providers and consequently in the future more governments will move towards a more reserved or light-handed approach. the cost of regulation when BAA underwent its regulatory review in 1996 was estimated to be $US9. For example. throughout the world. Elsewhere. The legislation also called for the regulator to conduct periodic reviews to assess whether price controls were necessary. while timely capacity addition might provide a solution to this problem. were partially privatized in 1998. (Forsyth. 2001 and other events eased this pressure slightly at a number of airports but only for a short time. 2002a). bureaucratic. particularly runway capacity. The privatization legislation allowed for these airports and Christchurch airport to review their charges every three years but they are not subject to any formal price regulation. 2002 b). for example. There has in fact been considerable debate within the airport sector over the last few years as to which is the most optimal method of economic regulation to use. of using a single till approach at congested airports which may well give wrong pricing signals or with the difficult cost allocation decisions which have to be made should the dual till approach be adopted (Starkie. had produced poor financial results for the airports and was unnecessary as commercial pressures would ensure that the airports would not abuse their market power. 2002a). the Scottish airports in the United Kingdom are examples of reserve regulation practice and the Bolivian airports are a rare case of airports which are subject to shadow pricing. or financial constraints have meant that in practice this has not been a feasible or desirable option. where the abuse of market power was not considered to be such an issue (National Economics Consulting Group. The temporary relaxation of the pricing controls was subsequently made permanent and the airports have moved to a reserve regulation system. It is also claimed that the risks of abuses of market power are minimal and can be adequately addressed either through litigation or national competition law. This was not recommended for Christchurch and Wellington. a somewhat different development has occurred in New Zealand where the two main airports of New Zealand. attention has been focused on more short term solutions to provide some relief for the shortage of capacity both by consideration of capacity or supply-side 120 . it is asserted that economic regulation can bring its own economic distortions with the problems. The significant downturn in traffic in 2001 and 2002 due to the events of 11 September. 2002). in many cases environmental. and costly.Managing Airports cap system had been costly to administer. For the 2002 review BAA had 12 people working on this full time for 3 years and they produced over 700 different papers. physical. Interestingly.

Supply-side options aim to make more efficient use of existing capacity by improving ATC services and ground-side facilities. which number over 260. Demand management techniques consider the most appropriate mechanisms for allocating airport slots. These airports. In a climate of growing environmental opposition to new developments. The airline does not. the number of fully co-ordinated airports increased by 121 . 2 Fully co-ordinated: demand exceeds capacity and formal procedures are used to allocate slots. Thus the slot would not only be defined by a time period for arriving or departing. for example. have to use its slots for the same services each year and can switch them. but also by the stand. and terminal capacity that is needed and the share of environment capacity which is used (PricewaterhouseCoopers. schedules facilitated and non-coordinated airports. Preference is also given to airlines which plan to use a slot more intensively to make the most effective use of the capacity. which manages the slot allocation process. Airport slots are usually defined as an arrival or departure time at an airport – typically within a 15. The most important of these procedures is ‘grandfather rights’. such solutions may be politically more acceptable. and 3 classifications for fully co-ordinated. Peak charges would have to be considerably higher to ration demand or to be the equivalent to the market-clearing price needed to match supply and demand or ‘clear the market’. Each of the fully co-ordinated or level 1 airports has an airport co-ordinator. There is a view. priority would be given to an airline which plans a daily service rather than one which is less than daily or a service which operates throughout the season rather than only in the peak. As already discussed. are designated at two levels: 1 Schedule facilitated: demand is approaching capacity but slot allocation can be resolved through voluntary co-operation. This is as long as the airline operates 80 per cent of the flights – the so-called slot retention requirement or ‘use it or lose it’ rule. in all parts of the world except the United States the mechanism for allocating slots is industry self-regulation by using IATA Schedule Co-ordination Conferences. They are different from ATC slots which are takeoff and landing times assigned to the airline by ATC authorities. 1998). 2. Alternative slot allocation procedures have to be considered at airports because the pricing mechanism fails to balance demand with the available supply. This means that any airline which has operated a slot in the previous similar season has the right to operate it again.The airport–airline relationship approaches and by the assessment of demand management options. however. however. This is obviously not helped by the widespread acceptance of the single till concept which can pull down the level of charges to below that of the cost of supply (Starkie. The most recent IATA scheduling guidelines use level 1.or 30-minute period. that the definition of a slot should be more broadly defined to take account of all the resources necessary to operate at the airport. traditionally the national airline of the country. For example. Currently. the current level of charges at airports and peak/off-peak differentials when in existence have a relatively limited impact on airline demand. Between 1990 and 1999. These voluntary conferences of both IATA and non-IATA airlines are held twice a year for the summer and winter season with the aim of reaching consensus on how schedules can be co-ordinated at designated capacity-constrained airports. between domestic and international routes. gate. 2000). and thus provide for incremental increases in traffic.

While the IATA co-ordination system is voluntary. The IATA system developed primarily as a process to co-ordinate schedules and to avoid unnecessary congestion. Source: PricewaterhouseCoopers. there are three levels of capacity constraints or co-ordination. the EU rules are a legal requirement. b 122 . For example. 2000. namely non-coordinated. whereas the EU regulation has other key objectives such as making the most efficient use of capacity and encouraging competition. In 1999 there were 120 fully co-ordinated airports with more than ten others being fully co-ordinated in the summer months only. Ciampino Amsterdam Austria Belgium Denmark Finland France Germany Greece Ireland Italy Netherlands Portugal Spain Dublina Sweden UK Stockholm – Arlanda London – Heathrow. Around 80 airports were schedule facilitated. Many US airports are also capacity constrained but do not come under the IATA Scheduling Committee mechanism (ICAO. many of the IATA features have been incorporated into the European law. slot allocation comes under the regulation number 95/93 which was introduced in 1993. Schonefeld Dusseldorf Frankfurt – Main Munich Athens Thessalonika Milan – Bergamo. This airport is the only major airport to be coordinated although there are a number of other medium-sized airports which fall into this category.8 Slot co-ordination status of major airports in the EU Country Fully co-ordinated airports Non-coordinated airports Vienna Brussels – Zaventuma Copenhagen – Kastrup Helsinki Paris – Charles de Gaulle. Gatwick. In 2000. However. Tegel. with a further 30 in Asia Pacific and 10 in Africa. Orly Berlin – Templehof. Within the EU. Stansted Manchester Faro Lisbon Barcelona Las Palmas Madrid Malaga Palma de Mallorca Stockholm – Bromma London – Luton Notes: a Brussels and Dublin changed to fully co-ordinated in 2000. 2000 c). while for schedule facilitation or level 2 airports there was a higher growth of 63 per cent. Over 60 of the fully co-ordinated were in Europe. coordinated (comparable Table 5. Linateb Rome – Fiumcino. Malpensa. Milan Linate was co-ordinated having switched from fully co-ordinated when the new Milan Malpensa airport was opened.Managing Airports 18 per cent.

In 2000. it is generally recognized that a ‘grey market’ in slots already exists.9 Key features of the 1993 EU slot allocation regulation Slots are allocated on basis of historical precedence or ‘grandfather rights’ Airlines must use slots of 80% of time – ‘use it or lose it’ rule There is a slot pool for new or returned slots 50% of slots in the pool are allocated to new entrants Certain slots can be ring fenced if they are vital for social or economic reasons Airports are non-co-ordinated. The grandfather rights system is used with an 80 per cent slot retention requirement although this ‘use or lose it rule’ was temporarily suspended after 11 September. Within this context an interesting decision was made in 1999 by the UK High Court when it ruled that the financial payment from BA to Air UK to ‘compensate’ for the exchange of some highly demanded slots with some less attractive slots did not invalidate the exchange (Financial Times. 2000). the European Commission has been exerting pressure for a change to a more independent situation.8 shows the co-ordination status of major airports in the EU. and the United Kingdom. such as the London airports. 1999). In a number of countries. as with the IATA mechanism. slots may be reserved for domestic regional services or routes with public service requirements – so-called ‘ring-fencing’. Table 5. They are also airlines which have requested slots for a non-stop intra-EU service where two incumbent airlines already operate. An important difference with the European regulation is that the co-ordinator must be independent of all airlines at the airport. Sweden.9). an independent company has been established. Italy. the legislation theoretically requires that a thorough capacity analysis and consultation process must take place. 2001 since airlines dropped routes because of the sudden downfall in traffic but did not want to lose their historical slots. In order for an airport to become co-ordinated. In reality. by giving them preference of up to 50 per cent of any new or unused slots. such as Denmark. Table 5. France. In other countries such as Portugal and Greece where slot allocation is the responsibility of the main home carrier. The European legislation (Table 5. co-ordinated or fully co-ordinated Co-ordination status is defined after capacity review and consultation An independent co-ordinator supervises the allocation of slots Source: European Commission (1993). there were 13 co-ordinated and 57 fully co-ordinated airports in the EU (PricewaterhouseCoopers. New entrants are defined as airlines with less than 4 per cent of daily slots at an airport or less than 3 per cent of slots in an airport system. 123 . In practice this has rarely occurred primarily because many of the airports were already fully co-ordinated under the IATA system or perhaps because of some legal constraint such as a limit on aircraft movements at Düsseldorf airport. Under certain conditions. Airlines are allowed to exchange slots with other airlines but not to trade slots. thus enabling the process to be more transparent and impartial. which are clearly disadvantaged by the grandfather rights system. the Netherlands. aims to encourage new entrants.The airport–airline relationship to the IATA schedule facilitation airports and fully coordinated airports) and each of the airports uses an airport co-ordinator.

1992). 1999). However. On the other hand. In reality airlines do view slots as a financial asset which are taken into account whenever airline purchases or mergers take place. it provides no guide to future investment requirements and is administratively burdensome. especially within Europe. for example. and the most important financial asset 124 . These rules restricted assess to charter. frequency caps could be placed on certain services once a daily maximum limit has been reached. the grandfather rights system. Priority could be given to airlines which cause the least noise nuisance. On the one hand. Critics claim that this procedure gives no guarantee that the scarce airport capacity is used by the airlines who value it most highly. can a franchise partner gain slots by claiming to be a new entrant with the result of effectively increasing the number of overall slots for the larger incumbent carriers for which it is operating? Should some slots held by airlines in alliances be given up and reallocated to new entrants for competitive reasons? There have been lengthy debates discussing whether a better system could be introduced (Reynolds-Feighan and Button. or environmental objective. As a result any such system will again share the shortcomings of the traditional system.Managing Airports Alternative slot allocation mechanisms The current scheduling committee system is widely accepted and has succeeded in providing a stable environment for allocating slots. There is no legal sense in this. partly because few new slots become available and partly because the definition of new entrant is very limited. Therefore. Most new entrants are still prevented from competing at airports. which normally have less flexibility in scheduling than short-haul flights because of night closures and other constraints. While such mechanisms can be useful in pursuing some economic. Various regulatory suggestions have been put forward such as giving preference to long-haul international flights. rather than being considered as a right in perpetuity. they are still likely to be used in combination with grandfather rights. and so the airlines are. This could potentially have an environmental benefit by switching short-haul traffic from air to surface transport. there is considerable concern – as pressure on runway capacity continues – that it may not be the most effective mechanism. which have to be handed back after a certain period of time. should be regarded as long-term concession rights at airports. namely in not ensuring that the scarce runway slots are used by those who value them the most. Other suggestions are that slots. encourages claims of ownership by the airlines. in effect. Scheduled airlines could be favoured over charter airlines and passenger aircraft could have preference over cargo airlines. There are also a number of issues related to the current structural changes taking place in the airline industry. For example. to manage the scarcity of slots or encourage competition. Another suggestion is to give priority to larger aircraft which make the most efficient use of slots. market-based options have also been considered. The traffic distribution rules imposed at London Heathrow airport in the 1980s were an example of such administrative regulation in practice. airports maintain that they have created and own the infrastructure which enables slots to exist. Alternatively. social. general aviation and cargo flights – although the charter rule was subsequently relaxed in 1991 (Doganis. the issue of who actually owns the slot is clearly very crucial. There are a number of examples of purchases. historically giving airlines the rights to use slots for long periods of time. Within this context. when BA bought Cityflyer Express based at London Gatwick. just granted usage rights.

There is also the issue as to whether it is appropriate for existing slot holders to make windfall profits from slots for which they never actually bought (Doganis. 2003). After a long period of review and consultation. particularly since there has been very little evidence that this regulatory process has encouraged competition or lessened the influence of the major flag carriers at the airports. Boyfield et al. 2001c). An alternative suggestion is to use the auction mechanism or so-called primary trading as a means of allocating slots. the marketclearing price would have to be set at a considerably higher rate that is the current practice with airport charges. 1993). These auctions could be held every 6 months like the scheduling committees. Such a mechanism. Alternatively lotteries for slots could be held. It was revealed that BA had paid around US$25 million for eight daily slots – thus representing around US$3 million per slot (O’Toole. A detailed study of primary trading and the feasibility of different options was undertaken in 2001 for the UK government (DotEcon. Officially airlines have so far been prevented from such processes. This might potentially overcome the anti-competitive problem caused by slot trading but in practice could cause havoc with airlines’ schedules and be very disruptive. except with the case of four US airports (see ‘Slot allocation’ in ‘The US experience’ section). The simplest of all market-based options is the use of the airport charging mechanism to match demand and supply. Somewhere in between these two options. however. however. as previously discussed. In 2001. 1998). Following the introduction of the European slot allocation regulation in 1993. At the other extreme there could be just one auction. Slots obtained at one end of the route might not match up with those at the other end and in general there would be a great deal of uncertainty. The merits of such a system is that airlines that value the slots the most can buy the slots.The airport–airline relationship of the airline being purchased was considered to be its slots. delays and congestion at many European airports has increased. would be bound to favour the large incumbent carriers as they would be the airlines most able to afford to buy the slots. airports and slot co-ordinators about secondary trading and concluded that such a system offered a real potential to improve the efficient allocation of scarce airport capacity and that it had widespread support in the industry (CAA. 2003). 2001). only based on the views of the UK industry. This is hardly surprising given that the European regime has largely maintained the grandfather rights system. the European Commission put forward some proposals in 2001 which were passed by the European Parliament in 2002 and by 125 . the European Commission has been considering whether a better system of regulation could be introduced. Individual slots or a combination of slots could be auctioned at one particular time (Jones et al. slots allocated under long-term lease agreements could be an attractive compromise. selling the slots rights in perpetuity and then any further changes would have to be implemented through slots actually being traded. This study was. 1992. At the same time. More recent sales have suggested that the value of a slot at Heathrow is in the region of £50 per passenger (Andrew. Any such process would also have to be seen as non-discriminatory to comply with international obligations. the UK Civil Aviation Authority consulted airlines. However.. but this would clearly lead to considerable upheaval and disruption for both airlines and passengers. It is difficult to quantify the value of a slot but the ‘slot exchange with compensation’ between BA and KLM UK provides some guide. Then there could just be a system of slot trading when airlines are able to buy and sell slots – so-called secondary trading.

Ground handling issues Ground handling activities at airports are very important to airlines. baggage and freight handling. A report looking at slot trading for the European Commission was due to be completed in 2003. it may be feasible to focus on competition but that may cause sudden disruption in schedules. freight and mail handling. They impact both on an airline’s cost and the quality of service which they provide for their passengers. But are these two aims. the airport operator will just earn rental fees and perhaps a small concession fee from the airlines or agents which are providing the handling services. (Den Braven. often the national airline or airport operator may have had a monopoly or near monopoly in ground handling. 2003). cleaning and servicing. Countries in Europe where the national airline has had a handling monopoly include Spain with Iberia and Greece with Olympic. Ground handling services cover passenger handling. Vienna. which have been heavily involved in such activities. which covers activities such as aircraft loading and unloading. Likewise. and Frankfurt airports. This was by far the most contentious issue. which is passenger check-in. The proposals were divided into two parts. baggage handling. The technical proposals covered a number of different areas. earn very significant revenues from such activities – sometimes over half the total income of the airport. Such activities are often divided between terminal or traffic handling. and airside or ramp handling. The proposals confirmed that slot trading was not allowed but in the more radical long-term plans suggested that this method could be an option. although at most airports they are provided by airlines or handling agents. but it will always tend to favour the large incumbent airlines. One of the problems with the consideration of slot allocation processes is that often there are too many conflicting objectives. Historically. as has been proposed for the EU. Frequently quoted aims are often to make the best use of existing resources while at the same time encouraging or enhancing competition. Another new feature was consideration of environmental constraints with the possibility of higher priority being given to larger aircraft size or lower priority to services where surface alternatives existed. it may be possible to protect certain routes through ring-fencing but this may not produce the most effective use of the scarce runway slots. some immediate technical amendments to the existing regulation and second some more long-term aims. in the near future at least. Some airport operators such as Milan. Therefore. They recommended that there should be financially independent co-ordinators at each airport and that there should be better enforcement of the slot rules. fuel and oil handling. ramp handling. In other cases. first. rather than adopting just a single mechanism. and aircraft services and maintenance. really compatible? For example. Sometimes. any new system is likely to use a combination of the different approaches. Slot trading may ensure that slots are allocated to those who value the slots the most. as well as other aspirations. 126 . Rome.Managing Airports early 2003 were subsequently waiting for approval from the Council of Ministers. An attempt was made to clarify the legal status of slots by defining them as ‘entitlements’ or ‘rights of usage’ rather than property to be owned. The proposals also recommended the retention of grandfather rights and the ‘use it or lose it’ rule but suggested that the new entrant threshold should be raised to 7 per cent. these services are provided by the airport operators. it seems most probable that.

There had still been a significant number of complaints and disputes regarding handling services at airports. in some exceptional circumstances airports may be granted temporary exemptions on the basis of space or capacity constraints in order to ease the transition from a monopolistic to competitive situation. By contrast. in some cases. Moreover. For example. A study in 1997 of airline turnaround costs at a number of European airports commissioned for the AEA found that the nine most expensive airports all had ramp handling monopolies whereas the next 14. Many supporters of ground handling liberalization are concerned that such conditions are only prolonging the existence of monopolies at airports. there were complaints at Lisbon airport that although there were two operators at the airport. For operational reasons. Critics of the situation. Frankfurt airport was one such company but only gained exemption from competition in ramp handling in certain areas. reducing service standards (Bass. Providers of monopoly services claim that providing competition. delayed until 2000. such as Düsseldorf have been more successful. This has resulted in the EU’s adoption of the ground handling directive 96/67.The airport–airline relationship A study of European airports showed 44 per cent of aircraft movements were handled by airport operators. it is far easier to have a number of airlines providing traffic handling rather than ramp handling – given capacity constraints of the equipment and space in the ramp handling areas. which provides for phased liberalization of ground handling services. particularly at airports which are already at full or near capacity. A number of monopoly handlers in countries such as Germany have applied for such exemptions. 8 per cent were handled by the national carrier for other airlines. it was too early to assess the overall impact of the directive – particularly since the introduction of the new ramp handler was in many cases. neither was independent as one was TAP airlines and the other was Pathway which was 127 . 1999). The longterm purpose of this directive is to end all ground handling monopolies and duopolies within the EU by opening up the market to third party handlers. operated in a competitive situation (AEA. By 2002. lower efficiency and may also cause considerable apron congestion. particularly for ramp handling would merely duplicate resources. It was also unclear as to the level of implementation of the Directive within Europe and certainly the speed at which the Directive was incorporated into national legislation varied quite considerably. The details of the directive. 7 per cent were handled by independent ground handlers. Other airports. are shown in Table 5. in descending order of price.10. recognizing the right of airlines to self-handle and guaranteeing at least some choice for airlines in the provision of ground handling services (European Commission. only 16 per cent were handled by the airport operator. 1997). The directive does allow for service providers to be limited in the ramp area. again 7 per cent by independent ground handlers and the rest by airlines (Deutsche Bank. the European Commission acknowledged that it had received a number of complaints related to ground handling activities at various airports including Milan and Frankfurt and at the Spanish and Greek airports (Soames. in terms of passenger numbers. 1996). claim that ground handling monopolies are pushing up prices and. and the remaining 14 per cent were selfhandled by other airlines. Within Europe many have argued that air transport cannot be fully liberalized unless the ground handling activities are offered on a full competitive basis. In 1993. 27 per cent were self-handled by the national carrier. such as at Frankfurt and Vienna airports. particularly the airlines. 1998). 1994).

and freight services For airports with more than 3 million passengers or 75 000 tonnes of freight. third party handling is allowed At least one handler must be independent from the airport operator or dominant airlines with more than 25% of the traffic From 1 January 1998 From 1 January 1999 From 1 January 2001 Source: European Commission (1996). Frankfurt AGS. Worldwide Flight Services – owned by Vinci which also is a global airport management company – ranked fourth in terms of revenue ($US344 million) with handling services at 100 airports in 20 countries. generated over $US892 million revenues and together provided handling services at over 200 airports in 40 countries. Undoubtedly. majority owned by the airport. airlines have the right to self-handle for baggage. Mackenzie-Williams. 2003). To compensate for a lesser involvement at their home airports. At the Paris airports.10 Key features of the 1996 EU ground handling directive Airlines have the right to self-handling for airport terminal services For airports with more than I million passengers or 25 000 tonnes of freight.Managing Airports Table 5. related issue. Other disagreements concerning the handlers’ tender process and selection criteria had also occurred (Barker. for the airports which have previously provided monopoly services. third party handling is allowed For airports with more than 2 million passengers or 50 000 tonnes of freight. The impact of airline alliances of the ground handling industry is a very important. Some large international handling agents are emerging through a number of corporate mergers and takeovers. In the future ground handlers at airports may achieve economies of scale by negotiating common contracts with all alliance members rather than by consulting with the individual airlines. GlobeGround and Servisair merged together in 2001. there will be a loss of market share to the independent handlers. encouraged by ground handling liberalization and following the trends of internationalization and globalization in both the airline and airport industry. These are not cost related and can be quite large – for example 7 per cent of the handlers’ turnover in Germany. a number of airports such as Frankfurt and Rome have been actively expanding their handling activities at other airports. fuel. owned by Fraport generated $US524 million in 2001 by providing handling at 25 airports in nine countries. There had also been unease about the access fees which airport charge for access to the ground handling market. ramp. 2001. 2002 b). 128 . 2003). these access fees had been successfully challenged in court but they remained at other airports in Europe (TRL. Then there is Swissport with revenues of $US668 million and interests at 160 airports in 29 countries. (Pilling. Airport operators still have the right to perform ground handling but these activities must be separated from their main role as airport operator.

With the residual approach the airlines pay the net costs of running the airport after taking account of commercial and other non-airline sources of revenue. and so they take considerable risk. Capacity improvements which may bring more opportunities for competition may also not 129 . deregulated environment. In the United States. As a result there has been an increasing use of ‘use it or lose it’ clauses in which the control of assets are returned to the airport if the airline does not use the facilities as intended (Federal Aviation Administration/Department of Transportation. The airlines provide a guarantee that the level of charges and rents will be such that the airport will always break even. By contrast with the compensatory approach the airlines pay agreed charges and rates based on recovery of costs allocated to the facilities and services that they occupy or use.The airport–airline relationship The US experience Airport use agreements The relationship between airports and airlines in the United States is unique and so is worthy of special consideration. and hybrid (43 per cent) (Federal Aviation Administration/ Department of Transportation. These clauses. the method by which these are to be calculated and the conditions for the use of both airfield and terminal facilities. The length of use agreement will normally coincide with any lease agreements which the airlines have with the airport operator. For medium-sized airports the relative shares were residual (38 per cent). which are far more common among residual agreements. The risk of running the airport is left to the airport operator. they have become shorter to reflect the more volatile. typically mean that these signatory airlines have to approve all significant planned developments or changes at the airport. The residual approach. or even lease or build total terminals – as in the case of JFK airport in New York. Airports have applied these two different approaches in various ways to suit their particular needs and some have adopted a hybrid approach. In more recent years. 1999). There are two basic approaches to establishing the airport charges: residual and compensatory. therefore. it is common for airlines to lease terminal space or gates. The anticompetitive nature of such agreements can be a problem if other non-signatory airlines are prevented from gaining access to terminal space and gates. A study in 1998 showed that for the large US airports the residual and compensatory approaches were each used by 41 per cent of the airports with the remaining 18 per cent of airports using some kind of hybrid model. is more akin to the single till practice. A key reason for the existence of these agreements has been because private bondholders have demanded the security of such formal relationship between the airports and airlines before investing in the airport. The airports and airlines enter into legally binding contracts known as airport use and lease agreements which detail the fees and rental rates which an airline has to pay. The airlines which carry most of the airport’s traffic may also play a significant role in airport investment decisions if they agree to the majority-in-interest (MII) clauses in the use agreement. while the compensatory approach is more similar to the dual till approach. The use agreements traditionally have been long-term contracts of between 20 and 50 years. compensatory (19 per cent). 1999). combining elements of both the residual and compensatory methodologies.

Although the PFCs are legally and constitutionally different from passengers charges levied elsewhere in the world. Some airports have discarded MII clauses altogether. The charges do not vary according to noise levels or peak periods. Signatory airlines may pay less. 1999). Airport fees and passenger facility charges The landing fees at US airports are normally very simple. which goes towards the federal aviation trust fund to provide the finance for the airport grants which are available under the AIP. There is the air transportation tax. allowed for airports to levy a US$1. However. This means that airports have greater control over this type of funding. they have a similar impact on airlines. Secondly airports are prohibited to use airport revenues for non-airport purposes (Federal Aviation Administration/Department of Transportation.5 billion for 310 airports with 164 airports having PFCs at the maximum $4. Firstly. 1996). unlike the practice at some European airports. In 2000 it was agreed that the maximum PFC could be raised to US$4. If PFCs are used by large and medium-sized airports then the airports have to forego up to half their AIP funding. As a result some airport operators have tried to reduce the powers of the signatory airlines by requiring MII disapproval rather than approval or have limited the airlines’ influence to only major projects. unlike revenue bonds which may require guarantees from the airlines. Passenger facility charges were first used in June 1992. the total approved collections for all airports was $39. US$2. The level of landing fees tends to be relatively low partly because the airport operator provides a minimal number of services itself. However. there are also a number of government taxes which push up the total amount paid by the airlines and their passengers. Unlike most other airports in the world. These funds go directly to the airports rather into central federal funds as with the air transportation tax. There are also separate taxes relating to agriculture and health inspection. The generation of revenues at US airports is subject to a number of statutory requirements determined by Congress and policy statements issued by the FAA / Department of Transportation. or US$3 fee which had to be spent on identified airport-related projects or could be used to back bonds for the projects. US’ airports are not legally allowed to levy passenger charges primarily because of fears that such revenues will be diverted from the airport to be used for non-aviation purposes. The initial PFC legislation. US airports do not have passenger charges – although some of the costs associated with terminal and gate space which are normally incorporated into the passenger fee may be covered by airline lease payments. the federal government approved the levying of PFCs. 30 per 130 . being based on a fixed rate per 1000 lbs. in 1990. This latter requirement is one of the major obstacles in the way for any significant developments towards airport privatization in the United States.Managing Airports be approved by the signatory airlines. there is the Federal Government requirement for ‘fair and reasonable’ and not ‘unjustly discriminatory’ aeronautical fees based strictly on costs (Federal Aviation Administration/Department of Transportation. Seventeen per cent of this total funding was for airside projects. Airlines have no veto rights when it comes to PFCfunded projects nor can they have exclusive rights.50. By the beginning of 2003.50 level. and customs and immigration services. Passenger facility charges are also largely independent of airline influence. PFCs were first used in June 1992.

1994). This trading of slots was limited to domestic operations (international routes being more complex because of international regulation) with air carriers slot being unable to be traded for commuter slots and vice versa. barring any environmental constraints. Detroit (US$641 million). the Aviation Investment and Reform Act (AIR21) of 2000 made substantial changes to the slot rules at these four airports. This has to be viewed. there is no formal slot allocation mechanism. namely air carriers. The traffic was divided into three categories. This rule was introduced in 1969 by the Federal Aviation Administration (FAA) as a temporary measure to reduce problems of delay and congestion at JFK and La Guardia airports in New York. within the context of the US airline industry which itself has become more concentrated (Starkie. 1998). Some PFCs have been approved for a long time (longer than 30 years) whereas others will be used for as little as three years. This can result in considerable congestion at certain times of the day when many flights are scheduled around the same time. This was the ‘buy–sell’ rule which effectively meant that after an initial allocation process based on grandfather rights. There was a ‘use or lose it’ rule requirement of 65 per cent and a slot pool was established for newly available slots. There have been few outright sales of air carrier slots and very few new entrants. but the increase in traffic due to airline deregulation in 1978 and other factors. In the interim. Boston (US$599 million) and Chicago O’Hare (US$484 million). Las Vegas (US$1585 million). This led to major overscheduling and congestion in La Guardia in 2000 and so the Port Authority of 131 . and airlines design their schedules independently taking into account any expected delays.The airport–airline relationship cent for landside projects. As a result of these concerns. 10 per cent for access projects. 1992. with a different limit on the number of flights during restricted hours for each category. Slot allocation At most airports in the United States. This is the only formal secondary trading market for slots in any part of the world. air taxi (now commuters) and other (primarily general aviation). International slots were allowed to be co-ordinated through the IATA scheduling committees (Starkie. and 28 per cent for paying interest. airlines were then be permitted to buy and sell their slots. resulted in a new allocation system being introduced (Langner. A further 8 per cent funded the new Denver airport. since these would be in conflict with antitrust laws. No slot allocation mechanism was defined but the relevant airlines were given antitrust immunity to discuss co-ordination of schedules. Large amounts of PFCs have been approved at Denver (US$2331 million). new long-haul entrant carriers and airlines operating regional jets were given slot restriction exemption. This means that instead there is open access to the airports. The exception to this practice is at four airports which are subject to the ‘high density airport rule’. 1995). The established airlines have actually increased their dominance at the airports. At La Guardia all restrictions are to be eliminated by 2007. O’Hare airport in Chicago and Washington National airport (now Washington Reagan). These were to be reallocated using a lottery – with 25 per cent initially being offered to new entrants. Over 10 years’ experience of this slot trading has led to increasing criticism of the system. such as the IATA scheduling committees. Slots used for essential air services were excluded. however. such as a major air traffic control strike. Initially the rule worked relatively well. Airlines were also allowed to ‘lease’ slots on a short-term basis. 6 per cent for noise projects.

privatization. it was evident that generally the airport industry was much more in favour of market-based options than the airline industry which wanted to keep the current system (ACI-North America. traditionally the only country which has the rights and obligations clearly defined and incorporated into a legally binding contract is the United States. there is no agreement as regards the standard of services to expect and no process is identified should disputes between the airlines and airports arise. the Department of Transportation issued a ‘Notice of Market Based Actions to Reduce Airport Congestion and Delay’. In short. which describes the services provided in exchange for the aeronautical fees. the airline–airport relationship is starting to become much more to do with the linking of two privately owned international companies. Formalized service standards are not usually incorporated into these agreements. This took place in December 2000. 2001a). However. The normal contract between an airline and an airport traditionally is the published airport conditions of use. A number of airlines have therefore been considering a more appropriate. as more airports are being privatized. 2002. Airport charges have come under increased scrutiny from both airlines and governments.Managing Airports New York and New Jersey imposed a moratorium on peak hour flights. Air Transport Association of America. A new airport–airline relationship This chapter has shown how the airline–airport relationship is changing. In 2001. Airlines and other interested parties were asked to comment on this notice by July 2002. (Federal Aviation Administration/Department of Transportation. In the United Kingdom. economic regulation is becoming more commonplace. The industry has also been consulted more generally about the basic principle that airport charges must be determined purely by cost or whether a more marketbased approach could have a role to play in coping with the congestion problems which exist at many airports. the method by which these are calculated and the conditions of use of the facilities. 2001b). In the meantime the industry has been consulted about more longer-term solutions (Federal Aviation Administration / Department of Transportation. Whilst the outcome of the consultation had yet to be decided by early 2003. 132 . this type of agreement exists between the privately run railway infrastructure and train operators. For the airport industry. the FAA claimed that the airport authority did not have a legal right to impose this moratorium and instead it was agreed that the number of new flights would be capped and a slot lottery would be undertaken. These included market-based initiatives such as congestion based pricing or slot auctions or administrative processes such as favouring operations with larger aircraft. contractual relationship with the airports which they serve. Los Angeles. being driven by trends towards greater competition. more clearly defined. This temporary solution was due to end in October 2002 but has been extended until October 2004. This discussed market-based approaches to charging at airports such as peak pricing. This is not a formalized relationship as it does not identify the rights and obligations of both parties. and San Francisco) and slot auctions. Boston. 2002). Moreover. for example. The US agreements concentrate on the fees and rentals to be paid. minimum landing fees (which in fact have already existed at airports such as New York. and globalization within the industry. For example. However. rather than two state owned organizations operated within the limits of national laws and regulations.

service standards. security and policing.The airport–airline relationship outside the United States. perhaps. there is the strategic partnership agreement (SPA) which. the airline industry has been looking at use agreement from a wider prospective. First. and obligations for both airlines and airports (ACI-Europe. Danish airlines and IATA representing foreign airlines reached a second consecutive three year period agreement when it was determined that charges would increase by 2. 2000). as the name suggests. in relation to the London airports BA proposed that there should be a clear definition of the services covered by the airport charges including a description of the generic levels of service quality. For example. 1997). is more strategic and covers areas such as future financial investment and rights. 2002a). lessening the need for government economic regulation (Clayton. 1998). Cruickshank. Agreements of this nature have yet to be adopted at any airport although more specific service level agreements have been adopted by a few airports (See Chapter 4 for more detail). which includes quality of service aspects. In Australia. as in the case of the United States. De La Camara. fees and charges. there is the basic agreement which covers what the airlines receive for the main airport charges or the basic plus agreement which also identifies what additional facilities and services are available at the airport and their cost. British Airways (BA) has suggested that a use agreement should contain the following elements: duration and termination. Again. the low cost airlines. The airlines claim that such agreements could clarify the airline–airport relationship by identifying clear rights and obligations. Then there are two types of service level agreements. IATA set up a working group to develop a generic use agreement or SPA which could be used worldwide and adapted according to local circumstances. In 2002. such as Ryanair and EasyJet. Another example of a longer duration agreement is at Copenhagen airport. One of the developments which has been observed is the introduction of more long-term airline–airport agreements at a few airports which could be said to be moving slightly closer to the type of model that is adopted in the United States. for the increasing number of private airports which are dependent on commercial borrowing.75 per cent in each of the years 2003. This agreement provides for more long-term planning security for both airports and airlines and contains a commitment from the airport to improve the level of services. 1999. ACI-Europe has identified six types of use agreements which can exist between airports and airlines. protect both airlines and airports from uncertainty and risk by providing financial guarantees. either a one-way commitment by the airport operator to achieve defined service quality standards or a two-way commitment by both the airport and airlines to reach the required quality levels. the movement from price regulation to price monitoring. the airport operator. automatic entitlement to a rebate or compensation when the quality levels are not achieved and the establishment of a dispute resolution procedure relating to service standards (Competition Commission. They could also help to minimize the conflict between the two parties – thus. Second. rentals. terminal navigation services. and disputes and arbitration (Monopolies and Mergers Commission. services to be provided in return to charges. and provide more financial security. insurance and liabilities. additional services. capital expenditure. typically 5–10 years. and 2005 (Copenhagen Airport. 1997. 2002). Finally. In 1997. when discounted fees are agreed for the entire contract period (see Chapter 7). 2004. more recently. have sought more long term deals at airports. for example at Brisbane 133 . there is the facility agreement which is an additional arrangement between one or more airlines relating to just part of an airport.

the German Airline Association and the board of airline representatives in Germany (BARIG) which represents airlines flying to Germany. ABN AMRO. this means that Fraport is taking more of the overall financial risk as it revenues are more directly related to traffic levels. 134 . This agreement replaces the requirement for government approval of the level of charges for the 5-year period. Big Issues: Airport Charges. (Fraport. the airlines have waived their right to take legal action against the level of charges whilst Fraport has made commitments not to cut costs by reducing service standards and to undertake investment projects which are planned.Managing Airports airport. References and further reading ABN AMRO (2000). The Hamburg airport regulatory system was also established by an agreement between the airport operator and the airlines which was subsequently validated by public law. Then in April 2002 Fraport reached an agreement with Lufthansa. This was thought to be particularly necessary because of the growing volatility of the airline industry and more specifically the partial privatisation of Fraport in 2002. Hence. the first of its kind.The deal has also secured the financing of a 76 million Euro noise protection programme for the local residents. 2002.The agreement is a risk sharing model which links airport charges to traffic growth. 2002). Conversely. has encouraged the airport and airlines to reach a five year agreement which covers charges and service and thus replaces the need for detailed regulation. The first element of this new approach which was gradually introduced in the late 1990s was a shift towards a greater reliance on the passenger fee and less reliance on the landing fee. If the passenger traffic grows faster than expected then the airlines will receive one-third of this additional revenue due to the unplanned passenger numbers and two-thirds will go to Fraport. At Frankfurt. ACI-Europe (1998). ACI-Europe working paper. Fraport has been developing a new charging policy at Frankfurt airport which it feels is more suitable to sustain a long-term sustainable partnership with its airline users. This is a 5-year agreement. It has been agreed that if the passenger forecast figures are reached then the reference ratio will be increased by about 2 per cent annually. This means that the airport charges are now more related to the revenue streams of the airlines which are based on passenger throughput. The 2001 ratio of airports charges to the number of departing passengers is used a reference ratio for this model. there is a Special Review Board which has representatives from the airlines. Klenk. the airlines will bear one third of the risk associated with the passenger traffic if it falls below the levels which were planned. Fraport and local government which has four meetings a year to discuss issues arising from the agreement and to swop information. A new approach to the airline relationship at Frankfurt airport In the last few years. Under the agreement. applied retrospectively from 1 January. Pan-European Airports Review. 2002.

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of course. The focus of this chapter will be on individual consumers who buy commercial goods/services at airports. The most significant development of the late 1990s. There are. A more business-oriented approach to running . First. There have been a number of factors which have contributed to the growth in dependence on nonaeronautical revenues. and so on. other consumers such as the airlines and handling agents who also generate concession and rental revenues by paying for the use of office space. It will consider factors which influence commercial performance. check-in-decks. moves towards commercialization and privatization within the industry have given airports greater freedom to develop their commercial policies and diversify into new areas. namely the abolition of intra-EU duty. will also be discussed. lounges. This chapter will discuss the generation of nonaeronautical revenues by looking at the market for commercial services and assessing how the facilities can be planned and managed.and tax-free revenue.6 The provision of commercial facilities The importance of commercial facilities A key development in the evolution of the airport industry has been the increase in the dependence on non-aeronautical or commercial revenues. These activities are covered in Chapter 5 which considers the airport–airline relationship. in-flight kitchens.

has encouraged the airports to look to alternative ways of increasing their revenues and growing their businesses by giving greater attention to commercial facilities. Consideration of the retail and other commercial facilities is bound to be secondary. reductions in staff numbers. This reflects general trends in the high street where consumers have become more discerning with quality. The impact of these pressures on the level of aeronautical charges. In effect. rather than raising their charges to the airlines (Doganis. airport shoppers are becoming more demanding not only in the quality of service which is provided. but also in the range and value for money of the commercial facilities on offer. Such facilities were traditionally considered to be rather secondary to providing essential air transport infrastructure for airlines. At the same time. A more competitive environment and falling yields have forced many airlines to focus on major cost-saving initiatives such as out-sourcing. The main reason for why a passenger will choose a certain airport will. airport charges have become subject to more and more scrutiny from the airlines – particularly from the new breed of low cost airlines in Europe. increasing numbers of people are travelling through airports and making more frequent trips. Transfer passengers may. airlines are demanding that airports adopt such cost-cutting and efficiency saving measures themselves. Other airports have gone one stage further. often desiring a quick route through the airport as uncluttered as possible from the distraction of numerous shops and catering outlets.The provision of commercial facilities airports has also raised the priority given to commercial facilities. It is also true to say that this increased emphasis on commercial facilities has not been welcomed by all the travelling public with significant groups of passengers. Increasingly. be more influenced by the commercial facilities if they cannot perceive any significant difference between the convenience and quality of the choice of connecting flights at different airports. particularly those from the business community. Increasing airport competition. Admittedly. 1998). Hence. passengers are becoming more sophisticated and experienced airport shoppers. Thus. such as Amsterdam Schiphol and Singapore Changi. be the nature of air services which that airport offers and the convenience of the airport’s location. Manchester gave discounts on duty-free purchases to 141 . In addition. value and choice at the top of their priorities (Freathy and O’Connell. For example. have run highprofile marketing campaigns emphasizing the quality and good value of the commercial facilities on offer to transfer passengers. and are generally much better informed. the airports have had to broaden their horizons in managing their businesses. the ability of some airports to increase aeronautical charges is now restricted by government regulation as has been the case with BAA plc and Australian airports post-privatization (see Chapter 5). either from the airlines themselves or regulatory bodies. it is difficult to determine entirely whether the raised expectations at airports have been caused by a genuine need or desire of the consumers for expanded facilities or whether an airport’s drive to maximize its commercial income by becoming a shopping centre has merely changed the expectations of passengers. As a result of this. of course. and the pegging of the level of wages. Certain airports. has also played a role in the development of non-aeronautical revenues. Moreover. especially between airport hubs. the airlines have been exerting increasing pressure on the airport industry to control the level of aeronautical fees which are being levied. 2000). however. Managers are now eager to adopt more creative and imaginative strategies and to exploit all possible aeronautical and nonaeronautical revenue generating opportunities.

regularly undertakes market research regarding commercial facilities. have increasingly been devoting more resources to getting to know their customers. the passengers. BAA plc has also investigated the nonbuying share of the passenger 142 . this involves an analysis of the air services offered and the origin and destination of travellers. or souvenirs and gifts while returning. however. the range of facilities on offer and even the product selection should match very closely the preferences and needs of the specific passengers types at the airports. which is automatically collected at airports. The main shoppers. They often tend to be more affluent than the average and they may have time on their hands to have a quick meal or snack. BAA plc. make up a large captive market.Managing Airports transfer passengers as part of their ‘Manchester Connects’ strategy to increase the use of the airport as an interline hub. Results have shown that on average 53 per cent of passengers considered airport shopping to be important or very important. Dubai. Consequently. this is supplemented by market research. duty. They may spend spontaneously to acquire the last minute essential or discount purchase for a holiday. Airport retailing is. may impose a sense of anxiety on the passengers. The market for commercial facilities Who buys at airports? The airport environment is a unique location for shopping and other commercial facilities. They may even spend just to dispose of the last of their foreign currency. The UK leisure market gave it a higher rating (77 per cent) while the European business market gave it a much lower rating. who does not shop at airports and why.and tax-free retailers can get information about travellers from their boarding passes which are shown when purchases are made. particularly by using incentives like raffles with high-value prizes. which will investigate the demographic. and Bahrain try to use their duty. At the most basic level. In addition.and tax-free shops as a way of capturing competing traffic. coupled with a fear of missing the flight. such as luxury cars. airports. is the envy of most high street retailers. like other large European airport operators. In the Middle East a number of the airports such as Abu Dhabi. fundamentally different from high street retailing since passengers are going to the airport to catch a flight rather than to shop. together with their retailing and catering partners. Overall. 70 per cent of passengers considered catering to be important or very important. Even this detail of information about the market. It was considered more important to certain subsegments such as eighteen to twenty-four year olds (64 per cent) and less important for others such as UK business travellers (34 per cent). This type of research needs to be updated regularly as customer demands and perceptions are continuously changing. In many cases. of varying degrees of sophistication. the passengers will be far less familiar with the airport shopping environment than with their neighbourhood shops and this. and attitudes towards the range of facilities on offer and the value for money of the products. To fully harness the commercial development potential of the airport traffic. geographic and behavioural features of the passengers. Such research will often aim to determine who shops at airports and what they buy. To achieve this aim.

particularly if the dutyand tax-free prices are competitive. Internet access. It is hard for an airport to maximize the commercial opportunities from transfer passengers if it also wishes to maximize its efficiency as a hub by providing swift connections. there is the mass market leisure flyers who travel just once a year and are in the mood for treating themselves. claimed that they had no interest in the shops and would not be persuaded to buy (Maiden. a sauna. Prior knowledge of the prices on offer would have encouraged 22 per cent more passengers to make purchases.The provision of commercial facilities population at its airport and the factors which might entice them to buy. Vienna airport. solarium. Various airports have developed some quite imaginative airside facilities and services which can be shared between these and local passengers. opened its Wellness Plaza in 1999 where passengers can experience different massage techniques and make use of the fitness bar. Price was the key reason given. the widespread adoption of airline lounges for business and first-class customers has further discouraged these passenger from having spare time to visit the main terminal shops. Frankfurt airport provides dental. Long-haul leisure passengers tend to spend more than shorthaul leisure travellers. car hire. secretarial support. and showers. Sixteen per cent said they would shop if they had more time (an extra hour) at the airport. Regular business travellers typically have a shorter dwell time and are less likely to browse in shops. Then there are transfer passengers. and airport hotels. For example. optical. Amsterdam airport has an art gallery and casino. Twenty-two per cent of the passengers. First. The new breed of leisure passengers on low-cost carriers often tend to have a different spend profile and they are particularly good users of the catering services because of the lack of in-flight refreshments and car parking because they are often quite time-sensitive travelling on short-break trips. but this will only be possible if there is sufficient time between flights. These examples illustrate the different spending profiles and preferences of different types of passengers. a karaoke lounge and a putting green and. many of whom were UK leisure passengers. and obviously will not need car hire or car parking facilities. 1995). they can go on a bus tour of Singapore. a significant share of whom were UK business travellers. At most major hubs. 143 . As a result of this business travellers make purchases relatively infrequently – although their average spend on a purchase tends to be high. They may want to make some retail purchases. Within the business market there is an increasing number of women travellers who have different needs and preferences from the more traditional male traveller. if the transfer passengers stay for longer than 4 hours. and so on. Business travellers also tend to make high use of certain facilities such as banks. for instance. with 12 per cent of the sample claiming that they would shop if the prices were reduced by a tenth. Bangkok airport offers head and foot massage. Singapore Changi airport has a swimming pool. They are unlikely to make use of facilities such as banks and post offices. They are impulse buyers and they tend to buy duty-free if they can. A number of airports also have fitness and health centres. would have shopped if the prices were reduced by a quarter. there will also be passengers who spend a considerable length of time in the airside area. and foot reflexology services and a clinic which has become a specialist centre for laser operations to repair damaged shoulder and knee joints! BAA plc has identified four key traveller groups associated with UK nationals – each of which have different shopping characteristics. Most airports have business facilities such as meeting rooms. A further 47 per cent. Leisure passengers have traditionally been favourites for impulse buys and the use of catering facilities. Moreover.

