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

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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. 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 .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. indirect.

3 1. 2001 The world’s 20 largest airports by air transport movements. 2001 Cost per WLU for European airports.13 2.5 2.2 3. 1989–2001 Organizational structure within the Schiphol Group.7 2. 2000 Total passengers at Amsterdam airport.10 2. 1989–2001 Profitability – Schiphol Group. 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.6 1. 1979–2001 Total revenues – Vienna Airport Group.1 3.9 2. 2002 Financial results of TBI.12 2. 2001 Airport cargo tonnes by world region. 2001 The world’s 20 largest airports by total passengers. 2001 Revenue per employee for world airports.1 1.5 1.8 2. 1996–7 Profitability at Australian airports. 1979–2001 Traffic at Australian airports.4 1.1 Airport passengers by world region.3 2.7 2. 2000–01 Total factor productivity for world airports.2 2. 1999 Passenger survey results at Brisbane airport. 2001 The world’s 20 largest airports by international terminal passengers.2 1.6 4.4 3. 2000 External capital funding at small US hub airports.Figures 1.3 3. 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 .11 2. 2001 Airport aircraft movement by world region.1 2.4 2.14 3. 2001 Revenue per WLU for European airports.6 2. 2001 The world’s 20 largest airports by cargo tonnes. 2001 WLU per employee for European airports.5 3. 1994–2002 Percentage share of aeronautical revenue at ACI airports by world region. 1996–7 External capital funding at large US hub airports.

3 Concession revenue: Washington airports.9 Profitability – BAA.1 105 107 147 147 148 159 163 167 169 171 172 199 201 205 207 210 231 232 233 233 254 268 viii .5 Non-aeronautical revenue share (%) at European airports. 1998–2001 6.8 Revenue sources for BAA.6 Profitability – Aer Rianta. 1990–2002 8. 2001 6.1 Existing and planned rail links to airports 9. 1992–2000 6.1 Total passengers at Southampton airport.2 Average annual pax-km forecasts of main regional flows.4 Airport retail revenue per square metre in 2000/2001 6.2 Public transport usage by passengers to and from the airport. 1990–2002 7.2 Concession revenue: Brussels airport.2 Employment at European airports in 1996 8.1 Non-aeronautical revenue per passenger at ACI airports by world region.4 Mode of surface transport used by employees at London Heathrow airport in 1999 10.3 Employment at Gatwick airport in 1997 9. 2001 6. 2001 9. 1999–2001 7. 2001 6. 1999–2002 6. 2002–21 5.1 The economic impact of airports 8.Figures Aeronautical charges and taxes for an international B737–800 turnaround in 2002 at world airports 5.2 Total passengers at Norwich airport. 1990–2002 6.1 Airport passenger growth by world region since 11 September 2001 10.3 Mode of surface transport used by passengers at London Heathrow airport in 2001 9.7 Retail space at BAA UK airports.2 Landing and passenger charges as a share of total costs for UK airlines. 2000 6.

2002 6 20 22 24 25 29 31 33 44 50 55 56 58 58 64 76 79 80 81 83 84 86 87 .Tables 1.2 2.9 3.7 2. 2003 Traffic and profitability growth at main UK airports.6 4.4 3.3 3.3 4.1 2.6 2. 1983–2001 Revenue and cost structures at a selection of European airports.7 4.2 3.5 4.5 2.1 4.4 4.8 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. 2001–02 Airport operating revenue sources Average revenue and cost structures at European airports.8 2. 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. 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.3 2.2 4.1 3.4 2. 1995–2002 PlaneStation airports operated by Wiggins in 2003 Profitability for 30 major airport operators.5 4.1 2. 1987–2001 Privatization details of Australian airports TBI’s expansion into the airport business.

5 5.11 5.6 5. 2000–01 Short-term impact of the loss of intra-EU duty. 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.7 7. and social expenditure and savings at Heathrow airport. 1998–2001 Aer Rianta’s involvement in international retailing activities.2 6. 2001–02 Main aeronautical charges at airports New growth and new route discounts available at Aer Rianta airports.3: 5. 1998–2001 New route discounts available at Aer Rianta Airports 2001–03 on passenger. 2001–02 Static quality indicators at Brisbane airport.9 7.5 9. economic.3 6.3 7. 1994–9 on airport fees Discounts given to each airline at Aer Rianta airports.2 9. 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. 1999 Employment impacts at European and North American airports Economic impacts at Washington.and tax-free sales on airport revenues Changes in non-aeronautical revenue at UK airports.2 5.4: 5. 2000 Passenger profile at Norwich airport.4 7.6 7.1 5. landing.6 7. and Vienna airports Emission charges at Swedish airports in 2002 Targets and commitments – Heathrow airport surface access strategy. 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 7.6 9.8 5.5 6.9 4.7 Proposed service quality elements to be included in the regulation of BAA London airports Survey results of seven major airlines at Brisbane airport.1 6.4 9.1 8. Brisbane. 2002 Passenger profile at Southampton airport.5 7.7 5.4 6.10 6. 1998–2003 Elements of agreement between Ryanair and BSCA Main catchment areas of London City airport.10 8.1 9.3 9.1 7.Tables 4. 2002 Key environmental performance indicators at airports Environmental.8 7.10 4. Geneva.9 5.2 9.

5 10.4 10.1 10.6 10. 2002 IATA forecasts of international scheduled passengers Long-term forecasts of global traffic growth 247 255 257 258 258 260 262 267 267 xi .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.2 10.8 10.3 10. 2001–02 Funding of security at European airports.Tables 9.

Airports are now complex businesses requiring a range of business competencies and skills. the Iraq War. the outbreak of SARS and the continuing threat of terrorism.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. In addition to facing these important challenges airports have had to cope with the unparalleled consequences of the events of 11 September 2001. in the airport sector. they nevertheless have relevance to airport operators throughout the world. 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. rather than on the detailed operational and technical aspects. or is already working. Attitudes towards airports have changed dramatically as their role has shifted from that of public utility to that of a dynamic. 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. An international approach has been adopted reflecting the increasingly international nature of the industry. The aim of this book is to provide a comprehensive appreciation of the key management issues facing modern-day airport operators. commercially oriented business. commercial and planning areas at a strategic level. . The first edition of this book was published before these developments – hence the reason for this second edition. which has witnessed the fastest pace of change. While most of the case studies are from the developed world. The book uses material from a wide range of airports and has a very practical focus. Airport operators are no longer just operating within the scope of their national boundaries. By necessity the scope has to be very farreaching and so it cannot offer an in-depth treatment of every issue. and the whole industry is becoming global. The emphasis here is on the economic. The book provides an overview of all the key management challenges facing airports.

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. So many people have helped me over the years that it is difficult to name them all. as I struggled to write the book with numerous other deadlines approaching. Over the years at ACI-Europe. Edward Clayton from Hochtief Airport. Professor Brian Graham from the University of Ulster. I have learned much from their presentations and informal discussions. This book draws heavily upon these experiences. 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. John Riordan from the Bank of Ireland International Finance. Amongst the many other airport experts who have helped with this book I must give a special thanks to Wendy O’Connor. Nigel Mason from York Consulting. and with participants from airport management training programmes organized by the University.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. I am particularly grateful to Dr Nigel Dennis for his guidance and constructive advice. Thanks are also due to Paul Behnke at ACI. Hartmut-Ruediger Simon and Rolf Ewald from Dusseldorf Airport. Stan Maiden and Mike Toms from BAA plc. I have also benefited enormously from discussions with my own students. she spent much time and effort replying to my endless questions and searching out relevant documents. I would like to begin by thanking my colleagues at the University of Westminster for their continual support and encouragement. 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. as well as tolerance and patience. Jan Veldhuis from Amsterdam Aviation Economics and John Twigg from Manchester Airport. Stan Abrahams formerly from the UK Civil Aviation Authority. I have spent over 15 years undertaking research into airports and teaching about airport-related topics. I wish to express my . Thanks are due to all these people.

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. Special mention must go to Jason Vallint. my children. I am very appreciative of the support from my mother Barbara Miller. Trevor Eady from Norwich Airport. and to the Daswani family for their help and encouragement. Dr Brigitte Bolech from Vienna Airport. for always being there to look after my children when I tried to juggle writing and family life. I am very much indebted to many other airport financial professionals. who have tirelessly responded to my frequent requests for data over the years.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 am grateful as well to Dr Ian Humphreys at Loughborough University. In addition. Richard Lewin from Wiggins. I must thank all the staff at Butterworth. too numerous to mention individually. both of the Transport Research Laboratory. Finally. I am a novice at book writing and they have given me much helpful advice and assistance. with whom I spent long hours debating about the WLU concept. I must thank my family and friends for putting up with the disruption to their lives while I have been writing this book. Callum. and from the rest of the Miller family. who has shown a keen interest in my work and has provided an invaluable press-cutting service. xiv . A special thanks must go to Ian from the public library in Brighton.Heinemann. Professor Tae Oum from the University of British Columbia and Hans-Arthur Vogel from Fraport. and Peter Mackenzie-Williams. and Ewan. I owe a special debt of gratitude to Sandra Bollard. Ivo Favotto from URS Corporation. Lorna. I also very much appreciate the help given by Patrick Alexander from Southampton Airport. Above all.

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. tax. 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 .

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

out of the 20 largest global airports. The providers of services are just some of the airport stakeholders which operators need to consider. According to the Airports Council International (ACI). accounting for a further 31 per cent of the total traffic. North American airports handled 1 354 million passengers in 2001 which represented 43 per cent of the total 3 212 million passengers. For example. reflecting the importance of this area in the global economy. 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.1 Airport passengers by world region. and government bodies. The importance of the North American region is reflected in the individual traffic figures of the various airports. North America 43% Africa 2% Asia/Pacific 17% Middle East 2% Latin America 5% Europe 31% Figure 1.3). the airport industry is dominated by North America and Europe (Figures 1. 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. as ultimately this will largely determine the air services on offer at the airport. Globally. Others include shareholders. Typically. Each airport operator will thus have a unique identity – but all have to assume overall control and responsibility at the airport. government bodies. environmental lobbyists. airport users. management structure and style. 2 . All the stakeholder relationships will be important but. local residents. the actual airport operators themselves only provide a small proportion of an airport’s facilities and services. degree of autonomy.Managing Airports The focus of this book is on management issues facing airport operators. clearly. concessionaires. Asian/Pacific airports have the second highest volume of cargo with a global share of 27 per cent. and funding. and other specialist organizations. A complex situation exists with many of these groups having different interests and possibly holding conflicting views about the strategic role of the airport. the development of a good relationship with the airlines will be critical. The rest of these activities will be undertaken by airlines. 2001 Source: ACI. There were 994 million passengers in Europe. 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 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. handling agents. employees. As regards cargo.1–1.

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

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. 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. 2001 Source: ACI. 2001 Source: ACI.6 The world’s 20 largest airports by aircraft movements. 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 1.4 The world’s 20 largest airports by total passengers.5 The world’s 20 largest airports by cargo tonnes.

Initially most change was experienced within the airline sector as a consequence of airline deregulation. Table 1. deregulation has been achieved with a multilateral policy which has evolved over a number of years with the introduction of the three deregulation packages. but now this sector. At the same time. with the notable exception of those in the United States. Many more markets subsequently have been liberalized or deregulated. since the 1970s there have been major regulatory and structural developments. The trend towards airline deregulation began in 1978 with the deregulation of the US domestic market. The growth in demand for air transport has had very significant economic and environmental consequences for both the airline and airport industries. this situation has substantially changed as an increasing number of governments have opted for partial or totally private sector airline ownership. which has had major consequences for certain airports. partly due to deregulation and privatization trends. will undoubtedly be one of the major influences on the airport business. and 1993. Moreover. in 1987. primarily to reduce the burden on public sector expenditure and to encourage greater operating efficiency. The average annual growth was 6 per cent in the 1980s and 5 per cent in 1990s.7 The world’s 20 largest airports by international terminal passengers. This European deregulation has allowed a new low-cost airline industry to develop. The pace of change was slower in the airport industry. which have affected dramatically the way in which the two industries operate. 2000 Source: BAA.1 shows the growth at the major international airports of the world for the last 20 years. However. traditionally were state owned and often subsidized by their government owners. In some places this has been the result of the adoption of more liberal bilateral air service agreements. too. Most airlines.Introduction 60 000 Terminal passengers (thousands) 50 000 40 000 30 000 20 000 10 000 0 North America Europe Asia/Pacific Figure 1. which did not become fully operational until 1997. airline ownership patterns have changed. privatization and globalization trends. The 1993 package. as has occurred on a number of the North Atlantic and Pacific routes. 1990. 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 . It may been seen that most airports experienced a decline in traffic in 2001 with the largest decreases being in the United States. was the most significant package and has had the most farreaching impact. The other most significant development within the airline industry. In the European Union (EU). is developing into a fundamentally different business.

many other airlines are aligning themselves to these groupings with code-sharing.8 3.5 4.3 8. 3 Airport globalization.6 4. have emerged with global networks.5 7. the adoption of strategic partnerships or the introduction of private management contracts. These include share flotations.1 9.8 4.4 2. or other co-operative arrangements.0 6. franchising.2 Average Sources: ACI. oneworld.6 3.3 5. 2 Airport privatization.0 5.9 1. emergence of transnational airlines.8 2. Sky Team.1 7.0 4.4 8. to the private sector by a variety of methods.7 4.1 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. Three key developments have been witnessed within the airport sector: 1 Airport commercialization. namely Star.0 3.8 4.1 1.8 12.5 0.3 1.6 0. The airports have now found themselves being caught up in this environment of change.Managing Airports Table 1. These are dominating the airline business – accounting for two-thirds of all traffic.3 2.2 6.3 3.3 5.5 4.2 5.5 8. The transformation of an airport from a public utility to a commercial enterprise and the adoption of a more businesslike management philosophy.3 0.3 4. Moreover.7 6. Radical restructuring has occurred.2 6.4 3.8 8.3 5. Four major alliance groupings.6 8.8 3.9 2.4 5. BAA and annual accounts.4 7.1 6.0 5.5 6.6 10.1 5. and ‘Wings’.3 1. Some of these 6 . The emergence of a few global airport companies who are operating at an increasing number of airports around the world. which in many ways mirrors that which has fundamentally changed the airline industry.1 3.9 6.2 8. The transfer of the management of an airport.6 5.3 15. and in many cases the ownership as well.6 9.6 2.9 9.1 7.5 5.2 3.8 4.

Chapter 5 looks at this. hardly considered to be a relevant issue by many airports just a few years ago. is also becoming increasingly important. focusing primarily on airport charging. Finally. This book discusses the implications of the development of the airport sector. which is moving from an industry characterized by public sector ownership and national requirements. Chapter 2 describes the privatization and globalization processes that are taking place. into a new era of airport management which is dominated by the private sector and global players. as providing facilities to meet the needs of their users. occurring concurrently within both the airline and airport industries mean that the traditional airline–airport relationship has been irreversibly changed. regulation. Marketing. Airports are now complex enterprises that require a wide range of business competencies and skills – just as with any other industry. Chapter 7 considers airport marketing. which for so long has been a basic business competence in most other industries but ignored by many airports. Airport competition. and slots issues. 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. instead. The sweeping changes. Airports can no longer see their role simply as providers of infrastructure but. This role needs to be clearly understood if future growth in the airport industry is to continue. 7 . Chapter 9 goes on to consider the environmental impacts and ways in which airports are attempting to minimize the adverse effects. The concept of sustainability and environmental capacity is introduced.Introduction global players are traditional airport operators whereas others are new to airport management. Chapter 6 looks in detail at this area of operation. This is considered in Chapters 3 and 4. These developments are having a major impact on both economic performance and service provision. 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. 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 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.

Virtually all airports traditionally were owned by the public sector. for example. Madrid. and the passengers. Sydney. either at a regional or municipal level. local governments. The impact of such fundamental changes will be assessed from the point of view of the airport industry itself.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. Düsseldorf airport was jointly owned by the governments of North Rhine Westfalia state and the city of . and Johannesburg. This was the situation with most US airports. Elsewhere. London. In Germany. Copenhagen. 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. Singapore. Bangkok. Dublin. as were many other airports outside Europe such as those in Tokyo. and Geneva were all owned by national governments. Regional airports in the United Kingdom also followed this pattern. the airlines. were the airport owners. Stockholm. Manchester airport. European airports serving major cities such as Paris.

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

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

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

1998. 1997. ICAO. deregulation has encouraged growth. the changes within the airline industry have inevitably had a major impact on the airport sector. But what is meant by ‘airport privatization’? It can have various meanings. Less favourable employment conditions may be adopted and redundancies may occur. First. The theoretical arguments for and against privatization of publicly owned organizations. such as health and education. 12 . It will reduce government control and may increase an organization’s ability to diversify. Within this context. delivers poor standards of service. Airports have shown that they have the proven ability to meet private sector requirements – albeit from a rather protected position in many cases. and in many cases the ownership as well. Beesley. greater competition and wider share ownership. 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. In its broadest sense. In some markets. From one viewpoint. 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. 2000a). 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 1990s were the decade when airport privatization became a reality.Managing Airports Why privatization? While the 1970s and 1980s were dominated by airport commercialization. At the same time. airport privatization can be seen as just an evolutionary stage of airport development. to the private sector. invests inadequately and gives insufficient consideration to externalities such as controlling environmental impacts and maintaining social justice. On the other hand. see Jackson and Price.g. Privatization will reduce the need for public sector investment and free access to commercial markets. particularly when a share flotation is being considered. it may create a private monopoly which overcharges. The current airport capacity cannot cope with this growth. 1994. the demand for air transport has continued to grow and is predicted to grow well into the future. Moreover. Freathy and O’Connell. airport privatization has been seen as a way of injecting additional finance into the airport system to pay for future investment. They have been fiercely debated over the years and are well documented (e. it is usually associated with the transfer of the management of an airport. 1997). Airports have evolved from public sector utilities to commercial enterprises and privatization can be considered as commercialization taken to its limits. notably Europe and North America. namely public sector funds. but what is certain is that some additional infrastructure will have to be built. are well known. one of the major traditional sources of airport financing. Increased commercialization has brought about healthy profits and market-oriented management. It may bring about improved efficiency. 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. Whether all this demand can or should be provided for is debatable.

The business units were required to make profits while the service units were there to provide services in the most cost-effective manner. where competition can more easily be encouraged. 1995). New planning and management procedures were introduced and the airport began to proactively market itself to airlines. transferring airports which are considered to be national or regional assets to the private sector remains a politically sensitive policy. and finance and accounting) and central offices (such as legal affairs. safety and security. which are run on a very commercial basis but have no desire to become totally private organizations. airport ownership and control is always likely to be a controversial area. communications and environment. does not make sense.The changing nature of airports However. To some opponents. the privatization of airports. It set up business units or customer divisions separately for airlines and passengers. Unlike the situation with the airlines. and cargo facilities and by 1978 was handling 2. During this time. air transport ‘operators’. The fear is that priority will be given to shareholders or investors and that user and community needs will be neglected. A new functional organization structure with main departments of airport traffic operation. Views about privatization vary considerably in different regions of the world.9 million passengers and had begun to pay dividends to its three public sector shareholders. Between 1978 and 1985. airports have a greater tendency to be natural monopolies which cannot be duplicated. planning and construction. financial/accounting. 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. passenger terminal. the authority was being run very much as a public utility. maintenance and technical service. the airport authority went through a major organizational restructuring which meant that the airport began to be considered much more as a business enterprise. human resources). As a result the airport made a profit for the first time in 1979 and has remained in profit ever since. making losses and receiving subsidies from the public sector owners (Gangl.8 million passengers. such as Manchester in the United Kingdom. the city of Vienna (25 per cent) and province of Lower Austria (25 per cent). in different countries and even between local and central government bodies in individual countries.The shareholders were the Federal Republic of Austria (50 per cent). As a result. In the next two decades. and administration was set up. In the late 1980s. maintenance and infrastructure services. 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. which is in effect the air transport ‘infrastructure’. the airport was handling 3. that is. and supported these with service divisions (such as construction. Management practices with greater emphasis on 13 . the airport embarked on major expansion projects of the runway. The inherently monopolistic position of many airports will also continue to be of concern to politicians and airport users. commercialization does by no means always have to lead to privatization and there are a number of examples of airports. By 1985. For many countries.

On the other hand.4).2 billion proceeds itself. Germany. 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 success of the flotation meant that the Austrian government opted to sell half its remaining 36. Eventually.6 per cent (Figure 2.5 per cent stake in the airport in a secondary offering in 1995 – this time retaining the AS2.The sale brought in AS1. the public shareholding in the company was reduced to 40 per cent. the United Kingdom. airline and terminal services. The realistic options were either raising the money through loans/bonds or raising equity on the capital markets. and training programmes focused on customer orientation and effective business practices. and increasing the share capital by 50 per cent. marketing and service quality provision (Gangl. and handling services) and non-aviation units (consumer services. land development and real estate) both being supported by central services. Japan. In spite of the poor stock market conditions. This gave private shareholders 47 per cent of the airport.and long-term loans as well as bonds were high. were set up. and then further debt requirements. 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. A comprehensive management information system (MIS) was launched. and road shows in areas such as Austria. was in a poor trading situation. Attention was also given to developing the nonaeronautical side of the business. which was used by the airport company to partly finance its expansion plans. In order to be floated on the stock exchange. like most others throughout the world. This included changing the corporate status from a limited liability company to a joint stock company. the airport authority had to implement a number of very significant changes. technical services. which was planned in 2000. the flotation or initial public offering (IPO) took place in June 1992 and was oversubscribed three times in Austria and five times internationally.5). this arrangement was terminated in 1998 (Figures 2. the airport decided on a share flotation for 1992. the airport handled 11.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. advertising. 1994). 1998). Employee shareacquisition programmes and investor relations programmes were set up and sales support undertaken through marketing. Since the first year of profits in 1978. Switzerland. and Taiwan. the Vienna stock market. such as retail and catering. This was primarily because it did not want the large loan servicing costs right through until the next capacity expansion.9 million passengers the same number as in 2000 due to the decline in traffic 14 . 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. In 1995. Business appraisals for valuing the company were undertaken and consultations held with capital market analysts. However. In 2001. Budget constraints meant that increasing the equity of the public shareholders was out of the question.8 billion. which followed a share buy-back in 2000 that resulted in 10 per cent of shares being placed in an employee foundation.The organizational structure was further refined to be more customer focused. 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.1–2. In 2001. At that time Austrian interest rates for medium. with aviation units (airside services.

1 Ownership of Vienna airport up until 1992 Source: Annual report. since 11 September in that year. Private shareholders 48% Amsterdam airport 1% City of Vienna 17% Province of lower Austria 17% Federal republic of Austria 17% Figure 2.9 per cent.6) with a decline of 2. During the same period revenues have grown by 8. 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 13.2 Ownership of Vienna airport after IPO in 1992 Source: Annual report.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 . In 2000 profit was up by 4 per cent but it declined by 8.5 per cent in 2001.7 per annum (Figure 2.3 Ownership of Vienna airport after secondary offering in 1995 Source: Annual report. Private shareholders 27% City of Vienna 37% Federal republic of Austria 18% Province of lower Austria 18% Figure 2.

Figure 2.5 Total passengers at Vienna airport.6 Total revenues – Vienna Airport Group. 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 . 1979–2001 Source: Annual reports. 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. 1979–2001 Source: Annual reports.Managing Airports Private shareholders 50% Employee foundation 10% City of Vienna 20% Province of lower Austria 20% Figure 2.4 Ownership of Vienna airport after changes in 2001 Source: Annual report.

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

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

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

may find it hard not to become preoccupied with the share price. 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. However. the European Court of Justice declared this type of shareholding to be illegal in 2003 because it prevents capital movements within the EU. Even when total privatization takes place. All the trade sales which took place in the 1990s involved strategic partners rather than just passive investors. The airport company will have to get used to daily scrutiny of its financial performance by its shareholders and other investors and.5% IPO 51. Trade sale With this option.Managing Airports Table 2. which may not be the situation in certain areas of. 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. For instance. issuing shares to employees may give them an incentive and make them feel move involved in the affairs of the airport company. This meant that the management 20 . as with BAA plc.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. as a consequence. for example. limits can be placed on the maximum shareholding. To prevent domination by any individual shareholder. Fully developed capital markets also need to be in existence.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. some or all of the airport will be sold to a trade partner or consortium of investors. the airport company will be required to have a track record of minimum profits to make the airport attractive enough to investors. However. airport. as with the IPO of 27 per cent at Vienna airport. South America and Africa. or can go directly to the government. Source: Compiled by author from various sources. Airports not performing well clearly would find it hard to be successfully privatized in this way. In order to be floated on the stock market.

the Milan 21 . Santa Cruz. Elsewhere in Europe. Another example is the 30-year concession for the 33 Argentinian airports. which owns Amsterdam airports. and Naples airports have also been partially privatized through a trade sale. In many of these cases. For example. Aeroportuertos Argentinos 2000. such as East Midlands. Concession With this type of arrangement. which it wants to develop as an alternative venue for freight activities. and Humberside airports. 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. Cardiff. 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. an airport management company. The most notable example here is the Australian airports. Newcastle. Similarly the government owned Schiphol group. With most of the Australian airport sales. was sold to British Aerospace (Table 2. The ACSA owns and manages nine South African airports including the three major international airports of Johannesburg. 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. Airports Group International. Düsseldorf. Aer Rianta Irish Airports. which was awarded to the consortium. 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. the strategic partner is an established airport operator or the purchasing consortium will contain a member with airport management experience. which is a public corporation. there was an airport interest within the successful consortia. namely La Paz. and Düsseldorf airports. One of the earliest concession arrangements were agreed in 1997 for the three main airports of Bolivia. Hanover. Two-thirds of Wellington airport in New Zealand has been sold through a trade sale. 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. a strategic partner has been brought in through a partial sale. an airport management company or consortium will purchase a concession or lease to operate the ‘privatized’ airport for a defined period of time.2). Privatization has been discussed for both these airport groups but has not yet occurred. The first significant trade sale was in 1990 when 76 per cent of Liverpool airport. 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. SEA.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. previously owned by local government. the majority of which have been sold on long-term leases (50 years with a further possible option of 49 years) to different consortia. and Cape Town. Bournemouth. In the case of Birmingham. and Cochabamba. Aeroports de Paris has a 25 per cent share of Liège airport in Belgium. For example. which has among its partners. Durban. Subsequently a number of other UK airports. commonly between 20 and 30 years. Outside Europe. has been successfully involved in the partial privatization of Birmingham. Hamburg.

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. b Ninety-nine-year lease. 22 . The consortium has agreed to pay an annual US$171 million a year for the first 5 years of the agreement. After that time. with over US$800 million being spent in the first five years. airport company. primarily at the two Buenos Aires airports (Gray.Managing Airports Table 2. 1998). The consortium has also agreed to invest US$2.1 billion at the airports in the 30 years. 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. and Ogden. Melbourne. the concession fee will be related to traffic growth. the airport services company.

a company will usually build or redevelop and then operate an airport or specific facility. There are a number of project finance privatization methods with the most popular being build–operate–transfer (BOT) when. Chile. rather than a flotation or trade sale. for a certain length of time. in South America where a number of concession arrangements were negotiated in the late 1990s. such as a terminal. and AGI (which was subsequently bought by TBI in 1999) was given the 30-year concession to run the airport in 1998. the company will build the facility. The situation is rather different in Mexico where the country’s 58 airports have been divided into four groups. Barclays have subsequently sold off their interest in this airport. Bechtel Enterprises. A concessionaire-type arrangement was chosen. and then transfer ownership back to the government. 1998). This has proved more politically acceptable in some countries. 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. the company will have to cover the operating costs but will also retain all revenues until the facility is handed back. 15 per cent of the Pacific Group of twelve airports was sold to a consortium with AENA. the concessionaire will take full economic risk and will be responsible for all operations and future investment. build–rent–transfer (BRT). since the local government owners had promised not to relinquish total control of this publicly owned asset to private hands. as a key partner. Thus. and the Mexico City Group. the airport company will take full economic risk for investment and operations. 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. Other options may actually involve the ownership of the facility such as build–own–operate–transfer (BOOT) 23 . the Southeast Group. Here. an identical share of the North Central Group was sold to an AdP consortium. the government owner will have a greater degree of control than with an outright sale. a consortium originally consisting of Barclays Investment. the Pacific Group. This arrangement involves paying an initial annual concession fee of US$19 million which will increase as passenger traffic grows (Communique Airport Business. Since the privatized airport will only be handed over for a fixed period of time. Uruquay. There will be a strategic partner with each group. 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. namely the North-Central Group. Costa Rica. for example. In 2000. and Tanzania (Table 2. Other similar models include build–transfer (BT). In 1999. Project finance privatization With this option. as the name suggests. with this type of arrangement. 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. Concession contracts have been awarded or are planned for each group for an initial 15-year period with an underlying 50-year agreement. At the end of this period. In 1998. Cintra. ownership will revert back to the government owners. Peru. or design– construct– manage–finance (DCMF). When it is built. Other countries which have concession agreements for their airports include the Dominican Republic. the Spanish airport group.The changing nature of airports Generally.3). At Luton airport in the United Kingdom. operate it for a certain length of time. 1999).

c Fifteen-year contract but underlying 50-year concession. b . 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.Table 2. Santa Cruz.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. Source: Compiled by author from various sources. The ASUR company which operates the South East Mexican airports was subsequently floated on the stock market in 2000.

