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

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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 .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.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.

1996–7 Profitability at Australian airports.1 2. 2001 Airport aircraft movement by world region. 1979–2001 Total revenues – Vienna Airport Group. 2001 The world’s 20 largest airports by international terminal passengers. 2001 WLU per employee for European airports.6 1.10 2. 2001–02 2 3 3 4 4 4 5 15 15 15 16 16 16 32 32 35 35 38 38 40 44 57 67 67 68 69 70 90 .14 3.1 3.5 1.6 4. 1999 Passenger survey results at Brisbane airport. 1994–2002 Percentage share of aeronautical revenue at ACI airports by world region.6 2. 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. 2001 The world’s 20 largest airports by air transport movements. 2001 The world’s 20 largest airports by total passengers.11 2.4 3.2 2.9 2. 2001 The world’s 20 largest airports by cargo tonnes. 2001 Cost per WLU for European airports.Figures 1.3 2. 2001 Revenue per WLU for European airports.8 2.1 1.2 1.5 2.2 3. 2000–01 Total factor productivity for world airports.4 2. 2000 Total passengers at Amsterdam airport.7 2.13 2.5 3. 1989–2001 Profitability – Schiphol Group.3 3.3 1. 2001 Revenue per employee for world airports. 1996–7 External capital funding at large US hub airports.7 2.1 Airport passengers by world region.12 2. 2000 External capital funding at small US hub airports. 2002 Financial results of TBI. 2001 Airport cargo tonnes by world region. 1989–2001 Organizational structure within the Schiphol Group. 1979–2001 Traffic at Australian airports.4 1.

1990–2002 8. 1992–2000 6. 1999–2001 7.2 Landing and passenger charges as a share of total costs for UK airlines.1 105 107 147 147 148 159 163 167 169 171 172 199 201 205 207 210 231 232 233 233 254 268 viii .3 Mode of surface transport used by passengers at London Heathrow airport in 2001 9.3 Employment at Gatwick airport in 1997 9.4 Airport retail revenue per square metre in 2000/2001 6. 2001 6.2 Average annual pax-km forecasts of main regional flows.2 Total passengers at Norwich airport.1 The economic impact of airports 8.6 Profitability – Aer Rianta. 2001 6. 2001 9.7 Retail space at BAA UK airports. 2000 6. 2002–21 5.5 Non-aeronautical revenue share (%) at European airports.2 Public transport usage by passengers to and from the airport.3 Concession revenue: Washington airports.1 Total passengers at Southampton airport.9 Profitability – BAA.1 Non-aeronautical revenue per passenger at ACI airports by world region.Figures Aeronautical charges and taxes for an international B737–800 turnaround in 2002 at world airports 5. 1990–2002 7. 1999–2002 6. 2001 6.2 Employment at European airports in 1996 8.1 Existing and planned rail links to airports 9.1 Airport passenger growth by world region since 11 September 2001 10.8 Revenue sources for BAA.4 Mode of surface transport used by employees at London Heathrow airport in 1999 10. 1990–2002 6. 1998–2001 6.2 Concession revenue: Brussels airport.

1983–2001 Revenue and cost structures at a selection of European airports.5 4.6 2.8 2.4 3.Tables 1.3 3. 2003 Traffic and profitability growth at main UK airports.4 4. 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.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. 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.7 2.3 4.9 3.2 3.5 2.1 2.1 3.5 4.4 2. 1995–2002 PlaneStation airports operated by Wiggins in 2003 Profitability for 30 major airport operators. 2002 6 20 22 24 25 29 31 33 44 50 55 56 58 58 64 76 79 80 81 83 84 86 87 .2 2.6 4. 2001–02 Airport operating revenue sources Average revenue and cost structures at European airports. 1987–2001 Privatization details of Australian airports TBI’s expansion into the airport business.1 2.1 4.2 4.3 2.7 4.

4: 5. economic.2 5. 2002 Key environmental performance indicators at airports Environmental. Geneva.4 9. 1998–2001 Aer Rianta’s involvement in international retailing activities.10 6. 2001–02 Main aeronautical charges at airports New growth and new route discounts available at Aer Rianta airports. 2002 Passenger profile at Southampton airport.2 7.7 5.7 Proposed service quality elements to be included in the regulation of BAA London airports Survey results of seven major airlines at Brisbane airport. 2000 Passenger profile at Norwich airport. 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.5 7.1 7.2 9.Tables 4. and Vienna airports Emission charges at Swedish airports in 2002 Targets and commitments – Heathrow airport surface access strategy.3 7. 1999 Employment impacts at European and North American airports Economic impacts at Washington.8 7.3: 5.5 5. 1998–2003 Elements of agreement between Ryanair and BSCA Main catchment areas of London City airport.6 7.9 4. and social expenditure and savings at Heathrow airport. 2001–02 Static quality indicators at Brisbane airport.2 9.2 6.3 9.8 5.3 6.5 6.6 9.11 5. 2000–01 Short-term impact of the loss of intra-EU duty.9 7. Brisbane. 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.1 9.10 8.7 7. 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 . 1994–9 on airport fees Discounts given to each airline at Aer Rianta airports. landing.4 6.4 7.1 6.and tax-free sales on airport revenues Changes in non-aeronautical revenue at UK airports.6 7.6 5. 1998–2001 New route discounts available at Aer Rianta Airports 2001–03 on passenger.1 5.9 5.5 9.10 4.1 8.

2001–02 Funding of security at European airports.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.6 10.5 10.8 10.3 10.4 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 .1 10.Tables 9.2 10.

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

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

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

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 .

preferred noise route passenger opinion survey passengers per annum quality of survey monitor return on capital employed rate of return rehabilitate–own–transfer Severe acute respiratory syndrome service level agreement strategic partnership agreement total-day-evening-night-level total factor productivity Tera Joule total quality management value added tax work load unit Vancouver Airport Services . tax. 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.

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

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

the European region’s significance becomes much more important (Figure 1. 2001 Source: ACI.3 Airport aircraft movement by world region. North America 56% Africa Asia/ Pacific 2% 9% Europe 27% Latin America 5% Middle East 1% Figure 1. growth will return and so the subsequent need for additional airport capacity 3 . which is dominated by domestic traffic. Memphis is the world’s largest cargo airport because Federal Express is based here. Chicago. Heathrow has the most international traffic. 2001 Source: ACI. while Atlanta.6). with none in any other global region.Introduction Africa 1% North America 43% Asia/ Pacific 27% Middle East Latin America 4% 4% Europe 21% Figure 1.4–1. combined with a global economic downturn. Similarly. 13 are US airports in terms of passenger numbers. Europe. cargo or movements are in North America.2 Airport cargo tonnes by world region. whether measured in passengers. All the 20 busiest airports. or Asia/Pacific. UPS has its base at Louisville. Not all the major cargo airports coincide with the major passenger airports. However. In the longerturn. when just international traffic is being examined. and Los Angeles have the largest passenger throughput.7). 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. The largest passenger airport in Asia is Toyko Haneda. The cargo market is more widespread with six of the important cargo airports situated in Asia. nine with cargo and 17 when air transport movements are being considered (Figures 1. The larger than average aircraft size in Asia means than none of the busiest airports in terms of movements are situated in this region.

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

Introduction 60 000 Terminal passengers (thousands) 50 000 40 000 30 000 20 000 10 000 0 North America Europe Asia/Pacific Figure 1. 2000 Source: BAA.7 The world’s 20 largest airports by international terminal passengers. Table 1. is the globalization of the industry and the 5 r te es ch an M i m ia M d n ri ad ge M ha en op C to n ro To i e es ip l Ta ge An s Lo l FK ou k J r Se Yo ew N ok k ng Ba h ric Zu ls se ita r us Br Na o yk e To por ick a w ng at Si n G o nd ng Lo Ko g m on H rda e st Am urt kf an G w Fr CD hro t ris ea Pa n H o nd Lo . The other most significant development within the airline industry. in 1987. In some places this has been the result of the adoption of more liberal bilateral air service agreements. too. However. In the European Union (EU). The 1993 package. Most airlines. primarily to reduce the burden on public sector expenditure and to encourage greater operating efficiency. Moreover. traditionally were state owned and often subsidized by their government owners. At the same time. which has had major consequences for certain airports. this situation has substantially changed as an increasing number of governments have opted for partial or totally private sector airline ownership. will undoubtedly be one of the major influences on the airport business. Initially most change was experienced within the airline sector as a consequence of airline deregulation. as has occurred on a number of the North Atlantic and Pacific routes. which did not become fully operational until 1997. partly due to deregulation and privatization trends. This European deregulation has allowed a new low-cost airline industry to develop. but now this sector. The trend towards airline deregulation began in 1978 with the deregulation of the US domestic market. and 1993. since the 1970s there have been major regulatory and structural developments. airline ownership patterns have changed. The growth in demand for air transport has had very significant economic and environmental consequences for both the airline and airport industries. is developing into a fundamentally different business. with the notable exception of those in the United States. privatization and globalization trends. It may been seen that most airports experienced a decline in traffic in 2001 with the largest decreases being in the United States. deregulation has been achieved with a multilateral policy which has evolved over a number of years with the introduction of the three deregulation packages. which have affected dramatically the way in which the two industries operate. The pace of change was slower in the airport industry. Many more markets subsequently have been liberalized or deregulated.1 shows the growth at the major international airports of the world for the last 20 years. was the most significant package and has had the most farreaching impact. 1990. The average annual growth was 6 per cent in the 1980s and 5 per cent in 1990s.

and in many cases the ownership as well.5 4. the adoption of strategic partnerships or the introduction of private management contracts.2 6.9 9.Managing Airports Table 1.3 3.6 0.1 7. The transfer of the management of an airport.8 8.6 9.3 8.8 2.6 4. Sky Team.0 6. or other co-operative arrangements.3 5.0 4.8 4.4 8.0 5.8 3. The emergence of a few global airport companies who are operating at an increasing number of airports around the world. These include share flotations.8 12.3 1. 3 Airport globalization. and ‘Wings’. Some of these 6 . Three key developments have been witnessed within the airport sector: 1 Airport commercialization.1 5.2 5.3 0.7 6.9 6. 2 Airport privatization. The transformation of an airport from a public utility to a commercial enterprise and the adoption of a more businesslike management philosophy.2 3. many other airlines are aligning themselves to these groupings with code-sharing.3 5.1 7.2 8. Moreover.9 1.0 3.4 3. Radical restructuring has occurred.6 3.8 4.5 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 1.2 Average Sources: ACI.3 1.1 1.3 5.5 5. These are dominating the airline business – accounting for two-thirds of all traffic.3 15.2 6.0 5.8 4. BAA and annual accounts.3 4.6 10. oneworld.4 2.9 2. The airports have now found themselves being caught up in this environment of change.6 8. franchising.5 8. Four major alliance groupings.3 2.4 7. to the private sector by a variety of methods. emergence of transnational airlines. have emerged with global networks.6 5.1 9. which in many ways mirrors that which has fundamentally changed the airline industry.7 4.1 3. namely Star.4 5.5 6.8 3.1 6.5 7.5 0.6 2.

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

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

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

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

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

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

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

which was used by the airport company to partly finance its expansion plans.Managing Airports private sector practices in the area of business and strategic planning and cost control were introduced. Business appraisals for valuing the company were undertaken and consultations held with capital market analysts. 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. Budget constraints meant that increasing the equity of the public shareholders was out of the question. was in a poor trading situation. with aviation units (airside services. like most others throughout the world. Eventually. the airport handled 11.5 per cent stake in the airport in a secondary offering in 1995 – this time retaining the AS2. This was primarily because it did not want the large loan servicing costs right through until the next capacity expansion. 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 spite of the poor stock market conditions. Since the first year of profits in 1978. the flotation or initial public offering (IPO) took place in June 1992 and was oversubscribed three times in Austria and five times internationally. Japan. and increasing the share capital by 50 per cent. marketing and service quality provision (Gangl. advertising.5).The success of the flotation meant that the Austrian government opted to sell half its remaining 36. Germany.The organizational structure was further refined to be more customer focused. On the other hand. and handling services) and non-aviation units (consumer services. this arrangement was terminated in 1998 (Figures 2. the airport authority had to implement a number of very significant changes. 1998). In 1995. However. At that time Austrian interest rates for medium.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. 1994). and training programmes focused on customer orientation and effective business practices. the public shareholding in the company was reduced to 40 per cent. The realistic options were either raising the money through loans/bonds or raising equity on the capital markets. In 2001. the Vienna stock market. and then further debt requirements. airline and terminal services. the United Kingdom. technical services. This gave private shareholders 47 per cent of the airport. which followed a share buy-back in 2000 that resulted in 10 per cent of shares being placed in an employee foundation.4). This included changing the corporate status from a limited liability company to a joint stock company. which was planned in 2000. Switzerland. land development and real estate) both being supported by central services. A comprehensive management information system (MIS) was launched. and road shows in areas such as Austria. 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. such as retail and catering. In order to be floated on the stock exchange.2 billion proceeds itself.6 per cent (Figure 2. were set up.9 million passengers the same number as in 2000 due to the decline in traffic 14 .8 billion. Employee shareacquisition programmes and investor relations programmes were set up and sales support undertaken through marketing. and Taiwan.The sale brought in AS1. In 2001. passenger numbers have increased by an average annual growth of 6.1–2. Attention was also given to developing the nonaeronautical side of the business.and long-term loans as well as bonds were high. the airport decided on a share flotation for 1992.

In 2000 profit was up by 4 per cent but it declined by 8. 15 . Private shareholders 48% Amsterdam airport 1% City of Vienna 17% Province of lower Austria 17% Federal republic of Austria 17% Figure 2.6) with a decline of 2. During the same period revenues have grown by 8.7 per annum (Figure 2. since 11 September in that year.9 per cent.1 Ownership of Vienna airport up until 1992 Source: Annual report.3 Ownership of Vienna airport after secondary offering in 1995 Source: Annual report. 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 per cent in 2001.5 per cent in 2001.The changing nature of airports Federal republic of Austria 25% City of Vienna 50% Province of lower Austria 25% Figure 2.2 Ownership of Vienna airport after IPO in 1992 Source: Annual report. Private shareholders 27% City of Vienna 37% Federal republic of Austria 18% Province of lower Austria 18% Figure 2.

4 Ownership of Vienna airport after changes in 2001 Source: Annual report. 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 . Figure 2. 1979–2001 Source: Annual reports. 1979–2001 Source: Annual reports.6 Total revenues – Vienna Airport Group.Managing Airports Private shareholders 50% Employee foundation 10% City of Vienna 20% Province of lower Austria 20% Figure 2.5 Total passengers at Vienna airport. 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.

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

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

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

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

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

the airport services company.Managing Airports Table 2. the concession fee will be related to traffic growth. 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. 1998).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.1 billion at the airports in the 30 years. with over US$800 million being spent in the first five years. b Ninety-nine-year lease. and Ogden. The consortium has also agreed to invest US$2. 22 . Melbourne. The consortium has agreed to pay an annual US$171 million a year for the first 5 years of the agreement. After that time. airport company. primarily at the two Buenos Aires airports (Gray.

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

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

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. The new Athens airport at Spata Eleftherios Venizelos was built under a 30-year BOT arrangement. This was the first project finance model of its kind in the Asia/Pacific region.4). 1995). Another example of a BOT project was the international passenger Terminal 3 at Ninoy Aquino International Airport in Manila.4 per cent). however. Athens International Airport SA (AIA). local authorities (14. 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). British Airways (21. Forte (6 per cent). 1999). The Greek government holds 55 per cent of the shares in the new company.9 per cent) (Lambert. 25 . Hochtief. British Airways. National Car Parks 55% Greek state. The consortium which was involved with this twenty Table 2. the international terminals at airports such as Budapest and New York JFK are all being developed through BOT projects (Table 2. National Car Parks (21. 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 remaining share 45 per cent share belongs to an international consortium. 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.3 per cent). Elsewhere. Pearson International Airport which was developed as a BOT project by Huang and Danczkay and Lockheed Air Terminals (Ashford and Moore. and Frankfurt airport. All these methods.The changing nature of airports or rehabilitate–own–transfer (ROT) projects. which is being led by the German construction company. and John Laing Holdings (11.4 per cent). This terminal is now a fully owned and managed facility of Birmingham International Airport plc. 1999).