Americans. concessionaires.and tax-free shops in Europe. They will treat themselves at airports although they will be price-conscious buyers. They will use the airport as a convenience place to shop (Maiden. and dry-cleaners. 2002). and governments agencies may wish to use airport commercial facilities. Many airports. who still have access to duty. They will make duty-free purchases if they can. 1997). more independent Japanese travellers. timepressed shopping (last minute/emergency purchases). Older upmarket leisure flyers again travel several times a year and have a high disposable income. are particularly good spenders at these shops. 2000). have now recognized the commercial opportunities which exist with other consumer groups which use the airport and have introduced facilities wholly or partially for their needs. For instance. employ and attract a large number of visits – rather than just providing facilities for passengers who choose to use the airport. younger travellers tend to make much heavier use of facilities such as electronic entertainment zones and Internet cafés which are becoming commonplace at many airports. however. foreign currency exchange. particularly as they may not be able to combine a visit to their local shops and their working life at the airport. Surveys at Heathrow show that Norwegians. Workers from nearby office complexes. books. staff employed by the airport operators and by the airlines. essential shopping (restaurants/cafeterias. banking services. They will be brand conscious and prepared to pay for quality products. may find the airport facilities useful. Another way of looking at passenger shopping is by segmenting the customers by behaviour. For example. local residents will be encouraged to the airport by free parking or a certain period of free parking if a purchase is made. convenience shopping (wide choice of known brand names). The growing popularity of the use of initiatives to encourage public transport use. although being very fond of shopping generally. and socio-economic group will also influence spending and shopping behavioural patterns. are favourites for buying such products at airport shops. As regards age differences. Most of the airport commercial facilities historically were provided for passengers. which have relatively high taxes on alcohol. insurance) and lifestyle shopping (high-quality international brand purchases) (Institute for Retail Studies.Managing Airports Then there are the young upmarket leisure flyers who travel several times a year and are high spenders. hairdressers. chemists. or from airport industrial estates. and perfumes will be popular. distinctions can be made between entertainment shopping (gift/ novelty purchasing). Popular services include supermarkets. Indeed for certain large 144 . purposive shopping (confectionery. Finally. there are the timestarved frequent business flyers who will be attracted by ‘one-off’ promotions and electronic products. Sometimes. handling agents. The Japanese have the same high spend per passenger but this is due their tradition of buying gifts to take home to friends and relatives – although this is not so common for the younger. may be in conflict with such commercial strategies. toiletries). Nationals from countries in Scandinavia. occupation. however. Some of these services may used by arriving passengers – another potential market sub-segment which is generally considered to have significant spending potential but has only more recently been recognized by most airports. Factors such as nationality. Airports may also be attractive to the local residential community as an alternative shopping centre – especially if the airport is relatively uncongested and easily accessible with good road and rail links. age. The airports have thus exploited their commercial potential of being business or commercial centres which generate. have traditionally not expected to do their shopping at airports and so their average spend is much lower (Maiden.

The new offshore Inchon International airport in Korea has a business centre with two hotels with over 1 000 rooms. encouraging additional visits to the airport will be the last policy that they want to adopt. The small UK regional airport of Southend relies on its property business for its survival and. These facilities can be shared by business passengers. Viewing platforms. The good transport links which airports generally possess can make them ideal for international business events. and six office buildings on 39 000 square metres (Kim. and catering and retail facilities. office complexes. Many of the shops are well-known quality international branded outlets which are relatively difficult to find elsewhere in the Netherlands. and other customers. has created the Australia TradeCoast economic development area which uses 2 700 000 square metres of airport-owned land. is involved in buying electricity in bulk and then reselling it. conference facilities. a shooting range. medical clinic. Within the boundary of this airport there is a Formula One motor-racing track. There are numerous other examples. tours.1). Environmentalists. rock climbing. cinema. For example. Visitors may also be attracted to airports if leisure facilities are provided. Meeters and greeters and other visitors to the airport will also need catering services. While airports can measure their potential passenger market quite accurately. Brisbane airport in partnership with other organizations. Most major airports offer these. an observation hill. and equestrian park! For the business community. For instance. and exhibitions can also be provided on a commercial basis. Opposition may also be voiced from nearby local shopping centres as has been the case at London Gatwick airport with shopping facilities at the neighbouring town of Crawley. Munich airport visitors park is one of Bavaria’s most popular day-trip destinations. Car-parking revenue can be generated from them. local businesses. and shops – aiming to appeal to a number of the different consumer groups at the airport. a ‘behind the scenes at the airport’ display. Munich airport opened its new commercial centre in 1999 consisting of offices. Airports may be particularly popular as alternative shopping centres if there are legal restrictions on shopping hours imposed on the high street. Elsewhere. They can have a dual purpose in acting as a public relations function or service to the community. it is much more difficult to obtain meaningful figures for the other consumers at an 145 . freight warehousing. consider such developments to be flouting government policy. 1998a). unusually. such as the Friends of the Earth in the United Kingdom. benefiting from downtown shopping hour limits which were only relaxed in the mid-1990s. Amsterdam airport opened its landside shopping ‘Plaza’ of 40 shops in 1995. consisting of an interactive multimedia centre. Air travel still holds a strange fascination for certain people and for these enthusiasts specialist shops and merchandise can be sold. For example. which is against out-of-town retailing. Many airports have also expanded beyond the boundaries of the traditional airport business by using neighbouring land for hotels. light industries. distribution centres. an adventure park.The provision of commercial facilities airports with severe surface access problems. and business parks. Only around 30 per cent of the Plaza’s customers are passengers (Gray. catering. A notable example is the new Kuala Lumpur airport. additional facilities such as florists and gifts and souvenir shops. 2000). and. a shopping mall of 12 000 square metres. Frankfurt airport was one of the first airports to develop its landside shops into a shopping mall concept. This has a shopping area of 5400 square metres and is easily accessible by private and public transport. golf course. guided bus tours. perhaps. conferences and meeting facilities can be provided (Table 6.

different nationalities. low-cost/full cost.5 million visitors and meeters and greeters and 3 million staff/employees at Ben Gurion airport in Tel Aviv (Kostelitz. gift. tours.5 million passengers. Geographical characteristics Many of the most successful airports in terms of non-aeronautical income generation are situated within Europe. catering. At Frankfurt airport. exhibitions. Airside sales per square metre were 6. it was estimated that 46 million passengers were joined by 7 million meeters and greeters. there were 8. terminal/transfer.and tax-free sales may have a major impact on this in the future. 1999). or booking agencies may not bring in huge amounts of revenues to the airport but may be perceived as adding value to the airport product from the point of view of the passenger and other consumers.) Workers at the airport and in the surrounding areas Local residents Visitors – meeters and greeters Visitors – air transport enthusiasts Local businesses airport. and sales per passenger were 32 times greater.8 times greater than in landside shops. 13 per cent meeters and greeters. 2000). (Meznarsic. catering Office/meeting facilities. travel agents. with the remaining 7 per cent being local residents and others. the size of this market is quite varied. 1999). At individual airports. etc. ages. which must partly reflect traffic and cultural characteristics but also the methodology used to estimate the figures. in 1999 it was assumed that in addition to the 8. 2000). Malpensa Milan airport was predicted to handle 3. At these airports. banks. catering and other essential and leisure services dependent on passenger type Convenience shops. For example. chemists. it is the sales in the airside area of the airport which still brings in the most revenue for the airport operator – although the abolition of intra-EU duty. business/leisure.Managing Airports Table 6. and other essential services Shops. land for business development/light industry Market segment Passengers (departing/arriving. 64 per cent of the landside purchasers were passengers. 16 per cent employees. visitor terraces. Some landside facilities such as post offices. In the same year. however. At most airports. and leisure services Catering.1 The different markets for commercial facilities at airports Facilities provided Wide range of retail. 1996). A study of fifteen airports of varying size in Europe in 1998 showed that on average landside shops occupied 37 per cent of an airport’s retail space but only 22 per cent of total sales. A 1995 survey of 47 European airports showed that on average meeters and greeters made up 34 per cent of the customer volume (Schwarz. This is due to a number of general factors such as the large international traffic volumes within Europe and the relatively high 146 .25 million meeters and greeters and 15 000 airport staff along with 13 million passengers (Amore. 8 million other visitors. and in addition. and souvenir shops Specialist aviation shops. there were 60 000 employees at the airport (Middecke.

For example. 147 . The dependency on the car and the lack of adequate public 10 9 8 Non-aeronautical revenue per passenger (US$) 7 6 5 4 3 2 1 0 Asia/Pacific Europe Africa/Middle North East America Caribbean/ Latin America Total Figure 6.1 Non-aeronautical revenue per passenger at ACI airports by world region.and tax-free sales.The provision of commercial facilities income per capita. Concession income is the most important non-aeronautical revenue source. 2002) shows that European airports as a whole generated US$8 per passenger from non-aeronautical sources in 2001 compared with a global mean of US$7 (Figure 6. These airports are dominated by domestic passengers who spend less. 2002. Also at hub airports. 2001 Source: ACI. shop or retail sales accounted for 42 per cent of all concession revenue at Brussels airport in 2001 (Figure 6. emphasis is placed on swift efficient connections rather than providing passengers with the time to browse and shop. Shopping generates the most concession income and is likely to continue to do so in spite of the abolition of EU duty. According to ACI non-aeronautical revenue per passenger for North American airports is much less than in Europe – averaging only US$5.1). 2001 Source: Annual report. The 2001 ACI airport economics survey (ACI. European airports have also led the way in terms of commercialization and privatization trends with the development of non-aeronautical revenues being one of the most notable outcomes of these more advanced evolutionary stages of the airport industry.2 Concession revenue: Brussels airport.2). Other 26% Retail 42% Car parking 21% Catering 11% Figure 6.

99 per passenger). Singapore Changi airport has built up a worldwide reputation for good shopping – a reputation which new airports such as Kuala Lumpur’s Sepang and Hong Kong’s Chek Lap Kok also wish to acquire. 1999a).3). It is surprising that the United States.47 in Europe (ACI. Again the important role that the car plays can be seen when looking at the concession sources at the Washington airports (Figure 6. Los Angeles. the ratio of catering to retail revenue was also much higher. Similar practices have been introduced by BAA plc at Indianapolis and Boston airports. in spite of their widespread use elsewhere in the country.87 per passenger) and car hire (US$0.3 Concession revenue: Washington airports. Duty. Shopping is much less important. and Honolulu which handle a large proportion of Asian traffic. 2001 Source: Annual report. Another forerunner in airport commercial development in the United States was Portland airport which was of the first airports to introduce a mall concept to the airport with its ‘Made in Oregon’ mall (Citrinot. which have relatively more of the total commercial area being allocated to catering concessionaires. Branded shops and catering outlets were rarely found at US airports until this time. This also reduces the overall concession income per square metre for US airports. There are also arrival duty. only began to fully recognize the commercial potential of airports in the 1990s – well behind the European airports.and tax-free revenue is generated from a much wider range of products. Car parking and car hire together accounted for two-thirds of the concession revenues compared with much less at Brussels airport. Compared with Europe.and tax-free income is much more important. This is typical of most US airports.and tax-free shops at many of the major Asian airports. 2000).and tax-free sales are not very significant at most North American airports with the exception of certain airports such as San Francisco. with a revenue per passenger value of only US$0. which is world famous for its shopping malls. such as pre-ordering products. transport access to many airports means that the two single most important non-aeronautical sources is car parking (US$1.Managing Airports Other 23% Retail 6% Car parking 43% Car hire 23% Catering 5% Figure 6. where traditionally most of the sales have been associated with core products such as liquor. 148 . The company replaced the typical newsagent outlet and general store with well-known brands and developed other concepts which it had used with its European airports. For the Washington airports. tobacco and fragrance. The turning point came about in the early 1990s at around the time when BAA plc acquired a 15-year contract to manage the commercial facilities at Pittsburgh airports. The situation in Asia is very different where duty. in Asia the duty.66 compared with US$6.

in a number of these countries the airports have been privatized and have brought in experienced European and North American airport managers who are introducing many tried and tested commercial strategies which have been used elsewhere. has neither the expertise nor the commercial pressures to fully exploit the non-aeronautical opportunities at these airports. The branding provided reassurance for the traveller. In Bahrain. In other areas of the world. This is partly because many of the airports in these regions have relatively small numbers of passengers and also because the spending power of the local population is more limited. Nevertheless. The Middle East is an interesting area where there is a considerable amount of competition between airports and where shopping is used as a major marketing tool to attract passengers. The airport management. Tie Rack.The provision of commercial facilities The passenger profile at these airports is changing with the upper-class highspending Asian nationals being joined by an increasing volume of Asian travellers who are of a younger average age and are from the rapidly growing middle classes. For instance. In the 1980s. there generally tends to be less reliance on non-aeronautical income. Approaches to the provision of commercial facilities . All three airports have a history of launching major marketing initiatives to strength passenger awareness of the shopping services and to encourage passengers to use their airports. 1999). many European airports began to recognize the attraction of speciality retail outlets and the advantages of using familiar brand names such as the Body Shop. The Asian sample also included the major airports from Australia who have been developing their commercial facilities because of privatization and also due to the downward pressure on airport charges due to regulation. The specialist retail chains which had grown so quickly in the high streets started to appear at airports. In addition. the traditional duty-free shop with its internationally branded products and the bland catering services with no recognizable identity. the ACI survey still found that the average non-aeronautical spend per passenger in this region was the highest globally – albeit that the sample was dominated by large airports such as Singapore and Seoul which handle international passengers who have higher spending patterns. and Dubai have developed extensive duty-free facilities. more cost-conscious group of travellers (O’Conner. often closely tied to its government owners. More variety was also introduced into the catering 149 . particularly in South America. Spending patterns are consequently changing. with more emphasis being placed on ‘value-for-money’ goods. In Abu Dhabi and Dubai. are encouraging growth in traffic and broadening the customer base for commercial facilities. and gift shop. prices can be kept low since the shops are operated as a division of the Department of Civil Aviation and can be subsidized. such as in Africa and South America. Most airports have come a long way since they just provided the generic newspaper. the management expertise of Aer Rianta International has been brought in to run the shops. inbound passengers are now a much more diverse. Moreover. airports such as Abu Dhabi. Bahrain. The developing economic conditions in some countries. book. and Sock Shop. who was aware of the quality and price level of the goods within the branded outlet.

at Amsterdam airport all the shops in the airside area are branded under the ‘See Buy Fly’ identity and the outlets are grouped by product type such as electronics. The development of airport terminals into shopping centres has not been universally popular. A flavour of the local environment can also be provided by theming the commercial facilities. In most cases. rather than according to who sells them. or Parma ham from Italy. and fragrance shops and replace them with a new retail concept based on the large Parisian avenues called Passenger City. The skill is in finding the correct balance between international recognized global brand retailers and local shops and catering outlets which give the airport an individual identity. All the staff wear the same uniform. the large sit-down restaurant. favour a more streamlined airport service. However. Madrid airport has its ‘Palaces and Museum’s’ outlet which has merchandise inspired by Spain’s culture and heritage. sometimes competing individual outlets. which took up considerable valuable floor space. fragrances. 2000). became a relic of the past. For instance. Some airports have chosen to enforce and promote an airport brand rather than the individual brands of the high street retailers.Managing Airports outlets by again bringing in famous brand names as McDonald’s and Burger King. The catering area began to be split into a number of different. while the new terminal at Santiago airport in Chile tries to depict Chile’s diverse geography from desert to Antarctic conditions (Byrd. at Las Vegas airport a number of the outlets are themed after hotels in the city and at Orlando airport there are shops representing the major theme parks in the area. Vancouver airport is themed to represent the physical characteristics and cultural heritage of British Columbia. Amsterdam Schiphol and Singapore Changi airports are good illustrations of such a policy. Cartier. most airports are trying to blend together famous brand outlets with local outlets which can give the airport some kind of identity and can distinguish it from other airports. All sold products are placed in bright yellow branded shopping bags which have become a very recognizable feature in Europe and beyond. Certain passenger types. Hence. particular business travellers who are seeking a quick transit through the terminal. the widespread adoption of branding at airports has meant that there is now greater similarity between the shopping facilities at many airports and less diversity. Airlines have been responding to these needs by developing automatic ticketing and self check-in which theoretically should speed up the travel process 150 . Hong Kong’s Chep Lap Kok airport tries to reflect its unique ‘East meets West’ culture with a wide range of international retail shops combined with both Asian and western restaurants and fast-food outlets. For example. Brand fatigue can become a problem – particularly for the frequent traveller who can find that airport shopping can become rather dull and boring. The airport operator decided that it would get rid of its traditional duty. and Christofle but also shops representing the tradition of Paris and France such as Musées de France and others selling gourmet French products. chocolates from Belgium. The character and the culture of the city or the country which the airport serves can be represented by selling local merchandise or gourmet products such as cheese from Switzerland. confectionery and so on. Aeroport de Paris is just one example of an airport company which launched a new retail strategy in 1994. In this area AdP put in world-famous brands such as Hermes. Manchester airport has its ‘Donkey Stone’ pub which is stocked with the local beer Boddingtons and it has a Manchester United football club shop.and tax-free.

a few airports. is difficult to achieve if the airport is cluttered with retail and catering signage and branding. have made ‘shopping announcements’ instead.EU duty. the schemes not only provide the airport operators with a mechanism to encourage repeat buying but also enable them to find out about their customers and communicate with them when new products and services are being introduced. For instance. However.and tax-free shopping. while at Gatwick airport Airtours. 2002). The airlines. 151 . Airport operators such as BAA plc and Aer Rianta have encouraged loyalty purchases at airports by introducing loyalty cards such as BAA plc worldpoints and the Dublin airport executive club. the See Buy Fly retailers are partners in KLM’s Flying Dutchman frequent-flyer programme. 1999). for example. Similarly Airtours continued to complain that pressure to maximise retail income at Gatwick had led to inadequate provision of passenger facilities such as seating and toilets and that additional shops had distracted passengers from making their way to the gates (Competition Commission. This has been partly as a result of airports employing professional retail managers from the high street rather than always making internal appointments. At Amsterdam airport. while welcoming the fact that non-aeronautical income can reduce an airport’s reliance on aeronautical charges. which have further increased resentment to airport shopping from certain passengers. Some airlines have also complained that airports have been giving too much attention to developing commercial facilities while ignoring basic operational requirements. A correct balance between commercial and operational space is needed so that the non-aeronautical revenue is optimized without compromising the operational effectiveness – but this is no easy matter. in 2001. As well as adopting high street preferences for speciality shopping and branded products. was aggrieved that their request for greater space in the gate lounge areas had been refused although extra space had been provided for duty-free outlets (Monopolies and Mergers Commission. have periodically expressed concerns that the shopping function of the airport has interfered with the normal flows of passengers through the airports. particularly since the demise of intra. As with high street shopping. There have been claims that passengers have delayed flights because they have been lost in the duty-free shops – so some airports have now placed flight information systems in the commercial outlets as well. airports have also been applying other tried and tested retail practices. 1996). More recently. in the mid-1990s at Heathrow airport BA complained about the lack of airline information desks at the entrance to the Terminal 1 departure area because the space was being occupied with commercial facilities. Clear signage to gates. Some concessionaires are appointing service assistants to greet customers in an attempt to make the shopping experience a more personal one (Anderson. the perceived value of such initiatives tends to fall as they are adopted by more and more operators. BA complained about the insistence of BAA for compensation due to dilution of its car parking income if BA provided fly-through check-in facilities and also that first class passengers had to be routed through BAA’s retail facilities on their way to their airline lounge were further examples of the priority which BAA gave to commercial facilities.The provision of commercial facilities and reduce the time a passenger has to spend in an airport before departure (Conway. While flight departure ‘tannoy’ announcements have long since been abandoned at most airports because they have proved ineffective and annoying. 2000). a major charter airline.

7-tonne aquarium filled with 2000 tropical fish which was installed in Heathrow’s Terminal 4 to promote gin in 2000. For example. Singapore Changi airport has two such guarantees: 1 The price of liquor. They may be better able to plan their shopping in the limited time period which they have available. E-commerce may also offer other non-aeronautical revenue opportunities for airports in the form of web advertising and the selling of travel-related products. airports have also introduced value and money-back guarantees which have been commonplace on the high street for many years. the Internet must clearly be seen as a threat because there is a whole new range of discounted goods which are now available and easy to access. merchandise can be delivered to home addresses and so consumers can. Information provided on the web can complement or replace more traditional promotional methods. it is important with airport advertising not to inhibit ease of movement through the airport or to irritate the passengers. Advertising has become much more very varied and interactive with for example. that many purchases at airports are made on impulse and form part of the ‘leisure travel experience’. These are seen as particularly important because of the perceived expensive ‘rip-off’ reputation of many airports. For example. and can achieve far greater widespread coverage. tobacco. and cosmetics will be no higher than at other major airports in the Asia Pacific region. Special insurance had to be taken out and the floor had to strengthened! However. At an increasing number of airport. in effect. Short-term large-scale promotions are also becoming more popular such as the 4000-litre. with airports increasingly being seen as an important advertising medium. however. Vienna airport had a large ‘T’ in the terminal advertising the telecommunication industry but research showed that passengers did not like this and wanted airport logos instead (Bates. scrolling billboards. such as Amsterdam airport’s practice of supplying travel agents and KLM offices with their ‘See Buy Fly’ catalogues. perfumes. a refund of double the price difference will be given. At Vancouver airport. 152 . now participate in ‘airport shopping’ without leaving the comfort of living room! Such a development will no longer mean that airport shopping has to be limited to what the passenger can carry. For example. 2002a). Advertising is also an area where airports can generate a significant amount of revenue. Many airport websites now give details of the commercial facilities which are available and so passengers can be more prepared when they visit the airport. baggage carousels. In the case of BAA plc and some other airports. trolleys. aboriginal arts and crafts can be bought on the airport website. products can be pre-ordered for collection at the airport. inappropriate. and Internet kiosks as well as the traditional billboards and light boxes. plasma screens and the sponsorship of airport furniture such as clocks. It must be remembered.Managing Airports Moreover. If higher prices are found at the airport. 2 No discussion about retail activities would be complete without references to the impact of the Internet and e-shopping. A full refund or exchange will be given for any goods whether they are faulty. In some ways. The Internet can also bring many opportunities for airports if strategies are developed in conjunction with the terminal facilities. research undertaken in 2002 based around a fictitious brand Bleu showed the total awareness of the brand was 31 per cent after just 1 month (BAA. 2002). Prices for other goods will be no higher than established downtown shops. or unwanted purchases.

The airport operator will usually only provide the shell for the outlet and it will be up to the concessionaire to provide the capital investment for fitting out the facility. there is no guarantee that the concessionaire will aim to maximize its sales as it may be more concerned with profit margins. This lower-risk option is usually chosen because the airport operator does not have specialist skills required or a detailed understanding of the market environment.and tax-free products. Some airports. may opt to offer their airports as a total retail package to a master concessionaire who will then in turn seek specialist operators to run the individual outlets. such as duty. particularly smaller ones. The fee may also increase at a faster rate than the level of turnover in the belief that concessionaires will be in a better position to pay higher fees once all basic fixed costs have been covered (Freathy and O’Connell. BAA plc used this type of contract with its duty-free retailers in the 1990s before it operated these facilities itself. It is currently not a popular approach for other commercial activities but the idea has generated some interest – particularly since the abolition of intra-EU duty. Alternatively.and tax-free sales in 1999.The provision of commercial facilities The commercial contract and tender process There are various ways in which commercial facilities can be provided at airports. This typically involves the concessionaire paying a percentage of sales to the airport operator often in addition to agreeing a minimum annual guaranteed amount. although this can vary quite considerably and there may be options for renewal. Car parking tends to be the only commercial activity which is provided by a substantial number of airport operators themselves since it generally requires less specialist skills and also greater capital investment by the airport operator. The turnover fee may vary from as little as 5 per cent for some landside commercial activities to up to 50 per cent for facilities with higher profit margins – notably duty. Most airports have chosen to contract out these services to specialist retail and catering companies. Such an arrangement will be relatively low risk for the airport operator which will tend to have little responsibility over the commercial facilities. The contractual details When airport operators contract out their commercial facilities they usually enter into a concession contract with the companies providing the services. However. since this revenue stream will be linked to the concessionaire’s sales rather than profit volumes. There are a few companies. These have been used for car parking facilities at airports for many years.and tax-free sales. 1998). For Aer Rianta this is primarily because it has built up much expertise in this area being directly involved with such operations since the first shops were opened in the 1940s. such as 153 . Other examples include a number of regional UK airports. the airport operator may choose to enter into a management contract with the retail or catering company. The airport operator will be assured of a certain amount of revenues. A typical length for the concession will be around 5 years. such as Aer Rianta and BAA plc who have chosen to provide some facilities themselves. BAA plc only adopted this approach in 1990s to enable it to have total control over the whole retailing process from suppliers to warehouses to customer purchases and to provide it with opportunities for international expansion.

A third option is to have a joint venture arrangement when the airport operator enters into a partnership with the specialist retailer or some other organization to provide the commercial facilities. innovation. Such a practice is not so widespread in some other more developing areas but is usually the most effective way of ensuring the best contractual arrangements. in recent years. particularly in Europe. which now have profit share style management agreements for several concessionaires (Savage. and such an approach may be costly in management time both while the contract is being negotiated and once the agreement is in place (Gray. however. vision. North America. 2000). It should enable the airport operator and the concessionaire to develop a much more longer-term relationship with each other than is typical with a traditional concession contract. The airport operator may be able to influence some of these factors – but by no means all of 154 . the concession fee paid) and the more qualitative terms (i. shop design.Managing Airports Birmingham airport.e. entered into a number of joint venture agreements in order to provide commercial facilities in the CIS and the Middle East. 1999). and Asia an increasing number of concession contracts are automatically put out to tender when they come up for renewal. Examples of this practice at home airports are relatively rare – Amsterdam airport used to have such an arrangement with its catering facilities. The problem of overbidding was one of the key reasons behind ACI Europe’s attempt to develop a tender code (ACI-Europe. There are many other factors which will also play a role. Some airports will just choose the bid which will generate the highest revenue – indeed. organization/personnel/investments) and assessment of the concession fee offered. namely appraisal of the tenderer’s qualities (size and range of activities. This type of arrangement can be on a profit. While selection criteria will vary from airport to airport. There are perhaps more opportunities for this type of arrangement when an airport operator is wishing to expand its involvement to other airports. generally the evaluation of offers will consider both the financial terms (i. etc. for example. This may not be an easy path to go down. They have to work together following common objectives to optimize revenue and profit levels and sharing the risk.). specific experience.e. This has led to a tendency to overbid in offers. The concessionaire will loss money and have to renegotiate conditions with the airport operator or be forced to abandon its airport operations completely. 2000). such a situation will not be sustainable in the longer term. financial reliability).or sales-sharing basis or a mixture of the two. appraisal of the business plan (market analysis and product strategy. in some countries such as Singapore and Israel they are required to do so by law. Within Europe. While in the short run this will benefit the airport operator with high levels of concession revenue. Factors driving success Choosing the right concessionaire and negotiating the most appropriate contractual agreement is crucial if an airport is going to fully exploit its commercial opportunities. The objectives of this code was to facilitate tender processes by recommending standardized tender procedures and to establish generally recognized selection criteria based on a combination of qualitative and quantitative factors. quality. A points system was developed which considered three different areas. Aer Rianta. turnover forecast.

thought to be around 5 million passengers. for instance. as previously discussed. more specialist shops can be added until finally the airport can be considered as a shopping centre (Jones. such as long queues for passport control.The provision of commercial facilities them. As the airport grows. One 155 . the UK carriers Airtours and Britannia. This has meant that commercial facilities very often are not ideally situated or have been added on later as an afterthought. Then there is the competition for airport commercial facilities. a large proportion of the airports which are in use today were designed without taking sufficient account of the commercial opportunities which airport terminals can offer. Walsh. In addition. space and design of facilities. Purchasing patterns will also be affected by delays at an airport. particularly the charter airlines. particularly in Asia. allow prebooking of goods in order to catch some business before the passengers can see what the airport competitor has on offer. E-shopping. Abu Dhabi. and reduce or even eliminate the dwell time that passengers have for browsing in the shops and having something to eat or drink. is quite likely to develop into a major competitor as well. First. A delay of an hour or so for a departure slot may give passengers extra time to visit the shops or catering outlets. newsagent. Airports go through different evolutionary stages as regards their commercial income depending on their size. and Bahrain and some Asian airports serving destinations such as Singapore. All too often. Small airports can only really offer the basic facilities such as a duty-free shop. lengthy operational delays within the terminal. 1997). outlet size and mix is very important as is the location. level of taxation. and foreign currency fluctuations. Spending by all passengers will be influenced by the general economic climate. Understanding the mix of passengers and planning the facilities to match as closely as possible their needs and preferences is paramount to maximizing the revenue generating opportunities and return on investment. Just as in the high street. There is also competition from the in-flight sales of airlines. Kuala Lumpur. For instance. Also small airports with limited passenger traffic are at a distinct disadvantage since they will not have the critical mass. These airlines. inflation rates. at least when passenger purchases are being considered. necessary to diversify and support specialist retail and catering outlets (Gethin. competition exists with discounted electrical and other high street businesses and from the growth of factory outlets. competition can come from downtown tax-free outlets for international travellers. 2002). is all about providing facilities close to passenger flows and not in areas which are ‘dead ends’ or are too far from passengers’ view. Notable examples of airports which are in a particularly competitive situation are those in the Gulf such as Dubai. A change in the flow line of passengers can have a dramatic impact on concessionaire’s sales. which are allowed in a number of countries. In Europe and North America. 1998b. which can come from a variety of different sources. Factors to consider include growth in gross domestic product (GDP) and consumer expenditure. Such a delay may be popular with the commercial department but not with anyone else! On the other hand. and catering outlets. there are other airports. security or immigration will have the reverse effect. However. Successful concession planning. 2000). Clearly. the nature of the airport traffic needs to be taken into account. concession planners get involved at a much too late stage of the terminal design and development process (Gray. and Hong Kong. an airport handling predominantly domestic business travellers is likely to be in a less favourable position for generating commercial income than an airport with many long-haul leisure passengers.

Shops and catering outlets have to be large enough so as not to give a congested and overcrowded image. because very often facilities have to be duplicated which can be costly until there is sufficient throughput of passengers to support all the facilities. 2001). with their concessionaire partners. They also will not want to walk long distances to be able to shop. The amount of time a passenger has at an airport will obviously influence their shopping behaviour. Particular problems can arise from terminals which are of a linear design.60 for international passengers (Maiden. but also for staff. be on the same floor levels as the departure gates. ideally. 2000). 2000). but not too large that consumers may be deterred by an appearance of inactivity and empty space. 1998). Whilst catering tends to account for a fairly small share of total airport commercial revenues. At some airports. Problems have also occurred for airports in European countries which have signed up to the Schengen agreement and have abolished immigration controls with other Schengen countries. Thus. resulting in reduced custom for each outlets. located in secondary sites or because subsequent extensions of the terminal have significantly shifted the main direction of passenger flows. such as Munich airport.80 for domestic passengers and £1. this has caused unnecessary duplication of facilities. many airports cannot maximize their commercial spend because their facilities may have been inappropriately designed as at Narita airport in Japan. Different types of passengers spend different average dwell times in the lounge. adopted by Brussels airport to ensure that passengers pass by all outlets. it can have a major impact on a passengers image and perception of the airport. as having to go through the inconvenience of changing levels may deter some passengers from visiting the commercial facilities (Doganis. Airports serving low-cost carriers often find that the rapid growth in passenger numbers which occurred makes it very difficult in the short-term to provide adequate and appropriately situation commercial facilities. This was the situation with the fourth terminal at London Heathrow Airport when it first opened. Measuring non-aeronautical performance Airports.Managing Airports option. This is partly due to a drive for 156 . Select Service Partner found that typically catering income accounts for 2–3 per cent of airport income but 20–25 per cent of perceived image (Allett. Passengers also need to feel relaxed when they shop and so they tend to have a preference in buying from outlets which are situated within the vicinity of the departure gates – once all essential processes such as check-in and security screening have been completed. 1992). Landside shopping is different as convenient locations not only for passengers. The outlets should. meeters and greeters and local residents. BAA plc has also calculated that the incremental airport spend for each additional 10 minutes available time is £0. have become increasingly active in monitoring their non-aeronautical performance. must be found. BAA plc has estimated that in the domestic lounge in Terminal 3 at London Heathrow the average dwell time for economy passengers is 49 minutes compared with 27 minutes for business class and 13 minutes for first-class passengers (Toms. is to place popular outlets like dutyand tax-free shops in the ‘weak corners’ outside the main flow lines and the less popular outlets in the ‘strong corners’ (Haugaard. Catering outlets can compete with passengers’ dwell time in shops and so they need to be positioned near to the retail facilities but must not interrupt the flow.

The relative small amount of income per square metre which was generated from catering facilities is typical for most airports. For example. with experience of assessing retail performance at other locations.26 0. One of the most comprehensive benchmarking studies is the Airport Retail study which has been undertaken since 1998 (Favotto. The latter measure has the advantage in that it can be used to compare airport performance with other retail facilities at other sites such as shopping malls.15 0. and North America were investigated. 2002). in 2001. 2002) In the 2000–01 research thirty one major airports in Europe.68 0.39 0. By way of illustration. and analysed various factors which helped explain the comparative results which were obtained. Africa.2 Concession income at BAA London airports.32 0. In addition.58 1. Duty-free generated by far the largest amount of income per passenger and square metre at Heathrow and Gatwick due to long-haul passengers – but this was not the case at Stansted with its different passenger mix. Asia Pacific. Table 6.24 0. 2000–01 Heathrow Concesssion income per pax (£) Duty-free Other airside Landside Catering Bureaux de change Other Total Concession income per square metre Duty-free Other airside Landside Catering Bureaux de change Gatwick Stansted 0. ownership model.02 0. The study looked at performance indicators such as retail revenue per passenger and retail revenue per square metre both airside and landside.20 0.31 0. the Geneva airport survey found that 46 per cent of respondents felt that airport prices were too high (Geneva Airport.12 2.2 shows concession income per passenger and per square metre for BAA London airports. airports use indicators such as sales per passenger. passenger penetration levels and sales per square metre to analyse the economic performance of their commercial facilities. are being bought in to manage airport facilities.45 5 885 4 224 3 361 1 003 17 914 6 786 3 278 1 596 902 21 538 3 435 2 861 2 066 1 249 25 000 Source: Competition Commission (2002). Consumer satisfaction levels and perceptions of value for money are assessed by many airports through customer surveys (as described in Chapter 4).92 0.37 0. These included geographic location.73 0. Making inter-airport comparisons is difficult because of the commercially sensitive nature of the information required and lack of reliable industrywide data. the volume and Table 6.37 0.09 1. 157 .27 0.24 0.58 0.The provision of commercial facilities better performance monitoring of all aspects of the industry and also because retail experts.12 2.

In 1951. the airports.Managing Airports nature of traffic. In response. and Italy. This shows the dominance of Europe among the best performing airports (Heathrow. and perfumes and a few other items. This is in spite of the expansion in the range and type of other retail activities on offer. Sweden. size. and the area devoted to retail. 1993 as the single market was ‘born’. such as rail. most VAT-free sales are not allowed. It was argued that EU consumers were subsidizing not only duty.and tax-free outlets but also air and ferry travellers. mix. The rationale was that it was illogical and incompatible to have such a system when the EU should be behaving as a single market with open borders. New York. sports clothing. other airports had opened similar shops and had started to expand the range of merchandise on offer. The 1990s were a period of uncertainty for most EU airports. and to be unfair trading in relation to downtown shopping. for example.and tax-free sales would be abolished on 1 January.4 with the average value indexed at 100. these shopping privileges were considered to distort competition between modes of transport with no access to these sales.and tax-free shopping with many airports substantially increasing the area dedicated to such shops and offering a much more diverse and varied product selection. It was originally intended that all EU duty. Gatwick. few passengers are actually totally aware of the differences between tax-free shopping (when the sales/value added tax – VAT – on goods such as perfumes and cosmetics. The first duty. Moreover. Value added tax rates within Europe vary from above 20 per cent in Denmark. and Paris Charles de Gaulle) and North America among the worst performing airports (Montreal. The shops sold a small range of alcohol. and associated manufacturing industries collectively argued that duty-free privileges did not distort or 158 .and tax-free shops will thus very much depend on their country of origin. airport retailing is all about duty. the number. clothes. These shops were designed to be attractive to transatlantic passengers on refuelling stops (Freathy and O’Connell. ranging from the traditional alcohol. Then came a retail boom in duty. In addition. such as Austria and Germany. Copenhagen. location. In some countries. tobacco. watches and jewelry. density of outlets. charter airlines. This was primarily in response to the rapid increase in passenger traffic at that time and particularly the growth in package holidays and other forms of leisure travel. and Luxembourg. Portugal. 1998). Vienna. By the 1960s. is presented in Figure 6. another shop was opened in Prestwick airport in Scotland. One of the indicators used.and tax-free shopping and nothing much else. retail revenue per square metre. Duty taxes are again highest in the Scandinavian countries and lowest in Greece. ferry companies. and electrical equipment is not charged) and duty-free shopping (when the higher ‘duty’ tax on alcohol and tobacco is excluded). Amsterdam Schiphol airport. and other fashion accessories.and tax-free airport outlet was opened in 1947 at Shannon airport in Ireland. and Norway to around 15 per cent in Spain. was one of the first airports to offer taxfree electronics and photographic material. tobacco and perfume products to camcorders. and Dallas Fort Worth). Consumer perception of value for money at airport duty. Spain. The ending of EU duty.and tax-free sales Background For much of the travelling public.

159 Index value (100 = Average) 100 150 200 250 300 350 H 50 0 ea G at w ic k p ou gr ’H th ro w C hi ca go O op C A Source: Favotto (2002). BA Figure 6.4 Airport retail revenue per square metre in 2000–01 Europe North America a en re ha ge Ka n ns Sy ai dn C ey ha rle N ar s de ita G Va aul nc le ou v Br er is ba Si n ng e a Am po st re er M dam el bo ur Br ne us s Fr els an kf In u di an rt ap M St ol is oc an kh ch es ol te m Ar r la nd a Sa n O Fr rly M on anc t i H rea sco ar ts l Do fie r ld val At la nt a Pe rth N Y M g ad rid rou D p al la Bar s Fo aja s rt W or th Vi en na Jo C ai h r M ann ns on es tre bu al r M g ira be l Asia-Pacific and Africa Average .

Also companies such as BAA plc and Aer Rianta had bought duty-free concerns outside Europe in an aim to grow their businesses in areas which would be unaffected by EU developments. and low-cost scheduled airline industry. the proponents to the abolition managed to achieve a six-anda-half-year extension of these sales until 30 June. but the prospect of no EU duty. a number of airports had broadened their retail mix and diversified into new activities in the 1990s. 1997). and customer choice would be reduced with suppliers less eager to provide marketing support and trial new products (Institute for Retail Studies. which would have a knock-on effect throughout entire national economies. It was claimed that the cost of travel would have to rise substantially to compensate for the loss of income. almost all governments had been persuaded in favour of another 30-month extension to the abolition date in order for the industry to be adequately prepared. the gross margin achieved on duty/tax sales would fall and lessen investment opportunities. as well as changing consumer expectations and retail trends. This research concluded that EU airports would lose at least 40–46 per cent of their total duty. 1997. This was because the negotiation position with suppliers would be weakened. Messages such as ‘Act now to keep your Duty Free’. which had led to this development. Airport strategies In the first few months after the abolition of duty.Managing Airports hamper the development of the single market and that abolition would result in millions of jobs being lost. This was largely the result of airports being 160 . The European Travel Research Foundation (ETRF) commissioned various studies to support the lobbyists’ arguments. 1999. Admittedly. a disbelief that abolition would really occur in 1999 meant that when 1 July arrived many airports were not nearly as ready as they could have been. plastic bags. Through active lobbying of government ministers. 1997). charter. The IDFC launched a major awareness campaign at airport terminals. and in leaflets. and the Federation of Transport Workers Unions. however.and tax-free sales were abolished.and tax-free sales was only one contributing factor. The Danish government. ferry companies. The immediate impact of loss of EU duty.and tax-free sales it quickly became apparent that the airport industry had focused too much of its attention on fighting the campaign to save the sales. It was argued that this large-sales loss would fundamentally alter the cost structure and profit potential of airport retailing. Generally. (Air Transport Group. manufacturers.and tax-free profits. and so on) co-ordinated their work through the International Duty Free Confederation (IDFC) which was based in Brussels. ‘1999: Travelling would never be the same again’ or ‘Duty-Free: It doesn’t have to go’ were displayed on placards. ferries and in other public places. this meant that on 30 June 1999. Since unanimity among EU members was needed to approve the extension period. and other bodies such as charter carriers and regional carriers associations. Anti-abolition lobbyists (airports. By 1999.and tax-free sales and at least 58–64 per cent of duty.and tax-free sales in many cases was much greater than was expected. During this reprieve period the arguments for and against abolition were hotly debated. was not convinced by the arguments. however. with not enough effort being channelled into preparing for change if abolition were to occur. intra-EU duty. looking at the impacts on the airport. ETRF.

retail income was down by 20 per cent in July 1999 compared with the equivalent amount in 1998. The key message that most were trying to get across was that there were still bargains to be found within the EU and that outside of this area the situation remained unchanged (Newhouse. a number of airports launched major marketing campaigns. At many airports passengers for both EU and non-EU destinations share the same retail terminal area and so the airports have had to devise Table 6. rather than from January to December. in partnerships with their retail concessionaires. and hence stayed away from all airport shops – even those passengers who could still use them. 2000). have absorbed the value added or sales tax themselves – effectively offering the merchandise still at ‘tax-free’ prices.3 Short-term impact of the loss of intra-EU duty.3). To address the confusion among passengers. Other concession revenue up by 14% Landing charges up 15% in 1999 and 13% in 2000 Duty/tax free revenue down by 20% in 1999 compared with 1998 Duty/tax free revenue constant but spend per passenger down by 6% in 1999 compared with 1998. Many of the EU airports. the situation improved after the initial reaction to abolition. Other concession income up 7% Shops sales down 44% and related profits 70% July–December compared to January–June Duty/tax free revenue down by 26% in 1999–2000 compared with 1998–9. explaining what passengers travelling to EU destinations and beyond could and could not buy at airport shops. Some airports are also selling a selection of liquor products at duty-free prices but at most airports cheaper tobacco is no longer available to EU passengers. While for many airports. The travelling public was sold the message that duty.and tax-free shopping would no longer be available after 30 June 1999.and tax-free sales on airport revenues Airport Amsterdam Aer Rianta BAA Birmingham Brussels Copenhagen Impact on revenues Duty/tax free revenue down 12% in 1999 compared with 1998. Source: Compiled by author from annual accounts. Tax paid revenue up by 12%.The provision of commercial facilities victims of their own very successful awareness campaigns. Total sales (including duty/tax free) revenue up by 11% Shopping revenue (duty/tax free and paid) down by 5% in 1999 compared with 1998 Dusseldorf Paris Vienna Note: For UK airports the impact is likely to be greater since the financial year runs from April to March. the loss of revenue within the first year of operation after this development was in many cases considerable (Table 6. 161 . Landing fees raised by 58 pence per passenger (around 12% increase) Duty/tax free revenue down by 46% in 1999–2000 compared with 1998–9 Duty/tax free revenue down by 22% in 1999 compared with 1998 Duty/tax free shopping centre revenue (includes duty/tax free) down by 23% in 1999 compared with 1998. At BAA airports for instance.