British Airways (21. This terminal is now a fully owned and managed facility of Birmingham International Airport plc. 1999).The changing nature of airports or rehabilitate–own–transfer (ROT) projects. however.9 per cent) (Lambert. Another example of a BOT project was the international passenger Terminal 3 at Ninoy Aquino International Airport in Manila. and Frankfurt airport. are often referred to by the generic term BOT (Ashford. 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. The consortium which was involved with this twenty Table 2. All these methods. 1995). National Car Parks (21. Athens International Airport SA (AIA). Pearson International Airport which was developed as a BOT project by Huang and Danczkay and Lockheed Air Terminals (Ashford and Moore. This was the first project finance model of its kind in the Asia/Pacific region. The Greek government holds 55 per cent of the shares in the new company. The new Athens airport at Spata Eleftherios Venizelos was built under a 30-year BOT arrangement. National Car Parks 55% Greek state. One of the first major projects of this type was Terminal 3 at Toronto’s Lester B.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. which is being led by the German construction company.4 per cent). Elsewhere. 1999). the international terminals at airports such as Budapest and New York JFK are all being developed through BOT projects (Table 2. and John Laing Holdings (11. British Airways.4 per cent).4). The remaining share 45 per cent share belongs to an international consortium.3 per cent). Hochtief. 25 . 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). Forte (6 per cent). local authorities (14. 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.

may be seen as too great a risk. Bordeaux airport has contracts in Togo and Mauritania. BAA plc. Such arrangements can cover all airport operations or just one aspect. from 1987. such as retail. The contractor will pay an annual management fee. whereas for the contractor such an arrangement may be attractive in countries where greater financial exposure. for example. while very little state influence may remain after an airport company has been floated on the stock market or sold to a strategic partner. this company merged with the public company operating the rest of the airport to become the Brussels International Airport Company. Hamburg. Beirut. 1999). the Irish operator has retail contracts at various airports including Greece. and Canada. Chapter 5 explains in detail the type of regulation introduced and the rationale behind it. Vancouver Airport Services (YVRAS) has contracts with the main Bermuda airport. the Cook Islands and the Turks and Caicos Islands. the Philippine International Air Terminals Co. AdP has management contracts in Cameroon and Madagascar. Aer Rianta. For the government owner this may be politically more acceptable. More common is for European airports to have management contracts in other areas of the world. 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.Managing Airports five year project. for example. usually related to the performance of the airport. through a trade sale. This has occurred. The Spanish airport company. at BAA plc London airports. AENA. For example. Competition issues The amount of influence that a government can exert over a private airport clearly depends upon the type of privatization model chosen. (PIATCO) was led by Fraport which actually withdrew from the project in 2003. has management contracts for Cayo Coco airport in Cuba and three major airports in Columbia. Russia. 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. A government may hold on to a considerable amount of control if a management or private finance contract is chosen. Cyprus. Qatar. Syria. Therefore economic regulation has been introduced at a number of airports when the privatization process has taken place. Elsewhere. 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. Pakistan. has a general management contract at Indianapolis airport in the United States and in Mauritius and has retail contracts with Pittsburgh and Boston. In 1998. while AGI (now TBI) has management contracts at some US airports such as Burbeck and Albany. the terminal of Brussels airport was under a management contract to a private company. Bahrain. 26 . for instance. the Brussels Airport Terminal Company. Within Europe. Vienna. Kuwait. however. and some of the Australian and South American airports. and Marseilles airport has an involvement with the airports in Gabon and Côte d’Ivoire (Carre.

2000b). Glasgow. the government had to amend its plans to privatize Narita. was sold off as a single entity in 1987. 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.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. and Stansted airports in the South East and Aberdeen. Interestingly. This was the case with the Australian airports and also in a number of South American countries prior to privatization. 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. and Cork – and is likely to be privatized in the early 2000s. while in Mexico the airports have been divided into four different groups. which owns three airports – Dublin. all 33 Argentinian airports are covered under the same concession agreements. 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. although the extent of competition which exists between airports in a group is always debatable. owning London Heathrow. Over the years. selling off airports in this manner may inhibit competition. 27 . In response. 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. and if generally this group as a whole has a good financial track record. a few years after BAA plc privatization. After a long debate in the United Kingdom. BAA plc. However. In India. Unsurprisingly. airports often argue that they are making best use of resources and expertise by operating as an airport group. Airlines tend to be suspicious of airport groups. In Australia. This was an interesting example as BAA plc airports in London were in many ways in direct competition with each other. and a new airport in Central Japan near Nagoya as an airport group. In South America. If the airport group is sold as a single entity. In Japan in 2002. Restrictions were imposed to stop the same operator from having overall control at a number of airports. In addition. the government decided on individual privatizations for the major international airports but with packages of some of the smaller ones. a higher sale price may be achieved – primarily because of the lack of perceived competition from other airport operators. Edinburgh. 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 sale proceeds from the group privatization was much higher than would have been achieved otherwise. Shannon. Gatwick. the Irish airport company. and Prestwick airports in Scotland. 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. Kansai.

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

Source: Compiled by author from various sources. 29 .The changing nature of airports Ownership patterns at maina UK airports. which an increasing number of airports had no choice but to adopt. e The private investors have a 30-year concession contract. which was very much ideologically attracted to the transfer of public service to the private sector whenever possible. Ownership remains with the local authorities. investment and. 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 2.5 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. c Privatization was planned for 2003. a All airports with more than 100 000 annual passengers. b Nine airports including Inverness and Sumburgh with over 100 000 passengers. Political pressures from a Conservative central government. undoubtedly played a major role. the government announced that there would be no further spending allocation for airports. d Eighty-three per cent share is held by Manchester airport which is under local authority ownership. not necessarily the first private sector owner. The only alternative for airports that wished to invest was privatization. the table shows the most recent owner. in 1993.

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. Liverpool. From April 1999. There are also a small number of other airports in the United Kingdom which have had a different history. This enabled Manchester to purchase 83 per cent of the nearby Humberside airport soon afterwards. Highlands and Islands Airports Ltd. recorded a loss before depreciation and interest (results after depreciation charges were not available) (Table 2. this situation changed with legislation introduced to allow for the larger profitable regional airports which were still in local governments hands (Manchester.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. Its public sector status. The relatively newly developed London City. London Stansted. Leeds-Bradford. Manchester is one such airport and financed the whole of its second runway project from retained profits. 1998). and Stansted airports.Thus. Newcastle. Some of the privatized airports have performed better than those remaining in public sector ownership. however. operates nine airports in Scotland with the help of a government subsidy. it is difficult at this relatively early stage to draw any conclusions as to whether privatization. 30 . Belfast City. 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.6). has indeed improved efficiency. By 2000. Traffic has grown substantially at all these airports over these years. while others have not. Most of the smaller regional airports in the United Kingdom remain under public sector ownership. it may be seen that a number of airports. Humberside. 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. a state-owned company. 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. and Norwich) to be able to borrow money on the open market (DETR. 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. however. and Sheffield City airports have always been in private hands.Managing Airports Various airports have chosen full privatization through a trade sale to a strategic partner. Looking back to 1986 before the Airports Act. Bristol. such as Exeter. means that it has not been free to expand internationally on equal terms with competing private airports. all airports were in a profitable situation with the exception of Liverpool and the Highland and Islands Airports. and Bournemouth. Cardiff. 1999). and Prestwick. such as East Midlands. Liverpool. Norwich. Belfast International was privatized by means of a management buyout in 1994 and was subsequently sold to TBI in 1996. in addition to providing a new investment opportunity. 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.

Centre for Regulated Industries (CRI). 1985–6 data. BAA.The changing nature of airports Traffic and profitability growth at maina UK airports. 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. The FAC corporate office undertook various central services and imposed a common charging policy on its airports. most of Australia’s airports were operated by the stateowned Federal Airports Corporation (FAC). 1987–2001 Total passengers (thousands) 1986–7 2000–01 Profit before depreciation. and annual accounts. Discussions relating to the privatization of the FAC began in the early 1990s with a firm decision to privatize being made in 1996. the FAC operated 22 airports and handled over 60 million passengers annually. interest. At the beginning of 1997. Source: Chartered Institute of Public Finance and Accountancy (CIPFA). b Australia: a phased privatization process Between 1988 and 1997. 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 .6 Airport Notes: a All airports with more than 100 000 annual passengers.

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. efficiency and competition were fiercely debated. 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. the privatized airports were initially price regulated. Political factors played a key role. Issues relating to the national interest.Managing Airports individually. As in the United Kingdom. In addition.7 and 2. were sold in 1997. three airports. 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. 1999). they are required 25 Alice springs includes Tennant Creek. with a further option for 49 years. 120 100 EBIT (A$million) 80 60 40 20 0 Sydney Melbourne Alice springs includes Tennant Creek. 1996–7 Source: Annual accounts. particularly as government forecasts had shown that separate sales would generate more income (Knibb. Potential buyers had to have a majority Australian interest and airport management experience.8).7 Traffic at Australian airports. Eventually. these three airports were the most profitable airports in the FAC system and they handled the most traffic (Figures 2. 1996–7 Source: Annual report. it was decided that the airports would be leased off individually on long-term 50-year leases. In phase 1 of the privatization process. namely Melbourne. and Perth. 32 . Brisbane. After Sydney.8 Profitability at Australian airports.

Vienna. Macquarie Airport Group.7). Aer Rianta. 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. Parafield Airport Ltd (Unisuper. Amsterdam and AGI were each partners in winning consortia (Table 2.7 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. Deutsche Asset Management and Hastings Fund) Westralia Airports Corporation Ltd (AGI. Hochtief.They also had to provide development guarantees by preparing five-yearly master plans and pledging a certain sum for investment. A number of airport companies were interested in operating the Australian airports including BAA plc. Serco and others) Hobart International Airport Corporation (AGI. AMP. and AGI. Manchester. Hobart Ports. John Laing. Port of Brisbane and others) Australia Pacific Airports Pty Ltd (BAA. 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. 33 . Commonwealth Investments. Infratil) Adelaide Airport Ltd. AMP. Amsterdam. National Express. As previously mentioned. Hastings Fund. and others) Northern Territories Airports Ltd (AGI/Infratil) Archerfield Airport Corporation Ltd (Miengrove Pty) Capital Airports Group (local company) Gold Coast Airport Ltd (Unisuper.The changing nature of airports to undertake quality of service monitoring and to provide evidence of this to the regulator. Hambros) Jandakot Airport Holdings (property investors and former FAC employees) Australia Pacific Airports Pty Ltd (BAA. Macquarie Airport Group. In the end BAA plc. the EV/EBITDA multiples Table 2. Serco.

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

The PFC and AIP were raised in value in 2000 but shortfalls in investment funds are still thought to exist.The changing nature of airports Airline approval would be needed. already have access to the commercial bond markets. Funding is also available from passenger facility charges (PFCs) which are generated by the passengers at individual airport. and all the major ones.9 and 2. the airports are funded through a mixture of private and public funds. 2000 PFCs 16% State 4% Other 4% Bonds 39% AIP 37% Figure 2. though.10 External capital funding at small US hub airports. as elsewhere where airport funding has become an issue. 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. Second.10). 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. the privatization of John Wayne Airport in California’s Orange County was discussed as part of the solution to the county’s bankruptcy (Poole. 1995). if privatization were to take place. In the United States. 2000 35 . Inevitably. and from grants from the Airport Improvement Program (AIP) which comes from the federal government’s Aviation Trust Fund. However. 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. financed primarily by a national passenger tax.9 External capital funding at large US hub airports. therefore. Most airports. it is not an easy process. 1999). privatization has been considered as an option. In 1995. with airports being seen as a popular investment particularly because of their tax-exempt status due to their public ownership. 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.

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

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

and the city of Rotterdam (2 per cent). self-sufficient business.Managing Airports companies tend to play a major role. The shares are held by the state of the Netherlands (76 per cent).11 Total passengers at Amsterdam airport. Since 1958 the company has operated as an independent. (Note: accounting practices changed in 1999) 38 . 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 reports. The Schiphol Group: attempting to expand from Amsterdam airport to a global airport company The Schiphol Group is a publicly owned company. 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.2 million tonnes of freight. In the last 12 years. In 2001.12 Profitability – Schiphol Group. it handled 40 million passengers and 1. the city of Amsterdam (22 per cent). 1989–2001 Source: Annual accounts. Figure 2. However. because of the unique situation of US airports.

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

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. 2002 .

It wants to market this concept internationally. 1999b). Moreover. Perth. Parchim and Lahr (Germany). and Ajman (UAE). although a government decision at the end of 1999 confirmed that the airport would be allowed to expand at a controlled pace (Schiphol Group. 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. it became the first airport company to take a shareholding in another company. In the same year. Sweden. It has worked with Brussels International Airport Company to develop a new flight information system and with other information technology projects. 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. The airports consider that synergies in airport operations and combined financial strength will help in the acquisition of further international airports (Schiphol Group. Infratil. there is uncertainty about long-term growth at Amsterdam airport. called Establishing a Network for European Airports (ENEA) expressed interest in gaining a share in the Aeroporti di Roma company. It is particularly keen to develop alliances with other airports to optimize management skills and knowledge (Schiphol Group. 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. New airport operators The other organizations which have taken advantage of the privatization trend to become airport management companies are quite varied. handling and cargo. and North America. and Wellington airports. 2000). communication and business activities. This consortium. However. it formed the Pantares alliance with Frankfurt airport (Fraport) and started looking at co-operation in areas such as information technology. for example. and property development. with the aim of sharing expertise. 1999a). and Wiggins which owns the Manston airport in the United Kingdom. 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. 2002). Borgond (Hungary). and manages further small airports in Odense (Denmark). The other key issue for the group is its public ownership. 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. In 1995. retail. Cuneo (Italy).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. property development. They include property developers such as TBI (which took over AGI in 1999) which has interests in airports in the United Kingdom. In 2000. Hochtief which has interests 41 . has involvement with Prestwick. Pilsen (Czech Republic). and international activities. cost efficiency. the government stated that in principle it was in favour of privatization and the company began to prepare for privatization. in the areas of retail performance. hotels and recreation. but was subsequently unsuccessful. There are also traditional construction companies such as Vinci which has a close partnership with AdP on international projects. and information. 1 per cent in Vienna airport. The utility and property company.

EasyJet. UK transport operators Firstgroup and Stagecoach also each owned one UK airport in the late 1990s but have now sold these.5 million to be paid when certain goals 42 . It first became involved with airports when it bought Cardiff International. which has developed services out of London Luton airport.5 million for the airport with a further US$6. Skavsta airport is a small airport about 100 km south of Stockholm. Lima airport in Peru and San Jose airport in Costa Rica. Finally. based at Dublin airport has also proposed building its own low-cost terminal. 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. and Niagara Falls airport. and Stewart International until 2001 when it sold its UK airports to concentrate on other transport activities. Its first airport acquisition outside of the United Kingdom was in 1997 when it purchased Orlando Sanford International. which was handling around 2 million passengers. Low cost carriers have also expressed an interest in running their own facilities in order to keep the service simple and keep down costs. 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. TBI: from property management to global airport operations TBI began life as a Wales-based property company. there would be a number of regulatory and competition issues which would need to be considered. and Rome airports.TBI initially paid US$27. There has been considerable discussion as to whether airlines could buy and operate airports. most notably National Express which had interests in East Midlands. Hamburg. the third busiest international airport in Florida. an airport handling around 1 million passengers. Berlin. Further expansion into the airport business occurred in June 1998. unsuccessfully tried to buy the airport when it was up for sale. such practice is rare. Elsewhere. In the United States. Birmingham. Sydney. when TBI acquired 90 per cent of Stockholm Skavsta airport in Sweden. Thomas Bailey Investment. 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. in April 1995 from the local government owners. Bournemouth.Managing Airports in Athens. It subsequently went on to buy Belfast International Airport. airlines already partially or totally lease terminals and in Australia the domestic terminals are leased to the domestic carriers. Bristol. in August 1996 from the management owners. An unusual example is the Birmingham Eurohub which was partially financed by British Airways (BA). there have been transport companies. Then there are international financial investors such as Macquarie Bank which is involved with Bristol. It was listed on the stock exchange in 1994. This means that the airlines get exclusive rights to parts of the terminal and/or they may receive substantial discounts on usage. handling just under 1 million passengers. and Düsseldorf airports and Cintra which has involvement in the Mexican airports. Another construction company Bechtel has teamed up with Singapore Changi airport to form Alterra Partners which has an interest in Luton airport. At all three airports it embarked on major capital investment programmes. Ryanair.

Then in September 1999.25 million when both goals are achieved (Graham. At around the same time as the AGI acquisition.5 million when passengers numbers exceed 600 000. 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. These goals relate to passenger and freight throughout.8).5 million paid upfront and the rest in annual payments. Airports Group International had involvement with 29 airports worldwide when it was acquired by TBI. Perth. Tennant Creek. it acquired Airports Group International (AGI) for £86 million (TBI. for the international concourse at Atlanta Hartsfield and for the small airports of Burbank airport in California and Albany airport. Santa Cruz.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. flying mostly on lowcost carriers and charter.14). Finally. TBI has subsequently gone on to expand its business further. In June 1999. 2000). a 20-year management contract was agreed for Juan Santamaria International Airport in Costa Rica which served around 2 million passengers. At a number of other US airports it had contracts for handling and other airport services. 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.TBI owns 82 per cent of the equity in management company. Consorcio AGI. 1999). 1999). New York. 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.The annual payments are matched by Federal Aviation Authority and Florida Department of Transportation funding (Orlando Sanford Airport Authority. Its turnover and profit before interest and tax has increased by 40 and 30 per cent. US$2. namely US$2. Acquiring AGI changed TBI into a company which had controlling equity shares at seven airports. Alice Springs. approval was given to TBI for a 30-year management contract to operate Orlando Sanford airport’s domestic terminal. AGI was a large private airport operating company backed by the US financier George Soros. and 25 000 tonnes of freight (ACI Europe. 1998). 1999). per annum (Figure 2. there were 213 000 passengers. In 1998. it had management contracts for Terminal 3 at Toronto Pearson International airport. By 1997–8. and GE Capital. 2000). In November 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.5 million when freight exceeds 71 120 tonnes and US$1. and Cochabamba airports in Bolivian airports. Bechtel. In North America.The changing nature of airports are achieved. 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. non-controlling equity shares at another six and contracts to manage or to provide services at another 24 locations (TBI. AGI had a 25 per cent equity share in the concession consortium which was managing Luton airport. This meant that its stock market classification was changed from property to transport. respectively. Lockheed Martin. 43 . and Hobart) and equity interests in a concession contract for La Paz. 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. It had equity shares in a number of Australian airports (Darwin.

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. 44 .14 Financial results of TBI. 2002). 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. Perth and Northern Territories) Acquisition of controlling share (71%) of Luton airport 2001 Source: Compiled by author from various sources. however. 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. The disposal of the property business in 1999 meant that subsequently nearly all profits in that year were airport related. £21 million profits came from airports while £17 million came from property. Bolivia.8 Date 1995 1996 1997 1998 1999 TBI’s expansion into the airport business.The gap widened in 1998–9 with £24 million from airport profit and only £14 million from property. 2001.Managing Airports Table 2. 1994–2002 Source: Annual reports. TBI’s financial position remained relatively strong in 2001–02 in spite of the events of 11 September.

. This may be hard to achieve for some of the large state-owned European airport operators. the tender authorities may stipulate the type of expertise required in the consortia. surface access planning and co-ordination. for example. marketing expertise in meeting the needs of airlines. These include skills in the management and development of retail and other commercial facilities. in Australia previous aviation management experience was required and in Mexico a major local partner was essential. in this modern age of airport management. Why go global? Globalization is a dominant trend within the world’s economy bringing cost savings. If the airport company is to compete within the global airport industry. 2002). 1998. In any bidding process there is always considerable debate as to the best mix of partners. It must be able to achieve success and add value at the new airport. For example. and competence in quality management techniques. In addition. 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. passenger and other customers. skills in running the airport as a business as well as operational expertise are equally as important. quasi-monopolistic position by serving the capital city of the country. To be successful. and technological development opportunities to 45 . Gangl. it will need to be competent in bid and project management. The core competencies in traditional airport operations are familiar to any airport manager. cost control and optimizing organization and productivity. these core skills will have to be adapted for an airport perhaps in another part of the world. In some cases. Nichols et al. consortia formulation and management. 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. in Australia and South America. (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. which may operate within a different competitive environment and regulatory regime. In addition. and bid preparation and negotiation. In order to take advantage of these new opportunities it will also have to have expertise in change management and global business skills. are being controlled by various consortia partners rather than individual companies.The changing nature of airports Skills needed to become a global airport player For a traditional airport company to become a global player. security and safety operations. and master planning. 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. They include overall management of the airfield and terminal areas. marketing advantages. which may involve identifying new opportunities and marketing and developing new business. which have always held a rather privileged. This means that it will need to have skills in investment evaluation and business planning. facility and utility management. Many of the airports that have been privatized.

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

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

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. The merits of branding within the airport industry. 3 Facility management: purchasing. 2000): 1 Aviation ground services: ground and cargo handling logistic systems. however. 2000. 2 Retail and passengers: retail business at home and international airports. and the alliance is operating a new logistics centre. product and technology development. marketing. encouraged by the heightened security requirements because of 11 September. 4 Real estate: site development at home and other airports. 6 International projects: privatization projects. financial risk sharing. 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. Examples of this have existed for many years with national airport groups. For international or global airport companies. 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. Other examples of co-operation include Schiphol assisting Fraport to improve its spend per passenger in the commercial areas. Pantares Systems to serve the information technology and communications needs of the two organizations and to offer related services outside the alliance. 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. environmental issues. From the airport operator’s point of view. Most passengers. For example. 5 Information technology: system and equipment standardization. e-business and intermodal strategies. 2002). BAA plc has traditionally used a common and constant brand image for its seven UK airports. project management. 7 Other: marketing. The companies have also formed a joint venture company. marketing. Since Pantares was established Fraport has taken a share in Brisbane airport. are.Managing Airports areas where co-operation seemed possible (Endler. Much of the focus in this area. project management and technical services. 2001. Tradeport. Verboom. bidding for international projects. 48 . colour schemes and interior design for the entire airport. bidding for international projects. As part of the alliance partnership. however very questionable. standardization of equipment and technology. the airports have agreed not to compete against each other on international contracts. branding involves the use of similar signposting. 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. at Hong Kong airport. research. particularly leisure passengers who travel infrequently. training and recruitment.

the International Air Transport Association (IATA). 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. with the Argentinian airports the airlines have claimed that there have been unreasonable increases in charges in the non-regulated areas such baggage handling. It is in favour of such developments if the resultant lower costs bring lower charges. 2000b). 2001). standard contracts could be agreed for the whole airport network. Moreover. check-in desks and other office space. quantity discounts on charging could be negotiated and there could be common agreements on the use of gates and other facilities. For example. such as landing and passenger fees. However. For instance. An additional fear is that sophisticated systems not really necessary for certain smaller airports may be adopted merely because they are available (IATA. On the other hand. The airline industry does also not appear to be in total support of moves towards airport globalization. Wiggins: developing the PlaneStation global branding concept The Wiggins Group is a property company. 1998). IATA has also expressed concerns that globalization could lead to management attention and funds being diverted away from core airports. regulation has been introduced to control charges – but this may not always be satisfactory to users if. In the United Kingdom. joint purchasing and shared development costs of new systems. 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. The airline industry body. which is situated 65 miles southeast of London. for example. Chapter 5 describes how. for example. that prices will rise once privatization has occurred and profit maximization becomes the key business driving force and motivation. It has 49 . while the direct airside charges. 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. In 1998 it bought Manston airport. This is the idea behind the Wiggin’s Group expansion into airports. from the UK Ministry of Defence. in some cases. particularly the airlines. has acknowledged that airport globalization may bring beneficial economies of scale due to. 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. founded in 1919 which became listed on the stock exchange in 1964. 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. for example. not all relevant prices are regulated.The changing nature of airports Airlines As with most industry privatizations there has been concern from users. have remained fixed by regulation (Gill.

9). 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. just-in-time assembly locations and for supporting all the freighter operations. With most of the Wiggins contracts. primarily because it found the political and regulatory obstacles.Managing Airports Table 2. Wiggins expects that projects such as local community centres with shops. 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.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. It also tried to gain control of Smyrna airport near Nashville. increased land values and generally considerable regional economic development to the surrounding areas of the airport in the network. Specifically with increased security measures at major airports since 11 September. 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. 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. These partnerships with the public sector often allow access to grants and infrastructure loans. Wiggins is hoping to operate more airports in the future (Gethin.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. Tennessee in the United States but eventually withdrew its interest from this airport in 2003. were too great. The overall objective is to develop a global network of over 20 regional airports under its so-called PlaneStation concept. At most Wiggins airports there is no or very little traffic when Wiggins gets involved. 2001. Wiggins believes that their smaller sized airports and more straightforward security operations will be a distinct advantage. 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 . 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. public ownership. 2002b). which exist if an airport is taken over by a different operator.

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

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

2001 Source: ACI. are usually included under a different ‘non-operating’ revenue category. Most of the non-aeronautical revenue comes from concessions and rents. Overall. The African/Middle East and Latin American/Caribbean regions appeared to have the lowest share of non-aeronautical revenues. and because the non-aeronautical policies tended to be less developed than in many other parts of the world. 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 Percentage share of aeronautical revenue at ACI airports by world region. mostly due to the lower income per capita. Revenues. 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. 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.3 for 1983–2001. At some airports. From the 2001 ACI survey. A breakdown of revenues for a sample of European airports is shown in Table 3. landing and passenger fees are by far the most important aeronautical revenue sources. 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. at Copenhagen airport the share increased from 41 to 54 per cent and at Geneva airport it rose from 40 to 51 per cent.1). 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. 2002.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. 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 generally smaller sized airports which had less non-aeronautical opportunities. such as interest received and income earned from subsidiary companies.Airport economics and performance benchmarking commercial income and hence a non-aeronautical revenue. in at a 57 . The situation changed in 1999 because of the impact of the abolition of EU duty. One of the most notable increases in commercial revenues has been with BAA plc airports – Chapter 6 outlines how this was achieved.

0 55.0 43.0 34.5 44.9 100. it is usually possible to identify the three separate cost items associated with labour.1 45.6 35.0 54.4 40.2 36. 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.1 100.6 100.6 44.6 43.3). however.9 41. Within Europe.0 34.2 21. Over the years the labour costs have decreased in importance (Table 3.6 18.0 56.9 44.0 100.6 39.6 23.1 100.0 39.0 55.0 45.0 32.9 24. there is no industry standard for the reporting of airport operating costs.1 23. capital.8 20.3 Average revenue and cost structures at European airports.0 Table 3.5 21.4 100. From published accounts.4 Revenue and cost structures at a selection of European airports.1 100.2 42. 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. 1988 1993 1998 1999 2000 2001 58.6 100.5 100.0 100.Managing Airports Table 3. Unlike with revenues. 1983–2001 1983 Revenue shares (%) Aeronautical Non-aeronautical Total Cost Shares (%) Labour Depreciation Other Total Source: Annual reports.0 48.4 100.9 43.8 42.0 36. and other operating costs.0 55. In part this is due to more 58 .9 100.0 52. This value remained fairly constant in 2000 and 2001.2 100. labour costs account for an average 33 per cent of total costs with depreciation representing a further 24 per cent.2 100.

the unit costs tended to flatten out and ceased to exhibit a strong relationship with airport size (Doganis and Thompson.5 million WLUs and were US$8. As airports increase their traffic throughput the costs per unit of traffic.Airport economics and performance benchmarking outsourcing being undertaken by airport operators and in some cases a more productive labour force. 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. First. Pels et al. More complex analyses also suggest that airports experience economies of scale – with the effects being most significant for smaller airports (Gillen and Lall. Milan. Amsterdam. Table 3. 1989. the volume and nature of the traffic.. Factors influencing costs and revenues There are many factors that affect an airport’s level and structure of costs and revenues. London Heathrow. 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. At Vienna and Frankfurt. have much lower staff costs. can have a major impact on the airport’s economic performance. and Vienna in 2001 were heavily involved in handling.4 shows these values for a number of European airports. or unit costs. and Oslo which are not involved with so many activities. The labour costs also vary quite considerably at airports. For example. By contrast. These average values hide the variation between individual airports which in some cases in quite considerable. 1973). 2000). which is more costly to operate.4 for airports with WLUs between 300 000 and 2. (Pels et al. Studies of Australian and Spanish airports have produced similar findings (Assaily. Then at a traffic level of around 3 million passengers or WLUs. Many small airports experience poor utilization which will also push up unit costs. 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. Frankfurt. for example with a number of different terminals. labour costs account for around half the total costs.. 1997. Düsseldorf. were US$9. Studies of British airports in the 1970s showed that unit costs. Some of these are more easily influenced by airport management than others. 2000). declines. with their aeronautical charges regulated. 59 .5 million passengers or WLUs. airports such as Basel-Mulhouse. 1995).5 million and 25 million (ICAO. 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. 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. again reflecting their heavy involvement in the labour-intensive handling activity. Doganis et al. were much more dependent on commercial activities.00 for airports between 2. 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. Gatwick and Heathrow. This suggests that there might be an optimal size of airport in economic terms – but as yet the evidence is far from conclusive.. 2000).

36. 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 spend longer in the terminal. SEA.3 bags compared with 0. This is very different from airports such as London Heathrow or Amsterdam Schiphol which generate a relatively 60 .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. There is no ‘typical’ airport when it comes to looking at the services and facilities an airport provides. Costs associated with international passengers tend to rise as this type of traffic requires more space in the terminal for customs and immigration. 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. All this will impact on both cost and revenue levels. 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. in Heathrow’s Terminal 1 it has been estimated that international passengers on average have 1. 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). 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. handling. 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. as with the business airport London City which put leather seats in the departure lounge. if an airport does decide to aim. for a more exclusive product. say. For example. 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. International passengers also have more luggage. Charter passengers will not usually need certain facilities such as airline lounges which will influence the airport’s cost and revenue levels. air traffic control. Nevertheless.5 for domestic passengers. while others will contract these out. terminals may also be leased as is the situation in the United States and Australia. Likewise. in order to keep down the cost of airport charges. The cost multiple for EU passengers is less. In the extreme case. duty-free shops.20 (Toms. Moreover. which gives a cost multiple between international and EU traffic of 1. this will clearly have resource implications. cleaning. the cost associated with an international passenger is likely to be 1.62 times greater than the cost of domestic passengers. BAA plc has estimated that for a hypothetical terminal of 8 million passenger capacity. namely 1. car parking. 2000). and heavy maintenance. For example. 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. with no provision of airbridges. At the other extreme. Beyond the basic operational functions. Some airport operators will provide activities such as security.and tax-free shopping. different airports have little in common. airports serving holiday destinations may have a problem with peakiness and uneven capacity utilization which may push up costs.

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

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

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

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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Airport economics and performance benchmarking

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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Managing Airports

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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5 Revenue per employee for world airports. 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 . average=100) 100 0 Va nc Figure 3. 50 250 200 150 Revenue per employee (index value.H on g Source: TRL.

6 Total factor productivity for world airports.2 1 0 70 Source: ATRS.4 0. 1999 1.4 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.Se Figure 3.6 0. Vancouver = 1) .8 0. Total factor productivity (index value.2 0.