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

Gatwick. owning London Heathrow. Kansai. all 33 Argentinian airports are covered under the same concession agreements. and Stansted airports in the South East and Aberdeen. 27 . In Japan in 2002. while in Mexico the airports have been divided into four different groups. Edinburgh. although the extent of competition which exists between airports in a group is always debatable. Over the years. the government had to amend its plans to privatize Narita. the Irish airport company. Shannon. Restrictions were imposed to stop the same operator from having overall control at a number of airports. This debate is also relevant for Aer Rianta. Glasgow. airports often argue that they are making best use of resources and expertise by operating as an airport group. If the airport group is sold as a single entity. However. and Cork – and is likely to be privatized in the early 2000s. selling off airports in this manner may inhibit competition. 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. 2000b). In response. and if generally this group as a whole has a good financial track record. and Prestwick airports in Scotland. the sale proceeds from the group privatization was much higher than would have been achieved otherwise. 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. In Australia. Airlines tend to be suspicious of airport groups. 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. and a new airport in Central Japan near Nagoya as an airport group. This was an interesting example as BAA plc airports in London were in many ways in direct competition with each other. 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. Interestingly. BAA plc. which owns three airports – Dublin. was sold off as a single entity in 1987. This was the case with the Australian airports and also in a number of South American countries prior to privatization. a few years after BAA plc privatization.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. After a long debate in the United Kingdom. typically in some remote area which they do not use (IATA. Unsurprisingly. In India. a higher sale price may be achieved – primarily because of the lack of perceived competition from other airport operators. fearful that they will be paying charges at one airport which will finance the development of another airport. 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. In South America. the government decided on individual privatizations for the major international airports but with packages of some of the smaller ones. In addition.

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

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

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

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

three airports.7 and 2. 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. namely Melbourne.7 Traffic at Australian airports. particularly as government forecasts had shown that separate sales would generate more income (Knibb. 32 . 1999). In addition.Managing Airports individually. they are required 25 Alice springs includes Tennant Creek. Brisbane. In phase 1 of the privatization process. Potential buyers had to have a majority Australian interest and airport management experience. 1996–7 Source: Annual accounts. 1996–7 Source: Annual report. Issues relating to the national interest. were sold in 1997. 120 100 EBIT (A$million) 80 60 40 20 0 Sydney Melbourne Alice springs includes Tennant Creek.8 Profitability at Australian airports. After Sydney. As in the United Kingdom. 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. efficiency and competition were fiercely debated. the privatized airports were initially price regulated. it was decided that the airports would be leased off individually on long-term 50-year leases. with a further option for 49 years. Eventually. Political factors played a key role. these three airports were the most profitable airports in the FAC system and they handled the most traffic (Figures 2.8). and Perth. 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.

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

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

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

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

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

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

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

13 Organizational structure within the Schiphol Group.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. 2002 .

Perth. The utility and property company. property development. the government stated that in principle it was in favour of privatization and the company began to prepare for privatization. Also in this year a consortium of financial and industrial organizations was formed with both the Schiphol Group and Fraport having a 1 per cent shareholding. 2000). 1999b). communication and business activities. It wants to market this concept internationally. called Establishing a Network for European Airports (ENEA) expressed interest in gaining a share in the Aeroporti di Roma company. and Wellington airports. although a government decision at the end of 1999 confirmed that the airport would be allowed to expand at a controlled pace (Schiphol Group. New airport operators The other organizations which have taken advantage of the privatization trend to become airport management companies are quite varied. In 1995. 1999a). there is uncertainty about long-term growth at Amsterdam airport. In the same year. but was subsequently unsuccessful. it formed the Pantares alliance with Frankfurt airport (Fraport) and started looking at co-operation in areas such as information technology. with the aim of sharing expertise. 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. Infratil. retail. cost efficiency. and manages further small airports in Odense (Denmark). Parchim and Lahr (Germany). Sweden. It has worked with Brussels International Airport Company to develop a new flight information system and with other information technology projects. hotels and recreation. However. 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.The changing nature of airports competitive position particularly by developing its concept of an ‘AirportCity’ which provides services 24 hours a day in the form of shops and catering. and international activities. for example. it became the first airport company to take a shareholding in another company. and property development. and Wiggins which owns the Manston airport in the United Kingdom. has involvement with Prestwick. Pilsen (Czech Republic). The other key issue for the group is its public ownership. This consortium. The airports consider that synergies in airport operations and combined financial strength will help in the acquisition of further international airports (Schiphol Group. 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. and information. Hochtief which has interests 41 . 1 per cent in Vienna airport. and Ajman (UAE). 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. There are also traditional construction companies such as Vinci which has a close partnership with AdP on international projects. 2002). Borgond (Hungary). They include property developers such as TBI (which took over AGI in 1999) which has interests in airports in the United Kingdom. and North America. It is particularly keen to develop alliances with other airports to optimize management skills and knowledge (Schiphol Group. In 2000. Cuneo (Italy). Moreover. in the areas of retail performance. handling and cargo.

Sydney. An unusual example is the Birmingham Eurohub which was partially financed by British Airways (BA). 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. which was handling around 2 million passengers. Its first airport acquisition outside of the United Kingdom was in 1997 when it purchased Orlando Sanford International. which has developed services out of London Luton airport. Bournemouth. the third busiest international airport in Florida. handling just under 1 million passengers. This means that the airlines get exclusive rights to parts of the terminal and/or they may receive substantial discounts on usage. an airport handling around 1 million passengers. and Niagara Falls airport. In the United States.5 million for the airport with a further US$6. there would be a number of regulatory and competition issues which would need to be considered. Elsewhere. and Rome airports. there have been transport companies. Berlin. Another construction company Bechtel has teamed up with Singapore Changi airport to form Alterra Partners which has an interest in Luton airport. based at Dublin airport has also proposed building its own low-cost terminal. 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. however. such practice is rare. Lima airport in Peru and San Jose airport in Costa Rica. Finally. airlines already partially or totally lease terminals and in Australia the domestic terminals are leased to the domestic carriers. Then there are international financial investors such as Macquarie Bank which is involved with Bristol. UK transport operators Firstgroup and Stagecoach also each owned one UK airport in the late 1990s but have now sold these. Birmingham. Ryanair. in April 1995 from the local government owners. This shows that perhaps the synergies from airport operations which these transport operators had hoped for were not as significant as was first thought.Managing Airports in Athens. when TBI acquired 90 per cent of Stockholm Skavsta airport in Sweden. At all three airports it embarked on major capital investment programmes. and Stewart International until 2001 when it sold its UK airports to concentrate on other transport activities. unsuccessfully tried to buy the airport when it was up for sale.TBI initially paid US$27. It was listed on the stock exchange in 1994. TBI: from property management to global airport operations TBI began life as a Wales-based property company. It first became involved with airports when it bought Cardiff International. and Düsseldorf airports and Cintra which has involvement in the Mexican airports. Further expansion into the airport business occurred in June 1998. Skavsta airport is a small airport about 100 km south of Stockholm. Hamburg. in August 1996 from the management owners. most notably National Express which had interests in East Midlands. Thomas Bailey Investment. EasyJet. Bristol. There has been considerable discussion as to whether airlines could buy and operate airports. It subsequently went on to buy Belfast International Airport. Low cost carriers have also expressed an interest in running their own facilities in order to keep the service simple and keep down costs.5 million to be paid when certain goals 42 .

Santa Cruz.5 million when freight exceeds 71 120 tonnes and US$1. 2000). New York. 1998). In June 1999. Consorcio AGI. By 1997–8. US$2. 1999). AGI had a 25 per cent equity share in the concession consortium which was managing Luton airport. and 25 000 tonnes of freight (ACI Europe.The changing nature of airports are achieved.25 million when both goals are achieved (Graham. Lockheed Martin. respectively. and GE Capital. there were 213 000 passengers. 1999). 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. Alice Springs. Airports Group International had involvement with 29 airports worldwide when it was acquired by TBI.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$7.14). Perth. At a number of other US airports it had contracts for handling and other airport services. flying mostly on lowcost carriers and charter. 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. This meant that its stock market classification was changed from property to transport. 43 . 2000). Acquiring AGI changed TBI into a company which had controlling equity shares at seven airports. It had equity shares in a number of Australian airports (Darwin. Tennant Creek. a 20-year management contract was agreed for Juan Santamaria International Airport in Costa Rica which served around 2 million passengers. These goals relate to passenger and freight throughout.The annual payments are matched by Federal Aviation Authority and Florida Department of Transportation funding (Orlando Sanford Airport Authority.5 million paid upfront and the rest in annual payments. In 1998. namely US$2. 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. per annum (Figure 2. non-controlling equity shares at another six and contracts to manage or to provide services at another 24 locations (TBI. Its turnover and profit before interest and tax has increased by 40 and 30 per cent. Bechtel. it had management contracts for Terminal 3 at Toronto Pearson International airport. 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. In November 1999. and Hobart) and equity interests in a concession contract for La Paz.5 million when passengers numbers exceed 600 000.8). it acquired Airports Group International (AGI) for £86 million (TBI. 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.TBI owns 82 per cent of the equity in management company. In North America. 1999). At around the same time as the AGI acquisition. Finally. Then in September 1999. 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. for the international concourse at Atlanta Hartsfield and for the small airports of Burbank airport in California and Albany airport. TBI has subsequently gone on to expand its business further. and Cochabamba airports in Bolivian airports. 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.

TBI’s financial position remained relatively strong in 2001–02 in spite of the events of 11 September. Perth and Northern Territories) Acquisition of controlling share (71%) of Luton airport 2001 Source: Compiled by author from various sources. 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. 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.The gap widened in 1998–9 with £24 million from airport profit and only £14 million from property. 44 . 2001.8 Date 1995 1996 1997 1998 1999 TBI’s expansion into the airport business. 1994–2002 Source: Annual reports. £21 million profits came from airports while £17 million came from property. The disposal of the property business in 1999 meant that subsequently nearly all profits in that year were airport related. 2002). however.14 Financial results of TBI. 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 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.Managing Airports Table 2. Bolivia.

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

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

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

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

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

Managing Airports Table 2. 2002b). Wiggins is hoping to operate more airports in the future (Gethin. Tennessee in the United States but eventually withdrew its interest from this airport in 2003.9). were too great. Other potential benefits include the general lack of congestion and availability of slots compared to alternative airports plus the ownership of adjacent land which is ideal for business park development. 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. Specifically with increased security measures at major airports since 11 September. 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. 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 believes that their smaller sized airports and more straightforward security operations will be a distinct advantage.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. 2001. just-in-time assembly locations and for supporting all the freighter operations. It also tried to gain control of Smyrna airport near Nashville. Wiggins expects that projects such as local community centres with shops. the public or private operators of the airport have retained ownership whilst Wiggins has taken over full operational and development control. public ownership. hotels and leisure facilities or business and light industrial activities will bring jobs. With most of the Wiggins contracts. At most Wiggins airports there is no or very little traffic when Wiggins gets involved.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. increased land values and generally considerable regional economic development to the surrounding areas of the airport in the network. which exist if an airport is taken over by a different operator. primarily because it found the political and regulatory obstacles. The overall objective is to develop a global network of over 20 regional airports under its so-called PlaneStation concept. 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.

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

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

Most of the non-aeronautical revenue comes from concessions and rents. such as interest received and income earned from subsidiary companies. 2002.Airport economics and performance benchmarking commercial income and hence a non-aeronautical revenue.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. At some airports. in at a 57 . The situation changed in 1999 because of the impact of the abolition of EU duty. the increase in the proportion of non-aeronautical revenue over the 15 years from 1983 to 1998 had been considerable – for example. A breakdown of revenues for a sample of European airports is shown in Table 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. at Copenhagen airport the share increased from 41 to 54 per cent and at Geneva airport it rose from 40 to 51 per cent. 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. 2001 Source: ACI.1 Percentage share of aeronautical revenue at ACI airports by world region. 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.1). Overall. From the 2001 ACI survey. One of the most notable increases in commercial revenues has been with BAA plc airports – Chapter 6 outlines how this was achieved. the generally smaller sized airports which had less non-aeronautical opportunities. The African/Middle East and Latin American/Caribbean regions appeared to have the lowest share of non-aeronautical revenues. Revenues.3 for 1983–2001. 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. are usually included under a different ‘non-operating’ revenue category. 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. and because the non-aeronautical policies tended to be less developed than in many other parts of the world. mostly due to the lower income per capita. landing and passenger fees are by far the most important aeronautical revenue sources. it was apparent that aeronautical revenues represented just under half of all revenues (Figure 3.

6 39.Managing Airports Table 3.9 44.9 24. 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. labour costs account for an average 33 per cent of total costs with depreciation representing a further 24 per cent.0 Table 3.9 43.0 55.0 36.8 20.1 100.0 34.6 44.0 56.1 100. Within Europe.3). it is usually possible to identify the three separate cost items associated with labour.4 100.1 45.2 100.0 45.2 100.4 Revenue and cost structures at a selection of European airports.5 21.0 34. 1983–2001 1983 Revenue shares (%) Aeronautical Non-aeronautical Total Cost Shares (%) Labour Depreciation Other Total Source: Annual reports.0 100.6 35.0 32.6 43.2 36. Over the years the labour costs have decreased in importance (Table 3.0 48.6 100.4 40. From published accounts. In part this is due to more 58 .5 44. and other operating costs.0 52. 1988 1993 1998 1999 2000 2001 58.6 18.0 55.0 100. 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.9 41.9 100.0 39.5 100.3 Average revenue and cost structures at European airports.0 43.4 100. This value remained fairly constant in 2000 and 2001.6 100. Unlike with revenues.6 23. there is no industry standard for the reporting of airport operating costs.8 42.2 21.0 54.0 55.2 42. capital.9 100.1 23. however.

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

car parking. duty-free shops. this will clearly have resource implications. International passengers also have more luggage. for a more exclusive product. In the extreme case. Moreover.3 bags compared with 0. Charter passengers will not usually need certain facilities such as airline lounges which will influence the airport’s cost and revenue levels. BAA plc has estimated that for a hypothetical terminal of 8 million passenger capacity. handling. There is no ‘typical’ airport when it comes to looking at the services and facilities an airport provides. as with the business airport London City which put leather seats in the departure lounge. Costs associated with international passengers tend to rise as this type of traffic requires more space in the terminal for customs and immigration.and tax-free shopping.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. The cost multiple for EU passengers is less. SEA. 2000). in Heathrow’s Terminal 1 it has been estimated that international passengers on average have 1. different airports have little in common. air traffic control. airports serving holiday destinations may have a problem with peakiness and uneven capacity utilization which may push up costs. This is very different from airports such as London Heathrow or Amsterdam Schiphol which generate a relatively 60 .62 times greater than the cost of domestic passengers. terminals may also be leased as is the situation in the United States and Australia. Some airport operators will provide activities such as security. 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. if an airport does decide to aim. namely 1. with no provision of airbridges. these passengers spend longer in the terminal. All this will impact on both cost and revenue levels. the cost associated with an international passenger is likely to be 1. 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. while others will contract these out. 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). Likewise. 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.36. say. Nevertheless. For example. the Milan airport operator traditionally has been heavily involved in handling and generated over 50 per cent of gross revenues from this source.5 for domestic passengers. 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. cleaning. 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. 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. in order to keep down the cost of airport charges. which gives a cost multiple between international and EU traffic of 1.20 (Toms. For example. and heavy maintenance. Beyond the basic operational functions. At the other extreme.

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

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

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

Managing Airports

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

ATUs

(WLUs)2 ATMs

(WLUs)

(WLUs) ATMs

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

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

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

Inter-airport performance
Producing meaningful inter-airport performance indicators is fraught with difficulties because of serious problems of comparability – particularly due to the varying range of activities undertaken by airport operators themselves. Comparing indicators from the raw data can give misleading impressions as airports involved with more activities would inevitably have higher cost and revenues levels. This problem can be overcome by standardizing or normalizing the airport data so that each airport’s performance is presented as if it undertook a uniform set of
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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).
68

5 Revenue per employee for world airports.H on g Source: TRL. average=100) 100 0 Va nc Figure 3. 2000–01 North America Europe Asia/Pacific st up ro pe G da ts Bu A or S Airp AC sh i nn Fi up A ro AN g G n rli Be rio a nt O A N t AE ur kf a an ta m Fr ian i Ro p r R ti d ou Ae por n Gr ro age rts Ae nh rpo e Ai op C ish r ed ste Sw he c m ris a an a M gh P in de rm rts Bi po up ro les ro Ae ng G A ts s or Lo a p ev Air en n G iia sco a i aw nc H Fra n Sa a n en Vi h c up e ui r M Gro Ha A O’ BA go ca hi olm ick C kh atw oc G St on es nd ne ull Lo our n D b to el M hing p as W h rou ric l G Zu ho p hi e Sc an b is d Br n la ck l Au na io rth at N Pe i m ton ia M hing as W o sl O ey dn Sy o nt ro re row To apo ath e ng H Si on nd u Lo olul on H ry ga r al ve C ou ng Ko 69 . 50 250 200 150 Revenue per employee (index value.