Managing Airports

some method for identifying the merchandise which is on sale to these two types of passengers. At some airports, for example, at BAA airports, goods which have been displayed in areas which are colour coded blue are made available to EU passengers while products in green areas are available to non-EU passengers. Understandably, many passengers were confused by such a system and this has prompted the airports to provide more explanatory literature to clarify the situation. Elsewhere, a number of European concessionaires, airports, and ferry companies have joined together to form the Travel Value Association. All these organizations have adopted the common and recognizable ‘Travel Value – Buy more for less’ trade mark on their shops, merchandising and advertising in order to indicate to the travelling public that there are still good savings to be made when travelling. This organization also embarked on a large advertising campaign between Easter and autumn 2000. Some major airports such as Frankfurt, Vienna, and Dublin are members of this association. At the same time the airports were anxious to put across the message that duty- and tax-free sales still exist, as normal, for non-EU passengers. At Manchester airport, for example, large notices were placed at check-in informing non-EU passengers of this fact. Airport web sites gave details about what passengers can buy. Non-EU European airports where duty- and tax-free sales can still be made have also been trying to capitalize on this situation. Such strategies have undoubtedly enticed some passengers back to the shops and softened the blow of the loss of EU duty free. However, EU airports have still been very much aware of the need to increase the volume of retail income if they are going to make up for the lower profit margins on EU sales. Some airports, such as Copenhagen and BAA have introduced arrivals shops in the baggage reclaim area or after customs where discount purchases can be made while others have arranged for goods to be ordered on the outbound part of a journey and to be collected on return. Airports with significant amounts of domestic traffic have been making these passengers aware that for the first time they, too, can have access to discount shopping at airports. Before abolition in June 1999, it was widely predicted by the ERDF and other bodies that aeronautical charges would have to be substantially increased to compensate for the reduction in non-aeronautical revenue. Only a few airports have adopted this strategy of increasing their dependency on aeronautical fees. Copenhagen raised its charges in January 1999 and 2000 by 15 and 13 per cent, respectively – although this airport had not raised their charges for a number of years prior to this. Aer Rianta wound up its discount scheme for new traffic and carriers. BAA plc’s regulator allowed an increase in charges of 70 pence per passenger – equivalent to an increase of around 15 per cent. In the end BAA plc raised charges by 58 pence per passenger. By contrast the regulator did not allow Manchester to raise its charges even if it so desired. Other airports such as Amsterdam, Frankfurt, and Paris decided not to increase their charges to compensate for the loss of non-aeronautical revenue. It is difficult to assess the more longer-term impact because of the difficulty of disintangling the effects of the loss of duty free from all the other developments at the airport – particularly 11 September 2001. However, Figure 6.5 shows that the share of non-aeronautical revenue has generally decreased at European airports since 1998 and clearly one of the contributory factors must be the ending of duty free sales. It is interesting to note that Geneva airport, which is not in the EU, maintained a constant share of non-aeronautical revenue over the years in question
162

The provision of commercial facilities

70 60 Non-aeronautical share (%) 50 40 30 20 10 0
Am st er da m s Ba el -M ul ho us e rm Bi in gh am C op en ha ge n Fr an kf ur t G en ev a G la sg ow Lo nd on G at w ic k Lo nd on H ea th ro w M an ch es te

1998 1999 2000 2001

Figure 6.5 Non-aeronautical revenue share (%) at European airports, 1998–2001
Source: Airport accounts.

unlike all the other airports. Table 6.4 also shows that non-aeronautical revenue income per passenger at UK airports went down by 10–30 per cent in many cases. Again it is impossible to identify how much of this reduction was attributable to duty- and tax-free losses – albeit that this was before 11 September 2001. For many airports as well as a fall in overall non-aeronautical revenues, the abolition of EU sales has meant a fundamental change in the mix in revenues from different market segments. For example, at Copenhagen airport, the passenger split is roughly 70 per intra-EU and 30 per cent non-EU. Before 1999, the retail split mirrored these passenger shares but now 30 per cent of sales come from intra-EU passengers and 70 per cent from non-EU passengers (Bork, 2002).

e Vi nn a r

The impact of 11 September 2001
Shortly after the abolition of EU duty free, airport commercial managers had to face a new challenge, namely the impact of 11 September 2001. There are a number of factors to consider which have had different influences on the airports. First, there were obviously less passengers to generate commercial revenues. However, the overall impact of this decline depended very much on the type of passengers using the airport. For example, post 11 September 2001, the actual concession revenue per passenger from retail facilities at BAA airports went up from 4.12 to 4.19 because of the decline in US passengers who typically spend relatively little at airports (BAA, 2002b). Revenues have also declined because of the additional time being spent during check-in and other processes because of more stringent security requirements. However, in some cases passengers arrived earlier at the airports because of security requirements and actually had more time to shop. There have been examples of catering spend going up because traditional airlines have cut
163

Managing Airports
Table 6.4 Changes in non-aeronautical revenue at UK airports, 1998–2001 Airport Terminal pax (thousands) Non-aero income ( 1000) (£) Non-aero income per pax (£) Change 2001/ 1998 (%)

1999/98 2001/00 1999/8 Belfast International Birmingham International Bristol International Cardiff International East Midlands Edinburgh Glasgow Humberside International Leeds Bradford International Liverpool London Gatwick London Heathrow London Luton London Stansted Manchester Newcastle International Southampton International Teesside International 2 669 6 716 1 824 1 250 2 145 4 614 6 566 434 1 409 936 29 555 61 037 4 385 7 535 17 405 2 988 754 674 3 175 7 712 2 210 1 547 2 237 5 645 7 022 461 1 608 2 071 32 242 64 670 6 364 12 399 19 112 3 376 869 757 8 493 31 599 13 928 5 441 11 279 13 512 26 417 2 622 5 288

2001/00 1999/8 2001/00 11 022 31 132 19 482 4 864 9 698 16 569 24 215 3 668 4 824 3.18 4.71 7.64 4.35 5.26 2.93 4.02 6.04 3.75 3.47 4.04 8.82 3.14 4.34 2.94 3.45 7.96 3.00 2.30 5.99 8.22 4.84 5.17 5.89 3.21 7.76 2.69 9.1 14.2 15.4 27.8 17.6 0.2 14.3 31.7 20.1 13.9 28.5 1.8 21.3 27.3 12.2 10.7 15.3 32.8

2 501 4 767 2.67 247 600 193 000 8.38 493 100 531 600 8.08 26 946 30 771 6.15 53 558 64 109 7.11 116 806 112 569 6.71 10 736 10 834 3.59 5 071 6 740 6.73 2 700 2 038 4.01

Source: Centre for Regulated Industries (CRI).

back on their in-flight refreshments and low cost carriers, who provide minimal or no catering, have expanded their market share since 11 September 2001. Some airports have been quite innovative in providing catering kiosks and carts for passengers who are waiting in long security queues. However, these security queues at some airports have blocked important retail areas which previously had been in prime locations. It is therefore very difficult to disintangle all these different factors to assess the overall impact on commercial revenues. In the United States, it is estimated that overall non-aeronautical revenues declined by 4.5 per cent in 2002 compared to 2001 for the whole airport industry (ACI-North America, 2002). For individual airports, the impacts were very varied. For example, at Amsterdam airport, prior to 11 September 2001 concession revenues were up 3 per cent but then in the remaining months of the 2001 they were 4.8 per cent lower (Schiphol Group, 2002). At Brussels airports similarly commercial sales were up by 5 per cent before September 2001. They then fell considerably and in the worse month – November – were down by 20 per cent. This was due to a decline in passenger numbers, particularly with the demise of Sabena and more stringent security measures which reduced the dwell time. Also the airport refused entry to the terminal to any visitor that was not a passenger because of the social unrest following the announcement of Sabena’s collapse and so clearly this eliminated the spend from this important market segment (Brussels International Airport Company, 2002).
164

The provision of commercial facilities

Some airports, notably in the United States, have had to redesign many of their commercial facilities in order to conform with new security measures, which has been costly and has led to a decline in non-aeronautical revenues. For example, previously meeters and greeters had been permitted to accompany passengers right up until the gates but this practice has now been stopped. Most of the commercial facilities were near to the gates and so this has caused a reduction in the commercial revenue generated by non-passengers. Also car parks near to the terminal which generated large amounts of income have had to be closed or reallocated for security reasons since the FAA has brought in a 300-foot rule which prevents any vehicle being parked within that distance of the terminals. A notable example is Los Angeles airport which had a terminal design surrounding the central parking facilities. This rule has also affected the courtesy buses which were another good source of commercial revenue for the airports. Some airports have reacted by introducing ‘express parking’ by increasing the number of shuttle buses to transfer the passengers from the car parks to the terminal as at Dallas Fort Worth airport, by bringing in valet parking as has happened at Jacksonville airport or by installing automatic vehicle identification technology (Pilling, 2002). The events of 11 September 2001 have also created a much more volatile trading environment for concessionaires. Some airports, such as San Francisco and Los Angeles have suspended their minimum guarantees and/or cut turnover rates in order to help the concessionaires. A number of retailers have also been calling for concession payments to be linked to passenger flows as well as turnover so that the fees can be adjusted if traffic suddenly falls (Rozario, 2002).

Aer Rianta: becoming an international retailer
Aer Rianta is an interesting example as it was one of the first airport companies to expand beyond national boundaries and get involved with the management and operations of commercial facilities at other international airports. Aer Rianta is the Irish state-owned airport company which has been responsible for managing the country’s three major airports, namely Dublin, Shannon, and Cork since 1937. It has a long history with the provision of commercial facilities, as the world’s first duty-free shop was opened at Shannon airport in 1947. It continues to operate its own duty-free and travel-value shops at the three airports and also provides fuelling and catering services at Shannon airport. It also runs a college of hotel management in Shannon and in 1990 acquired a chain of hotels, Great Southern Hotels. In 1988, Aer Rianta International (ARI) was set up as a wholly owned subsidiary of Aer Rianta. With a population of less than 4 million, Aer Rianta recognized the limits of its own market and aimed to use ARI to promote commercial activities in locations outside of Ireland. The first undertaking was a joint venture company Aerofist with Aeroflot Russia, the Moscow airport authority and ARI each having a one-third interest in the company. Aer Rianta had originally developed links with the Soviet Union in the early 1970s with an agreement whereby Aeroflot would trade airport charges for fuel at Shannon airport. In 1988, Aerofist opened the first duty-free shop at Moscow airport. It also began offering in-flight duty-free sales on international flights operated by Aeroflot out of Moscow. In the next few years, joint venture companies with ARI involvement were also set up to manage duty-free 165

Managing Airports shops at St Petersburg and Kiev airports as well as downtown shops in Moscow and two shops, which are now closed, on the Russian–Finnish border. In 1991, ARI expanded its involvement into the Middle East area with the setting up of a joint venture company with local investors in Bahrain to be responsible for designing the duty-free shops, overseeing their fitting out and their day-to-day management. ARI further expanded operations in this region by getting involved in the management of the duty-free shops at Karachi airport in 1992 and at Kuwait airport in 1994. In 1997, other new duty-free shop contracts were awarded in Beirut, Qatar (in-flight catering for Qatar airways), Damascus, and Egypt. In Europe, ARI’s first retail operation outside of Ireland in Europe was at the terminals of the Channel tunnel. The organization provided duty free facilities from the tunnel opening in 1994 until the abolition of duty-free sales in 1999. In addition ARI opened two shop in Cyprus in the late 1990s – one at Larnaca airport in 1997 and one in Paphos in 1998. In 1999, it took over operations of a number of duty-free shops at Greek airports, sea ports and at border crossing in a joint venture with the Gebr Heinemann and Jacques Parsons. Elsewhere, in China in 1996 ARI signed a consultancy contract with China National Duty Free Corporation concerning the operation of duty-free shops in Beijing Airport. This was ARI’s first venture in the Far East. Aer Rianta International also project managed the construction of the duty-free shops at Hong Kong’s Chek Lap Kok airport. Then, in 1998, ARI expanded into North America for the first time by acquiring the duty-free division of Canada’s United Cigar Stores and the concession for duty-free shops at Montreal, Winnipeg, Edmonton, and Ottawa airports. In 2002 ARI took over the duty-free concession at Halifax airport as well (Table 6.5).

Table 6.5 Region Europe

Aer Rianta’s involvement in international retailing activities, 2002 Location Larnaca Airport Paphos Airport Greece (Hellenic duty-free shops at 15 airports, five sea ports and eight border crossings) Sheremetyevo I and II Airports, Moscow Pulkova II International Airport, St Petersburg Borispol Airport, Kiev Bahrain International Airport Karachi International Airport Kuwait International Airport Beirut International Airport Damascus International Airport Qatar Airways (in-flight) Montreal Airports Winnipeg Airport Edmonton Airport Ottawa Airport Halifax Airport

CIS Middle East

North America

Source: Aer Rianta annual reports.

166

The provision of commercial facilities 50 000 Net profit after tax (IR£ million) Associated undertakings ARI and hotels Irish airports 40 000 30 000 20 000 10 000 0 1992 1993 1994 1995 1996 1997 1998 1999 2000 Figure 6. The airport group has become more and more dependent on these external activities over the years and by 2000. In the same year a consortium of ARI and NatWest Ventures bought 40 per cent of Birmingham airport. coupled with a widespread discount scheme to encourage more traffic. Thus. 1992–2000 Source: Annual reports. there was a series of developments which resulted in the company undertaking a thorough review of its non-aeronautical activities. ARI has also become involved with the ownership and management of international airports. In terms of profits. 50 per cent of the ownership of Düsseldorf airports was sold to ARI and its consortium partner Hochtief. the profits from the international business are seen as particularly welcome and invaluable for future success. BAA: the development of a new retail approach In the first few years after the privatization of BAA plc in 1987. 2000). Airport charges had not increased at these airports since 1987 and this. The low dependence on airport charges is unlikely to change following the introduction of airport regulation in 2002.6). In 1997. had meant that just prior to the end of EU duty-free sales. which requires the level of charges to be reduced. The year 1999 was a particularly problematic year for the Irish airports because of the abolition of duty free. In addition to providing duty-free retailing. the turnover of all these international activities (excluding joint venture activities) was 43 million euro compared with 352 million euro for the Aer Rianta Irish airports and 42 million euro for the hotel activities. In 2000. First. the subsidiaries and associated undertakings of Aer Rianta accounted for close to half all profits compared with just 3 per cent in 1992 (Figure 6. the airport group gained a reputation in the 167 . In 2001. airport charges only represented 17 per cent of Irish airport revenues (Aer Rianta.6 Profitability – Aer Rianta. ARI made a profit of 13 million euro. and Great Southern Hotels recorded a figure of 3 million euro. ARI and Hochtief acquired 36 per cent of Hamburg airport. the German construction company.

the survey has also included 6 600 passengers at Stansted. BAA plc also introduced a free telephone enquiry number for shopping facilities.Managing Airports press of being a ‘rip-off’ airport in terms of the value for money of the goods on offer and the associated quality of service. The QSM considered more effectively issues such as quality. and could be traded for money off certain goods and services such as car parking and shopping at the airports or points on some airlines’ frequent-flyer programmes. a quarter of whom were not UK residents. drinking. The passengers are asked about which outlets they have visited and the amount they have spent – both landside and airside. the renowned food critic. The next stage of the value guarantee was introduced in 1994 after BAA plc had undertaken further extensive market research into its commercial operations. This led to the launching of a new retail strategy in 1990. a travel insurance scheme called BAA WorldSure and a new range of airport upgrade packages. Egon Ronay. An improved system of market research and customer satisfaction was introduced by the replacing the passenger opinion survey (POS) at the airport with the QSM. BAA plc began undertaking a continuous departing passenger survey called a retail profiler. In 2002. Information about the key characteristics of the passengers. eating. The bonus point initiative was subsequently adopted at all the airports in 1996 and re-launched in 1999 as world points. and reason for travel is also gathered.7). There were various elements to this strategy. Savings of up to 50 per cent were assured for duty-free goods such as liquor and tobacco. with a freepost address in the United Kingdom and refunded postage elsewhere. and 30 per cent for fragrances. In addition. choice. shopping assistants were even employed on the Gatwick Express train between Gatwick airport and London! The early 1990s also saw BAA plc progressively introducing more and more international brand names to its airports and offering increased competition with many of the services on offer particularly in areas such as catering. costs were increasing at the airports and passenger growth was slowing down (Phythian. such as nationality. A year later. At Heathrow and Gatwick airports. Around 30 000 passengers at Heathrow and 14 000 passengers at Gatwick are annually interviewed and. and car parking. branded AirportPlus. shopping and currency exchange. speed of service and value for money. Second. and personal shopping consultants at its airports. whereby points could be earned for car parking.This promised a full refund on goods bought at BAA airports to passengers from any region of the world. BAA launched a credit card BAA WorldCard. BAA plc has also undertaken passenger-tracking surveys to understand where departing passengers spend their time in the terminal and how available time influences retail 168 . By 2000. frequency. In the same year. this scheme had over 300 000 members. The key message with this was that all taxpaid goods sold at the airport were guaranteed to be the same price as equivalent goods in the high street. a regulatory review looming which would determine the level of aeronautical charges for the next five years. banking. Moreover. since 1999. The total floor space allocated to retail activities was increased substantially from a mere 41 000 square metres in 1990 to over 100 000 square metres 12 years later (Figure 6. To overcome the problem of being regarded as a ‘rip-off’ airport. and his team of inspectors began to monitor the quality of all the catering outlets at Heathrow and Gatwick airports. BAA plc launched its value guarantee in 1991. pre-ordering possibilities and help desks. at Gatwick airport the bonus points scheme was launched. 1996).

currency.and tax-free shopping. spend. Subsequently in 1997.Then in 1996 BAA plc launched World Duty Free. 1990–2002 Source: Annual reports. BAA plc claimed that this would give it complete control over the duty-free business a its airports and would enable the company to introduce more effective warehousing and distribution systems. This was relaunched in 2000 with dedicated ‘Airzone’ sites for each airport. In addition. Up until 1993. The establishment of World Duty Free was also seen as a way to give BAA plc opportunities to expand its commercial activities to non-BAA locations.7 Retail space at BAA UK airports. a wholly owned subsidiary of BAA. Links to the expendia website were established so that travel arrangements could be made. these facilities were provided by concessionaires using a traditional concession fee basis. which it established to run airport duty. if targets were exceeded. They do this by planting a sticker on passengers at check-in and tracking their passage to the gate by recording the time at various points on the way (Maiden. BAA plc funded the costs and kept all the sales revenue except for paying a management contract fee to the concessionaire. and car parking to take place. This process was completed in 1999. Gradually BAA plc started to replace the management contracts at its own UK airports. In 1993. either through commercial management contracts or as part of an overall privatization package to operate the whole airport. Another feature of the retail strategy in more recent years has been development of the internet as a marketing and distribution medium. the concessionaire would receive a share of the profits. and obtain procurement discounts. 2000). Other interesting features of BAA’s retail strategy includes the advertising or media management area where BAA launched media@BAA in 2000 which brought together all of BAA’s advertising under one identity. mainly in 169 .The provision of commercial facilities 120 Retail space (m2 × 1000) 100 80 60 40 20 0 /1 /2 /3 /4 /5 /6 /7 /8 /9 /0 /1 00 20 20 90 91 92 93 94 95 96 97 98 99 19 19 19 19 19 19 19 19 19 19 01 /2 Figure 6. A new website was introduced in 1998 which gave information about the commercial facilities on offer and enabled the pre-ordering of retail goods. so they negotiated new management contracts with their concessionaires.and tax-free shops. BAA plc acquired the US retail chain Duty Free International which had around 200 outlets. BAA plc wanted to take more responsibility and control. With this system. BAA plc now has more control over its duty.

This was a 15-year agreement signed in 1991 – which has subsequently been extended until 2017. In a parallel development in the 1990s. where the abolition of sales appeared imminent and to increase the company’s purchasing power. BAA plc introduced a number of strategies to address this problem. Table 6. However.8). This subsidiary was renamed World Duty Free Americas with BAA’s original duty-free company being renamed World Duty Free Europe. A number of other centres have opened subsequently or are planned. 1999). In addition. the revenue was to be split. It was also involved in diplomatic and in-flight business. Another area of retail diversification has been discount designer outlet centres. Naples) or airport management contract (Indianapolis).6 summarizes the key retail developments which have taken place in the last 12 years.40 per passenger. BAA plc began to manage commercial facilities at non-BAA airports The first main contract was for Greater Pittsburgh International airport. With this arrangement the airport operator was guaranteed an index-linked US$0. In August it was down by 16 per cent and by September by just 13 per cent. Although this downward trend showed signs that the situation was improving.Managing Airports the United States at airports and border crossings. it did not stop BAA plc share price falling by around 30 per cent by October 1999. it reconfigured passenger flows in its major terminals so that passengers were channelled through the shops where they could still make purchases.The new facilities were grouped together in what was called ‘The AirMall’ which had over 100 outlets and 60 companies – many of which have famous branded names – and covered an area of around 10 000 square metres. the first month after abolition. in 1999 it took over responsibility for the commercial facilities at the terminals for the Channel tunnel at Folkstone and Calais/Coquelles on a profitsharing based 15-year contract with Eurotunnel. It also launched a major advertising campaign telling consumers that they could still shop at airports – with slogans such as ‘Miss you’ or ‘I deserve 170 .The first BAA McArthur/Glen centre was opened in Cheshire Oaks in the northwest of England in 1995 followed by a second centre in Troyes in northeast France. BAA plc even issued a profits warning in October to alert markets that the abolition would have a more severe the impact that was previously expected – a loss of £122 million of retail sales which was over 40 million more than predicted (Skapinker.To overcome the confusion among passengers. From 1998 onwards BAA plc has adopted a strategy of disposing of its interests in these outlets once they have been developed in order to benefit from then value which has been created from these joint ventures. and if further income were generated. Consequently. BAA plc received a certain share of income above this amount.and tax-free sales had a major impact on the financial performance of BAA plc. BAA plc has also looked after the commercial facilities at airports where it has an equity share (Melbourne. the share of revenue from these commercial sources has increased dramatically in the last 12 years (Figure 6.The AirMall was opened in 1992. In July 1999. net retail income at all the UK BAA airports was down by 20 per cent. the abolition of intra-EU duty. BAA plc entered into a joint venture scheme with the US retail developer McArthur/Glen to develop a chain of outlets in the UK and continental Europe. The acquisition was undertaken to provide greater geographical strength away from Europe. As a result of all these non-aeronautical activities. BAA plc has been involved in the management of commercial facilities at Boston airport. Launceston.

The provision of commercial facilities Table 6. 1999–2002 Source: Annual Reports. BAA WorldCard and WorldSure introduced World Duty Free Americas sold BAA McArthur/Glen joint venture dissolved Source: BAA Annual reports. BAA plc added extra retail space and is planning for still more. bonuspoints re-launched as worldpoints. 40 per cent savings on fragrances were offered with up to 20 per cent savings on wine. World Duty Free established Acquisition of Duty Free International (renamed World Duty Free Americas) New website launched enabling pre-ordering Abolition of EU duty/tax free. Eurotunnel contract awarded World Duty Free Inflight business sold. QSM introduced Value guarantee launched. On the aeronautical side passenger fees were raised by 58 pence per passenger – equivalent to an increase of around 12 per cent. For EU passengers.6 Date 1990 1991 1991 1994 1995 1996 1997 1998 1999 2000 2001 2002 Key developments in BAA’s retail strategy in the 1990–2000s Development Launch of new retail strategy. 171 20 01 /2 . champagne. Egon Ronay became catering inspector First retail airport contract awarded at Pittsburgh Worldwide guarantee launched First BAA McArthur/Glen outlet opened BAA bonuspoints launched at all BAA airports. it’ – and ‘it still costs less at the airport’. Arrivals duty-paid shops and collection-on-arrival facilities were provided. 2 500 2 000 1 500 1 000 500 0 /1 Non-aeronautical Aeronautical Revenue (£ million) /2 /3 /4 /5 /6 /7 /8 /9 /0 /1 00 20 90 91 92 93 94 95 96 97 98 99 19 19 19 19 19 19 19 19 19 19 Figure 6. and a range of spirits and cigars.8 Revenue sources for BAA. Eurotunnel contract terminated.

by 2001–2000 UK retail sales had recovered and increased by 6 per cent compared with the year before (BAA. retail revenue from duty.and tax-free shops had fallen by 18 per cent compared with the previous year. The result of this meant that in 2001–02 nonaeronautical revenue increased at UK airports but decreased overall for the BAA group (Figure 6. BAA plc’s strategy for recovery has been to refocus on what it sees as its core airport business by disposing of World Duty Free Americas and BAA McArthur/Glen. They continued to increase by a total of 3 per cent in 2002–2001. By the end of the 1999–2000 financial year in March 2000. In the same year World Duty Free Americas underperformed against BAA plc’s expectations. Dubai airport: non-aeronautica strategies for a competing airport Many of the Gulf airports are in fierce competition for transit and transfer traffic – albeit to a lesser extent nowadays because of more non-stop long-haul 172 . 2002b). Overall profits before tax were down by 2. However. the BAA–McArthur/Glen joint venture was dissolved and BAA aims to exit permanently from this activity in the future. rising by 8 per cent before 11 September 2001 but decreasing by 1 per cent after this event (BAA. the loss in total retail revenue was 7 per cent. In 2002.9 Profitability – BAA. BAA also terminated the Eurotunnel contract which lost the company £20 million in 2000.8).Managing Airports Profit before interest and tax (£mn) 700 600 500 400 300 200 100 0 1990/1 1991/2 1992/3 1993/4 1994/5 1995/6 1996/7 1997/8 1998/9 1999/0 2000/1 2001/2 Figure 6. and this meant that in September 1999 BAA plc wrote down goodwill by £147 million in respect of this business in its accounts.6 per cent which was the first decrease since 1991–2 when the economy was in recession and the Gulf War took place (Figure 6. 1999–2001 Source: Annual Reports. Retail revenue from other shops was up by 12 per cent so. leaving BAA to focus on the 58 World Duty Free outlets at UK airports. 2001). overall.9). The in-flight business of World Duty Free was sold in 2000 and World Duty Free Americas was sold in 2001.

They are very interesting airports as regards non-aeronautical strategies as they have probably done more than any other airports in the world to attract passengers by promoting the duty-free facilities on offer. The airport is owned and operated by the Dubai Department of Civil Aviation. and public facilities such as retailing and catering. The DDF works very closely with the airport management and this enables it to get involved with the master planning process at a very early stage. The first DDF shop was introduced in December 1983 and then. This promotion offered US$1 million to winners of the ‘Millennium Millionaire Draw’.The promotion was extended throughout the 1990s with a continuous high-profile display of luxury cars in the airport concourse. 1999). 2003). it handled 16 million passengers compared with just 4.5 million in 1989. Another important area of diversification for the airport is the Dubai Airport Free Zone which was launched in 1997.The provision of commercial facilities flights. the airport launched another promotion called the ‘Dubai Duty Free Finest Cyber Surprise’. which were sold exclusively at the airport at over $100 a ticket. and cigarettes and food represent a further 45 per cent of sales (Bampton. 1 078 luxury cars had been won by travellers from over 65 different countries. It works closely with the national airline. In 2000. It is the fifth largest duty free outlet at an airport in terms of turnover. Gold and jewellery account for around 16 per cent of these sales and liquor. were limited to 1000 per draw. in 1987. In November 1989.The duty-free complex covers an area of 9 000 square metres and is four times larger than the previous shop. totalling around US$306 million in 2002 (Dubai International Airport. as well as airports in other areas such as Malta have also undertaken similar promotions.This promotion offered a Rolls-Royce Bentley Mulsanne car to the winner of a raffle. This state ownership enables the prices to be kept low and very competitive compared with other airports. The tickets. The airport serves Dubai. 2000). US$200 million five-level Sheikh Rashid terminal concourse (Walters. by early 2003. This covers an area of over 1. were limited in number (5000 this time) to increase the chances of winning ticket. which is based at the airport. Since 1984. the DDF launched its ‘Dubai Duty Free Finest Surprise’ to mark the expansion of its shopping complex. After 1991 two cars were offered simultaneously and. By the beginning of 2003. The airport is forecast to handle 30 million passengers in 2010 – although it only has a national population of 790 000. 20 passengers had been made millionaires! 173 . such as Abu Dhabi and Bahrain. Dubai airport is the largest airport in the region. as before. Emirates. Tickets for this draw could only be bought at the airport for nearly $300 a ticket and. light industry. the turnover associated with these sales has increased by over 1000 per cent.2 million square metres and includes areas used for apron space. DDF also runs a tennis stadium and an Irish village with restaurants and pubs away from the airport. arrival duty-free shopping was added. a new duty-free area was opened at the airport in the new 180 000 square metres. Other competing airports in the Middle East. The duty-free shop operator Dubai Duty Free (DDF) is also run by this department. In 2002. All routes to the 27 departure gates go through the retail area. which has become the major trading base of the Gulf region as well as being used as a transit stop for intercontinental services. To commemorate the opening of these new facilities.

this increased emphasis on commercial facilities has not been popular with all 174 . Moreover. and other interactive exhibits. mini putting green. 33 million at Hong Kong. In 1996 it was one of the first airports to offer Internet services to passengers. A third terminal. It also has a science discovery area which has devices such as holograms. its passenger traffic dropped by 5. To appeal to transfer passengers it organizes bus tours of Singapore. In all. However. and 15 million at Kuala Lumpur. The airport is now building on an already relatively sophisticated commercial strategy which it has had for many years. a ‘sports arena’ lounge and a ‘movie theatre’ lounge which shows films 24 hours a day and is decorated with film posters and memorabilia. The airport is facing fiercer competition with the opening of the new Hong Kong and Kualu Lumpur airports in the late 1990s and the new Bangkok airport which is planned for completion in the mid-2000s. It now has an extensive Internet area which includes numerous personal computer connection points and infrared Internet access kiosks. In addition. It offers a very wide range of commercial facilities and has pre-shopping facilities and price guarantees like BAA plc and some other airports. In Terminal 2 it has an orchid garden which covers an area of over 600 square metres and has over 40 different varieties of orchids.Managing Airports Singapore airport: aiming to maintain its position as a leading Asian/Pacific hub Singapore Changi airport. This compares with 13 million passengers at Changi airport in 1989. swimming pool. In 2001 the airport handled 28 million passengers compared to 31 million at Bangkok. In addition to all these commercial facilities for passengers. By 1999. The terminal also had a fern garden and outdoor garden terrace.4 per cent in 1998 – the first decrease ever for the airport – as a result of the Asian crisis. There is a news lounge. Then after 11 September 2001. has developed some interesting strategies in order to maintain its position as a hub in the very competitive Asia and Pacific market. it has five themed gardens! It has a cactus garden located in Terminal 1. This meant that it had to reduce its landing fees by 10 per cent and give rebates of up to 15 per cent for rentals at commercial concessions to remain competitive. gym. It also has a bamboo garden in Terminal 1. the airport reduced its landing fees and rentals by 15 per cent with the government setting up a US$119 million Air Hub Development Fund in order to pay for these reductions and to provide for additional marketing support with the aim of further consolidating the airports’ hub position. and jacuzzi. it has three television thematic lounges. The growing importance of non-aeronautical revenues within the airport industry is a very visible trend which can be observed by any passenger who is able to compare their visit to an airport now with an equivalent visit of 10 or 15 years ago. which has more than 20 varieties of cacti which are native to North and South America. The airport aims to ensure that it provides the latest technological and communication services – particularly for its business travellers. is due to open in 2006. One of its unusual features is its gardens. colour-blindness tests. traffic had more or less recovered. which is owned by the Civil Aviation Authority of Singapore. sauna. capable of handling 20 million passengers and raising total capacity to 64 million passengers. the airport has also set up a cargo park with the aim of establishing itself as a leading air cargo centre in South East Asia. There is also an airport hotel situated in the transit area which has many facilities including a karaoke room.

Brussels International Airport Company (2002). Bates. in the future. This chapter has aimed to describe the market for commercial services and to assess commercial strategies and polices. Routledge. J. 7. P. December– January. Cranfield University Airport Commercial Revenues Course. Annual Report 2002/2001. CAS. Duty free challenge. airport operators will be even more imaginative in developing new ideas. (1992). (1999a). Cranfield. (2002). T. Marketing and Commercial Strategy Handbook. 9. Amore. ACI-North America (2002). Airport Council International (ACI) (2000). Bampton. New approaches to concession planning post-abolition. (2002). News Release. April. Copenhagen Airport (2000). 1–19. vol. New airport. (2000). Allett. (2000). Annual Report 1999. Bork. ACI-Europe. Economic issues in airport management. ACI. August. BIAC. Press release European Travel Research Foundation (ETRF) (1997). Asia takes a long term view. Janes’s Airport Review. December. R. BAA. (2000). The Stationery Office. (1999). Byrd. Citrinot. Annual Report 2001. Eye-catching figures. 23 April. 6–7. 50–2. University of Westminster/Cranfield University Airport Economics and Finance Symposium. May. London. April.The provision of commercial facilities users – even though it may be essential for the airport operators’ financial well-being. March. New commercial strategies for airports. Retail management structures: transatlantic differences. Annual Report 1999. Centre for Airport Studies (1998). J. A. Airport Retail Study. (1999b). Pseudo brand demonstrates power of advertising at airports. Jane’s Airport Review. Anderson. M. ACI Airport Economics Survey 2001. ETRF. (2000). Dubai International Airport (2003). Remarkable Growth for Dubai International Airport. Conway. Airports International. L. Doganis. new opportunities. The Duty and Tax Free Industry in the European Union: The Facts. ACI Airport Economics Survey 1999. London. (2001). ACI. 44–8. Copenhagen Airport.The diverse collection of case studies at the end of the chapter shows that the options available to airports are vast and no doubt. ACI-NA. Citrinot. (1999). The Airport Business. February. 9. November–December. Travel and Tourism Analyst. Air Transport Group (1997). vol. Aer Rianta (2000). Competition Commission (2002) A Report on the Economic Regulation of the London Airport Companies. Ninth ACI-Europe Airport Trading Conference. Airport Development Economics. BAA (2002b). R. Will check-in get smart? Airline Business. Doganis. 3. European duty free is dead: what’s changed? Airports International. Airport Council International (ACI) (2002). Food and beverage. ACI-Europe. L. The ACI Europe tender code. J. Marketing and Commercial Strategy Handbook. BAA (2002a). D. State of the Industry Report. Jane’s Airport Review. 175 . Aer Rianta. References and further reading ACI-Europe (1999). 7. Cranfield University. 8–9.

(1998b). London. (2002). International Airport Review. P. Ninth ACI-Europe Airport Trading Conference. 42. London. Understanding the retail market. D. (1998a). Institute for Retail Studies (1997). ed. Cranfield. How BAA is surviving without cheap booze and fags. Marketing and Commercial Strategy Handbook.Managing Airports Favotto. R. Getting to know the market at airports. (1996). October. Gray. R. (1999). University of Westminster Marketing and Market Research Seminar. M. Marketing and Commercial Strategy Handbook. (2000). vol. I. Kim. Ninth ACI-Europe Airport Trading Conference. Annual Report 2002. February. 176 . (1999). December. S. Geneva Airport (2002). Airport Retail Economics. University of Westminster Marketing and Market Research Seminar. (1998). March. Ninth ACI-Europe Airport Trading Conference. MMC. O’Conner. ACI-Europe. Sovereign. 23 August. February. (2000). Phythian. Macmillan. London. Newhouse. 6. F. Benchmarking airport retail performance. S. 55–7. (2002). Cranfield. Gray. Harrison. H. C. A retailer’s perspective. Haugaard. (1998). vol. February. (1995). S. 11–15. (2000). (2000). Maiden. vol. J. and O’Connell. A Report on the Economic Regulation of the London Airports Companies. European Airport Retailing. Communique Airport Business. Getting to know the market at airports. B. (2000). Cranfield University Airport Commercial Revenues Course. F. February. Airport retailing: problems are opportunities. Old experiences – new challenges. Fourth ACI-Europe Airport Trading Conference. (1997). Jane’s Airport Review. (2000). 69–72 Freathy.). J. F. Landside vs airside – a study of airport shopping centres. Ashford. Jones. Airside shopping is becoming big business. May. Gethin. May. London. Geneva Airport. Pilling. Gray. In Airport 2000: Trends for the New Millennium (N. University of Westminster/Cranfield University Airport Economics and Finance Symposium. December. A. Maiden. Airport World. Optimising income from commercial operations at Asian airports. (2000). Middecke. Life without intra-EU duty free – adapting to the loss of the business and exploiting new opportunities. Concessions: plan early or else! Marketing and Commercial Strategy Handbook. Airports seek parking revival. F. (2002). Kostelitz. February. London. Innovative commercial strategies. (2002). London. Meznarsic. London. Ninth ACI-Europe Airport Trading Conference. Maiden. Concession contracts and tendering processes. Monopolies and Mergers Commission (1996). Dynamics in Asia: Inchon International Airport and airport community development. Designing the perfect airport to optimise retail revenue: a retailers point of view. M. Landside shopping. Cranfield University Airport Management Course. 7. ACI-Europe. ACI-Europe. University of Stirling. S. October–November. London. 6. Independent. June–July.

London. 10. 13. September. Commercial and Marketing Best Practices Handbook. March. (1999). Critique of cost benchmarking. End of European duty-free party gives BAA a hangover. Walters. (2000). Dubai aims for the top 20. R. 3. S. Savage. University of Westminster/ Cranfield University Airport Economics and Finance Symposium. 21. K (2002). Problems and Relevance to Economic Regulation. (2000). B. 5 November. M. ACI-Europe. M. Walsh. CAA Workshop on Benchmarking of Airports: Methodologies. Financial Times. (2000). vol. (1996). Skapinker. 177 .The provision of commercial facilities Rozario. (1999). December–January. Developing commercial strategies. R. A winning formula. A further examination of European commercial activities. December– January. London. Jane’s Airport Review. Jane’s Airport Review. Jane’s Airport Review. November. Schwarz. Toms. Retailers call for help.

the resources allocated to marketing activities were very small. generally. This passive approach has long since gone at most airports. Promoting the air services at the airport was also not considered to be a responsibility of the airport. typically consisting of the production of a timetable and publicity leaflets. Airport promotion tended to be very basic. Airports have become much more proactive in their approach and have developed a wide range of increasingly sophisticated techniques for meeting . the role of the airport as a public service meant that very often airport management would merely respond to airline requests for new slots by providing published charging and use-of-facility information rather than initiating talks to attract new services. and reactive responses to press enquiries about the airport. with the view being that this should be undertaken by the airlines and travel agents selling the products.7 The role of airport marketing The birth of airport marketing Airport marketing as a concept at most airports did not really exist until the 1980s. It was rare to find airport marketing managers and. Prior to this. It was up to the airport to provide an efficient and safe airport with good facilities for aircraft and travellers. the airports considered it was solely the role of the airline to identify opportunities for new or expanded services. In most cases.

It is difficult to accurately quantify this increased emphasis on the role of marketing but some indication of this trend can be gleaned from Table 7. has meant that there have been enhanced opportunities for more airports to share in this expansion of the market. which certain airports may wish to attract through a range of marketing techniques.The role of airport marketing the demands of their complex mix of customers such as passengers. low-cost carriers such as easyJet and Ryanair. for example. The increase in demand for air transport due to deregulation and other more general factors. They are thus much more susceptible to aggressive marketing by airports. 16 10 4 7 7 2 1 1 1 179 . such as economic growth.1 Airport Number employed in airport marketing at selected regional airports Total number of marketing staff 1991 1997 27 24 6 9 6 6 4 5 4 Number of passengers per marketing staff 1991 631 000 325 000 382 000 164 000 392 000 257 000 250 000 215 000 163 000 1997 562 000 227 000 428 000 202 000 248 000 185 000 41 000 54 000 70 000 Manchester Birmingham Newcastle East Midlands Bristol Cardiff Bournemouth Norwich Humberside Source: Humphreys (1999). which. privatization. deregulation. Airports have had to develop more sophisticated marketing strategies and tactics to meet the needs of the traveller. This has provided airports with greater incentive to develop innovative and aggressive market strategies so that they can reap some of the benefits from this growth. have emerged. freight forwarders. By the late 1990s. has encouraged airports to recognize the need for a professional marketing-orientated approach when dealing with their airline customers. Airlines in Europe. The travelling public has also become more demanding and more sophisticated in their travel-making decisions and their expectations of the airport product. in turn. tour operators and so on. a number of airports are close to capacity and unable to offer attractive slots for new services. marketing is considered to be a core activity and one which is a vital ingredient for success. the majority of airports were devoting considerable resources to marketing activities. New types of airlines. and globalization trends within the airline industry have increased the commercial pressures being faced by airlines. airlines. Within any commercially run business. In addition. The airport sector is no longer an exception and marketing is increasingly being seen as an integral part of the airport business. for example. Deregulation of air transport markets has made the airport business much more competitive. are much freer to operate out of any airport they choose without being constrained by bilateral restrictions. This means that there may be attractive prospects for other airports to promote themselves as alternative uncongested airports. Moreover.

particularly in Europe. especially at regional airports. Moreover. If marketing is defined in its broadest sense of satisfying customer needs. their catchment areas may overlap for certain types of traffic. were often covered by the same department at the airport (Meznarsic. Gatwick. from a regulated and public sector controlled activity into a liberalized and commercially orientated business. For short-haul routes. for instance. and so in all but the smallest airports they are usually now considered to be separate functions. there are various other activities (which have been discussed in other chapters) that also can be considered as airport marketing. and Newark airports. The nature of airport competition It used to be commonly believed that most major airports were monopolies with their precise role being determined by the passenger demand in the catchment area. The modern-day airline industry. while in Washington the Metropolitan Washington Airports Authority airports of Dulles and National compete to a certain degree with Baltimore airport. The development of non-aeronautical activities can also be treated as a marketing role. which has been transformed.1). Up until quite recently marketing and commercial activities. in creating new views on airport competition. For long-haul flights passengers may be more willing to travel further distances to an airport that they regard as offering a more desirable or superior long-haul service.Managing Airports an analysis of staff employed in the marketing area. and the American cities of New York and Washington. La Guardia. as have the development of the lowcost sector. and environmental neighbourhood communication initiatives. While this may still be true in certain markets. BAA plc airports of Heathrow. In many cases when there are overlapping catchment areas. Sometimes the airports may be under the same ownership as with the AdP. These activities include quality assessment and improvement. Most airports have now recognized that for both activities to be effective. passengers tend to choose the most convenient. airline choice was considered to be limited to particular airports because of bilateral agreements. nearest airport that has suitable services. Orly. and Le Bourget airports. with UK regional airports the number of passengers per marketing staff decreased significantly between 1991 and 1997 (Table 7. For example. Notable examples are the European cities of London and Paris. Such common ownership may clearly reduce the amount of potential competition. which owns JFK. Elsewhere in London. very different skills and management are required. Clearly if airports are physically close. has played a major role in this changing airport situation. which is owned by the State of Maryland. There are a number of key ways in which airports can compete (ACI-Europe. 1995). and the Port Authority of New York and New Jersey. and Stansted compete with the independently run London City and London Luton airports. Certain airline developments such as the formation of global alliances and other types of co-operation between airlines such as franchising have been particularly important. which owns Charles de Gaulle. In some major urban areas or cities there are a number of situations when more than one airport serves the population. 180 . there are now a growing number of opportunities for airports to compete for both passengers and airlines. 1999). one airport tends to become the dominant player with the other airports playing a more secondary role.

to be the ‘London airport’ in spite of a range of services being offered at the other London airports. Elsewhere separate ownership patterns exist.The role of airport marketing In the London area. These airports offer faster turnarounds. and SEA. has not proved to be particularly successful but it remains an important issue (CAA. owns Bergamo airport. 2001).2). They may act as an overspill airport when the major airport has inadequate capacity. Then there are the airports that have begun to market themselves as low-cost alternatives to the major airports – having been encouraged by the rapid development of European low-cost carriers (Table 7.g. and fewer delays. for example. owns Hahn airport. for example. particularly business-related traffic. These types of passengers favour the convenience and generally less congested environment that a city centre airport such as London City or Belfast City may offer.g. for example. at JFK airport in New York and Toronto airport in Canada.2 Alternative low-cost airports within Europe Low-cost airport Beauvais Bergamo Charleroi Carcassonne Cergy-Pontoise Hahn Liverpool London – Luton London – Stansted Prestwick Rome – Ciampino Sandefjord – Torp Skavsta Competing major airport Paris – CDG/Orly Milan – Linate/Malpensa Brussels National Toulouse Paris – CDG/Orly Frankfurt Manchester London – Heathrow and Gatwick London – Heathrow and Gatwick Glasgow International Rome – Fiumicino Oslo – Gardermoen Stockholm – Arlanda Under same ownership? No Yes No No No Yes No No Yes No Yes No No 181 . They are also usually in a position to be more flexible on pricing and to enter into long-term pricing agreements. which are all vital elements of the low cost model. which is what the low-cost carriers want. Some low-cost airlines have suggested that there ought to be competing terminals at airports run by different operators. 2003). Frankfurt airports. which suffers from runway constraints. Some limited evidence of such a practice. the Milan airport operator. The secondary airports tend to fulfil more specialized roles (Dennis. Liège airport). BAA plc owns Stansted airport. Table 7. Other airports may choose to specialize in charter operations (e. Alternatively. Rome Ciampino airport) or freight operations (e. particularly those travelling on business. In many cases they are situated substantially further from the town or city they are serving compared with the competing airports. as is the case with Düsseldorf airport. centrally located secondary airports may be able to attract a certain amount of domestic or short-haul traffic. 1995). This is particularly the case with Ryanair at Dublin airport where a new competing terminal may be built (Hogan. Sometimes these airports may be owned by the same operator who has control of the competing airports. short walking distances from the terminal to the aircraft. and the nearby secondary airport of Moenchengladbach. Heathrow airport is considered by many passengers.