By contrast. ATRS. This combines a number of partial performance measures as a weighted sum of inputs. References and further reading ABN AMRO (1998). N. and operating costs per passenger (Jessop.6. Airport Benchmarking Report. the data was not adjusted to take account of involvement in different activities unlike the other data sets which have already been shown. This method has been used with a sample of around thirty five global airports with six performance measures. Airport Retail Survey 1998 Edition. Assaily. 71 . The weighted sum of these scores gives an overall summary efficiency measure. ACI. (1999). This looked at partial and total measures of various aspects of performance for up to 70 airports in Asia Pacific. Frankfurt and Munich performed particularly poorly which must partly be the result of these airports’ direct involvement in ground handling activities. (1989). 2002). ATUs per unit of asset value. Airport Council International (ACI) (2002). 2002). Ashford. and Moore. called data envelopment analysis (DEA). CAS. which was adjusted to eliminate the effects of airport size and the proportion of international traffic characteristics is shown in Figure 3. 1997). 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. concession revenues per passenger. The most efficient airport appeared to be Seoul’s Gimpo which outsourced a number of activities and was congested with a high utilisation rate. European Airports Review. Europe and North America. Centre for Airport Studies (CAS) (1998). Air Transport Research Society (2002). A linear programming technique. Airport Productivity. 2nd edn. ACI Airport Economics Survey 2001. TRL. ATUs per employee. also produces a weighted output index relative to a weighted input index similar to the non-parametric TFP measure. ABN AMRO. A multi-attribute approach has also been used to assess airport performance. The overall TFP measure. Loughborough Airport Consultancy.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 production function was adopted to develop the so-called endogenous-weight TFP method which was used in this research. 1999. 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. aeronautical revenues per ATM. namely: EBITDA. C. Airport Finance. Parker (1999) also used DEA to study BAA plc and concluded that there has been no noticeable change in efficiency since privatization. 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. DEA is therefore a more attractive technique than the Tornqvist TFP because it has less demanding data requirements. 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. However. C. Institute of Air Transport.

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

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

Structural changes such as commercialization. which had evolved from manufacturing industries and had been based on the conformance to standards defined by operations management. encouraged airports to place more emphasis on quality. Different dimensions of service were defined and customer satisfaction. such as the London and Australian airports. 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. considered to be the gap between perceived and expected service. privatization. began to be replaced by customer-focused notions. was assessed. together with increased competition between airports. Airports which had become regulated in their post-privatization stage.4 Service quality and its measurement Increasing emphasis on quality The 1980s saw many service industries placing increased emphasis on managing quality. also found that their service . 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. Traditional ideas of quality. 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. This required close consideration of what the customers wanted and how their needs could be met. and globalization. 1999).

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

Objective indicators measure the service delivered and can cover areas such as flight delays. for example. when they become Table 4. an area of particular concern as regards the quality of service has become the queuing and waiting processes.6 m2 per passenger without baggage or accompanying visitor 0. 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. waiting time. escalators and trolleys. 2000). To be accurate. 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.Managing Airports with a minimum of distractions while others enjoy the opportunity of being able to shop and take refreshments. there is a manager of Entertainment and Services who is in charge of these activities.6 m2 per passenger with baggage or awaiting reclaim 1. An example of the service standards used by Manchester airport is given in Table 4. At Amsterdam airport.1 Service standards used by Manchester airport Space Queuing space Holding lounge 0. say. 2002). Measuring the quality of service Quality of service can be assessed with both objective and subjective measures. They can also link into the passenger service standards which many airports adopt. availability of lifts. The advantages of these measures is that they are precise and easy to understand (Maiden. 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. and operational research surveys of factors such as queue length. 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. With growing congestion at airports and increased emphasis on security because of 11 September 2001. Some airports have started to look at how they can keep their passengers entertained as they wait. space provision.1.9 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. Also a sufficient number to achieve queuing times of less than 3 minutes for 95% or. ‘Mystery shoppers’ who sample the airport product by anonymously pretending to be passengers can also be used. and baggage reclaim time.

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%. 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. 77 . i.e. passenger conveyors. escalators. 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).Service quality and its measurement Table 4. 80% will queue for less than 5 minutes The acceptable queuing times have been detailed by HM immigration services.1 (Continued ) Seating will be provided for 70% of people present. 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. 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.

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

Table 4.2). 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. Whilst Heathrow and Gatwick generally improved their Table 4. post offices.) Baggage delivery Ground access Delivery time Taxi availability/waiting time Source: ACI (2000). Some airports publish summaries of their results.3 reproduces the survey results from BAA plc’s annual report of 2001–02 for the London airports. 79 .Service quality and its measurement airports. mostly as a public relations exercise. as was cleanliness. Analysis of complaints and comments was viewed as important as well.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. the results should be made available to all interested parties so that corrective action can be taken and targets can be set. commercial services (banks. 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. With any performance analysis. 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. etc.

the operational perspective (the objective quality measures) and the marketing perspective (the subjective quality measures) (Lemaitre.1 – – Excellent.1 0. IATA has undertaken quality of service passenger surveys for a sample of airports around the world. For example in the United Kingdom.8 3. BAA plc also uses its QSM at the international airports where it has an involvement. Since 1993. and female passengers (Maiden.Managing Airports position in 2001–02. 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.6 4. While most of the focus in the past with quality monitoring has been within internal performance.9 4. Table 4.1 0. Some of the questions are related to what is called ‘Airport Service’ which are the services provided by the airport operator.8 4. 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. Variance 0. frequent travellers.8 3.1 Good. Systems of performance measures at airports can be defined from different management perspectives such as the financial perspective. 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. Such an exercise is particularly problematic because of the lack of consistency or common format of each airport’s consumer survey.1 – – 0.9 3.8 3. 1 2001–02 4. and male passengers tend to be far more critical than foreign leisure travellers. such as Naples and Melbourne.1 0.0 3. 2 Stansted Variance 0. 80 .9 Variance 0.9 3. Some passenger types are likely to complain more than others.1 0.0 3. 3 Average. 1998). first-time users. 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. Also certain airports such as small airports and single terminal airports tend to inherently perform better in quality of service surveys.1 – 0.1 0.0 3.2 – Note: Rating scale: 5 Source: BAA (2002).9 4.3 Summary of QSM scores 2001–02 at BAA London airports Heathrow 2001–02 Cleanliness Mechanical assistance Procedures Comfort Congestion BAA staff 3.6 4. 4 Gatwick 2001–02 3.1 – – Poor. 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.5 3. The environmental perspective and the measurement of environmental good practice are also becoming increasingly important. business travellers.0 3. 2002).1 Extremely poor. 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.

Dubai achieved the overall highest ranking in the survey followed by Singapore Changi and Copenhagen. Manchester. 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. Stockholm. as is demographic data in order to give a greater insight into the satisfaction levels of the different market segments. These cover areas such as the efficiency and experience of check-in or the efficiency and punctuality of boarding. that it depends on which airlines participate in the Table 4. Travel profile information such as purpose. For European airports. Helsinki was ranked first by business travellers whilst Copenhagen had the highest ratings from leisure passengers. Then there are ‘Airline Service’ questions which are services associated with airline activities which can be provided by airlines. and Vancouver were noted for their significant improvements in rankings. In 2002. Its role in airport marketing has become important. Madrid. 2002a). and Copenhagen scored highest in the courtesy/helpfulness of airport staff category (Competition Commission. The BAA QSM has also found that way-finding is the most important individual service element that links with the overall satisfaction scores (Maiden. Other airports such as San Francisco. 81 . The least important services were eating and parking facilities. 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. Zürich. in 2001. Copenhagen. and courtesy of airport staff was very important. 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. The regularity with which the IATA survey is undertaken has meant that it has been generally accepted within the industry.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. with airports which perform well using the findings to publicize and sell their airport to their customers.4). and Amsterdam airports were considered ‘best in class’ as regards ground transport to and from the airport whilst Helsinki. for example. handling agents or the airport operator itself. flight information schemes. class and frequency of travel and transfer details is also collected.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). 2002). Birmingham. Düsseldorf. In 2001. Dubai was not included in the study and Singapore Changi was first amongst the airports which handled over 25 million passengers.

cost of local labour force. Individual airport operators obviously need to consider all their customers. Performance targets are set. and hospitality events. visitors. handling agents. feedback from their tenants is assessed through formal surveys. concessionaires. As a result. the effectiveness of the heating. 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. Most comparative studies of airport quality look at quality from a passenger’s point of view (Lemaitre. 1998). 82 . There has been increased use of SLAs in the service industries in recent years. the efficiency of the relevant BAA plc processes. 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 image of the building. freight forwarders. 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. for airline customers the exact quality of service for facilities which are covered by airport charges is rarely specified. airlines. and so on. 2000).. For example. 2002). Research into the airlines’ point of view is less common. the quality and value for money of the accommodation and the overall performance of BAA plc as a landlord. The information obtained from the airlines was used in a data envelopment analysis to rank airports relative to their quality level. including passengers. 1996). 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. North America. based on penalty payments for poor performance. informal meetings. and the Far East. This problem can be overcome by having service level agreements (SLAs). the effectiveness of the building security and BAA plc’s speed of response. or just a ‘best endeavours’ commitment based on performance targets. focus groups. for instance. runway capacity. They have two types of surveys. A tenant survey involves interviewing the property managers of each organization to assess the managers’ views on whether they think their needs are met. 1998).Managing Airports survey and that it lacks sufficient detail. One rare example was a study undertaken by Adler and Berechman (2000) which looked at airline factors such as delays. These agreements can be contractural and incentivized. Such SLAs can be incorporated into more broader use agreements or strategic partnership agreements (SPAs) between airports and airlines (see Chapter 5) (Cruickshank. At BAA plc airports. Areas covered include quality and cleanliness of common areas. 2000. and the reliability of air traffic control for a sample of 26 airports in Western Europe. 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. IATA. these are arrangements between the service provider and its customers. In addition there is also an occupier survey which deals with the actual user of the property. In general terms. the Airports Council International (ACI) has been looking at the option of developing its own worldwide survey (ACI.

Service quality and its measurement One airport operator to introduce SLAs is BAA plc. 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. for the transfer baggage systems and for the baggage tunnel between these terminals. and Manchester airport and its other external providers (Competition Commission. BAA has abandoned this target at Heathrow and Gatwick. In the late 1990s. b 83 . 2002a). They were not legally binding and no penalty payments had to be made for poor performance. Although all these SLAs were initially negotiated between BAA and BA. 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. and Stansted. Source: CAA (2000a). excalators.5 BAA London airport ‘best endeavours’ service level targets. 1996). For a number of reasons these did not prove to be a success. The areas covered were stand availability. Gatwick. Targets vary for different equipment.6. 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. jetty availability. 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. there were effectively multilateral agreements with all the airlines. BAA plc began developing SLAs with BA and by 1999 four SLAs were in place at London Heathrow. The agreements were one-way best endeavours types based on agreed minimum service levels and targets. ACI particularly has stressed the need for Table 4. The basic GSSs are shown in Table 4. 2002b). Manchester airport also began experimenting with best endeavours SLAs in the late 1990s – again partly due to regulatory pressures. Manchester airport developed some new-style incentivized SLAs or so-called Generic Service Standards (GSS) with the airlines. and the availability of ‘people movers’ (Table 4. Manchester airport and its ground handling agents. Incentivized SLAs have also been introduced at Heathrow for the departures baggage systems in Terminal 1 and 4. transits.5). To support these primary agreements it was aimed to have secondary agreements covering Manchester airport and its other subsidiary companies. or reductions in. Various other airports have also looked at SLAs and ACI and IATA have been working together to develop a common thinking on SLAs. By early 2000. However in response to the regulatory review which was undertaken in 2002. levels of quality (Monopolies and Mergers Commission. security queuing.

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 4.6 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. 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.

is that they all have different demands of service quality. where airports can be penalized for underperformance but should also be rewarded for overperformance (ACI. 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. arriving aircraft may be held on the taxiways or apron before they are able to unload. At the day-to-day level. creating a knock-on of delays from one flight to another. is the level of delays. 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. 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. and Ryanair and its airport base. which adds an unpredictable element to the time at which any given flight will wish to use the runway. It is therefore inevitable that aircraft will deviate from the published schedule. In the longer term. 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. If there are insufficient stands available. this may be an airline operational decision to await the availability of a preferred gate or avoid bussing passengers from a remote stand. en route air traffic control. One of the problems with airline customers. when the airlines complained of paying for airport facilities which they do not want.g. that airport operators often prefer not to focus on. The airlines can take account of expected queuing times related to shortages of airport runway capacity in planning their schedule. has been favoured by the UK CAA (CAA. as with passengers. for example. bad weather or technical problems with the aircraft). Dublin. In the United States. Such an arrangement.Service quality and its measurement balance with incentivized models. Level of delays A crucial measure of airport performance for airlines and passengers. Congestion within the terminals may lead to passengers who have checked in failing to reach the aircraft in time thus delaying departure. 2002). This may be because there are many factors that lead to flights being delayed which are outside the airport operator’s remit (e. airports have the opportunity to expand or upgrade facilities to address these problems. 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. This enables them to maintain 85 . Shortcomings in terminal capacity can also delay aircraft. Luton. 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. Considerable friction has arisen between both EasyJet and its airport base. 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. however. 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. 2000c. flights may also be held awaiting crew or transfer passengers. 2002a).

therefore. If one considers the Frankfurt–London Gatwick route it can be seen that a morning flight from Frankfurt to Gatwick. this must be due primarily to airport-related delays on a sector where the actual flying time is only about 1 hour. The worst affected airports were Madrid and Rome with a third of the flights significantly delayed. 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. but at the expense of longer scheduled flight times and the resultant increase in costs from poorer utilization of aircraft and crew.7). scheduled for 1 hour 25 minutes in 1982 had increased to 1 hour 50 minutes by the year 2000 (Table 4. 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. Airlines thus include a contingency allowance for delays in their schedule.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. 86 . Table 4. Ryanair’s low-cost alternative on the Frankfurt–London route is a Hahn–Stansted service. The London and Paris airports came next. Frankfurt was better with less than one-fifth of flights delayed more than 15 minutes. Comparisons between airports and airlines. There is thus a penalty of about a quarter in aircraft and crew costs from operating to the more congested major airports. Source: OAG Flight Guide/ABC World Airways Guide. have to be treated with caution. Table 4. 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. As a slightly faster aircraft type is now being operated.Managing Airports a similar level of punctuality performance at congested airports. The Scandinavian airports had the best punctuality as well as Brussels where traffic levels were very much depressed due to the demise of Sabena. using secondary airports at each end and scheduled for 1 hour 20 minutes.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.

It was suggested that the standards of service should include measures of quality of service to airlines (QA.3 23.).7 15.9. and delays (QD).9 26.9 12.5 17.1 19.2 15.4 25. both recommended that this situation should change as it was considered that the current situation at London Heathrow. BAA. service quality has come under close scrutiny and. and the major carrier at Heathrow and Gatwick. The CAA recommended that up to 3 per cent of the regulated charges should be subject to meeting these particular standards of service.0 23. it was recommended that the airports should look at SLAs as a means to improving their quality of service. The components of the Q factor as proposed by the CAA. BA.3 26.8 29.1 25.2 24. for example in the reviews undertaken in 1996–7. when the two UK regulators.8 11. 2002 Airport % departures delayed more than 15 minutes 30. However during each five yearly regulatory review of BAA London airports and Manchester airport.4 16. are shown in Table 4.5 18. to passengers (QP).8 26.8 15. Service quality and regulation at UK airports When the British airport regulatory system was established following the privatization of BAA in 1987. 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.8 Delays at major European airports on intra-European scheduled services.2 18.6 11.8 12.2 14.8 21.6 13.0 27. London Gatwick. namely the Civil Aviation Authority (CAA) and the Competition Commission.9 15.6 21. It was not until 2002.Service quality and its measurement Table 4. and Manchester as regards the lack of formal quality of services requirements linked to pricing was against the public interest.7 25.0 14. 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. 87 .5 % arrivals delayed more than 15 minutes 26.2 28.0 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).5 18.

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 . Subsequently.6 3. the CAA accepted the alternative Competition Commission recommendation of a system of rebates to users rather than price cap adjustments. and pier service should be excluded because BAA did not undertake stand allocation. 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. In addition.8 4.7 3. On the other hand. with the rebates being purely negative with no reward to the airport for performance above the standard set.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. BAA claimed that baggage measures would be unnecessary as incentivized agreements were being developed in this area.Managing Airports Table 4. $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ % 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. 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.0 To be decided not to be used) Source: Competition Commission (2002a) and Civil Aviation Authority (2003).

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

Royal Brunei. Eva Airways. and Singapore Airlines. Qantas Airways. Cathay Pacific Airways. Japan Airlines. 90 . 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.1 Passenger survey results at Brisbane airport.10 Facility Runways Survey results of seven major airlinesa at Brisbane airport. Source: ACCC (2003).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. Malaysian Airlines. 2001–02 Source: Australian Competition and Consumer Commission. Table 4.

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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April. J. and Fry. The CAA Approach to Economic Regulation and Work Programme for the Airport Reviews. ICAO. London. Annual Report 2001/2002. Cruickshank. Pisa. Consultation paper. Quality of Service Issues. C. Heathrow. Journal of Air Transport Management. CAA. The Stationery Office. T. Humphreys. June. 26A (1). The development of performance indicators for airports: a management perspective. July. (2000). Bologna. Service level agreements. (1999). A Report on the Economic Regulation of Manchester Airport plc. (2000). Civil Aviation Authority (CAA) (2002c). (1998). Consultation paper. CAA recommendations to the Competition Commission.. Consultation paper. The Stationery Office. Le Marquand. CAA proposals for consultation. Pleasing the airport property customer. A. L. and Wright. A Report on the Economic Regulation of the London Airport Companies. December. March. Civil Aviation Authority (CAA) (2000a). (2002). Competition Commission (2002b). Civil Aviation Authority (CAA) (2002b). CAA. ACI Europe Good Communication and Better Airport Marketing Conference. A report on the economic regulation of the London airports companies. University of Westminster Marketing and Market Research for Air Transport. How BAA uses its market research. Eighth World Conference on Transport Research. Gatwick and Stansted airports. Civil Aviation Authority (CAA) (2000c). I. 8.Managing Airports BAA (2002). Antwerp. Francis. March. Kotrba. Civil Aviation Authority (CAA) (2003). P. International Air Transport Association (IATA) (2000). Transportation Research. BAA. Lemaitre. Monopolies and Mergers Commission (1997). 37–45. (1999). ACI Europe Communique. Civil Aviation Authority (CAA) (2000b). BAA London Airports: A Regulatory Report. A report on the economic regulation of Manchester airport plc. 239–47. Penner. Manchester airport. Heathrow. MMC. MMC. Lemer. CAA. Delivering quality in a globalized market. 96 . F. The benchmarking of airport performance. Ninth ACI Europe Annual Congress. CAA. Principles of Service Marketing and Management. G. Position paper. Competition Commission (2002a). Nice Cote D’Azur Airport Handbook. A. S (2002). Service quality proposals: specification of standards and rebates. Measuring service quality at airports. Measuring performance of airport passenger terminals. Gatwick and Stansted price caps 2003–2008. Civil Aviation Authority (CAA) (2002a). Prentice-Hall. Maiden. Nice Cote D’Azur Airport (2002). CAA proposals for consultation.. A. C. Lockwood. University of Westminster/Cranfield University Airport Economics and Finance Symposium. (1992). CAA. Maiden. July. Consultation paper. 85. ANSConf Working Paper No. Terminal and passenger services certified according to ISO 9001. (1996). Monopolies and Mergers Commission (1996). CAA. London. Airport–airline agreements: what is the way forward? University of Westminster/Cranfield University Airport Economics and Finance Symposium. 5–6. S. CAA. (1999).

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

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

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

which are comparatively expensive to operate. As yet this has not been reflected in airport charges. By 2002. the airline organization. regardless of the size of the airport. Italy. 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 . At other airports. 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. domestic or short-haul services have traditionally paid a reduced landing fee. Instead. and Korean airports. Clearly. 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. Brussels and Macau airports and those in Spain and Portugal. Sweden. Airports may adopt different sub classifications within the chapter 3 group. A few airports. Alternatively. it tends to exist to support local and regional services. At some airports. The International Air Transport Association. the airport operator may levy a separate charge. 2001. related to the weight of the aircraft.Managing Airports or terminal navigational facilities will be incorporated into the landing charge. This is not a cost-related charge since the cost to land an aircraft is independent of its origin. 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. and ‘high’ categories. more standard ICAO ‘chapter’ classifications are used. Sometimes there is a separate noise tax as well as is the case at the French. have traditionally offered a volume discount on the landing fee. 2002a). Switzerland and Belgium. At a number of airports such as Brussels. Seychelles. Elsewhere. the landing charges are higher at night.) This is the practice at the German and London airports and those serving the cities of Stockholm. for example. ACI-Europe. is strongly opposed to such practices (IATA. Some of these are based on airport or country specific aircraft acoustic group classifications as is the case with airports in France. chapter 2 aircraft which were banned in 2002 from most countries. Typically this charge will be. 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. Spain. Italian. Oslo. whereas at London there are ‘minus’. 2000a). As a result by 2002 all EU airports had discontinued such discounts. imposes the same costs on the ATC infrastructure. and chapter 3 aircraft which are the quietest aircraft. There are currently three classifications: chapter 1 aircraft which were banned from airports in 1990. ‘base’. like the landing charge. all EU countries had abandoned such practices (TRL. (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. and Oslo. 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). there is no logical cost rationale for this since each aircraft movement. and those in Germany. Manila. Chapter 4 classifications will come into force in 2006 – see Chapter 9. Most airports in Germany have chapter 3 ‘bonus’ or ‘non-bonus’ aircraft. 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. Sometimes such services will have a social role in linking together regional communities and so in effect the discount will be an unofficial subsidy.

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

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

1998). 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. Government taxes There is one final charge which airlines or their passengers sometimes experience at an airport – government taxes (see Table 5. ground power. a ‘Tourism Tax’. passenger handling. whereas elsewhere there may be a multitude of individual fees. and a ‘National Aid Tax’. It is rare to find published data relating to handling and fuel charges. In the United Kingdom. all services at the airport can be offered to the airline in one overall package. For the passenger.The airport–airline relationship where the fuelling is provided by a government agency. In Norway. Mexico City has a tourist tax on international arriving passengers and a number of other countries such as Malta. aircraft cleaning. Hence. apron buses. The Republic of Yemen has a ‘Development Tax’. and so on. 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. Jamaica. The taxes may also cover the provision of some security services. until 2002 there was a tax to help national transport links. the scale of its operation at the airport in question. Elsewhere. 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. a departure tax Table 5.1). pushback. such taxation is just used as means of supplementing general government taxation income from other sources. and Pakistan impose a tax on departing passengers. and whether other airports used by the airline are served by the same handling and fuel companies. In some cases there may be just one or two charges that cover everything.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 . Further complexities occur since there are a variety of ways of charging for activities such as ramp handling. These are usually negotiable and the agreed prices will depend on various factors such as the size of the airline.

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

M Yo Aircraft related Passenger related Government taxes Figure 5.1 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 .105 Charges and taxes (Euros) N ew 10 000 12 000 2 000 4 000 6 000 8 000 0 Source: Cranfield University.

2002). charges went up. Some airports lowered their charges in order to encourage the airlines to maintain or even grow their airport operations. 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. Cyprus airports temporarily waived landing fees for all flights and the Moroccan airports waived them for all charter carriers. would outweigh the impact on costs due to the airport charges. 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. (Pilling. Pilling and O’Toole. Munich and Stockholm. 2002. Other short-term measures included Copenhagen reducing its landing fees by 10 per cent for intercontinental flights. These charges account for around 13–14 per cent of all costs for carriers with short-haul and mostly domestic services.and on other costs which might be incurred if operations were changed to avoid certain airports or airport charges. Dubai airport halved its landing charges. particularly to cover the increased security 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. such as British Regional and Brymon.5 per cent reduction in total demand – although 106 . in 2002. however. Singapore. Figure 5.Managing Airports United States and various other countries in 2001. airport costs generally represent a relatively small part of an airline’s total operating costs. Amsterdam. it is difficult to see how airport charges can have a major impact on airline behaviour. respectively. IATA. They are least important when long-haul operations are being considered. At other airports.5. In spite of this growing concern over the level of charges. with a mix of long and short haul flights. 10. which has a range of domestic and European services. This share is double for British Midland.2 does. 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. 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. in a general sense. Most low-cost airlines operate short sectors which means that they pay airport charges more frequently. since the charges are levied relatively infrequently. Other airports. for example. Only landing and passenger charges are shown and so these figures do not represent the total turnaround costs for the airlines. show the situation for UK airlines. However. A study of UK traffic suggested that a 50 per cent increase in all airport charges would only result in a 7. For the charter airlines of Britannia and Airtours. and Athens airports reduced their landing charges by 4. British Airways. For most airlines the impact on demand. the airport charges represent around 20 per cent of total costs. on airport operators regarding the level of charges. 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. For example. has the lowest share of costs at around 4 per cent. and 15–23 per cent. resulted in increased pressure from airlines and the airline organization.

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

It is equally as difficult to influence an airline’s choice of aircraft as it is to shift their schedules by using pricing mechanisms. 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. 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. Aer Rianta. 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. BAA plc claims that the new policy takes into account both economic pressures and the preferences of its airlines (Toms. which probably represented around 1 per cent of an airline’s costs in most circumstances. More sophisticated approaches include that of Belfast City airport which introduced a dual charging process in 1993. clearly. 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. the typical fee surcharge for a chapter 2 aircraft in the 1990s was about 20–25 per cent of the normal landing fee. 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. At Norwegian airports. Airlines themselves could choose to come under a conventional charging structure or be charged an inflated passenger fee but with no landing charge.Managing Airports charges which were considered discriminatory. In reality.6 per cent in the same year although. the airline will pay very little. 1994). 2000). To have any meaningful impact the surcharge probably should have been at least double the equivalent chapter 3 charge. In 2000. BAA and the US airlines finally resolved their differences through international arbitration which required BAA to phase out the peak passenger charges. the airports are now effectively full in most hours and so the concept of the peak hour has become far less relevant. Between 1994 and 1999. In the first year of operation. 2000c). This is due to the existence of airport incentive schemes or discounts. This has been particularly the case when there have been a number of neighbouring or equally suitable airports from which to choose. Such discounts have. The airport operator gave discounts on new routes and growth on existing routes. In general. which reduced over 108 . been a critical factor when low-cost carriers are selecting suitable airports for their operations. 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. 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. If demand at the start of a service is initially low. Between 1995 and 2000. the Irish operator had one of the most complex published discount schemes in existence (Table 5. This means that the airport will share more of the risk when the airline is developing the route. 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. At many airports. Of course. This was too insignificant alone to alter a carrier’s choice of equipment (Dennis. As a result chapter 2 aircraft at the airport reduced from 15 per cent in 1999 to 0. 1996). in many cases. for a 120-tonne aircraft. Amsterdam airport increased its surcharges for chapter 2 aircraft between 50 and 100 per cent every 6 months. discounts on both landing and passenger charges are available for new international services.2).

4 20. In the initial years.7 4.5 7.9 16. 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 5.5 50. 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.2 44.3 109 .7 30.0 29.3 30. Source: Aer Rianta.0 2.3 Discounts given to each airline at Aer Rianta airports.6 14. largely in preparation for the demise of EU duty.2 New growth and new route discounts available at Aer Rianta airports.6 23. 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). airlines could be paying as little as 10 per cent of the standard landing and passenger charge.3 8.4 9.and tax-free sales. especially Ryanair. and parking fees Note: a Passenger fees only.8 28.6 3.0 6. After 11 September. This was greeted with considerable opposition from Ryanair.7 45.7 11.4). 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 5.0 32.The airport–airline relationship time. 1999 2000 2001 (to Oct) 32.7 40.3 34. landing. Various airlines.5 14.6 13.8 7.8 21. Aer Rianta terminated their discount scheme at the end of 1999. Table 5. benefited significantly from this scheme – particularly because of the short-haul nature of their services and the price sensitivity of their leisure passengers (Table 5.3).

2000d). there is no guarantee that the airlines paying the charges will actually be the airlines which will benefit from the new infrastructure. both before it is built and once it is operational (IATA. First.4 New route discounts available at Aer Rianta airports 2001–03 on passenger. Airports argue that self-financing in certain circumstances can provide a useful. some airports have introduced fees for prefinancing purposes. A similar situation exists at some Canadian airports. Pre-financing has traditionally not been an acceptable principle for a number of reasons. 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.b). higher passenger fees were levied. 2000e). This typically occurs when a large international airport provides financial support for a smaller airport. with the growing commercialization within the industry and diminishing dependence on government sources for financing. the regulator takes into account the fact that some pre-financing will take place when setting the appropriate level of charges. In spite of these airline concerns. 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. however. Another important issue is the pre-financing of future airport infrastructure through airport charges. allow for airports to make a reasonable return on assets to contribute towards capital improvements. in spite of airline opposition. The ICAO has acknowledged that. In Greece.Managing Airports Table 5. The recommendations do. landing. 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. Also. The most notable example is the United States where PFCs go towards future development projects. Moreover. in the United Kingdom. that they should be supported by government funds instead (IATA. the airlines tend to be fearful that they will pay twice for the infrastructure. 2000a. Elsewhere. cheaper source for funding investment in addition to loans and equity which can also be used as security for raising extra finance (ACI. 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. to pay for the financing of the new Athens airport. usually serving primarily domestic services. 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. for example. there may be no certainty that the airport charges will be efficiently spent to provide new facilities. 110 .