1999 1.2 0. Vancouver = 1) .8 0. Total factor productivity (index value.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 1.6 0.2 1 0 70 Source: ATRS.6 Total factor productivity for world airports.Se Figure 3.4 0.

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

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

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

which had evolved from manufacturing industries and had been based on the conformance to standards defined by operations management. and globalization. The airport industry was not immune to this ‘quality revolution’ which was taking place – although it was rather late in adopting some of the principles. 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. Different dimensions of service were defined and customer satisfaction. Airports which had become regulated in their post-privatization stage. together with increased competition between airports. 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. Structural changes such as commercialization. Traditional ideas of quality. also found that their service .4 Service quality and its measurement Increasing emphasis on quality The 1980s saw many service industries placing increased emphasis on managing quality. 1999). began to be replaced by customer-focused notions. privatization. considered to be the gap between perceived and expected service. encouraged airports to place more emphasis on quality. such as the London and Australian airports. was assessed. This required close consideration of what the customers wanted and how their needs could be met.

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

escalators and trolleys. Actors have been employed to entertain passengers waiting in security checks and there is live music every Friday afternoon. and baggage reclaim time. waiting time.9 m2 standing passengers 20% space allowance for circulation excluding major through corridors Check-in desks Scheduled services Sufficient check-in desks will be provided to allow handling agents to offer a multi-class service. An example of the service standards used by Manchester airport is given in Table 4. Objective indicators measure the service delivered and can cover areas such as flight delays. when they become Table 4. Measuring the quality of service Quality of service can be assessed with both objective and subjective measures. To be accurate. Also a sufficient number to achieve queuing times of less than 3 minutes for 95% or. 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.6 m2 per passenger without baggage or accompanying visitor 0.1. With growing congestion at airports and increased emphasis on security because of 11 September 2001. say. there is a manager of Entertainment and Services who is in charge of these activities. Some airports have started to look at how they can keep their passengers entertained as they wait.6 m2 per passenger with baggage or awaiting reclaim 1. availability of lifts. At Amsterdam airport. 2000).2 m2 per passenger seated and 0. ‘Mystery shoppers’ who sample the airport product by anonymously pretending to be passengers can also be used. and operational research surveys of factors such as queue length. The standards are set and revised in the light of customer levels of satisfaction by surveying passengers to find out. 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 . 2002). for example. 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. an area of particular concern as regards the quality of service has become the queuing and waiting processes. They can also link into the passenger service standards which many airports adopt. space provision.Managing Airports with a minimum of distractions while others enjoy the opportunity of being able to shop and take refreshments.1 Service standards used by Manchester airport Space Queuing space Holding lounge 0. The advantages of these measures is that they are precise and easy to understand (Maiden.

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. and air-bridges to be 98% including planned maintenance Target availability for all operations vehicles to be 92% including planned maintenance Source: Competition Commission (2002b). Last bags within 35 minutes of arrival time on 90% of occasions Domestic flights – first bag within 12 minutes of arrival time on 90% of occasions. i. escalators. 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%. 80% will queue for less than 5 minutes The acceptable queuing times have been detailed by HM immigration services. 77 .Service quality and its measurement Table 4.1 (Continued ) Seating will be provided for 70% of people present. 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.e. passenger conveyors. 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.

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

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

1 2001–02 4.5 3. 80 . Such an exercise is particularly problematic because of the lack of consistency or common format of each airport’s consumer survey.1 – – 0.8 4.1 0. 2002).1 0.8 3.1 – – Excellent.0 3.Managing Airports position in 2001–02.9 4. 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. While most of the focus in the past with quality monitoring has been within internal performance. Since 1993. 3 Average.1 0. 2 Stansted Variance 0. Systems of performance measures at airports can be defined from different management perspectives such as the financial perspective.1 0. 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. The environmental perspective and the measurement of environmental good practice are also becoming increasingly important. such as Naples and Melbourne. 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. business travellers. IATA has undertaken quality of service passenger surveys for a sample of airports around the world. the operational perspective (the objective quality measures) and the marketing perspective (the subjective quality measures) (Lemaitre.2 – Note: Rating scale: 5 Source: BAA (2002).6 4. Variance 0.9 Variance 0. and male passengers tend to be far more critical than foreign leisure travellers. 1998).9 3.0 3. Also certain airports such as small airports and single terminal airports tend to inherently perform better in quality of service surveys.3 Summary of QSM scores 2001–02 at BAA London airports Heathrow 2001–02 Cleanliness Mechanical assistance Procedures Comfort Congestion BAA staff 3.0 3.1 – – Poor.6 4. Some passenger types are likely to complain more than others.1 – 0.1 0. It is worth reiterating that service quality is just one area of performance at an airport which should be assessed alongside economic or financial efficiency. Table 4.8 3. Some of the questions are related to what is called ‘Airport Service’ which are the services provided by the airport operator.9 4. 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.1 Good. BAA plc also uses its QSM at the international airports where it has an involvement. frequent travellers.1 Extremely poor.9 3.0 3. 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. 4 Gatwick 2001–02 3. first-time users.8 3. For example in the United Kingdom. and female passengers (Maiden.

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

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

BAA plc began developing SLAs with BA and by 1999 four SLAs were in place at London Heathrow. security queuing. there were effectively multilateral agreements with all the airlines. Manchester airport and its ground handling agents. and the availability of ‘people movers’ (Table 4.Service quality and its measurement One airport operator to introduce SLAs is BAA plc. 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. transits. The agreements were one-way best endeavours types based on agreed minimum service levels and targets. 2002a). However in response to the regulatory review which was undertaken in 2002.6. ACI particularly has stressed the need for Table 4. For a number of reasons these did not prove to be a success. BAA has abandoned this target at Heathrow and Gatwick. excalators. 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. Incentivized SLAs have also been introduced at Heathrow for the departures baggage systems in Terminal 1 and 4. Manchester airport also began experimenting with best endeavours SLAs in the late 1990s – again partly due to regulatory pressures. Source: CAA (2000a). To support these primary agreements it was aimed to have secondary agreements covering Manchester airport and its other subsidiary companies. b 83 . or reductions in. for the transfer baggage systems and for the baggage tunnel between these terminals. They were not legally binding and no penalty payments had to be made for poor performance. The basic GSSs are shown in Table 4. levels of quality (Monopolies and Mergers Commission. and Stansted. 1996).5). jetty availability. and Manchester airport and its other external providers (Competition Commission. Manchester airport developed some new-style incentivized SLAs or so-called Generic Service Standards (GSS) with the airlines. 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. 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. In the late 1990s. 2002b). Gatwick. The areas covered were stand availability. Various other airports have also looked at SLAs and ACI and IATA have been working together to develop a common thinking on SLAs. Although all these SLAs were initially negotiated between BAA and BA.5 BAA London airport ‘best endeavours’ service level targets. By early 2000. Targets vary for different equipment.

To be agreed Airlines will be required to use FEGP where it is supplied.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). 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 . 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.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.Table 4.

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

therefore.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. The Scandinavian airports had the best punctuality as well as Brussels where traffic levels were very much depressed due to the demise of Sabena. Source: OAG Flight Guide/ABC World Airways Guide. As a slightly faster aircraft type is now being operated. If one considers the Frankfurt–London Gatwick route it can be seen that a morning flight from Frankfurt to Gatwick. scheduled for 1 hour 25 minutes in 1982 had increased to 1 hour 50 minutes by the year 2000 (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. 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. Ryanair’s low-cost alternative on the Frankfurt–London route is a Hahn–Stansted service. 86 . Frankfurt was better with less than one-fifth of flights delayed more than 15 minutes. but at the expense of longer scheduled flight times and the resultant increase in costs from poorer utilization of aircraft and crew. using secondary airports at each end and scheduled for 1 hour 20 minutes. The worst affected airports were Madrid and Rome with a third of the flights significantly delayed.Managing Airports a similar level of punctuality performance at congested airports. Airlines thus include a contingency allowance for delays in their schedule. 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. The London and Paris airports came next.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 2001.7). Comparisons between airports and airlines. Table 4. have to be treated with caution. Table 4. this must be due primarily to airport-related delays on a sector where the actual flying time is only about 1 hour. There is thus a penalty of about a quarter in aircraft and crew costs from operating to the more congested major airports.

2 18. However during each five yearly regulatory review of BAA London airports and Manchester airport. and Manchester as regards the lack of formal quality of services requirements linked to pricing was against the public interest. it was recommended that the airports should look at SLAs as a means to improving their quality of service. and delays (QD).8 12. namely the Civil Aviation Authority (CAA) and the Competition Commission. 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. The CAA initially recommended a ‘Q’ factor for Heathrow and Gatwick under which the price cap would vary according to performance against a number of measures of service quality.0 27.7 15. 87 .7 25.6 21.6 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). both recommended that this situation should change as it was considered that the current situation at London Heathrow.4 25. 2002 Airport % departures delayed more than 15 minutes 30.5 % arrivals delayed more than 15 minutes 26. for example in the reviews undertaken in 1996–7. The components of the Q factor as proposed by the CAA.6 13.4 16.9 15.3 26.8 Delays at major European airports on intra-European scheduled services.9. and the major carrier at Heathrow and Gatwick.3 23.2 28.0 23.).5 17.8 21.8 11.5 18.0 14.8 15.8 26.1 25.6 11. to passengers (QP). when the two UK regulators. London Gatwick. Service quality and regulation at UK airports When the British airport regulatory system was established following the privatization of BAA in 1987. are shown in Table 4. It was not until 2002. It was suggested that the standards of service should include measures of quality of service to airlines (QA.9 12.9 26. The CAA recommended that up to 3 per cent of the regulated charges should be subject to meeting these particular standards of service.2 15. service quality has come under close scrutiny and.2 24.5 18.0 16. BA.8 29.2 14.1 19. BAA.Service quality and its measurement Table 4.

and pier service should be excluded because BAA did not undertake stand allocation. It also argued that FEGP should be excluded because this was not covered by regulated airport charges.0 To be decided not to be used) Source: Competition Commission (2002a) and Civil Aviation Authority (2003). In addition. 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. Subsequently.8 4. with the rebates being purely negative with no reward to the airport for performance above the standard set. BAA claimed that baggage measures would be unnecessary as incentivized agreements were being developed in this area. On the other hand.7 3. $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ % 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. the CAA accepted the alternative Competition Commission recommendation of a system of rebates to users rather than price cap adjustments.6 3.Managing Airports Table 4. The maximum impact of these rebates was recommended to be 2 per cent of the regulated airport charge revenue initially increasing 88 .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 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.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

passenger handling. 1998). until 2002 there was a tax to help national transport links. Jamaica. Further complexities occur since there are a variety of ways of charging for activities such as ramp handling. 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. the scale of its operation at the airport in question. whereas elsewhere there may be a multitude of individual fees. Government taxes There is one final charge which airlines or their passengers sometimes experience at an airport – government taxes (see Table 5. In Norway. In the United Kingdom.The airport–airline relationship where the fuelling is provided by a government agency. a ‘Tourism Tax’. ground power. The Republic of Yemen has a ‘Development Tax’. For the passenger. In some cases there may be just one or two charges that cover everything. and a ‘National Aid Tax’. and Pakistan impose a tax on departing passengers. apron buses. 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. It is rare to find published data relating to handling and fuel charges. 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.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 . These are usually negotiable and the agreed prices will depend on various factors such as the size of the airline. all services at the airport can be offered to the airline in one overall package. and whether other airports used by the airline are served by the same handling and fuel companies. such taxation is just used as means of supplementing general government taxation income from other sources. aircraft cleaning. a departure tax Table 5. Hence.1). and so on. pushback. Elsewhere. Mexico City has a tourist tax on international arriving passengers and a number of other countries such as Malta. The taxes may also cover the provision of some security services.

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

105 Charges and taxes (Euros) N ew 10 000 12 000 2 000 4 000 6 000 8 000 0 Source: Cranfield University.1 Aeronautical charges and taxes for an international B737–800 turnaround in 2002 at world airports rk os EW co R w SV O Ka ns a Lo At i s he An ns ge le s Am LA X st er da Bu m en os Ma Ai cau re s EZ E Li Lo sb o nd on n LH R Ab id M ex jan ic o Pa Ci ris ty C Se DG ou lI C N H el si nk Si i ng ap or e Ka ra H on chi g Ko R om ng e FC O M ad r Pa id Jo pe ha et nn e es bu rg C ai ro D ub ai . M Yo Aircraft related Passenger related Government taxes Figure 5.

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

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

which reduced over 108 . In reality. More sophisticated approaches include that of Belfast City airport which introduced a dual charging process in 1993. At many airports. Airlines themselves could choose to come under a conventional charging structure or be charged an inflated passenger fee but with no landing charge. 2000). 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. 2000c). To have any meaningful impact the surcharge probably should have been at least double the equivalent chapter 3 charge. 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. 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. One of the most popular methods is to waive or reduce the landing fee in the first few years of operation so that the airline only pays for the passengers it carries. Between 1994 and 1999. In general. As a result chapter 2 aircraft at the airport reduced from 15 per cent in 1999 to 0. Of course. some of this fleet replacement might well have happened without such a charging policy – particularly with the banning of chapter 2 aircraft within Europe from 2002 (see Chapter 9) (Schiphol Group. the chapter 2 landing surcharge was 6075 Dutch guilders per landing compared with a basic runway charge (landing and take-off) of 2290 Dutch guilders. Such discounts have. discounts on both landing and passenger charges are available for new international services. This has been particularly the case when there have been a number of neighbouring or equally suitable airports from which to choose. 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. If demand at the start of a service is initially low. The airport operator gave discounts on new routes and growth on existing routes. for a 120-tonne aircraft. the airline will pay very little. Amsterdam airport increased its surcharges for chapter 2 aircraft between 50 and 100 per cent every 6 months. 1994). This was too insignificant alone to alter a carrier’s choice of equipment (Dennis. BAA and the US airlines finally resolved their differences through international arbitration which required BAA to phase out the peak passenger charges. 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. At Norwegian airports. which probably represented around 1 per cent of an airline’s costs in most circumstances. clearly. 1996).Managing Airports charges which were considered discriminatory. been a critical factor when low-cost carriers are selecting suitable airports for their operations. This means that the airport will share more of the risk when the airline is developing the route. It is equally as difficult to influence an airline’s choice of aircraft as it is to shift their schedules by using pricing mechanisms. In 2000.2). In the first year of operation. Between 1995 and 2000. BAA plc claims that the new policy takes into account both economic pressures and the preferences of its airlines (Toms.6 per cent in the same year although. This is due to the existence of airport incentive schemes or discounts. in many cases. Aer Rianta. the typical fee surcharge for a chapter 2 aircraft in the 1990s was about 20–25 per cent of the normal landing fee. the airports are now effectively full in most hours and so the concept of the peak hour has become far less relevant. the Irish operator had one of the most complex published discount schemes in existence (Table 5.

1999 2000 2001 (to Oct) 32. In the initial years.3 8.The airport–airline relationship time. Source: Aer Rianta. Aer Rianta terminated their discount scheme at the end of 1999.2 New growth and new route discounts available at Aer Rianta airports. airlines could be paying as little as 10 per cent of the standard landing and passenger charge. 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 5.7 4.9 16.6 23. largely in preparation for the demise of EU duty. This was greeted with considerable opposition from Ryanair. especially Ryanair.7 30.and tax-free sales.3 109 .5 7. 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 32.0 2.4 20. and parking fees Note: a Passenger fees only. 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. landing.8 21.7 11. 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). Various airlines.8 28.7 45.3 34.3).4 9.6 13.3 30. After 11 September.6 14.6 3.5 50.2 44.7 40.8 7.4). Table 5.0 29.0 6. 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.3 Discounts given to each airline at Aer Rianta airports.5 14.

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

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

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

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

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

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

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

Source: Centre for the Study of Regulated Industries (1999).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. Table 5. a compensatory 15 per cent increase in charges over two years following abolition of sales was allowed. For 1997–2002. The CAA then makes the final decision on the price cap after consultation with the industry and other interested parties.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. For example. in the 1991 review of BAA they had very different views on assumptions concerning the cost of capital which led to substantially different values of ‘X’ in the pricing formula being suggested until a compromise was eventually reached (Toms. the abolition was considered when setting the value of X. Initially the price cap was the same at all airports.and tax-free sales in 1999. particularly for the London airports. the two bodies have not always been in agreement. 2002). There is the sector regulator with detailed knowledge of the aviation industry. These airports could allow most increases in security costs to be passed straight through to the airline. the London airport formula did not take account of the loss of EU duty. Instead.6). and the Competition Commission (previously known as the Monopolies and Mergers Commission) which is a very experienced more general trading regulator. 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. airport changes still remained comparatively high which is one of the key reasons for the more restrictive price cap for the 1998–2002 period. 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. 117 . At Manchester. During the second 5-year review period in the early 1990s the price cap was far more restrictive. The revenue yield method has been adopted at these airports. Whilst the skills of these two regulators should be complementary. namely the Civil Aviation Authority (CAA). being RPI 1 (Table 5. The regulation process is somewhat complex because there are two regulators involved. At Manchester airport. 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.