1999). has provided the impetus for more intense competition for hub traffic. Oslo. demand comes from a variety of markets each with their own specific requirements.and large-sized airports have aspirations of becoming a hub. The marketing techniques used for these two types are very different. Unless effective regulation is introduced. Most airports would probably agree that both airlines and passengers are key customers. In addition. New infrastructure. namely the trade such as airlines who buy the airport facilities direct and the general public or travellers who merely consume or utilize the airport product. very much dependent on the operating strategies of airlines. Key prerequisites for a hub are a central geographic position and adequate runway/terminal capacity to enable a ‘wave’ system of arriving and departing flights to take place. Hub airports are. and Denver (ACIEurope. which is closer to the city centre. Americans visiting Europe may not have a strong preference as to whether they start their European tour from Paris. Caves and Gosling. Hong Kong. Hong Kong. or Frankfurt. which was built in the 1970s to provide extra capacity in addition to Dorval airport but never managed to attract the volume of traffic that was forecast. in reality there is now less opportunity for this to happen as a result of the growing concentration within the airline industry through developments such as global alliances and codesharing. While many medium. Milan is a more recent case where there has been considerable reluctance for carriers to transfer from the Milan Linate airport. A notable example is Montreal Mirabel’s airport. From a marketing perspective. Airports serving these cities can. particularly if they are open all night and have a good weather record. therefore. whereas airlines tend to think of passengers as their customers and themselves as customers of the airports. notably at Asian destinations such Kuala Lumpur. Marketing concepts The market for airport services The focal point of any marketing system is always the consumer of the services. there are the other market segments such as local residents and businesses whose needs must also be met. Certain airports can compete as hubs for cargo operations especially for express parcel services. it is useful to divide this demand into two. passengers will have a specific destination in mind when they travel. The other important way in which airports compete is as a hub. London. For the airport product. Obviously these types of demand do not impact directly on the amount of aeronautical revenue and traffic throughput at an 182 . which has happened in locations such as Munich. however. The same can be true with cargo traffic. In most cases. compete for this traffic. This is particularly the case within Europe where most long-haul freight is trucked to its final destination. to the newly expanded Milan Malpensa airport. and Macao.Managing Airports Problems can arise when a new airport is built and is perceived as providing a inferior service to the old one – perhaps being in a less conveniently situated location. For example. the only feasible way of ensuring that traffic will transfer to the new airport is by actually closing the old one. The exception may be with some intercontinental traffic when passengers might be more indifferent. 1999.

Rather than considering the demand by product type or purpose of travel. Then. there are ‘Agoraphobics’ who have the lowest level of need. For each type of customer. cost. tenants. finally. with passenger travel this would include a full-cost traditional service. and a charter service. For business passengers.3 The airport’s customers Trade Airlines Tour operators Travel agents Freight forwarders General aviation Passengers Scheduled (traditional and low-cost) Charter Business Leisure Transfer Others Tenants and concessionaires Visitors Employees Local residents Local businesses airport but their presence at the airport can have a significant impact on the level of non-aeronautical revenue. but only after these other factors have been taken into account. a low-cost service.4). The quality of the airport product can have a marginal impact. there are the ‘Self-controllers’ who are frequent business fliers who just want to be processed through the airport as quickly and as efficiently as possible. Table 7. Then there are the ‘Euphorics’ who are the once-a-year holidaymakers who arrive early at the airport and spend money as part of the holiday experience. clearly the nature of air services on offer – in effect the airline product – will be the key factor as no one will choose to fly from an airport unless it offers the required travel opportunities. passenger airlines. facilities such as fast-track processes and airline 183 . Next in the order of needs are the ‘Confident indulgers’ who are frequent leisure fliers who are familiar with the airport product and want to be pampered.3 shows some of the major market segments at an airport. have a fear of flying and of missing the plane. Concessionaires. For example. Most complaints come from ‘Airport controllers’ who are typically frequent business passengers flying economy with their families on holiday and feel aggrieved that they do not have the privileges that they normally experience when flying business class. Airline alliances could well be given special consideration. They can also help airports in acting as a catalyst for economic development. In the cargo area. The amount of time that these types of passenger spend at the airport varies from considerable in the case of the Agoraphobics down to the minimum possible for the Self-controllers (Young. A common way to segment demand is by airline product type. Factors such as the distance. for example. and do not want to be distracted from the departure monitor. For passengers. For example. and ease of surface access to a certain airport can also be very important. choosing an airport is the result of an amalgam of many decision processes (Table 7. Each of these needs to be further subdivided into much smaller discreet segments in order that they can be targeted appropriately and so that the airport’s marketing efforts can be the most effective. and other organizations such as handling agents can also be considered customers of the airport. cargo airlines. it can sometimes be useful to consider it by travel behaviour in order to match more closely the needs of each market segment. and other freight companies. the market may be segmented into integrators. 1996).The role of airport marketing Table 7.

or because of some other factor such as the traveller’s choice of a certain airline in order to add to their frequent flyer points. in many European countries there will be a preference for the established capital city airport even if there are alternative airports that offer a comparable service. and the characteristics and purchasing power of those residing in the catchment area (Favotto. catering and other commercial facilities Image of airport and ease of use Airlines Catchment area and potential demand Slot availability Competition Network compatibility Airport fees and availability of discounts Other airport costs (e. this may be because of better flight availability and frequency at the main airport.Managing Airports Table 7. Birmingham and New Castle were chosen in 1998/99. namely Heathrow. Manchester. Gatwick. fuel. and general assistance may be important. while for customers with special needs.g. obtained from passenger surveys. The marketing assistance that the airport is prepared to give.4 Factors affecting the choice of airports Passengers Destinations of flights Flight fare Flight availability and timings Frequency of service Image and reliability of airline Airline alliance policy and frequentflyer programme Surface access cost to airport Ease of access to airport Car parking cost Range and quality of shops. handling) Marketing support Range and quality of facilities Ease of transfer connections Maintenance facilities Environmental restrictions lounges may affect choice. and the network performance of the airport . lifts. The location of airport and flights on offer are 184 . especially among travel agents. disabled passengers. retailers will only wish to operate at an airport if they have proof that the passenger profile is attractive enough and that the airport has a sufficient traffic throughput. Table 7. In some instances. Depending on the type of route being considered. It may be because of ignorance about the other airports. for example.5 gives reasons. For example. 1998). This is especially the case among the business community. For example. the quality of the provision of wheelchair. key factors are business and tourist appeal of the catchment area for incoming passengers. for why five airports in the United Kingdom. the presence of competitors. Then there are other factors that are more difficult to explain and quantify. not only in terms of pricing incentives but also with the funding of activities such as market research and promotional campaigns can also be crucial. Other important elements include the availability of attractive slot times. The later factor can be measured by some kind of connectivity ratio and IATA has developed such a ratio that is based on a model combining flight frequency and travel time. but not always. it is clearly the nature of the catchment area rather than design details of the airport facilities that are of paramount importance. Other customers will take into account different factors. For the airline and other trade customers such as tour operators.

5 10. most important is the nature of flights on offer – at Heathrow for both local and connecting flights. with an additional 13 per cent picking it because it was near to their business or leisure destination.3 2.6 4.7 3.8 2.8 0. and air fare. than at the other airports.5 2.4 7. the key factors determining choice. chose the airport because it was close to their home.3 2.9 10. such as Nigeria in Africa.7 4.5 6.0 1.6 2.4 2.2 1..0 51. For the London airports. flight frequency.1 4. however. actual or physical.7 6. Half the passengers at the regional airport of Manchester.0 0. The augmented product is then additional consumer services and benefits that will be built around the core and actual products.7 1. design.The role of airport marketing Table 7. Similarly locational factors are very important for the regional airports of Birmingham and New Castle. The airport product The airport product consists of a supply of services.6 25. flight frequency and air fare were found to be unimportant and surface access time to be very influential.7 4.5 Passengers reasons for choice of UK airport in 1998/99 Reason for Choice London Heathrow London Gatwick Manchester Birmingham Newcastle Near Home Flights/Package available Connecting Flights Near Business Near Leisure Economic/Cheaper Prefer Airport Timing of Flights Better Surface Access Other Total 12. 1999.4 3. namely access travel time.2 2. The core product is the essential benefit that the consumer is seeking.6 100 62.1 6.8 17. The timing of flights appears to be a more influential factor at Heathrow.1 0. 2000.7 0.6 0.0 100 47. Marketing theory often divides the product into the core.0 19.2 2.3 0. Through modelling survey data. quality level. while the actual product delivers the benefit. both tangible and intangible.5 100 49.2 100 Source: Civil Aviation Authority.5 2. 1996). to meet the needs of different market segments.1 9.9 3. In highly regulated markets. and augmented elements. Product features.7 2.0 6.6 6.8 38.2 10.3 6. Ashford (1989) identified three key factors affecting passenger choice. Much of the competition will typically take place at the augmented level (Kotler et al.2 0. because of its higher share of business passengers.0 100 20. brand name. and packaging will all make up the physical product. and will distinguish the product from others.3 4.7 5. Sometimes 185 .

186 . and residents. and security agencies. and so on. immigration. travel and hotels reservation desk. fuel. there is London City airport in the United Kingdom that targets the business market. The actual product will also include adequate transport services to and from airport. the actual product will need to consist of the runway. Each market segment will perceive these product levels very differently. both tangible and intangible. and is already applying this model to other airports where it has some management involvement (Schiphol Group. It is difficult to apply this marketing concept to the airport sector because of the composite nature of the airport product. This is achieved by having a 10 minute check-in and a 5 minute arrival time from plane to terminal. Another way of looking at the airport product is by considering its ‘raw’ and ‘refined’ features. baggage handling. For freight forwarders it will be the ability to load and unload the freight on the aircraft. the terminal building. 1994). For the passenger. Other airports may look at the product in a different way. handling agent. and rescue) and intangible service elements provided by the airport operator’s own staff and those of the customs. 1999). Within this context. the freight warehouses. For example. the main product feature is time. shoe shining in the terminal concourse. It wants to market this concept internationally through airport alliances and partnerships. Valet parking is also provided to speed up the departure process. For the passenger the range and diversity of shops. In order to provide the core product for the airline. the airport product includes the airline product as well as the product of the concessionaire. while for the passenger it will be the ability to board or disembark an aircraft. like any other city. To produce the refined product involves adding the services provided by concessionaires and other tenants and the air travel elements. the equipment. since time is money in the business world. and so on – and the expertise to provide all these facilities efficiently and safely. offer marketing support or pricing incentives to the airlines or may formalize some agreement about the exact service levels to be expected. and other commercial facilities as well as other features such as ease of transfer between different aircraft could all be considered to be part of the augmented product. At the augmented level the airport may. which meets the needs of travellers. and other features such as immigration control that will enable the passenger to fulfil his/her need of boarding or disembarking the aircraft. visitors. catering. 2001). According to the airport. the actual product will include check-in desks. In addition. the airport product can be considered to be a large commercial centre. At the broadest level. navigation aids. lighting. For the airline.Managing Airports the physical product is referred to as the ‘generic’ product with the ‘wide’ product representing the augmented elements (Jarach. 2002). the core is the ability to land and take off an aircraft. apron. there are service features specifically designed for the business traveller in mind ranging from leather seats in the departure lounge. and business activities. as well as other facilities such as information desks and toilets. The raw product consists of both physical tangible elements (such as the runway. From a passenger viewpoint. and information. provided by the airlines (Reantragoon. hotels and recreation. the Schiphol Group has defined Amsterdam airport as an ‘AirportCity’ to get over the message that the airport. buildings. Corporate jet aircraft have also been encouraged and there are dedicated facilities for these (Lavelle. provides services 24 hours a day in the form of shops and catering. communication. and the provision of outlets selling essential travel goods. taxi-account services and a range of different meeting facilities. for example. fire.

BAA plc has traditionally used a common and constant brand image for its seven UK airports. 1996). which all give the product an identity. 2001). Similarly. 2000). In marketing theory a brand is represented by a name. and London Ashford. and advertising. Marketers often give considerable attention to the name of the airport. Whether such ‘branding’ actually gives an airport any competitive edge is. however. London Biggin Hill. Manchester airport has used ‘Manchester Connects’ for its transfer product and ‘En Route to the World’ for its retail product (Teale. No amount of money spent on improving facilities will attract airlines to the airport unless they consider that there is a market for their services. For instance. very debatable although it may make the customer feel more at ease because of the familiar surroundings. logos. and interior design may also be used for all its airports. and London Stansted but also London Luton. London Southend. Ultimately most decisions concerning the choice of airport will be based primarily on the air services available at the airport (i. it is information about the nature of catchment area and potential demand rather than small details about the airport infrastructure that will most probably sell the airport. London Manston. 187 . which was rebranded as ‘Unique Zürich Airport’ in 2000 to reflect a new management structure. especially retail areas (Peterson and Malmgren. These tangible and intangible features of the identity differentiate the product from its competitors. when marketing to airlines. Other interesting examples include Zürich airport. The name EuroAirport for Basel-Mulhouse airport has been devised to reflect its central European location and bi-national ownership characteristics. signing.e. and expanded facilities (Hill. with the London area there is now not only London Heathrow. merchandising. Lyon airport in France changed its name from Lyon Satolas to Lyon-Saint-Exupery in an aim to strengthen the airport’s worldwide reputation (European Regions Airline Association. For airport operators who own more that one airport. design. as airports become more developed and more well known for their range of services. they may choose to drop the international name as Manchester airport did in 1986. and Skavsta as Stockholm South. Sandefjord-Torp as Oslo South. particular as airlines and their alliance groupings are also becoming increasingly keen to have their own identity represented in the area of the terminal where their passengers are handled. Within the airport sector it is certainly true that there are widespread attempts to create a corporate identity with the use of catchy publicity slogans. For example. the airline product) and the proximity of the airport to the potential customer. London Gatwick. however. Other airports will include the name of the nearest large city or town. For example. It is very important for the airport to remember this and to focus its marketing on the air services on offer and the airport’s convenience rather than giving every fact about the facilities on offer. and there may be more conveniently located airports. use of similar signposting. even if it may not be particularly close. Too many brands may confuse passengers. partial privatization.The role of airport marketing Related to the concept of the airport product is the idea of an airport brand. In the same year. and eye-catching logos and designs on promotional information and within the terminal itself. 2000). Charleroi is known as Brussels South. Many airports use a number of sub-brands for different areas. Many regional airports like to be called ‘international’ airports to demonstrate that they serve international as well as domestic destinations – even if in some cases there may be only one international route! On the other hand. colour schemes.

for example. while Nice airport has described itself as the ‘Greatway to Europe’. Trade At the most basic level. and public relations. all marketing tasks may be undertaken by a couple of staff. the marketing focus is likely to change. whereas at larger airports there may be separate departments for coping with different customers such as the passengers and airlines. airports promote themselves to airlines. Geneva airport. Small airports may concentrate on growing specific services that appear to offer opportunities for the airport. Large hub airports may focus on their size to demonstrate that the airport is popular and has connecting traffic possibilities. and different teams looking at different marketing activities such as market research. Sometimes simple messages may be used to sell the airport. by placing advertisements in trade journals. which already have a reasonably developed route network. Airports with considerable spare capacity will adopt different strategies to congested airports. Price sometimes features in such advertising. Clearly every airport is unique and needs to be marketed in its own specific way. freight forwarders. has promoted itself as being ‘Europe’s best address’. Vienna airport. tour operators. The small Palm Beach airport’s slogan was ‘Touch Down 11:00. At small airports. or with regular mail shots and other promotional activities. and so on by producing general publicity information. while Stansted claimed that it was a ‘London airport where you can call the shots’. Towel Down 11:45’. Other airports try to emphasize different product characteristics such as uncongested facilities and quick processing times. With other airports the key message may be more specific. And vice versa’. The marketing of airports aiming to be hub or feeder points is totally different from marketing an airport that relies on point-to-point services such as charter or low-cost services. roadshows. Once an airport gets to a certain size. the new Incheon Airport is promoted as the ‘The Winged City’ and is described as the ‘21st century airport of your dreams’. may be more concerned with putting forward a good positive image for the airport and building on a corporate identity.Managing Airports Airport marketing techniques Successful airport marketing involves focusing on understanding and responding to the needs of the various customer segments. and other similar events. while Macau airport advertised half price landing fees at night with the message ‘Our night fall brings sweet dreams … 50% off at night’. For instance. may 188 . travel trade seminars and workshops. Developing regular contact with key airlines and tour operators through visits by airport sales staff. Atlanta airport has invited airlines to become ‘Members of the busiest airport in the world’ while Rome airport has used the message ‘With more than 150 destinations we help half of the world to reach the other half. For instance. for instance. Smaller airports competing with major capital city airports will probably find that they are always faced with an uphill struggle but nevertheless a considerable amount of proactive and aggressive marketing may achieve results. Kansas airport told airlines not to ‘Get drawn into a congested hub’. and by being represented at exhibitions. sales. Other airports adopt much more vague and less specific messages. has sold itself as being ‘The high yield airport with surprising low costs’. Larger airports. The aim here is to increase awareness among the trade.

Once an airline has shown some interest in a potential route. the airport will typically agree to provide additional support in a number of ways. The airports that first adopted this more reactive approach to marketing to airlines. tour operators. So the airports started to take a leading role in initiating interest from airlines. the potential for market stimulation. Such discounts will usually diminish as traffic grows and the service becomes sustainable. the presentation would give a detailed analysis of the new route or routes. the Irish operator.The role of airport marketing also be effective. This would be supplemented by information about the catchment area. and route cost and yield considerations. reduced fees may be offered for a certain period of time. and other trade users. and the network development potential.Times have now moved on in the air transport industry and both the airports and airlines have developed more sophisticated marketing techniques. This hard-selling approach was developed in the 1980s owing to the realization that airports were actually in a good position to identify new route opportunities for airlines. although this may develop into an area of considerable friction between the airport operator and airline. The airline presentation is still an important element of an airport’s marketing but it has to be highly focused. the proposed service frequency. for example. Information would also be given about the airport’s facilities and also accessibility by transport links. By the 1990s. 189 . These can be particularly important and can be crucial particularly for low-cost carriers. they would provide airlines with information about potential routes and the size of the market and perhaps other factors such as the likely requirements for frequency and aircraft size. to deal with potential airlines customers in a much more direct and personal way. From their databases. This was a task previously left solely to the airlines. states that marketing support will be considered on an individual airline basis and will depend on the aircraft size on the proposed route. They also benefited from certain cost economies by being able to consider all different markets and routes simultaneously. airline presentations from the marketing departments of airports to route planners in airlines had become commonplace. Typically. The airport may also agree to share the costs of further advertising to ensure that the initial level of demand is sustained. For example. such as Manchester and Vienna. however. The airport marketers analysed passenger and catchment area data that gave them adequate information to suggest new route opportunities to potential operators. This assistance can vary quite considerably. Joint advertising and promotional campaigns may be run to promote the new service both through the media and travel agents by pooling resources. in terms of the characteristics of residents and its tourist and business appeal for incoming passengers. Emphasis on architectural excellence and best-quality facilities could even have a negative impact. Aer Rianta. the cost of undertaking such research could well have been too prohibitive. with airlines being concerned that the cost of such infrastructure may be passed on to them. The airlines themselves have become awash with route studies from numerous airports and so have become much more skilled in using this information to back-up and verify their own research. Airports tend. have claimed many success stories. For a small airline interested in operating just one or two new routes. Many of the airports had the advantage that they already kept at least some of these data for their own passenger marketing and forecasting. The emphasis must be very much on the potential demand at the airport with the quality of facilities taking second place.

1 18. as well as marketing initiatives in the form of discounted fees and other incentives that the airport may be in the position to offer.2 3. a quarter to prevent reductions in existing services and the final quarter to help tour operators who brought additional traffic.4 17. 75 airlines have benefited from some help. Around half of the costs was estimated to be associated with new services. In prearranged. namely reductions/rebates in airport charges and contributions to joint marketing campaigns.7 Passenger numbers (millions) 17. £3 additional revenue goes to the airport (Competition Commission. Table 7. This has been held annually since 1995 and is an opportunity for airport marketers and airline route planners to get together to discuss future market opportunities. alongside the London airports. New routes. 1998–2003 Year Marketing costs (£ millions) 6. frequency increases. catering.5 2.4 1.5 6.3 1998/99 1999/00 2000/01 2001/02 2002/03 (estimate) Of which: Rebates Marketing campaigns Of which: Promotion of new services Prevention of reductions in existing services Promotion of business with tour operators Source: Competition Commission (2002). which successfully helped persuade the regulatory authorities to agree to non-stop services being operated to Shanghai. who in turn try to sell the virtues of their facilities and services. in a number of bilateral agreements. Manchester airport was particularly active in this activity in the 1970s and 1980s when it frequently attempted to get gateway status. Manchester airport has estimated that for every £1 spend on support of tour operators.5 6 6. and car parking income. but with six receiving 72 per cent of this and 20 receiving 94 per cent. 2002). it was forecast that rebates would account for about two-thirds of this marketing support. This has averaged around £5–6 million compared to total costs of about £200 million. These costs obviously have to be off-set against the additional revenue that will be brought to the airport in terms of airport charges.6 19. retail.7 4. For example.Managing Airports Table 7.5 18. A more recent example is San Francisco airport. and opportunities for connecting traffic may be discussed.6 1.6 shows the costs associated with the marketing support. The airport may also promise to help to lobby government to remove bilateral regulatory obstacles. An interesting development as regards airline marketing has been the ‘Routes’ conference. Since 1998. Such services 190 .8 4. In 2002–03. one-to-one meetings airlines explain their expansion strategies to airports. which Manchester airport has given.6 Airline and tour operators marketing support costs at Manchester airport.

Since all the facilities. a few airports such as Abu Dhabi in the Middle East offer a one-stop approach when there is a single contract for all ground services at the airport. However. The airport believes that this changed its status from that of a regional airport serving passengers on charter airlines originating from the Walloon region to a larger secondary airport with a much greater traffic base in the whole of Belgium and also cross-border regions in France and Germany.The role of airport marketing began in 2000. particularly if an airline is to benefit from connecting traffic from other airlines. airports will be able to offer discounted airport charges but will have no control over handling or fuel charges. Lamezia. Then. Ryanair’s passenger numbers increased from 86 000 in 1997 to 178 000 in 2000 but the airport still remained very much a small regional airport. Low-cost operations at Charleroi Brussels South Airport Charleroi airport is a regional airport owned by the Walloon regional government which is 46 km south of Brussels. An example of this occurred with new terminal capacity at Luton with the low-cost carrier easyJet. The most common airlines to benefit from a total package of measures are the low-cost carriers. If the airport is under regional public ownership. which worked together with airlines to coordinate the arrival and departure time of air services in order to create ‘Manchester Connects’ – the interline hub. There can be a problem with such a strategy if the low-cost operations prove to be so successful that they necessitate adding extra capacity at the airport which the low cost carriers do not wish to pay for in their fees. At other airports. Ryanair began to operate two flights a day to Dublin and the airport passenger numbers increased dramatically to 200 000. the new services may be supported because of the potential broader economic benefit that they could have on the whole region. A good example of this practice is again Manchester airport. Moenchengladbach airport near Düsseldorf. and Rimini airports. In many cases. It was at this time that the name 191 . Between 1990 and 1996. in 1997. Airports are willing to enter into such agreements due to the additional commercial revenues that the extra passengers will bring and the impact that such services will have on encouraging other carriers to the airport. Airports may be able to make themselves appear particularly attractive if they guarantee that the overall package of costs that an airline is faced with will be reasonable. The most significant change came in 2001 when Ryanair decided to make Charleroi its first continental base and began operating 10 routes with 19 daily frequencies. its passenger levels fluctuated at around 50 000. Another way in which an airport can put together an attractive deal for an airline and be costeffective in its marketing is by pairing up and co-operating with the airport at the other end of a route that has been identified as having potential. Elsewhere there have been examples of low-cost carriers transferring to other airports once the introductory fees have unwound as has been the case with Ryanair’s operations at Kristenstad. the airport operators are able to offer discounted public transport for the airline passengers. are owned by the government. including aircraft fuelling. Airports may also choose to give advice on scheduling decisions. the airport is in a position to do this and to have complete control over what it offers to the airlines. for example.

Table 7. 2003).13 euros in 2006 and 1. For this support from BSCA Ryanair has agreed to base a certain number of aircraft and operate a defined number of flights for 15 years – if not it will have to repay the incentives (Aviation Strategy.7 Elements of agreement between Ryanair and BSCA Annual Payments Amount (euros) Cost assumptions (euros) Landing fees/ pax: 1. The airport offered Ryanair a very favourable deal because it felt that the presence of Ryanair could substantially grow its non-aeronautical revenues and attract other airlines to the airport. Office and hangar space is also provided for a minimal cost. 2001). incentive payments for each route started. It has also expanded the duty free and catering outlets to cope with the additional passengers and increase the overall non-aeronautical revenues.7 shows the reported details of the arrangement made between BSCA and Ryanair. in 2003. the European Commission was considering whether the Charleroi deal and perhaps other agreements that Ryanair had negotiated were in breach of European competition law on the grounds that it was an exclusive arrangement and could have distorted competition between BSCA and Brussels National airport (Pilling. and Ryanair’s costs for local crew hiring and training. The expenses covered by BSCA include marketing support.00 Hotels costs/year: 250 000 Payment/new route: 160 000 Recruitment/training (one-off): 768 000 Estimated office costs/year: 250 000 Estimated hangar costs/year: 250 000 Other assumptions (euros) Annual pax: 1 million New routes: 12 Ryanair to BSCA Landing fees Handling fees Total BSCA to Ryanair Marketing fees Hotel costs New route payment Recruitment payment Office costs Hangar costs Total Net benefit 1 000 000 1 000 000 2 000 000 2 000 000 250 000 1 920 000 768 000 250 000 250 000 5 438 000 3 438 000 Source: Aviation Strategy (2001). 192 . which together with the low charges results in a net benefit to Ryanair.00 Marketing contribution/pax: 2. 2003). In addition.Managing Airports was changed from Charleroi Airport to Brussels South Charleroi Airport (BSCA) (Jossart. However.00 Handling fees/ pax: 1. BSCA also contributes towards other expenses incurred by Ryanair. it has transformed the coach shuttle from the Airport to Brussels City from a loss-making into a profitable activity and has generated a substantial amount of revenue from car parking since it introduced parking charges in 1999. Table 7. For example.3 euros in 2010. Ryanair pays very low landing and handling charges starting at 1 Euro per passenger which goes up to 1.

the agents will have automatically advised passengers to travel via a larger airport further away. This one-to-one contact can be supplemented with frequent. air shows. Travel brochures. T-shirts. In many cases. facilities and surface access. This not only has this advantage of sharing the cost but also has the benefit of having the operators’ brand associated with the airport. Norwich airport. airport tours. Instead. and local transport details. and other information. such as badges. also in the United Kingdom. with perhaps opportunities for pre-booking car parking space or buying public transport tickets online. Airport timetables with details of airport services. up-to-date timetables. Cardiff airport in the United Kingdom overcame this problem by buying a chain of 22 local travel agents in an attempt to promote flights from its airport (Humphreys. and other promotional literature is commonly distributed to travel agents. a much more soft-sell approach is adopted for passengers. Very often airports will also organize competitions. have found that it is particularly important to spend some time and effort in developing close and personalized links with travel agents serving the direct catchment area. Nearly all the websites. personalized mail shots giving details of routes launches. 1998). Airport information is now available on airport websites that have been set up by most airports. key rings. produced jointly with tour operators or airlines. with various degrees of sophistication. even the most basic 193 . this is not enough. and other social events to encourage greater interest in the airport and to forge closer links with the agency sector. for the moment travel agents still remain highly influential when passengers go through the process of selecting and assessing possible travel options. has adopted a similar strategy. Regular mail shots to agents may enhance that awareness. shopping centres. This usually involves regularly sending out a sales representative who can talk to the agents about new developments at the airport and explore the agents’ knowledge and views of the services on offer. open days. and may help to give exposure to the airport and the services that it offers. libraries. At the airport itself. promotions. Passengers and the local community Generally. tourist information offices. Tourist and other information about the airport’s catchment area might be included. car parking. new facilities. however. particularly the regional and smaller ones. can be circulated. exhibitions. There are many stories of regional airports discovering that all their neighbouring travel agents are completely unaware of any local air flights. and educational visits are also often organized. Numerous airports. To increase awareness of the airport and improve relations with the community. as are maps and other information about the facilities and services. and stationery items are frequently distributed.The role of airport marketing Travel agents In spite of the increased use of the Internet and other direct-booking methods. information services are provided for passengers and visitors. Some of the general sales promotions directed at the airlines may be targeted at the travel agency sector as well. Branded giveaways to reinforce the airports image and identity. The type of information usually available includes airport location details. Sponsorship of key events is also quite common in the airport business. and so on.

needs to be presented in the written form. airports adopt various approaches to woo passenger to their airports. for example. Abu Dhabi’s airport marketing campaign ‘Start at the Heart’ was based around a heart logo designed to inform business travellers that they could check in at the ‘heart’ of the city and take a luxury car to the airport. as with all marketing. the target audience. Schiphol Travelport. The choice of media. Amsterdam airport uses the Internet to further develop its concept of its airport being an AirportCity. the Internet clearly has a much greater role to play than merely providing information for the traveller. on offer. airports try to increase the consumer’s awareness of flights and closeness of the airport by listing the destinations on offer or by focusing on the convenience of the public transport links. and posters. while details about customs requirements. radio. online shopping. Schiphol launched its virtual travel agency. whereas more detailed information. However. For instance. It also provides information to customers who are interested in Schiphol real-estate properties and online purchases from the See Buy Fly shopping centre can be made. and handling and warehousing facilities should be available to cargo customers (Hoevel. and the message that the organization wants to put across. clearly depends on the relative costs. timetable or flights material. and transfer passengers. rentals car. 194 . airport taxis. As with the marketing to airlines. such as shops and catering. The advertising may be targeted at certain market segments. particularly business travellers. 1999). It defines the Internet as the virtual AirportCity and has customized information for specific groups such as business. and destination profiles. Moreover. Airports are experimenting with various initiatives. BAA plc invested in lastminute. The Internet can offer potentially numerous marketing and revenue opportunities. For example. Pre-ordering purchases. It also has airport upgrade packages available on the net. Airlines should be able to retrieve traffic statistics and catchment area information. in environmental protection.and tax-free sales. The local community can find out about achievements. travel plans. newspapers. Shareholders can track the performance of their shares and have instant access to the airports’ financial reports. and other travel products. and advertising can increase non-aeronautical revenues. Many of the major airports have real-time flight information and flight-delay details. In September 2001. magazines. which allows passengers to book online airline tickets. A basic message or idea can be successfully communicated with radio or television media (although in practice this is rare). health advice. It also have the Schiphol Travel Update service. More specific messages may relate to a certain service or facility at the airport – a notable example being the advertising that various airports have undertaken to recover some of their lost retail trade since the loss of EU duty. for example. the check-in counter. This is bound to become common practice. Customer profile and preference information can automatically be collected from users of the website. BAA plc in co-operation with the travel company expedia UK provides online reservations for many airlines and hotels. gate. Most commonly. which uses SMS or e-mail to update passengers and others on arrivals and departures times. weather updates. in 2000. Airports advertise to the public through the Internet and all the other usual media channels such as television. leisure. last-minute travel details. include terminal maps and a list of facilities. and an increasing number of airports are taking full advantage of this.Managing Airports ones.com. or baggage carrousel.

Passenger surveys at the airport are the most common but surveys or group interviews at home or at work are also possible. and so on. in the United Kingdom. but also by generating jobs and other economic benefits. and. and the more subjective area of passenger satisfaction. the environmental impacts such as noise and pollution are of major concern. Bahrain. These surveys may be tied in with the quality surveys so that correlations between passenger profiles and levels of satisfaction can be made. surveys may be undertaken by the national civil aviation authorities or government transport departments instead of. segmentation. have a major impact on the local community not only by providing local flights for the residents. namely market characteristics in terms of market size. age. For example. and hosting events for journalists and travel writers can increase interest in the airport and stimulate press coverage. For all these reasons. share. Views about current services and particularly any underserved destinations can be gleaned from organizations such as travel agents. flying frequency. Airports. national. the aviation industry being the newest of all transport modes still holds a fascination and wonder for some and a fear for others. regional. and freight forwarders. the CAA regularly surveys passengers at all main airports. sex. and Abu Dhabi. It is worthwhile for airports to put reasonable effort into trying to capitalize on the general interest that people have with airports and to create a degree of goodwill between airports and the community. both favourable and otherwise in the press. socio-economic group. to those carried out by the airport operators. local businesses. but the airport has a rather unique relationship with its passengers as it is not directly selling a product to them. Information about passengers can be collected from a number of different sources. In some countries. The passenger will not go to the airport unless the required airline service is there and marketing communication techniques can usually only encourage use at the margins. Developing good links with local. particularly should anything so wrong. Most major airports will carry out periodic surveys of their passengers to find out details such as origin and destination. On the other hand. of course. This has the advantage in producing survey data that are directly comparable for different airports. in some cases. Arranging school visits and other trips will also be an essential public relations activity. the quality of commercial facilities is unlikely to have an impact over a passenger’s choice of airport unless perhaps the passenger is transferring flights or the incentives are very considerable – as with the high-value raffles at the airports serving Dubai. Generally. or in addition. 195 . and trends. airports tend to receive extensive coverage.The role of airport marketing The ultimate aim of promotional and advertising activities is usually to sell a product. foreign media is crucial. Similarly. Market research A fundamental element of marketing is market research – in order that organizations can have a thorough understanding of the characteristics and needs of their market. The quality of service paper has already considered passenger satisfaction and so the emphasis of the discussion here is very much on the first area. Most research will cover two areas.

The techniques have been used to look at airport choice and also transport modal choice for surface access. and the competing services at other airports. and tourist activity within the area. Thirty-two per cent of all passengers had business/first tickets as opposed to only 21 per cent at Heathrow and 12 per cent at Gatwick. For less popular or longer-distance destinations there is likely to be less competition and so the catchment area will be extended over a greater area. can significantly alter the catchment size. Improvements in the road infrastructure or public transport. refer to the surrounding population and economy that they serve as their catchment area. supplemented with traffic data. For instance. For airports that attract many business travellers. the economic. While stated preference techniques are widely used for other transport modes. business. Data that are particularly useful are the true origin and destination from global distribution systems such as Sabre and Amadeus. particularly in the regions. at London City in 2000. Manchester airport was one of the first airports to use such techniques in the mid-1980s (Swanson. Isochromes of longer times may represent weaker or secondary catchment areas. Most airports. This is the area where most of the local traffic comes from and so will be where airports concentrate their marketing effort. with over 60 per cent of the passengers working for banking and finance organizations. passengers might be asked how they would trade-off higher journey cost to an airport compared with journey time. Many regional airports have overlapping catchment areas. that is. It also changes depending on the destination being assessed. The alternative is to use stated preference techniques when passengers are asked to state their preference between a number of different scenarios. 1998). The notion of catchment areas for large capital city airports is not generally so applicable since in many cases these airports may offer the only link to the destination under question in the whole country (Humphreys and Gardner. Usually for short-haul travel to popular destinations there may be considerable competition from other airports and so the catchment area will probably be comparatively small. For example. the demographic characteristics of the residents. 1995). 196 . will assist airport operators in the identification of new routes or enhanced frequency opportunities. The cost of obtaining such information is. 64 per cent of all passengers through the airport travelled for business purposes.Managing Airports Market research information. Such information can give airports invaluable insight into how passengers rate the factors that influence passenger choice.8 shows the main originating areas of the passengers and shows the reasons why the airport thinks the demand for business travel – both currently and in the future – will be so strong. The size of the catchment area and the proportion of it which is likely to fly will depend on factors such as the quality of the road network. or new or additional services at neighbouring airports. by assessing the passenger’s current behaviour to determine future travel patterns. Most of the market analysis that is undertaken is based on revealed preference techniques. The catchment area is a dynamic rather than static measure that has to be constantly reviewed and revised. The most basic approach to defining a catchment area is by using a certain drive time period criteria – typically 1 hour. their application within the airport industry is more limited. normally beyond the reach of many airport marketing department budgets. market research related to the size of nearby businesses and any new developments can prove very useful in helping to assess the levels of future demand. however. Table 7.

Southampton airport Southampton airport’s modern history began in 1961 when the airport was bought by an aviation enthusiast from the public sector owner. Various subsequent changes in ownership took place until the airport was finally purchased by BAA plc in 1990. which was opened at the end of 1994. In 2002. and has a rail station that has direct services to London and other southeast destinations. with 72 per cent of them travelling alone (Table 7. is accessible by two motorways.The airport is situated on the south coast of Britain around 80 miles south of London. Business travellers accounted for 49 per cent of the traffic in 2000 compared with only 18 per cent in 1985.8 million m2 under construction 0. Southampton Corporation. the airport had scheduled services to a number of domestic destinations. mostly in professional or semiprofessional occupations. This is also reflected in the fact that two-thirds of the travellers are males. which was completed in 1997.8 Main catchment areas of London City airport.9). A significant proportion of the passengers are relatively frequent travellers. Since then BAA plc has invested £27 million on a total redevelopment of the airport that has included a new terminal. 197 . 2002 Docklands/Canary Wharf 27% originating passengers in 2000 City of London/Westminster 18% (City of London). It is the airport’s intention to become a business airport for local demand and to attract traffic that traditionally has used the congested London airports of Heathrow and Gatwick.9 million m2 awaiting planning approval Canary Wharf London’s new business and financial district 10 minutes from City and LCY 738 000 m2 of offices and shops 500 000 m2 being built 180 000 currently in design stage 400 000 available for future use 3 million workers lie within 1 hours’ commute of Canary Whalf and LCY Working population 55 000–100 000 by 2006 Docklands Westminster Canary Wharf just one part of Docklands 565 000 people employed – largest UK 2 Millennium quarter (500 000 m office employment district space) 32% in business and financial services Royal’s business park (150 000 m2 office 47 000 businesses space) 13% increase in GDP forecast for next 2 Excel 65 000 m exhibition hall 5 years Silvertown Quays 92 000 m2 commercial development and 14 000 m2 aquarium Source: Lavelle (2002). 14% (Westminster) originating passengers in 2000 City of London 331 000 people work in City 80% in financial services 481 foreign banks 7.3 million m2 office space exists 0.The role of airport marketing Table 7. and a runway refurbishment.

Around three-quarters of the airport’s traffic is domestic. In spite of its small size. At the most basic level it has a request book at the information desk where travellers can fill in suggestions for new destinations. Geneva. 2000 Journey purpose % Socio economic group A/B C1 C2 D/E % Sex1 % UK residents business Foreign residents business UK residents leisure Foreign residents leisure Total Flight type Scheduled International Charter International Domestic Total 42 7 47 4 100 21 5 74 100 39 43 11 7 100 Male Female 64 36 100 Group size Alone 2 3–4 Other 72 22 5 1 100 Note: 1Sex breakdown is for 1994/5. by sponsoring the region’s youth games. In 1990. Nice.The airport also aims to forge links with the local community. Barcelona. In the early 1990s.1). and the international airports of Amsterdam. Much of the leisure traffic in its catchment areas uses services from the nearby airports of Gatwick. the so-called ‘High Flyers’. The airport considers that its relative small size gives it a significant advantage in terms of the level of personal attention that is provided and the relative short check-in times. Frankfurt. when BAA plc bought the airport. Source: Civil Aviation Authority (2001). the annual throughput of passengers at the airport was around 493 000 (Figure 7. and Bournemouth. including the nearby Channel Islands. and Toulouse. package holiday travellers represented just 6 per cent of total traffic in 2001 – a much lower share than at most other UK regional airports. Brussels. 1999). In addition. Bristol.Managing Airports Table 7. it has an airline lounge for business travellers and was the first regional airport in the United Kingdom to introduce electronic ticketing for BA passengers. It also has some limited summer service charters but. Its overall rating in BAA plc’s quality of service monitor in 2001–02 was the best out of all BAA plc UK airports. Malaga. overall. for example. Dublin. Milan. The marketing department meets with a group of frequent business travellers. at least four times a year to discuss future developments at the airport. it regularly arranges for current and prospective airlines to meet and hear the views of local corporate travel agents named the ‘Dirty Dozen’ (Airline Business. the ‘Scoops’ group. Paris. The airport has a range of marketing activities to encourage traffic growth. Cork.9 Passenger profile at Southampton airport. It also has periodic meetings with the travel and aviation press. traffic growth 198 .

undoubtedly general factors such as a healthy economic climate and European deregulation had a role to play with this development. This means that compared with Southampton airport there are more travellers from the C2 and DE socio-economic groups. The airport has one scheduled international flight to Amsterdam and four domestic services. around 130 miles north of London. but growth was also considerably less than the average annual rate of 4.The role of airport marketing 1000 900 Total Passengers (mns) 800 700 600 500 400 300 200 100 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Figure 7. which was experienced at all UK airports. In the late 1990s. in the following 4 years.10).7 per cent. the airport handled 516 000 passengers. This increase of just 1 per cent per annum can be partly explained by general factors such as poor economic conditions and the Gulf War. Norwich airport Norwich airport is a regional airport situated in East Anglia in the east of Britain. 1990–2002 Source: CAA airport statistics. It has been operated by the local authorities of Norwich City and Norfolk County as a commercial civil airport since 1969.1 Total passengers at Southampton airport. Twothirds of the traffic is for leisure purposes with a large proportion of the passengers taking charter services (Table 7. was slow while the new facilities were being developed. However. was handling 788 000 passengers despite a decline in traffic in 2002 due to the event of 11 September 2001.2 per cent compared with the national average of 5. A higher proportion of leisure passengers would normally mean a more even split between males and females. but during these years the airport managed to achieve an annual growth rate of 6. but the dominance of North Sea oil-related business 199 . although in 2003 there were plans for it to be partially privatized. with the new facilities in operation and with an increased emphasis on airport marketing.5 per cent. by 2002. In 1995. the airport experienced far greater growth and.

means that male passengers still outnumber females. This move came about because the airport had been unable to persuade the large tour operators to operate programmes from Norwich airport. namely Alicante. a weekly service at a total annual cost of £400 000 was operated from the airport to Alicante. Faro. By 2002. This destination was chosen because it was apparent from passenger surveys that there was considerable demand. This also acted as a call centre for London City airport which brought in additional nonaeronautical revenue. it was offering services to Malaga. the airport was down to offering allocations on only four destinations. but also because there was a large number of British-owned villas in this area. not only for package holidays. and Malta and had allocations on flights to Corfu and Cyprus. and catering. Minorca. The airport initially took the risk of chartering its own aircraft to prove that there was a market at the airport.10 Passenger profile at Norwich airport. The airport added summer services to Malaga and Faro in 1996 and a winter service to Malaga in 1997. Faro.Managing Airports Table 7. bringing in a profit in the region of around £150 000 directly from aeronautical charges and associated increases in non-aeronautical revenue from sources such as car parking. it opened its own travel agency in the terminal building to persuade passengers to buy flights and package tours departing from Norwich. retail. The success of the agency encouraged the airport to open another five outlets in the surrounding area of the airport in 1998 to further promote the sales of flights from Norwich airport. but has subsequently made a considerable profit from such operations in spite of increased competition from low-cost scheduled operators such as Ryanair and easyJet at neighbouring Stansted and Luton airports. By 2000. however. The other development has been the decision by the airport to operate its own charter flights. Cyprus. Like 200 . Alicante. traffic at Norwich. In 1995. Some of the seats were sold to tour operators and some direct to passengers. The airport has adopted a very unusual approach to encourage passengers to use its airport. This was because the airport had proved successful in persuading the tour operators that there was a demand for direct services and the tour operators had therefore taken over the majority of the destinations themselves (Eady. The service was a success. In 1988. 1999 % Socio-economic group AB C1 C2 D/E Sex Male Female % Journey purpose UK residents business Foreign residents business UK residents leisure Foreign residents leisure Total Flight type Scheduled International Charter International Domestic Total 31 6 59 4 100 31 47 22 100 35 34 20 11 100 2 61 39 100 Source: Civil Aviation Authority (2000). 2002). and Malaga. which consists almost entirely of male travellers.