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

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

Cost inefficiencies can be built into the cost structure which can be passed on to the consumers through increased prices. To ensure that this does not occur. 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. RPI the retail price index. alternative regulatory systems have been sought. it provides no incentives to reduce costs. planned investment and the competitive situation. The operator will be guaranteed a certain rate of return irrespective of efficiency. for example. as well as other factors such as operational efficiency. The aim is to prevent regulated companies from setting prices that bear no relation to costs. 1998). Independent arrangements could therefore be established relating to levels of service quality. in the United States and Australia. 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. The ROR mechanism. However. To overcome these shortcomings. or so-called cost-based or profit control regulation. however.The airport–airline relationship 3 default price cap. any efficiency gains which the regulated company can make in excess of the required X will directly benefit the company. the regulator has to scrutinize carefully the financial operations and development plans of the regulated companies. Since there is no cap on the profit levels. In spite of this shortcoming. unlike the ROR method. While such a system can ensure that the prices are related to costs. which will only be discouraged by careful scrutiny of the regulator. Typically. and X the efficiency gain target. price cap regulation has been the most popular approach adopted for privatized airports. price cap regulation began to be used – for example. to regulate natural monopolies. is the traditional mechanism which has been used extensively. 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. 4 reserve regulation. Such a system can also encourage over investment. A ‘default’ price cap system works by having a price cap which is available to all users. in the United Kingdom where a number of the state utilities such as gas and electricity. 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. Opponents to such a system. Thus. the regulated company may still have an incentive to overstate the capital expenditure needed. 113 . A certain rate of return is established and price increases can only be justified when an increase in costs is incurred. 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. forms of price setting and any specific infrastructure developments. In the 1980s. It works by establishing a formula which provides a maximum price which can be set. when setting the price cap. individual users are permitted to set up alternative contracts with the airport operator outside the price cap condition if both parties are agreeable.

These contracts could have different duration for different users. some major concerns about this approach have been voiced (Starkie. 2001. 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. are widespread. or to aid the development of better commercial facilities. This process could also allow for direct contracting for terminal facilities or up-front payment for specific facilities. This is a difficult task because of having to allocate many fixed and joint costs between the 114 . The rationale for the single till is that without the aeronautical activities. Yet it is these airports which need to manage their limited capacity the most. and the dual till approach when just the aeronautical aspect of the operation are taken into account. decisions have to be made as to which airport facilities and services are to be considered under the pricing regime. most congested airports are likely to be in the best position to significantly offset commercial revenues against airport charges. However. A further type of regulation is the ‘light-handed’ approach or reserve regulation. When airports are regulated using price caps. the airport industry argues that using commercial revenues to offset aeronautical fees prevents these revenues from being used to help finance capital investment. European Commission. Such an approach has yet to be used but would clearly lessen the direct regulatory involvement (CAA. 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. 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. In this case. The busiest. the X factor is established by just considering the aeronautical revenues and costs rather than the total airport operation. 2000g). the single till principles will tend to pull down airport 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. This may encourage growth and have the effect of increasing congestion and delays at the airport. which is used to provide an effective safeguard against anti-competitive behaviour (Toms. 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). 2001). Therefore. With the single till concept growth in non-aeronautical revenue can be used to offset increases in aeronautical charges. Within the airport industry such single till practices. There is less incentive to develop commercial operations to their full potential (ACI. Sometimes. 2000a. As traffic increases. rather than actual regulation. when commercial activities are used to reduce aeronautical charges. There are two alternative approaches. In this case it is the threat of regulation. Bringing down the airport charges for such scarce resources makes no economic sense. 2001a). there may be a predetermined regulatory model which will become effective at this stage. with so-called ‘shadow’ reserve regulation. 2000c). the dual till concept treats the aeronautical and non-aeronautical areas as separate financial entities. negotiate this with the airport operator. In addition. 1992). namely the single till approach when all airport activities are included.Managing Airports Any users wishing for a different level of service could. The single till principles were traditionally accepted by the ICAO in its charging recommendations (ICAO. By contrast. in theory. and focuses on the monopoly aeronautical airport services. 2001).

2000 c). in the case of airports) in the forthcoming year will be allowed to increase by the CPI X or RPI X percentage.The airport–airline relationship aeronautical and non-aeronautical areas. 2001). 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). 2000 d. The method does. There is also the fundamental issue that such an approach assumes 115 . With the revenue yield methodology. There has been some debate. 1997. benchmarking could be used much more as a cross-check to internal methods of setting the price. such as inflating the asset base. The main choice is whether to use a revenue yield or tariff basket methodology. however. As a result of the fierce debate of the merits of the single versus dual systems in recent years. In addition to establishing whether a single or dual till approach is to be adopted. however. which will include consideration of any proposed investment programme. This would mean that the regulatory control would be independent of any company action inappropriately influencing the key variables used in the regulatory formula. additional costs related to improvements in the quality of service and a reasonable rate of return. an artificial incentive may be created to increase passengers to inflate the denominator in the definition. 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. The tariff basket approach tends to be simpler since it operates directly on charges and is independent of any forecasts. as to whether industry benchmarking could have a much more active role in this process (CAA. 2000). provide airports with incentives to develop the commercial side of their business which effectively are uncontrolled. in theory. and their relative strengths have been fiercely debated by regulators and the industry. the regulator must also decide how the ‘price’ element of the formula is to be set. however. 2000. Kunz and Ng. It is common practice to set the price cap in relation to the average costs. 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. the weighted average price of a specified ‘basket’ of tariffs or charges will be allowed to be raised by CPI X. With the tariff basket definition. 2001b). 1996). CAA. estimating investment costs or assessing the scope for efficiency and service quality improvements. This could lead to the setting of some charges below the marginal costs of the corresponding services. Alternatively. 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. 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 adoption of such ‘regulatory benchmarking’ is fraught with difficulties because of the extensive problems of comparability associated with such an exercise. Both methods have their drawbacks. Companies might. replace an assessment of accounting costs as the basis for setting the price cap. unlike with the single till approach when any development in the commercial areas may well be accompanied by a reduction in aeronautical charges. Industry best practice could. This has already been used by the utility regulators for both England and the Netherlands (Burns. 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. The revenue yield formula means that the predicted revenue per unit (usually passengers.

Another area of major concern within any regulatory framework is often the quality of service (as discussed in Chapter 4). the operator could be able to soften the blow of the price control.Managing Airports Table 5. the approach has tended to drift 116 . in theory. 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 practice. as outlined in Chapter 4. When the regulation does not formally establish service standards or require an appropriate quality monitoring system. 2000). financial performance and future plans has been undertaken. Over the years. 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 initial regulatory framework which was set up when the airports were privatized included some formal service quality monitoring and reporting. argue the airlines. both BAA plc London and Manchester airports have been subject to single till price cap regulation since 1987–8. This could be overcome. 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. The airlines are. At BAA airports service quality comes under close scrutiny during the review process. whereas in reality they may be due to a number of other factors. More generally. The other smaller regional airports do not have direct price control as they are not considered to have sufficient market power to warrant this. understandably. In Australia. high costs are in fact the result of inefficiency. should only be agreed after close consultation with the airlines and there should always be an independent review process. there may be little incentive for the airport operator to optimize quality.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). The default price cap mechanism can. The price cap is reviewed every 5 years after an extensive assessment of the airport’s operations. although there are no explicit regulations until 2003. Only a very detailed assessment of the benchmarking data may be able to identify these factors (Shuttleworth 1999. in theory. Regulation examples In the United Kingdom.5 summarizes the airlines views about the airport regulation. Table 5. in favour of some formal regulatory process to guarantee that service levels are maintained (Competition Commission. In reducing the service standards at the airport. all regulatory requirements. 2002a). overcome some of these problems.

117 . 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.and tax-free sales in 1999. The revenue yield method has been adopted at these airports. The CAA then makes the final decision on the price cap after consultation with the industry and other interested parties.6).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. the London airport formula did not take account of the loss of EU duty. 2002). airport changes still remained comparatively high which is one of the key reasons for the more restrictive price cap for the 1998–2002 period. Instead. particularly for the London airports.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. Table 5. the two bodies have not always been in agreement. At Manchester. Source: Centre for the Study of Regulated Industries (1999). At Manchester airport. the abolition was considered when setting the value of X. 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. For example. a compensatory 15 per cent increase in charges over two years following abolition of sales was allowed. There is the sector regulator with detailed knowledge of the aviation industry. For 1997–2002. and the Competition Commission (previously known as the Monopolies and Mergers Commission) which is a very experienced more general trading regulator. These airports could allow most increases in security costs to be passed straight through to the airline. namely the Civil Aviation Authority (CAA). Initially the price cap was the same at all airports. 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. Whilst the skills of these two regulators should be complementary. being RPI 1 (Table 5. The regulation process is somewhat complex because there are two regulators involved. During the second 5-year review period in the early 1990s the price cap was far more restrictive. 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.

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. Above growth of 11 per cent.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.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.4 billion investment needs (particularly Terminal 5) whilst at Gatwick and Stansted it was set at equal to RPI (CAA. 2003). 6. However this price cap was lower than the 8. For 2001–02 and the following 4 years X values of 7. The initial regulatory framework for the privatized Australian airports was fairly similar to that adopted by the UK airports. 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. 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. 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. was introduced in 2001 (and subsequently revised in 2002) for the airports of Dublin. 2002a. 6. When there is a loss in traffic or no growth. 2003a). There is a sliding scale which protects revenues when there is slow growth.4 per cent. However. The regulation is applied directly to the charges. a slightly different approach has been adopted taking into account both inflation rates and traffic growth patterns. If the growth is between 7 and 11 per cent. 2002).5 per cent to take account of £7. 2002a. 2003b). the charges must decrease (WDR. The 118 . prior to the Competition Commission’s review. A number of the other privatized airports have a more relaxed regulatory regime. At Manchester. 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. aeronautical charges were allowed to increase at the same rate as inflation before an X value to increase efficiency was introduced. In Copenhagen. Cork. and 1. the charges can be increased in line with the CPI. In the first 2 years after private participation in the South African airports. In Ireland also. Other airports which have adopted a similar price cap regulatory mechanism include those of Argentina and South Africa. were set. A considerable debate occurred related to the merits of the single versus the dual till (CAA. and Shannon (Commission for Aviation Regulation. the price cap was set at RPI 6.b). For Heathrow. At Vienna airport. 2000b). 2002). It was also decided that at all the airports there should be rebates for users if certain service quality standards were not achieved.7. Hamburg airport also uses a sliding scale related to traffic growth with a dual till price cap regulatory system (Niemeier. 2001. no increase is allowed. Initially. 1998). to provide better use of existing scarce capacity and to enhance incentives to deliver capacity additions particularly at the congested London airports (CAA.b). while requiring productivity gains to be made when traffic growth is high. respectively. the CAA recommended a dual till approach to reduce the scope of regulation to just the core monopoly activities. for instance. 0. price cap regulation. 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. with different limits related to off-peak periods and cargo.

e.5 4. These problems became acute with the events of 11 September. 2001 and the collapse of Ansett. As in the United Kingdom.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. reserve regulation) was the fact that the price 119 . 2002).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. As a consequence in October 2001. the Australian government suspended the price regulation at all but the four largest airports. 2002 a).0 3. 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. the Australian Productivity Commission was required to undertake a review after it had been in force for 5 years.5 1. This price regulation of Australian airports was identified as causing a number of problems. particularly the requirement of detailed and cumbersome regulatory intervention if investment was planned and overall profit volatility. The Australian airports used the basket tariff rather than the revenue yield approach.0 Source: Australian Competition and Consumer Commission (1998).0 4. Price surveillance was maintained at Sydney airport and at Melbourne. was larger for Brisbane than for Melbourne because Brisbane had higher forecasts (Table 5. Amongst some of the arguments used to support this change in regulatory approach (i.0 3. The only major airport which was not controlled in this way was Sydney airport. Australia’s second largest domestic airline. The final report of the Commission was published in 2002 (Productivity Commission.The airport–airline relationship Table 5.0 2.7). the price cap was set for an initial 5 years.0 4. 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.5 3. 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. for example. Under the regulatory system. and Brisbane the price caps were adjusted upwards which allowed the airports to substantially increase their charges.5 1. Perth. X value was set with reference to a number of factors including traffic growth and.

Slot allocation The steady rise in air traffic in most recent years has put increasing pressure on airport capacity. throughout the world. the cost of regulation when BAA underwent its regulatory review in 1996 was estimated to be $US9. However. 2002). 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. namely Auckland and Wellington. The temporary relaxation of the pricing controls was subsequently made permanent and the airports have moved to a reserve regulation system. 2002a). For example. Mackenzie-Williams. The significant downturn in traffic in 2001 and 2002 due to the events of 11 September. were partially privatized in 1998. Moreover. Interestingly. Instead. 2002 b). 2002a). bureaucratic. 2001 and other events eased this pressure slightly at a number of airports but only for a short time. in many cases environmental. (Forsyth. It is argued that most of the current regulatory systems are time-consuming. 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 . while timely capacity addition might provide a solution to this problem. For the 2002 review BAA had 12 people working on this full time for 3 years and they produced over 700 different papers.Managing Airports cap system had been costly to administer. however. where the abuse of market power was not considered to be such an issue (National Economics Consulting Group. 2001. This was not recommended for Christchurch and Wellington. 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. and costly. 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.4 million (Mackenzie-Williams. The legislation also called for the regulator to conduct periodic reviews to assess whether price controls were necessary. physical. Elsewhere. a somewhat different development has occurred in New Zealand where the two main airports of New Zealand. 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. Theoretically. particularly runway capacity. 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. it is asserted that economic regulation can bring its own economic distortions with the problems. 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. or financial constraints have meant that in practice this has not been a feasible or desirable option. for example. 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. 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.

which manages the slot allocation process. Currently. but also by the stand. and 3 classifications for fully co-ordinated. As already discussed. 1998). Demand management techniques consider the most appropriate mechanisms for allocating airport slots. Airport slots are usually defined as an arrival or departure time at an airport – typically within a 15. 2. gate. for example. the current level of charges at airports and peak/off-peak differentials when in existence have a relatively limited impact on airline demand. This means that any airline which has operated a slot in the previous similar season has the right to operate it again. For example. Supply-side options aim to make more efficient use of existing capacity by improving ATC services and ground-side facilities.The airport–airline relationship approaches and by the assessment of demand management options. however. The most recent IATA scheduling guidelines use level 1. and terminal capacity that is needed and the share of environment capacity which is used (PricewaterhouseCoopers. such solutions may be politically more acceptable. Each of the fully co-ordinated or level 1 airports has an airport co-ordinator. have to use its slots for the same services each year and can switch them. the number of fully co-ordinated airports increased by 121 . 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. Preference is also given to airlines which plan to use a slot more intensively to make the most effective use of the capacity. traditionally the national airline of the country. The airline does not. and thus provide for incremental increases in traffic. 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. that the definition of a slot should be more broadly defined to take account of all the resources necessary to operate at the airport. schedules facilitated and non-coordinated airports.or 30-minute period. which number over 260. 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. There is a view. They are different from ATC slots which are takeoff and landing times assigned to the airline by ATC authorities. Between 1990 and 1999. 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’. The most important of these procedures is ‘grandfather rights’. 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. In a climate of growing environmental opposition to new developments. 2000). between domestic and international routes. Alternative slot allocation procedures have to be considered at airports because the pricing mechanism fails to balance demand with the available supply. Thus the slot would not only be defined by a time period for arriving or departing. These airports. are designated at two levels: 1 Schedule facilitated: demand is approaching capacity but slot allocation can be resolved through voluntary co-operation. 2 Fully co-ordinated: demand exceeds capacity and formal procedures are used to allocate slots. however.

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

an independent company has been established. 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). such as Denmark. Airlines are allowed to exchange slots with other airlines but not to trade slots. 123 . The European legislation (Table 5. Table 5. there were 13 co-ordinated and 57 fully co-ordinated airports in the EU (PricewaterhouseCoopers. 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. 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. such as the London airports. thus enabling the process to be more transparent and impartial. the Netherlands.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. An important difference with the European regulation is that the co-ordinator must be independent of all airlines at the airport. 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. and the United Kingdom. In a number of countries. In other countries such as Portugal and Greece where slot allocation is the responsibility of the main home carrier. 1999).The airport–airline relationship to the IATA schedule facilitation airports and fully coordinated airports) and each of the airports uses an airport co-ordinator. which are clearly disadvantaged by the grandfather rights system. by giving them preference of up to 50 per cent of any new or unused slots. They are also airlines which have requested slots for a non-stop intra-EU service where two incumbent airlines already operate.8 shows the co-ordination status of major airports in the EU. as with the IATA mechanism. the legislation theoretically requires that a thorough capacity analysis and consultation process must take place. Italy. France. In reality. 2001 since airlines dropped routes because of the sudden downfall in traffic but did not want to lose their historical slots. Under certain conditions. aims to encourage new entrants. In order for an airport to become co-ordinated. In 2000. the European Commission has been exerting pressure for a change to a more independent situation.9). Table 5. it is generally recognized that a ‘grey market’ in slots already exists. slots may be reserved for domestic regional services or routes with public service requirements – so-called ‘ring-fencing’. 2000). Sweden. 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.

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

the UK Civil Aviation Authority consulted airlines. Following the introduction of the European slot allocation regulation in 1993. 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. This study was. An alternative suggestion is to use the auction mechanism or so-called primary trading as a means of allocating slots. would be bound to favour the large incumbent carriers as they would be the airlines most able to afford to buy the slots. At the same time. This is hardly surprising given that the European regime has largely maintained the grandfather rights system.The airport–airline relationship of the airline being purchased was considered to be its slots. the European Commission has been considering whether a better system of regulation could be introduced.. however. but this would clearly lead to considerable upheaval and disruption for both airlines and passengers. only based on the views of the UK industry. It is difficult to quantify the value of a slot but the ‘slot exchange with compensation’ between BA and KLM UK provides some guide. 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. The merits of such a system is that airlines that value the slots the most can buy the slots. Then there could just be a system of slot trading when airlines are able to buy and sell slots – so-called secondary trading. In 2001. A detailed study of primary trading and the feasibility of different options was undertaken in 2001 for the UK government (DotEcon. 2001c). Individual slots or a combination of slots could be auctioned at one particular time (Jones et al. Alternatively lotteries for slots could be held. slots allocated under long-term lease agreements could be an attractive compromise. 2003). however. More recent sales have suggested that the value of a slot at Heathrow is in the region of £50 per passenger (Andrew. However. Officially airlines have so far been prevented from such processes. After a long period of review and consultation. The simplest of all market-based options is the use of the airport charging mechanism to match demand and supply. 2001). except with the case of four US airports (see ‘Slot allocation’ in ‘The US experience’ section). At the other extreme there could be just one auction. 2003). selling the slots rights in perpetuity and then any further changes would have to be implemented through slots actually being traded. the European Commission put forward some proposals in 2001 which were passed by the European Parliament in 2002 and by 125 . Somewhere in between these two options. 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. Boyfield et al. as previously discussed. Such a mechanism. These auctions could be held every 6 months like the scheduling committees. 1992. 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. 1993). delays and congestion at many European airports has increased. 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. Any such process would also have to be seen as non-discriminatory to comply with international obligations. 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. the marketclearing price would have to be set at a considerably higher rate that is the current practice with airport charges. 1998).

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. baggage and freight handling. often the national airline or airport operator may have had a monopoly or near monopoly in ground handling. They recommended that there should be financially independent co-ordinators at each airport and that there should be better enforcement of the slot rules. ramp handling. Slot trading may ensure that slots are allocated to those who value the slots the most. Ground handling issues Ground handling activities at airports are very important to airlines. really compatible? For example. They impact both on an airline’s cost and the quality of service which they provide for their passengers. Frequently quoted aims are often to make the best use of existing resources while at the same time encouraging or enhancing competition. 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. Vienna. But are these two aims. Ground handling services cover passenger handling. Therefore. 126 . in the near future at least. but it will always tend to favour the large incumbent airlines. and airside or ramp handling. In other cases. Countries in Europe where the national airline has had a handling monopoly include Spain with Iberia and Greece with Olympic.Managing Airports early 2003 were subsequently waiting for approval from the Council of Ministers. these services are provided by the airport operators. 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. and Frankfurt airports. some immediate technical amendments to the existing regulation and second some more long-term aims. Rome. and aircraft services and maintenance. which have been heavily involved in such activities. rather than adopting just a single mechanism. 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. Such activities are often divided between terminal or traffic handling. 2003). baggage 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. first. Sometimes. 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. This was by far the most contentious issue. which is passenger check-in. as well as other aspirations. Some airport operators such as Milan. (Den Braven. earn very significant revenues from such activities – sometimes over half the total income of the airport. fuel and oil handling. Historically. Likewise. The proposals were divided into two parts. it may be feasible to focus on competition but that may cause sudden disruption in schedules. One of the problems with the consideration of slot allocation processes is that often there are too many conflicting objectives. any new system is likely to use a combination of the different approaches. as has been proposed for the EU. freight and mail handling. A report looking at slot trading for the European Commission was due to be completed in 2003. which covers activities such as aircraft loading and unloading. The technical proposals covered a number of different areas. although at most airports they are provided by airlines or handling agents. cleaning and servicing. it seems most probable that.

particularly at airports which are already at full or near capacity. Frankfurt airport was one such company but only gained exemption from competition in ramp handling in certain areas. In 1993. operated in a competitive situation (AEA. lower efficiency and may also cause considerable apron congestion. This has resulted in the EU’s adoption of the ground handling directive 96/67. in terms of passenger numbers. For example. are shown in Table 5. 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. such as Düsseldorf have been more successful. and the remaining 14 per cent were selfhandled by other airlines. The details of the directive. reducing service standards (Bass. particularly for ramp handling would merely duplicate resources. there were complaints at Lisbon airport that although there were two operators at the airport. 7 per cent were handled by independent ground handlers. For operational reasons. Many supporters of ground handling liberalization are concerned that such conditions are only prolonging the existence of monopolies at airports. The directive does allow for service providers to be limited in the ramp area. only 16 per cent were handled by the airport operator. 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. 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.10.The airport–airline relationship A study of European airports showed 44 per cent of aircraft movements were handled by airport operators. again 7 per cent by independent ground handlers and the rest by airlines (Deutsche Bank. Other airports. in some cases. 27 per cent were self-handled by the national carrier. delayed until 2000. 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. 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. There had still been a significant number of complaints and disputes regarding handling services at airports. neither was independent as one was TAP airlines and the other was Pathway which was 127 . 1996). Moreover. Providers of monopoly services claim that providing competition. 1994). By contrast. A number of monopoly handlers in countries such as Germany have applied for such exemptions. such as at Frankfurt and Vienna airports. 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. 8 per cent were handled by the national carrier for other airlines. 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. By 2002. 1998). 1997). Within Europe many have argued that air transport cannot be fully liberalized unless the ground handling activities are offered on a full competitive basis. claim that ground handling monopolies are pushing up prices and. 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. Critics of the situation. in descending order of price. which provides for phased liberalization of ground handling services. particularly the airlines.

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

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. These clauses. and hybrid (43 per cent) (Federal Aviation Administration/ Department of Transportation. combining elements of both the residual and compensatory methodologies. deregulated environment. 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. they have become shorter to reflect the more volatile. 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. 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. Capacity improvements which may bring more opportunities for competition may also not 129 . therefore. 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. The use agreements traditionally have been long-term contracts of between 20 and 50 years. 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. 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.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. In more recent years. the method by which these are to be calculated and the conditions for the use of both airfield and terminal facilities. The airlines provide a guarantee that the level of charges and rents will be such that the airport will always break even. is more akin to the single till practice. it is common for airlines to lease terminal space or gates. The residual approach. The risk of running the airport is left to the airport operator. 1999). Airports have applied these two different approaches in various ways to suit their particular needs and some have adopted a hybrid approach. There are two basic approaches to establishing the airport charges: residual and compensatory. compensatory (19 per cent). while the compensatory approach is more similar to the dual till approach. typically mean that these signatory airlines have to approve all significant planned developments or changes at the airport. 1999). and so they take considerable risk. For medium-sized airports the relative shares were residual (38 per cent). or even lease or build total terminals – as in the case of JFK airport in New York. 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 length of use agreement will normally coincide with any lease agreements which the airlines have with the airport operator. In the United States. which are far more common among residual agreements.

the total approved collections for all airports was $39. The level of landing fees tends to be relatively low partly because the airport operator provides a minimal number of services itself. Seventeen per cent of this total funding was for airside projects. These funds go directly to the airports rather into central federal funds as with the air transportation tax. There is the air transportation tax. By the beginning of 2003. Airlines have no veto rights when it comes to PFCfunded projects nor can they have exclusive rights.50.50 level. 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 most other airports in the world. in 1990.5 billion for 310 airports with 164 airports having PFCs at the maximum $4. However. 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.Managing Airports be approved by the signatory airlines. unlike revenue bonds which may require guarantees from the airlines. 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. Although the PFCs are legally and constitutionally different from passengers charges levied elsewhere in the world. the federal government approved the levying of PFCs. unlike the practice at some European airports. Passenger facility charges were first used in June 1992. This latter requirement is one of the major obstacles in the way for any significant developments towards airport privatization in the United States. The charges do not vary according to noise levels or peak periods. PFCs were first used in June 1992. 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. Secondly airports are prohibited to use airport revenues for non-airport purposes (Federal Aviation Administration/Department of Transportation. Firstly. US$2. allowed for airports to levy a US$1. or US$3 fee which had to be spent on identified airport-related projects or could be used to back bonds for the projects. However. The initial PFC legislation. This means that airports have greater control over this type of funding. which goes towards the federal aviation trust fund to provide the finance for the airport grants which are available under the AIP. Some airports have discarded MII clauses altogether. 1999). There are also separate taxes relating to agriculture and health inspection. Signatory airlines may pay less. and customs and immigration services. 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. they have a similar impact on airlines. Passenger facility charges are also largely independent of airline influence. Airport fees and passenger facility charges The landing fees at US airports are normally very simple. If PFCs are used by large and medium-sized airports then the airports have to forego up to half their AIP funding. 1996). being based on a fixed rate per 1000 lbs. there are also a number of government taxes which push up the total amount paid by the airlines and their passengers. In 2000 it was agreed that the maximum PFC could be raised to US$4. 30 per 130 .

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

traditionally the only country which has the rights and obligations clearly defined and incorporated into a legally binding contract is the United States. This temporary solution was due to end in October 2002 but has been extended until October 2004. 2001b). being driven by trends towards greater competition. For the airport industry. A new airport–airline relationship This chapter has shown how the airline–airport relationship is changing. However. the method by which these are calculated and the conditions of use of the facilities. Whilst the outcome of the consultation had yet to be decided by early 2003. as more airports are being privatized. The US agreements concentrate on the fees and rentals to be paid. Moreover. Airport charges have come under increased scrutiny from both airlines and governments. For example. In the United Kingdom. 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. In the meantime the industry has been consulted about more longer-term solutions (Federal Aviation Administration / Department of Transportation. Air Transport Association of America. This took place in December 2000. Airlines and other interested parties were asked to comment on this notice by July 2002. and San Francisco) and slot auctions. 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. more clearly defined. In short. the Department of Transportation issued a ‘Notice of Market Based Actions to Reduce Airport Congestion and Delay’. privatization. (Federal Aviation Administration/Department of Transportation. Boston. This discussed market-based approaches to charging at airports such as peak pricing. However. Los Angeles. this type of agreement exists between the privately run railway infrastructure and train operators. the airline–airport relationship is starting to become much more to do with the linking of two privately owned international companies.Managing Airports New York and New Jersey imposed a moratorium on peak hour flights. A number of airlines have therefore been considering a more appropriate. for example. and globalization within the industry. 2002). 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. These included market-based initiatives such as congestion based pricing or slot auctions or administrative processes such as favouring operations with larger aircraft. rather than two state owned organizations operated within the limits of national laws and regulations. minimum landing fees (which in fact have already existed at airports such as New York. 2002. 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. Formalized service standards are not usually incorporated into these agreements. The normal contract between an airline and an airport traditionally is the published airport conditions of use. contractual relationship with the airports which they serve. 132 . This is not a formalized relationship as it does not identify the rights and obligations of both parties. In 2001. economic regulation is becoming more commonplace. which describes the services provided in exchange for the aeronautical fees. 2001a).

additional services. more recently. there is the strategic partnership agreement (SPA) which. such as Ryanair and EasyJet. The airlines claim that such agreements could clarify the airline–airport relationship by identifying clear rights and obligations. 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). the low cost airlines. In 2002. typically 5–10 years. For example. fees and charges. Another example of a longer duration agreement is at Copenhagen airport. 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. De La Camara. 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. and obligations for both airlines and airports (ACI-Europe. ACI-Europe has identified six types of use agreements which can exist between airports and airlines. service standards. the airport operator. 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. 2000). Again. 2002). 2002a). for the increasing number of private airports which are dependent on commercial borrowing. 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. rentals. there is the facility agreement which is an additional arrangement between one or more airlines relating to just part of an airport. In Australia. First. Finally. perhaps. when discounted fees are agreed for the entire contract period (see Chapter 7). is more strategic and covers areas such as future financial investment and rights. as the name suggests. security and policing. and disputes and arbitration (Monopolies and Mergers Commission. They could also help to minimize the conflict between the two parties – thus. services to be provided in return to charges. as in the case of the United States. Second. insurance and liabilities. 1997).The airport–airline relationship outside the United States. 2004. the movement from price regulation to price monitoring. 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. British Airways (BA) has suggested that a use agreement should contain the following elements: duration and termination. lessening the need for government economic regulation (Clayton. 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. capital expenditure. 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. and provide more financial security. for example at Brisbane 133 . In 1997. protect both airlines and airports from uncertainty and risk by providing financial guarantees. which includes quality of service aspects. Then there are two types of service level agreements. 1997. and 2005 (Copenhagen Airport. terminal navigation services.75 per cent in each of the years 2003. 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. have sought more long term deals at airports. 1998). the airline industry has been looking at use agreement from a wider prospective. 1999.

At Frankfurt. 2002). 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. 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. there is a Special Review Board which has representatives from the airlines. 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.The agreement is a risk sharing model which links airport charges to traffic growth. the airlines will bear one third of the risk associated with the passenger traffic if it falls below the levels which were planned. Then in April 2002 Fraport reached an agreement with Lufthansa. ABN AMRO. References and further reading ABN AMRO (2000). ACI-Europe working paper. 134 . the first of its kind. 2002. Under the agreement. this means that Fraport is taking more of the overall financial risk as it revenues are more directly related to traffic levels. 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. 2002. 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. 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. the German Airline Association and the board of airline representatives in Germany (BARIG) which represents airlines flying to Germany. Conversely. This is a 5-year agreement.The deal has also secured the financing of a 76 million Euro noise protection programme for the local residents. 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. Big Issues: Airport Charges. applied retrospectively from 1 January. This means that the airport charges are now more related to the revenue streams of the airlines which are based on passenger throughput. A new approach to the airline relationship at Frankfurt airport In the last few years. Klenk. (Fraport. 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. Fraport and local government which has four meetings a year to discuss issues arising from the agreement and to swop information. The 2001 ratio of airports charges to the number of departing passengers is used a reference ratio for this model. ACI-Europe (1998).Managing Airports airport. Pan-European Airports Review. Hence. This agreement replaces the requirement for government approval of the level of charges for the 5-year period.