Other airports which have adopted a similar price cap regulatory mechanism include those of Argentina and South Africa. in that there was a CPI X formula which also had a security element – but in this case 100 per cent of the charges were allowed to be passed through to the airlines and a dual till was adopted. for instance. with different limits related to off-peak periods and cargo. 2000b). However. 2003b). 6. There is a sliding scale which protects revenues when there is slow growth.7. In Copenhagen. prior to the Competition Commission’s review. When there is a loss in traffic or no growth. respectively. Cork.b). In the first 2 years after private participation in the South African airports. a slightly different approach has been adopted taking into account both inflation rates and traffic growth patterns. the CAA recommended a dual till approach to reduce the scope of regulation to just the core monopoly activities. and 1. 2001. At Manchester. 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. aeronautical charges were allowed to increase at the same rate as inflation before an X value to increase efficiency was introduced. 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. 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. were set. no increase is allowed.b). For Heathrow. At Vienna airport.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. 2002a. The initial regulatory framework for the privatized Australian airports was fairly similar to that adopted by the UK airports. A considerable debate occurred related to the merits of the single versus the dual till (CAA. Hamburg airport also uses a sliding scale related to traffic growth with a dual till price cap regulatory system (Niemeier.4 billion investment needs (particularly Terminal 5) whilst at Gatwick and Stansted it was set at equal to RPI (CAA. It was also decided that at all the airports there should be rebates for users if certain service quality standards were not achieved. However this price cap was lower than the 8. For 2001–02 and the following 4 years X values of 7. The 118 . 2003). 1998). If the growth is between 7 and 11 per cent. Above growth of 11 per cent. 2002).4 per cent. 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.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. 2002).5 per cent to take account of £7. 2003a). The regulation is applied directly to the charges. Initially. and Shannon (Commission for Aviation Regulation. 6. while requiring productivity gains to be made when traffic growth is high. A number of the other privatized airports have a more relaxed regulatory regime. the charges can be increased in line with the CPI. 0. the charges must decrease (WDR. to provide better use of existing scarce capacity and to enhance incentives to deliver capacity additions particularly at the congested London airports (CAA. 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. In Ireland also. 2002a. the price cap was set at RPI 6. price cap regulation. was introduced in 2001 (and subsequently revised in 2002) for the airports of Dublin.

for example.0 Source: Australian Competition and Consumer Commission (1998).0 2. As in the United Kingdom. 2002 a). 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.0 5. 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.0 3. The only major airport which was not controlled in this way was Sydney airport. the Australian Productivity Commission was required to undertake a review after it had been in force for 5 years. particularly the requirement of detailed and cumbersome regulatory intervention if investment was planned and overall profit volatility. 2002). reserve regulation) was the fact that the price 119 .0 4.5 4. the price cap was set for an initial 5 years.5 1.0 3.5 3. the Australian government suspended the price regulation at all but the four largest airports. Amongst some of the arguments used to support this change in regulatory approach (i. Under the regulatory system.5 1. and Brisbane the price caps were adjusted upwards which allowed the airports to substantially increase their charges. 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. X value was set with reference to a number of factors including traffic growth and.e.7). Price surveillance was maintained at Sydney airport and at Melbourne.The airport–airline relationship Table 5. 2001 and the collapse of Ansett. was larger for Brisbane than for Melbourne because Brisbane had higher forecasts (Table 5. This price regulation of Australian airports was identified as causing a number of problems.0 4.7 The ‘X’ value used for the Australian airport price cap for 5 years after privatization in 1997–8 Airport Adelaide Alice Springs Brisbane Canberra Coolangatta Darwin Hobart Launceston Melbourne Perth Townsville X value (%) 4. The final report of the Commission was published in 2002 (Productivity Commission. The Australian airports used the basket tariff rather than the revenue yield approach. 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. As a consequence in October 2001. Perth. These problems became acute with the events of 11 September. Australia’s second largest domestic airline.

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

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

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

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

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

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

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

lower efficiency and may also cause considerable apron congestion. 8 per cent were handled by the national carrier for other airlines. Moreover. claim that ground handling monopolies are pushing up prices and. Other airports. reducing service standards (Bass. Providers of monopoly services claim that providing competition. Frankfurt airport was one such company but only gained exemption from competition in ramp handling in certain areas.The airport–airline relationship A study of European airports showed 44 per cent of aircraft movements were handled by airport operators. Critics of the situation. The details of the directive. 1994). 1997). This has resulted in the EU’s adoption of the ground handling directive 96/67. are shown in Table 5. only 16 per cent were handled by the airport operator. For example. delayed until 2000. in terms of passenger numbers. the European Commission acknowledged that it had received a number of complaints related to ground handling activities at various airports including Milan and Frankfurt and at the Spanish and Greek airports (Soames. in descending order of price. Within Europe many have argued that air transport cannot be fully liberalized unless the ground handling activities are offered on a full competitive basis. By contrast. 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. 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. By 2002. again 7 per cent by independent ground handlers and the rest by airlines (Deutsche Bank. A number of monopoly handlers in countries such as Germany have applied for such exemptions. Many supporters of ground handling liberalization are concerned that such conditions are only prolonging the existence of monopolies at airports. such as at Frankfurt and Vienna airports. In 1993. in some cases. 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. 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. such as Düsseldorf have been more successful. 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. particularly the airlines. 7 per cent were handled by independent ground handlers. The directive does allow for service providers to be limited in the ramp area. and the remaining 14 per cent were selfhandled by other airlines. 27 per cent were self-handled by the national carrier. There had still been a significant number of complaints and disputes regarding handling services at airports. particularly for ramp handling would merely duplicate resources. 1996). which provides for phased liberalization of ground handling services. there were complaints at Lisbon airport that although there were two operators at the airport. 1998). For operational reasons. 1999). 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. operated in a competitive situation (AEA. neither was independent as one was TAP airlines and the other was Pathway which was 127 . particularly at airports which are already at full or near capacity.10. recognizing the right of airlines to self-handle and guaranteeing at least some choice for airlines in the provision of ground handling services (European Commission.

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

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. 1999). typically mean that these signatory airlines have to approve all significant planned developments or changes at the airport. The airlines provide a guarantee that the level of charges and rents will be such that the airport will always break even. The length of use agreement will normally coincide with any lease agreements which the airlines have with the airport operator. Capacity improvements which may bring more opportunities for competition may also not 129 . There are two basic approaches to establishing the airport charges: residual and compensatory. therefore. 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 risk of running the airport is left to the airport operator. In more recent 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. combining elements of both the residual and compensatory methodologies. or even lease or build total terminals – as in the case of JFK airport in New York.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. The use agreements traditionally have been long-term contracts of between 20 and 50 years. The residual approach. Airports have applied these two different approaches in various ways to suit their particular needs and some have adopted a hybrid approach. they have become shorter to reflect the more volatile. In the United States. and hybrid (43 per cent) (Federal Aviation Administration/ Department of Transportation. These clauses. which are far more common among residual agreements. 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. deregulated environment. compensatory (19 per cent). A study in 1998 showed that for the large US airports the residual and compensatory approaches were each used by 41 per cent of the airports with the remaining 18 per cent of airports using some kind of hybrid model. is more akin to the single till practice. 1999). it is common for airlines to lease terminal space or gates. A key reason for the existence of these agreements has been because private bondholders have demanded the security of such formal relationship between the airports and airlines before investing in the airport. The airports and airlines enter into legally binding contracts known as airport use and lease agreements which detail the fees and rental rates which an airline has to pay. the method by which these are to be calculated and the conditions for the use of both airfield and terminal facilities. and so they take considerable risk. while the compensatory approach is more similar to the dual till approach. For medium-sized airports the relative shares were residual (38 per cent). 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.

The initial PFC legislation. the federal government approved the levying of PFCs. However.50 level. Unlike most other airports in the world.Managing Airports be approved by the signatory airlines. These funds go directly to the airports rather into central federal funds as with the air transportation tax. unlike revenue bonds which may require guarantees from the airlines. there are also a number of government taxes which push up the total amount paid by the airlines and their passengers. or US$3 fee which had to be spent on identified airport-related projects or could be used to back bonds for the projects. being based on a fixed rate per 1000 lbs. Seventeen per cent of this total funding was for airside projects. By the beginning of 2003.5 billion for 310 airports with 164 airports having PFCs at the maximum $4. Firstly. This latter requirement is one of the major obstacles in the way for any significant developments towards airport privatization in the United States. This means that airports have greater control over this type of funding. Secondly airports are prohibited to use airport revenues for non-airport purposes (Federal Aviation Administration/Department of Transportation. the total approved collections for all airports was $39. Signatory airlines may pay less. they have a similar impact on airlines. 1999).50. There are also separate taxes relating to agriculture and health inspection. In 2000 it was agreed that the maximum PFC could be raised to US$4. 30 per 130 . Airlines have no veto rights when it comes to PFCfunded projects nor can they have exclusive rights. 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. 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. Airport fees and passenger facility charges The landing fees at US airports are normally very simple. PFCs were first used in June 1992. The charges do not vary according to noise levels or peak periods. However. If PFCs are used by large and medium-sized airports then the airports have to forego up to half their AIP funding. 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. 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. in 1990. There is the air transportation tax. 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 the practice at some European airports. 1996). allowed for airports to levy a US$1. Passenger facility charges are also largely independent of airline influence. Passenger facility charges were first used in June 1992. 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. US$2. Although the PFCs are legally and constitutionally different from passengers charges levied elsewhere in the world. The level of landing fees tends to be relatively low partly because the airport operator provides a minimal number of services itself.

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

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

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

2002). Hence. 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. Pan-European Airports Review. This agreement replaces the requirement for government approval of the level of charges for the 5-year period. It has been agreed that if the passenger forecast figures are reached then the reference ratio will be increased by about 2 per cent annually. This means that the airport charges are now more related to the revenue streams of the airlines which are based on passenger throughput.The agreement is a risk sharing model which links airport charges to traffic growth. 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. the first of its kind. this means that Fraport is taking more of the overall financial risk as it revenues are more directly related to traffic levels. applied retrospectively from 1 January. The 2001 ratio of airports charges to the number of departing passengers is used a reference ratio for this model. 2002.The deal has also secured the financing of a 76 million Euro noise protection programme for the local residents. A new approach to the airline relationship at Frankfurt airport In the last few years. ACI-Europe working paper. 134 . the airlines will bear one third of the risk associated with the passenger traffic if it falls below the levels which were planned.Managing Airports airport. 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. 2002. References and further reading ABN AMRO (2000). there is a Special Review Board which has representatives from the airlines. 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. This is a 5-year agreement. Klenk. Then in April 2002 Fraport reached an agreement with Lufthansa. Fraport and local government which has four meetings a year to discuss issues arising from the agreement and to swop information. the German Airline Association and the board of airline representatives in Germany (BARIG) which represents airlines flying to Germany. (Fraport. ACI-Europe (1998). 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. At Frankfurt. ABN AMRO. Under the agreement. 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. Big Issues: Airport Charges. Conversely. 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.

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

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

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

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

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

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

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

The 2001 ACI airport economics survey (ACI. 147 .The provision of commercial facilities income per capita. According to ACI non-aeronautical revenue per passenger for North American airports is much less than in Europe – averaging only US$5.2 Concession revenue: Brussels airport.1 Non-aeronautical revenue per passenger at ACI airports by world region. Concession income is the most important non-aeronautical revenue source. These airports are dominated by domestic passengers who spend less. 2002.and tax-free sales. emphasis is placed on swift efficient connections rather than providing passengers with the time to browse and shop.1). For example. 2001 Source: ACI. The dependency on the car and the lack of adequate public 10 9 8 Non-aeronautical revenue per passenger (US$) 7 6 5 4 3 2 1 0 Asia/Pacific Europe Africa/Middle North East America Caribbean/ Latin America Total Figure 6. 2001 Source: Annual report. 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) 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. Shopping generates the most concession income and is likely to continue to do so in spite of the abolition of EU duty.2). Also at hub airports. shop or retail sales accounted for 42 per cent of all concession revenue at Brussels airport in 2001 (Figure 6. Other 26% Retail 42% Car parking 21% Catering 11% Figure 6.

3). 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. 2000). 148 . where traditionally most of the sales have been associated with core products such as liquor. such as pre-ordering products. Branded shops and catering outlets were rarely found at US airports until this time.99 per passenger).and tax-free sales are not very significant at most North American airports with the exception of certain airports such as San Francisco. This also reduces the overall concession income per square metre for US airports. the ratio of catering to retail revenue was also much higher. 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.87 per passenger) and car hire (US$0. Los Angeles. Shopping is much less important. The situation in Asia is very different where duty.and tax-free shops at many of the major Asian airports. It is surprising that the United States.66 compared with US$6. Car parking and car hire together accounted for two-thirds of the concession revenues compared with much less at Brussels airport. This is typical of most US airports. Again the important role that the car plays can be seen when looking at the concession sources at the Washington airports (Figure 6. Compared with Europe. only began to fully recognize the commercial potential of airports in the 1990s – well behind the European airports. For the Washington airports. 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.and tax-free revenue is generated from a much wider range of products. which is world famous for its shopping malls. 2001 Source: Annual report. in Asia the duty. and Honolulu which handle a large proportion of Asian traffic.3 Concession revenue: Washington airports. tobacco and fragrance. There are also arrival duty. Duty. in spite of their widespread use elsewhere in the country.47 in Europe (ACI. with a revenue per passenger value of only US$0. 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.Managing Airports Other 23% Retail 6% Car parking 43% Car hire 23% Catering 5% Figure 6. transport access to many airports means that the two single most important non-aeronautical sources is car parking (US$1. Similar practices have been introduced by BAA plc at Indianapolis and Boston airports. 1999a).and tax-free income is much more important. which have relatively more of the total commercial area being allocated to catering concessionaires.

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

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

As well as adopting high street preferences for speciality shopping and branded products. As with high street shopping. for example. 2000). 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. The airlines. 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. particularly since the demise of intra. Clear signage to gates. Some concessionaires are appointing service assistants to greet customers in an attempt to make the shopping experience a more personal one (Anderson. which have further increased resentment to airport shopping from certain passengers. airports have also been applying other tried and tested retail practices. 1996). 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. a major charter airline. while welcoming the fact that non-aeronautical income can reduce an airport’s reliance on aeronautical charges. 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. while at Gatwick airport Airtours. Some airlines have also complained that airports have been giving too much attention to developing commercial facilities while ignoring basic operational requirements. in 2001. More recently. in the mid-1990s at Heathrow airport BA complained about the lack of airline information desks at the entrance to the Terminal 1 departure area because the space was being occupied with commercial facilities. a few airports.The provision of commercial facilities and reduce the time a passenger has to spend in an airport before departure (Conway. have made ‘shopping announcements’ instead. have periodically expressed concerns that the shopping function of the airport has interfered with the normal flows of passengers through the airports. 2002). This has been partly as a result of airports employing professional retail managers from the high street rather than always making internal appointments. is difficult to achieve if the airport is cluttered with retail and catering signage and branding. 151 .EU duty. While flight departure ‘tannoy’ announcements have long since been abandoned at most airports because they have proved ineffective and annoying. 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. 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.and tax-free shopping. the perceived value of such initiatives tends to fall as they are adopted by more and more operators. 1999). 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. For instance. At Amsterdam airport. the See Buy Fly retailers are partners in KLM’s Flying Dutchman frequent-flyer programme. However.

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

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

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

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

At some airports. with their concessionaire partners. be on the same floor levels as the departure gates. 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. 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. Different types of passengers spend different average dwell times in the lounge. because very often facilities have to be duplicated which can be costly until there is sufficient throughput of passengers to support all the facilities. 1992). Particular problems can arise from terminals which are of a linear design. it can have a major impact on a passengers image and perception of the airport. adopted by Brussels airport to ensure that passengers pass by all outlets. such as Munich airport. must be found. The outlets should. 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. BAA plc has also calculated that the incremental airport spend for each additional 10 minutes available time is £0. 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. have become increasingly active in monitoring their non-aeronautical performance. This was the situation with the fourth terminal at London Heathrow Airport when it first opened. 2001). 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. resulting in reduced custom for each outlets. Measuring non-aeronautical performance Airports. but not too large that consumers may be deterred by an appearance of inactivity and empty space. 2000). as having to go through the inconvenience of changing levels may deter some passengers from visiting the commercial facilities (Doganis. Thus. This is partly due to a drive for 156 .80 for domestic passengers and £1. 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). 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. meeters and greeters and local residents. Shops and catering outlets have to be large enough so as not to give a congested and overcrowded image. 2000). Landside shopping is different as convenient locations not only for passengers. Whilst catering tends to account for a fairly small share of total airport commercial revenues. ideally.60 for international passengers (Maiden. but also for staff. The amount of time a passenger has at an airport will obviously influence their shopping behaviour.Managing Airports option. 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.