The role of airport marketing 500 Total passengers (millions) 400 300 200 100 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Figure 7. 42–4.4 per cent compared with 5. At the peak time for airport-operated flights in 2000. Ryanair. just too good a negotiator. traffic grew annually at 7. East Midlands. CAA. London City. Passengers at Gatwick. CAA. Strategic Airport Planning. Ashford.7 per cent. Caves. its annual growth of 3. N. July–August. CAP 703. ACIEurope. Elsevier. Manchester. CAA. References and further reading ACI-Europe (1999). G. 3. Cardiff. R. around 10 per cent of the passenger throughput was associated with these services.2). Airline Business. Passengers at Gatwick. Heathrow. Exeter and Southampton Airports in 2000. Stansted. Heathrow and Manchester Airports. The airport marketing awards. A report on the economic regulation of Manchester airport plc. ACI Europe Policy Paper on Airport Competition. Competition Commission (2002). 201 . The Stationery Office.5 per cent nationally (Figure 7. (1989). the proportion of traffic on international charter services increased from 18 to 49 per cent of the total. CR00. Aviation Strategy (2001). Bournemouth. Newcastle. 74. Norwich and Teesside Airports in 1999. October. Predicting the passengers’ choice of airport. Airport Forum.3 per cent between 1990 and 1995 was lower than the national average of 4. Leeds–Bradford. (1999). when the charter flights were in operation and with the expanded travel agency business. Bristol. and Gosling. R99. Humberside. Liverpool.2 Total passengers at Norwich airport. Between 1991 and 2002. Luton. Passengers at Birmingham. 3. Civil Aviation Authority (CAA) (1999). Between 1995 and 2002. Airline Business (1999). 1990–2002 Source: CAA airport statistics. Civil Aviation Authority (CAA) (2000). Southampton. Civil Aviation Authority (CAA) (2001).

University of Westminster Regional Airport Seminar. Humphreys.. December. University of Westminster Marketing and Market Research Seminar. Hoevel. Not all airports are created equal. Department of Maritime Studies and International Transport Occasional Paper No 25. (1996). B. Meznarsic. ACI-Europe. J. E. Airline marketing. Hogan. December. The airport’s relationship with low cost carriers. Southampton Airport. Unique Zürich airport. July. Eady. EC investigates Ryanair/Charleroi deal. Airport branding. O. Warwick. Reantragoon.. ERA Regional Report. Favotto. (1996). I. G. University of Westminster Marketing and Market Research Seminar. Creating Airport Cities. Saunders. Commercialization and privatization: the experience of Cardiff Airport. D. Name change and airport expansion part of master plan for Lyon. D. Pilling. multi-service marketing driven firm. P. 12. Airline Business. University of Wales. 53–5. Lavelle. A. (1995). Southampton Airport Profile. N.. vol. Journal of Transport Geography. M. University of Westminster Demand Analysis and Capacity Management Seminar. (2000). European Regions Airline Association (2000). (1995). (2001). (1994). University of Westminster/Cranfield University Airport Economics and Finance Symposium. London. (1995). 18. (2002). Airports World. London. The evolution of airport management practices: towards a multipoint. April. Developing a travel product for regional airports. Commercial and Marketing Best Practices Handbook Volume 1 – Commercial Practices. Kotler. Schiphol Group. May. J. Hill. Structure of airport retail and marketing functions. 7. Humphreys. Peterson. (1999). I. I. Schiphol Group (1999). The competitive role of secondary airports in major conurbations. Privatization and commercialization: changes in UK airport ownership patterns. ACI Europe Good Communication and Better Airport Marketing. London. 7. March. December. Department of Maritime Studies and International Transport Occasional Paper No 49. August. L. T. (1998). University of Westminster/Cranfield University Airport Economics and Finance Symposium. (1996). Young. D. (2003). March. Economic regulation of Irish airports. Airports on the Net. V. April. and Wong. D. December. (2003). October. Criteria for successful airport marketing. Airports International. ACI-Europe. M. Jarach. Humphreys. Knowing your customer. (2001). Air Transport World. 202 . Swanson. (1998). (2003). B. Prentice-Hall. 121–34. Airport marketing: an analysis of the use of primary catchment areas. 71–3. (2002). September. ACI Europe Marketing and Commercial Strategy Handbook. and Malmgren. Jossart. Armstrong. (1999).Managing Airports Dennis. University of Wales. Creating the airport image. Principles of Marketing: The European Edition. (1998). PTRC Annual Conference. London. Fourth Air Transport Research Group Conference. January. Southampton Airport (1998). Teale. J. The use of stated preference techniques. L. I. ACI Europe Good Communication and Better Airport Marketing. July. and Gardner. 17–18. The Netherlands.

A key issue for any airport operator is how to optimize the economic potential of an airport while providing acceptable environmental protection. They want to inform debates about strategic economic investment and to make the economic case for investment in new airport facilities or off-site infrastructure such as roads or rail links. Impact information may also be used for .8 The economic impact of airports The wider picture The focus of this book now shifts in the next two chapters from the internal environment within which the airport operates to considering the wider consequences of the airport business. This may be a particular problem when the economic benefits of airport development may be perceived as being the most relevant within a regional or national context. This chapter looks at the economic impacts of airports while the next chapter discusses the environmental effects. An increasing number of airports are now undertaking economic impact studies. Alternative expansion options may be evaluated with consideration of the relative economic benefits which they will bring. Impact studies may be used for planning purposes to assess whether there is enough land for new commercial projects in the vicinity of the airport or whether there is a sufficient supply of labour and associated housing to support such developments. whereas the negative environmental impacts may be hardest felt by the local community. They are doing this for a number of reasons.

Moreover such studies can have an important public relations role in educating policy-makers. Thus. There are basically two types of economic impacts at airports. the impact that these direct and indirect activities have on personal spending also needs to be taken into account. salaries. Airports as generators of economic activity Economic effects can be classified as direct. food. These types of activities include the utilities and fuel suppliers. A key indicator is the number of jobs generated. This impact is associated with the activities of the airport operator itself. Second.1). construction and cleaning companies. transport.Managing Airports lobbying purposes. Economic impacts are measured in a variety of ways. such as car parking. or ‘value added’ measure. This is the most readily understandable measure and can easily be used to determine an airport’s relative importance within an economy. there are the wider catalytic or spin-off benefits. indirect. The indirect and induced effects are together often known as the secondary effects (Figure 8. This requires an examination of the indirect impact. This so-called induced impact can be defined as the employment and income generated by the spending of incomes by the direct and indirect employees on local goods and services such as retail. which can occur as the result of the presence of the airport. This indicator can be related to an area’s total income or GDP to assess the relative contribution that the airport has on wealth generation. the economic impact of an airport is not just limited to these direct. to gain regulatory approval. In addition. airport-related effects – although this is the impact which is most frequently quantified and studied. This can contribute to the economic development of the area surrounding the airport. and security. 204 . First. in-flight catering. and profits. The direct or primary impact is the employment and income generated by the direct operation of the airport. Some of these activities. interest. there is income. This is the most obvious economic impact and is the most easily measured. there is the ‘income’. employment. airport users. the airlines. car hire. and housing. customs and immigration. such as inward investment or the development of tourism. ‘earnings’. and the general public of the economic value of airports (Mason. the concessionaires providing commercial facilities. the handling agents and other agencies which provide services such air traffic control. in the surrounding area of the airport. within an economic context airports have role to play both by being a significant economic activity in their own right and by supporting business and tourism activity. The role of the suppliers to the airport industry also needs to be considered. food and retail good suppliers. This is the value that the airport dependent activities add to the economy in terms of wages. However. for more direct services. 2003). freight forwarders and hotels may actually be located off-site. In addition. capital investment and tax revenues which airport operations can bring by nature of the fact that they are significant generators of economic activity. which is defined as the employment and income generated in the chain of suppliers of goods and services to the direct activities that are located both at and in the vicinity of the airport. and induced impacts. for example. Then there is the economic activity or output measure which is the sum of the gross revenues of all the businesses which depend on the airport. Indicators related to capital investment and tax revenues can also be considered.

and so on. some airports in the public sector may be exempt from these but may. of course. Employees will pay income tax. During each round of spending. maintenance facilities. many government owners have traditionally allocated considerable public sector funds to aid airport development. Eventually. offices. These may be required to cover some specific 205 . Airports. Then there are the taxes collected through airport charges. On the one hand. Airport activities can also have a significant impact on local. indirect. and pay government taxes. pass over a considerable share of their profits to their government owners. and profits.1 The economic impact of airports These indirect and induced impacts are clearly much more difficult to measure. The suppliers will then make purchases locally. a certain proportion of the money will accrue to local residents in the form of wages. and sales transactions will be subject to sales or value added taxes. This concept takes account of the successive rounds of spending that arise from the stimulus of the direct impacts and assumes that one individual’s or organization’s spending becomes another individual’s or organization’s income in the next round. In return. The multiplier analysis thus quantifies the economic value and jobs of the financial transactions which take place within any economy. Much of the remainder will be spent on labour or will go to the government in the form of taxes. Some of this money will then be re-spent again. will probably also be subject to other taxes such as property or land taxes and business or corporation taxes. the successive rounds of spending will become so small that they will be considered negligible. computer systems. Their combined impact can be measured by the economic multiplier. on the other hand. There will be new investment associated with these direct. producing the induced effects. and induced activities in the form of airport facilities.The economic impact of airports Direct impacts Induced impacts Indirect impacts Direct and secondary impacts Catalytic impacts Total impacts Figure 8. involving an understanding of how the airport interacts with other sectors within the economy. regional and national government revenues. salaries. particularly in the private sector. import goods and services. Some of the money spent on airport-related activities will be re-spent on purchases from suppliers of goods and services – the indirect effect – with a proportion of this leaking out of the economy as imports. The rest will be saved and not re-circulated within the economy. distribute wages and salaries.

a definition of ‘off-site’ needs to be established – a rule-of-thumb figure is an area within a 20-minute drive time (York Consulting/ACI-Europe. in the duty. Historically. expenditures. Details concerning purchases of goods and services. indirect. Conversely. the amount of freight and the actual capacity utilization of the airport. at London Heathrow airport. or cargo (Maiden. and capital expenditure also need to be gathered. of varying levels of sophistication. to provide funds for investment such as the US transportation tax. travel to work mode and whether they are engaged in functions more related to passengers. Then every few years BAA plc also undertakes a survey to find out details of employees characteristics such as home address. aircraft movements. A study of employment in 1996 at European airports showed that the airline and handling agents were. how much they earn and where they live. or just to boost public sector funds as in the United Kingdom with the air passenger duty. Then the relevant companies within this area need to be identified by taking into account the knowledge of the airport operator and other industry bodies and. followed by the airport operators and concessionaires 206 . perhaps. York Consulting/ACI-Europe. it has been in the United States where these techniques have been developed and where most of the economic impact studies have been undertaken. 2000). in more recent years other airports have been becoming increasingly interested in assessing their overall economic value. location of suppliers. available to airports which want to measure their economic impacts. First. whether it acts as a base for airline activity and whether it provides other opportunities such as office or other commercial development. the off-site data collection may be more difficult. 1993. The role of the airport also has to be considered. Measuring the direct. whether it is a major hub.Managing Airports airport service such as immigration and public health inspection as in the United States. The direct employment at an airport will vary according to a combination of factors such as the volume and structure of passenger traffic. However. For example. Direct impacts Direct impacts are clearly the easiest of all the impacts to measure. there is an annual spring census of all airport-related employers. Many airports systematically measure the direct economic impacts – particularly the employment effects. revenues. 2000). on average the largest employers at the airport. ACI-Europe has become actively involved with promoting best practice within the industry and has published two airport impact study kits (ACI-Europe. Employers at the airport can be asked to provide details of their employees. which produces total numbers of staff by type of employer. This is particularly the case in Europe. for example. by direct visual inspection. and induced impacts There are a number of different techniques.and tax-free sales area of operation it can be argued that the airports and their passengers receive a direct tax subsidy. 1995). While such a process for on-site airport activities should not pose too many difficulties.

A study in the United Kingdom in 1998 has shown the ‘rule-of-thumb’ density figure of 1 000 for the regional airports of Birmingham. and no base airlines. respectively whilst using the density assumption would give estimates of 6 600. For meaningful airport comparisons to be made. airports such as Brussels. Amsterdam. particularly in the form of international 207 . Paris CDG. Malaga. Eighty per cent of the employees were male – although women made up 60 per cent of the part-time workforce. A figure of 1 000 jobs for every million passengers equal to a density figure of 1 000 tends to be the rule-of-thumb figure generally accepted by the industry. Also at airports serving low-cost airlines. and Gran Canaria in Spain have much lower values – below 500 – because of limited development at the airports. jobs per mppa figures average around 1 100. The international gateways. By contrast. There are six main groups of airports. and 2 560.2). and 2 900 jobs (Department for Transport. This is usually equivalent to the number of employees per million passengers per annum (jobs per mppa) or per WLU if freight is an important activity at the airport.The economic impact of airports Freight companies 8% Control agencies 7% Other 12% Airline/handling agents 52% Concessionaries 10% Airport operator 11% Figure 8. It has been suggested that airports can be classified according to their economic impact characteristics. Cardiff. This gave an overall employment density figure of 1 616. airport direct employment is related to the traffic throughput of an airport to produce an employment density figure. regional airports. For every person employed by an airport operator. 2002). Airports such as Barcelona. there were another nine working for other companies at the airport. 2002). and Newcastle. and transit and interline airports. national hub airports. tourist receiver airports. dependence on incoming tourism traffic. and Hamburg have density values of over 1 500. namely international gateway airports. which concentrates most of its resources at Madrid. and Frankfurt. Within Europe. although it obviously masks wide variations in employment at different airports. Manchester. (Figure 8. They are also run by the operator. 17 200. 1998). AENA.2 Employment at European airports in 1996 Source: ACI-Europe. tourist generator airports. in 2001 it has been estimated that there were 333 000 airport operator employees and a total of over 3 446 000 employed at the airport. The actual direct employment figures for these airports were 5 390. This ratio was much higher for the North American and Pacific airports since many more activities are outsourced (ACI. such as Heathrow. 16 400. have the ability to attract extensive off-airport business. Globally. primarily because of higher than average involvement in freight operations at Brussels and major maintenance facilities being located at the other two airports (ACI-Europe. the employment levels tend to be lower.

check-in. and commercial facilities) the elasticity value is 0. and services) within a certain area. One country which has extensive experience of using the input–output method to measure impacts is the United States. RIMS II. the input–output relationships for the sectors in the economy.g. agriculture. The national hubs.g. and Stockholm. and should also take account of the changing demands on airport employment due to more stringent security and quality requirements and technological developments. and air traffic control) activities are 0. handling and freight forwarders) and aircraft-related (e. Indirect and induced impacts There are two main approaches to estimating the multiplier effect and measuring the indirect and induced impacts.97. maintenance. such as Madrid. This will involve some assessment of the productivity gains which are likely to occur. Since the 1980s. construction. such as London Luton can be bases for charter airlines or low-cost carriers while tourist airports such as Dubai can be important for duty-free trade and cargo operations (Andrew and Bailey. Tourist generator airports. aircraft size may rise with traffic growth which will increase staff productivity in certain areas. airport operators will have to project their employment figures into the future. which indicates that a 1 per cent change in passenger numbers brings a 0.g. coefficients or multiplier values can be obtained for each economic activity. Very often in using economic impact studies to support proposals for future development. With passengerrelated employment (e. Corresponding values for freight-related (e. cabin crew. the Bureau of Economic Analysis in the Department of Commerce has been developing their regional input–output modelling system. From this table. Oslo. This methodology involves constructing a transaction table which shows. Analysis of past trends at Amsterdam airport has enabled ‘elasticity’ values to be produced for various types of employment. 2000). These should be derived from historical trends and experience elsewhere.83 for passenger-related employment and 0. This technique will thus allow the impact of additional spending in any one specific economic activity to be identified sector by sector as well as for the area as a whole. The first method involves using multiplier values that have been calculated by using information which has been gathered from surveys of on-site and off-site employers and by making assumptions about the tax rate and the share of purchases which are imported. Any economies of scale that also apply to labour productivity should be taken into account. manufacturing.Managing Airports company headquarters and distribution and retail centres. 1996). fuel.46 (York Consulting/ACI-Europe.77 and 0. This has been used widely to estimate regional impacts in both the public 208 . 1995). Each sector is shown as a column representing purchases from other sectors and as a row representing sales to the other sectors. This model looks at the linkages which exist within any economy by considering the relationships between the different economic sectors (e. A more sophisticated approach involves using an input–output model.g. At Heathrow (assuming that a fifth terminal is built) values of 0.61 for cargo have been estimated for the future (Maiden. For example. can act as airline bases and encourage capital city tourism. and to encourage long-haul tourism. in money terms.97 per cent change in related employment.

7 (Oxford Economic Forecasting. the other approach may be more appropriate. however. employment sector mixes and the role of the airport.1 (ACI-North America. these aggregate figures will hide significant variations which exist between different airports. This ratio ranges from 2. in the United States where the FAA recommends procedures for identifying and quantifying the economic impacts of airports there are substantial 209 . Halcrow. may be more appropriately considered at a regional or local level. to 1. direct and secondary) per mppa ranges between 2 500 and 8 000.6–0. The input and output structure of nearly 500 US industries is contained within the model (US Department of Commerce. The choice of method will usually depend on the amount of data which is available and the resources which can be utilized. Globally.32 for the larger airports. and likewise for the induced jobs. In the United States average direct figures are 1 270 staff per mppa and secondary are 2 063 – which gives a ratio value of secondary to direct jobs of 1. The impacts of smaller airports clearly need to be considered within a narrower context. Specific issues.2 for the small airports (ACI-North America. Department for Transport. particularly related to the employment market. Another estimate is 2 700 total jobs per mppa. 1998). there are the same number of indirect and induced. and forms the basis of many of the airport economic impact studies. Individual values will depend on many factors such as the nature of the traffic at the airport.e. or local situation is being assessed. it has been suggested that on average the number of total jobs (i. 2002b). Even. Clearly. of which 1 200 are direct and 1 500 are secondary. the data requirements will be greatest for the input–output models. in 2001 the comparable figures are broadly 1 640 (direct) and 1 850 (secondary) with a secondary:direct ratio of 1. on average. with a considerable degree of caution. The indirect impacts tend to increase with the size of the study area as this increases the likelihood of goods and services required by airport-related companies being supplied within the area. that it makes sense to assess their impact within a national context. 1997). rather than being imported from outside. propensity to travel characteristics. Within Europe it is estimated that. They will also be related to the size of the economy under consideration. recent research has tended to consider the indirect jobs to be broadly equivalent to a third of the direct jobs. Estimates for airports may vary quite widely because of the use of different terminology and methodology or the adoption of models of varying levels of sophistication. 2002). jobs (ACI-Europe. 2002. If a more local situation is being assessed. depending on whether the national. The choice of study area will depend primarily on the role and size of the airport and the reason for measuring the impact. which gives a secondary:direct jobs ratio in the range of 0. with between 750 and 2 000 of these jobs being direct airport-related employment (ATAG.32 for the medium-sized airports.The economic impact of airports and private sector. In Canada. Large capital city and main international airports tend to have such an important impact on the overall economy. 2003). 1998). and this technique tends only to be used at a national or regional level. of adapting the national or regional input–output model.62. Specifically within the United Kingdom. or there may be the option. With this estimation a distinction was made between international hub airports which were assumed to generate 1 500 direct jobs per mppa and 2 100 secondary jobs compared with lower values of 1 000 and 1 100. Clearly. at smaller regional airports (Mason. regional. 2000). or secondary. in addition to 1 100 direct jobs. respectively. and only 0. 1999.

3 at the airports of Cardiff and Gatwick to 2. When there is a major capital investment programme. Sometimes the temporary staff employed in the construction industry will be included in the impact figures and sometimes they will not. treat these as indirect jobs.1). 210 . and exhibitions. For example. Cardiff.3). Studies adopt different definitions of multipliers and interpret direct and indirect impacts in a number of ways. At Gatwick airport. irrespective of whether the activities are directly airport related.5 at Phoenix. conferences.5 Cardiff airports between 1 but less than 2 for Düsseldorf airport and around 2 for the Paris airports.3 Employment at Gatwick airport in 1997 Source: BAA Gatwick (2000). airports tend to identify the impacts separately to add additional support to the case for new capacity. Gatwick. Munich. and Vancouver airports have been estimated to generate over 2 000 secondary jobs per mppa. This means that the secondary : direct jobs ratio is very varied – ranging from as little as 0.3 with the bulk of the secondary employment coming from induced effects. which can have a dramatic effect on the overall magnitude of indirect impacts. Induced 19% Indirect 4% Direct off-airport 10% Direct on-airport 67% Figure 8. such as a new runway or terminal. just as wide-ranging impact values are obtained.Managing Airports differences in the detailed methodologies used. attractions. About 15 per cent of direct employment was off-site (Figure 8. whereas at Birmingham. Some airports. particularly in the United States. or adopt a more qualitative approach to assessing this effect. These jobs are thus in tourism industry activities such as hotels. Then there is the problem of how to treat any activities which are based at the airport but not actually related to airport operations. Very often the split of activities on and off-site will depend on whether the actual site is constrained or not. When income generation is considered. the secondary : direct ratio was also estimated to be around 0. This makes it very difficult to compare multiplier values. For example. the secondary : direct income ratio has been estimated to be below 0. sometimes all off-site impacts are considered as indirect impacts. Phoenix. and Newcastle airports this value is less than 500. restaurants. Other studies separately identify the visitor impacts. Another area of inconsistency between airports occurs with the treatment of construction activities. Direct jobs per mppa range from as little as 646 at Washington National airport to 1 656 at Winnipeg airport. These differences largely will be responsible for the spread of employment density figures which have been estimated for a number of European and North American airports (Table 8. One of the major areas of discrepancy is in the treatment of jobs associated with leisure and business tourists who arrive via the airport.

ACI-North America (1998.5 0. in the United States.1 31.6 Note: a mppa million passengers per annum. 1999). an input–output model of Oxford Economic Forecasting has been expanded to include the aviation rather than just the transport sector in order to assess the overall economic impact of aviation. For example.1 1 581 816 1 570 774 1 023 1 147 953 1 075 858 854 1 560 1 068 1 142 806 408 483 966 1 023 354 781 2 131 446 1 195 1 910 828 1 082 2 387 1 224 2 053 1 740 2 046 1 501 1 734 3 206 1 304 2 049 3 470 1 896 2 224 0.7 27.The economic impact of airports Table 8. including airport operations.9 1997 1996 1997 1997 1998 1998 2000 3. and Department for Transport (2002).2 billion to UK GDP which is 1.7 2. Aviation’s contribution to GDP was estimated to be 4. 2000b).6 15. US$259 billion in annual earnings and 10.7 per cent.5 1.8 0. the Department of Transportation’s databases and the RIMS II model are used to assess the overall impact.5 1. At a national level in various countries.3 0.3 0. Figures for 1998 estimate that the aviation industry generated US$911 billion in economic activity.8 2.2 15.8 2.5 0. 1999.9 11.1 Employment impacts at European and North American airports Airport Year Passengers (millions) Direct Secondary jobs jobs per per mppaa mppaa Direct and secondary jobs per mppaa Direct jobs : secondary jobs Europe Amsterdam Birmingham Cardiff Düsseldorf Geneva London Gatwick Manchester Munich Newcastle Oslo Paris CDG Paris Orly Vienna North America Ottawa Phoenix Vancouver Victoria Washington Dulles Washington National Winnipeg 1997 1998 1997 1997 1998 1997 1998 1996 1998 1996 1996 1996 1996 31.4 9.0 30.6 0.8 0.5 6. ACI-North America has calculated values 211 .0 0.2 1.3 million jobs (Wilbur Smith Associates.5 billion goes to the government in the form of taxes (Oxford Economic Forecasting.9 0.1 15.2 0.0 0.8 1.0 6.6 1. Source: Individual airport economic studies as reported by the airports themselves and ACI-Europe (1998). studies are undertaken to assess the overall economic impact of aviation.4 per cent of total GDP and at least £2.3 1.3 17.4 14. In the United Kingdom.4 27.2 15. 2000).9 951 1 213 1 546 812 992 646 1 656 1 202 2 998 2 005 733 796 402 951 2 153 4 211 3 551 1 545 1 788 1 048 2 607 1. in the absence of any equivalent of RIMS II.3 2. National estimates for just the airport sector are more difficult to obtain. The industry is thought to contribute £10.4 1.

These arguments are frequently used to gain approval for airport expansion or development. communications.Managing Airports for both Canada and the United States by using the individual airport studies in both countries in 2001. The increasing reliance on just-in-time inventory systems for these expanding industries and more traditional sectors.b). The trend towards globalization. They can encourage inward investment and the relocations of businesses by attracting industries which rely on quick and convenient access to air services for both people and goods. income. creating wealth and regenerating the area. In short. as has been the situation in some developing countries in Africa and Latin America where air travel has enabled the export of fresh and perishable fruit and flowers to Western economies. In Canada. Overall. airport development is often seen as a way of generating new employment. Airports and economic development As well as being a generator of economic activities in its own right. (ACI-North America. airports can play an important role in influencing company location decisions. has increased the importance of locating in the vicinity of an international airport.1 billion in economic activity. These businesses will not rely directly on the airport for their operation. and tax revenues generated by the wider role which an airport can play by being an economic magnet for the region it serves. Airports can also help retain current businesses or encourage them to expand. Airports can give a company easy assess to other parts of the company as well as to suppliers and customers. and are heavily reliant on air travel for the transportation of their high-value/lowweight products. where unemployment is high and there is a narrow declining economic base. an airport can also play a role in attracting and sustaining wider economic activity in the surrounding area – both in terms of business and tourism development. In some cases the airport can be the lifeline to local economies. 2002a. such as car manufacturing. A good illustration of this was the recent planning enquiry for Manchester airport’s second runway. Moreover. by providing access to a wide range of both passenger and freight services. Manchester airport claimed there would be some much 212 . investment. airports have become increasingly more important for businesses operating in global marketplace. electronics. both in terms of multinational companies and also in terms of increased reliance on imported components and products. but they will have a preference for a location near an airport because of the accessibility benefits which can be gained. an airport can enhance the competitiveness of the economy and can contribute to the export success of the businesses located in the vicinity of the airport. US airports are estimated to generate 1. it is estimated that there are 304 000 jobs in total with the airports generating Canadian $34. Hence.5 billion in taxes. magnetic. and pharmaceuticals are the most international. They are estimated to produce US$507 billion in economic activity and US$33. This is the catalytic. In economically disadvantaged areas.7 million jobs in total. and can offer speed and security for goods being transported. Some of the fastest growing knowledge-based industrial sectors such as computing.9 million direct jobs and 6. This impact can be defined as the employment. or spin-off impact. has meant that air travel has become a critical element for a quick and efficient distribution system and rapid delivery times.

conferences. it is very difficult to formally establish the causality between the expansion of an airport and wider economic development (Caves and Gosling. not the quality of the infrastructure (Graham and Guyer. where the tourism potential of a destination has only been realized after direct services and suitable airport infrastructure have been provided. and transport infrastructure. trade policy. rather than the development of air services influencing the economy. The wider economic benefits will depend very much on the scale of the airport and. with either complementary or competing roles. Thus airports are often considered as a vital component of a regional development policy and can be viewed as giving a real advantage to competing regions. It is extremely difficult to isolate and quantify the economic effects which are due to the presence of the airport from the wide range of other factors which will affect a company’s location decision. However. claimed that there would substantial economic benefits for the Liverpool area if the runway was not built and Liverpool airport expanded instead. and conference business. particularly in developing areas such as the Caribbean. whereas neighbouring Liverpool airport. The situation is also made more complex by the fact that many economic regions are served by a number of airports.The economic impact of airports needed economic development as the result of the second runway. in choosing whether to operate from the airport or not. It is certainly true that investment in airport infrastructure is not usually sufficient in itself to generate sustained increases in economic growth. city break tourism. attractions. as with business development. Causality between airport growth and tourism development. In the United States. evidence suggests that the links between air transport and economic growth are largely historical (Graham. Airports can play a role in encouraging both business and leisure visitors to the surrounding area. Certain regions will find it difficult to attract inward investment if their airports have not reached the critical mass needed to provide an adequate range of services. and areas which are relatively inaccessible by air will be at a distinct economic drawback. and exhibitions. which opposed the plans. In the end. Airports undoubtedly play an integral part in economic development. which has encouraged airlines to operate from the airport. in terms of wealth and population size and distribution. for example. The ability of airports to generate jobs and attract new business should never be used as the main justification for new airport construction. quality and cost of any potential development sites. or do more bedspaces encourage more frequent flights? Some impact 213 . 2000). The exact location of any business activity will be only partially related to the existence of any nearby airport services. its ability to attract air services. The increase in visitor numbers may then have a spin-off effect on the income and employment generation in tourism industry activities such hotels. it will be the airlines that will determine the success of an airport and broader economic impacts. is it new air services at a resort which encourage new hotel development. Their primary concerns will be whether sufficient passenger demand exists and the airport’s strategic and geographic location. and the supporting communications. Asia and Pacific. restaurants. is very difficult to prove. very critically. 1995). tax incentives. In many cases it is impossible to establish whether it is the nature of the surrounding economy of an airport. For example. with other factors being the availability. Tourism markets which are particularly dependent on air travel include package holiday travel. 1999). There are many examples of countries. the nature of the local labour market. long-haul travel.

Other factors mentioned included financial incentives. Instead. proximity of markets. Paris. that by including crude estimates for these catalytic impacts that these have the effect of reducing the credibility of the more accurate direct. For example. Alternatively. namely London. 2000). in 1996 at Phoenix Sky Harbor International. the impact of opening up new routes can be considered in order to see how air services directly impact on business or tourism development (Button and Taylor. housing. An estimate of spending is often calculated by multiplying the visitor numbers by average daily spend and length of stay. Frankfurt. Düsseldorf. have a separate visitor impact category.Managing Airports studies. Some studies have made some estimates by usually assuming that a certain proportion of jobs within the business and tourism industries in the vicinity of the airport exists because of the airport. that this tourism industry would not exist if a certain airport was not present. the school system. It was calculated that in the first year of operation the routes generated 214 . Other airports choose to categorize the visitors’ impact as indirect. raw materials. Within Europe such estimates have ranged from below 1 000 jobs per mppa for airports such as Amsterdam. since the respondents will bear no direct costs associated with the new services but may benefit from the gains. particularly in the United States. For instance. A more qualitative approach is often adopted which will involve investigating factors such as the significance of the airport to location decision. An average figure is 1 800 jobs per mppa (ACI-Europe. but it unlikely. environmental regulations. property costs. Eighteen per cent identified the presence of major airport as being important (Mason. indirect. and Oslo to above 2 000 at Barcelona. and the health system. and Newcastle in the United Kingdom. competitiveness and business performance by surveying and holding discussions with relevant businesses. were also rated as the top five cities in which to locate a business (Mason. except in an isolated island situation. and Brussels. They will often have a very positive but perhaps not totally realistic view of the value of new air services. In another survey in Europe in 2002. Admittedly. however. a survey of US corporate executives found over 50 per cent of the sample felt that the road infrastructure. There is a danger. Amsterdam. wage rate and trade union profile of the local labour market were very important locational decision factors. the top five cities for transport links with other cities. and Toronto were opened. and the skills. It thus seems rather inappropriate to include these tourism impacts as indirect impacts. Birmingham. Similarly trends in business and leisure tourism can be investigated and the importance of the role of the airport discussed among industry experts. Düsseldorf. 1998). 2000). or the amount of income which is generated from these catalytic or spin-off impacts. three major non-stop international routes to London. and induced impact measurements (York Consulting/ACI-Europe. for example. This will be in order to gain a closer understanding of the nature of the interaction between the airport and the wider elements in the local economy. telecommunications. 2000). many of these tourism businesses will be reliant on air services for their tourism demand. 2003). Brussels. it is not usually feasible or suitable to identify with any certainty the exact number of jobs. unskilled labour. A difficulty with this interview approach is to ensure that respondents give genuine comments. Since it is very difficult to prove any direct causality between airports and broader business and tourism development. it is more preferable to consider them alongside the catalytic impacts causing business development.

With some of the airports visitors activities are identified separately and so the impact of including them in the economic assessment can be seen. Increased industrial and economic activity around an airport may merely be draining resources from other areas. Similarly. The overall impact on the local community of tourism development related to aviation activity also needs to be assessed. with the income accounting for 6. 1998). 3 323 jobs. Each of the studies have been undertaken separately so there is no consistency in the method used – which may explain some of the differences. The total jobs and output at Brisbane is very high. the impact on other modes of transport.The economic impact of airports US$39 million direct income and 366 jobs. with indirect/induced income of US$97 million and 915 jobs.8 million at Washington National. all need to be considered. and Vienna airports to give an example of the range and type of measures which are available in different areas of the world. also need to be taken into account. Geneva. 1999).2 per cent of employment in Queensland. The crossover effects on other industries. The positive effects may not be very substantial if the tourism industry has to be supported by a substantial level of imports and foreign investment (Wheatcroft. These airports are all medium-sized airports with passenger throughput varying from 6. namely Manchester–Atlanta.7 new annual tax revenues (ACI-North America. the measure have been divided by passenger throughput. economic activities with an assessment being made of the comparative economic benefits and opportunity costs. it is the net benefits which should be considered (Caves and Gosling. Manchester–Dubai. For comparative purposes. and US$52. Alternative developments could have a better overall impact on the economy.2 presents a selection of economic impact measures for the Washington. Table 8. although many of the wider economic benefits are likely to be less linked to passenger volume. For example. 1994).4 million at Geneva airport to 15. 215 . and it is likely that this is reflecting the impact of aviation on the neighbouring Australia TradeCoast economic development area. for example. which was undertaken by the UK CAA (CAA. Other interesting examples include an assessment of the impact of the four long-haul routes. It was also estimated that the routes created US$351 million air exports income. have been identified. By way of illustration. in addition to the tourism activities. The Washington airports also estimate the impacts of the US$31 million capital expenditure programme at National airport and the US$57 million capital programme at Dulles airport. The total employment is estimated to represent 5. The negative or adverse potential impacts of airport development. Brisbane. non-airport related. Manchester–Hong Kong. airports cannot only encourage visitors to the local region but can also enable local residents to holiday abroad rather than staying in the local region. such as city centres. At Geneva airport the catalytic impacts associated with business development. 1994). the availability of nearby direct air services may increase the use of imported goods and services at the expense of local products. overheating of the economy and consequences of local labour shortages. Washington National airport has the least jobs per mppa primarily because of the domestic nature of the passengers and less involvement in other activities such as freight. In assessing the impact that airports have on the wider economy. such as extensive urbanization and industrialization. and Birmingham–New York. The impacts should also ideally be compared with possible alternative.8 per cent of the gross state product.

216 .4 million passengers Direct 6 587 N/A 1 458 Totalc 13 174 N/A N/A Catalytic 10 779 N/A 4 404 d Visitors N/A 1 488 Vienna (1996) 9. This chapter has discussed these various economic impacts.6 million passengers Direct 15 481 548 4 125 440 Totalc 27 888 992 N/A N/A Visitors 47 981 998 1 989 277 Construction: Direct 778 31 N/A 7 Totalc 1 281 56 N/A N/A Washington National (1998) 15. Metropolitan Washington Airports Authority (1999). it is likely that in the future more consistent and accurate approaches to measuring economic impacts will be developed. c Direct and secondary impacts. As research into this area continues.8 million passengers Direct 10 211 384 2 414 295 Totalc 16 562 664 N/A N/A Visitors 69 805 1 347 2 909 425 Construction: Direct 417 19 N/A 4 Totalc 650 32 N/A N/A Brisbane (1996–7) 10. bppa passengers per annum. there is little doubt that airports have a substantial economic effect on the region in which they are located.2 Economic impacts at Washington.0 million passengers Direct 16 400 N/A N/A Totalc 83 600 1 596 8 685 Geneva (1998) 6. In conclusion. Sources: Brisbane Airport Corporation (1998). While concepts such as the multiplier or the catalytic effects are reasonably straightforward to understand. Geneva Airport (2000). and Vienna airports Jobs Income Output (million (million US $) US $) Taxes (million US $) Jobs per mppaa Income per ppab (US$) Output per ppab (US$) Taxes per ppab (US$) Washington Dulles (1998) 15. Vienna International Airport (1998). Brisbane. dIncluded in ‘total’. More and more airports are showing interest in measuring their economic impact but still there are considerable inconsistencies in the terminologies and methodologies used.8 million passengers Direct 10 394 1 058 N/A Totalc 20 234 2 361 N/A Visitors N/A N/A 2 361 N/A 67 N/A N/A N/A N/A 255 462 N/A 992 1 788 3 076 50 82 646 1 048 4 418 26 41 1 547 7 887 1 029 2 058 1 684 d 35 64 64 2 4 24 42 85 1 2 N/A 151 N/A N/A N/A N/A 116 259 N/A 264 N/A 128 N/A N/A 153 N/A 184 N/A N/A N/A 819 226 N/A 684 231 N/A N/A 262 28 N/A 18 0 N/A 19 N/A 27 0 N/A N/A 6 N/A N/A N/A N/A 28 51 N/A 1 142 2 224 N/A Notes: a mppa million passengers per annum.Managing Airports Table 8. they are very difficult to actually quantify with any degree of confidence. Geneva.

K. R. ACI-Europe (1998). BAA/31. The Economic Impact of US Airports. 209–22. BAA. (2000). University of Westminster/Cranfield University Airport Economics and Finance Symposium. ACI. B. Gatwick Airport Sustainable Development Strategy. (2003). Journal of Transport Geography. The Economic Benefits of Air Transport. CAP 638. Strategic Airport Planning. Master Plan – Executive Summary. S. ACI-Europe.The economic impact of airports References and further reading ACI-Europe (1993). Proof of Evidence: Forecasting – Heathrow Terminal 5 Enquiry. N. CAA. The Economic Impact Study Kit. OEF. B. The contribution of airports to regional economic development. ACINorth America. G. DTLR. ATAG. (1995). R. SERAS Stage two: Methodology report. The economic impact of airports. The Economic Impact of US Airports. and Guyer. Metropolitan Washington Airports Authority (1999). Mason. Department for Transport (DfT) (2002). Civil Aviation Authority (CAA) (1994). A User Handbook for the Regional Input–Output Modelling System (RIMS II). and Gosling. 6. ACI-Europe. BAC. Geneva Airport (2000). (2000). 249–62. The Economic Impact of Canadian Airports. The Economic Impact of Geneva International Airport – Summary. ACI-North America. C. ACI-North America (1998). September. BAA Gatwick. (2000). ACI-North America (2002b). (1999). The Economic Impact of Canadian Airports. US Department of Commerce (1997). Caves. Air Transport Action Group (ATAG) (2000). ACI-North America (2002a). ACI-North America. and Taylor. BAA Gatwick (2000). Journal of Air Transport Management. Geography and Air Transport. Regional Air Services Co-ordination Study. The Contribution of the Aviation Industry to the UK Economy. ACI Airport Economics Survey 2001. PTRC European Transport Forum. Button. DOC. Geneva Airport. Brunel University. International air transportation and economic development. 3rd edn. MWAA. 217 . ACI-North America (1999). Graham. 8. (1996). Pergamon. Mason. Brisbane Airport Corporation (1998). H. Airports Council International (ACI) (2002). Andrew. DfT. Oxford Economic Forecasting (1999). The role of regional airports and air services in the United Kingdom. R. The economic impacts of airports. N. S. Wiley. ACINorth America. Creating Employment and Prosperity in Europe. University of Westminster/Cranfield University Airport Economics and Finance Symposium. (1995). Maiden. Graham. Halcrow (2002). March. The Economic Impact of New Air Services. March. and Bailey. Regional Economic Impact.

Managing Airports Vienna International Airport (1998). 218 . Routledge. The Economic Impact of Civil Aviation on the US Economy – 2000. Wilbur Smith Associates. Vienna International Airport. Wilbur Smith Associates (2000). York Consulting/ACI-Europe (2000). Wheatcroft. (1994). Aviation and Tourism Policies: Balancing the Benefits. Introducing our Airport and its Economic Potential. ACI-Europe. S. Europe’s Airports: Creating Employment and Prosperity – An Economic Impact Study Kit.

The environmental impacts have to be considered at two levels. In many countries increased prosperity has led to greater expectation for the quality of life and more sensitivity to the environmental impacts of airports. The problems are particularly acute for airports which are popular because of their proximity to local population centres but which means that a significant proportion of the community is affected by airport operators. At the same time. depending on views about aviation and other social and political attitudes. and possible constraints upon. the airport industry. For this reason it has become increasingly difficult to substantially expand airport operations or to build new airports. like all other industries. In short. Within a . faced the effects of increasing environmental pressure. The level of environmental concern varies from country to country or indeed from one airport to another. continual growth in demand is putting greater commercial pressures on airports to develop activities. environmental issues must be seen as one of the greatest challenges to. namely global and local.9 The environmental impact of airports Growing concerns for the environment In the 1990s. the future activities of the air transport industry. All indications are that this will become even more difficult in the future as concern for the environment grows.

amenity and conservation groups. for example. to aircraft noise and air quality have to be considered. at the expense of economic growth. Emissions. Other impacts may require complex technical data to be assessed. and often conflicting. night flights. These include the airport operator. 2000a). therefore.Managing Airports global context. when mitigation measures are considered. for example. is very much at the local level. concerning airport noise. These will have a complexity of different. public tolerance of aircraft noise has been diminishing. The meeting of governments in Kyoto in 1997 was one of the first attempts to introduce constraints upon environmental impacts at a global level although aviation currently is excluded from this. and local residents. Noise Aircraft noise has traditionally been considered the most important environmental problem at airports and. Water pollution and use. The main impacts The main environmental impacts can be divided into five categories: 1 2 3 4 5 Noise. Then. Public concern at a local level. Pressures from the environmentalist lobby for a reduction in air transport because of overall environmental needs. heritage. most standard procedures have to be adapted to suit each airport’s individual circumstances because of variation in aircraft use. in many cases. although some investigation of the global developments has also been made to put the local issues into a broader context. The focus of this chapter. and landscape. can be accurately assessed by monitoring noise levels at airports. impacts due. Wildlife. whereas elsewhere many airport operators are increasingly voluntarily introducing measures to mitigate the impacts. At a local level. or affected by. interests. land-use rules. Some impacts cannot adequately be measured. the role that aviation plays in contributing to world problems such as global warming and ozone depletion is increasingly coming under scrutiny. These are long-term issues which society as a whole has to address. which may be difficult for all interested parties to fully understand. 2000a. Issues such as resident safety. Consideration of the environmental impacts at airports is made that much more difficult because of the many different bodies involved in. In some areas of operation airport operators may be legally required to minimize the adverse effects. is a much more difficult challenge to face – even quantifying the environmental costs is very problematic (DETR. governments and statutory organizations. CEDelft. closeness to residential areas and overall environmental sensitivity of the community. Waste and energy management. the airlines. This is in spite of the fact that over the years the noise levels 220 . or loss of wildlife habitat can cause anxiety among certain sectors of society and generate considerable emotive concern. It is the more local problems which airport operators mostly have to address on a day-to-day basis. airport operations.