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

Admittedly. 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. The impact of these pressures on the level of aeronautical charges. Thus. Certain airports. often desiring a quick route through the airport as uncluttered as possible from the distraction of numerous shops and catering outlets. Hence. The main reason for why a passenger will choose a certain airport will. such as Amsterdam Schiphol and Singapore Changi. Increasingly. the airports have had to broaden their horizons in managing their businesses. In effect. especially between airport hubs. airport charges have become subject to more and more scrutiny from the airlines – particularly from the new breed of low cost airlines in Europe. 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. Managers are now eager to adopt more creative and imaginative strategies and to exploit all possible aeronautical and nonaeronautical revenue generating opportunities. have run highprofile marketing campaigns emphasizing the quality and good value of the commercial facilities on offer to transfer passengers. increasing numbers of people are travelling through airports and making more frequent trips. and the pegging of the level of wages. 1998). airlines are demanding that airports adopt such cost-cutting and efficiency saving measures themselves. however. particularly those from the business community. Other airports have gone one stage further.The provision of commercial facilities airports has also raised the priority given to commercial facilities. For example. 2000). Manchester gave discounts on duty-free purchases to 141 . 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. value and choice at the top of their priorities (Freathy and O’Connell. has also played a role in the development of non-aeronautical revenues. rather than raising their charges to the airlines (Doganis. A more competitive environment and falling yields have forced many airlines to focus on major cost-saving initiatives such as out-sourcing. Increasing airport competition. 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). the airlines have been exerting increasing pressure on the airport industry to control the level of aeronautical fees which are being levied. 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. Such facilities were traditionally considered to be rather secondary to providing essential air transport infrastructure for airlines. passengers are becoming more sophisticated and experienced airport shoppers. reductions in staff numbers. of course. and are generally much better informed. either from the airlines themselves or regulatory bodies. Moreover. Transfer passengers may. 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. be the nature of air services which that airport offers and the convenience of the airport’s location. In addition. At the same time. This reflects general trends in the high street where consumers have become more discerning with quality.

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

Moreover. Bangkok airport offers head and foot massage. They are unlikely to make use of facilities such as banks and post offices. and airport hotels. First. They are impulse buyers and they tend to buy duty-free if they can. Leisure passengers have traditionally been favourites for impulse buys and the use of catering facilities. a significant share of whom were UK business travellers. claimed that they had no interest in the shops and would not be persuaded to buy (Maiden. a karaoke lounge and a putting green and. Internet access. 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. 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. Twenty-two per cent of the passengers. and showers. particularly if the dutyand tax-free prices are competitive. Then there are transfer passengers. 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. and obviously will not need car hire or car parking facilities. a sauna. there is the mass market leisure flyers who travel just once a year and are in the mood for treating themselves. 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. if the transfer passengers stay for longer than 4 hours. Most airports have business facilities such as meeting rooms. and so on. At most major hubs. with 12 per cent of the sample claiming that they would shop if the prices were reduced by a tenth. Long-haul leisure passengers tend to spend more than shorthaul leisure travellers. Regular business travellers typically have a shorter dwell time and are less likely to browse in shops. Singapore Changi airport has a swimming pool. many of whom were UK leisure passengers. Amsterdam airport has an art gallery and casino. 143 . These examples illustrate the different spending profiles and preferences of different types of passengers. As a result of this business travellers make purchases relatively infrequently – although their average spend on a purchase tends to be high. Frankfurt airport provides dental. car hire.The provision of commercial facilities population at its airport and the factors which might entice them to buy. Price was the key reason given. secretarial support. For example. for instance. Sixteen per cent said they would shop if they had more time (an extra hour) at the airport. they can go on a bus tour of Singapore. Within the business market there is an increasing number of women travellers who have different needs and preferences from the more traditional male traveller. but this will only be possible if there is sufficient time between flights. optical. solarium. They may want to make some retail purchases. Business travellers also tend to make high use of certain facilities such as banks. Various airports have developed some quite imaginative airside facilities and services which can be shared between these and local passengers. 1995). Prior knowledge of the prices on offer would have encouraged 22 per cent more passengers to make purchases. A number of airports also have fitness and health centres. Vienna airport. opened its Wellness Plaza in 1999 where passengers can experience different massage techniques and make use of the fitness bar. would have shopped if the prices were reduced by a quarter. A further 47 per cent.

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

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

1 The different markets for commercial facilities at airports Facilities provided Wide range of retail. travel agents. 1999). 13 per cent meeters and greeters. terminal/transfer. Malpensa Milan airport was predicted to handle 3. 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. 8 million other visitors. At these airports. banks. and sales per passenger were 32 times greater. Some landside facilities such as post offices. land for business development/light industry Market segment Passengers (departing/arriving. exhibitions. For example. At most airports. ages. At individual airports.) Workers at the airport and in the surrounding areas Local residents Visitors – meeters and greeters Visitors – air transport enthusiasts Local businesses airport. 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. This is due to a number of general factors such as the large international traffic volumes within Europe and the relatively high 146 . catering and other essential and leisure services dependent on passenger type Convenience shops. in 1999 it was assumed that in addition to the 8. and souvenir shops Specialist aviation shops. tours. with the remaining 7 per cent being local residents and others. 1999). 2000). At Frankfurt airport.Managing Airports Table 6. 64 per cent of the landside purchasers were passengers.25 million meeters and greeters and 15 000 airport staff along with 13 million passengers (Amore. (Meznarsic. the size of this market is quite varied. 1996). chemists.5 million visitors and meeters and greeters and 3 million staff/employees at Ben Gurion airport in Tel Aviv (Kostelitz. there were 60 000 employees at the airport (Middecke. and leisure services Catering. low-cost/full cost. Airside sales per square metre were 6. gift.and tax-free sales may have a major impact on this in the future. etc. 2000). 16 per cent employees. business/leisure. catering Office/meeting facilities. catering. visitor terraces.5 million passengers. there were 8. and other essential services Shops. which must partly reflect traffic and cultural characteristics but also the methodology used to estimate the figures. and in addition. A 1995 survey of 47 European airports showed that on average meeters and greeters made up 34 per cent of the customer volume (Schwarz. however. 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. In the same year. it was estimated that 46 million passengers were joined by 7 million meeters and greeters. different nationalities. Geographical characteristics Many of the most successful airports in terms of non-aeronautical income generation are situated within Europe.8 times greater than in landside shops.

Concession income is the most important non-aeronautical revenue source. 147 . Other 26% Retail 42% Car parking 21% Catering 11% Figure 6. 2001 Source: Annual report. Also at hub airports. The 2001 ACI airport economics survey (ACI. 2001 Source: ACI. shop or retail sales accounted for 42 per cent of all concession revenue at Brussels airport in 2001 (Figure 6. These airports are dominated by domestic passengers who spend less. 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. 2002.2).1 Non-aeronautical revenue per passenger at ACI airports by world region. According to ACI non-aeronautical revenue per passenger for North American airports is much less than in Europe – averaging only US$5.The provision of commercial facilities income per capita.and tax-free sales.2 Concession revenue: Brussels airport. The dependency on the car and the lack of adequate public 10 9 8 Non-aeronautical revenue per passenger (US$) 7 6 5 4 3 2 1 0 Asia/Pacific Europe Africa/Middle North East America Caribbean/ Latin America Total Figure 6. emphasis is placed on swift efficient connections rather than providing passengers with the time to browse and shop. 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 6.1). For example. Shopping generates the most concession income and is likely to continue to do so in spite of the abolition of EU duty.

transport access to many airports means that the two single most important non-aeronautical sources is car parking (US$1.47 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.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. 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. Duty. Shopping is much less important. 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.and tax-free shops at many of the major Asian airports.3). 1999a). where traditionally most of the sales have been associated with core products such as liquor.Managing Airports Other 23% Retail 6% Car parking 43% Car hire 23% Catering 5% Figure 6. in Asia the duty. There are also arrival duty. It is surprising that the United States. This is typical of most US airports. the ratio of catering to retail revenue was also much higher. Similar practices have been introduced by BAA plc at Indianapolis and Boston airports. Branded shops and catering outlets were rarely found at US airports until this time. which is world famous for its shopping malls. in spite of their widespread use elsewhere in the country. 2000). with a revenue per passenger value of only US$0. 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.and tax-free sales are not very significant at most North American airports with the exception of certain airports such as San Francisco.87 per passenger) and car hire (US$0. For the Washington airports.and tax-free income is much more important.66 compared with US$6. which have relatively more of the total commercial area being allocated to catering concessionaires. only began to fully recognize the commercial potential of airports in the 1990s – well behind the European airports. and Honolulu which handle a large proportion of Asian traffic. The situation in Asia is very different where duty. Compared with Europe. This also reduces the overall concession income per square metre for US airports. 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. tobacco and fragrance. 2001 Source: Annual report.3 Concession revenue: Washington airports.99 per passenger). 148 . Los Angeles. such as pre-ordering products.

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. In the 1980s. In Abu Dhabi and Dubai. 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. more cost-conscious group of travellers (O’Conner. book. the traditional duty-free shop with its internationally branded products and the bland catering services with no recognizable identity. has neither the expertise nor the commercial pressures to fully exploit the non-aeronautical opportunities at these airports. who was aware of the quality and price level of the goods within the branded outlet. The developing economic conditions in some countries. and Dubai have developed extensive duty-free facilities. such as in Africa and South America. with more emphasis being placed on ‘value-for-money’ goods. The airport management. often closely tied to its government owners. and gift shop. 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. More variety was also introduced into the catering 149 . the management expertise of Aer Rianta International has been brought in to run the shops. 1999). Nevertheless.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. and Sock Shop. In addition. Approaches to the provision of commercial facilities . 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. Tie Rack. particularly in South America. airports such as Abu Dhabi. are encouraging growth in traffic and broadening the customer base for commercial facilities. In Bahrain. The specialist retail chains which had grown so quickly in the high streets started to appear at airports. The branding provided reassurance for the traveller. there generally tends to be less reliance on non-aeronautical income. prices can be kept low since the shops are operated as a division of the Department of Civil Aviation and can be subsidized. For instance. 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. Moreover. Most airports have come a long way since they just provided the generic newspaper. Spending patterns are consequently changing. inbound passengers are now a much more diverse. 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. Bahrain. 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.

became a relic of the past. Aeroport de Paris is just one example of an airport company which launched a new retail strategy in 1994. All sold products are placed in bright yellow branded shopping bags which have become a very recognizable feature in Europe and beyond. 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. and Christofle but also shops representing the tradition of Paris and France such as Musées de France and others selling gourmet French products. Brand fatigue can become a problem – particularly for the frequent traveller who can find that airport shopping can become rather dull and boring. 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. rather than according to who sells them. The catering area began to be split into a number of different. fragrances. Madrid airport has its ‘Palaces and Museum’s’ outlet which has merchandise inspired by Spain’s culture and heritage. confectionery and so on. which took up considerable valuable floor space. In most cases. Amsterdam Schiphol and Singapore Changi airports are good illustrations of such a policy. A flavour of the local environment can also be provided by theming the commercial facilities. For example. 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. Some airports have chosen to enforce and promote an airport brand rather than the individual brands of the high street retailers. Cartier. However. while the new terminal at Santiago airport in Chile tries to depict Chile’s diverse geography from desert to Antarctic conditions (Byrd. The development of airport terminals into shopping centres has not been universally popular. sometimes competing individual outlets. 2000). 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. 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. Airlines have been responding to these needs by developing automatic ticketing and self check-in which theoretically should speed up the travel process 150 . Certain passenger types. chocolates from Belgium. Hence. 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. particular business travellers who are seeking a quick transit through the terminal.Managing Airports outlets by again bringing in famous brand names as McDonald’s and Burger King. or Parma ham from Italy. All the staff wear the same uniform. 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. The airport operator decided that it would get rid of its traditional duty. 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. favour a more streamlined airport service. and fragrance shops and replace them with a new retail concept based on the large Parisian avenues called Passenger City. the large sit-down restaurant. In this area AdP put in world-famous brands such as Hermes. For instance.

Some concessionaires are appointing service assistants to greet customers in an attempt to make the shopping experience a more personal one (Anderson.The provision of commercial facilities and reduce the time a passenger has to spend in an airport before departure (Conway. 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. For instance. 151 . while welcoming the fact that non-aeronautical income can reduce an airport’s reliance on aeronautical charges. airports have also been applying other tried and tested retail practices. While flight departure ‘tannoy’ announcements have long since been abandoned at most airports because they have proved ineffective and annoying. However. is difficult to achieve if the airport is cluttered with retail and catering signage and branding. 2002). 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. 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. which have further increased resentment to airport shopping from certain passengers. As with high street shopping. 1999). in 2001.EU duty. 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. 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. At Amsterdam airport. 1996). a few airports. have made ‘shopping announcements’ instead. More recently. Some airlines have also complained that airports have been giving too much attention to developing commercial facilities while ignoring basic operational requirements. the See Buy Fly retailers are partners in KLM’s Flying Dutchman frequent-flyer programme. Clear signage to gates. 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. for example. 2000). particularly since the demise of intra. while at Gatwick airport Airtours. 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. This has been partly as a result of airports employing professional retail managers from the high street rather than always making internal appointments. 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. a major charter airline. As well as adopting high street preferences for speciality shopping and branded products. The airlines.and tax-free shopping. have periodically expressed concerns that the shopping function of the airport has interfered with the normal flows of passengers through the airports.

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

Alternatively. 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 Aer Rianta and BAA plc who have chosen to provide some facilities themselves. such as duty.and tax-free sales in 1999. particularly smaller ones. since this revenue stream will be linked to the concessionaire’s sales rather than profit volumes. BAA plc used this type of contract with its duty-free retailers in the 1990s before it operated these facilities itself. Such an arrangement will be relatively low risk for the airport operator which will tend to have little responsibility over the commercial facilities. These have been used for car parking facilities at airports for many years. Other examples include a number of regional UK airports. 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.The provision of commercial facilities The commercial contract and tender process There are various ways in which commercial facilities can be provided at airports. 1998). there is no guarantee that the concessionaire will aim to maximize its sales as it may be more concerned with profit margins. The contractual details When airport operators contract out their commercial facilities they usually enter into a concession contract with the companies providing the services. 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. The airport operator will be assured of a certain amount of revenues. There are a few companies. A typical length for the concession will be around 5 years. 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. Most airports have chosen to contract out these services to specialist retail and catering companies. such as 153 . 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. 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. This typically involves the concessionaire paying a percentage of sales to the airport operator often in addition to agreeing a minimum annual guaranteed amount.and tax-free sales. However. Some airports.and tax-free products. 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 airport operator may choose to enter into a management contract with the retail or catering company. 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. 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.

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

at least when passenger purchases are being considered. One 155 . This has meant that commercial facilities very often are not ideally situated or have been added on later as an afterthought. such as long queues for passport control. Abu Dhabi. the nature of the airport traffic needs to be taken into account. competition can come from downtown tax-free outlets for international travellers. and catering outlets. space and design of facilities. Notable examples of airports which are in a particularly competitive situation are those in the Gulf such as Dubai. Also small airports with limited passenger traffic are at a distinct disadvantage since they will not have the critical mass. is quite likely to develop into a major competitor as well. Such a delay may be popular with the commercial department but not with anyone else! On the other hand. These airlines. 2000). In Europe and North America. concession planners get involved at a much too late stage of the terminal design and development process (Gray. inflation rates. 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. Then there is the competition for airport commercial facilities. First. as previously discussed. Clearly. Purchasing patterns will also be affected by delays at an airport. 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. and reduce or even eliminate the dwell time that passengers have for browsing in the shops and having something to eat or drink. thought to be around 5 million passengers. However. is all about providing facilities close to passenger flows and not in areas which are ‘dead ends’ or are too far from passengers’ view. As the airport grows. 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. lengthy operational delays within the terminal. Factors to consider include growth in gross domestic product (GDP) and consumer expenditure. For instance. outlet size and mix is very important as is the location. level of taxation. particularly in Asia. Just as in the high street. security or immigration will have the reverse effect. and Hong Kong. 1998b. and foreign currency fluctuations. particularly the charter airlines. Kuala Lumpur. for instance. Airports go through different evolutionary stages as regards their commercial income depending on their size.The provision of commercial facilities them. and Bahrain and some Asian airports serving destinations such as Singapore. 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. 1997). Successful concession planning. more specialist shops can be added until finally the airport can be considered as a shopping centre (Jones. All too often. Walsh. which can come from a variety of different sources. In addition. E-shopping. newsagent. A delay of an hour or so for a departure slot may give passengers extra time to visit the shops or catering outlets. A change in the flow line of passengers can have a dramatic impact on concessionaire’s sales. Small airports can only really offer the basic facilities such as a duty-free shop. the UK carriers Airtours and Britannia. 2002). which are allowed in a number of countries. allow prebooking of goods in order to catch some business before the passengers can see what the airport competitor has on offer. Spending by all passengers will be influenced by the general economic climate. there are other airports. There is also competition from the in-flight sales of airlines.

BAA plc has also calculated that the incremental airport spend for each additional 10 minutes available time is £0. adopted by Brussels airport to ensure that passengers pass by all outlets. be on the same floor levels as the departure gates. 2000). but not too large that consumers may be deterred by an appearance of inactivity and empty space. The outlets should. resulting in reduced custom for each outlets. ideally. but also for staff. 2000). such as Munich airport. 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. it can have a major impact on a passengers image and perception of the airport. meeters and greeters and local residents. The amount of time a passenger has at an airport will obviously influence their shopping behaviour. They also will not want to walk long distances to be able to shop. many airports cannot maximize their commercial spend because their facilities may have been inappropriately designed as at Narita airport in Japan. 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. Particular problems can arise from terminals which are of a linear design.80 for domestic passengers and £1. 2001). as having to go through the inconvenience of changing levels may deter some passengers from visiting the commercial facilities (Doganis. have become increasingly active in monitoring their non-aeronautical performance. with their concessionaire partners. 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. Landside shopping is different as convenient locations not only for passengers. must be found. Different types of passengers spend different average dwell times in the lounge. 1992). This was the situation with the fourth terminal at London Heathrow Airport when it first opened. 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. Whilst catering tends to account for a fairly small share of total airport commercial revenues. this has caused unnecessary duplication of facilities. 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. 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. Measuring non-aeronautical performance Airports. 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. 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. located in secondary sites or because subsequent extensions of the terminal have significantly shifted the main direction of passenger flows. 1998).60 for international passengers (Maiden.Managing Airports option. This is partly due to a drive for 156 . At some airports.

2002).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). 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.09 1. These included geographic location. One of the most comprehensive benchmarking studies is the Airport Retail study which has been undertaken since 1998 (Favotto.92 0.2 Concession income at BAA London airports.58 0.31 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. Making inter-airport comparisons is difficult because of the commercially sensitive nature of the information required and lack of reliable industrywide data. 157 .37 0. For example.32 0. Asia Pacific. passenger penetration levels and sales per square metre to analyse the economic performance of their commercial facilities. 2002) In the 2000–01 research thirty one major airports in Europe.37 0.73 0. Consumer satisfaction levels and perceptions of value for money are assessed by many airports through customer surveys (as described in Chapter 4).20 0.15 0. in 2001.2 shows concession income per passenger and per square metre for BAA London airports. The study looked at performance indicators such as retail revenue per passenger and retail revenue per square metre both airside and landside.68 0. Africa. In addition.58 1. airports use indicators such as sales per passenger. Table 6. By way of illustration.39 0. the Geneva airport survey found that 46 per cent of respondents felt that airport prices were too high (Geneva Airport. and North America were investigated.The provision of commercial facilities better performance monitoring of all aspects of the industry and also because retail experts.24 0. The relative small amount of income per square metre which was generated from catering facilities is typical for most airports. and analysed various factors which helped explain the comparative results which were obtained. the volume and Table 6. with experience of assessing retail performance at other locations.26 0. ownership model.24 0.12 2.12 2.02 0. 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. are being bought in to manage airport facilities.27 0.

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

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).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 . BA Figure 6.

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

The provision of commercial facilities victims of their own very successful awareness campaigns. 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. 2000). Source: Compiled by author from annual accounts. 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. 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. 161 .3 Short-term impact of the loss of intra-EU duty. 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. 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. 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. and hence stayed away from all airport shops – even those passengers who could still use them. While for many airports. The travelling public was sold the message that duty. the loss of revenue within the first year of operation after this development was in many cases considerable (Table 6. retail income was down by 20 per cent in July 1999 compared with the equivalent amount in 1998.and tax-free shopping would no longer be available after 30 June 1999. To address the confusion among passengers. Many of the EU airports. rather than from January to December. in partnerships with their retail concessionaires. 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. have absorbed the value added or sales tax themselves – effectively offering the merchandise still at ‘tax-free’ prices. a number of airports launched major marketing campaigns. Tax paid revenue up by 12%. the situation improved after the initial reaction to abolition.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 1998.3).

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

since 1999. and personal shopping consultants at its airports. Moreover. A year later. 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. In the same year. 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 also introduced a free telephone enquiry number for shopping facilities. and car parking. 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. Savings of up to 50 per cent were assured for duty-free goods such as liquor and tobacco. shopping and currency exchange. eating. a travel insurance scheme called BAA WorldSure and a new range of airport upgrade packages. 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 . whereby points could be earned for car parking.7). Second. the renowned food critic. banking. such as nationality. and 30 per cent for fragrances. this scheme had over 300 000 members. Egon Ronay. the survey has also included 6 600 passengers at Stansted. There were various elements to this strategy. a regulatory review looming which would determine the level of aeronautical charges for the next five years.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. BAA launched a credit card BAA WorldCard. In 2002. choice.This promised a full refund on goods bought at BAA airports to passengers from any region of the world. Around 30 000 passengers at Heathrow and 14 000 passengers at Gatwick are annually interviewed and. costs were increasing at the airports and passenger growth was slowing down (Phythian. drinking. a quarter of whom were not UK residents. This led to the launching of a new retail strategy in 1990. BAA plc launched its value guarantee in 1991. branded AirportPlus. 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. 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. Information about the key characteristics of the passengers. The passengers are asked about which outlets they have visited and the amount they have spent – both landside and airside. 1996). By 2000. The bonus point initiative was subsequently adopted at all the airports in 1996 and re-launched in 1999 as world points. The QSM considered more effectively issues such as quality. with a freepost address in the United Kingdom and refunded postage elsewhere. and his team of inspectors began to monitor the quality of all the catering outlets at Heathrow and Gatwick airports. At Heathrow and Gatwick airports. pre-ordering possibilities and help desks. and reason for travel is also gathered. frequency. The next stage of the value guarantee was introduced in 1994 after BAA plc had undertaken further extensive market research into its commercial operations. BAA plc began undertaking a continuous departing passenger survey called a retail profiler. at Gatwick airport the bonus points scheme was launched. speed of service and value for money. In addition.

BAA plc acquired the US retail chain Duty Free International which had around 200 outlets. if targets were exceeded. and car parking to take place. Up until 1993. spend. A new website was introduced in 1998 which gave information about the commercial facilities on offer and enabled the pre-ordering of retail goods. BAA plc funded the costs and kept all the sales revenue except for paying a management contract fee to the concessionaire. 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. the concessionaire would receive a share of the profits. 1990–2002 Source: Annual reports. a wholly owned subsidiary of BAA. Gradually BAA plc started to replace the management contracts at its own UK airports.and tax-free shopping. This was relaunched in 2000 with dedicated ‘Airzone’ sites for each airport. BAA plc wanted to take more responsibility and control. With this system. either through commercial management contracts or as part of an overall privatization package to operate the whole airport. This process was completed in 1999. 2000). which it established to run airport duty. and obtain procurement discounts. Links to the expendia website were established so that travel arrangements could be made. currency. these facilities were provided by concessionaires using a traditional concession fee basis. In addition. 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.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. 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.and tax-free shops.Then in 1996 BAA plc launched World Duty Free. BAA plc now has more control over its duty. mainly in 169 . 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. Subsequently in 1997.7 Retail space at BAA UK airports. Another feature of the retail strategy in more recent years has been development of the internet as a marketing and distribution medium. so they negotiated new management contracts with their concessionaires. In 1993.

Launceston.6 summarizes the key retail developments which have taken place in the last 12 years. the abolition of intra-EU duty. 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. Although this downward trend showed signs that the situation was improving. This subsidiary was renamed World Duty Free Americas with BAA’s original duty-free company being renamed World Duty Free Europe. In July 1999. However. the first month after abolition. BAA plc has been involved in the management of commercial facilities at Boston airport. Naples) or airport management contract (Indianapolis). In addition. This was a 15-year agreement signed in 1991 – which has subsequently been extended until 2017. With this arrangement the airport operator was guaranteed an index-linked US$0. the share of revenue from these commercial sources has increased dramatically in the last 12 years (Figure 6. and if further income were generated. 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 .8).Managing Airports the United States at airports and border crossings. 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 revenue was to be split.and tax-free sales had a major impact on the financial performance of BAA plc. where the abolition of sales appeared imminent and to increase the company’s purchasing power. Table 6. As a result of all these non-aeronautical activities. The acquisition was undertaken to provide greater geographical strength away from Europe.40 per passenger. it did not stop BAA plc share price falling by around 30 per cent by October 1999. 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. A number of other centres have opened subsequently or are planned.To overcome the confusion among passengers. Another area of retail diversification has been discount designer outlet centres. In August it was down by 16 per cent and by September by just 13 per cent.The AirMall was opened in 1992. In a parallel development in the 1990s. it reconfigured passenger flows in its major terminals so that passengers were channelled through the shops where they could still make purchases. Consequently. BAA plc began to manage commercial facilities at non-BAA airports The first main contract was for Greater Pittsburgh International airport. net retail income at all the UK BAA airports was down by 20 per cent. 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. 1999). BAA plc introduced a number of strategies to address this problem. It was also involved in diplomatic and in-flight business. BAA plc has also looked after the commercial facilities at airports where it has an equity share (Melbourne.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.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. BAA plc received a certain share of income above this amount.

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. 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. Eurotunnel contract awarded World Duty Free Inflight business sold. and a range of spirits and cigars. it’ – and ‘it still costs less at the airport’. On the aeronautical side passenger fees were raised by 58 pence per passenger – equivalent to an increase of around 12 per cent. 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. BAA plc added extra retail space and is planning for still more. 1999–2002 Source: Annual Reports. bonuspoints re-launched as worldpoints.8 Revenue sources for BAA. QSM introduced Value guarantee launched.The provision of commercial facilities Table 6. For EU passengers. 171 20 01 /2 . 40 per cent savings on fragrances were offered with up to 20 per cent savings on wine. BAA WorldCard and WorldSure introduced World Duty Free Americas sold BAA McArthur/Glen joint venture dissolved Source: BAA Annual reports. champagne. Eurotunnel contract terminated.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.

9). Overall profits before tax were down by 2.6 per cent which was the first decrease since 1991–2 when the economy was in recession and the Gulf War took place (Figure 6. retail revenue from duty. leaving BAA to focus on the 58 World Duty Free outlets at UK airports. 1999–2001 Source: Annual Reports.9 Profitability – BAA. by 2001–2000 UK retail sales had recovered and increased by 6 per cent compared with the year before (BAA. rising by 8 per cent before 11 September 2001 but decreasing by 1 per cent after this event (BAA. In the same year World Duty Free Americas underperformed against BAA plc’s expectations. the loss in total retail revenue was 7 per cent. 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. The result of this meant that in 2001–02 nonaeronautical revenue increased at UK airports but decreased overall for the BAA group (Figure 6. overall.and tax-free shops had fallen by 18 per cent compared with the previous year. Retail revenue from other shops was up by 12 per cent so. However. BAA also terminated the Eurotunnel contract which lost the company £20 million in 2000.8). 2001). the BAA–McArthur/Glen joint venture was dissolved and BAA aims to exit permanently from this activity in the future. The in-flight business of World Duty Free was sold in 2000 and World Duty Free Americas was sold in 2001. and this meant that in September 1999 BAA plc wrote down goodwill by £147 million in respect of this business in its accounts. By the end of the 1999–2000 financial year in March 2000. 2002b).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. In 2002. 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 . They continued to increase by a total of 3 per cent in 2002–2001.