68 0. 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. Consumer satisfaction levels and perceptions of value for money are assessed by many airports through customer surveys (as described in Chapter 4). These included geographic location. 157 . ownership model.26 0. with experience of assessing retail performance at other locations.2 Concession income at BAA London airports. Asia Pacific. Table 6. and North America were investigated. Making inter-airport comparisons is difficult because of the commercially sensitive nature of the information required and lack of reliable industrywide data. For example. the volume and Table 6. In addition.37 0.32 0. and analysed various factors which helped explain the comparative results which were obtained.24 0. 2000–01 Heathrow Concesssion income per pax (£) Duty-free Other airside Landside Catering Bureaux de change Other Total Concession income per square metre Duty-free Other airside Landside Catering Bureaux de change Gatwick Stansted 0.39 0.20 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. airports use indicators such as sales per passenger.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). By way of illustration. The relative small amount of income per square metre which was generated from catering facilities is typical for most airports.02 0. 2002) In the 2000–01 research thirty one major airports in Europe. Africa. are being bought in to manage airport facilities.73 0.27 0.12 2. passenger penetration levels and sales per square metre to analyse the economic performance of their commercial facilities.12 2. 2002).09 1.37 0.The provision of commercial facilities better performance monitoring of all aspects of the industry and also because retail experts.58 1.2 shows concession income per passenger and per square metre for BAA London airports.15 0.31 0.92 0. in 2001. The study looked at performance indicators such as retail revenue per passenger and retail revenue per square metre both airside and landside. the Geneva airport survey found that 46 per cent of respondents felt that airport prices were too high (Geneva Airport. One of the most comprehensive benchmarking studies is the Airport Retail study which has been undertaken since 1998 (Favotto.58 0.24 0.

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

BA Figure 6.159 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 .

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

The travelling public was sold the message that duty. 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. 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. Tax paid revenue up by 12%. in partnerships with their retail concessionaires. 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. and hence stayed away from all airport shops – even those passengers who could still use them. At BAA airports for instance. explaining what passengers travelling to EU destinations and beyond could and could not buy at airport shops. While for many airports. 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. 161 . 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. Total sales (including duty/tax free) revenue up by 11% Shopping revenue (duty/tax free and paid) down by 5% in 1999 compared with 1998 Dusseldorf Paris Vienna Note: For UK airports the impact is likely to be greater since the financial year runs from April to March. the loss of revenue within the first year of operation after this development was in many cases considerable (Table 6.The provision of commercial facilities victims of their own very successful awareness campaigns. have absorbed the value added or sales tax themselves – effectively offering the merchandise still at ‘tax-free’ prices. Source: Compiled by author from annual accounts. 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 tax-free shopping would no longer be available after 30 June 1999. To address the confusion among passengers. rather than from January to December.3 Short-term impact of the loss of intra-EU duty.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). retail income was down by 20 per cent in July 1999 compared with the equivalent amount in 1998. Many of the EU airports. the situation improved after the initial reaction to abolition. a number of airports launched major marketing campaigns. 2000).

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

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

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

and obtain procurement discounts. A new website was introduced in 1998 which gave information about the commercial facilities on offer and enabled the pre-ordering of retail goods. these facilities were provided by concessionaires using a traditional concession fee basis. BAA plc acquired the US retail chain Duty Free International which had around 200 outlets.and tax-free shopping. if targets were exceeded. In addition. and car parking to take place. 1990–2002 Source: Annual reports. This was relaunched in 2000 with dedicated ‘Airzone’ sites for each airport. a wholly owned subsidiary of BAA. Gradually BAA plc started to replace the management contracts at its own UK airports. Subsequently in 1997. 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. 2000).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. so they negotiated new management contracts with their concessionaires. Links to the expendia website were established so that travel arrangements could be made. either through commercial management contracts or as part of an overall privatization package to operate the whole airport. With this system. BAA plc wanted to take more responsibility and control. mainly in 169 . currency.7 Retail space at BAA UK airports. which it established to run airport duty. 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.and tax-free shops. BAA plc now has more control over its duty. 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. In 1993. the concessionaire would receive a share of the profits. BAA plc funded the costs and kept all the sales revenue except for paying a management contract fee to the concessionaire. This process was completed in 1999. spend. Up until 1993. Another feature of the retail strategy in more recent years has been development of the internet as a marketing and distribution medium. 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.Then in 1996 BAA plc launched World Duty Free.

BAA plc began to manage commercial facilities at non-BAA airports The first main contract was for Greater Pittsburgh International airport. A number of other centres have opened subsequently or are planned.6 summarizes the key retail developments which have taken place in the last 12 years.8). However. Consequently.The first BAA McArthur/Glen centre was opened in Cheshire Oaks in the northwest of England in 1995 followed by a second centre in Troyes in northeast France. BAA plc introduced a number of strategies to address this problem. 1999). the share of revenue from these commercial sources has increased dramatically in the last 12 years (Figure 6.and tax-free sales had a major impact on the financial performance of BAA plc. the revenue was to be split. 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 . Although this downward trend showed signs that the situation was improving. the first month after abolition.The AirMall was opened in 1992.To overcome the confusion among passengers. it reconfigured passenger flows in its major terminals so that passengers were channelled through the shops where they could still make purchases.40 per passenger. 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. The acquisition was undertaken to provide greater geographical strength away from Europe. With this arrangement the airport operator was guaranteed an index-linked US$0. and if further income were generated. 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. BAA plc has been involved in the management of commercial facilities at Boston airport. In July 1999. where the abolition of sales appeared imminent and to increase the company’s purchasing power. BAA plc has also looked after the commercial facilities at airports where it has an equity share (Melbourne. In addition. Table 6. BAA plc received a certain share of income above this amount. the abolition of intra-EU duty. It was also involved in diplomatic and in-flight business. This subsidiary was renamed World Duty Free Americas with BAA’s original duty-free company being renamed World Duty Free Europe. it did not stop BAA plc share price falling by around 30 per cent by October 1999. net retail income at all the UK BAA airports was down by 20 per cent.Managing Airports the United States at airports and border crossings. Another area of retail diversification has been discount designer outlet centres. 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. This was a 15-year agreement signed in 1991 – which has subsequently been extended until 2017. 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. In August it was down by 16 per cent and by September by just 13 per cent.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. Launceston. In a parallel development in the 1990s. As a result of all these non-aeronautical activities. Naples) or airport management contract (Indianapolis).

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

8).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. In the same year World Duty Free Americas underperformed against BAA plc’s expectations. by 2001–2000 UK retail sales had recovered and increased by 6 per cent compared with the year before (BAA. However. leaving BAA to focus on the 58 World Duty Free outlets at UK airports. 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 BAA–McArthur/Glen joint venture was dissolved and BAA aims to exit permanently from this activity in the future. rising by 8 per cent before 11 September 2001 but decreasing by 1 per cent after this event (BAA. retail revenue from duty. Overall profits before tax were down by 2.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. The in-flight business of World Duty Free was sold in 2000 and World Duty Free Americas was sold in 2001.and tax-free shops had fallen by 18 per cent compared with the previous year. BAA also terminated the Eurotunnel contract which lost the company £20 million in 2000. 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 . and this meant that in September 1999 BAA plc wrote down goodwill by £147 million in respect of this business in its accounts. overall. the loss in total retail revenue was 7 per cent. 2001).9). 1999–2001 Source: Annual Reports. 2002b). In 2002.9 Profitability – BAA. By the end of the 1999–2000 financial year in March 2000. They continued to increase by a total of 3 per cent in 2002–2001. Retail revenue from other shops was up by 12 per cent so. The result of this meant that in 2001–02 nonaeronautical revenue increased at UK airports but decreased overall for the BAA group (Figure 6.

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

It now has an extensive Internet area which includes numerous personal computer connection points and infrared Internet access kiosks. 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. 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. which is owned by the Civil Aviation Authority of Singapore. colour-blindness tests. However. traffic had more or less recovered. a ‘sports arena’ lounge and a ‘movie theatre’ lounge which shows films 24 hours a day and is decorated with film posters and memorabilia. A third terminal. In 1996 it was one of the first airports to offer Internet services to passengers. 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. Moreover. it has three television thematic lounges. One of its unusual features is its gardens. The airport aims to ensure that it provides the latest technological and communication services – particularly for its business travellers. swimming pool. In 2001 the airport handled 28 million passengers compared to 31 million at Bangkok. and jacuzzi. 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. In all. its passenger traffic dropped by 5.4 per cent in 1998 – the first decrease ever for the airport – as a result of the Asian crisis. Then after 11 September 2001. To appeal to transfer passengers it organizes bus tours of Singapore. This compares with 13 million passengers at Changi airport in 1989. In addition to all these commercial facilities for passengers. it has five themed gardens! It has a cactus garden located in Terminal 1.Managing Airports Singapore airport: aiming to maintain its position as a leading Asian/Pacific hub Singapore Changi airport. There is a news lounge. 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. is due to open in 2006. sauna. It offers a very wide range of commercial facilities and has pre-shopping facilities and price guarantees like BAA plc and some other airports. In addition. and 15 million at Kuala Lumpur. It also has a science discovery area which has devices such as holograms. 33 million at Hong Kong. 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. gym. It also has a bamboo garden in Terminal 1. 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 terminal also had a fern garden and outdoor garden terrace. The airport is now building on an already relatively sophisticated commercial strategy which it has had for many years. and other interactive exhibits. which has more than 20 varieties of cacti which are native to North and South America. has developed some interesting strategies in order to maintain its position as a hub in the very competitive Asia and Pacific market. There is also an airport hotel situated in the transit area which has many facilities including a karaoke room. By 1999. mini putting green.

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

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

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

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

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

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

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

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

the market may be segmented into integrators. A common way to segment demand is by airline product type. Each of these needs to be further subdivided into much smaller discreet segments in order that they can be targeted appropriately and so that the airport’s marketing efforts can be the most effective. and other freight companies. with passenger travel this would include a full-cost traditional service. For example. and ease of surface access to a certain airport can also be very important. finally. The quality of the airport product can have a marginal impact. 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. Airline alliances could well be given special consideration.The role of airport marketing Table 7.4). choosing an airport is the result of an amalgam of many decision processes (Table 7. For passengers. a low-cost service. For each type of customer. Rather than considering the demand by product type or purpose of travel.3 shows some of the major market segments at an airport. and a charter service. 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. 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. Concessionaires. 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. They can also help airports in acting as a catalyst for economic development. have a fear of flying and of missing the plane. 1996). 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. 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. For example. Then. and other organizations such as handling agents can also be considered customers of the airport. Factors such as the distance. Table 7. for example. cargo airlines. facilities such as fast-track processes and airline 183 . For business passengers. tenants. In the cargo area. passenger airlines. and do not want to be distracted from the departure monitor. but only after these other factors have been taken into account.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. there are ‘Agoraphobics’ who have the lowest level of need. it can sometimes be useful to consider it by travel behaviour in order to match more closely the needs of each market segment.

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

7 1.7 3. 1999.9 10.2 10. For the London airports.8 17.The role of airport marketing Table 7. Much of the competition will typically take place at the augmented level (Kotler et al. while the actual product delivers the benefit..7 4.2 100 Source: Civil Aviation Authority. and air fare. brand name.0 6. however. and augmented elements.6 100 62.6 25.4 2.8 2. The timing of flights appears to be a more influential factor at Heathrow.8 38.6 6.1 4.1 0.3 4.7 5.0 100 47.7 2. 2000. The augmented product is then additional consumer services and benefits that will be built around the core and actual products.4 7. both tangible and intangible. the key factors determining choice. Marketing theory often divides the product into the core.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 12.3 2.0 1. In highly regulated markets. actual or physical.3 0. Sometimes 185 . The airport product The airport product consists of a supply of services. Half the passengers at the regional airport of Manchester.6 0. flight frequency and air fare were found to be unimportant and surface access time to be very influential.3 2.0 0. because of its higher share of business passengers. Product features. and will distinguish the product from others.5 2.9 3. Ashford (1989) identified three key factors affecting passenger choice.8 0.1 9.6 2.3 6.2 0.4 3. to meet the needs of different market segments.7 6.7 4.5 6. quality level.5 100 49. chose the airport because it was close to their home. Through modelling survey data.0 100 20. design.5 2. with an additional 13 per cent picking it because it was near to their business or leisure destination.2 1.5 10.6 4.1 6.0 51.2 2.2 2. The core product is the essential benefit that the consumer is seeking. Similarly locational factors are very important for the regional airports of Birmingham and New Castle. most important is the nature of flights on offer – at Heathrow for both local and connecting flights.0 19. namely access travel time. than at the other airports. such as Nigeria in Africa. flight frequency. 1996). and packaging will all make up the physical product.7 0.

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

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

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

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

1 18. as well as marketing initiatives in the form of discounted fees and other incentives that the airport may be in the position to offer.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).4 1. Table 7. retail. Around half of the costs was estimated to be associated with new services.4 17. catering. and opportunities for connecting traffic may be discussed. In prearranged. The airport may also promise to help to lobby government to remove bilateral regulatory obstacles. These costs obviously have to be off-set against the additional revenue that will be brought to the airport in terms of airport charges.6 Airline and tour operators marketing support costs at Manchester airport. Since 1998. frequency increases. 1998–2003 Year Marketing costs (£ millions) 6. and car parking income. it was forecast that rebates would account for about two-thirds of this marketing support.5 2. in a number of bilateral agreements. Such services 190 . 2002). For example. one-to-one meetings airlines explain their expansion strategies to airports. which successfully helped persuade the regulatory authorities to agree to non-stop services being operated to Shanghai. Manchester airport has estimated that for every £1 spend on support of tour operators.5 6 6.6 19.6 1.8 4. New routes. An interesting development as regards airline marketing has been the ‘Routes’ conference.5 6.7 Passenger numbers (millions) 17. a quarter to prevent reductions in existing services and the final quarter to help tour operators who brought additional traffic. 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. namely reductions/rebates in airport charges and contributions to joint marketing campaigns. A more recent example is San Francisco airport. 75 airlines have benefited from some help. alongside the London airports. which Manchester airport has given.5 18. Manchester airport was particularly active in this activity in the 1970s and 1980s when it frequently attempted to get gateway status. but with six receiving 72 per cent of this and 20 receiving 94 per cent.2 3. This has averaged around £5–6 million compared to total costs of about £200 million.6 shows the costs associated with the marketing support.Managing Airports Table 7. £3 additional revenue goes to the airport (Competition Commission. who in turn try to sell the virtues of their facilities and services. In 2002–03.7 4.

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

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 1999.3 euros in 2010. 2003). In addition. 192 . incentive payments for each route started. 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. 2003). 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. Ryanair pays very low landing and handling charges starting at 1 Euro per passenger which goes up to 1. However.7 Elements of agreement between Ryanair and BSCA Annual Payments Amount (euros) Cost assumptions (euros) Landing fees/ pax: 1. Table 7. BSCA also contributes towards other expenses incurred by Ryanair. 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.00 Handling fees/ pax: 1. For example. Office and hangar space is also provided for a minimal cost. which together with the low charges results in a net benefit to Ryanair.Managing Airports was changed from Charleroi Airport to Brussels South Charleroi Airport (BSCA) (Jossart. It has also expanded the duty free and catering outlets to cope with the additional passengers and increase the overall non-aeronautical revenues. The expenses covered by BSCA include marketing support. 2001). in 2003.00 Marketing contribution/pax: 2.7 shows the reported details of the arrangement made between BSCA and Ryanair.13 euros in 2006 and 1. and Ryanair’s costs for local crew hiring and training. Table 7.