2000). 221 . George. In 1998. Chapter 2 aircraft include the Boeing 727. for phasing them out. In 1977. 2 448 chapter 3. and 13 supersonic in the world’s fleet (European Commission. known as chapter or stage 3. 1999. the noisiest of the chapter 3 aircraft and so there have been pressures. An issue which has complicated this noise certification process is the treatment of hushkitted or re-engined jets. however. 2000. claiming that it discriminated against the US aviation industry. and all the airbus family of aircraft. based on the maximum noise level given a certain flight procedure. For example. A standard was finally established in 2001 (Feldman. to be applied to all new aircraft designs. Baker and George. The Americans were strongly opposed to this unilateral action by the EU. 777.The environmental impact of airports associated with aircraft movements has been declining. This reduction has been primarily due to the development of less noisy aircraft and the pressure of more stringent requirements for noise certification of new aircraft types. The first measure was originally to become effective from 1999 but was delayed in the hope that an agreement with the Americans could be reached. This has been the cause of a very major dispute between European and American authorities. 31 per cent of aircraft were hushkitted and 60 per cent are chapter 3 compliant. They were phased out completely in the United States at the end of 1999 and internationally ICAO required these aircraft to be phased out by 2002. were adopted by the ICAO. These are chapter 2 jets which have been modified to comply with the chapter 3 rules. They are. 1999). 224 chapter 2 aircraft. particularly in Europe. Since 1990. with all single-aisle aircraft in January 2000. and the remaining 66 per cent were chapter 3 compliant. The initial standards for jet aircraft. DC-9 and older types of Boeing 737 and 747. In the United States.e. This largely explained the difference of opinion over this issue (Gill and George. Newer aircraft certificated under chapter 3 include the Boeing 757. 767. Noise certification was first introduced in 1969 by the United States in the Federal Aviation Regulations Part 36 (FAR Part 36). ICAO adopted similar international standards in 1971. chapter/stage 1). This was because the United States was the sole supplier of hushkit technology and US airlines had a higher proportion of hushkitted equipment than any others. 2001). in the EU it was estimated that there were two chapter 1 aircraft. The absence of an agreed standard from ICAO meant that the EU in the interim introduced its own regulation. compared with corresponding global figures of 9 and 86 per cent. globally 15 per cent was certified chapter 1 or 2. Current aircraft types are typically 20 dB quieter than aircraft of 30 years ago – reducing noise annoyance by around 75 per cent (ATAG. 19 per cent was hushkitted or re-engined. This banned the addition of new hushkitted aircraft to European registers from 2000 and excluded all this type of aircraft entirely after 2002. For some time ICAO through the Committee on Aviation and Environmental Protection (CAEP) explored the scope for a new chapter 4 noise standard but reaching agreement between all ICAO member states proved very difficult. the first generation of noisy aircraft (i. Since that time the second generation Chapter 2 aircraft have become the noisiest types. have been prohibited. such as the Boeing 707. These standards were included in the Environmental Protection Annex 16 of the Chicago Convention. more stringent standards. became known as ‘chapter’ 2 or ‘stage’ 2 in the United States. By far the greatest proportion of chapter 2 aircraft is in Latin America and Africa where they accounted for over half the total. 2000).

and track-monitoring procedures can be provided for the airlines. and a growing number of airports actually publish the results. and make scheduling long-haul services more difficult. local noise-related operating restrictions. Such constraints may significantly impact on the development of freight or charter traffic which often rely on night movements. introduce unilateral noise abatement operating measures which can more immediately reduce the annoyance caused by aircraft noise. 2002). For example. international certification has an impact on reducing aircraft noise levels but these take a considerable length of time to achieve – given the heavy investment needed by both aircraft manufacturers and airlines. There may be difficulties with this. for example. This may involve a blanket ban on all aircraft. because airlines quite legitimately may be required to depart from their preferred route for ATC reasons. Airports can also impose other operational measures to reduce the noise impact. The directive allows operating restrictions to be placed on marginally compliant aircraft that have a cumulative margin of no more than 5 decibels in relation to the chapter 3 certification limits but it is not yet clear how many airports will choose to impose such a restriction (Pilling. governments and other interested parties. Individual airports can. and the long lifetime of an aircraft. reduced power and flap settings for take-off or approach. Many airports also use noisemonitoring equipment. however. A common restriction is a night curfew or limitations on night flights. In addition no agreement was reached regarding the phasing-out of the marginally-compliant chapter 3 aircraft such as the hushkitted aircraft although ICAO did agree to airports considering operating restrictions as part of a balanced programme of noise mitigation. land-use planning and management measures. Flight-track monitoring equipment when combined with airport surveillance radar is used to improve airline departure and arrival procedures and to monitor the adherence to the PNRs. In some cases. or to enforce noise limits. however.Managing Airports The new chapter 4 standards will apply to all new aircraft designs beginning 2006 which have to cumulatively be 10 decibels quieter than chapter 3. This is usually done by directing aircraft away from the most densely populated areas. many airports have introduced preferred noise routes (PNRs) to minimize the noise impact on the surrounding population. This can be used to measure local noise levels and calculate noise contours. The information gathered from the noise. noise abatement operational procedures. local community. Undoubtedly. for example. airport operators may impose financial penalties on airlines that deviate from their required flight track. Money from penalties may be used for soundproofing or other community projects. This concept of a ‘balanced approach’ to noise management comprised four principal elements: 1 2 3 4 reduction of aircraft noise at source. However these standards are already achieved by existing designs and so the EU and most airports were disappointed that their demands for a much tighter cumulative 14 decibel reduction were not met. Airports may also choose to place restrictions on flight procedures by requiring. In most cases. or a limit on the noisier aircraft. restrictions on noisier aircraft only apply at night 222 . The acceptance of this approach meant that in 2002 the European regulation regarding hushkits was repealed following the adoption of a new directive which incorporated ICAO’s balanced programme.

Frankfurt airport was one of the first airports to introduce such charges in 1974. The airport consequently applied to fully utilize the single runway capacity of 120 650 movements and was granted approval in 2000 (Düsseldorf Airport. taxiing. however. On both runways. The airport also has daily movement limits and a night ban between 2300 and 0600 hours.The environmental impact of airports but in some case they have been imposed during the day as well. the noise problem is not just limited to the aircraft landing. Noise has been reduced at a number of US airports which have mostly 223 . this blanket ban has been replaced by night noise quotas. taking-off. 2000a. Many airports also impose noise surcharges for noisier aircraft and an incentive to use quieter aircraft. unlikely to influence an airline’s choice of aircraft unless the fee differential is very large. a number of airports have introduced mufflers or noise attenuating walls and special noise attenuating hangars. a so-called ‘noise budget’ was approved which made an allowance for a gradual increase in the number of flight movements because of the use of quieter aircraft. To reduce the noise emission levels. is an interesting example of an airport which has had its operations restricted by noise concerns. However. There has been an interesting development relating to London Heathrow airport which could lead to further restrictions on night flights. In order to provide capacity for smaller aircraft operating regional services. however.b). The government of Belgium proposed a total night-time ban at Brussels airport in 2003. Restrictions have also been placed on the use of reverse thrust by airlines. especially during maintenance. A second runway was completed in 1992 but because of environmental pressures. which is situated relatively close to the city of Düsseldorf. the airport had invested in the nearby small airport of Moenchengladbach. Restrictions have been placed on when and how engine tests can be undertaken. due to political and environmental pressures. Eight members of an organisation called Heathrow Action for the Control of Aviation Noise (HACAN Clear Skies) complained to the European Court of Human Rights that the sleep disturbance caused by night flights was a breach of their human rights and the Court agreed in 2001 that a good night’s sleep was a human right. but due to pressure from the airport and DHL which has its European base there. Salzburg was one of the first European airports to ban all chapter 2 aircraft as early as 1991.7 tonnes MTOW in the busiest 6 months of the year. There is the noise from ground vehicles and auxiliary power units. The UK Government appealed against this ruling in 2002 arguing that it was up to national governments to strike a balance between individuals’ rights and the country’s economic interests but by the beginning of 2003. Airports may also choose to use the runways in a such a way as to minimize the number of people being affected by take-off or landing-related noise. these became increasingly popular – particularly in Europe (see Chapter 5). no consistency in the way that these noise charges are structured although within Europe it is likely that a directive aimed at harmonizing the noise charging schemes to promote greater use of quieter aircraft will be introduced. the budget was repealed in 1999. or engine testing. Düsseldorf airport. There is. In December 1997. the airport was restricted to 91 000 aircraft movements of over 5. This allowed a maximum of 120 000 movements in the 6-month period. no decision had been reached. In the 1980s and 1990s. These limitations over the years have placed restraints on the growth of both passenger and freight traffic at the airport. There is also the noise from airline engines running. However. These charging policies are. has a very restrictive upper limit on movements.

However. water vapour. For some time the airport has had three noise zones. and various hydrocarbons. This involves defining a certain area. The appropriate control of land use near the airport is vital when the mitigation of the noise impacts is being considered. FF37. nitrogen oxides. In 1984. carbon monoxide. primarily carbon dioxide (CO2) and water vapour are greenhouse gases which contribute to global warming and climate change.Managing Airports fixed rather than auxiliary power units. This is expected to reach 300 million tonnes in 2015 and 450 million tonnes in 2050 (Intergovernmental Panel on Climate Change. Then there is zone C where housing with special noise insulation is allowed – but the cost must be borne by the house owner or developer (Meyer.75 million grant money was allocated to 624 sound insulation projects from tax income (Aeroports de Paris. In 1964. The present fleet of subsonic aircraft globally consumed around 130 million tonnes of fuel in 1992. Some of these gases. Since 1972. By consuming fuel. Zürich airport was one of the first airports to address noise issues seriously. Sometimes the funds may come from airport noise charges or noise taxes as it the case with the Paris airports where. which is the most important of all the greenhouse gases. Emissions Through the combination of the development of quieter aircraft and noise abatement operating procedures. However. Housing and also buildings such as schools and hospitals may be insulated. in 1999. 2000). at around 2 per cent. is considered to be fairly small. To overcome this problem. The radiative forcing or global warming effect of all aircraft 224 . a simple noisemonitoring system was introduced. a flight-track monitoring system was added. By contrast. federal law in Germany requires airports to provide and pay for sound insulation within a noise zone around the airports. there will always be some residents who will be subject to noise annoyance. it employed its first noise abatement employee and in 1966. Zone A is in the centre of all airport activities where only airport-related buildings are allowed and residential property is prohibited. noise zoning is often applied to airports. and for this reason many airport operators will fund or assist in the funding of noise insulation for properties in the vicinity of the airport – either voluntarily or because it is a legal requirement. most airports have managed to contain many of the problems arising from aircraft noise. there have been night-time restrictions and in 1980 noiserelated surcharges to the landing charges were introduced. there is a ‘new’ environmental threat which has been growing in recent years – that of aircraft emissions. although technology is increasing the sophistication of such practices. around an airport where the construction of new houses and other noise-sensitive buildings is not allowed. 1999). Noise abatement procedures have existed at most major airports for some time. 1996). particles (mainly soot) of sulphur oxides. Surrounding this area is zone B where industrial buildings are permitted. the aircraft are producing emissions of carbon dioxide. or noise buffer. Globally aviation’s contribution to the world total of human-made CO2. This is in order to prevent the gains which have be achieved by using quieter aircraft being offset by people living closer to the airport. for example. as is the case of some European airports such as Zürich and Copenhagen.

the exact effect is unclear. Within the EU.5 per cent. while greater fuel efficient aircraft will may produce less emissions such as CO2. CO2 emissions from all forms of transport account for around 26 per cent of all CO2 emissions with air accounting for 12 per cent of the total transport impacts (AEA. At present there does not appear to be a viable alternative to jet fuel. depending on different growth scenarios and other assumptions (Intergovernmental Panel on Climate Change.5 per cent. By 2050. The taxing of EU carriers would therefore give them a distinct competitive disadvantage and produce fairly marginal emission savings. they directly occur in the upper troposphere and lower stratosphere. The second option would bring a greater saving of 2. second. Although the absolute amount of emissions is relatively small. could bring about a further reduction in fuel burn of around 8–18 per cent in the next 20 years – but still these developments by the themselves are not likely to reduce emissions to an acceptable level (Intergovernmental Panel on Climate Change. if such a tax was introduced in 1998. this global share may have risen to around 4–15 per cent. the higher combustion temperatures needed for greater efficient may actually produce more NOx emissions. In addition. As well as the greenhouse gases. 1999). taxing all flights of all carriers operating within the EU. the scale of these developments will only be sufficient to partially offset the growth effect. As yet. The environmental effectiveness of taxing all routes would be far greater but this option would be very difficult to implement since this would involve complicated reworking of bilateral agreements or amending global Chicago Convention policies – most probably through agreement with 225 . when the aircraft are flying at altitudes of between 9 and 13 km. the aviation industry is looking at other ways to mitigate aviation emissions. These include a kerosene tax. the European Commission expressed significant interest in the introduction of an EU-wide fuel tax. nitrogen oxides (NOx) are also thought to have a significant impact on the ozone layer but. the AEA fleet is predicted to be 22 per cent more fuel efficient by 2012 (AEA. It was estimated that. In the UK air emissions represent 18 per cent of all transport emissions and 5 per cent of all emissions (DfT. Market-based options are another alternative. The alternative of taxing all flights was estimated to bring down the results of EU carriers by 15 per cent and other carriers by 4 per cent. This was not considered to be acceptable. 1999). 2000). In the late 1990s. The subsequent effect on the operating result of the airlines with the first option was predicted to be a reduction of 12 per cent for EU carriers and a 4 per cent increase for other carriers. All this also has to be viewed within the global context where major CO2 reduction efforts are taking place in other industrial sectors. just taxing EU carriers on intra-EU flights and.5 per cent between 1992 and 2005. Currently aviation kerosene fuel is exempt from tax on international flights under the 1944 Chicago Convention and also the many bilateral air service agreements between countries prohibit such a tax. Of more certainty is that future global air traffic will increase at growth rates which will outperform the impact of any technology improvements which will reduce engine emissions. the effect of these emissions at high altitudes is not fully understood. first. 2003). 1999). the first option would reduce fuel consumption by 0. It is projected that there will be a 20 per cent improvement in fuel efficiency by 2015 and a 40–50 per cent improvement by 2050 (Intergovernmental Panel on Climate Change. Thus. In Europe. However. again. Improved operational procedures.The environmental impact of airports emissions is estimated to be around 3. It considered two options. such as more efficient air traffic management. Aircraft in the 1990s were 70 per cent more fuel efficient than 40 years ago. 1999).

1 Emission charges at Swedish airports in 2002 Class of aircraft Average value of emissions during LTO a cycle Increase in landing charge (%) 30 25 20 15 10 5 0 0 1 2 3 4 5 6 19 g/kN HC or 80 g/kN NOx 19 g/kN HC and 80 g/kN NOx 19 g/kN HC and 70 g/kN NOx 19 g/kN HC and 60 g/kN NOx 19 g/kN HC and 50 g/kN NOx 19 g/kN HC and 40 g/kN NOx 19 g/kN HC and 30 g/kN NOx Note: a LTO landing and take-off. as with the noise surcharges. is the result of the relative price inelastic demand at airports. This research concluded that emissions charges. nor would they create any distortions of competition. 1994).1). An alternative to a tax is an emission charge which could be levied as part of the airport or ATC charge. 1999). However. It was concluded that this it was not a feasible option in the short term (European Commission. The first was a charge proportional to the volume of greenhouse gas emissions discharged in EU Table 9. Geneva and Zürich also introduced an emissions charge in 1997. It has also been estimated that demand would decrease by 10 per cent if environmental costs are passed onto passengers (DfT. A survey of airlines of the European Regions Airline Association found that 91 per cent had not yet altered their fleet mix as a result of the charges in Switzerland and Sweden. The Swedish government levied an emission tax on Swedish domestic flights at a rate of 12 Swedish Crowns per kilogram of nitrogen oxides and hydrocarbons and 0. The Swiss and Swedish authorities are working together towards a harmonized system with the aim of making it easier for users and for other countries to adopt. this type of tax was not allowed in Europe and was also seen as discriminatory towards Swedish carriers once full European liberalization has occurred. The European Commission has also been looking at a more boarder application of emission charges as an alternative to a fuel tax having commissioned a major study of this option in 2002 (CE Delft. Such charges would be levied through the air traffic control system and the research explored two main alternatives. Therefore. Source: International Air Transport Association (2002). 2003). 2000). according to EU directives.Managing Airports ICAO. unlike fuel taxes. if limited to flights within EU airspace would not give rise to legal objections from third countries. There is actually some limited experience of such a charge in Sweden and Switzerland. the Swedish government abandoned this tax in 1997 and replaced it with an emission charge (Table 9.25 per kilogram of CO2 initially in 1989 (Alamdara and Brewer. 2002b). and 67 per cent would not consider doing so despite the fact that 73 per cent were now paying high charges as a result of the schemes (McNamara. In the UK the environmental costs have been estimated to range from £3 to £35 per passenger for a single trip (Royal Commission on Environmental Pollution. 2002). The impact of such unilateral policies on fleet choice seems to have been rather limited – which. 226 .

The second alternative which the research explored was a revenue-neutral charge or performance standard incentive (PSI).g. About half of this reduction would be due to technical and operational changes introduced by the airlines and about half would be due to a reduction in air travel demand because of the rise in ticket prices. they are not legally binding and it is up to member states to include these standards into their law. Overall the years these standards have been strengthened. In addition to considering the most appropriate standards and the best operating practices to reduce emissions. as such a scheme would be revenue-neutral. The additional revenue generated could be allocated to individual EU member states or to a supranational fund for financing emission abatement measures. namely smoke. clearly they are not the only impacts which need to be considered. electric vehicles which are more economically and environmentally 227 . These standards are aimed at local air pollution problems. ICAO has also been looking at various market-based options. As with the noise issue. If charges of 30 euros per tonne of CO2 and 3. It was estimated that this could produce annual revenues of 1–9 billion euros. and nitrogen oxides. carbon monoxide. taxes and levies (e. since they are based on the aircraft landing and take-off (LTO) cycle and do not cover emissions during the cruise phase. It was estimated that ticket prices would rise by roughly 3–5 euros for short-haul one way flights and 10–16 euros for long-haul flights. At a local level the air quality of the area in the immediate vicinity of the airport can be affected – primarily due to emissions of hydrocarbons. The operator can also seek to reduce the impact of running engines while the aircraft are on the ground. and nitrogen oxides. The monitoring systems vary considerably in their level of sophistication and accuracy.6 euros per kg of NOx were used. carbon monoxide. It was estimated that this would cause a five per cent reduction in emissions coming almost entirely from technical and operational measures introduced by the airlines and. the problem at airports is not just limited to aircraft operations since the local air quality may also be affected by the ground service vehicles. depending on the exact valuations which were used. fuel tax. it was estimated that emissions could be reduced by 9 per cent in 2010.The environmental impact of airports airspace. These include voluntary programmes. While the global impacts of aircraft emissions have attracted a great deal of attention in recent years. At some airports. which tend to be fuel powered. However. the actual airport operators have very little control over this matter. Emissions from international flights are excluded from the Kyoto Protocol – if it is ever ratified – and instead ICAO through CAEP has been given the responsibility for developing proposals on international aviation emissions. Encouraging more fuel-efficient operating procedures such as continuous descent approach may help a little. Some airports use these systems to help them model predicted air quality in the future. With this option if an aircraft performed better than a performance standard it would receive money but if it performed worse it would pay money. At a regional level the emissions from aviation are thought to contribute to acid rain. hydrocarbons. Very often independent companies will undertake the monitoring. en route emission charges) and emissions trading options whereby airlines would buy licences to pollute that can be traded with other industries. An increasing number of airports monitor local air quality at airports. While the ICAO emission standards can have an influence over aircraft emissions at airports. Since 1981. ICAO has laid down standards for four categories of engine emissions. there would be no additional funds to distribute.

Leakages from underground tanks and pipes. especially the airlines. and insurance restrictions. Waste and energy management Waste pollution is also an issue. Responsibility for this sometimes rests with the airport operator or property owner. as well as fire training activities and fuel spillages. 228 . do not have enough space for waste management facilities and there are cost economies of scale to be gained by having communal recycling and other waste management procedures. airports need to incinerate or send to a controlled landfill site all ‘international’ food waste from aircraft. have been considered and used in a few instances. Improvements can usually be brought about by an assessment of on-airport treatment methods and the scope for reducing. not directly related to emissions but to the trail of turbulent air left behind by an aircraft. to improve cleaning processes and to minimize the spillage and leakages. as it is with most other industrial activities. Off-airport disposal methods which typically involve incineration and landfill also need to be considered. the transfer of waste from airside to landsite at airports is problematic because of security. is wake vortices which can damage the tiles and windows of property under flight paths. is considered to be a particular problem. reusing or recycling waste. airports are also faced with specific operating restrictions because of the nature of the aviation business. can also contribute to this pollution. Then there are emissions from maintenance and cleaning processes. However. airport operators. In addition. aprons. While most of the waste comes from the airlines. In many cases there may be general legislation related to waste management. In-flight catering waste. However. Most of the individual companies. Surface water discharge or run-off which goes into local watercourses from runways. Another impact. For example. The chemicals used in maintaining and washing aircraft and vehicles. Balancing reservoir treatment may be undertaken before the surface water joins local watercourses.Managing Airports favourable. customs. These include revised operational practices to reduce the use of the harmful chemicals. it is very difficult to identify the specific airline involved and so the airport operators often provide a repair service and introduce measures to minimize the likelihood of this happening. An increasing number of airports now monitor water quality as well as air quality and have adopted various measures to minimize this water pollution. The waste at airports is generated by airlines. Water pollution and use Water pollution at airports can occur for a number of different reasons. car parks and other land development may be contaminated by anti-icing and de-icing fluids such as glycol which are used during the winter months. it is usually the airport operators who have overall responsibility for waste management for the entire airport activities. but more often with the airline. auxiliary power units and from the cars and other surface transport modes. with the disposable nature of most of the packaging. Then there is the normal wastewater from buildings and facilities such as domestic sewerage. and grass fertilizers used in landscaping activities can contaminate the soil. and other airport-related companies.

and landscape The major impacts of noise and emission clearly can have a significant affect on the population living in the vicinity of the airport. At Oslo Gardermoen airport. While the new Chek Lap Kok airport in Hong Kong was being built. Some airports undertake energy audits. a considerable amount of time and effort was expended in attempting to integrate the airport as much as possible into the local landscape. First. 1995). which can disturb the ecosystem and can be visually intrusive. associated with the provision of heating. badger sets had to be relocated. development was halted when a rare western swamp tortoise colony was discovered. At Indianapolis airport. At Miami airport.The environmental impact of airports Energy management. as with waste and water management. At Perth airport. is also very important. a 1-km exclusion zone for dolphins was set up to ensure that their sensitive hearing was not harmed during blasting work. An unusual example is San Francisco airport. However. there may be some 229 . this has meant that such buildings have been moved. Here. The need to protect the wildlife. because it involved the restoration of 55 acres of wetlands in the San Francisco Bay area (Gethin. At Manchester airport. In the case of Manchester and Copenhagen airports. a bridge had to be built to prevent the 1 000 moose who annually migrate across the region from wandering onto the airport approach roads (Anker. environmental lobbyists were actually in favour of airport development. For example. Landscapes can be radically changed by airport development. 1997). There are many examples of how specific airport operators have tackled the disturbance of certain wildlife habitats – particularly during the construction of a new airport or during airport expansion. there are good financial reasons for why airports should address these issues since environmental improvements may bring about considerable cost savings. and the landscape of the local environment also needs to be addressed. With energy conservation. heritage. for example. Energy conservation techniques can reduce this by between 5 and 20 per cent (ACI-Europe. and a rare breed of new had to be protected when the second runway was being built. heritage. the death of four manatees beneath the runway forced the airport operator to take action to protect this endangered species. air conditioning. and lighting. historic buildings may be situated within the area which has been allocated for airport expansion. Wildlife. it is not just the effects on the daily life of people that the airport operator has to consider. When Stansted airport in London was developed. 3000 new bat homes for the Indiana bat had to be installed due to a new maintenance building which displaced the bats. It has been estimated that energy costs account for about 5 per cent of the operating costs of an airport. to other locations. 1998). ventilation. The role of other transport modes There are two ways in which the use of other transport modes can affect the direct and indirect environmental impacts of airports. Heritage may also be affected by airport development. rather than being opposed to it.

it was recommended that high-speed rail should be encouraged for domestic and some intra-European journeys to reduce the environmental impacts of air transport (Royal Commission on Environmental Pollution. An interesting development occurred in Germany when. In the 1980s and 1990s there was a continuing growth in the number of high-speed rail services notably in France and Germany.Managing Airports opportunity for passengers on short and medium distance flights to be diverted on to high-speed rail services. It is Lufthansa’s aim to gain more slots for longerhaul services. it was estimated that the rail share of traffic on the Frankfurt–Munich route increased from 30 to 37 per cent in the first year of operation with a drop in airline share from 27 to 23 per cent. in 1998. 2000). However. The individual airport operator has far greater control in influencing the mode of surface travel used by passengers and employees to reach the airport – which is the other aspect of surface transport that needs to be considered. 230 . Such rail links also require huge capital investment. Lufthansa and the railway company. Research undertaken for Friends of the Earth (UK) quantified the environmental benefits from transferring domestic flights to rail as being in the range of 118 000–362 000 tonnes in reductions in CO2 emissions and 18 000–58 000 tonnes for NOx emissions by 2015. For example. as at Frankfurt. Ground transport makes a major contribution to the overall noise levels and air pollution at an airport. There is some evidence to suggest that this has been partly due to the availability of much cheaper air fares on the London–Brussels route (Dennis. For example. for instance. it is estimated that around 10 per cent of passengers could be transferred from aircraft to high-speed trains (International Panel on Climate Change. the rail share was estimated to have increased from 40 to 55 per cent in the first 4 years of operation and the first TGV route in France between Paris and Lyons was claimed to have gained an 90 per cent market share (CAA. Deutsche Bahn. signed a memorandum of understanding. Moreover. In a recent study in the United Kingdom. They have also introduced many initiatives to encourage passengers and airport employees to use public transport. Various studies have shown that a quick city centre to city centre rail service have been quite successful in attracting a certain share of the population away from competing air services. 1999). 1999). 2000). 2000b). It has been calculated that for flights between 500 and 1000 km than a high speed alternative could typically consume one third less fuel per passenger kilometre than an aircraft (Friends of the Earth. the diversion rate of air to rail on the Eurotunnel London–Paris route has been far greater than that for the London–Brussels routes. an agreement between the French and Americans has been reached which allows the airlines to offer passenger services which include a rail connection or other surface mode of transport (DETR. with the impacts rising as the transport system becomes congested. 2002). 1998a). Elsewhere. they are clearly not usually an attractive option for transfer traffic unless the high-speed network is linked to airports. This relates to short routes from air to rail once the high-speed network in Germany has been completed. In Europe. The appeal of the rail alternative will also depend very much on the comparable level of fares and the quality of service on offer. On the Stockholm–Gothenburg route. Many airports are trying to develop more effective public transport alternatives to the car for accessing the airport. switching from air to rail is only feasible when dense routes are being considered. For transfer to rail of flights to nearby European destinations comparable reductions of 145 000–402 000 and 23 000–64 000 were identified (Friends of the Earth.

Such links bring environmental benefits and alleviate road congestion as well as bringing extra convenience for passengers. with many examples being found in North America and other airports such as Düsseldorf. with a rather basic quality of service. With airport growth in the 1970s and 1980s. Other dedicated airport rail link examples include Gardermoen in Oslo.1 shows the total number of rail links to airports – both currently in existence and planned. They may be popular with employees but are less attractive to passengers. They are still the most common form of rail link today. Some airports also have integrated regional and high-speed rail links – Paris Charles de Gaulle being a good example. Other airports as well are looking at rail links for the carriage of freight. Munich. particularly those with large traffic volumes or a long journey away from the city centre. some existing suburban rail services (e. 1998. Stuttgart. There are many more rail links in Europe than in North America as they are considered to be a much more acceptable and attractive surface access option in Europe. Frankfurt airport has three railway interfaces. Frankfurt. the only freight transported has been aviation fuel. Few of the North American links integrate effectively 60 50 Number of rail links Existing Planned 40 30 20 10 0 Europe North America Asia Africa Australia South America Figure 9. Indeed. Paris Charles de Gaulle. Arlanda. Heathrow in London.g.The environmental impact of airports Historically. with only a small proportion using bus or coach transport. Chek Lap Kok in Hong Kong. Figure 9. Changi Singapore. A number of airports have also developed high-speed links connecting airport terminals to international routes such as Charles de Gaulle in Paris. Lyon. This is a relatively new idea since. Stockholm airport’s third runway was only approved subject to a rail link being built. and Amsterdam. Zürich. historically. underground or light rail services) were extended to reach the airport. and are not dedicated links to the airport. Milan.1 Existing and planned rail links to airports Source: ATAG. 2003). 231 . have instead developed high-speed dedicated links. and London Heathrow (IARO/ATAG/ACI. and Sepang in Kuala Lumpur. Janic. Barcelona. and Shanghai. Many of these services are relatively slow. There is a regional train station below Terminal 1. This has meant that a number of airports. an AIRail terminal for long distance services and a rail connection to Cargo City South. Leipzig/Hall Amsterdam. Airports particularly interested in developing rail freight include Liege. 1998. most passengers arrived at airports by private car or taxi.

At 23 rail stations. At London Heathrow in 2001. the comparable figures were 38 and 50 per cent (BAA Heathrow. and Geneva at 116 rail stations.2 Public transport usage by passengers to and from the airport. signage and the availability of information. For UK business passengers this figure was 23 per cent and for UK leisure passengers it was 31 per cent.3). Basel. 2001 Source: Compiled by author from various sources. and offering more remote check-in. Figure 9. Some airports are designing better interchange processes between public transport and the airport. 232 Am . Remote baggage services are also frequently available in Europe but not in North America. These factors plus the greater car dependency in North America explains why rail modal share and the actual number of rail links is far less common there than in Europe. Others have tried making improvements in marketing. The average was around 21 per cent – 9 per cent for rail and 12 per cent for buses (Navarre. Manchester airport has a target of 25 per cent for all public 70 60 % passengers on public transport 50 40 30 20 10 0 H Lo ea n th do ro n w Lo G n at do w n i Pa ck ris O rly M an ch es te r o h sl ic da st er Zu r O an St st ed m Figure 9. 1996). For foreign passengers. complete check-in can be made for flights of Swissair and partner airlines. Many airports now set targets for public transport use. 34 per cent of passenger trips were on public transport (Figure 9. More recent studies show that Zürich airport. 2002a). It also includes looking at the accessibility of the surface modes. The most developed service of this type is the Fly Rail Baggage system in Switzerland which provides two-way check-in for Zürich. ease of transfer to the airport and arrangements for baggage.Managing Airports with other rail services as is the case with a growing number of links in Europe. A growing number of airport operators have recognized that encouraging passengers onto public transport is very much more than just consideration of journey time. For example. has a very high share of 59 per cent of passengers accessing the airport by public transport (Grossenbacher. A study of 18 European airports found that passenger public transport use varied from 1 per cent at Lelystad to 41 per cent at Munich airport. 1999).2 shows the public transport share for some other European airports. Heathrow has set a target for passenger public transport trips of 40 per cent by 2007 and Gatwick has an identical target for 2008. which was not included in the original study.

For example.4 Mode of surface transport used by employees at London Heathrow airport in 1999 Source: BAA (2002a). rail being the quickest way of getting to the airport (17 per cent) and parking costs at the airport being too high (20 per cent) (Grossenbacher. Employees’ residences tend to be dispersed around the vicinity of the airport which makes it much more difficult to provide an effective public transport system. Inherently there are a number of characteristics of airport employment which encourage the use of private car. and because a friend or relative was available to offer a lift (CAA. Underground Bus/coach 12% 6% Taxi 1% Rail/other 6% Car 75% Figure 9. car use tends to be even higher for employees than for passengers.3 Mode of surface transport used by passengers at London Heathrow airport in 2001 Source: BAA (2002a). 1999). 80 per cent of passengers used private cars or taxis. while the equivalent figure for employees was 92 per cent (Manchester Airport. The most popular reasons for car use at the major UK airports have been identified as cost and convenience. often at unsociable times when public transport services are inadequate.4). airport employees have traditionally been provided with free parking spaces at airports – thus increasing the attractiveness of car transport. At Heathrow. Surveys at other airports also show this greater dependence on car 233 . transport journeys by 2005. For Zürich the key reasons for using rail transport were comfortable access (46 per cent). 1998b). Many of the jobs tend to be on a shift basis. Airport operators have also been trying to encourage more airport employees to use public transport. over 75 per cent of staff arrive by car (Figure 9. Amsterdam has a target of 40 per cent of by 2003 – this airport nearly achieved this target in 2001 with 38 per cent. at Manchester airport in 1996. rail ticket included in package (17 per cent). Moreover. As a result of these factors.The environmental impact of airports Bus/coach 13% Underground 13% Rail/other 8% Car 39% Taxi 27% Figure 9. 1997).

current or new New New Current Current Current New New Travelling to and from Heathrow Rail 40% of air passengers by public transport by 2007 Long-term target of 50% BAA to work with Railtrack to introduce an interim stopping service between Heathrow and Central London by end of 2000 BAA to work with Railtrack for approval of Heathrow express service to London St Pancras with first phase operational by end of 2002 BAA and Railtrack to work with promoters group to prepare a Transport and Works Act application for Airtrack scheme To begin a Heathrow Express Shuttle to Hayes in 2001 To work with London Underground to ensure the tunnel and station infrastructure for the Piccadilly Line extension to Terminal 5 is completed on time BAA to work with the Strategic Rail Authority and Railtrack to progress the proposals to link Terminal 5 to Staines (Airtrack) To prepare a strategy for the provision of on-airport bus priority by the end of 1999 The ATF (through the bus working groups) to work to develop performance indicators by end of 2000 To work with bus and coach operators to deliver customer service training to bus drivers by end of 2001 To introduce eight mercedes-benz Citaro buses to the Slough-Heathrow corridor by end of 2002 To introduce a bus priority cut through from the A4 to Nettleton Road by end of 2002 To produce a cycle implementation plan by end of 1999 To double the number of employees cycling to work by end of 2002 To identify and deliver two new or improved cycle parks for airport staff by 2003 Bus and coach $ $ $ New New $ Current New Cycling and walking . 2002 Targets and commitments Achieved ($).2 Targets and commitments – Heathrow airport surface access strategy.Table 9.

To limit the number of parking spaces under BAA control to 46 000 BAA to research the potential to relate employee car parking provision to individual need and public transport accessibility Journey planner to be available to all Heathrow and off-airport employees by end of 1999 BAA to work with on-airport employers. .Road Accessibility and interchange Parking Managing demand Monitoring To introduce road traffic monitoring at all airport entrances and exits by 1999 BAA to continue to consult with transport operators. business partners and user groups on design of public transport interchange at Terminal 5 and Hatton Cross and improvements to existing Central Terminal Area interchange. to produce their own travel plans by end of 2000 To double the number of car shares by end of 2001 The ATF to continue to operate for the foreseeable future To increase the number of car shares with 65% actively sharing cars at least once a week by March 2003 To publish a Green Travel Plan for Terminal 5 construction workers To introduce an Employee Commuter Centre by 2003 To develop a computerized surface access database by end of 1999 To publish each year a report on progress against the targets in the surface access strategy $ $ and current Current Current $ $ $ Current New New New $ $ Note : $ achieved Source: BAA Heathrow (2002a). encouraging ten of the.

health. 2 To devise a strategy for achieving these targets. and rising prices. Staff initiatives to encourage public transport use include discounted bus and rail travel. and other interested parties. From 1998 in the United Kingdom all airports with scheduled services were required to form airport transport forums (ATFs) and prepare airport surface access strategies (ASASs) as part of a national policy framework for integrated transport (DETR.Managing Airports transport for employees (Niblett. airports will also have a major social impact on the surrounding area.e.and long-term targets for decreasing the private car usage to and from airports. car sharing has been encouraged at some airports. Heathrow was the first UK airport to launch its 5-year ASAS setting out nineteen targets and commitments. For example. ecological damage and the safety of aircraft. insufficient housing. public transport plus cycling. 1996). in 1995 – before this became official government policy. The ATFs have three specific objectives (DETR. consideration has been given to the economic and environmental impacts of airports. airport environmental impacts can have a detrimental impact on the quality of life of residents in the vicinity of the airport. In preparing the ASASs the forum has to ensure that the proposals are consistent with the broader integrated transport plans for the area. air pollution. It was followed by London Gatwick airport in 1997. In the broadest context. Another very obvious social role played by certain airports is that of providing lifeline links to remote areas which might otherwise remain isolated. dedicated airport workers buses. It reached this target in 1998 with a share of 42 per cent (Schiphol Group. While the exact relationship 236 . and park and ride schemes. The major areas of concern are aircraft noise.). and other social needs. fuel odour. 1999): 1 To agree to short. carpooling etc. An overheated economy associated with a successful airport development may bring problems of labour shortages. Some airports have also set targets for public transport use for staff. 1998). local government. In acting as a catalyst for economic development. 3 To oversee implementation of the strategy. The most recent targets and commitments are shown in Table 9. London Heathrow airport was the first UK airport to establish an ATF. Restrictions on car use within the airport area have also been introduced. transport operators. London Stansted in 1999.2. the development of cycling networks. When car use is still necessary. Amsterdam airport had a target of 40 per cent of employees using ‘environment-friendly’ transport (i. the local community. In 1999. Clearly. which are extremely difficult to quantify or contribute to any one airport. and Manchester in 2000. The social consequences So far. enhancing opportunities for travel and increasing consumer choices for foodstuffs and other products. These are all very general impacts. it is often claimed that air travel brings wider benefits to society in the form of strengthening ethnic and cultural links between countries. Aviation can clearly have a multitude of impacts on society as well. 2000). education. Employment and living patterns will change with implications for housing. The ATF consists of the airport operator and representatives from local businesses.

Many airports also have consultative committees with representatives from local government. In some areas. Smaller airports and airports in the developing world have more basic approaches – but few have managed to escape the whole issue of environmental management entirely. environmental policies increasingly are becoming a core component of their overall business strategy. The rising number of aircraft movements has also increased concerns about aircraft safety and has resulted in some airports establishing risk contours around airports associated with third party death and injury. Many airports have seen their environmental control processes develop into comprehensive environment management systems. amenity groups. such as air or water quality. that sound environmental practice can also bring financial benefits through the effective management of resources such as energy. Many airports address some of the social issues raised by airport operations within the framework of a broader environmental or sustainability strategy. the Airports Act of 1997 actually requires airport operators to prepare airport environmental strategies for government approval. These may be a legal requirement. Through adopting such an approach the airport operator also sends messages to the outside world that it is tackling the environmental issues in a responsible manner. airports often have to comply with environmental legislation. users and other bodies have made it essential for airports to address environmental issues very seriously. clearly defined objectives and targets are set for reducing the impacts and the most appropriate mitigation methods are identified. Some airports set up residents’ forums. most major airports in the Western world now have well-established environmental strategies and relatively sophisticated policies which typically seek to reduce noise and emissions. Airports have recognized. skills training. local commerce and industry. Environmental management For many airport operators. In Australia. and developing educational links. offering a complaints-handling service. 237 . Within any system. forging strong links with the community and ensuring continual public dialogue with all interested parties is often considered an important role. supporting and sponsoring local events. Since airport operators themselves produce relative little of the direct environmental impacts. and workplace safety and security. this may involve consideration of issues such as equal opportunities. These provide the framework for airport operators to develop an effective and co-ordinated response to all the environmental issues. It is for this reason that many airports restrict aircraft movements at nights or ban noisier aircraft types. and encourage the use of renewables and public transport. reduce waste and energy use. a key to any successful environmental strategy is a partnership approach between all the different interests on the airport site. an area which has received particular attention is the problem of sleep disturbance due to night flying. Increased technology and new mitigation methods are constantly enabling improvements in the efficiencies of such policies. ethics policies. For airport employees. waste and water. Environmental pressures from governments. and airport users. Most airports get involved in community relations such as the provision of information about environmental and other developments. control pollution. As a result. though.The environmental impact of airports between human health and wellbeing and these factors is still not entirely clear. Moreover.

electricity. as well as the implementation of the management system. This report.3 Key environmental performance indicators at airports Impact Noise Performance indicator Population within specified noise contour Number of noise limit infringements Number of engine testing rules infringements Proportion of aircraft on track CO2 and NOx emissions per passenger (and other emissions) Fixed electrical power usage Number of spillages per 1000 atms Water consumption per passenger Waste per passenger Proportion of waste recycled Proportion of waste going to landfill sites Energy consumption (gas. easy to interpret and able to show time trends. The results should be available to everybody who has an interest in the airport. there is an additional system called the Eco Management and Audit Scheme (EMAS) which is based on 1993 European regulation. in 2002. Dublin airport became one of the first European airports to receive ISO 14001 certification in 1999 and other European airports such as Zürich. Airport companies such as Schiphol and Fraport have reached these standards.Managing Airports Some airports choose to formalize their environmental management system by conforming to the International Environmental Management system standards ISO 14001. and Paris have subsequently been certified (Hooper et al. The exact number and range of objectives and targets will vary considerably. One of the key elements of any environmental management system is the identification of suitable environmental indicators which can be used to monitor performance and set targets. airports need to review their environmental impacts. set objectives and targets to improve environment performance and demonstrate that appropriate measures have been introduced so that environmental practice can be monitored and targets can be reached. To meet the requirements of ISO 14001. is subject to external scrutiny.. This is equivalent to ISO 9000 standard for quality management (see Chapter 4). The indicators should provide a representative picture of the issue under consideration and it must be possible to obtain relatively easily and accurately the data required for such indicators. fuel) per passenger Proportion of passengers using public transport Proportion of staff using public transport Ethnic origin of staff Gender split of staff Number of complaints Response time for complaints Emissions Water Waste Energy Transport Social policy Community relations 238 . ensure that their practices comply with all relevance legislation. Rome. 2003). The EMAS takes the ISO 14001 standard that much further by requiring companies to report to the public about their environmental performance. Toronto Lester B. Pearson was the first airport in North America to achieve this standard in 1998. Within the EU. For example. Athens. The indicators need to be fairly simple. including the local community. formulate an environmental policy. Heathrow had 12 key environmental targets and since 2000 these Table 9.

7 46. The results of this assessment are summarized in an environmental impact statement (EIS). transport. Geneva airport launched an environmental action plan which had 27 key measures to be addressed. A 239 . Table 9.4 Environmental.4 shows these for Heathrow airport.0 targets have played a part of the senior management salary incentive scheme – just as with the financial and surface quality targets. and social expenditure and savings at Heathrow airport. and social management policies. 2001). In 1999. a survey of 200 of the world’s largest airports was undertaken by Loughborough University and the UK Open University to investigate how airports themselves were measuring their performance (Francis et al. When an airport is planning a major extension of its facilities. It should possible. by the 1980s this airport. as part of the environmental management system. This will examine the potential impacts of the proposed development during the construction and operational stages. Some of the most popular environmental measures used were found to be number of complaints which was used by 84 per cent of the airports. The savings were in energy and water consumption. economic. economic..4 6526. the population within a specified noise contour by 67 per cent.2 1178. 1006. Oslo has been served by Fornebu airport. it is usually required by law to undertake an environmental impact assessment (EIA) as part of the planning approval process. In 2000.6 11519.0 270. Many of these tend to be further disaggregated when detailed targets are being set In 2000.3 shows some common key environmental performance indicators used by airports. passengers using public transport (53 per cent) and waste recycled (50 per cent). to identify the expenditure and savings related to their environmental. EIA for the new Oslo airport at Gardermoen Since 1939. situated close to Oslo city centre was beginning to reach capacity but could not be expanded because of physical constraints and environmental pressures.6 2594.6 159. Table 9.Managing Airports Table 9. The greatest expenditure was related to water quality. Nice airport adopted an environmental charter which identified a total of 15 objectives and these were broken down into 46 detailed actions. 2001–02 Expenditure ( 1000£) Environmental communications/PR Staff Revenue/consultancy/research projects On-going management and maintenance Regulatory charges Capital projects/infrastructure Monitoring Total Savings Source: BAA Heathrow (2002b).9 6. and waste management. However.