All routes to the 27 departure gates go through the retail area. were limited to 1000 per draw. 2000). 2003). The duty-free shop operator Dubai Duty Free (DDF) is also run by this department.The provision of commercial facilities flights. totalling around US$306 million in 2002 (Dubai International Airport. US$200 million five-level Sheikh Rashid terminal concourse (Walters. by early 2003. Another important area of diversification for the airport is the Dubai Airport Free Zone which was launched in 1997. Other competing airports in the Middle East. In 2002. Dubai airport is the largest airport in the region. in 1987. Since 1984. The tickets. 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 promotion was extended throughout the 1990s with a continuous high-profile display of luxury cars in the airport concourse. This promotion offered US$1 million to winners of the ‘Millennium Millionaire Draw’. In 2000.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. it handled 16 million passengers compared with just 4. 1 078 luxury cars had been won by travellers from over 65 different countries. It works closely with the national airline. DDF also runs a tennis stadium and an Irish village with restaurants and pubs away from the airport. as before. 20 passengers had been made millionaires! 173 . Emirates.5 million in 1989. the turnover associated with these sales has increased by over 1000 per cent. The airport is forecast to handle 30 million passengers in 2010 – although it only has a national population of 790 000. This state ownership enables the prices to be kept low and very competitive compared with other airports. the airport launched another promotion called the ‘Dubai Duty Free Finest Cyber Surprise’. 1999). The airport is owned and operated by the Dubai Department of Civil Aviation. and public facilities such as retailing and catering.This promotion offered a Rolls-Royce Bentley Mulsanne car to the winner of a raffle.2 million square metres and includes areas used for apron space. which is based at the airport. which has become the major trading base of the Gulf region as well as being used as a transit stop for intercontinental services. a new duty-free area was opened at the airport in the new 180 000 square metres. light industry. as well as airports in other areas such as Malta have also undertaken similar promotions. The airport serves Dubai. such as Abu Dhabi and Bahrain. It is the fifth largest duty free outlet at an airport in terms of turnover. and cigarettes and food represent a further 45 per cent of sales (Bampton. which were sold exclusively at the airport at over $100 a ticket. were limited in number (5000 this time) to increase the chances of winning ticket. arrival duty-free shopping was added. In November 1989. the DDF launched its ‘Dubai Duty Free Finest Surprise’ to mark the expansion of its shopping complex. This covers an area of over 1. Gold and jewellery account for around 16 per cent of these sales and liquor. The first DDF shop was introduced in December 1983 and then. To commemorate the opening of these new facilities. Tickets for this draw could only be bought at the airport for nearly $300 a ticket and. After 1991 two cars were offered simultaneously and.The duty-free complex covers an area of 9 000 square metres and is four times larger than the previous shop. By the beginning of 2003.

swimming pool. gym. this increased emphasis on commercial facilities has not been popular with all 174 . capable of handling 20 million passengers and raising total capacity to 64 million passengers. 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. 33 million at Hong Kong. There is also an airport hotel situated in the transit area which has many facilities including a karaoke room. It also has a science discovery area which has devices such as holograms. and jacuzzi. The airport is now building on an already relatively sophisticated commercial strategy which it has had for many years. 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. and other interactive exhibits. It also has a bamboo garden in Terminal 1. It now has an extensive Internet area which includes numerous personal computer connection points and infrared Internet access kiosks. it has five themed gardens! It has a cactus garden located in Terminal 1. mini putting green. Moreover. To appeal to transfer passengers it organizes bus tours of Singapore. it has three television thematic lounges. sauna.Managing Airports Singapore airport: aiming to maintain its position as a leading Asian/Pacific hub Singapore Changi airport. One of its unusual features is its gardens. is due to open in 2006. and 15 million at Kuala Lumpur. which has more than 20 varieties of cacti which are native to North and South America. 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. A third terminal. traffic had more or less recovered. Then after 11 September 2001. This compares with 13 million passengers at Changi airport in 1989. 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 terminal also had a fern garden and outdoor garden terrace. In addition to all these commercial facilities for passengers. which is owned by the Civil Aviation Authority of Singapore. In all. 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. its passenger traffic dropped by 5. However. By 1999. 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. colour-blindness tests. It offers a very wide range of commercial facilities and has pre-shopping facilities and price guarantees like BAA plc and some other airports. There is a news lounge. In 1996 it was one of the first airports to offer Internet services to passengers.4 per cent in 1998 – the first decrease ever for the airport – as a result of the Asian crisis. In addition. 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. has developed some interesting strategies in order to maintain its position as a hub in the very competitive Asia and Pacific market. In 2001 the airport handled 28 million passengers compared to 31 million at Bangkok. The airport aims to ensure that it provides the latest technological and communication services – particularly for its business travellers.

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

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

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and reactive responses to press enquiries about the airport.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. with the view being that this should be undertaken by the airlines and travel agents selling the products. In most cases. Prior to this. the resources allocated to marketing activities were very small. generally. Promoting the air services at the airport was also not considered to be a responsibility of the airport. It was up to the airport to provide an efficient and safe airport with good facilities for aircraft and travellers. 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 . This passive approach has long since gone at most airports. 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. It was rare to find airport marketing managers and. typically consisting of the production of a timetable and publicity leaflets. the airports considered it was solely the role of the airline to identify opportunities for new or expanded services.

have emerged. The airport sector is no longer an exception and marketing is increasingly being seen as an integral part of the airport business. In addition. has meant that there have been enhanced opportunities for more airports to share in this expansion of the market. for example. the majority of airports were devoting considerable resources to marketing activities. 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. are much freer to operate out of any airport they choose without being constrained by bilateral restrictions. which. This means that there may be attractive prospects for other airports to promote themselves as alternative uncongested airports. for example. Within any commercially run business. low-cost carriers such as easyJet and Ryanair. New types of airlines. and globalization trends within the airline industry have increased the commercial pressures being faced by airlines. 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. 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. They are thus much more susceptible to aggressive marketing by airports. which certain airports may wish to attract through a range of marketing techniques. 16 10 4 7 7 2 1 1 1 179 . deregulation. freight forwarders. Airports have had to develop more sophisticated marketing strategies and tactics to meet the needs of the traveller. in turn. The increase in demand for air transport due to deregulation and other more general factors. privatization.The role of airport marketing the demands of their complex mix of customers such as passengers. Deregulation of air transport markets has made the airport business much more competitive. airlines. By the late 1990s. such as economic growth. has encouraged airports to recognize the need for a professional marketing-orientated approach when dealing with their airline customers. The travelling public has also become more demanding and more sophisticated in their travel-making decisions and their expectations of the airport product. Airlines in Europe. Moreover.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). tour operators and so on.

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

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 .g. for example. particularly those travelling on business. 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. to be the ‘London airport’ in spite of a range of services being offered at the other London airports. which suffers from runway constraints. for example. and SEA. Some limited evidence of such a practice.g. short walking distances from the terminal to the aircraft. In many cases they are situated substantially further from the town or city they are serving compared with the competing airports.The role of airport marketing In the London area. Rome Ciampino airport) or freight operations (e. Elsewhere separate ownership patterns exist. Table 7. This is particularly the case with Ryanair at Dublin airport where a new competing terminal may be built (Hogan. Alternatively. and fewer delays. for example. which is what the low-cost carriers want. the Milan airport operator. They are also usually in a position to be more flexible on pricing and to enter into long-term pricing agreements. owns Hahn airport. These airports offer faster turnarounds. Sometimes these airports may be owned by the same operator who has control of the competing airports. 1995). 2003).2). The secondary airports tend to fulfil more specialized roles (Dennis. owns Bergamo airport. centrally located secondary airports may be able to attract a certain amount of domestic or short-haul traffic. has not proved to be particularly successful but it remains an important issue (CAA. which are all vital elements of the low cost model. BAA plc owns Stansted airport. They may act as an overspill airport when the major airport has inadequate capacity. particularly business-related traffic. 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. and the nearby secondary airport of Moenchengladbach. Other airports may choose to specialize in charter operations (e. Some low-cost airlines have suggested that there ought to be competing terminals at airports run by different operators. Liège airport). as is the case with Düsseldorf airport. 2001). Heathrow airport is considered by many passengers. Frankfurt airports. at JFK airport in New York and Toronto airport in Canada.

London. The exception may be with some intercontinental traffic when passengers might be more indifferent. very much dependent on the operating strategies of airlines. 1999). This is particularly the case within Europe where most long-haul freight is trucked to its final destination. Americans visiting Europe may not have a strong preference as to whether they start their European tour from Paris. The same can be true with cargo traffic. Caves and Gosling. Hong Kong. Milan is a more recent case where there has been considerable reluctance for carriers to transfer from the Milan Linate airport. Certain airports can compete as hubs for cargo operations especially for express parcel services. which is closer to the city centre. demand comes from a variety of markets each with their own specific requirements. and Denver (ACIEurope. 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. Most airports would probably agree that both airlines and passengers are key customers. 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. has provided the impetus for more intense competition for hub traffic. 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. For the airport product. the only feasible way of ensuring that traffic will transfer to the new airport is by actually closing the old one. 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. Unless effective regulation is introduced. or Frankfurt. particularly if they are open all night and have a good weather record. In addition. Hub airports are. and Macao. passengers will have a specific destination in mind when they travel. 1999. Marketing concepts The market for airport services The focal point of any marketing system is always the consumer of the services. which has happened in locations such as Munich. it is useful to divide this demand into two. whereas airlines tend to think of passengers as their customers and themselves as customers of the airports. Oslo. The marketing techniques used for these two types are very different. however. While many medium.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. Hong Kong.and large-sized airports have aspirations of becoming a hub. The other important way in which airports compete is as a hub. there are the other market segments such as local residents and businesses whose needs must also be met. From a marketing perspective. therefore. In most cases. compete for this traffic. New infrastructure. For example. to the newly expanded Milan Malpensa airport. notably at Asian destinations such Kuala Lumpur. Airports serving these cities can. A notable example is Montreal Mirabel’s airport. Obviously these types of demand do not impact directly on the amount of aeronautical revenue and traffic throughput at an 182 .

1996). Concessionaires. and other freight companies. For example. 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. Table 7.3 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.3 shows some of the major market segments at an airport. and do not want to be distracted from the departure monitor. it can sometimes be useful to consider it by travel behaviour in order to match more closely the needs of each market segment. 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. finally. Airline alliances could well be given special consideration. 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. A common way to segment demand is by airline product type. the market may be segmented into integrators. 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. but only after these other factors have been taken into account. and other organizations such as handling agents can also be considered customers of the airport. cost. 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. have a fear of flying and of missing the plane. with passenger travel this would include a full-cost traditional service. For example. facilities such as fast-track processes and airline 183 . They can also help airports in acting as a catalyst for economic development. 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. 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. Then. passenger airlines. and ease of surface access to a certain airport can also be very important. In the cargo area. for example. choosing an airport is the result of an amalgam of many decision processes (Table 7. For each type of customer.The role of airport marketing Table 7. For passengers. Factors such as the distance. cargo airlines. For business passengers. there are ‘Agoraphobics’ who have the lowest level of need. tenants.4). a low-cost service. and a charter service. Rather than considering the demand by product type or purpose of travel. The quality of the airport product can have a marginal impact.

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. Other important elements include the availability of attractive slot times. the quality of the provision of wheelchair. for why five airports in the United Kingdom. handling) Marketing support Range and quality of facilities Ease of transfer connections Maintenance facilities Environmental restrictions lounges may affect choice.g. obtained from passenger surveys. Other customers will take into account different factors. Gatwick. Table 7. 1998). It may be because of ignorance about the other airports. especially among travel agents. and the network performance of the airport . lifts. this may be because of better flight availability and frequency at the main airport. The location of airport and flights on offer are 184 . Depending on the type of route being considered. it is clearly the nature of the catchment area rather than design details of the airport facilities that are of paramount importance. key factors are business and tourist appeal of the catchment area for incoming passengers. For the airline and other trade customers such as tour operators. 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. namely Heathrow. but not always. Birmingham and New Castle were chosen in 1998/99. Manchester. while for customers with special needs. disabled passengers. and the characteristics and purchasing power of those residing in the catchment area (Favotto.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. Then there are other factors that are more difficult to explain and quantify. This is especially the case among the business community. 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. 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.5 gives reasons. fuel. For example. In some instances.Managing Airports Table 7. 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. The marketing assistance that the airport is prepared to give. 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. the presence of competitors. For example. and general assistance may be important. for example.

The timing of flights appears to be a more influential factor at Heathrow.5 6. Product features.The role of airport marketing Table 7.6 100 62. with an additional 13 per cent picking it because it was near to their business or leisure destination.7 0. For the London airports. brand name. In highly regulated markets. and augmented elements. Through modelling survey data.1 4. to meet the needs of different market segments.6 0. such as Nigeria in Africa.6 6. and packaging will all make up the physical product.6 25.5 2. The airport product The airport product consists of a supply of services. flight frequency.3 6.5 2. The augmented product is then additional consumer services and benefits that will be built around the core and actual products.2 2. while the actual product delivers the benefit.7 6.3 0. Ashford (1989) identified three key factors affecting passenger choice.3 2. 2000.0 19. both tangible and intangible.4 2.4 3. Much of the competition will typically take place at the augmented level (Kotler et al.5 100 49. chose the airport because it was close to their home. design. actual or physical.2 2.7 1. 1996).7 5.1 0.2 10.5 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 12.7 4.4 7. most important is the nature of flights on offer – at Heathrow for both local and connecting flights.7 3.8 0. flight frequency and air fare were found to be unimportant and surface access time to be very influential.0 100 47.9 3. than at the other airports.0 51.1 6. and will distinguish the product from others.2 1. Sometimes 185 . Half the passengers at the regional airport of Manchester.5 10. Similarly locational factors are very important for the regional airports of Birmingham and New Castle.3 2. and air fare. The core product is the essential benefit that the consumer is seeking.3 4.1 9.8 38. because of its higher share of business passengers.2 100 Source: Civil Aviation Authority.. quality level.7 2.7 4.0 100 20. 1999.6 2.2 0.0 1.6 4.9 10.0 0.8 17. Marketing theory often divides the product into the core. the key factors determining choice.8 2. namely access travel time. however.0 6.

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

Other airports will include the name of the nearest large city or town. which all give the product an identity. 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. with the London area there is now not only London Heathrow.e. Ultimately most decisions concerning the choice of airport will be based primarily on the air services available at the airport (i. 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. and Skavsta as Stockholm South. the airline product) and the proximity of the airport to the potential customer. Whether such ‘branding’ actually gives an airport any competitive edge is. and London Stansted but also London Luton. The name EuroAirport for Basel-Mulhouse airport has been devised to reflect its central European location and bi-national ownership characteristics. These tangible and intangible features of the identity differentiate the product from its competitors. London Biggin Hill. and advertising. 2000). very debatable although it may make the customer feel more at ease because of the familiar surroundings. BAA plc has traditionally used a common and constant brand image for its seven UK airports. especially retail areas (Peterson and Malmgren. signing. 2001). Other interesting examples include Zürich airport. however. Many airports use a number of sub-brands for different areas. and eye-catching logos and designs on promotional information and within the terminal itself. logos. Similarly. use of similar signposting. merchandising. partial privatization.The role of airport marketing Related to the concept of the airport product is the idea of an airport brand. In marketing theory a brand is represented by a name. Marketers often give considerable attention to the name of the airport. For airport operators who own more that one airport. Charleroi is known as Brussels South. 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. even if it may not be particularly close. and expanded facilities (Hill. 187 . design. Sandefjord-Torp as Oslo South. 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. and interior design may also be used for all its airports. 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. For example. 1996). 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. Too many brands may confuse passengers. London Southend. and there may be more conveniently located airports. 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. 2000). Manchester airport has used ‘Manchester Connects’ for its transfer product and ‘En Route to the World’ for its retail product (Teale. however. they may choose to drop the international name as Manchester airport did in 1986. In the same year. as airports become more developed and more well known for their range of services. For instance. colour schemes. and London Ashford. London Gatwick. London Manston. when marketing to airlines. which was rebranded as ‘Unique Zürich Airport’ in 2000 to reflect a new management structure.

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

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

4 17. £3 additional revenue goes to the airport (Competition Commission.5 6 6. Around half of the costs was estimated to be associated with new services.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). Manchester airport has estimated that for every £1 spend on support of tour operators. In 2002–03. Manchester airport was particularly active in this activity in the 1970s and 1980s when it frequently attempted to get gateway status. namely reductions/rebates in airport charges and contributions to joint marketing campaigns. Since 1998. Such services 190 . The airport may also promise to help to lobby government to remove bilateral regulatory obstacles.6 1. In prearranged.2 3. This has averaged around £5–6 million compared to total costs of about £200 million. 2002). one-to-one meetings airlines explain their expansion strategies to airports.6 Airline and tour operators marketing support costs at Manchester airport.6 19. it was forecast that rebates would account for about two-thirds of this marketing support. in a number of bilateral agreements. and car parking income.8 4. These costs obviously have to be off-set against the additional revenue that will be brought to the airport in terms of airport charges. alongside the London airports. as well as marketing initiatives in the form of discounted fees and other incentives that the airport may be in the position to offer. New routes. frequency increases.1 18. catering. 1998–2003 Year Marketing costs (£ millions) 6. which successfully helped persuade the regulatory authorities to agree to non-stop services being operated to Shanghai.7 Passenger numbers (millions) 17. a quarter to prevent reductions in existing services and the final quarter to help tour operators who brought additional traffic. retail.5 6.6 shows the costs associated with the marketing support.5 18. which Manchester airport has given.7 4. 75 airlines have benefited from some help. and opportunities for connecting traffic may be discussed. but with six receiving 72 per cent of this and 20 receiving 94 per cent. For example. An interesting development as regards airline marketing has been the ‘Routes’ conference.4 1. Table 7. who in turn try to sell the virtues of their facilities and services.5 2. A more recent example is San Francisco airport.Managing Airports 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.

Then. Airports may also choose to give advice on scheduling decisions. 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. Moenchengladbach airport near Düsseldorf. Since all the facilities. An example of this occurred with new terminal capacity at Luton with the low-cost carrier easyJet. It was at this time that the name 191 . 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. for example. A good example of this practice is again Manchester airport. airports will be able to offer discounted airport charges but will have no control over handling or fuel charges. the airport operators are able to offer discounted public transport for the airline passengers. including aircraft fuelling. 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. At other airports. and Rimini airports. particularly if an airline is to benefit from connecting traffic from other airlines. its passenger levels fluctuated at around 50 000. are owned by the government. the new services may be supported because of the potential broader economic benefit that they could have on the whole region. 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. in 1997.The role of airport marketing began in 2000. which worked together with airlines to coordinate the arrival and departure time of air services in order to create ‘Manchester Connects’ – the interline hub. 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 airport is in a position to do this and to have complete control over what it offers to the airlines. The most common airlines to benefit from a total package of measures are the low-cost carriers. Lamezia. 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. If the airport is under regional public ownership. In many cases. Between 1990 and 1996. Ryanair began to operate two flights a day to Dublin and the airport passenger numbers increased dramatically to 200 000. However. 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. 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. 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.

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). 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.Managing Airports was changed from Charleroi Airport to Brussels South Charleroi Airport (BSCA) (Jossart. In addition. Table 7. 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. It has also expanded the duty free and catering outlets to cope with the additional passengers and increase the overall non-aeronautical revenues. Ryanair pays very low landing and handling charges starting at 1 Euro per passenger which goes up to 1. Table 7. incentive payments for each route started. and Ryanair’s costs for local crew hiring and training.13 euros in 2006 and 1. For example. which together with the low charges results in a net benefit to Ryanair. 2003). However. 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.00 Handling fees/ pax: 1. in 2003.00 Marketing contribution/pax: 2. 2001). BSCA also contributes towards other expenses incurred by Ryanair.3 euros in 2010. 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.7 Elements of agreement between Ryanair and BSCA Annual Payments Amount (euros) Cost assumptions (euros) Landing fees/ pax: 1. 2003).7 shows the reported details of the arrangement made between BSCA and Ryanair. 192 . The expenses covered by BSCA include marketing support.

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

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

Arranging school visits and other trips will also be an essential public relations activity. and freight forwarders. 195 . 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. and trends. 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. airports tend to receive extensive coverage. particularly should anything so wrong. and so on. Generally. foreign media is crucial. or in addition. have a major impact on the local community not only by providing local flights for the residents. On the other hand. age. but the airport has a rather unique relationship with its passengers as it is not directly selling a product to them. regional. In some countries. For all these reasons. Most major airports will carry out periodic surveys of their passengers to find out details such as origin and destination. and the more subjective area of passenger satisfaction. in some cases.The role of airport marketing The ultimate aim of promotional and advertising activities is usually to sell a product. and. 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. surveys may be undertaken by the national civil aviation authorities or government transport departments instead of. to those carried out by the airport operators. the CAA regularly surveys passengers at all main airports. These surveys may be tied in with the quality surveys so that correlations between passenger profiles and levels of satisfaction can be made. 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. Most research will cover two areas. Airports. local businesses. but also by generating jobs and other economic benefits. This has the advantage in producing survey data that are directly comparable for different airports. segmentation. Views about current services and particularly any underserved destinations can be gleaned from organizations such as travel agents. and hosting events for journalists and travel writers can increase interest in the airport and stimulate press coverage. For example. the environmental impacts such as noise and pollution are of major concern. Information about passengers can be collected from a number of different sources. Similarly. namely market characteristics in terms of market size. Passenger surveys at the airport are the most common but surveys or group interviews at home or at work are also possible. of course. Bahrain. 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. national. and Abu Dhabi. both favourable and otherwise in the press. sex. flying frequency. in the United Kingdom. socio-economic group. share. the aviation industry being the newest of all transport modes still holds a fascination and wonder for some and a fear for others.

The alternative is to use stated preference techniques when passengers are asked to state their preference between a number of different scenarios. 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. Most of the market analysis that is undertaken is based on revealed preference techniques. Such information can give airports invaluable insight into how passengers rate the factors that influence passenger choice. For airports that attract many business travellers.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. with over 60 per cent of the passengers working for banking and finance organizations. 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 instance. This is the area where most of the local traffic comes from and so will be where airports concentrate their marketing effort. 1995). particularly in the regions. and the competing services at other airports.Managing Airports Market research information. can significantly alter the catchment size. 196 . 1998). Table 7. by assessing the passenger’s current behaviour to determine future travel patterns. will assist airport operators in the identification of new routes or enhanced frequency opportunities. the demographic characteristics of the residents. or new or additional services at neighbouring airports. however. their application within the airport industry is more limited. passengers might be asked how they would trade-off higher journey cost to an airport compared with journey time. 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. and tourist activity within the area. business. at London City in 2000. refer to the surrounding population and economy that they serve as their catchment area. Manchester airport was one of the first airports to use such techniques in the mid-1980s (Swanson. Improvements in the road infrastructure or public transport. Data that are particularly useful are the true origin and destination from global distribution systems such as Sabre and Amadeus. Many regional airports have overlapping catchment areas. Isochromes of longer times may represent weaker or secondary catchment areas. supplemented with traffic data. that is. 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. 64 per cent of all passengers through the airport travelled for business purposes. For example. The most basic approach to defining a catchment area is by using a certain drive time period criteria – typically 1 hour. The catchment area is a dynamic rather than static measure that has to be constantly reviewed and revised. The techniques have been used to look at airport choice and also transport modal choice for surface access. normally beyond the reach of many airport marketing department budgets. The cost of obtaining such information is. 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. 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. It also changes depending on the destination being assessed. Most airports. the economic. While stated preference techniques are widely used for other transport modes.

the airport had scheduled services to a number of domestic destinations. is accessible by two motorways. and has a rail station that has direct services to London and other southeast destinations.8 Main catchment areas of London City airport.9). mostly in professional or semiprofessional occupations.8 million m2 under construction 0.The airport is situated on the south coast of Britain around 80 miles south of London.3 million m2 office space exists 0. 2002 Docklands/Canary Wharf 27% originating passengers in 2000 City of London/Westminster 18% (City of London). Southampton Corporation. 197 . Various subsequent changes in ownership took place until the airport was finally purchased by BAA plc in 1990. Business travellers accounted for 49 per cent of the traffic in 2000 compared with only 18 per cent in 1985. and a runway refurbishment. A significant proportion of the passengers are relatively frequent travellers. In 2002. which was completed in 1997. 14% (Westminster) originating passengers in 2000 City of London 331 000 people work in City 80% in financial services 481 foreign banks 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. 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. with 72 per cent of them travelling alone (Table 7. Since then BAA plc has invested £27 million on a total redevelopment of the airport that has included a new terminal. which was opened at the end of 1994.The role of airport marketing Table 7. This is also reflected in the fact that two-thirds of the travellers are males.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).

1999). Barcelona. package holiday travellers represented just 6 per cent of total traffic in 2001 – a much lower share than at most other UK regional airports. In addition. Dublin.1). for example. and Toulouse. Malaga.Managing Airports Table 7. Bristol. Paris. Milan. Much of the leisure traffic in its catchment areas uses services from the nearby airports of Gatwick. In 1990. and the international airports of Amsterdam. It also has periodic meetings with the travel and aviation press. Source: Civil Aviation Authority (2001).The airport also aims to forge links with the local community. the ‘Scoops’ group. traffic growth 198 . At the most basic level it has a request book at the information desk where travellers can fill in suggestions for new destinations. The marketing department meets with a group of frequent business travellers. overall. the annual throughput of passengers at the airport was around 493 000 (Figure 7. 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. Nice. Around three-quarters of the airport’s traffic is domestic. Brussels. Its overall rating in BAA plc’s quality of service monitor in 2001–02 was the best out of all BAA plc UK airports. at least four times a year to discuss future developments at the airport. In the early 1990s. and Bournemouth. when BAA plc bought the airport. 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. including the nearby Channel Islands. In spite of its small size. It also has some limited summer service charters but. Geneva. by sponsoring the region’s youth games. 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.9 Passenger profile at Southampton airport. Cork. 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. Frankfurt. The airport has a range of marketing activities to encourage traffic growth.

It has been operated by the local authorities of Norwich City and Norfolk County as a commercial civil airport since 1969. was handling 788 000 passengers despite a decline in traffic in 2002 due to the event of 11 September 2001. Norwich airport Norwich airport is a regional airport situated in East Anglia in the east of Britain. but the dominance of North Sea oil-related business 199 . the airport experienced far greater growth and. but growth was also considerably less than the average annual rate of 4. with the new facilities in operation and with an increased emphasis on airport marketing. However. In the late 1990s. In 1995. This means that compared with Southampton airport there are more travellers from the C2 and DE socio-economic groups.7 per cent. but during these years the airport managed to achieve an annual growth rate of 6.1 Total passengers at Southampton airport. which was experienced at all UK airports. The airport has one scheduled international flight to Amsterdam and four domestic services. although in 2003 there were plans for it to be partially privatized. 1990–2002 Source: CAA airport statistics.5 per cent. by 2002. the airport handled 516 000 passengers.2 per cent compared with the national average of 5. undoubtedly general factors such as a healthy economic climate and European deregulation had a role to play with this development. around 130 miles north of London.10).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. Twothirds of the traffic is for leisure purposes with a large proportion of the passengers taking charter services (Table 7. 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. in the following 4 years. was slow while the new facilities were being developed. A higher proportion of leisure passengers would normally mean a more even split between males and females.

By 2002. The service was a success. but also because there was a large number of British-owned villas in this area. This destination was chosen because it was apparent from passenger surveys that there was considerable demand. 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. traffic at Norwich. not only for package holidays. Minorca. In 1995. it opened its own travel agency in the terminal building to persuade passengers to buy flights and package tours departing from Norwich. the airport was down to offering allocations on only four destinations. 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. Cyprus.10 Passenger profile at Norwich airport. and Malta and had allocations on flights to Corfu and Cyprus. The other development has been the decision by the airport to operate its own charter flights. however. The airport added summer services to Malaga and Faro in 1996 and a winter service to Malaga in 1997. and Malaga. 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. Faro. In 1988. Faro.Managing Airports Table 7. 2002). The airport has adopted a very unusual approach to encourage passengers to use its airport. and catering. The airport initially took the risk of chartering its own aircraft to prove that there was a market at the airport. namely Alicante. 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. retail. a weekly service at a total annual cost of £400 000 was operated from the airport to Alicante. means that male passengers still outnumber females. Alicante. Some of the seats were sold to tour operators and some direct to passengers. This also acted as a call centre for London City airport which brought in additional nonaeronautical revenue. This move came about because the airport had been unable to persuade the large tour operators to operate programmes from Norwich airport. Like 200 . it was offering services to Malaga. 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). which consists almost entirely of male travellers.

Airline Business (1999). Humberside. References and further reading ACI-Europe (1999).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. CAA. Stansted. Liverpool. Heathrow and Manchester Airports. Exeter and Southampton Airports in 2000. (1999). and Gosling. R99. Norwich and Teesside Airports in 1999. Leeds–Bradford.4 per cent compared with 5. traffic grew annually at 7.7 per cent. July–August. 42–4. At the peak time for airport-operated flights in 2000. Passengers at Gatwick. The Stationery Office. Between 1991 and 2002. 3. Bournemouth. Aviation Strategy (2001). CR00. Airport Forum. October. Civil Aviation Authority (CAA) (2001). its annual growth of 3. just too good a negotiator. A report on the economic regulation of Manchester airport plc. 1990–2002 Source: CAA airport statistics.5 per cent nationally (Figure 7. Ryanair. Predicting the passengers’ choice of airport. Ashford. Cardiff. Civil Aviation Authority (CAA) (1999). N. ACI Europe Policy Paper on Airport Competition.2). Southampton. Strategic Airport Planning. Newcastle. G. ACIEurope. Caves. Heathrow. The airport marketing awards. London City. Airline Business.2 Total passengers at Norwich airport. Passengers at Gatwick. Elsevier. Passengers at Birmingham. Bristol. 3. the proportion of traffic on international charter services increased from 18 to 49 per cent of the total. Manchester. 74. CAA. R. (1989). Civil Aviation Authority (CAA) (2000). when the charter flights were in operation and with the expanded travel agency business. CAA.3 per cent between 1990 and 1995 was lower than the national average of 4. Between 1995 and 2002. 201 . CAP 703. East Midlands. Competition Commission (2002). around 10 per cent of the passenger throughput was associated with these services. Luton.

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

They are doing this for a number of reasons. 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. 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. Impact information may also be used for . 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.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 chapter looks at the economic impacts of airports while the next chapter discusses the environmental effects. A key issue for any airport operator is how to optimize the economic potential of an airport while providing acceptable environmental protection. An increasing number of airports are now undertaking economic impact studies.

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

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

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

There are six main groups of airports. Malaga. airports such as Brussels.2 Employment at European airports in 1996 Source: ACI-Europe. 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. Paris CDG. 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. It has been suggested that airports can be classified according to their economic impact characteristics. Airports such as Barcelona.The economic impact of airports Freight companies 8% Control agencies 7% Other 12% Airline/handling agents 52% Concessionaries 10% Airport operator 11% Figure 8. dependence on incoming tourism traffic. For every person employed by an airport operator. They are also run by the operator. By contrast.2). Amsterdam. although it obviously masks wide variations in employment at different airports. Within Europe. particularly in the form of international 207 . (Figure 8. 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. namely international gateway airports. Cardiff. have the ability to attract extensive off-airport business. respectively whilst using the density assumption would give estimates of 6 600. which concentrates most of its resources at Madrid. there were another nine working for other companies at the airport. and Newcastle. The actual direct employment figures for these airports were 5 390. The international gateways. the employment levels tend to be lower. 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. Manchester. and 2 900 jobs (Department for Transport. 2002). airport direct employment is related to the traffic throughput of an airport to produce an employment density figure. and transit and interline airports. This ratio was much higher for the North American and Pacific airports since many more activities are outsourced (ACI. For meaningful airport comparisons to be made. and Hamburg have density values of over 1 500. 2002). and no base airlines. tourist generator airports. regional airports. AENA. 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. Globally. Also at airports serving low-cost airlines. 17 200. This gave an overall employment density figure of 1 616. such as Heathrow. tourist receiver airports. and 2 560. and Gran Canaria in Spain have much lower values – below 500 – because of limited development at the airports. 16 400. and Frankfurt. Eighty per cent of the employees were male – although women made up 60 per cent of the part-time workforce. 1998). jobs per mppa figures average around 1 100. national hub airports.