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

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

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

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

Various subsequent changes in ownership took place until the airport was finally purchased by BAA plc in 1990.8 Main catchment areas of London City airport. Southampton Corporation. 2002 Docklands/Canary Wharf 27% originating passengers in 2000 City of London/Westminster 18% (City of London). is accessible by two motorways.The airport is situated on the south coast of Britain around 80 miles south of London.The role of airport marketing Table 7. A significant proportion of the passengers are relatively frequent travellers. Business travellers accounted for 49 per cent of the traffic in 2000 compared with only 18 per cent in 1985. which was opened at the end of 1994.8 million m2 under construction 0. and has a rail station that has direct services to London and other southeast destinations. mostly in professional or semiprofessional occupations.3 million m2 office space exists 0. In 2002. 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). Southampton airport Southampton airport’s modern history began in 1961 when the airport was bought by an aviation enthusiast from the public sector owner. 197 . 14% (Westminster) originating passengers in 2000 City of London 331 000 people work in City 80% in financial services 481 foreign banks 7. which was completed in 1997. with 72 per cent of them travelling alone (Table 7.9). Since then BAA plc has invested £27 million on a total redevelopment of the airport that has included a new terminal. 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. the airport had scheduled services to a number of domestic destinations. and a runway refurbishment.

It also has some limited summer service charters but. Paris. In the early 1990s. when BAA plc bought the airport. for example. 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 1994/5.9 Passenger profile at Southampton airport. In spite of its small size. including the nearby Channel Islands. Brussels. Geneva. Cork. and the international airports of Amsterdam. by sponsoring the region’s youth games.Managing Airports Table 7.1). traffic growth 198 . Malaga. In addition. it regularly arranges for current and prospective airlines to meet and hear the views of local corporate travel agents named the ‘Dirty Dozen’ (Airline Business. the annual throughput of passengers at the airport was around 493 000 (Figure 7. at least four times a year to discuss future developments at the airport. 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 the most basic level it has a request book at the information desk where travellers can fill in suggestions for new destinations. Dublin. In 1990. The airport has a range of marketing activities to encourage traffic growth. the ‘Scoops’ group. The marketing department meets with a group of frequent business travellers. 1999). the so-called ‘High Flyers’. Barcelona. and Bournemouth.The airport also aims to forge links with the local community. and Toulouse. It also has periodic meetings with the travel and aviation press. Milan. Source: Civil Aviation Authority (2001). Much of the leisure traffic in its catchment areas uses services from the nearby airports of Gatwick. Frankfurt. Around three-quarters of the airport’s traffic is domestic. 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. overall. Nice. package holiday travellers represented just 6 per cent of total traffic in 2001 – a much lower share than at most other UK regional airports. 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. Bristol.

in the following 4 years. In 1995.7 per cent. was handling 788 000 passengers despite a decline in traffic in 2002 due to the event of 11 September 2001. but the dominance of North Sea oil-related business 199 . 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. This means that compared with Southampton airport there are more travellers from the C2 and DE socio-economic groups.2 per cent compared with the national average of 5. Norwich airport Norwich airport is a regional airport situated in East Anglia in the east of Britain. In the late 1990s. However. by 2002. with the new facilities in operation and with an increased emphasis on airport marketing. the airport handled 516 000 passengers.10). but growth was also considerably less than the average annual rate of 4. but during these years the airport managed to achieve an annual growth rate of 6. the airport experienced far greater growth and. which was experienced at all UK airports.5 per cent. 1990–2002 Source: CAA airport statistics.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. A higher proportion of leisure passengers would normally mean a more even split between males and females. The airport has one scheduled international flight to Amsterdam and four domestic services. Twothirds of the traffic is for leisure purposes with a large proportion of the passengers taking charter services (Table 7.1 Total passengers at Southampton airport. although in 2003 there were plans for it to be partially privatized. was slow while the new facilities were being developed. around 130 miles north of London. It has been operated by the local authorities of Norwich City and Norfolk County as a commercial civil airport since 1969. undoubtedly general factors such as a healthy economic climate and European deregulation had a role to play with this development.

the airport was down to offering allocations on only four destinations. The service was a success. Faro. however. Minorca. This move came about because the airport had been unable to persuade the large tour operators to operate programmes from Norwich airport. Faro.Managing Airports Table 7. 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. it was offering services to Malaga. and catering. By 2000. retail. a weekly service at a total annual cost of £400 000 was operated from the airport to Alicante. In 1988. it opened its own travel agency in the terminal building to persuade passengers to buy flights and package tours departing from Norwich. Cyprus. The airport initially took the risk of chartering its own aircraft to prove that there was a market at the airport. and Malaga. Some of the seats were sold to tour operators and some direct to passengers. 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. This destination was chosen because it was apparent from passenger surveys that there was considerable demand. 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). not only for package holidays. 2002). which consists almost entirely of male travellers. 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. means that male passengers still outnumber females. The airport added summer services to Malaga and Faro in 1996 and a winter service to Malaga in 1997. This also acted as a call centre for London City airport which brought in additional nonaeronautical revenue. traffic at Norwich. Alicante. The airport has adopted a very unusual approach to encourage passengers to use its airport. In 1995. By 2002. 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.10 Passenger profile at Norwich airport. namely Alicante. 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. but also because there was a large number of British-owned villas in this area. Like 200 .

Civil Aviation Authority (CAA) (1999). At the peak time for airport-operated flights in 2000. Exeter and Southampton Airports in 2000. Ryanair. Airline Business (1999). CR00. traffic grew annually at 7. East Midlands. Passengers at Birmingham. (1999). 74. R. 3. G. CAA. Norwich and Teesside Airports in 1999.2). ACIEurope. 201 . Stansted. Caves. when the charter flights were in operation and with the expanded travel agency business. ACI Europe Policy Paper on Airport Competition. Airline Business. around 10 per cent of the passenger throughput was associated with these services. Between 1995 and 2002.5 per cent nationally (Figure 7. Southampton. just too good a negotiator. Passengers at Gatwick. Humberside. July–August. Luton. and Gosling. Strategic Airport Planning. Cardiff. Elsevier.7 per cent. Ashford. CAP 703. 3. Airport Forum. A report on the economic regulation of Manchester airport plc. Civil Aviation Authority (CAA) (2000).3 per cent between 1990 and 1995 was lower than the national average of 4. Aviation Strategy (2001).4 per cent compared with 5. Heathrow. 1990–2002 Source: CAA airport statistics. Heathrow and Manchester Airports. N. Liverpool. its annual growth of 3. Leeds–Bradford. Civil Aviation Authority (CAA) (2001). The airport marketing awards.2 Total passengers at Norwich airport. References and further reading ACI-Europe (1999). R99. CAA. Competition Commission (2002). The Stationery Office. CAA.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. Passengers at Gatwick. Manchester. (1989). Between 1991 and 2002. 42–4. London City. Newcastle. Bournemouth. Bristol. Predicting the passengers’ choice of airport. the proportion of traffic on international charter services increased from 18 to 49 per cent of the total. October.

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

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. Alternative expansion options may be evaluated with consideration of the relative economic benefits which they will bring. An increasing number of airports are now undertaking economic impact studies. 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. 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. 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. A key issue for any airport operator is how to optimize the economic potential of an airport while providing acceptable environmental protection. This chapter looks at the economic impacts of airports while the next chapter discusses the environmental effects. whereas the negative environmental impacts may be hardest felt by the local community. They are doing this for a number of reasons.

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

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

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

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

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

Clearly.32 for the larger airports.1 (ACI-North America. The choice of method will usually depend on the amount of data which is available and the resources which can be utilized. in the United States where the FAA recommends procedures for identifying and quantifying the economic impacts of airports there are substantial 209 . Large capital city and main international airports tend to have such an important impact on the overall economy. 1998). recent research has tended to consider the indirect jobs to be broadly equivalent to a third of the direct jobs. Specific issues. respectively.62. Department for Transport.6–0.32 for the medium-sized airports. with between 750 and 2 000 of these jobs being direct airport-related employment (ATAG.e. 1998). to 1. The input and output structure of nearly 500 US industries is contained within the model (US Department of Commerce. these aggregate figures will hide significant variations which exist between different airports. depending on whether the national. in 2001 the comparable figures are broadly 1 640 (direct) and 1 850 (secondary) with a secondary:direct ratio of 1. with a considerable degree of caution. rather than being imported from outside. the other approach may be more appropriate. 1997). direct and secondary) per mppa ranges between 2 500 and 8 000. 2002). in addition to 1 100 direct jobs.The economic impact of airports and private sector. 2003). that it makes sense to assess their impact within a national context. 1999. If a more local situation is being assessed. which gives a secondary:direct jobs ratio in the range of 0. Individual values will depend on many factors such as the nature of the traffic at the airport. jobs (ACI-Europe. 2002. and forms the basis of many of the airport economic impact studies. 2002b). may be more appropriately considered at a regional or local level. at smaller regional airports (Mason. 2000). Another estimate is 2 700 total jobs per mppa. Even. Within Europe it is estimated that. 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. of adapting the national or regional input–output model. and only 0. of which 1 200 are direct and 1 500 are secondary. and this technique tends only to be used at a national or regional level. The impacts of smaller airports clearly need to be considered within a narrower context. particularly related to the employment market. the data requirements will be greatest for the input–output models. propensity to travel characteristics. 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. Halcrow. regional. however. This ratio ranges from 2. on average. Globally. or secondary. Clearly. it has been suggested that on average the number of total jobs (i. The choice of study area will depend primarily on the role and size of the airport and the reason for measuring the impact. In Canada. or there may be the option. 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. Specifically within the United Kingdom. and likewise for the induced jobs. there are the same number of indirect and induced. 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. employment sector mixes and the role of the airport. They will also be related to the size of the economy under consideration.2 for the small airports (ACI-North America.7 (Oxford Economic Forecasting. or local situation is being assessed.

the secondary : direct income ratio has been estimated to be below 0. When there is a major capital investment programme. 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.Managing Airports differences in the detailed methodologies used. At Gatwick airport. Very often the split of activities on and off-site will depend on whether the actual site is constrained or not. conferences. This means that the secondary : direct jobs ratio is very varied – ranging from as little as 0. Direct jobs per mppa range from as little as 646 at Washington National airport to 1 656 at Winnipeg airport. Munich. This makes it very difficult to compare multiplier values.1).3). or adopt a more qualitative approach to assessing this effect. Some airports.3 with the bulk of the secondary employment coming from induced effects. and exhibitions. the secondary : direct ratio was also estimated to be around 0.5 Cardiff airports between 1 but less than 2 for Düsseldorf airport and around 2 for the Paris airports. These jobs are thus in tourism industry activities such as hotels. such as a new runway or terminal. For example. attractions. restaurants. 210 . Other studies separately identify the visitor impacts. irrespective of whether the activities are directly airport related. Induced 19% Indirect 4% Direct off-airport 10% Direct on-airport 67% Figure 8. sometimes all off-site impacts are considered as indirect impacts. just as wide-ranging impact values are obtained. whereas at Birmingham. particularly in the United States. When income generation is considered. Cardiff. treat these as indirect jobs. For example. Another area of inconsistency between airports occurs with the treatment of construction activities. airports tend to identify the impacts separately to add additional support to the case for new capacity. which can have a dramatic effect on the overall magnitude of indirect impacts.3 at the airports of Cardiff and Gatwick to 2.5 at Phoenix. Phoenix. and Newcastle airports this value is less than 500. About 15 per cent of direct employment was off-site (Figure 8. and Vancouver airports have been estimated to generate over 2 000 secondary jobs per mppa. Gatwick. Sometimes the temporary staff employed in the construction industry will be included in the impact figures and sometimes they will not. Studies adopt different definitions of multipliers and interpret direct and indirect impacts in a number of ways. Then there is the problem of how to treat any activities which are based at the airport but not actually related to airport operations. One of the major areas of discrepancy is in the treatment of jobs associated with leisure and business tourists who arrive via the airport.3 Employment at Gatwick airport in 1997 Source: BAA Gatwick (2000).

6 Note: a mppa million passengers per annum.2 15.2 1. 1999.The economic impact of airports Table 8.5 0.2 billion to UK GDP which is 1.5 billion goes to the government in the form of taxes (Oxford Economic Forecasting.7 2.2 0.3 million jobs (Wilbur Smith Associates.4 1.4 per cent of total GDP and at least £2.3 1. 2000b).5 1. At a national level in various countries.2 15. the Department of Transportation’s databases and the RIMS II model are used to assess the overall impact.5 1. in the United States. ACI-North America (1998.1 31. Figures for 1998 estimate that the aviation industry generated US$911 billion in economic activity.9 0. Aviation’s contribution to GDP was estimated to be 4.8 0. 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 0.4 27. National estimates for just the airport sector are more difficult to obtain. US$259 billion in annual earnings and 10. For example.7 27.4 9.8 2. The industry is thought to contribute £10. and Department for Transport (2002).0 0. 1999).0 0.1 15.7 per cent.0 30.3 2. Source: Individual airport economic studies as reported by the airports themselves and ACI-Europe (1998).3 0.8 1.5 6.6 15. 2000).0 6.6 0.8 2. In the United Kingdom. studies are undertaken to assess the overall economic impact of aviation.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 0.9 951 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 1.8 0.4 14. ACI-North America has calculated values 211 .3 0. in the absence of any equivalent of RIMS II.3 17.9 11.9 1997 1996 1997 1997 1998 1998 2000 3.1 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 31.6 1. including airport operations.

investment. Some of the fastest growing knowledge-based industrial sectors such as computing. Hence. This is the catalytic. In some cases the airport can be the lifeline to local economies. US airports are estimated to generate 1. A good illustration of this was the recent planning enquiry for Manchester airport’s second runway.7 million jobs in total. and pharmaceuticals are the most international. communications. The trend towards globalization. both in terms of multinational companies and also in terms of increased reliance on imported components and products. but they will have a preference for a location near an airport because of the accessibility benefits which can be gained. 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. In economically disadvantaged areas. Overall.5 billion in taxes. and can offer speed and security for goods being transported. magnetic. 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.Managing Airports for both Canada and the United States by using the individual airport studies in both countries in 2001.b). airports can play an important role in influencing company location decisions. by providing access to a wide range of both passenger and freight services. 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. Manchester airport claimed there would be some much 212 . or spin-off impact. 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. such as car manufacturing. In Canada. 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. creating wealth and regenerating the area. Airports can give a company easy assess to other parts of the company as well as to suppliers and customers.9 million direct jobs and 6.1 billion in economic activity. The increasing reliance on just-in-time inventory systems for these expanding industries and more traditional sectors. (ACI-North America. income. airports have become increasingly more important for businesses operating in global marketplace. has meant that air travel has become a critical element for a quick and efficient distribution system and rapid delivery times. and are heavily reliant on air travel for the transportation of their high-value/lowweight products. where unemployment is high and there is a narrow declining economic base. In short. 2002a. it is estimated that there are 304 000 jobs in total with the airports generating Canadian $34. and tax revenues generated by the wider role which an airport can play by being an economic magnet for the region it serves. This impact can be defined as the employment. These businesses will not rely directly on the airport for their operation. Airports and economic development As well as being a generator of economic activities in its own right. electronics. These arguments are frequently used to gain approval for airport expansion or development. Moreover. Airports can also help retain current businesses or encourage them to expand. They are estimated to produce US$507 billion in economic activity and US$33.

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

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

and Birmingham–New York. Alternative developments could have a better overall impact on the economy. 1998). The overall impact on the local community of tourism development related to aviation activity also needs to be assessed. The negative or adverse potential impacts of airport development. and it is likely that this is reflecting the impact of aviation on the neighbouring Australia TradeCoast economic development area. In assessing the impact that airports have on the wider economy.4 million at Geneva airport to 15. overheating of the economy and consequences of local labour shortages. and US$52. 1994).8 million at Washington National. Similarly. The total employment is estimated to represent 5. it is the net benefits which should be considered (Caves and Gosling. With some of the airports visitors activities are identified separately and so the impact of including them in the economic assessment can be seen. non-airport related. and Vienna airports to give an example of the range and type of measures which are available in different areas of the world. Brisbane. in addition to the tourism activities. The Washington airports also estimate the impacts of the US$31 million capital expenditure programme at National airport and the US$57 million capital programme at Dulles airport. 1994). for example. 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. Manchester–Dubai.2 per cent of employment in Queensland. such as city centres. Other interesting examples include an assessment of the impact of the four long-haul routes. such as extensive urbanization and industrialization. For comparative purposes. 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.The economic impact of airports US$39 million direct income and 366 jobs. the availability of nearby direct air services may increase the use of imported goods and services at the expense of local products. namely Manchester–Atlanta. For example. The crossover effects on other industries.2 presents a selection of economic impact measures for the Washington. which was undertaken by the UK CAA (CAA. 3 323 jobs. The impacts should also ideally be compared with possible alternative. all need to be considered. also need to be taken into account.7 new annual tax revenues (ACI-North America. It was also estimated that the routes created US$351 million air exports income. Manchester–Hong Kong. By way of illustration. although many of the wider economic benefits are likely to be less linked to passenger volume. These airports are all medium-sized airports with passenger throughput varying from 6. 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. At Geneva airport the catalytic impacts associated with business development. the measure have been divided by passenger throughput. 1999). the impact on other modes of transport. Increased industrial and economic activity around an airport may merely be draining resources from other areas. with indirect/induced income of US$97 million and 915 jobs. Geneva. Table 8. with the income accounting for 6.8 per cent of the gross state product. Each of the studies have been undertaken separately so there is no consistency in the method used – which may explain some of the differences. have been identified. economic activities with an assessment being made of the comparative economic benefits and opportunity costs. The total jobs and output at Brisbane is very high. 215 .

c Direct and secondary impacts.Managing Airports Table 8. Geneva Airport (2000). In conclusion.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. they are very difficult to actually quantify with any degree of confidence. it is likely that in the future more consistent and accurate approaches to measuring economic impacts will be developed. Sources: Brisbane Airport Corporation (1998). Vienna International Airport (1998).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. This chapter has discussed these various economic impacts. dIncluded in ‘total’. While concepts such as the multiplier or the catalytic effects are reasonably straightforward to understand.0 million passengers Direct 16 400 N/A N/A Totalc 83 600 1 596 8 685 Geneva (1998) 6. 216 . Geneva. As research into this area continues.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. More and more airports are showing interest in measuring their economic impact but still there are considerable inconsistencies in the terminologies and methodologies used. bppa passengers per annum. Metropolitan Washington Airports Authority (1999).2 Economic impacts at Washington. there is little doubt that airports have a substantial economic effect on the region in which they are located. 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. Brisbane.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.