For this reason. The decision to build the new airport was made in 1992 and it was opened in 1998 (Gaustad. Environmental issues and a new runway at Manchester airport Manchester airport which is owned by the Manchester Airport Group plc (MAG) handled 19 million passengers and 112 000 tonnes of freight tonnes in 2001. 2 Impact on natural resources and natural conditions (a) land and forest resources. in 1991. the Public Roads Administration and Norwegian State Railways analysed the impact of the access system.Managing Airports number of new airport sites were assessed and.While the CAA. (e) minerals. (b) social impacts. For each impact an investigation of the current situation was made. which operates airports in Norway was responsible for assessing the environmental impact of the airport itself. (f) flora and fauna. 1991): 1 Pollution factors (a) noise. 3 Impact on cultural heritage (a) pre-Reformation heritage. (d) landscape. 16 groups of environmental experts were appointed to look at the whole range of possible impacts associated with the second runway scheme and 240 . (d) impacts on land utilization. 4 Social factors (a) impact on the employment market. either to the east or to west of the existing runway. At this stage there were two options with a runway. along with an impact assessment of the two alternative options. (b) water resources. (c) climate. The Department of Environment and Department of Agriculture were involved in the investigation of the regional and social impacts. (c) outdoor recreational areas. By the early 1990s this runway was becoming full at peak hours and so the draft development strategy published in 1991 identified the need for a second runway. The EIA for Gardermoen considered the following impacts (Luftfartsverket. (b) air pollution. the existing military airport site of Gardemoen was chosen. 1996). (c) impacts on municipal economy. In addition evaluation of possible mitigation measures and proposals for monitoring programmes were made. Its runway had a declared hourly capacity of 47 movements. (b) post-Reformation heritage.

The points of agreement were related to various stages during construction and operation Table 9. Further consultation and public exhibitions took place Final development option was selected Final development strategy was published and the EIA completed Planning application submitted to local authorities Public exhibitions held over 22 days at 9 locations Public inquiry opened Public inquiry closed Planning permission granted Commencement of development Runway opened March 1993 June 1993 July 1993 July–August 1993 June 1994 March 1995 January 1997 Summer 1997 Spring 2000 Source: Twigg (2000). The proposals were subsequently developed into a planning application which was subject to a planning inquiry which lasted from June 1994 to March 1995.5). and mitigation measures to be considered. at an early stage. community relations and social policy. Before the decision had been made. Further consultation and assessment of the impacts took place until a final development option was selected in 1993. 241 . and the ultimate capacity of the airport. identifying the need for the second runway Public consultation period and eight public meetings held Results from public consultation were considered and environment impacts of development options were assessed. Primarily as a result of environmental considerations. Specialist engineering consultants were also appointed at this time. Public consultation also took place at this time. Planning permission was granted in January 1997 (Table 9. and other interested parties. This enabled the environmental effects of engineering solutions to be assessed. local authorities.The environmental impact of airports to provide input into the environmental impact assessment.5 Key events in the development of Manchester airport’s second runway Date August 1991 September–November 1991 December 1991–March 1993 Event Draft development strategy to 2005 published. government agencies. The airport operator. highway improvements and public transport. This ranged from private meetings with individuals to large-scale public gatherings.6). Continual dialogue also had to be maintained with airport users. the airport entered into a legal agreement with the local planning authorities concerning its proposed package of environmental mitigation measures. environmental works. the idea of a full-length parallel taxiway was abandoned and the runway site was modified to reduce the length of river tunnel that would have been required. to show its commitment to the environmental issues.This package contained over 100 different measures of targets and guarantees covering noise control and night flying. This formed the basis of Manchester airport’s ‘green charter’ (Table 9. The feedback from the initial assessment of the environmental impacts and key areas of public concern were used to influence the design details of the runway scheme. the environmental team and the engineering design team worked together in developing the runway scheme.

permission will be sought to relocate two of the four affected listed buildings The aviation viewing park will be relocated MA will fund a number of road improvements Restrictions will be placed on operation times and routes taken on construction traffic and construction material is to be brought by rail 25% of all trips to the airport will be made by public transport MA will promote the extension of Metrolink and development of heavy rail services A ground transport group will promote and develop enhanced public transport services and a ground transport strategy will be introduced 10% of the annual marketing budget will be used to promote public transport services The sound insulation grant scheme will be maintained Local environmental projects will be supported by a community trust fund with an annual budget of at least £100 000 242 .Managing Airports Table 9. and encourage use of fixed electrical power The night noise level will be controlled up to at least 2011 and will be no worse than in 1992 Night movements will not exceed 7% of total movements Chapter 2 aircraft will not operate at night Financial noise penalties will apply at night The use of reverse thrust will be restricted at night The second runway will not normally be used at night More than twice as many ponds will be created or restored than those lost Landscape and ecological mitigation works proposal will be submitted to the local authority for agreement A 15-year landscape and management plan will be developed Ecologists and landscape architects will oversee and implement the environmental works MA. 96% by 2000 A preferential charging system for quieter aircraft will be developed MA will continue to seek powers to penalize aircraft that deviate from the set departure routes A ground noise policy will limit night ground engine tests to 20 per year.6 Manchester airport’s ‘green charter’ Environmental topic Noise control Main measures Night flying Environmental works Highway improvements Public transport Community relations The noise impact will be controlled up to at least 2011 and will be no worse than in 1992 A noise and aircraft track monitoring system will be maintained Monthly monitoring reports will be produced and an annual external audit undertaken 100% of scheduled night movements to be by the quieter chapter 3 aircraft 92% of total scheduled operations to be by chapter 3 aircraft by 1998. statutory bodies and local wildlife groups will form a nature conservation steering group The MA will financially support the Bollin Valley project and upgrade the River Bollin channel to encourage the migration of fish Where possible. require the use of the engine test bay. local authorities.

Preventive action and the use of cleaner technology.7 summarizes the main environmental indicators used. has made improvements to its impact monitoring process and has been developing new techniques which could reduce the detrimental environmental effects. Improvement is provided through: I I I I Environmental considerations in all decisions. Between 1997 and 2001. There is a third runway which involves aircraft passing over more built-up residential areas. around 98 per cent of all movements at Kastrup take place on the two main runways. in 1999 new facilities 243 . 2000).The environmental impact of airports Table 9. Table 9. namely Kastrup and Roskilde. This approach to the environmental effects was costly. these two airports handled 18. This company manages the two Copenhagen airports. the overall noise impact declined by 2. amounting to over £20 million. This was due to greater use of newer. Environmental practice at Copenhagen Copenhagen Airport A/S (CPH) is a good example of an airport operator which has developed a comprehensive environmental policy.1 million passenger numbers and 379 000 tonnes of freight. An open dialogue on the environmental state of the airport. The environmental policy of CPH establishes the fact that as an environmentally responsible company. but the airport viewed it as an investment and considered such an approach fundamental to gaining permission to build the additional runway (Thomas. and by striving to achieve a representative ethnic mix of employees There will be no consideration of a third runway until at least 2011 MA will oppose inappropriate development in the area other than that related to the airport’s technical efficiency Source: Twigg (2000). of the airport up until 2011 when the agreement will be reviewed. As regards noise. CPH. and so it is only used when special weather and wind conditions make it necessary for safety reasons.6 (Continued ) Main measures Environmental topic Social policy Ultimate capacity MA’s recruitment policy will offer a fair and equal opportunity to applicants by advertising jobs in the airport job centre and local media. like many other airports. older aircraft. and engine testing and airline performance in these areas is monitored. Increased environmental awareness by employees and partners. the airport operates and develops in a way that improves its environmental results (CPH. Twigg.7 dB although the number of air transport movement increased by 2 per cent during the same period. how the data is collected and the indicator value for 2001. In 2001. 2002). There are rules related to noise levels. quieter aircraft and less use of the noisier. 1996. In other areas. For example. by operating a crèche.

244 . lead 1. cadmium 0.7 Main environmental indicators used by Copenhagen airport A/S Impact Means of data collection Main indicators 2001 indicator value 150 Traffic and noise Night time noise Engine testing Waste water Traffic statistics system: ATMs by aircraft type.g.9.4 e. chrome 1.1. take-off weight. use of runway and time Noise monitoring system Engine test monitoring Discharged volume by means of metres Water quality assessed by monthly water samples made by third-party laboratory TDENL: total-day–evening– night-level method (decibel dB) Infringement of 85 dB (A) noise limit (number) Infringement of engine testing rules (number) Waste water discharged per 1 000 passengers (cubic metre) Discharged waste water quality: Substances (kg) 13 8 13.8.1.g. fire services and other in-house and third-party sources Volume of glycol used calculated by companies handling de-icing Contents of collected glycol are registered for each truck load moved away Consumption based on volumes purchased less quantities sold to other companies at the airport Discharged surface water quality: Substances (kg) Number of spills Volume of spills (litres) Consumption of glycol (cubic metres) Collection of glycol (cubic metres) Electricity consumption (Tera Joule TJ) Heating consumption (Tera Joule TJ) Fuel consumption (litres) Water consumption (000 cubic metres) Consumption of herbicides (litres) Waste per 1 000 passengers (kg) Industrial accidents per one million working hours 271 10 201 763 444 173 118 775 143 40 144 16 Weed control Consumption of herbicides based on volumes purchased Waste Weighing slips or monthly statements from recipients of the waste Working Reported number of industrial environment accidents Source: Copenhagen Airport A/S (2002).9 e. chrome 0.Managing Airports Table 9.9 Surface water Oil and fuel spills De-icing Resources and energy Discharged volume on the basis of the pump effect of CPH’s pumps or volume of participation reported by Danish Meteorological Institute Water quality assessed by monthly water samples made by third-party laboratory Reports filed by CPH’s safety service. cadmium 0. lead 1.

No overall consensus has yet been reached as to exactly how sustainability can be defined in the context of the aviation industry although there have a number of recent studies which have investigated this area (e. Copenhagen Airport A/S has also prepared a manual on environmentally sound design and planning.The environmental impact of airports to monitor air quality and surface water quality were introduced and in 2000 the airport established permanent air quality monitoring. can be considered as helping to encourage a more sustainable industry. The responsible management of employee health. For airports. was relocated. However. see IPPR. for example. which weighed more than 2600 tonnes and covered more than 4000 square metres in area. environmental. sharing the theme of meeting today’s needs without sacrificing tomorrow. From 1999. the environmental aspect of sustainable development is all about effective environmental protection and prudent use of natural resources. The concept of sustainable development 245 . Most definitions also identify the need for a balance between social. and economic impacts of any activity. 2001.8 km from the east to the west of the airport.g. Most definitions of sustainability tend to be rather vague and imprecise. safety. is the concept of sustainability and sustainable development. and security issues at the airport and equal opportunities employment policies is also seen as promoting sustainability. The airport has also introduced a waste-handling plan to enhance waste sorting and increase recycling and CPH and the airlines have investigated ways in which the environmental impact from aircraft washing could be reduced. which can be used to ensure that any expansion conforms to the objectives defined in the environmental policy. waste and energy management programmes. Many of the measures described in this chapter. 2001). noise and emission mitigation initiatives and water. sustainability is to do with the maintenance of high and stable levels of economic growth and employment. all new purchasing contracts between CPH and suppliers stipulate that the supplier’s business is to be operated in an environmentally responsible manner. Social equity and improvements in the quality of life are often cited as key aims of sustainable development. Following various developments such as the publication of the Brandtland report in 1987 and the Earth Summit in Rio de Janeiro in 1992 there has been an increasing awareness and commitment to the principles of sustainable development in many industries – the aviation sector being no exception. In 1997 this building had been listed as a protected building by the Historic Buildings Council. and adequate investment in infrastructure. ATAG/UNEP. The largest single environmental investment that CPH has made took place in 1999 when the old terminal building. This process took place over one weekend and involved shifting the airport terminal. CPH annually produces an environmental report which is externally audited. Sustainability and environmental capacity Fundamental to the discussions of the environmental and other impacts. it was taking up valuable space for future terminal expansion – hence the need for relocation. Complementary social policies include active involvement by the airport operator in the local community and an effective community relations programme. Thus the benefits of any development must be carefully weighed against the resources to be consumed. a distance of 3. which was designed in 1939. From an economic viewpoint.

1999). and water quality. Throughout the early 1990s 246 . rather than any physical or financial considerations (Coleman. Airports may also not be able to make changes to the physical infrastructure if this involves exceeding the environmental capacity limits. airports will only be able to grow if they minimize the impact of these expanding activities on the environment and the community. They can also be adjusted to take account of new mitigation measures.2 million tonnes of freight in 2001. and environmental quality are not mutually exclusive events. many in the industry consider that such environmental controls are more appropriate than placing an overall limit. assimilate or process outputs derived from airport activities’ (London Luton Airport. 2000). However. which is set by consideration of the impacts of an airport’s operation upon the local environment and the lives of residents of local communities. increasingly it is the environmental capacity. rather than assessing the physical capacity of the infrastructure. which is owned by the Schiphol Group. This can be done by looking at all the individual impacts at airports and ways to reduce them. on passenger throughput. However. for example. should there be some trade-off between costs and benefits associated with all the different environmental impacts and also consideration of their effects throughout time? For instance. surface transport and so on. In effect. to the long-term use of the environment. They should not be treated as being in conflict. Within these predetermined threshold capacity values. If growth has to be regulated. Another area of consideration is where to draw the boundary between global and local impacts when determining environmental capacity. These environmental threshold values ideally should be based on scientific research and sociological research on the tolerance of local communities to environmental impacts. social benefits. Central to the notion of sustainability is the idea of environmental capacity. It is the environmental capacity of airports which is likely to constrain growth. airports will reach their environmental capacity before making full use of existing infrastructure. airport operators and airlines are free to expand or modify their services (Graham. many of these are separate and uncoordinated and. 1999). The environmental capacity can de defined as ‘the extent to which the environment and the local community is able to tolerate. the approach to environmental capacity must go further (Gillingwater. it is clearly very much more difficult to put the idea into practice. such as the number of runway slots. air. 2000). Environmental capacity consideration at Amsterdam airport Amsterdam airport. For example. handled 40 million passengers. gates. or capacity of terminals. aircraft noise is a short-term quality of life issue rather than being related. In a purely physical sense. an airport’s capacity can be defined in a variety of ways. In many cases. so. The capacity limits can be set using environmental criteria related to noise. which will determine the ultimate overall capacity of an airport. While environmental capacity as a concept is relatively easy to understand. or apron areas.Managing Airports recognizes that economic growth. like emissions. and 1. it has been suggested that in order to take on fully the ideas of sustainability.

8. The model used assumed that passenger numbers would grow unconstrained to 65 million passengers in 2010. Slot trading to achieve a maximum of 600 000 annual movements was also considered. although the houses affected still remained under 15 000.The airline Table 9.3 million in any year. so in 1995 a decision was made by the government about the future development of the airport.The environmental limits were still to be applied but further growth could be possible until 2010 by optimizing the environmental capacity. the government stated its views for the long-term development of the airport. Various measures were then tested such as a regulatory limit on passenger numbers. The government granted Schiphol an exemption from the noise limits. The impact on jobs was also considered. noise.8 The impacts of different options for optimizing noise capacity at Amsterdam airport Impact of option (% change 1996–2010) Unconstrained growth 44 million passenger limit 7 euro passenger levy 1–4 euro noise surcharge Slot trading with 600 000 movements limit 18 10 6 40 21 Movements Passengers Fares Noise Jobs 128 141 0 43 43 31 32 20 35 18 15 11 7 39 24 8 3 2 32 18 247 . healthy growth in 1997 and 1998 meant that in both these years the noise contour limitation was exceeded. and airline cost or passenger fare. A number of environmental limits were also established: 1 The acceptable noise contour was to be no larger than 15 000 houses until completion of the fifth runway in 2003. These options were assessed by analysing the impact on traffic. and then no larger than 10 000. The options for the short-term optimization of the capacity have been considered by the Dutch civil aviation department to assess which measures are the most efficient and lead to a minimum of economic costs and a maximum of environmental benefits.The environmental impact of airports traffic was forecast to grow steadily. but instead imposed a limit of 380 000 movements in 1998 and then annual growth limits of 20 000 movements. At the end of 1999. The results of the analysis are shown in Table 9. after 2010. a 7-euro surcharge on all passengers and a noise surcharge related to different levels of noise. However. 3 Cargo tonnes could not exceed 3. A simple levy to reduce passenger numbers to 44 million proved to be very costly for the airlines. 2 Passenger numbers could not exceed 44 million in any year. not at increasing capacity. The airport also became slot co-ordinated in 1998. It gave approval for a fifth runway (opened in 2003) which was aimed. a redesign of Schiphol might be possible or beyond 2020 the development of a new offshore airport might be considered – although this project has now been dropped from the official planning procedure. In the longer term. but instead at diverting traffic to a less noise-sensitive approach. in terms of the house affected.

London. 248 . will mean that the environmental impacts will increase. BAA Heathrow (1999). encourage economic development through mobility and yet respond to the increasing environmental pressures being placed on the industry. In conclusion. AEA. University of Westminster Airport Policy and Planning Seminar. BAA Heathrow. The noise surcharge provided a more optimal balance between economic costs and environmental benefits. Environmental Handbook. 149–59. 2000). 26. Airports Policy Consortium (1997). Aeroports de la Cote d’Azur. (2000). J. which aims to balance the social. Annual Report 1999. 6. BAA Heathrow. but still the economic costs were comparatively high compared with the environmental benefits. R. Taxation policy for aircraft emissions. Policy paper 6. Association of European Airlines (AEA) (2000). On the Path of Environmental Limits. References and further reading ACI-Europe (1995). Some combination of these measures may have to be introduced at Amsterdam and other airports in the future to enable airports to grow within the boundaries of environmental limits (Veldhuis. Anker. Aeroports de Paris (2000). 1 (3). There is still a great deal of uncertainty as to how this can be achieved. Yearbook 1999. (1997). Yearbook 2000. APC. In spite of technological. Air Transport Action Group (2000). Environmental issues are beginning to affect most aspects of airport operations – even the EU proposal on slot allocations suggests that environmental as well as physical capacity should be considered. BAA Heathrow (2002a). ATAG/UNEP. In essence. if allowed to take place. and economic impacts of any activity. and other mitigation measures to minimize the environmental impacts. Industry as a partner for sustainable development. AEA. Transport Policy. Aeroports de la Cote d’Azur (2000). May. BAA Heathrow (2002b). Ashworth. BAA Heathrow towards Sustainability. The chapter has also discussed how environmental concerns can be viewed within the context of sustainable development. A Surface Access Strategy for Heathrow – The Next Five Years. the growth rates being predicted for air transport. p. The Times. the aviation industry clearly faces a major challenge in the future. 12 August. New York’s answer to Heathrow. Airports and the environment. Europe’s airports could face a 30% reduction in operations. BAA Heathrow. Association of European Airlines (AEA) (1999). Therefore. and Brewer. Air Transport Action Group/United Nations Environment Programme (2002).Managing Airports cost fell when the option of a 600 000 movement limit and slot trading was considered. operational. Alamdara. Airport Business Communique (2000). Airport Business Communique. Aviation and the environment. D. F. A Surface Access Strategy for Heathrow: The Next Five Years. (1994). environmental. this challenge is how to maintain economic and social benefits from air transport. ACI-Europe. December–January. Aeroports de Paris. ATAG. Geneva. this chapter has identified the major environmental impacts associated with airport operations and has described various environmental management approaches designed to reduce these effects. Annual Report 1999.

DFT. 51–3. Environmental Report 2001. Air Transport World. Environmentally sustainable capacity. D. April. Airline Business. An environmental lead. The Stationery Office. S. Salzburg. Holden eds). Thomas Telford. (2000). Feldman. N. Fry. G. Gill. 10. Düsseldorf International granted permission to increase number of aircraft movements. Winter. DETR. Dennis. (2001). Friends of the Earth (UK) (2000). (1998). Brussels International Airport Company (2000). and J. The Future of Aviation. George. October. March. London. (2000). 32–3. The Single European Aviation Market: The First Five Years. A New Deal for Transport. 21. March. EC. A user-friendly decision. Environmental impact assessment: the Norwegian experience. From Planes to Trains. A. (1999). C. Frankfurt Airport. Gillingwater. and George.The environmental impact of airports Baker. R. CAA. DETR. Airline Business. Pedoe. Copenhagen Airport A/S (CPH) (2002). (1999). External costs of aviation. COM (1999) 640 final. Frankfurt Airport (2000). Guidance on Airport Transport Forums and Airport Surface Access. Department of the Environment. J. Communique Airport Business. C. (1996). CAA. June. Environmental capacity – the challenge for the aviation industry. (1999). London. CE Delft (2000a). The next chapter. In Environmental Management at Airports (N. Düsseldorf Airport (2000b). A. October. May. Open University Business School Research Paper 01/4. CPH. CAP 685. DETR. Press release. EU challengers ICAO in hushkit case. Annual Report 1999. Low cost carriers and scheduled airline operations. D. (2000). CAP 690. 36–7. Düsseldorf Airport (2000a). Copenhagen Airport A/S (CPH) (2000). January. (2000). Communique Airport Business (1998). CE Delft. Valuing the external costs of aviation. Düsseldorf Airport... White Paper. Civil Aviation Authority (CAA) (1998a). Brussels International Airport Company. Baker. 54–7. Annual Report 1999. Transport and the Regions (DETR) (1999). Air Transport and the Environment: Towards Meeting the Challenges of Sustainable Development. Department of the Environment. CPH. DETR (2000a). Jane’s Airport Review. Environmental Report 1999. An international survey of performance measurement in airports. ECAC/EU dialogue with the European air transport industry: aviation capacity – challenges for the future. Passengers at Gatwick. Europe breaks ranks on noise. DfT (2003). European Commission (1999). Francis. Transport and the Regions (DETR) (1998). Gaustad. April. and Humphreys. and George. Consultation document. 26. T. Heathrow and Manchester Airports in 1997. I. Gethin. J. CE Delft. A. Good neighbour project ensures local environmental voice. Airline Business. Aviation and the environment: Using economic instruments. University of Westminster Aviation and Tourism Seminar. Annual Report 1999. Civil Aviation Authority (CAA) (1998b). 249 . Emission impossible. 22 September. Airline Business. A. Sustainable Cities and Aviation Network UK Workshop Conference. Coleman. Raper. Department of the Environment. CE Delft (2002b) Economic incentives to mitigate green house gas emissions from air transport in Europe. Transport and the Regions (DETR) (2000b). (2001). FoE.

November. November. April. Raper and C. IATA. D. B. Aviation and the Global Atmosphere: Summary for Policymakers. (2003). 22–4. New Oslo Airport Gardermoen Master Plan. S. Schiphol Group (2000). Vantaa. (1996). Upham. Development Brief. J. Raper and C. and Maughan. Airport World. Thomas eds). J. Twigg. Holden eds). Veldhuis. J. October. London. Balancing act. (1996). A. Thomas eds). Jane’s Airport Review (1999). Air Rail Links: Guide to Best Practice. Grossenbacher. Institute for Public Policy Research (IPPR) (2001) Sustainable Aviation 2030. P. Raper. Salzburg. airport capacity and European air transport liberalisation: irreconcilable goals? Journal of Transport Geography. (2000). The environmental effects of civil aviation in flight. Maughan. and J. In Environmental Management at Airports (N. Luftfartsverket (1991). Meyer. Thomas. D. Raper. IPCC. Environmental sustainability. Comparison of airport accessibility by land transport. Luftfartsverket. R. IARO/ATAG/ACI (1998). LLA. B. Niblett. Intergovernmental Panel on Climate Change (1999). Brunel University. June. IPPR. RCEP. The true cost of environmental issues. Manchester Airport (1997). Navarre. G. Pedoe. Holden eds). 23.Managing Airports Graham. Ground Transport Policy. Upham. McNamara. M. Newcastle Airport. J. ERA Regional Report. D. M. Determining environmental capacity at Amsterdam airport Schiphol. (1999). Noise related to airport operations – community impacts. Thomas Telford. (1996). International Air Transport Association (IATA) (2000). In Environmental Management at Airports (N. London Luton Airport (2000).. Environmental Report 1999. Thomas Telford. PTRC Annual Conference. Los Angeles airports on environment fast track. Pedoe. Pilling. London. C. Jane’s Airport Review. March. J. Second Airport Regions Conference. 250 . (2000). 9. and J. Hooper. The potential for modal substitutions. (2000). Royal Commission on Environmental Pollution (2002). Earthscan. In Towards sustainable aviation (P. Maughan. Long distance rail services to airports. April–May. (1996). Noise abatement at Zürich airport. ECAC/EU dialogue with the European air transport industry: aviation capacity – challenges for the future. Heath. 165–80. (2003). Newcastle Airport (1999). (2002). D. 7. Earthscan. Janic. Environmental management and the aviation industry. Towards sustainable aviation (P. Airport and En-route Charges Manual. IARO/ATAG/ACI. University of Westminster Demand Analysis and Capacity Seminar. University of Westminster/Cranfield University Airport Economics and Finance Symposium. Zürich flughafen as a model number 1 in Europe regarding integration of the rail and air modes. D. September. Schiphol Group. (1999). Annual Report 1998/9. Manchester Airport. Continuous descent approach trials reveal significant improvements in emissions and fuel consumption.

Enhanced competitive pressures from airline deregulation and airport privatization coupled with increased demands for a more sustainable and quality conscious industry have brought many new challenges for the airports. Overall effect on the air transport industry . which was already in existence in the United States and Japan.10 The impact of 11 September 2001 and future prospects A dominant theme running through this book is that airports are going through a period of unprecedented change. depressing demand for travel and leading to passengers trading . Economic recession. airports have had to face the unparalleled consequences of the events of 11 September 2001 and a much more volatile environment. was spreading to Europe. This chapter begins by considering just how the airports have been affected by these terrorist attacks and then goes on to assess more broadly the prospects for the industry in the future. In many ways it is very difficult to isolate the effects of 11 September 2001 and other changes that were also taking place in parallel. In addition.

October. These airlines had no routes to North America or the Middle East where the decline in traffic was the most dramatic. The most obvious impact of the events of 11 September 2001 was the decline in traffic initially caused by the closure of US airspace and then loss of passenger confidence in flying. which includes all the major European ‘flag carriers’. to encourage passengers to switch from more traditional airlines. Labour costs were rising in the airline industry as were fuel prices. for the months of September.com’ and technology boom years of the 1990s. 252 . Similarly. helped explain this situation. and 20 per cent. such as Ryanair and easyJet. caused by the pressure on business travel budgets brought on primarily by recessionary factors. Elsewhere. By contrast. In the last quarter of 2001. There was only modest improvements for all airlines right through until the end of 2001. freight tonne-kilometres declined by 24. but excludes most of the European low-cost airlines. In the United States. 26. they stimulated demand and grew their traffic by launching new routes that previously had not been served. freight traffic started to increase again for many airlines during these 8 months and growth rates of 3 and 13 per cent were achieved. October 2001 was the worst month as September had some normal days at the beginning and advance bookings. Freight demand was also down due to poor economic conditions and ending of the ‘dot. It needs to be noted that the European airline traffic statistics are for the Association of European Airlines. made before 11 September 2001. for American and Asia/Pacific airlines although a decline of 4 per cent was still recorded for the European airlines (Airline Business. protected traffic in the latter part. the Asia/Pacific airlines recovered more quickly although they still only experienced zero growth during this period. Between January and August.Managing Airports down to cheaper fares. respectively. Various reasons. the American carriers experienced decreases in passenger-kilometres on the previous year of 32. Overcapacity existed in many markets. traffic was down by about 10 per cent in both markets. and this coupled with a rapid growth of low-cost airlines in some regions was causing airline yields to fall. Passenger-kilometres for both European and Asia/Pacific airlines were down around 22 per cent in October 2001. which made them more able to offer price cuts to stimulate demand. However. respectively. and November. 23. especially long-haul. In addition. Monthly traffic numbers in 2002 remained at a lower level for both American and European carriers until September when growth returned because of the very depressed 2001 figures. 2002). coupled with their lower costs. 2002a). as a string of air disasters in Europe and the United States coupled with a suspected bomb on a Paris–Miami flight just before Christmas continued to make the general public very nervous of flying. Ryanair maintained a 20 per cent profit margin while the traffic of easyJet and go rose by a third (Dennis and Graham. and then 14 per cent. They were also able to take the opportunity. such as the fact that the low-cost airlines were more profitable than the majors prior to 11 September 2001. It had already been widely predicted that the airline industry was heading towards a cyclical downturn and it is certainly quite probable that some of the changes that were accelerated by the crisis following the events of 11 September 2001 would have happened anyway. These low-cost carriers appeared to be seemingly immune to the problems facing the rest of the airline industry after 11 September 2001.

however. which greatly surpassed any of the losses during the early 1990s Gulf War and recession period.1 shows monthly growth rates of airports. The reduction in airline demand and revenues coupled with rising costs. in August 2001. Figure 10. SAS. 2002). American also had major financial problems. For example. For the Asia/Pacific airlines. In North America. Airport traffic levels These changes in airline operations since 11 September 2001 clearly had a major impact on airport operations as well. Since the terrorist attacks. that is. redundant and Aer Lingus reduced their work force by an equivalent amount by losing 2 500 employees. British Airways made a quarter of their workforce. Reduction in traffic levels was experienced and airports had much greater instability in their customer base as airlines cut capacity or in some cases disappeared altogether because of financial collapse. meant that there have been a number of airline failures and bankruptcies since 11 September 2001. rather than at major hubs. compared to the previous year. the airline industry made a net loss of almost US$12 billion. 2002). Airlines also dropped frequencies or abandoned services entirely. insurance. although some of their services were taken over by the new airlines SN Brussels Airlines and Swiss. Alitalia. the cutbacks were less dramatic. Smaller European airlines such as Gill Airways and National Jet Italia also went out of business. in Europe. and Virgin Atlantic all made around 15 per cent of their workforce redundant. went at Air Canada and a fifth of the staff at both American and United. representing a third of the total. A result of all these strategies meant that most airlines made significant capacity cutbacks post11 September 2001. 9 000 employees.The impact of 11 September 2001 and future prospects The major airlines adopted a number of strategies to cope with the declining demand. Many airlines took quite drastic measures to reduce their costs. For example. Unsurprisingly. averaging less than 10 per cent (Doganis. British Airways used Boeing 737s on its Frankfurt and Munich routes out of Gatwick and Avro RJ100s on its Dusseldorf and Hanover services. Some decided to reduce aircraft size rather than cutting frequencies in order to maintain flights for schedule-sensitive business passengers and to protect their slots at airports. some airlines laid off a significant proportion of their staff. it is important to emphasize that many of the airlines were in a poor financial position even prior to 11 September 2001 and this event only made the situation considerably worse. were laid off post-11 September 2001 (Doganis. Again. the financial problems were the most acute in the United States and resulted in US Airways and then later United Airlines declaring bankruptcy and filing for Chapter 11 protection under Federal Law. 20 000 at each company. Within Europe. By August 2002. Austrian. 253 . especially out of secondary hubs or where there were isolated free-standing routes. in 2001. for example. namely 13 000 employees. Overall. there was the demise of the two major carriers Sabena and Swissair. particularly associated with security. and air traffic control. For the US major airlines this was in the region of 15–25 per cent of their total capacity and for most of the major European airlines the reduction was around 10–20 per cent. Other airline failures included the Australian carrier Ansett and Canada 3000. the RJ100s had been replaced by the smaller ATR72 aircraft with the RJ100s providing less capacity on the Frankfurt route (Dennis and Graham. 2002).

and then grew by 5 per cent. Likewise. whilst elsewhere in Europe and the Americas traffic levels were still depressed compared with the year before. just 17 per cent in November. As a consequence. In the United Kingdom. In the case of Brussels. and August 2002.Managing Airports Monthly growth compared to previous year (%) 5 0 a fic a Ea st Eu ro pe Af ri c ia /P ac i To ta l er ic er ic Am N or th a Am La tin As –10 –15 Nov ’01 Mar ’02 Aug ’02 –20 Figure 10. it was North America that felt the brunt of the crisis with traffic down by almost a fifth in November 2001. In particular. It can be seen that the airports’ performance is closely correlated with that of their base airline(s). which showed that generally cargo flows were less affected by the crisis and recovered more quickly. passenger numbers were dramatically lower at the east coast airport of Boston and fell by 32 per cent. that is. A similar less substantial reduction of traffic was experienced at one of American Airlines’ main hubs. by global region for November 2001. such as Oakland. Traffic was down for all regions in November 2001 and in March 2002 with the exception of Asia/Pacific where growth of nearly 5 per cent returned. By August 2002. and Baltimore faired better because of increases in low-cost passenger numbers. Milan Malpensa suffered because of Alitalia’s failure to establish it as its main hub. 254 M id dl e –5 . Zürich airport also lost a substantial amount of traffic because of the collapse of Swissair. March 2002. Other airports. Fort Lauderdale. significant increases in passenger numbers were experienced at Chinese airports and Tokyo Haneda because of new runway capacity. Clearly. growth was once more being experienced in the Middle East and the African region.1.1 Airport passenger growth by world region since 11 September 2001 Source: ACI. For the same 3 months global cargo traffic declined by 9. For example. Dallas Fort-Worth. Traffic at San Francisco airport also declined significantly by 29 per cent in November as United regrouped at its Chicago hub. London Gatwick was the principal loser whilst at London Stansted. The changes in airport traffic levels for the year following 11 September 2001 for a number of European airports is shown in Table 10. Some US airports suffered much more than others. the main base of the low-cost airlines. the demise of Sabena in November led to traffic falling by almost 40 per cent. the passenger loss at Chicago was not as large. Washington National was closed for nearly a month following the terrorist attacks and experienced a traffic decline of 55 per cent in November. 2.

7 34.4 34.9 21. some airports increased their charges. Airport financial performance These reduced traffic levels clearly had a major impact on airport revenues.6 1. notably in the United States.8 12.8 13. Other airports such as Barcelona and Dublin.7 20.0 4.5 7.The impact of 11 September 2001 and future prospects Table 10.1 N/A Nov.9 12.1 4. particularly to cover the increased costs of implementing extra security measures.2 Helsinki 2. 01 Amsterdam 5.6 1.8 N/A 15.9 12.4 passenger number continued to grow throughout the time period. have had to redesign many of their commercial facilities in order to 255 .6 36.0 Paris Orly 12.6 13.1 Change in passenger numbers at major European airports since 11 September 2001 Airport % Change relative to same period in previous year Sept.9 13.8 8. Income from passenger charges contracted with the fall in passengers numbers and income from landing charges also decreased at many airports as airlines reduced their capacity by downsizing their aircraft types or lowering their frequency. also experienced traffic growth between January and August 2002.0 Paris Charles de Gaulle 9.2 9.1 5.1 21.7 Lisbon 3.2 Barcelona 3.7 Brussels 9.3 4.8 8.8 15.1 4. Elsewhere.6 5.4 6.6 Milan Malpensa 14.3 0.1 0.–Aug. As regards commercial or non-aeronautical revenue.5 N/A Jan.1 Copenhagen 0.0 2.3 7. in other cases.1 Manchester 2.4 Madrid 2. 01 9.2 13.4 13.2 5.2 Dublin 2.5 4. some airports lowered their charges in order to encourage the airlines to maintain or even grow their airport operations and other airports postponed planned increases.8 4.7 9. As discussed in Chapter 5.8 8.0 London Stansted 11.6 N/A Dec.8 29.1 2.1 3.7 26.8 London Gatwick 6.9 10. 01 4.8 18. Some airports.4 11.2 14.3 14. However.4 9.0 23.5 3.6 Zürich N/A Source: ACI Europe.9 7.9 19.8 Dusseldorf 5.2 16. passengers had more time to shop because they arrived earlier – again for security reasons.1 33.5 7.0 0.3 Frankfurt 7.2 London Heathrow 13.5 10. 01 12.1 19. Oct.8 6. where underlying growth rates had also been high in recent years.3 4.4 12.8 6.5 3.0 10.2 6.4 6.3 6. The decline in passenger numbers meant that there were less commercial customers at the airports and also in some cases they had less dwell time because of more stringent security requirements. 02 0. there are have been a number of impacts to consider as discussed in Chapter 6.2 Vienna 3.9 8.

and rental cars down 5. new restrictions on the movements of meeters and greeters have limited their access to certain retail and catering outlets and many car parks have had to close. construction of the new South terminal was postponed although the expansion plans for the North terminal went ahead.7 per cent 256 . The consequences for planned future investment in the United States was also mixed.7 per cent. at Detroit airport it was decided that the construction of 25 new gates would still go ahead. the crisis situation after 11 September 2001 was rather overshadowed by the more normal situation for the rest of the year. It is much more difficult for airports to downsize or get rid of excess capacity when demand is reduced. the cost-cutting measures that the airport industry have used are not nearly as dramatic as those implemented in the airline industry. For example.4 per cent. and San Francisco airports were put on hold whilst at Los Angeles the funds for expansion were directed towards security and safety improvements instead. It was estimated that food and beverage revenue would only be down by 0.8 per cent. if and when normal conditions return. which has led to a decline in non-aeronautical revenues. At Arlanda airport in Stockholm. For 2003. Holding back on any planned investment because of the downturn in traffic may constrain growth in the future. Charlotte. For 2001. However. However.2 shows the operating revenues and costs for the US airport industry for 2000 and 2001 with estimates for 2002. due partly to an increase in fees. being balanced by a decrease in commercial revenues as a result of a decline in numbers and changes in the non-aeronautical facilities because of new security requirements. Airports also have to plan and build for the long-term and this is very difficult in any period of uncertainty. 2002). Immediately after 11 September 2001. For example. some airports decided to go ahead with their future investment as planned. Table 10. Amsterdam airport also put some major investment projects on hold. Airports have introduced cost-cutting measures as well. as fixed assets cannot be moved or closed when traffic goes down. Approval for the development of London Heathrow Terminal 5 was given shortly after 11 September 2001. Work on the fourth runway at Orlando airport continued post-11 September 2001 but the new South terminal could not be built as planned because of new security requirements. it was estimated that total revenues in 2002 would be fairly similar to 2001 with an increase in aeronautical revenues. As regards costs.Managing Airports conform with new security measures. In a special survey conducted by ACI. Overall revenues increased by around 5 per cent in 2001 with more or less equal increases coming from aeronautical and non-aeronautical sources. partly because passengers were spending longer at the airport and also because the airlines had cut back on their food service as a costsaving measure that encouraged more food buying in the terminal. Boston Massport. For the other commercial revenues it was estimated that retail revenue would be down by 9 per cent. Rome continued to implement its major 10 year development programme and Frankfurt airport kept all major expansion work on schedule. Other expansion plans at Phoenix. For example. it was found that almost one-half of the 60 largest airports had introduced such policies (Behnke. however. generally these have gone up since 11 September 2001 particularly because of increased insurance and security costs. it was estimated that airport revenues would recover and grow by 5. These include restrictions on staff travel and either freezing recruitment or employee redundancy. car parking down 6.

3 0. and Vienna is evident. 2002b).9 Aeronautical Non-aeronautical Total Operating costsb ($US millions) Security Insurance Other Total 4 869 5 677 10 546 5 101 5 987 11 088 5 456 5 732 11 188 4. The exceptionally large increase in costs at Zürich airport was due to bad debt write-offs connected with Swissair Group.9 3. The short-term impact of the reduction in traffic volumes and the uncertain situation caused by the events of 11 September 2001 was a loss of confidence in airports as attractive investments. At other airports. Paris. both these items were expected to rise very substantially by 38 per cent. respectively. and Zürich. Different financial years exist. However. Amsterdam. Revenues were substantially higher at London Stansted. Table 10. the EBIT margin for the 50 leading airport groups in 2001 was 23 per cent compared with 28 per cent in 2000.1 556 89 5 501 6 147 619 98 5 971 6 689 853 136 5 920 6 909 11.8 37. the Investor Service. increased security and insurance payments have been major factors influencing all the airports. primarily because of the growth of low-cost carriers at this airport. for example. in 2002. In the United States. revenues were up in spite of declines in traffic after 11 September 2001. Brussels Copenhagen. 2002). Whilst there may have been specific reasons for some airports for these increases.5 8. Putting the revenue and cost trends together meant that the profitability (measured by the EBIT or operating margin) of most airports declined in 2001.3 9.The impact of 11 September 2001 and future prospects Table 10. (ACI-North America. This situation has meant that airlines have exerted increased pressure on the airports regarding their airport charges (Airline Business.2 Change in financial performance of the US airport industrya since 11 September 2001 Operating revenues (US$ millions) 2000 2001 2002 (estimate) % change 01/00 % change 02/01 (estimate) 7. The two items are discussed in further detail later on in this chapter. These results are considerably more healthy than those of the 150 leading airline groups who experienced an EBIT margin of 4 per cent in 2000 and of 2 per cent in 2001. b Excludes depreciation. As regards operating costs (excluding depreciation) in 2001 these increased by around 9 per cent with security and insurance costs going up by 11 and 10 per cent. downgraded the credit rating of the Port Authority of New York and New Jersey 257 . London Gatwick. both of which recorded above-average increases in revenues in 2001.5 5. Globally.3 0. The exceptions were the Schiphol Group and Stansted airport.8 5. Frankfurt.3 shows the financial results for some of the major airports for 2001 and a decline in revenue for certain airports such as Geneva.3 Notes: a Based on a sample of 100 airports that are used to estimate industry totals. Source: ACI North America.0 4.8 8. Moody’s.8 38. All airports showed increases in costs.

7 3.8 9. b Table 10. Chicago O’Hare.1 28.1 27.0 14.0 15.5 28. 02 95 128 100 99 100 85 115 102 97 56 21 May 02 98 127 96 99 109 78 110 105 96 58 ASUR (Mexico) Auckland BAA Beijing Copenhagen Fraport Malaysia TBI Vienna Zürich 100 100 100 100 100 100 100 100 100 100 Note: Values are indexed with 13 August values set at 100. 01 70 99 87 102 77 71 88 85 73 50 16 Apr.7 6.6 32. 01 12 Oct.Managing Airports Table 10.3 28.1 28.0 6.6 21.9 1.9 1. Source: Jane’s Airport Review. 01 72 97 83 115 86 77 94 94 76 48 12 Nov.7 2.9 6. namely the Aviation Trust Fund and the Passenger Facility Charge – both directly related to traffic throughput – were reduced. Miami.1 EBIT margin. Washington.4 0. In addition. the decline in passenger numbers meant that two key sources of finance for investment.8 9.4 6.6 5.7 2. Los Angeles.1 0.2 0.2 8.4 5.7 2.9 12.0 16.0 42. 2000 (%)b 2001 (%)b 20. and Boston Massport and had a number of other US airports such as Charlotte.8 9.6 20.5 40.8 25.2 0.8 8. Elsewhere. EBIT margin.6 37. Standard and Poor’s also placed US airports on creditwatch.5 36.3 Change in financial performance at major European airports since 11 September 2001a 01/00 change in revenues (%) ADP (Paris) Aer Rianta (Ireland) Copenhagen Brussels Dusseldorf Fraport Geneva London Gatwick London Heathrow London Stansted SEA (Milan) Schiphol Vienna Zürich 2.0 12.0 42.4 Notes: a Different financial years exist. the share price of the listed privatized airports fell quite substantially but within most 258 .2 16.0 11.6 15.2 13.4 Share prices of airport companies since 11 September 2001 13 Aug.8 1.6 13.9 18.8 27. EBIT margin earnings before interest and tax as percentage of revenues. and Detroit on its watchlist for possible downgrade.6 25.9 01/00 change in costs (%) 4.1 16.1 1. Source: Airport Annual Accounts.3 7.9 39.