Analysis of past trends at Amsterdam airport has enabled ‘elasticity’ values to be produced for various types of employment. 1995). For example. check-in. airport operators will have to project their employment figures into the future. One country which has extensive experience of using the input–output method to measure impacts is the United States. and should also take account of the changing demands on airport employment due to more stringent security and quality requirements and technological developments. Very often in using economic impact studies to support proposals for future development.97 per cent change in related employment. Since the 1980s. 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. This will involve some assessment of the productivity gains which are likely to occur. This methodology involves constructing a transaction table which shows. RIMS II. in money terms.g.83 for passenger-related employment and 0. 1996).61 for cargo have been estimated for the future (Maiden.g. and Stockholm. This has been used widely to estimate regional impacts in both the public 208 . Each sector is shown as a column representing purchases from other sectors and as a row representing sales to the other sectors. At Heathrow (assuming that a fifth terminal is built) values of 0. handling and freight forwarders) and aircraft-related (e. and commercial facilities) the elasticity value is 0.97. and services) within a certain area.g. can act as airline bases and encourage capital city tourism. manufacturing.Managing Airports company headquarters and distribution and retail centres. Tourist generator airports. the input–output relationships for the sectors in the economy.46 (York Consulting/ACI-Europe. aircraft size may rise with traffic growth which will increase staff productivity in certain areas. Oslo. 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. fuel. With passengerrelated employment (e. which indicates that a 1 per cent change in passenger numbers brings a 0. Indirect and induced impacts There are two main approaches to estimating the multiplier effect and measuring the indirect and induced impacts. cabin crew. The national hubs. such as Madrid. A more sophisticated approach involves using an input–output model. Corresponding values for freight-related (e.77 and 0.g. the Bureau of Economic Analysis in the Department of Commerce has been developing their regional input–output modelling system. and air traffic control) activities are 0. This model looks at the linkages which exist within any economy by considering the relationships between the different economic sectors (e. Any economies of scale that also apply to labour productivity should be taken into account. and to encourage long-haul tourism. 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. coefficients or multiplier values can be obtained for each economic activity. construction. 2000). From this table. agriculture. These should be derived from historical trends and experience elsewhere. maintenance.

Clearly. The input and output structure of nearly 500 US industries is contained within the model (US Department of Commerce. The choice of study area will depend primarily on the role and size of the airport and the reason for measuring the impact. 2000). 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.The economic impact of airports and private sector. 1997). the other approach may be more appropriate.62. jobs (ACI-Europe. 2002. 1998).e. however. The impacts of smaller airports clearly need to be considered within a narrower context.32 for the larger airports. there are the same number of indirect and induced. or there may be the option. respectively. and forms the basis of many of the airport economic impact studies. the data requirements will be greatest for the input–output models. Within Europe it is estimated that. and only 0. Department for Transport. in 2001 the comparable figures are broadly 1 640 (direct) and 1 850 (secondary) with a secondary:direct ratio of 1. 2003). with between 750 and 2 000 of these jobs being direct airport-related employment (ATAG. and this technique tends only to be used at a national or regional level. This ratio ranges from 2. may be more appropriately considered at a regional or local level. regional. employment sector mixes and the role of the airport. recent research has tended to consider the indirect jobs to be broadly equivalent to a third of the direct jobs. Specifically within the United Kingdom. of adapting the national or regional input–output model. Individual values will depend on many factors such as the nature of the traffic at the airport. 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 1.6–0. that it makes sense to assess their impact within a national context. Even. it has been suggested that on average the number of total jobs (i. The choice of method will usually depend on the amount of data which is available and the resources which can be utilized. 1999. 1998). in the United States where the FAA recommends procedures for identifying and quantifying the economic impacts of airports there are substantial 209 . 2002). 2002b).7 (Oxford Economic Forecasting. 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. or local situation is being assessed. In Canada. Clearly. in addition to 1 100 direct jobs. which gives a secondary:direct jobs ratio in the range of 0. rather than being imported from outside. to 1. of which 1 200 are direct and 1 500 are secondary.1 (ACI-North America. They will also be related to the size of the economy under consideration.32 for the medium-sized airports. with a considerable degree of caution. 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. or secondary. propensity to travel characteristics. depending on whether the national. and likewise for the induced jobs. these aggregate figures will hide significant variations which exist between different airports. Specific issues. If a more local situation is being assessed. direct and secondary) per mppa ranges between 2 500 and 8 000. Halcrow. particularly related to the employment market. Another estimate is 2 700 total jobs per mppa. Globally. Large capital city and main international airports tend to have such an important impact on the overall economy. on average. at smaller regional airports (Mason.2 for the small airports (ACI-North America.

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

2000b).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 1.7 2.3 0.3 1.4 1. National estimates for just the airport sector are more difficult to obtain.0 6.2 15.3 2.0 30.2 15.4 27.1 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 31.1 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 0.8 1. and Department for Transport (2002).2 billion to UK GDP which is 1.9 1997 1996 1997 1997 1998 1998 2000 3.0 0.6 15.1 15.5 1.7 per cent.9 0.4 per cent of total GDP and at least £2.7 27. In the United Kingdom.4 14.5 6. Source: Individual airport economic studies as reported by the airports themselves and ACI-Europe (1998). 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.5 billion goes to the government in the form of taxes (Oxford Economic Forecasting.8 2. For example.8 0.The economic impact of airports Table 8.1 31.6 0. including airport operations.0 0. The industry is thought to contribute £10.9 11. Aviation’s contribution to GDP was estimated to be 4.5 0. ACI-North America (1998.2 1.6 Note: a mppa million passengers per annum.6 1. studies are undertaken to assess the overall economic impact of aviation. 2000). Figures for 1998 estimate that the aviation industry generated US$911 billion in economic activity.8 0. in the absence of any equivalent of RIMS II. US$259 billion in annual earnings and 10. 1999. ACI-North America has calculated values 211 . 1999).2 0.8 2.4 9. in the United States.3 17.5 1.5 0.3 million jobs (Wilbur Smith Associates. At a national level in various countries. the Department of Transportation’s databases and the RIMS II model are used to assess the overall impact.3 0.

In economically disadvantaged areas. US airports are estimated to generate 1. 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.b). In Canada. Some of the fastest growing knowledge-based industrial sectors such as computing. Hence.7 million jobs in total. A good illustration of this was the recent planning enquiry for Manchester airport’s second runway. and tax revenues generated by the wider role which an airport can play by being an economic magnet for the region it serves. but they will have a preference for a location near an airport because of the accessibility benefits which can be gained. 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. Manchester airport claimed there would be some much 212 . Airports can also help retain current businesses or encourage them to expand. has increased the importance of locating in the vicinity of an international airport. airport development is often seen as a way of generating new employment. Airports can give a company easy assess to other parts of the company as well as to suppliers and customers. has meant that air travel has become a critical element for a quick and efficient distribution system and rapid delivery times. communications. Airports and economic development As well as being a generator of economic activities in its own right. 2002a. (ACI-North America. The trend towards globalization. Moreover. In some cases the airport can be the lifeline to local economies. These arguments are frequently used to gain approval for airport expansion or development. income.1 billion in economic activity. These businesses will not rely directly on the airport for their operation. The increasing reliance on just-in-time inventory systems for these expanding industries and more traditional sectors. where unemployment is high and there is a narrow declining economic base. magnetic. or spin-off impact. This impact can be defined as the employment. This is the catalytic. investment. airports can play an important role in influencing company location decisions. by providing access to a wide range of both passenger and freight services. creating wealth and regenerating the area. They are estimated to produce US$507 billion in economic activity and US$33. and can offer speed and security for goods being transported. airports have become increasingly more important for businesses operating in global marketplace. such as car manufacturing.Managing Airports for both Canada and the United States by using the individual airport studies in both countries in 2001.9 million direct jobs and 6. both in terms of multinational companies and also in terms of increased reliance on imported components and products. electronics.5 billion in taxes. In short. Overall. it is estimated that there are 304 000 jobs in total with the airports generating Canadian $34. and are heavily reliant on air travel for the transportation of their high-value/lowweight products. 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. 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. and pharmaceuticals are the most international.

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

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

Similarly. Table 8. 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. Alternative developments could have a better overall impact on the economy. With some of the airports visitors activities are identified separately and so the impact of including them in the economic assessment can be seen. For comparative purposes. namely Manchester–Atlanta. Geneva. Brisbane. 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. with indirect/induced income of US$97 million and 915 jobs. The total jobs and output at Brisbane is very high. The impacts should also ideally be compared with possible alternative. the impact on other modes of transport. 3 323 jobs. Increased industrial and economic activity around an airport may merely be draining resources from other areas. Other interesting examples include an assessment of the impact of the four long-haul routes. The crossover effects on other industries. In assessing the impact that airports have on the wider economy. Manchester–Dubai. 215 . For example.2 presents a selection of economic impact measures for the Washington. By way of illustration.8 per cent of the gross state product. and US$52. It was also estimated that the routes created US$351 million air exports income. economic activities with an assessment being made of the comparative economic benefits and opportunity costs. Manchester–Hong Kong. 1994). the measure have been divided by passenger throughput. and it is likely that this is reflecting the impact of aviation on the neighbouring Australia TradeCoast economic development area. Each of the studies have been undertaken separately so there is no consistency in the method used – which may explain some of the differences. such as city centres. with the income accounting for 6. 1999).4 million at Geneva airport to 15.The economic impact of airports US$39 million direct income and 366 jobs. At Geneva airport the catalytic impacts associated with business development. and Birmingham–New York. all need to be considered. for example. 1994). it is the net benefits which should be considered (Caves and Gosling. overheating of the economy and consequences of local labour shortages. the availability of nearby direct air services may increase the use of imported goods and services at the expense of local products. although many of the wider economic benefits are likely to be less linked to passenger volume. also need to be taken into account.8 million at Washington National. The negative or adverse potential impacts of airport development. in addition to the tourism activities. have been identified. The total employment is estimated to represent 5. and Vienna airports to give an example of the range and type of measures which are available in different areas of the world.7 new annual tax revenues (ACI-North America. These airports are all medium-sized airports with passenger throughput varying from 6. 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. 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. such as extensive urbanization and industrialization. which was undertaken by the UK CAA (CAA. 1998). The overall impact on the local community of tourism development related to aviation activity also needs to be assessed. non-airport related.2 per cent of employment in Queensland.

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. it is likely that in the future more consistent and accurate approaches to measuring economic impacts will be developed. This chapter has discussed these various economic impacts.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) 10.0 million passengers Direct 16 400 N/A N/A Totalc 83 600 1 596 8 685 Geneva (1998) 6. there is little doubt that airports have a substantial economic effect on the region in which they are located. More and more airports are showing interest in measuring their economic impact but still there are considerable inconsistencies in the terminologies and methodologies used. Brisbane. bppa passengers per annum. Geneva. As research into this area continues. they are very difficult to actually quantify with any degree of confidence. c Direct and secondary impacts. Geneva Airport (2000).2 Economic impacts at Washington. 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. Sources: Brisbane Airport Corporation (1998). While concepts such as the multiplier or the catalytic effects are reasonably straightforward to understand.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) 9.8 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. In conclusion. Vienna International Airport (1998). 216 . dIncluded in ‘total’.Managing Airports Table 8. Metropolitan Washington Airports Authority (1999).

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

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

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

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

more stringent standards. claiming that it discriminated against the US aviation industry. DC-9 and older types of Boeing 737 and 747. For example. the first generation of noisy aircraft (i. Since 1990. This has been the cause of a very major dispute between European and American authorities. 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. and 13 supersonic in the world’s fleet (European Commission. The absence of an agreed standard from ICAO meant that the EU in the interim introduced its own regulation. 221 . Newer aircraft certificated under chapter 3 include the Boeing 757. 2000). to be applied to all new aircraft designs. These standards were included in the Environmental Protection Annex 16 of the Chicago Convention. In 1977. 2000. based on the maximum noise level given a certain flight procedure. 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. have been prohibited. These are chapter 2 jets which have been modified to comply with the chapter 3 rules.The environmental impact of airports associated with aircraft movements has been declining. 777. such as the Boeing 707. 1999). the noisiest of the chapter 3 aircraft and so there have been pressures. The initial standards for jet aircraft. 1999. and the remaining 66 per cent were chapter 3 compliant. By far the greatest proportion of chapter 2 aircraft is in Latin America and Africa where they accounted for over half the total. globally 15 per cent was certified chapter 1 or 2. however. In the United States. became known as ‘chapter’ 2 or ‘stage’ 2 in the United States. George. In 1998. were adopted by the ICAO. with all single-aisle aircraft in January 2000. An issue which has complicated this noise certification process is the treatment of hushkitted or re-engined jets. particularly in Europe.e. 31 per cent of aircraft were hushkitted and 60 per cent are chapter 3 compliant. chapter/stage 1). in the EU it was estimated that there were two chapter 1 aircraft. 224 chapter 2 aircraft. 767. 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. 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. 2 448 chapter 3. 2000). ICAO adopted similar international standards in 1971. This largely explained the difference of opinion over this issue (Gill and George. A standard was finally established in 2001 (Feldman. This banned the addition of new hushkitted aircraft to European registers from 2000 and excluded all this type of aircraft entirely after 2002. Since that time the second generation Chapter 2 aircraft have become the noisiest types. Baker and George. 2001). Noise certification was first introduced in 1969 by the United States in the Federal Aviation Regulations Part 36 (FAR Part 36). The Americans were strongly opposed to this unilateral action by the EU. They are. for phasing them out. compared with corresponding global figures of 9 and 86 per cent. and all the airbus family of aircraft. Chapter 2 aircraft include the Boeing 727. known as chapter or stage 3. 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. 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 may involve a blanket ban on all aircraft. for example. however. Many airports also use noisemonitoring equipment. for example. local community. 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. This can be used to measure local noise levels and calculate noise contours. In most cases. and make scheduling long-haul services more difficult. 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. because airlines quite legitimately may be required to depart from their preferred route for ATC reasons. reduced power and flap settings for take-off or approach. 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. For example. many airports have introduced preferred noise routes (PNRs) to minimize the noise impact on the surrounding population. however. or a limit on the noisier aircraft. 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. land-use planning and management measures. local noise-related operating restrictions. 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. 2002). Undoubtedly. Airports may also choose to place restrictions on flight procedures by requiring. Airports can also impose other operational measures to reduce the noise impact. restrictions on noisier aircraft only apply at night 222 . and a growing number of airports actually publish the results.and track-monitoring procedures can be provided for the airlines. Such constraints may significantly impact on the development of freight or charter traffic which often rely on night movements. The information gathered from the noise. introduce unilateral noise abatement operating measures which can more immediately reduce the annoyance caused by aircraft noise. In some cases.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. governments and other interested parties. Money from penalties may be used for soundproofing or other community projects. Individual airports can. This concept of a ‘balanced approach’ to noise management comprised four principal elements: 1 2 3 4 reduction of aircraft noise at source. There may be difficulties with this. A common restriction is a night curfew or limitations on night flights. This is usually done by directing aircraft away from the most densely populated areas. and the long lifetime of an aircraft. airport operators may impose financial penalties on airlines that deviate from their required flight track. or to enforce noise limits. noise abatement operational procedures. 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.

the airport had invested in the nearby small airport of Moenchengladbach. In December 1997. the airport was restricted to 91 000 aircraft movements of over 5. especially during maintenance. 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. Frankfurt airport was one of the first airports to introduce such charges in 1974. which is situated relatively close to the city of Düsseldorf. To reduce the noise emission levels. 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. However. These charging policies are.7 tonnes MTOW in the busiest 6 months of the year. These limitations over the years have placed restraints on the growth of both passenger and freight traffic at the airport. In the 1980s and 1990s. however. Düsseldorf airport. Restrictions have been placed on when and how engine tests can be undertaken. due to political and environmental pressures. this blanket ban has been replaced by night noise quotas. Restrictions have also been placed on the use of reverse thrust by airlines. There has been an interesting development relating to London Heathrow airport which could lead to further restrictions on night flights. The government of Belgium proposed a total night-time ban at Brussels airport in 2003. 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. However.b). There is the noise from ground vehicles and auxiliary power units. On both runways. taxiing. is an interesting example of an airport which has had its operations restricted by noise concerns. or engine testing. the budget was repealed in 1999. This allowed a maximum of 120 000 movements in the 6-month period. Salzburg was one of the first European airports to ban all chapter 2 aircraft as early as 1991. 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. no decision had been reached. however. the noise problem is not just limited to the aircraft landing. taking-off. 2000a. has a very restrictive upper limit on movements. A second runway was completed in 1992 but because of environmental pressures. Noise has been reduced at a number of US airports which have mostly 223 . There is. In order to provide capacity for smaller aircraft operating regional services. but due to pressure from the airport and DHL which has its European base there.The environmental impact of airports but in some case they have been imposed during the day as well. unlikely to influence an airline’s choice of aircraft unless the fee differential is very large. There is also the noise from airline engines running. Many airports also impose noise surcharges for noisier aircraft and an incentive to use quieter aircraft. The airport also has daily movement limits and a night ban between 2300 and 0600 hours. 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. The airport consequently applied to fully utilize the single runway capacity of 120 650 movements and was granted approval in 2000 (Düsseldorf Airport. these became increasingly popular – particularly in Europe (see Chapter 5).

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

nitrogen oxides (NOx) are also thought to have a significant impact on the ozone layer but. the scale of these developments will only be sufficient to partially offset the growth effect. The second option would bring a greater saving of 2. 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. such as more efficient air traffic management. 1999). Improved operational procedures. In the late 1990s. 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. if such a tax was introduced in 1998.The environmental impact of airports emissions is estimated to be around 3. 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. Aircraft in the 1990s were 70 per cent more fuel efficient than 40 years ago. just taxing EU carriers on intra-EU flights and. Although the absolute amount of emissions is relatively small. However. As well as the greenhouse gases. again. the aviation industry is looking at other ways to mitigate aviation emissions. At present there does not appear to be a viable alternative to jet fuel. In Europe. the exact effect is unclear.5 per cent. depending on different growth scenarios and other assumptions (Intergovernmental Panel on Climate Change. the higher combustion temperatures needed for greater efficient may actually produce more NOx emissions.5 per cent. Thus. The taxing of EU carriers would therefore give them a distinct competitive disadvantage and produce fairly marginal emission savings. As yet. In addition. first. 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 . the first option would reduce fuel consumption by 0. 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. second. they directly occur in the upper troposphere and lower stratosphere. Within the EU.5 per cent between 1992 and 2005. 2003). 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. By 2050. In the UK air emissions represent 18 per cent of all transport emissions and 5 per cent of all emissions (DfT. 2000). Market-based options are another alternative. This was not considered to be acceptable. this global share may have risen to around 4–15 per cent. It considered two options. It was estimated that. the AEA fleet is predicted to be 22 per cent more fuel efficient by 2012 (AEA. 1999). while greater fuel efficient aircraft will may produce less emissions such as CO2. when the aircraft are flying at altitudes of between 9 and 13 km. 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. the effect of these emissions at high altitudes is not fully understood. taxing all flights of all carriers operating within the EU. All this also has to be viewed within the global context where major CO2 reduction efforts are taking place in other industrial sectors. These include a kerosene tax. 1999). 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. 1999). the European Commission expressed significant interest in the introduction of an EU-wide fuel tax.

The first was a charge proportional to the volume of greenhouse gas emissions discharged in EU Table 9. It was concluded that this it was not a feasible option in the short term (European Commission. There is actually some limited experience of such a charge in Sweden and Switzerland.Managing Airports ICAO. Source: International Air Transport Association (2002). The impact of such unilateral policies on fleet choice seems to have been rather limited – which. 226 . Therefore. 2002b). 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. 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. 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. An alternative to a tax is an emission charge which could be levied as part of the airport or ATC charge. this type of tax was not allowed in Europe and was also seen as discriminatory towards Swedish carriers once full European liberalization has occurred. 1994).25 per kilogram of CO2 initially in 1989 (Alamdara and Brewer. is the result of the relative price inelastic demand at airports.1). 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. It has also been estimated that demand would decrease by 10 per cent if environmental costs are passed onto passengers (DfT. This research concluded that emissions charges. 1999). the Swedish government abandoned this tax in 1997 and replaced it with an emission charge (Table 9. 2002). according to EU directives. Such charges would be levied through the air traffic control system and the research explored two main alternatives.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. Geneva and Zürich also introduced an emissions charge in 1997. unlike fuel taxes. 2003). 2000). nor would they create any distortions of competition. 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. as with the noise surcharges. 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. if limited to flights within EU airspace would not give rise to legal objections from third countries. However.

However. and nitrogen oxides. Encouraging more fuel-efficient operating procedures such as continuous descent approach may help a little. clearly they are not the only impacts which need to be considered. 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 environmental impact of airports airspace. 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. The operator can also seek to reduce the impact of running engines while the aircraft are on the ground.The second alternative which the research explored was a revenue-neutral charge or performance standard incentive (PSI). 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. 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. An increasing number of airports monitor local air quality at airports.g.6 euros per kg of NOx were used. taxes and levies (e. depending on the exact valuations which were used. the actual airport operators have very little control over this matter. en route emission charges) and emissions trading options whereby airlines would buy licences to pollute that can be traded with other industries. as such a scheme would be revenue-neutral. carbon monoxide. If charges of 30 euros per tonne of CO2 and 3. Since 1981. ICAO has also been looking at various market-based options. since they are based on the aircraft landing and take-off (LTO) cycle and do not cover emissions during the cruise phase. namely smoke. it was estimated that emissions could be reduced by 9 per cent in 2010. While the global impacts of aircraft emissions have attracted a great deal of attention in recent years. It was estimated that this could produce annual revenues of 1–9 billion euros. which tend to be fuel powered. 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. 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. In addition to considering the most appropriate standards and the best operating practices to reduce emissions. The monitoring systems vary considerably in their level of sophistication and accuracy. Overall the years these standards have been strengthened. hydrocarbons. Very often independent companies will undertake the monitoring. and nitrogen oxides. ICAO has laid down standards for four categories of engine emissions. they are not legally binding and it is up to member states to include these standards into their law. As with the noise issue. carbon monoxide. The additional revenue generated could be allocated to individual EU member states or to a supranational fund for financing emission abatement measures. At some airports. 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. fuel tax. These standards are aimed at local air pollution problems. Some airports use these systems to help them model predicted air quality in the future. These include voluntary programmes. there would be no additional funds to distribute. While the ICAO emission standards can have an influence over aircraft emissions at airports. At a regional level the emissions from aviation are thought to contribute to acid rain. electric vehicles which are more economically and environmentally 227 .

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

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

the diversion rate of air to rail on the Eurotunnel London–Paris route has been far greater than that for the London–Brussels routes. In the 1980s and 1990s there was a continuing growth in the number of high-speed rail services notably in France and Germany. 230 . Many airports are trying to develop more effective public transport alternatives to the car for accessing the 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. 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. They have also introduced many initiatives to encourage passengers and airport employees to use public transport. 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. Ground transport makes a major contribution to the overall noise levels and air pollution at an airport. Deutsche Bahn. signed a memorandum of understanding. 1998a). with the impacts rising as the transport system becomes congested. 2000). 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. it is estimated that around 10 per cent of passengers could be transferred from aircraft to high-speed trains (International Panel on Climate Change. In a recent study in the United Kingdom. 1999). On the Stockholm–Gothenburg route. in 1998. 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. 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. Elsewhere. For example. However. In Europe. An interesting development occurred in Germany when.Managing Airports opportunity for passengers on short and medium distance flights to be diverted on to high-speed rail services. Lufthansa and the railway company. Moreover. 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. This relates to short routes from air to rail once the high-speed network in Germany has been completed. for instance. 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. they are clearly not usually an attractive option for transfer traffic unless the high-speed network is linked to airports. It is Lufthansa’s aim to gain more slots for longerhaul services. 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. 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. Such rail links also require huge capital investment. For example. 1999). The appeal of the rail alternative will also depend very much on the comparable level of fares and the quality of service on offer. as at Frankfurt. 2000b). 2000). 2002). switching from air to rail is only feasible when dense routes are being considered.

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

For example. The most developed service of this type is the Fly Rail Baggage system in Switzerland which provides two-way check-in for Zürich. signage and the availability of information. 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. which was not included in the original study. More recent studies show that Zürich airport. 1999). For foreign passengers. complete check-in can be made for flights of Swissair and partner airlines. 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 9.2 Public transport usage by passengers to and from the airport. has a very high share of 59 per cent of passengers accessing the airport by public transport (Grossenbacher. 34 per cent of passenger trips were on public transport (Figure 9. Others have tried making improvements in marketing. 2001 Source: Compiled by author from various sources. Basel.2 shows the public transport share for some other European airports. 232 Am . and offering more remote check-in.3). Figure 9. Heathrow has set a target for passenger public transport trips of 40 per cent by 2007 and Gatwick has an identical target for 2008. and Geneva at 116 rail stations. The average was around 21 per cent – 9 per cent for rail and 12 per cent for buses (Navarre. A growing number of airport operators have recognized that encouraging passengers onto public transport is very much more than just consideration of journey time. 1996).Managing Airports with other rail services as is the case with a growing number of links in Europe. Some airports are designing better interchange processes between public transport and the airport. At 23 rail stations. 2002a). 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. Many airports now set targets for public transport use. For UK business passengers this figure was 23 per cent and for UK leisure passengers it was 31 per cent. It also includes looking at the accessibility of the surface modes. ease of transfer to the airport and arrangements for baggage. At London Heathrow in 2001. Remote baggage services are also frequently available in Europe but not in North America. the comparable figures were 38 and 50 per cent (BAA Heathrow.

1998b).The environmental impact of airports Bus/coach 13% Underground 13% Rail/other 8% Car 39% Taxi 27% Figure 9. and because a friend or relative was available to offer a lift (CAA. over 75 per cent of staff arrive by car (Figure 9. Many of the jobs tend to be on a shift basis. At Heathrow. airport employees have traditionally been provided with free parking spaces at airports – thus increasing the attractiveness of car transport. 80 per cent of passengers used private cars or taxis. car use tends to be even higher for employees than for passengers. Moreover. 1997). Airport operators have also been trying to encourage more airport employees to use public transport. 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. 1999). For example. Underground Bus/coach 12% 6% Taxi 1% Rail/other 6% Car 75% Figure 9.3 Mode of surface transport used by passengers at London Heathrow airport in 2001 Source: BAA (2002a). For Zürich the key reasons for using rail transport were comfortable access (46 per cent). Surveys at other airports also show this greater dependence on car 233 . while the equivalent figure for employees was 92 per cent (Manchester Airport.4 Mode of surface transport used by employees at London Heathrow airport in 1999 Source: BAA (2002a). 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). 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. transport journeys by 2005. 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. As a result of these factors. Inherently there are a number of characteristics of airport employment which encourage the use of private car. rail ticket included in package (17 per cent).

2 Targets and commitments – Heathrow airport surface access strategy. 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 .Table 9. 2002 Targets and commitments Achieved ($).

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 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. encouraging ten of the. 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). .

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

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

The exact number and range of objectives and targets will vary considerably.. easy to interpret and able to show time trends. Airport companies such as Schiphol and Fraport have reached these standards. This report. 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. and Paris have subsequently been certified (Hooper et al. 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. in 2002. as well as the implementation of the management system. Dublin airport became one of the first European airports to receive ISO 14001 certification in 1999 and other European airports such as Zürich. Heathrow had 12 key environmental targets and since 2000 these Table 9. electricity. 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. Pearson was the first airport in North America to achieve this standard in 1998. there is an additional system called the Eco Management and Audit Scheme (EMAS) which is based on 1993 European regulation. The EMAS takes the ISO 14001 standard that much further by requiring companies to report to the public about their environmental performance. 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 . The results should be available to everybody who has an interest in the airport. To meet the requirements of ISO 14001. formulate an environmental policy. Athens. Within the EU. 2003). is subject to external scrutiny. airports need to review their environmental impacts. Toronto Lester B. For example. The indicators need to be fairly simple.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. Rome.Managing Airports Some airports choose to formalize their environmental management system by conforming to the International Environmental Management system standards ISO 14001. This is equivalent to ISO 9000 standard for quality management (see Chapter 4). ensure that their practices comply with all relevance legislation. including the local community.

In 1999. However. the population within a specified noise contour by 67 per cent..6 2594.0 270. EIA for the new Oslo airport at Gardermoen Since 1939. 1006. The savings were in energy and water consumption. A 239 . and waste management. Oslo has been served by Fornebu airport.3 shows some common key environmental performance indicators used by airports.4 Environmental. it is usually required by law to undertake an environmental impact assessment (EIA) as part of the planning approval process.4 6526.Managing Airports Table 9. Table 9. to identify the expenditure and savings related to their environmental.2 1178. It should possible. The results of this assessment are summarized in an environmental impact statement (EIS). passengers using public transport (53 per cent) and waste recycled (50 per cent). 2001). This will examine the potential impacts of the proposed development during the construction and operational stages. economic.4 shows these for Heathrow airport. 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).6 11519.7 46.0 targets have played a part of the senior management salary incentive scheme – just as with the financial and surface quality targets. The greatest expenditure was related to water quality. economic. When an airport is planning a major extension of its facilities. Many of these tend to be further disaggregated when detailed targets are being set In 2000. Table 9. by the 1980s this airport. and social expenditure and savings at Heathrow airport. 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. Nice airport adopted an environmental charter which identified a total of 15 objectives and these were broken down into 46 detailed actions. as part of the environmental management system. Geneva airport launched an environmental action plan which had 27 key measures to be addressed.6 159. In 2000. situated close to Oslo city centre was beginning to reach capacity but could not be expanded because of physical constraints and environmental pressures. transport. 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. and social management policies.9 6.