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

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

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

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

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

Money from penalties may be used for soundproofing or other community projects. introduce unilateral noise abatement operating measures which can more immediately reduce the annoyance caused by aircraft noise. airport operators may impose financial penalties on airlines that deviate from their required flight track. A common restriction is a night curfew or limitations on night flights. Such constraints may significantly impact on the development of freight or charter traffic which often rely on night movements. Individual airports can. This is usually done by directing aircraft away from the most densely populated areas. This can be used to measure local noise levels and calculate noise contours. The information gathered from the noise. 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. For example. for example. Many airports also use noisemonitoring equipment. however. Undoubtedly. This concept of a ‘balanced approach’ to noise management comprised four principal elements: 1 2 3 4 reduction of aircraft noise at source. or to enforce noise limits. governments and other interested parties. because airlines quite legitimately may be required to depart from their preferred route for ATC reasons. In some cases. local community. for example. however. 2002). 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. restrictions on noisier aircraft only apply at night 222 . noise abatement operational procedures. In most cases. 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.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. local noise-related operating restrictions. many airports have introduced preferred noise routes (PNRs) to minimize the noise impact on the surrounding population. and the long lifetime of an aircraft. or a limit on the noisier aircraft. reduced power and flap settings for take-off or approach. and make scheduling long-haul services more difficult. 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. and a growing number of airports actually publish the results. This may involve a blanket ban on all aircraft. 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. 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. Airports may also choose to place restrictions on flight procedures by requiring.and track-monitoring procedures can be provided for the airlines. land-use planning and management measures. There may be difficulties with this. Airports can also impose other operational measures to reduce the noise impact.

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

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

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

However. is the result of the relative price inelastic demand at airports. Therefore. The first was a charge proportional to the volume of greenhouse gas emissions discharged in EU Table 9. 2002b). The Swedish government levied an emission tax on Swedish domestic flights at a rate of 12 Swedish Crowns per kilogram of nitrogen oxides and hydrocarbons and 0. The impact of such unilateral policies on fleet choice seems to have been rather limited – which. Such charges would be levied through the air traffic control system and the research explored two main alternatives. according to EU directives. 1994). this type of tax was not allowed in Europe and was also seen as discriminatory towards Swedish carriers once full European liberalization has occurred. This research concluded that emissions charges. It was concluded that this it was not a feasible option in the short term (European Commission. the Swedish government abandoned this tax in 1997 and replaced it with an emission charge (Table 9. An alternative to a tax is an emission charge which could be levied as part of the airport or ATC charge. Source: International Air Transport Association (2002).25 per kilogram of CO2 initially in 1989 (Alamdara and Brewer.Managing Airports ICAO. if limited to flights within EU airspace would not give rise to legal objections from third countries. nor would they create any distortions of competition. 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. unlike fuel taxes. There is actually some limited experience of such a charge in Sweden and Switzerland. 2003). 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. 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. 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. 2000).1). Geneva and Zürich also introduced an emissions charge in 1997. as with the noise surcharges.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. It has also been estimated that demand would decrease by 10 per cent if environmental costs are passed onto passengers (DfT. 1999). 226 . 2002).

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

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

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

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

Airports particularly interested in developing rail freight include Liege. A number of airports have also developed high-speed links connecting airport terminals to international routes such as Charles de Gaulle in Paris. and Shanghai. Leipzig/Hall Amsterdam. an AIRail terminal for long distance services and a rail connection to Cargo City South. They are still the most common form of rail link today. 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. Janic. with a rather basic quality of service. Figure 9.1 Existing and planned rail links to airports Source: ATAG. the only freight transported has been aviation fuel. Other dedicated airport rail link examples include Gardermoen in Oslo. with many examples being found in North America and other airports such as Düsseldorf. Changi Singapore. 231 . Barcelona. Frankfurt. underground or light rail services) were extended to reach the airport. historically. 2003).1 shows the total number of rail links to airports – both currently in existence and planned. with only a small proportion using bus or coach transport. 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. Lyon.The environmental impact of airports Historically. and Sepang in Kuala Lumpur. Indeed. Milan. particularly those with large traffic volumes or a long journey away from the city centre. This is a relatively new idea since. There is a regional train station below Terminal 1. 1998. With airport growth in the 1970s and 1980s. have instead developed high-speed dedicated links. They may be popular with employees but are less attractive to passengers. and London Heathrow (IARO/ATAG/ACI. This has meant that a number of airports. Arlanda. Frankfurt airport has three railway interfaces. Stockholm airport’s third runway was only approved subject to a rail link being built. Heathrow in London. Some airports also have integrated regional and high-speed rail links – Paris Charles de Gaulle being a good example. Many of these services are relatively slow. Such links bring environmental benefits and alleviate road congestion as well as bringing extra convenience for passengers. Chek Lap Kok in Hong Kong. most passengers arrived at airports by private car or taxi. 1998. Munich.g. some existing suburban rail services (e. Paris Charles de Gaulle. Stuttgart. and are not dedicated links to the airport. Other airports as well are looking at rail links for the carriage of freight. and Amsterdam. Zürich.

Others have tried making improvements in marketing. For foreign passengers. Many airports now set targets for public transport use. 2001 Source: Compiled by author from various sources. 2002a). Remote baggage services are also frequently available in Europe but not in North America. It also includes looking at the accessibility of the surface modes. More recent studies show that Zürich airport. For UK business passengers this figure was 23 per cent and for UK leisure passengers it was 31 per cent. signage and the availability of information. At 23 rail stations. 232 Am .3). For example. 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. and offering more remote check-in. the comparable figures were 38 and 50 per cent (BAA Heathrow. 1999).Managing Airports with other rail services as is the case with a growing number of links in Europe. 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. 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).2 Public transport usage by passengers to and from the airport. and Geneva at 116 rail stations. Some airports are designing better interchange processes between public transport and the airport. The most developed service of this type is the Fly Rail Baggage system in Switzerland which provides two-way check-in for Zürich. Heathrow has set a target for passenger public transport trips of 40 per cent by 2007 and Gatwick has an identical target for 2008.2 shows the public transport share for some other European airports. At London Heathrow in 2001. 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. Basel. Figure 9. complete check-in can be made for flights of Swissair and partner airlines. 34 per cent of passenger trips were on public transport (Figure 9. ease of transfer to the airport and arrangements for baggage. has a very high share of 59 per cent of passengers accessing the airport by public transport (Grossenbacher. The average was around 21 per cent – 9 per cent for rail and 12 per cent for buses (Navarre.

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

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

encouraging ten of the. 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. 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).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. .

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

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

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

economic. Geneva airport launched an environmental action plan which had 27 key measures to be addressed. In 2000. EIA for the new Oslo airport at Gardermoen Since 1939. In 1999. 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. transport. and waste management. Oslo has been served by Fornebu airport. 1006. This will examine the potential impacts of the proposed development during the construction and operational stages.. and social expenditure and savings at Heathrow airport. to identify the expenditure and savings related to their environmental.4 shows these for Heathrow airport. Many of these tend to be further disaggregated when detailed targets are being set In 2000. it is usually required by law to undertake an environmental impact assessment (EIA) as part of the planning approval process. 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). 2001). A 239 .7 46.2 1178. and social management policies. 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.3 shows some common key environmental performance indicators used by airports. It should possible.6 159.0 targets have played a part of the senior management salary incentive scheme – just as with the financial and surface quality targets. as part of the environmental management system.Managing Airports Table 9. economic. situated close to Oslo city centre was beginning to reach capacity but could not be expanded because of physical constraints and environmental pressures.4 6526. Table 9.6 11519. Nice airport adopted an environmental charter which identified a total of 15 objectives and these were broken down into 46 detailed actions. Table 9.9 6. the population within a specified noise contour by 67 per cent. The results of this assessment are summarized in an environmental impact statement (EIS). The greatest expenditure was related to water quality. When an airport is planning a major extension of its facilities. The savings were in energy and water consumption. by the 1980s this airport.0 270.6 2594.4 Environmental. passengers using public transport (53 per cent) and waste recycled (50 per cent). However.

(b) social impacts.While the CAA. (c) impacts on municipal economy. Its runway had a declared hourly capacity of 47 movements. (c) climate. The decision to build the new airport was made in 1992 and it was opened in 1998 (Gaustad. along with an impact assessment of the two alternative options. For each impact an investigation of the current situation was made. For this reason. 3 Impact on cultural heritage (a) pre-Reformation heritage. 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. (c) outdoor recreational areas. (d) impacts on land utilization. the existing military airport site of Gardemoen was chosen. 2 Impact on natural resources and natural conditions (a) land and forest resources. In addition evaluation of possible mitigation measures and proposals for monitoring programmes were made. 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) air pollution. the Public Roads Administration and Norwegian State Railways analysed the impact of the access system. 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. in 1991. The Department of Environment and Department of Agriculture were involved in the investigation of the regional and social impacts. At this stage there were two options with a runway. (d) landscape. (e) minerals.Managing Airports number of new airport sites were assessed and. (f) flora and fauna. 1991): 1 Pollution factors (a) noise. (b) water resources. either to the east or to west of the existing runway. which operates airports in Norway was responsible for assessing the environmental impact of the airport itself. 1996). (b) post-Reformation heritage. 4 Social factors (a) impact on the employment market. The EIA for Gardermoen considered the following impacts (Luftfartsverket.

The proposals were subsequently developed into a planning application which was subject to a planning inquiry which lasted from June 1994 to March 1995. and mitigation measures to be considered. to show its commitment to the environmental issues. highway improvements and public transport. Planning permission was granted in January 1997 (Table 9. This formed the basis of Manchester airport’s ‘green charter’ (Table 9.5). and other interested parties.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. community relations and social policy. at an early stage. Specialist engineering consultants were also appointed at this time.6). This ranged from private meetings with individuals to large-scale public gatherings. the airport entered into a legal agreement with the local planning authorities concerning its proposed package of environmental mitigation measures. 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. The airport operator. environmental works. 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 enabled the environmental effects of engineering solutions to be assessed. Public consultation also took place at this time. Continual dialogue also had to be maintained with airport users. local authorities. Further consultation and assessment of the impacts took place until a final development option was selected in 1993. Primarily as a result of environmental considerations. the environmental team and the engineering design team worked together in developing the runway scheme. 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).This package contained over 100 different measures of targets and guarantees covering noise control and night flying.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. The points of agreement were related to various stages during construction and operation Table 9. Before the decision had been made. and the ultimate capacity of the airport. 241 . government agencies.

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.Managing Airports Table 9. and encourage use of fixed electrical power The night noise level will be controlled up to at least 2011 and will be no worse than in 1992 Night movements will not exceed 7% of total movements Chapter 2 aircraft will not operate at night Financial noise penalties will apply at night The use of reverse thrust will be restricted at night The second runway will not normally be used at night More than twice as many ponds will be created or restored than those lost Landscape and ecological mitigation works proposal will be submitted to the local authority for agreement A 15-year landscape and management plan will be developed Ecologists and landscape architects will oversee and implement the environmental works MA. 96% by 2000 A preferential charging system for quieter aircraft will be developed MA will continue to seek powers to penalize aircraft that deviate from the set departure routes A ground noise policy will limit night ground engine tests to 20 per year. require the use of the engine test bay. 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 . 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. local authorities.

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

chrome 0. lead 1.9 e. 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 13.9 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.g. take-off weight. chrome 1.Managing Airports Table 9.1.7 Main environmental indicators used by Copenhagen airport A/S Impact Means of data collection Main indicators 2001 indicator value 150 Traffic and noise Night time noise Engine testing Waste water Traffic statistics system: ATMs by aircraft type.g. 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). 244 .9. cadmium 0.4 e.8. lead 1. cadmium 0.1.

which weighed more than 2600 tonnes and covered more than 4000 square metres in area. ATAG/UNEP. The responsible management of employee health. 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. 2001). For airports. can be considered as helping to encourage a more sustainable industry. From an economic viewpoint. and adequate investment in infrastructure. which was designed in 1939.g. 2001. However. Copenhagen Airport A/S has also prepared a manual on environmentally sound design and planning. see IPPR. is the concept of sustainability and sustainable development. sustainability is to do with the maintenance of high and stable levels of economic growth and employment. The largest single environmental investment that CPH has made took place in 1999 when the old terminal building. 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. Most definitions of sustainability tend to be rather vague and imprecise. sharing the theme of meeting today’s needs without sacrificing tomorrow. safety. the environmental aspect of sustainable development is all about effective environmental protection and prudent use of natural resources. From 1999. noise and emission mitigation initiatives and water. Thus the benefits of any development must be carefully weighed against the resources to be consumed.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. Most definitions also identify the need for a balance between social. environmental. The concept of sustainable development 245 .8 km from the east to the west of the airport. 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. which can be used to ensure that any expansion conforms to the objectives defined in the environmental policy. and security issues at the airport and equal opportunities employment policies is also seen as promoting sustainability. Social equity and improvements in the quality of life are often cited as key aims of sustainable development. Many of the measures described in this chapter. CPH annually produces an environmental report which is externally audited. for example. a distance of 3. all new purchasing contracts between CPH and suppliers stipulate that the supplier’s business is to be operated in an environmentally responsible manner. and economic impacts of any activity. it was taking up valuable space for future terminal expansion – hence the need for relocation. This process took place over one weekend and involved shifting the airport terminal. Complementary social policies include active involvement by the airport operator in the local community and an effective community relations programme. was relocated. Sustainability and environmental capacity Fundamental to the discussions of the environmental and other impacts. waste and energy management programmes. In 1997 this building had been listed as a protected building by the Historic Buildings Council.

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

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

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

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

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

depressing demand for travel and leading to passengers trading . airports have had to face the unparalleled consequences of the events of 11 September 2001 and a much more volatile environment. 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. Enhanced competitive pressures from airline deregulation and airport privatization coupled with increased demands for a more sustainable and quality conscious industry have brought many new challenges for the airports. Overall effect on the air transport industry . was spreading to Europe. This chapter begins by considering just how the airports have been affected by these terrorist attacks and then goes on to assess more broadly the prospects for the industry in the future. In addition.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. Economic recession. which was already in existence in the United States and Japan.

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

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

Milan Malpensa suffered because of Alitalia’s failure to establish it as its main hub. For the same 3 months global cargo traffic declined by 9. In the United Kingdom. it was North America that felt the brunt of the crisis with traffic down by almost a fifth in November 2001. For example.1 Airport passenger growth by world region since 11 September 2001 Source: ACI. which showed that generally cargo flows were less affected by the crisis and recovered more quickly. London Gatwick was the principal loser whilst at London Stansted. Clearly. such as Oakland. Other airports. passenger numbers were dramatically lower at the east coast airport of Boston and fell by 32 per cent. significant increases in passenger numbers were experienced at Chinese airports and Tokyo Haneda because of new runway capacity.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. growth was once more being experienced in the Middle East and the African region. In the case of Brussels. whilst elsewhere in Europe and the Americas traffic levels were still depressed compared with the year before.1. In particular. and then grew by 5 per cent. and August 2002. The changes in airport traffic levels for the year following 11 September 2001 for a number of European airports is shown in Table 10. just 17 per cent in November. March 2002. Likewise. and Baltimore faired better because of increases in low-cost passenger numbers. Washington National was closed for nearly a month following the terrorist attacks and experienced a traffic decline of 55 per cent in November. It can be seen that the airports’ performance is closely correlated with that of their base airline(s). that is. 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. the main base of the low-cost airlines. A similar less substantial reduction of traffic was experienced at one of American Airlines’ main hubs. By August 2002. Traffic at San Francisco airport also declined significantly by 29 per cent in November as United regrouped at its Chicago hub. 2. the demise of Sabena in November led to traffic falling by almost 40 per cent. 254 M id dl e –5 . Fort Lauderdale. As a consequence. by global region for November 2001. Some US airports suffered much more than others. the passenger loss at Chicago was not as large. Zürich airport also lost a substantial amount of traffic because of the collapse of Swissair. Dallas Fort-Worth.