259 . At Zürich airport. became a national concern and high-profile issue that received a considerable amount of media attention. In addition. At Zürich airport the work continued on the new terminal post11 September 2001 although the opening was delayed. the problems were compounded by the fact that Swissair had subsidiary businesses. for example. The depressed position of the airport sector immediately after the events of 11 September 2001 meant that various privatizations at airports such as Milan and Sydney were postponed. security at airports had been undertaken by private security company staff who were often underpaid and poorly qualified but the Act provided for these to be replaced by a federal workforce of initially 28 000 properly trained staff who had a mandatory requirement to be a US citizen (Bacon. sharing information about potential security risks. and ensuring that the security measures were implemented in a non-discriminatory manner (Jane’s Airport Review.5). security. 2002). Congress quickly developed the Aviation and Transportation Security Act (ATSA). which was signed by President Bush on 19 November 2001. particular in the United States. This set a number of important deadlines regarding security that had to be met by the end of 2002 and transferred direct responsibility for security to the Federal Government with the setting up of the Transportation Security Administration (TSA) (Table 10. ICAO adopted an Aviation Security Plan of Action. 2002. new mandatory security standards were agreed ranging from locking flight deck doors. It may be seen from Table 10. 2000a). because of other specific problems such as its investment with Manila airport and Zürich suffered because of the collapse of Swissair. Neubauer. based at the airport. 2002). The situation was made worse at both airports since there were major expansion schemes in progress that were planned around the assumption that the home carriers would have a major input into the operations at the airport. The local canton of Zürich agreed to provide a credit line of SFr100 million partly for the airport to acquire some of these former Swissair subsidiaries (Baker. for example.4 that the share value at Zürich airport (a partially private airport) was very significantly reduced by Swissair’s failure. Brussels airport had also planned to be privatized but these proposals have been put on hold.4). The collapse of Swissair and Sabena clearly had a major impact on both Zürich and Brussels airports. by mid-2002 though there were signs that airport privatization was back on the agenda for a number of airports. Fraport did not do so well. At a global level. However. with the successful privatizations of Sydney and Malta airports. Previously. in 2002. Security issues The events of 11 September 2001 led to aviation security coming under close scrutiny for both airports and airlines. The most sweeping changes occurred in the United States where traditionally security measures were relatively lax compared with the rest of the world. For this 3 year programme it was agreed that regular and mandatory audits would be conducted of member states to identify and correct deficiencies in the implementation of ICAO security-related standards.The impact of 11 September 2001 and future prospects cases returned to pre-September values within 8 months (Table 10. Suddenly. related to maintenance and cargo. with many additional security measures being introduced.

50 per sector introduced at all airports Federal Government assumes direct responsibility for civil aviation security Deadline for review of the effectiveness of biometrics and other security access systems Deadline for all federal passenger screening personnel to be in place Deadline for the requirement of screening of all checked baggage by explosive detective systems (EDS) at 429 major airports The new security policies received considerable criticism from the airline and airport industries in terms of the practicalities of introducing enhanced security measures. This was viewed as being totally unrealistic. In response to this various concessions were granted to try and reduce the security hassles such as letting passenger carry take-away coffee through the security checks and axing the rule that required passengers to be asked if they had packed their own baggage. allowing a mixture of scanning and manual checks.2 that security costs incurred by the airports rose from $US556 million in 2000 to $US619 million in 2001. Such fundamental changes to the country’s airport security system were costly to implement. The act also gave airports the flexibility to use PFC or AIP funding to pay for any additional security-related activity required by law or the Department of Transportation between 11 September 2001 and 1 October 2002. it also permitted airports to use AIP funds for other expenses related to changes in security requirements such as the replacement of airport 260 . The ATSA authorized US$1. It may be seen from Table 10. 2002b). 2001–02 19 November 2001 18 January 2002 1 February 2002 18 February 2002 18 May 2002 18 November 2002 31 December 2002 Aviation and Transportation Security Act passed and the establishment of the Transportation Security Administration (TSA) Deadline for the requirement of screening all checked baggage or the matching of passengers with bags New security charge of $2.Managing Airports Table 10. There were numerous complaints that the new security procedures and rules were inconveniencing passengers and that this significant ‘hassle’ factor was putting passengers off flying or encouraging them to travel by different modes of transport. Express systems for frequent fliers were considered and the TSA also introduced more effective queue management techniques. only 150 EDS were in operation at a total of 47 airports. a massive 38 per cent rise in 2002. it was estimated that 90 per cent rather than total 100 per cent screening by EDS had been achieved. whilst the deadline meant that over 2000 EDS would be needed at 429 airports (Jane’s Airport Review. an increase of 11 per cent.5 Important dates for new security measures in the United States. In addition. However. taking advice from experts such as the Walt Disney Corporation. They were estimated to increase to $US853. the feasibility of meeting the tight deadlines and in relation to how the measures would be financed. One of the major areas of discontent was the deadline for all checked baggage to be screened by explosive detective systems (EDS) by the end of 2002. despite pressure from the airports this deadline was not extended although a few concessions were granted. because of the enhanced security measures that were required. By 31 December 2002. As of February 2002.5 billion for 2002 and 2003 to allow airports to meet FAA mandated security expenses.

Outside of the United States. However. Milan. As regards the provision of the security services.4 million. and cargo checks. 261 . a US$10 million runway extension project that was to be financed from AIP funds was deferred as was a US$10 million new runway at Cincinnati airport and new apron and taxiway infrastructure costing $7. Traditionally. 2003).6). particularly as the initial plans for the TSA had proved totally inadequate with the budget demands and the staff requirements more than doubling (Power. virtually all terminal protection is provided by the government through the police and also in most cases checks on passengers and luggage are the responsibility of the airport operators. However. and is shared between these two and the airlines in Munich. a wide range of different organizations such as the airport operator. within Europe the situation as regards who has responsibility for security measures at airports and who funds them varies considerably between each country and even between individual airports in some countries. For example. Often there may be a combination of these different these types of funding (Table 10.50 per sector security fee was also been introduced to cover some of the costs of the TSA (Field. and Toyko Narita US$2. for example. security is paid for by the airport operator through normal airport charges or special security fees as is the case with UK airports. Sometimes. and Vienna. aircraft protection. that Paris CDG airport estimated this to be US$20 million. in the aftermath of the events of 11 September 2001 there was still serious concern in the United States as to how the extra security costs would be covered. the government in Amsterdam and Lisbon. for other security activities. This accounted for 17 per cent of US$3. Nairobi US$3. there were fears that the use of AIP funds for security projects would mean that there would be less money available for other items and that this would effect long-term expansion and development.The impact of 11 September 2001 and future prospects baggage systems and the reconfiguration of terminal baggage areas to accommodate the explosive detective systems. A US$2. the FAA authorized US$561 million in AIP funds to airports for security projects related to the events of 11 September 2001. Elsewhere.3 million. in 2001 Congress authorized an extra US$175 million to aid airports for unexpected post-11 September 2001 security costs.3 billion available for AIP grants in 2002. at Paris. much attention was also paid to improving security methods at airports and numerous changes have been made.5 million at Indianapolis airport (General Accounting Office. the airline. Munich airport provided a figure of US$5. for example. For example. 2002). in 2002. 2002). At some airports the security costs are borne by the government that is paid for in many cases by a security tax – as at Amsterdam and Frankfurt – or otherwise out of general taxation. compared to previous years when security expenditure averaged less than 2 per cent. the police. An ACI study undertaken shortly after 11 September 2001 attempted to quantify the security costs directly attributable to the terrorist attacks and found. 2002). In 2002. such as staff access checks/badge control. Lisbon. 2002). in spite of all this additional funding for security. Whilst the industry acknowledged that this short-term help was much needed. or a subcontractor may play a role (Airports Council International. the airport operator may receive a refund from this tax revenue to cover the costs of the provision of certain security services. In addition to the funding provided by the ATSA. responsibility for designing security measures lies with the airport operator in Athens and Helsinki.6 million (Behnke.

They cited the United States as an example as where this was happening with the various security funds which had been approved by Congress. infrastructure. and staff training – claiming that since terrorist acts are targeted at states it is the responsibility of states to finance countermeasures to protect the travelling public. 2002 Government security taxa? $ Security tax refunded to airport operator? Airport charges? Amsterdam Athens Brussels Copenhagen Dublin Frankfurt Helsinki Lisbon London Heathrow Madrid Manchester Milan Oslo Paris Stockholm Vienna Zürich $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Note: a The security tax may not cover the cost of all the services provided by the Government and general taxation may be used as well. there was general agreement that security measures should be harmonized throughout the European region.Managing Airports Table 10. it was very difficult to reach any consensus as to how any extra security measures should be financed given the varied traditional approach to security funding. the European Parliament took this view with its proposal for an EU-wide framework for security regulations based on European Civil Aviation Conference (ECAC) Document 30 guidelines.6 Airport Funding of security at European airports. it was decided that the European Commission would carry out a study on how the financing burden should be shared between airports. this was rejected by the EU member states so the Parliament suggested that member states should at least shoulder some of the financial burden. Again this was not agreed to by the Council of Transport Minister but eventually in December 2002 a compromise was reached between the Parliament and Council of Ministers which left individual countries with the final say on funding but included a ‘recognition’ by the member states that they had a responsibility to assist with additional costs. airlines. could distort competition. Originally. and the member 262 . which could produce increases in security costs in some countries but not others. Post-11 September 2001. Source: ACI-Europe and individual airports. However. They also argued that an inconsistent approach to funding. To fully resolve this issue. However. The airports and airlines called for the governments to pay for the extra security measures required – such as additional security equipment.

and a new ‘travel trips and security advice’ card that was distributed to airlines and travel agents (BAA. 2002).The impact of 11 September 2001 and future prospects states as part of its wider analysis of intra-airport competition in Europe. or speech. The measures included unannounced airport inspections by independent European Union inspectors. These use unique physical characteristics to ensure that a passenger or member of staff is known and is allowed to proceed. The industry had been developing the technology needed for such biometric processes for some time before 11 September 2001. The airport also launched a second initiative aimed at the 263 . A 5-month trial of iris recognition under this scheme was undertaken in 2002 at London Heathrow with the participation of British Airways. For example. An additional problem associated with the new security measures at airports was that the travelling public had to be made aware of the changes. improved staff background checks. BAA was still confiscating 15 000 sharp items daily that were no longer permitted in hand luggage at its seven UK airports. However. 100 per cent staff searches in restricted areas. Therefore. The original aim of this initiative was to see how passenger journey times could be reduced but the post-11 September 2001 need for enhanced security measures added another dimension to this. various airports began experimenting with new types of security measures such as biometric identification (Cruz. In parallel with these developments to enhance security procedures. IATA had set up a ‘Simplifying Passenger Travel’ interest group that included airports. At Amsterdam airports iris recognition was also introduced at the end of 2001 under a scheme called ‘Privium’. the immigration authorities. but the terrorist attacks obviously made the case for using such measures that very much more convincing. even by March 2002. Membership cost 99 euros for the 1-year trial and entitled the passengers to priority parking and check-in. immigration authorities. The enhanced security procedures that were agreed by the 15 EU states plus a further 23 states that are members of the ECAC covered various aspects of airport security. finger prints. in a survey undertaken shortly after 11 September 2001. Such techniques can be as simple as a specialized identity card or as sophisticated as the recognition of retina patterns. and more stringent baggage screening methods such as limiting personnel to 20 minutes ‘screen-time’. In the United States. BAA found that 91 per cent of travellers knew that airport procedures for security had changed and 81 per cent claimed to know that there were new hand luggage security restrictions. which included off-airport advertising. increased signage asking passengers to put sharp objects into their hold luggage. this technology concentrates on the individual themselves rather than the more traditional approach of focusing much more on the passenger’s baggage. for example. Other airports such as Boston experimented with face recognition. Eight airports in Canada in 2003 were also testing iris scanning. 2002). Virgin. BAA launched a campaign over Easter 2002 to increase public awareness. through a gate or door. with the aim of speeding up processing times as well as improving security. and technological suppliers. particularly within the United States and Europe. the ATSA required biometric testing to be undertaken at a minimum of 20 airports and allocated US$50 million a year for biometric activities. airlines. Prior to 11 September 2001. As a result of this. whilst San Francisco and Chicago investigated fingerprint techniques. which involved frequent travellers to European destinations on nine participating airlines. 2002). An industry coalition called the National Safe Skies Alliance was set up and tested some of these measures at Orlando International airport. and 2 000 invited frequent flyers (Farmer.

Elsewhere. in principle. enabled operations to continue as normal.Managing Airports 80 000 employees at the airport and tested the technology that controlled access to secure areas (Lanza. the air transport industry has been looking at new ways whereby it would actually have responsibility for the third-party insurance. namely Eurotime. backed by government support. Prior to this insurance had been a fairly routine and low-profile cost item but suddenly failure to reach agreement could technically have led to a complete grounding of the whole of the industry. in co-operation with the Department of Transportation. and Dubai and Singapore airports investigated fingerprint identification. which had to be renewed several times. Tel Aviv airport used hand scanning. Globally. at only 7 days notice. which caused such problems for the airlines and airports after 11 September 2001. Within Europe. 2002). A similar fund to Equitime. This would initially be a 5-year war risk insurance plan. and the European Commission. particularly from certain European governments. At the same time. As a result of this. by the beginning of 2003 there were still considerable doubts as to whether such approval could be achieved and if the scheme would ever be implemented. It would also have a cancellation period of at least 90 days rather that just 7 days. However. In the United States. ICAO has been investigating the setting up a ‘not-for-profit’ mutual insurance fund called GlobalTime. namely $US50–150 million compared to the previous $US1 billion per airport or airline at much higher premiums. Throughout 2002 these short-term emergency government guarantees. the European Commission had allowed the member state governments to provide temporary cover on a rolling 30-day basis. It was agreed. regional solutions were also being considered which could potentially be quicker to introduce. in 2002 and was planned to come into effect once it was approved by a sufficient number of ICAO contracting states that represented 51 per cent of the organization’s annual budget. a number of other airports experimented with biometric technology. After intense pressure from the airlines and airports. notably in Britain and the Netherlands. Meanwhile for the short-term in November 2002 the US government enacted the Homeland Security Act. which would involve the major carriers setting up a company that would sell insurance coverage and collect premiums. was also proposed. the airline industry. The insurance problem After the events of 11 September 2001 the insurance companies withdrew. Sydney airport tested facial recognition. the situation was temporarily resolved with most governments agreeing to provide cover until a more realistic long-term solution could be found. However. Initially this fund would require government to take most of the risk until the fund was of a sufficient size that the industry could take over full responsibility. which allowed for the FAA to provide war risk cover. all third-party cover for risks of war and terrorism and instead offered unacceptable reduced cover. there was not total widespread support for such a scheme. For example. was proposing an insurance plan called Equitime (named after the point in flight at which the risk of going forward is equal to the risk of returning). as yet there has been no co-ordination with all the different schemes that have been introduced and no common consensus as to which technique is the most effective. 264 . However.

first in the United States. the airlines and airports did not agree particularly as they felt at a disadvantage compared with the United States where the government was seen as being much more supportive (Frank-Keyes. has had a major impact on airport operations. Changes have taken place in both the airline and airport industry but it is difficult to attribute all of these to the terrorist attacks and the resulting fall in demand for air travel. However. One of the most important changes that has occurred within the airport industry is privatization. currently the degree of concentration and private sector involvement within the airport industry is fairly small – much less than in the airline industry. The introduction of new aircraft types.The impact of 11 September 2001 and future prospects who considered the industry to be best served by the commercial insurance market. The evolving e-economy will also continue to have a major impact on the nature of freight operations at airports just as e-procurement policies are bound to play an increasing role. 2002. As the airline industry evolves and as further deregulation occurs. New developments such as EU enlargement and even perhaps the collapse of the traditional bilateral system based around sovereign states and national carriers could potentially have far reaching impacts on an airport’s customer base. The more competitive environment brought about by the deregulation of the airline industry. With the increased emphasis on security post-11 September 2001 further technology advances can be expected in both the processing of individuals and their baggage. Future prospects 11 September 2001 has undoubtedly left the airport industry operating in a much more uncertain and volatile environment. Technological improvements to airfield and airspace infrastructure and aircraft may improve efficiency and reduce some of the undesirable environmental impacts of airports. There will be new markets available for airport management companies who have more limited possibilities for expansion at home. will have major infrastructure and capacity implications for the airports. Airports are functioning in an increasingly commercial marketplace and are having to modify their product to meet the needs of new airline customers. However. some of the gloomier predictions following 11 September 2001 such as the demise of Europe’s entire independent airline sector or the desertion of less popular airports have failed to come to fruition. airports will need to continue to adapt to new demands. then Europe and to a lesser extent Asia. Saudi Arabia. 2002). with governments playing no further role. in Bali. Investors are. It is important to acknowledge that none of the challenges that faced the industry prior to 11 September 2001 have gone away. There are also now a significant number of non-airport organizations who may 265 . likely to be more much cautious than they were in the late 1990s. such the A380. the Iraq War and the outbreak of SARS. Casablanca). While a number of significant airport privatizations have taken place. such as alliances and low-cost carriers. Pinkman.g. all indications are that more privatizations are planned for the early years of the twenty first century in spite of the short-term uncertainty and the depressed aviation market. however. Whilst unsurprisingly this was also the view held by the insurance industry itself. although the whole air transport industry still remains particularly vulnerable to external problems such as further terrorists attacks (e.

given the apparent lack of synergy between the current airline and airport groupings. Airline alliances could potentially become very powerful partners in the airport–airline relationship. this raises the fundamental question. namely the emergence of the low-cost scheduled airline sector. change this. or which will bring the greatest value added. This situation is set to continue particularly in Europe as the low-cost carriers expand into the mainland region. which 266 . Some industry commentators have argued that ultimately the air transport industry will be dominated by a few powerful airport global players. each teamed up with a large airline alliance.Managing Airports hope to use these opportunities to become global airport players. may. Moreover. but increasing globalization within the airport industry might help to balance out this. Such developments will. Greater co-operation between airports. for example. It appears that those most likely to achieve success will be the companies who already have had both the ability and the foresight to establish themselves as international companies. however. The impact of such fundamental changes within the airport industry cannot be assessed without considering the parallel airline developments towards deregulation. seems set to become more consolidated and more airport alliances and co-operation seems likely in the future.There has been considerable debate as to whether the traditional airport companies with a long track record of operating airports. This sector also appears to be consolidating within Europe. are airports really any different from any other business once the technical and operations know-how has been acquired? It is too early in the evolutionary stage of airport globalization to answer this question with any degree of certainty or to identify the factors which will determine the most successful type of airport management in this new global environment. particularly those serving the same airline alliance. There probably will eventually be only space for a limited number of players. The charter industry. of course. the creation of airline alliances has meant that airlines are no longer automatically linked to the national airport of the country. like the airline industry. war and SARS coupled with the global economic downturn has resulted in such pressures becoming that very much greater. albeit often in protected quasi-monopolistic markets. irreversibly change the traditional airline–airport roles and interactions that have existed for many years. It is difficult to see how such a system would work. The airport industry. after being fairly concentrated in just Britain and Ireland. These airlines have different requirements at airports and can attract different types of passengers. Indeed. For some other airports. privatization. It is very difficult to predict the exact impact that globalization will have on both industries – particularly whether it will lead to greater co-operation or conflict between the two. Falls in demand due to fear of terrorism. and global alliances. if permitted on fair competition grounds. are better equipped to run airports than more recently established airport management companies such as TBI. They operate in a much more cost conscious environment than most other airlines and hence make different demands on airport management. The post-deregulation environment meant that airlines were trying hard to control costs to improve their operating margins and were consequently exerting pressure on the airports to control their costs and keep down their level of airport charges. with the 2001 purchase of Go by easyJet and the 2003 purchase of Buzz by Ryanair. the relationship with their airline customers has also changed in recent years due to another post-deregulation development.

The units of these forecasts are passengerkilometres.5 Sources: Boeing. Airbus.4 Table 10. which means that overall the forecasts of the manufacturers Table 10.9 4.7 per cent. A key reason behind airport privatization is the need to find new funding for investment. but increasingly this sector is unable or unwilling to provide such support. but the passenger forecasts produced by IATA in 2002 showed that after a couple of years of high growth to compensate for depressed traffic levels in 2001–02. which are more relevant to airlines than airports. healthy long-term growth rates in the region of 4 per cent were predicted (Table 10. In 2002.7 4.5 4. Clearly the uncertainty brought about by the events of 11 September 2001 meant that forecasting in the short term was very difficult.9 5. Boeing and Airbus were also predicting long-term average annual growth rates in the region of 4. IATA.6 4.5–4.2 5.9 3. 267 . is becoming more concentrated as well and is dominated by a few very large vertically integrated European countries. This tends to push up passenger forecasts by up to 1 per cent per annum as the average distance flown is predicted to increase. IATA forecasts of international scheduled passengers Forecast period 2002 2003 2004 2005 2001–2005 2006–2010 2011–2015 Annual growth rate (%) 0.9 5.7 4.8 Organization Long-term forecasts of global traffic growth Time period (base year 2000) Traffic measure Average annual growth rate (%) Passengers Boeing Airbus IATA Freight Boeing Airbus 2001–21 2001–20 2001–15 2001–20 2001–20 Passengers-kilometer Passengers-kilometer International scheduled passengers Freight tonne-kilometers Freight tonne-kilometers 4.7 Base year 2001 2002 2003 2004 2000 2005 2010 Source: IATA.7). All indications are that the air transport demand is set to continue to grow – putting pressure on airports to expand their capacity. Many funds traditionally came from public sources.The impact of 11 September 2001 and future prospects again has different expectations at airports.9 7.

therefore is that global passenger numbers will grow at around 4 per cent per annum. The Boeing forecasts prepared before 11 September 2001 and using the same base year predicted an average growth rate of 4. likewise. 2002. Similarly the differences between the Airbus forecasts made before and after 11 September 2001 represented just one year’s traffic growth. Freight traffic is generally expected to increase at a faster rate than passenger traffic with Asia/Pacific markets having the highest average growth rates (Table 10. Economic growth.4 and 5.Managing Airports were very similar to those produced by IATA. For example. 2002. Airbus. Deregulation and particularly the introduction of low fares may stimulate new growth. the relative immature market and higher than average predicted economic growth will ensure high growth rates. Therefore in the long-term the impact of these terrorist attacks was forecast to be fairly small. Intra-European traffic is expected to grow at 4. will continue to play a major role in shaping the growth of passenger demand.2). as has been experienced in Europe with the new breed of low-cost airlines. Boeing predicts that the relatively mature North Atlantic market will grow by only 3. 2002–21 Source: Boeing. Elsewhere. particularly within the United States and Europe.5 per cent. The general. 2002). perhaps somewhat optimistic view. More sophisticated telecommunication links may facilitate more effective teleconferencing and could reduce the demand for business travel.2).7 per cent per annum (Figure 10.5 per cent.8). may actually encourage more global trade and act as a complement to air travel rather than as a substitute. These forecasts also did not take into account any physical or environmental constraints that might may occur (IATA. Such links. which reflects business activity and personal wealth. 268 . Boeing. 2002. the responsiveness of demand to changes to income may be weakening as demand maturity sets in.7 per cent compared to the post-11 September 2001 growth rate of 4. however. respectively. Air freight demand is. For certain markets. although clearly it was not foreseen that there would be continued volatily well in 2003 due to terrorism and other threats (Table 10.5 per cent compared with the higher growth rates for the more rapidly developing markets of Europe–Asia/Pacific and North America–Asia/Pacific – 5. and the cost of travel. particularly in developing areas of the world. primarily driven by economic growth and Average annual pax-km growth (%) 6 5 4 3 2 1 0 Intra-North Europe–North Intra-Europe Europe– America America Asia/Pacific North America– Asia/Pacific Total Figure 10.2 Average annual pax-km forecasts of main regional flows.

this is seen as a major hurdle to achieving the full benefits of a deregulated market. for example. Hong Kong. and Kuala Lumpur. The consequences are growing congestion and delays although. Even if there is a gradual slow-down in the rate of growth in certain passengers markets. Increasing reliance on just in-time inventory systems favours air freight. such as Africa and Middle East.The impact of 11 September 2001 and future prospects travel cost – as well as international trade. electronics. typically using relatively small aircraft types. These freight aircraft are increasingly likely to use uncongested hubs with no environmental restrictions – particularly at night – but such hubs may be more difficult to find in the future! In most cases it is passenger growth that drives airport development. Macau. competitive pressures and the rapid growth of low-cost carriers. admittedly. or even by adding extra aircraft to the fleet. has meant that the average aircraft size has not increased substantially since the early 1980s. In spite of this. New airports are also planned for China. The new Athens airport opened in 2001 and the expanded airport in Berlin-Schonefeld may be ready for operation in the late 2000s. The proportion of freight carried on all-freight flights is likely to increase. Oslo. A number of privatizations in South America should enable greater investment in this region. Very few new airports or fully expanded airports have been built in the United States or Europe in 1990s. communications. for example. In Europe. advanced wake vortex technologies and arrivals and departure management systems. and pharmaceuticals are the most international and are heavily reliant on air travel for the transportation of their high-value/low-weight products. Airports lack this flexibility. The overstretched airport infrastructure in Europe and North America has been afforded some temporary breathing space by the fall in demand due to the events such as 11 September 2001 but capacity problems still remain. Munich. lack of sufficient airport capacity is not usually a major problem. E-commerce has also brought substantial reductions in the distribution costs of air freight and increased demand for the integrators and the express mail sector. Plans for a new airport in Lisbon or an offshore airport in Amsterdam have been put on hold. and Milan are the only examples. partly due to the high growth of the express sector and partly because the current bellyhold capacity of passenger aircraft is insufficient. The shortage of airport capacity in Asia is currently not too serious an issue due to the recent opening of new airports in. In the remaining areas of the world. and Bangalore. Technical improvements at the airport. The London Heathrow Terminal 5 inquiry in the late 1990s in the United Kingdom lasted more than 4 years and was one of the longest planning enquiries in UK history. Bangkok. Higher growth is generally expected because of globalization trends that have led to increased reliance on global components and products that need to be transported around the world. Seoul. Denver. increasingly by sharing capacity with alliance members. the sheer volume of traffic at many airports means that even relatively small growth rates still produce large increases in the absolute number of air passengers. The rapidly expanding knowledge-based industrial sectors such as computing. It can take years for airports to gain approval and then to build new infrastructure. Airlines are much more capable than airports of adapting to market growth by redistributing capacity across the networks. This has put further pressures on the already congested runways at many airports. some of these difficulties could potentially be reduced through greater ATC co-ordination and harmonization. could optimize traffic flow in and out 269 . Shanghai. A new airport to serve Mexico City is planned although there have been problems in selecting the most suitable site.

P. Financing civil aviation security costs in Europe. Charges comment. Simplifying passenger travel: Heathrow’s expedited arrivals trial. ACI Europe. Press release. Boeing (2002). and that the solution is to constrain growth. 7. Baker. Airline Business. perhaps through regulation. June. Beyond the crisis: The impact on airlines and airports. 38–42. that airports are not abusing their considerable market power. References and further reading ACI-Europe (2002). however. 25–8. (2002). Airbus (2002).Managing Airports of the airport. BAA (2002). US security: Uncertain world. Cruz. 20 March. Market outlook. C. which are increasingly being driven by private sector concerns. Airport World. 1–25. ACI-NA. In the short term a more effective slot allocation process might alleviate some of the capacity bottlenecks. Regional authorities want to ensure that airports generate maximum economic benefits. University of Westminster/Cranfield University Airport Economics and Finance Symposium. Field. ACI-North America (2002). will make it more and more difficult to provide additional airport capacity. 7(1). (2002). Airline Business. Airline Business. It is a difficult problem balancing out the needs for quality of life and sustainability against desires for greater mobility. The scheduled airlines seek greater capacity and have evolving needs as they continue to restructure themselves into global alliances. International Airport Review. Out of the ashes. March. Airline Business (2002b). 46–8. Current market outlook. J. Travel and Tourism Analyst. The Aviation and Transportation Security Act: The law and its Implementation. of course. February. This book has considered all these important interrelated issues and has aimed to provide some insight into how airport operators might address the challenges of the future. Farmer. Then. Bacon. AAAE/ACI-NA Legislative Affairs Issue Brief. (2002). (2002). The more extreme environmentalists will argue that there is no way that the potential demand for air transport in the future should be met. 1. State of the industry report. Global market forecast. BAA Easter getaway and security awareness campaign. Airline Business (2002a). Issue 1. (2002). Secondary and regional airports could also take some of the growth away from major airports as could high-speed rail. Low-cost airlines and freight operators have other requirements. Airbus. Economic Impact. The environmentalists want greater protection of the environment and society. Airport security – A review of passenger processes. Passenger expectations in terms of service quality is rising. In the long term. A. Boeing. the problem of capacity shortages at major airports is not going to disappear. D. Behnke. airport operators have a challenging time ahead. (2002). In conclusion. (2002). R. H. 270 . Airline Business. Governments want to guarantee. Growing pressures for greater sustainability and environmental capacity constraints. January–December. as experienced at Amsterdam. there are the financial demands from the airport owners or shareholders. Doganis. They are confronted with conflicting demands from their different stakeholders. March. December.

European Transport Conference. Jane’s Airport Review (2002a). R. E-communique. Graham. Neubauer. Jane’s Airport Review (2002b). October. General Accounting Office (2002). Using airport grant funds for security has affected some development projects. September. The effectiveness of America’s emergency airport security legislation. J. R. 6 February. Issue 34. Wall Street Journal. Pinkham. (2002). (2002). Airline Business. (2002). 45–8. Communique Airport Business. (2002). IRMS News. October. A. US security catches up. Insuring against the unthinkable again: Eurotime or Globaltime. Power. and Dennis. Issue 3. (2002). The crisis in air transport and the future structure of European airlines and airports. Cambridge. International Airport Review. Lanza. 12–13. Airline fees only scrape surface of the TSA’s needs. May. Insurance: at odds. No. February. C. 72–4. (2003). 18. 3. IATA (2002). D. Iris recognition passenger service fully operational at Amsterdam Airport Schiphol. S. ICAO set new security standards.The impact of 11 September 2001 and future prospects Frank-Keyes. April. 271 . May. GAO.

43. 26. 108–10. 14. 33. 162. 236 Airport throughout unit (ATU). 9. 194. 17. 24. 106. 236 Airport use agreements. 266. 118. 18. 185–7 Airport surface access strategy (ASAC). 20. 150. 27. 158. 255–9 airport traffic. 260. 21. 25. 101. 102–3 fuel taxes. 119. 261. 47. 100–1. 65. 11. 154. 189. 104. 199. 101. 69. 164. 34. 101–2 peak charges. 99. 129–30 Airports Group International (AGI). 17. 236. 69. 24. 145. 109. 260 Airport product. 21. 17. 223 passenger charges. 37. 61. 130. 99. 21. 102–3 landing charges. 258. 151. 4. 108. 120. 89–91 . 81. 46. 76. 7. 2001. 31–4 regulation. 267. 19. 100–1. 4. 38–41 Argentinean airports. 18. 246–8 global company. 74. 102. 37. 108–10 international retailer. 108. 183. 165–7 see also Dublin airport Aeronautical charges: discount charges. 160. 56. 36. 141. 50. 162. 215 Auckland airport. 268. 180–2 Airport Improvement Program (AIP). 48. 98. 64 Airport transport forum (ATF). 55. 107–8 Air transport forecasts. 33. 256. 257. 3. 154. 172. 118–20 service quality. 18. 43. 25. 15. 258 Australian airports. 163–5 A Aer Rianta. 34. 34. 262. 69. 26. 143. 92. 27. 269 Impact on: aeronautical charges. 39. 263 environmental capacity. 266 Airport branding. 161. 120. 174. 68. 188. 99–101 noise charges. 267–9 Aircraft chapter classifications. 106 airline industry. 41. 258 aeronautical charging policy. 152. 187 Airport competition. 60. 48. 266 Airport alliances. 153. 226–7 fuel charges. 23. 118 Athens airport. 86. 123. 33. 189–92 emission charges. 6. 81. 24. 208. 159. 263. 100. 253–5 commercial income. 141 privatization process. 151. 251–3 airport financial performance. 22. 44 see also TBI Amsterdam airport/Schiphol.Index 11 September. 26–8. 225–6 ground handling charges. 269 Atlanta airport. 110. 48. 54. 55. 186. 22. 3. 43. 221–2 Airline alliances. 265. 35. 264. 47–8.

158–63 E East Midlands airport. 10. 48. 26. 153. 69. 174. 30. 27. 235. 17. 42. 234. 46. 29. 33. 180. 42. 140–2 type of customer. 66. 255. 29. 187 Belfast airports. 243–5 B BAA. 44. 3. 133. 253. 224–8. 157. 262 Build-operate-transfer. 19. 30. 65 Environmental capacity. 117–19 retail approach. 206. 37. 263 Brussels airports. 158. 25. 6. 18. 258. 42. 18. 263–4 Birmingham airport. 181. 89. 257. 22. 79–80. 262 environmental practice. 238 Economic development and airports. 20. 5. 68. 58. 166. 44. 17. 142. 142. 210. 224. 119. 216 Bristol airport. 71 Delays. 253. 146–9 reasons for growth. 65. 197. 5. 78. 133. tax. 212. 156. 39. 192. 255. 81. 26. 66. 85. 194. 198. 257. 168. 167. 145. 170. 46. 225. 260. 120. 67. 69. 23. 17. 32. 254. 102. 109. 239 Equitime. 31. 215. 165. 31. 21. 181. 255. 257. 143. 112. 119 Aviation and Transportation Security Act (ATSA). 263 Catchment area. 214. 65. 99. 20. 18. 23. 36. 29. 19. 104. 163. 153–4 geographical trends. 86. 149. 57. 254. 111. 78. 18. 83 see also London airports Balanced approach to noise. 214. 69. 181 Berlin airports. 253. 29. 27. depreciation and amortization (EBITDA). 101. 181. 116. 161. 69. 164. 107. 28. 161. 42. 102. 61. 108. 263 Chicago airport. 105. 232. 212–15 Emissions. 33. 20. 160. 31. 255. 142–6 Copenhagen airport. 191. 151. 215. 161. 30. 229. 87. 8. 18. 179. 106. 168–73 service level agreements. 68. 151. 8. 159. 210. 269 Basel-Mulhouse airport. 106. 59. 164. 37. 22. 67. 161. 58. 149–50 concession contracts. 70. 24. 17. 159. 37. 191. 91. 230. 34. 254. 4. 152. 156. 198 British Airways. 18. 9. 60. 166. 58. 21. 9. 198. 33. 30. 18. 195. 179 Earning before interest and tax (EBIT). 131. 6. 155. 133. 22. 258. 40. 70. 10. 164. 17. 198. 23. 258. 118. 122. 69. 221.Index Australian Competition and Consumer Commission. 56. 82. 32. 31. 87. 122. 143. 240. 93. 162. 269 Biometric testing. 222 Bangkok airport. 90. 159. 42. 122. 9. 261. 55. 233. 33. 167. 17. 187. 101. 42 Brisbane airport. 164. 25. 55. 66. 101. 88. 58. 42 Commercial revenues: branding. 17. 172. 238 Enterprise Value (EV). 211. 90. 245–8 Environmental impact assessment (EIA). 207. 99. 174. 71 Eco Management and Audit Scheme (EMAS). 163. 141. 239. 67. 106. 172–3 Dublin airport. 148. 262 see also Aer Rianta Dusseldorf airport. 122. 108. 39. 29. 163. 65. 49. 81. 223. 99. 55. 258 Earnings before interest. 17. 100. 122. 30. 68. 259. 31. 184 273 . 262 quality of service monitor (QSM). 258 Duty and tax free sales: history. 22. 68. 207. 206–8 Dubai airport. 25. 162. 26. 171. 22. 22. 22. 25. 110. 269 Cintra. 160. 57. 264 C Canadian airports. 220. 118. 259. 241 Environmental impact statement (EIS). 81. 58. 21. 148. 209. 208. 18. 86. 239. 48. 41. 187. 89. 5. 8. 24. 263 Chinese. 22. 258. 161. 159. 181. 164. 81. 42. 162. 99. 102. 39 D Data envelopment analysis (DEA). 5. 29. 27. 158 loss of EU sales. 163. 264 non-aeronautical strategies. 29. 107. 85–8 Direct economic impacts. 37. 253. 238. 147. 159. 154. 89. 215 Eurohub. 92. 4. 87. 169 regulation. 179.

48 skills needed. 264 Frankfurt airport/Fraport. 26. 130. 5. 58. 116. 211. 255. 5. 26. 99. 58. 174. 159 F Federal Airports Corporation (FAC). 78. 181. 6. 6. 99. 37. 257. 269 M Madrid airport. 117. 110. 231. 128. 207. 79. 24. 233. 31. 107. 194 ISO 14001. 213 London airports. 92–3. 29. 198. 223. 58. 191. 188–92 Marketing to passengers. 80. 31. 68. 86. 70. 107. 6. 180. 229. 22. 122. 263. 11. 200 catchment area. 230. 26. 197. 236. 106. 87. 101. 19. 33. 258 London Heathrow airport. 264–5 International regulation of charges. 21. 68. 21. 261. 92. 80. 18. 17. 262 enviromental issues. 29. 8. 238. 238. 5. 87. 209. 127. 83. 57. 200. 99. 206. 164. 17. 191. 79. 81. 257. 115. 189. 42. 198. 181. 238 ISO 9000/9001/9002/9003. 187. 207. 41. 130 Manchester. 46. 69. 195. 193 Mauritius airport. 30. 181. 29. 4. 67. 55. 163. 231. 37 High Density US airport rule. 18. 67. 99. 258 G Geneva airport. 14. 122. 193–5 Marketing to travel agents. 22. 162. 8. 157. 155. 48. 17. 185. 159. 102. 68. 158. 28. 99. 49 impact on passengers. 163. 87. 59. 146. 102. 162. 131. 159. 152. 167 Hong Kong airport. 27. 26. 20. 212. 49. 255. 80. 27. 101. 168. 215. 6. 160 Eurotime. 141. 246 Los Angeles airport. 157. 48. 68. 193. 197. 179. 104. 185. 58. 168. 81. 184. 165. 150. 256. 151. 27. 88. 34 Federal Aviation Administration (FAA). 151. 215. 257. 34. 157. 162. 78. 101. 134 L Liverpool airport. 262. 232. 165. 110. 47. 232. 28. 105. 150. 101. 142. 90. 235. 69. 105. 68. 148. 75. 180. 4. 122. 163. 159. 184. 29. 25. 186. 180. 32. 260. 174. 75. 69. 87. 122. 163. 181. 190. 185. 238 274 . 111. 262 Majority in interest clause (MII). 86. 254. 255. 10. 180. 132. 33. 102. 6. 24. 239. 37 I IATA schedule co-ordination conference. 122. 79. 101 Indianapolis airport. 55. 181. 156. 196. 83. 44. 258. 257. 4. 67. 208–12 Insurance. 231. 105. 31. 69. 111–12 Internet and e-business. 208. 223. 125. 196–7 London Gatwick airport. 89. 145. 197 London City airport. 28. 131–2 Hochtief. 157. 67. 8. 71. 264 J Japanese airports. 68. 122. 78. 127–8 EU regulation of slot allocation. 81. 59. 104. 181. 41. 159. 262 agreement with airlines. 6. 69. 150. 118. 258. 152. 261 Indirect/induced economic impacts. 226. 164. 27. 17. 5. 159. 3. 181. 36. 229. 207. 76. 148. 92. 233. 129. 211. 10. 132. 8. 158.Index EU ground handling directive. 117–19 Market research. 258 Global airport companies: globalization rationale. 144. 31. 117. 81. 85. 164. 208. 33. 123. 240–3 regulation. 5. 207. 4. 236. 67. 5. 148. 164. 22. 70. 164. 66. 126. 187. 184. 187. 196 Marketing to airlines. 41. 124. 4. 259. 43. 116. 59. 17. 256. 58. 232. 30. 42. 187. 37. 9. 255. 208. 253. 214. 118. 60. 236. 88. 25. 182. 26. 126 European Travel Research Foundation. 87. 211. 101. 256. 144. 29. 251 Johannesburg airport. 86. 170. 188. 190. 105. 255. 5. 100. 31. 143. 102. 196. 145. 13. 196. 182. 22. 45–7 impact on airlines. 18. 234. 4. 124. 55. 84. 121–3 Indian airports. 100. 253. 31. 232. 55. 123. 45 Globaltime. 69. 18. 156. 269 London Luton airport. 60. 215. 261. 198. 117. 17. 133. 143. 17. 48. 70. 129. 159. 23. 118. 87. 181. 239. 264 H Harrisburg airport. 210. 30. 83. 28. 163. 216.

19–20 trade sales. 155. 81. 259. 200. 80. 198. 129. 21. 232. 145. 4. 258. 208. 18. 261 275 . 36. 103. 171 Preferred noise route (PNR). 58. 260 Philippine International Air Terminals Co (PIATCO). 26. 26. 262. 115–16 reserve. 47. 105. marketing strategies. 150. 23. 269 Munich airport. 29. 101. 113 regulatory benchmarking. 42 New York airports. 105. 43. 187. 25. 22. 131. 258. 179. 46. 230. 87. 39. 19. 200 marketing strategies. 269 Privatization models: concession. 44. 198. 180. 210. 31. 122. 102. 61. 158. 80. 193. 69. 69. 105. 9. 42. 211. 230. 4. 41. 9. 181. 6. 61–2 Melbourne airport. 182. 17. 231. 55. 24. 23–6 share flotations. 269 EIA 239–40 P Pantares.Index Measuring economic performance: inter-airport comparisons. 259. 68. 29. 68. 232. 37. 17. 261. 5. 5. 181. 208. 257. 156. 154. 159. 148. 36. 55. 24. 231. 159. 255. 229. 69. 179. 49. 146. 87. 141. 3. 71 Toyko airport. 77. 4. 258. 182. 32. 254. 43. 262. 31. 79. 231. 41. 8. 55. 22. 35. 210. 86. 21. 78. 259. 220–4 Norwich airport. 93. 170. 115 single and dual tills. 69. 36. 90. 65–8 reasons for increased interest. 37. 180 Niagra Falls airport. 39. 119. 92. 128. 25. 126. 29. 131. 266 global company. 89. 18. 89. 46. 70. 10. 238. 182. 86. 199–201 S Security. 164. 114–15 service quality. 161. 32. 21–3 management contract. 143. 42. 104. 211. 69. 170 National Express. 266 N Naples airport. 170 Mexican airports. 87. 99. 231. 159. 59. 17. 43. 181. 119. 37. 149. 22. 258. 109. 4. 21. 58. 105. 230. 87. 26 project finance. 256. 20–1 R Regulation of airports: price caps. 81. 41. 231. 33. 181. 159. 60. 70. 42. 42–4 see also AGI Total factor productivity (TFP). 106. 269 Milan airports. 4. 100. 224. 180. 130. 106. 104. 122. 231. 113–14 rate of return. 22. 68. 262 Sydney airport. 78. 131. 129. 21. 99. 42. 122. 10. 174 South African airports. 261. 34. 132. 83. 24. 88. 67. 180. 24. 37. 33. 69. 232. Airport Company South Africa. 6. 262 Perth airport. 87. 42. 20. 112. 181. 22. 207. 103. 22. 46. 222 T TBI. 87. 197–9 Spanish airports/Aeropuertos Espanoles y Navegacion Aerea (AENA). 23. 182. 5. 18. 17. 42. 261. 49 Paris/Aeroports de Paris (AdP). 70. 21. 24. 100. 41. 93. 214. Ryanair. 71. 150. 93. 55. 8. 44. 162. 86. 22. 192. 44. 253. 43. 264 O Oslo airport. 257 New York JFK airport. 264 Service level agreements (SLAs). 30. 181 New York La Guardia airport. 48. 4. 158. 92. 148. 187. 215. 122. 23. 104. 17. 26. 127. 101. 37. 82–4 Singapore airport. 30. 257. 65. 105. 101. 59. 152. 36. 45. 26 Pittsburgh. 207 Stockholm airport. 26. 229 Passenger facility charge (PFC). 58. 60. 252. 69. 87–91 Rome/Aeroporti di Roma (AdR). 8. 261 Transportation Security Administration (TSA). 118 Southampton. a85. 106. 214. 42. 36 Noise impacts. 17. 5. 255. 22. 262. 264 non-aeronautical strategies. 27. 55. 81. 25. 58. 211. 191. 119. 90. 23. 39. 181. 59. 252. 69. 5. 133. 114 revenue yield and tariff baskets. 260.

210. 258. 70. 41 global concept. 17. 67. 102. 37. 125. 257. 34–7 slot allocation. 37. 19. 69. 65. 159. 255. 69. 150. 25. 81. 127. 24. 159. 24. 122. 67. 158. 56. 55. 69. 122. 92. 130–1 privatization. 148. 258 Wiggins. 152. 211 Vienna. 37. 59. 262 Z Zurich airport. 210. 215. 232 276 . 172 V Vancouver airport (YVRAS). 211. 102. 118 total quality management. 81. 258 charges. 211. 148. 8. 169. 41. 216.Index U US airports. 162. 126. 131–2 evolution of an airport business. 18. 9. 26. 188. 189. 20. 99. 261. 171. 3. 152. 71. 129. 5. 13–16 regulation. 93–5 W Washington airports. 33. 87. 49–51 World Duty Free. 254. 26. 38. 17. 43. 22. 69. 58. 67. 46. 26. 163. 161. 101. 10. 212. 70. 70. 131. 68. 215. 216. 223. 170. 143. 68. 180. 254.

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