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

Further consultation and assessment of the impacts took place until a final development option was selected in 1993. the environmental team and the engineering design team worked together in developing the runway scheme. This ranged from private meetings with individuals to large-scale public gatherings. local authorities. The points of agreement were related to various stages during construction and operation Table 9.The environmental impact of airports to provide input into the environmental impact assessment. 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.6). and other interested parties. This enabled the environmental effects of engineering solutions to be assessed. government agencies.5). 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. Planning permission was granted in January 1997 (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 airport operator. The proposals were subsequently developed into a planning application which was subject to a planning inquiry which lasted from June 1994 to March 1995. environmental works. Before the decision had been made. Primarily as a result of environmental considerations. the airport entered into a legal agreement with the local planning authorities concerning its proposed package of environmental mitigation measures. and mitigation measures to be considered.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. at an early stage. Specialist engineering consultants were also appointed at this time. highway improvements and public transport. community relations and social policy. and the ultimate capacity of the airport.This package contained over 100 different measures of targets and guarantees covering noise control and night flying. Continual dialogue also had to be maintained with airport users. 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. This formed the basis of Manchester airport’s ‘green charter’ (Table 9. Public consultation also took place at this time. 241 .

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. require the use of the engine test bay. local authorities. 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. 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.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. 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.

The environmental policy of CPH establishes the fact that as an environmentally responsible company.1 million passenger numbers and 379 000 tonnes of freight. In 2001. This was due to greater use of newer. these two airports handled 18. 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). Table 9. in 1999 new facilities 243 . the airport operates and develops in a way that improves its environmental results (CPH. of the airport up until 2011 when the agreement will be reviewed. how the data is collected and the indicator value for 2001. but the airport viewed it as an investment and considered such an approach fundamental to gaining permission to build the additional runway (Thomas. Between 1997 and 2001. and engine testing and airline performance in these areas is monitored. and so it is only used when special weather and wind conditions make it necessary for safety reasons.The environmental impact of airports Table 9. This approach to the environmental effects was costly. Preventive action and the use of cleaner technology. An open dialogue on the environmental state of the airport.7 summarizes the main environmental indicators used. by operating a crèche. As regards noise. For example.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. older aircraft. like many other airports. This company manages the two Copenhagen airports. around 98 per cent of all movements at Kastrup take place on the two main runways. has made improvements to its impact monitoring process and has been developing new techniques which could reduce the detrimental environmental effects. There is a third runway which involves aircraft passing over more built-up residential areas. 1996. In other areas. the overall noise impact declined by 2. Improvement is provided through: I I I I Environmental considerations in all decisions. CPH. 2002). Environmental practice at Copenhagen Copenhagen Airport A/S (CPH) is a good example of an airport operator which has developed a comprehensive environmental policy. There are rules related to noise levels. namely Kastrup and Roskilde. Twigg.7 dB although the number of air transport movement increased by 2 per cent during the same period. quieter aircraft and less use of the noisier. 2000). Increased environmental awareness by employees and partners. amounting to over £20 million.

g. lead 1.9 e.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.1. cadmium 0. take-off weight.4 e. lead 1.9 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. 244 . chrome 0.1.9. 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). chrome 1.8.g. 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. cadmium 0.Managing Airports Table 9.

Complementary social policies include active involvement by the airport operator in the local community and an effective community relations programme. 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. the environmental aspect of sustainable development is all about effective environmental protection and prudent use of natural resources. which weighed more than 2600 tonnes and covered more than 4000 square metres in area. and adequate investment in infrastructure. Social equity and improvements in the quality of life are often cited as key aims of sustainable development. environmental. and economic impacts of any activity. This process took place over one weekend and involved shifting the airport terminal. waste and energy management programmes. for example. is the concept of sustainability and sustainable development. ATAG/UNEP. The responsible management of employee health. The concept of sustainable development 245 . which can be used to ensure that any expansion conforms to the objectives defined in the environmental policy. safety. was relocated. 2001. Sustainability and environmental capacity Fundamental to the discussions of the environmental and other impacts. 2001). In 1997 this building had been listed as a protected building by the Historic Buildings Council. CPH annually produces an environmental report which is externally audited. sharing the theme of meeting today’s needs without sacrificing tomorrow. can be considered as helping to encourage a more sustainable industry. Thus the benefits of any development must be carefully weighed against the resources to be consumed. it was taking up valuable space for future terminal expansion – hence the need for relocation. Most definitions also identify the need for a balance between social. 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 was designed in 1939.8 km from the east to the west of the airport. noise and emission mitigation initiatives and water. Many of the measures described in this chapter. Most definitions of sustainability tend to be rather vague and imprecise.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. a distance of 3. and security issues at the airport and equal opportunities employment policies is also seen as promoting sustainability. However. 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. The largest single environmental investment that CPH has made took place in 1999 when the old terminal building. From 1999.g. For airports. From an economic viewpoint. see IPPR. sustainability is to do with the maintenance of high and stable levels of economic growth and employment. Copenhagen Airport A/S has also prepared a manual on environmentally sound design and planning. all new purchasing contracts between CPH and suppliers stipulate that the supplier’s business is to be operated in an environmentally responsible manner.

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

3 Cargo tonnes could not exceed 3.8.The environmental impact of airports traffic was forecast to grow steadily. The government granted Schiphol an exemption from the noise limits. and then no larger than 10 000. The airport also became slot co-ordinated in 1998. The model used assumed that passenger numbers would grow unconstrained to 65 million passengers in 2010. It gave approval for a fifth runway (opened in 2003) which was aimed.3 million in any year. in terms of the house affected. although the houses affected still remained under 15 000.8 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 . after 2010. However. These options were assessed by analysing the impact on traffic.The environmental limits were still to be applied but further growth could be possible until 2010 by optimizing the environmental capacity. A simple levy to reduce passenger numbers to 44 million proved to be very costly for the airlines. The results of the analysis are shown in Table 9. a 7-euro surcharge on all passengers and a noise surcharge related to different levels of noise. not at increasing capacity. noise. so in 1995 a decision was made by the government about the future development of the airport. 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. Various measures were then tested such as a regulatory limit on passenger numbers. At the end of 1999.The airline Table 9. but instead at diverting traffic to a less noise-sensitive approach. Slot trading to achieve a maximum of 600 000 annual movements was also considered. The impact on jobs was also considered. 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. and airline cost or passenger fare. healthy growth in 1997 and 1998 meant that in both these years the noise contour limitation was exceeded. In the longer term. 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 government stated its views for the long-term development of the airport. but instead imposed a limit of 380 000 movements in 1998 and then annual growth limits of 20 000 movements. 2 Passenger numbers could not exceed 44 million in any year.

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

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

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

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.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. In addition. Overall effect on the air transport industry . was spreading to Europe. which was already in existence in the United States and Japan. Economic recession. 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. airports have had to face the unparalleled consequences of the events of 11 September 2001 and a much more volatile environment. depressing demand for travel and leading to passengers trading .

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

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

Other airports.1. By August 2002. In particular. London Gatwick was the principal loser whilst at London Stansted. Milan Malpensa suffered because of Alitalia’s failure to establish it as its main hub. passenger numbers were dramatically lower at the east coast airport of Boston and fell by 32 per cent. the main base of the low-cost airlines. which showed that generally cargo flows were less affected by the crisis and recovered more quickly. As a consequence. The changes in airport traffic levels for the year following 11 September 2001 for a number of European airports is shown in Table 10. For the same 3 months global cargo traffic declined by 9. and Baltimore faired better because of increases in low-cost passenger numbers. such as Oakland. Zürich airport also lost a substantial amount of traffic because of the collapse of Swissair. Washington National was closed for nearly a month following the terrorist attacks and experienced a traffic decline of 55 per cent in November. Traffic at San Francisco airport also declined significantly by 29 per cent in November as United regrouped at its Chicago hub. A similar less substantial reduction of traffic was experienced at one of American Airlines’ main hubs. For example. and August 2002. 2.1 Airport passenger growth by world region since 11 September 2001 Source: ACI. March 2002. Likewise. the demise of Sabena in November led to traffic falling by almost 40 per cent. by global region for November 2001. Some US airports suffered much more than others. whilst elsewhere in Europe and the Americas traffic levels were still depressed compared with the year before.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. and then grew by 5 per cent. It can be seen that the airports’ performance is closely correlated with that of their base airline(s). significant increases in passenger numbers were experienced at Chinese airports and Tokyo Haneda because of new runway capacity. just 17 per cent in November. Dallas Fort-Worth. the passenger loss at Chicago was not as large. growth was once more being experienced in the Middle East and the African region. In the United Kingdom. In the case of Brussels. Fort Lauderdale. it was North America that felt the brunt of the crisis with traffic down by almost a fifth in November 2001. 254 M id dl e –5 . 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. that is. Clearly.

4 9.0 Paris Orly 12.6 1.6 13.1 33.1 2.4 Madrid 2. some airports increased their charges.8 8.0 4.5 N/A Jan.6 Zürich N/A Source: ACI Europe.8 6. notably in the United States.3 4.3 7.1 3.6 N/A Dec.2 Barcelona 3.9 13.6 36. 02 0.9 8.3 Frankfurt 7.8 29. also experienced traffic growth between January and August 2002.2 9.2 16.4 6.8 6.0 10. 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.8 15.5 7.8 Dusseldorf 5. particularly to cover the increased costs of implementing extra security measures.0 2.1 Copenhagen 0.6 1.3 4.7 Lisbon 3.9 12.5 3.6 5.5 10.2 Dublin 2.9 10.9 19.3 0.8 4.1 4. Oct.7 20.8 8.8 18.8 London Gatwick 6.7 Brussels 9.8 13.3 14.1 0. in other cases.0 0.7 26.0 Paris Charles de Gaulle 9. 01 12. 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.8 8.2 London Heathrow 13.1 4.4 passenger number continued to grow throughout the time period.9 21. Other airports such as Barcelona and Dublin.5 4.7 34. 01 9.8 12.1 19.9 7.4 11. As regards commercial or non-aeronautical revenue. However. 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.4 34.2 14.4 6. where underlying growth rates had also been high in recent years.2 5.7 9. have had to redesign many of their commercial facilities in order to 255 .–Aug.2 6. Airport financial performance These reduced traffic levels clearly had a major impact on airport revenues. there are have been a number of impacts to consider as discussed in Chapter 6.6 Milan Malpensa 14.1 21.5 3. Elsewhere. passengers had more time to shop because they arrived earlier – again for security reasons.9 12.0 London Stansted 11.1 N/A Nov.2 Helsinki 2. As discussed in Chapter 5.1 Manchester 2.The impact of 11 September 2001 and future prospects Table 10. 01 4.2 Vienna 3.2 13. Some airports.0 23.1 Change in passenger numbers at major European airports since 11 September 2001 Airport % Change relative to same period in previous year Sept.4 13.1 5.5 7.3 6.4 12.8 N/A 15. 01 Amsterdam 5.

it was estimated that airport revenues would recover and grow by 5. 2002). as fixed assets cannot be moved or closed when traffic goes down. For the other commercial revenues it was estimated that retail revenue would be down by 9 per cent. and rental cars down 5. 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. 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. if and when normal conditions return. For example. due partly to an increase in fees. The consequences for planned future investment in the United States was also mixed. and San Francisco airports were put on hold whilst at Los Angeles the funds for expansion were directed towards security and safety improvements instead. however. Table 10. at Detroit airport it was decided that the construction of 25 new gates would still go ahead.8 per cent. It was estimated that food and beverage revenue would only be down by 0. 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.2 shows the operating revenues and costs for the US airport industry for 2000 and 2001 with estimates for 2002. At Arlanda airport in Stockholm. it was estimated that total revenues in 2002 would be fairly similar to 2001 with an increase in aeronautical revenues. 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. Other expansion plans at Phoenix. car parking down 6. generally these have gone up since 11 September 2001 particularly because of increased insurance and security costs. which has led to a decline in non-aeronautical revenues. Airports also have to plan and build for the long-term and this is very difficult in any period of uncertainty. construction of the new South terminal was postponed although the expansion plans for the North terminal went ahead. some airports decided to go ahead with their future investment as planned. These include restrictions on staff travel and either freezing recruitment or employee redundancy. For example. In a special survey conducted by ACI.7 per cent 256 . Charlotte. As regards costs. it was found that almost one-half of the 60 largest airports had introduced such policies (Behnke. Overall revenues increased by around 5 per cent in 2001 with more or less equal increases coming from aeronautical and non-aeronautical sources. 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. Boston Massport. However. It is much more difficult for airports to downsize or get rid of excess capacity when demand is reduced. Airports have introduced cost-cutting measures as well. However. the crisis situation after 11 September 2001 was rather overshadowed by the more normal situation for the rest of the year. For 2003.Managing Airports conform with new security measures.7 per cent. Approval for the development of London Heathrow Terminal 5 was given shortly after 11 September 2001. For 2001. Rome continued to implement its major 10 year development programme and Frankfurt airport kept all major expansion work on schedule. Holding back on any planned investment because of the downturn in traffic may constrain growth in the future. Amsterdam airport also put some major investment projects on hold. Immediately after 11 September 2001.

0 4.The impact of 11 September 2001 and future prospects Table 10. Paris. the EBIT margin for the 50 leading airport groups in 2001 was 23 per cent compared with 28 per cent in 2000. Brussels Copenhagen. The two items are discussed in further detail later on in this chapter.3 9. in 2002.1 556 89 5 501 6 147 619 98 5 971 6 689 853 136 5 920 6 909 11. downgraded the credit rating of the Port Authority of New York and New Jersey 257 . both of which recorded above-average increases in revenues in 2001. The exceptions were the Schiphol Group and Stansted airport.8 37.9 3. Revenues were substantially higher at London Stansted. Different financial years exist. In the United States.3 Notes: a Based on a sample of 100 airports that are used to estimate industry totals.5 8.3 0. Amsterdam. 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. The exceptionally large increase in costs at Zürich airport was due to bad debt write-offs connected with Swissair Group.5 5. At other airports. Frankfurt. and Vienna is evident. Table 10. This situation has meant that airlines have exerted increased pressure on the airports regarding their airport charges (Airline Business.9 Aeronautical Non-aeronautical Total Operating costsb ($US millions) Security Insurance Other Total 4 869 5 677 10 546 5 101 5 987 11 088 5 456 5 732 11 188 4. increased security and insurance payments have been major factors influencing all the airports. respectively. Source: ACI North America. the Investor Service. 2002).3 shows the financial results for some of the major airports for 2001 and a decline in revenue for certain airports such as Geneva. and Zürich. However. (ACI-North America. both these items were expected to rise very substantially by 38 per cent. Moody’s. Globally. b Excludes depreciation.2 Change in financial performance of the US airport industrya since 11 September 2001 Operating revenues (US$ millions) 2000 2001 2002 (estimate) % change 01/00 % change 02/01 (estimate) 7. primarily because of the growth of low-cost carriers at this airport. 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. London Gatwick. All airports showed increases in costs.8 38. for example. Whilst there may have been specific reasons for some airports for these increases.8 5. 2002b). revenues were up in spite of declines in traffic after 11 September 2001.8 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. 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.3 0.

2 13.9 12.8 8.7 6. Miami. 2000 (%)b 2001 (%)b 20.6 32.2 0.9 1.7 2. 01 70 99 87 102 77 71 88 85 73 50 16 Apr. EBIT margin. Source: Airport Annual Accounts. and Detroit on its watchlist for possible downgrade.4 Notes: a Different financial years exist.5 40. Elsewhere.9 6. 01 12 Oct.1 0.2 16. 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 100.3 28.7 2.1 EBIT margin.4 Share prices of airport companies since 11 September 2001 13 Aug.8 1.0 16.6 15.4 6.1 16.0 12.8 27.Managing Airports Table 10.9 1.8 9.6 37.3 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 2.9 18.1 28. the decline in passenger numbers meant that two key sources of finance for investment. 01 72 97 83 115 86 77 94 94 76 48 12 Nov.2 0.6 20.1 28.8 25.7 3.1 1.0 42.4 0.2 8. b Table 10.3 7.8 9.4 5. Washington.9 39. Chicago O’Hare. Standard and Poor’s also placed US airports on creditwatch.6 21. EBIT margin earnings before interest and tax as percentage of revenues. Los Angeles. and Boston Massport and had a number of other US airports such as Charlotte.0 11.5 28.5 36. the share price of the listed privatized airports fell quite substantially but within most 258 . In addition.0 42.7 2.8 9.0 15. namely the Aviation Trust Fund and the Passenger Facility Charge – both directly related to traffic throughput – were reduced.0 14.6 25.6 5.0 6.9 01/00 change in costs (%) 4. Source: Jane’s Airport Review.1 27.6 13.

Congress quickly developed the Aviation and Transportation Security Act (ATSA). with the successful privatizations of Sydney and Malta airports.4 that the share value at Zürich airport (a partially private airport) was very significantly reduced by Swissair’s failure. 2002).The impact of 11 September 2001 and future prospects cases returned to pre-September values within 8 months (Table 10. Fraport did not do so well. particular in the United States. sharing information about potential security risks. However. based at the airport. The collapse of Swissair and Sabena clearly had a major impact on both Zürich and Brussels airports.5). 259 . 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. The most sweeping changes occurred in the United States where traditionally security measures were relatively lax compared with the rest of the world. in 2002. 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. 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 issues The events of 11 September 2001 led to aviation security coming under close scrutiny for both airports and airlines. 2000a). new mandatory security standards were agreed ranging from locking flight deck doors. 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. by mid-2002 though there were signs that airport privatization was back on the agenda for a number of airports. At Zürich airport. for example. Brussels airport had also planned to be privatized but these proposals have been put on hold. with many additional security measures being introduced. 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. related to maintenance and cargo. It may be seen from Table 10. In addition. 2002. 2002). Previously. which was signed by President Bush on 19 November 2001. At a global level. Suddenly. and ensuring that the security measures were implemented in a non-discriminatory manner (Jane’s Airport Review. the problems were compounded by the fact that Swissair had subsidiary businesses. Neubauer. for example. 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. because of other specific problems such as its investment with Manila airport and Zürich suffered because of the collapse of Swissair. became a national concern and high-profile issue that received a considerable amount of media attention. security. ICAO adopted an Aviation Security Plan of Action. At Zürich airport the work continued on the new terminal post11 September 2001 although the opening was delayed.4).

This was viewed as being totally unrealistic. the feasibility of meeting the tight deadlines and in relation to how the measures would be financed. a massive 38 per cent rise in 2002. 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. 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.Managing Airports Table 10. However. 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.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. it was estimated that 90 per cent rather than total 100 per cent screening by EDS had been achieved.5 Important dates for new security measures in the United States. In addition. Express systems for frequent fliers were considered and the TSA also introduced more effective queue management techniques. taking advice from experts such as the Walt Disney Corporation. As of February 2002. 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. only 150 EDS were in operation at a total of 47 airports. it also permitted airports to use AIP funds for other expenses related to changes in security requirements such as the replacement of airport 260 . Such fundamental changes to the country’s airport security system were costly to implement. 2002b). despite pressure from the airports this deadline was not extended although a few concessions were granted. It may be seen from Table 10. By 31 December 2002.2 that security costs incurred by the airports rose from $US556 million in 2000 to $US619 million in 2001. 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. an increase of 11 per cent. because of the enhanced security measures that were required.5 billion for 2002 and 2003 to allow airports to meet FAA mandated security expenses. The ATSA authorized US$1. allowing a mixture of scanning and manual checks. They were estimated to increase to $US853. whilst the deadline meant that over 2000 EDS would be needed at 429 airports (Jane’s Airport Review.

for example. in 2002. and cargo checks. 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. a wide range of different organizations such as the airport operator. the FAA authorized US$561 million in AIP funds to airports for security projects related to the events of 11 September 2001. 2002). much attention was also paid to improving security methods at airports and numerous changes have been made.The impact of 11 September 2001 and future prospects baggage systems and the reconfiguration of terminal baggage areas to accommodate the explosive detective systems. Sometimes. and Vienna. in spite of all this additional funding for security.5 million at Indianapolis airport (General Accounting Office. 2002). Often there may be a combination of these different these types of funding (Table 10. An ACI study undertaken shortly after 11 September 2001 attempted to quantify the security costs directly attributable to the terrorist attacks and found. Outside of the United States. 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. responsibility for designing security measures lies with the airport operator in Athens and Helsinki. In 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. Lisbon. the police. In addition to the funding provided by the ATSA. for other security activities. 2002). and is shared between these two and the airlines in Munich. For example. for example. the government in Amsterdam and Lisbon. or a subcontractor may play a role (Airports Council International.6 million (Behnke. This accounted for 17 per cent of US$3. such as staff access checks/badge control. the airline. However. in 2001 Congress authorized an extra US$175 million to aid airports for unexpected post-11 September 2001 security costs. compared to previous years when security expenditure averaged less than 2 per cent.50 per sector security fee was also been introduced to cover some of the costs of the TSA (Field. However. that Paris CDG airport estimated this to be US$20 million. and Toyko Narita US$2.4 million. Munich airport provided a figure of US$5. Nairobi US$3. 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.6). the airport operator may receive a refund from this tax revenue to cover the costs of the provision of certain security services. particularly as the initial plans for the TSA had proved totally inadequate with the budget demands and the staff requirements more than doubling (Power. security is paid for by the airport operator through normal airport charges or special security fees as is the case with UK airports. at Paris. Elsewhere. 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. 2002). As regards the provision of the security services.3 million. For example. Milan. 261 . 2003). A US$2. Traditionally. 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. aircraft protection. Whilst the industry acknowledged that this short-term help was much needed.3 billion available for AIP grants in 2002.

Source: ACI-Europe and individual airports. Post-11 September 2001. However. and the member 262 . They cited the United States as an example as where this was happening with the various security funds which had been approved by Congress.6 Airport Funding of security at European airports. 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. could distort competition. airlines. which could produce increases in security costs in some countries but not others. it was decided that the European Commission would carry out a study on how the financing burden should be shared between airports. 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. Originally. 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. To fully resolve this issue. However. this was rejected by the EU member states so the Parliament suggested that member states should at least shoulder some of the financial burden. there was general agreement that security measures should be harmonized throughout the European region. 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. 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.Managing Airports Table 10. The airports and airlines called for the governments to pay for the extra security measures required – such as additional security equipment. They also argued that an inconsistent approach to funding. infrastructure.

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

This would initially be a 5-year war risk insurance plan. However. which had to be renewed several times. 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. After intense pressure from the airlines and airports. notably in Britain and the Netherlands. 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. and the European Commission. Elsewhere. Within Europe. the airline industry. 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. all third-party cover for risks of war and terrorism and instead offered unacceptable reduced cover. 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). the air transport industry has been looking at new ways whereby it would actually have responsibility for the third-party insurance. was also proposed. However. in co-operation with the Department of Transportation. a number of other airports experimented with biometric technology. the situation was temporarily resolved with most governments agreeing to provide cover until a more realistic long-term solution could be found. The insurance problem After the events of 11 September 2001 the insurance companies withdrew. the European Commission had allowed the member state governments to provide temporary cover on a rolling 30-day basis. at only 7 days notice. regional solutions were also being considered which could potentially be quicker to introduce. It would also have a cancellation period of at least 90 days rather that just 7 days. 2002). Throughout 2002 these short-term emergency government guarantees. and Dubai and Singapore airports investigated fingerprint identification. However. 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. 264 . Sydney airport tested facial recognition. In the United States. which would involve the major carriers setting up a company that would sell insurance coverage and collect premiums. For example. enabled operations to continue as normal. which allowed for the FAA to provide war risk cover. Meanwhile for the short-term in November 2002 the US government enacted the Homeland Security Act. particularly from certain European governments. At the same time. It was agreed. Globally. namely Eurotime. namely $US50–150 million compared to the previous $US1 billion per airport or airline at much higher premiums. there was not total widespread support for such a scheme. which caused such problems for the airlines and airports after 11 September 2001. backed by government support.Managing Airports 80 000 employees at the airport and tested the technology that controlled access to secure areas (Lanza. ICAO has been investigating the setting up a ‘not-for-profit’ mutual insurance fund called GlobalTime. As a result of this. in principle. 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. A similar fund to Equitime. Tel Aviv airport used hand scanning.

There are also now a significant number of non-airport organizations who may 265 . It is important to acknowledge that none of the challenges that faced the industry prior to 11 September 2001 have gone away. such the A380. 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. 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. However. The more competitive environment brought about by the deregulation of the airline industry. Technological improvements to airfield and airspace infrastructure and aircraft may improve efficiency and reduce some of the undesirable environmental impacts of airports. One of the most important changes that has occurred within the airport industry is privatization. however. Casablanca). 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. has had a major impact on airport operations. will have major infrastructure and capacity implications for the airports. with governments playing no further role. in Bali.The impact of 11 September 2001 and future prospects who considered the industry to be best served by the commercial insurance market. Investors are. Saudi Arabia. likely to be more much cautious than they were in the late 1990s. although the whole air transport industry still remains particularly vulnerable to external problems such as further terrorists attacks (e. 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. such as alliances and low-cost carriers. currently the degree of concentration and private sector involvement within the airport industry is fairly small – much less than in the airline industry. 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. first in the United States. As the airline industry evolves and as further deregulation occurs. There will be new markets available for airport management companies who have more limited possibilities for expansion at home.g. airports will need to continue to adapt to new demands. 2002). 2002. Airports are functioning in an increasingly commercial marketplace and are having to modify their product to meet the needs of new airline customers. Pinkman. While a number of significant airport privatizations have taken place. 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. then Europe and to a lesser extent Asia. the Iraq War and the outbreak of SARS. The introduction of new aircraft types. However. Whilst unsurprisingly this was also the view held by the insurance industry itself. Future prospects 11 September 2001 has undoubtedly left the airport industry operating in a much more uncertain and volatile environment. 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.

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

but increasingly this sector is unable or unwilling to provide such support. healthy long-term growth rates in the region of 4 per cent were predicted (Table 10.4 Table 10. which are more relevant to airlines than airports. 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. A key reason behind airport privatization is the need to find new funding for investment.7 4.7 per cent.5 4.9 5. Boeing and Airbus were also predicting long-term average annual growth rates in the region of 4.9 3. IATA.9 5. 267 . which means that overall the forecasts of the manufacturers Table 10. All indications are that the air transport demand is set to continue to grow – putting pressure on airports to expand their capacity. Clearly the uncertainty brought about by the events of 11 September 2001 meant that forecasting in the short term was very difficult. This tends to push up passenger forecasts by up to 1 per cent per annum as the average distance flown is predicted to increase.6 4.7 4. In 2002.9 4. The units of these forecasts are passengerkilometres.7).The impact of 11 September 2001 and future prospects again has different expectations at airports. Many funds traditionally came from public sources.2 5.8 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. Airbus.5–4. IATA forecasts of international scheduled passengers Forecast period 2002 2003 2004 2005 2001–2005 2006–2010 2011–2015 Annual growth rate (%) 0. is becoming more concentrated as well and is dominated by a few very large vertically integrated European countries.5 Sources: Boeing.7 Base year 2001 2002 2003 2004 2000 2005 2010 Source: IATA.9 7.

Intra-European traffic is expected to grow at 4. perhaps somewhat optimistic view. Deregulation and particularly the introduction of low fares may stimulate new growth. 2002–21 Source: Boeing.4 and 5.2). 2002. Economic growth. Such links. therefore is that global passenger numbers will grow at around 4 per cent per annum. Boeing predicts that the relatively mature North Atlantic market will grow by only 3. These forecasts also did not take into account any physical or environmental constraints that might may occur (IATA. 268 . 2002). 2002. which reflects business activity and personal wealth. as has been experienced in Europe with the new breed of low-cost airlines. 2002. For certain markets. Similarly the differences between the Airbus forecasts made before and after 11 September 2001 represented just one year’s traffic growth. Air freight demand is.7 per cent compared to the post-11 September 2001 growth rate of 4. 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. particularly in developing areas of the world. Therefore in the long-term the impact of these terrorist attacks was forecast to be fairly small.5 per cent. For example. More sophisticated telecommunication links may facilitate more effective teleconferencing and could reduce the demand for business travel. may actually encourage more global trade and act as a complement to air travel rather than as a substitute.2). Elsewhere. the responsiveness of demand to changes to income may be weakening as demand maturity sets in.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. however. likewise. and the cost of travel. respectively.8). Airbus. The Boeing forecasts prepared before 11 September 2001 and using the same base year predicted an average growth rate of 4. although clearly it was not foreseen that there would be continued volatily well in 2003 due to terrorism and other threats (Table 10. the relative immature market and higher than average predicted economic growth will ensure high growth rates. The general.7 per cent per annum (Figure 10. Boeing. will continue to play a major role in shaping the growth of passenger demand. particularly within the United States and Europe.5 per cent.2 Average annual pax-km forecasts of main regional flows. 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.Managing Airports were very similar to those produced by IATA.

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. Denver. this is seen as a major hurdle to achieving the full benefits of a deregulated market. 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. and Kuala Lumpur. some of these difficulties could potentially be reduced through greater ATC co-ordination and harmonization. advanced wake vortex technologies and arrivals and departure management systems. The proportion of freight carried on all-freight flights is likely to increase. Technical improvements at the airport.The impact of 11 September 2001 and future prospects travel cost – as well as international trade. Airlines are much more capable than airports of adapting to market growth by redistributing capacity across the networks. Bangkok. Seoul. and pharmaceuticals are the most international and are heavily reliant on air travel for the transportation of their high-value/low-weight products. Shanghai. New airports are also planned for China. admittedly. This has put further pressures on the already congested runways at many airports. 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. The new Athens airport opened in 2001 and the expanded airport in Berlin-Schonefeld may be ready for operation in the late 2000s. for example. has meant that the average aircraft size has not increased substantially since the early 1980s. increasingly by sharing capacity with alliance members. Hong Kong. In the remaining areas of the world. could optimize traffic flow in and out 269 . The rapidly expanding knowledge-based industrial sectors such as computing. such as Africa and Middle East. 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. Macau. competitive pressures and the rapid growth of low-cost carriers. electronics. The consequences are growing congestion and delays although. A new airport to serve Mexico City is planned although there have been problems in selecting the most suitable site. 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. communications. and Milan are the only examples. or even by adding extra aircraft to the fleet. The shortage of airport capacity in Asia is currently not too serious an issue due to the recent opening of new airports in. 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. In spite of this. and Bangalore. Airports lack this flexibility. Even if there is a gradual slow-down in the rate of growth in certain passengers markets. Oslo. typically using relatively small aircraft types. partly due to the high growth of the express sector and partly because the current bellyhold capacity of passenger aircraft is insufficient. Plans for a new airport in Lisbon or an offshore airport in Amsterdam have been put on hold. Munich. lack of sufficient airport capacity is not usually a major problem. Increasing reliance on just in-time inventory systems favours air freight. for example. In Europe. 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. It can take years for airports to gain approval and then to build new infrastructure.

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

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

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

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

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

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

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

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