8 29.8 6.0 London Stansted 11. However.1 5.9 12.2 Vienna 3.8 N/A 15.8 4.7 Brussels 9.7 20. notably in the United States.2 Dublin 2.2 14.0 4.0 2.2 London Heathrow 13.9 7. have had to redesign many of their commercial facilities in order to 255 .1 3.6 13. 01 9.4 13. 02 0.5 N/A Jan.2 6.0 Paris Orly 12.9 12.4 11.2 5.4 34.5 10.4 Madrid 2. 01 Amsterdam 5. where underlying growth rates had also been high in recent years.2 13.4 9.5 7.9 10.9 19.6 36.3 Frankfurt 7. Other airports such as Barcelona and Dublin.5 3.5 3.5 4.0 0. some airports increased their charges.6 N/A Dec. As regards commercial or non-aeronautical revenue.8 12.1 Manchester 2.3 6.5 7. also experienced traffic growth between January and August 2002.1 4. Airport financial performance These reduced traffic levels clearly had a major impact on airport revenues.3 4.0 23.8 6.8 8.8 Dusseldorf 5.9 8.1 19.3 0.2 Helsinki 2.1 Change in passenger numbers at major European airports since 11 September 2001 Airport % Change relative to same period in previous year Sept. passengers had more time to shop because they arrived earlier – again for security reasons.1 Copenhagen 0.6 1. 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. 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 passenger number continued to grow throughout the time period. Oct.4 6.8 London Gatwick 6.3 4.8 13.The impact of 11 September 2001 and future prospects Table 10.2 9.1 2.2 Barcelona 3.8 8.1 33.–Aug. 01 12.6 1. 01 4.0 10.0 Paris Charles de Gaulle 9.7 26.1 0.1 21.8 15.2 16.4 6.3 14.1 N/A Nov. Elsewhere.9 13. Some airports.3 7. 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. As discussed in Chapter 5.8 8.7 9.1 4.7 Lisbon 3.4 12. there are have been a number of impacts to consider as discussed in Chapter 6. in other cases.7 34. particularly to cover the increased costs of implementing extra security measures.6 Zürich N/A Source: ACI Europe.6 5.9 21.8 18.6 Milan Malpensa 14.

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. the cost-cutting measures that the airport industry have used are not nearly as dramatic as those implemented in the airline industry. which has led to a decline in non-aeronautical revenues. Table 10. Rome continued to implement its major 10 year development programme and Frankfurt airport kept all major expansion work on schedule.4 per cent. 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. 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. and rental cars down 5. it was found that almost one-half of the 60 largest airports had introduced such policies (Behnke.7 per cent 256 . It was estimated that food and beverage revenue would only be down by 0. 2002). if and when normal conditions return. Approval for the development of London Heathrow Terminal 5 was given shortly after 11 September 2001. It is much more difficult for airports to downsize or get rid of excess capacity when demand is reduced. As regards costs.7 per cent. it was estimated that total revenues in 2002 would be fairly similar to 2001 with an increase in aeronautical revenues. generally these have gone up since 11 September 2001 particularly because of increased insurance and security costs. For 2001. Airports have introduced cost-cutting measures as well. and San Francisco airports were put on hold whilst at Los Angeles the funds for expansion were directed towards security and safety improvements instead. For 2003. At Arlanda airport in Stockholm. the crisis situation after 11 September 2001 was rather overshadowed by the more normal situation for the rest of the year. car parking down 6. due partly to an increase in fees.8 per cent. as fixed assets cannot be moved or closed when traffic goes down. However. Boston Massport. 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. Immediately after 11 September 2001. For example. however. Holding back on any planned investment because of the downturn in traffic may constrain growth in the future. For example. Other expansion plans at Phoenix. For example.Managing Airports conform with new security measures. it was estimated that airport revenues would recover and grow by 5. Overall revenues increased by around 5 per cent in 2001 with more or less equal increases coming from aeronautical and non-aeronautical sources. some airports decided to go ahead with their future investment as planned. However. These include restrictions on staff travel and either freezing recruitment or employee redundancy. Charlotte. The consequences for planned future investment in the United States was also mixed. construction of the new South terminal was postponed although the expansion plans for the North terminal went ahead.2 shows the operating revenues and costs for the US airport industry for 2000 and 2001 with estimates for 2002. For the other commercial revenues it was estimated that retail revenue would be down by 9 per cent. Amsterdam airport also put some major investment projects on hold. Airports also have to plan and build for the long-term and this is very difficult in any period of uncertainty. In a special survey conducted by ACI. at Detroit airport it was decided that the construction of 25 new gates would still go ahead.

Different financial years exist. Putting the revenue and cost trends together meant that the profitability (measured by the EBIT or operating margin) of most airports declined in 2001.3 shows the financial results for some of the major airports for 2001 and a decline in revenue for certain airports such as Geneva. downgraded the credit rating of the Port Authority of New York and New Jersey 257 . revenues were up in spite of declines in traffic after 11 September 2001. Revenues were substantially higher at London Stansted. In the United States. 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. (ACI-North America.8 38. the Investor Service. This situation has meant that airlines have exerted increased pressure on the airports regarding their airport charges (Airline Business.3 0. The exceptionally large increase in costs at Zürich airport was due to bad debt write-offs connected with Swissair Group. Frankfurt.3 0. London Gatwick.3 9. and Zürich. At other airports. Table 10.9 3. Globally.9 Aeronautical Non-aeronautical Total Operating costsb ($US millions) Security Insurance Other Total 4 869 5 677 10 546 5 101 5 987 11 088 5 456 5 732 11 188 4. 2002). The exceptions were the Schiphol Group and Stansted airport. Source: ACI North America. These results are considerably more healthy than those of the 150 leading airline groups who experienced an EBIT margin of 4 per cent in 2000 and of 2 per cent in 2001. in 2002. Paris. both of which recorded above-average increases in revenues in 2001. both these items were expected to rise very substantially by 38 per cent. Whilst there may have been specific reasons for some airports for these increases. and Vienna is evident.2 Change in financial performance of the US airport industrya since 11 September 2001 Operating revenues (US$ millions) 2000 2001 2002 (estimate) % change 01/00 % change 02/01 (estimate) 7.3 Notes: a Based on a sample of 100 airports that are used to estimate industry totals. Amsterdam. However. 2002b). 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. the EBIT margin for the 50 leading airport groups in 2001 was 23 per cent compared with 28 per cent in 2000.1 556 89 5 501 6 147 619 98 5 971 6 689 853 136 5 920 6 909 11.8 37. Moody’s.0 4.The impact of 11 September 2001 and future prospects Table 10.8 8. increased security and insurance payments have been major factors influencing all the airports. for example.8 5. The two items are discussed in further detail later on in this chapter.5 8. b Excludes depreciation. Brussels Copenhagen. All airports showed increases in costs. respectively.5 5. primarily because of the growth of low-cost carriers at this airport.

7 2.8 27. Washington.0 42.3 28.4 5. 01 12 Oct. Elsewhere.8 25.7 3.6 15. Source: Airport Annual Accounts. and Detroit on its watchlist for possible downgrade. namely the Aviation Trust Fund and the Passenger Facility Charge – both directly related to traffic throughput – were reduced.6 25.8 9.Managing Airports Table 10.9 1.4 0.7 6. the decline in passenger numbers meant that two key sources of finance for investment.6 5.6 13.5 40.4 6.9 6. b Table 10.8 8.7 2.6 37.0 14.0 15. EBIT margin earnings before interest and tax as percentage of revenues. 01 72 97 83 115 86 77 94 94 76 48 12 Nov. Source: Jane’s Airport Review.1 28.6 32. Standard and Poor’s also placed US airports on creditwatch. EBIT margin. 01 70 99 87 102 77 71 88 85 73 50 16 Apr.4 Share prices of airport companies since 11 September 2001 13 Aug. Miami. Chicago O’Hare.7 2.5 36.3 Change in financial performance at major European airports since 11 September 2001a 01/00 change in revenues (%) ADP (Paris) Aer Rianta (Ireland) Copenhagen Brussels Dusseldorf Fraport Geneva London Gatwick London Heathrow London Stansted SEA (Milan) Schiphol Vienna Zürich 2.1 28.0 42.2 0.1 0.9 01/00 change in costs (%) 4. 2000 (%)b 2001 (%)b 20.0 11.5 28.6 20.2 8.3 7.9 39.1 16.9 12.0 6. the share price of the listed privatized airports fell quite substantially but within most 258 .8 9.1 EBIT margin.8 1. Los Angeles.9 1.4 Notes: a Different financial years exist.2 16.1 27.9 18.6 21.0 16.0 12. In addition. and Boston Massport and had a number of other US airports such as Charlotte. 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 100.1 1.2 13.2 0.8 9.

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

By 31 December 2002. As of February 2002.5 billion for 2002 and 2003 to allow airports to meet FAA mandated security expenses. They were estimated to increase to $US853. 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. One of the major areas of discontent was the deadline for all checked baggage to be screened by explosive detective systems (EDS) by the end of 2002. despite pressure from the airports this deadline was not extended although a few concessions were granted.Managing Airports Table 10. the feasibility of meeting the tight deadlines and in relation to how the measures would be financed. an increase of 11 per cent.2 that security costs incurred by the airports rose from $US556 million in 2000 to $US619 million in 2001. it also permitted airports to use AIP funds for other expenses related to changes in security requirements such as the replacement of airport 260 . In addition. It may be seen from Table 10. taking advice from experts such as the Walt Disney Corporation. because of the enhanced security measures that were required. allowing a mixture of scanning and manual checks.5 Important dates for new security measures in the United States. 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. 2002b). a massive 38 per cent rise in 2002. only 150 EDS were in operation at a total of 47 airports. 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. Express systems for frequent fliers were considered and the TSA also introduced more effective queue management techniques. it was estimated that 90 per cent rather than total 100 per cent screening by EDS had been achieved. The ATSA authorized US$1. 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. Such fundamental changes to the country’s airport security system were costly to implement. However.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. whilst the deadline meant that over 2000 EDS would be needed at 429 airports (Jane’s Airport Review. This was viewed as being totally unrealistic.

In addition to the funding provided by the ATSA.50 per sector security fee was also been introduced to cover some of the costs of the TSA (Field. or a subcontractor may play a role (Airports Council International. Whilst the industry acknowledged that this short-term help was much needed. the airline. Sometimes. security is paid for by the airport operator through normal airport charges or special security fees as is the case with UK airports. in 2001 Congress authorized an extra US$175 million to aid airports for unexpected post-11 September 2001 security costs. 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). Nairobi US$3. Lisbon. the FAA authorized US$561 million in AIP funds to airports for security projects related to the events of 11 September 2001. in spite of all this additional funding for security. and Toyko Narita US$2. Outside of the United States.3 billion available for AIP grants in 2002. that Paris CDG airport estimated this to be US$20 million. for other security activities. 2002). Elsewhere. 2002).6 million (Behnke. However. Milan. in 2002. particularly as the initial plans for the TSA had proved totally inadequate with the budget demands and the staff requirements more than doubling (Power. virtually all terminal protection is provided by the government through the police and also in most cases checks on passengers and luggage are the responsibility of the airport operators. at Paris. the government in Amsterdam and Lisbon. responsibility for designing security measures lies with the airport operator in Athens and Helsinki. such as staff access checks/badge control. compared to previous years when security expenditure averaged less than 2 per cent.3 million. 2003). For example. However. As regards the provision of the security services. Traditionally. for example. 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. 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.4 million. This accounted for 17 per cent of US$3. the airport operator may receive a refund from this tax revenue to cover the costs of the provision of certain security services. 261 . much attention was also paid to improving security methods at airports and numerous changes have been made. An ACI study undertaken shortly after 11 September 2001 attempted to quantify the security costs directly attributable to the terrorist attacks and found.6). and is shared between these two and the airlines in Munich. aircraft protection. In 2002. a wide range of different organizations such as the airport operator. 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. Often there may be a combination of these different these types of funding (Table 10. Munich airport provided a figure of US$5. for example.The impact of 11 September 2001 and future prospects baggage systems and the reconfiguration of terminal baggage areas to accommodate the explosive detective systems. For example.5 million at Indianapolis airport (General Accounting Office. A US$2. 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. and cargo checks. and Vienna. the police.

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

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

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

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

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

but increasingly this sector is unable or unwilling to provide such support.4 Table 10.7 4.7). 267 .The impact of 11 September 2001 and future prospects again has different expectations at airports. healthy long-term growth rates in the region of 4 per cent were predicted (Table 10. 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 2001–02.8 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. IATA forecasts of international scheduled passengers Forecast period 2002 2003 2004 2005 2001–2005 2006–2010 2011–2015 Annual growth rate (%) 0.9 3. which means that overall the forecasts of the manufacturers Table 10. which are more relevant to airlines than airports.7 Base year 2001 2002 2003 2004 2000 2005 2010 Source: IATA.6 4. Clearly the uncertainty brought about by the events of 11 September 2001 meant that forecasting in the short term was very difficult.5 Sources: Boeing. is becoming more concentrated as well and is dominated by a few very large vertically integrated European countries.7 per cent. This tends to push up passenger forecasts by up to 1 per cent per annum as the average distance flown is predicted to increase. Many funds traditionally came from public sources. Boeing and Airbus were also predicting long-term average annual growth rates in the region of 4. IATA.5 4. The units of these forecasts are passengerkilometres. In 2002. Airbus. All indications are that the air transport demand is set to continue to grow – putting pressure on airports to expand their capacity.7 4.9 5.9 5. A key reason behind airport privatization is the need to find new funding for investment.5–4.2 5.9 7.9 4.

2002–21 Source: Boeing.7 per cent per annum (Figure 10.4 and 5. likewise. Air freight demand is. More sophisticated telecommunication links may facilitate more effective teleconferencing and could reduce the demand for business travel. Therefore in the long-term the impact of these terrorist attacks was forecast to be fairly small.Managing Airports were very similar to those produced by IATA. the responsiveness of demand to changes to income may be weakening as demand maturity sets in. Intra-European traffic is expected to grow at 4.5 per cent. will continue to play a major role in shaping the growth of passenger demand. For certain markets. For example. and the cost of travel. particularly in developing areas of the world.2 Average annual pax-km forecasts of main regional flows. the relative immature market and higher than average predicted economic growth will ensure high growth rates.5 per cent. 268 . 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. Economic growth. These forecasts also did not take into account any physical or environmental constraints that might may occur (IATA. Airbus. 2002. Boeing predicts that the relatively mature North Atlantic market will grow by only 3. however. therefore is that global passenger numbers will grow at around 4 per cent per annum.7 per cent compared to the post-11 September 2001 growth rate of 4. The general. 2002. Such links. perhaps somewhat optimistic view. 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 within the United States and Europe.2). Similarly the differences between the Airbus forecasts made before and after 11 September 2001 represented just one year’s traffic growth. although clearly it was not foreseen that there would be continued volatily well in 2003 due to terrorism and other threats (Table 10. The Boeing forecasts prepared before 11 September 2001 and using the same base year predicted an average growth rate of 4. may actually encourage more global trade and act as a complement to air travel rather than as a substitute. Deregulation and particularly the introduction of low fares may stimulate new growth. 2002). respectively. Elsewhere. 2002.2).8). as has been experienced in Europe with the new breed of low-cost airlines.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. which reflects business activity and personal wealth. Boeing.

Munich. lack of sufficient airport capacity is not usually a major problem. for example. A new airport to serve Mexico City is planned although there have been problems in selecting the most suitable site. Seoul. electronics. Hong Kong. In spite of this. and Kuala Lumpur. some of these difficulties could potentially be reduced through greater ATC co-ordination and harmonization. It can take years for airports to gain approval and then to build new infrastructure. Increasing reliance on just in-time inventory systems favours air freight. The proportion of freight carried on all-freight flights is likely to increase. has meant that the average aircraft size has not increased substantially since the early 1980s. and Milan are the only examples. Plans for a new airport in Lisbon or an offshore airport in Amsterdam have been put on hold. advanced wake vortex technologies and arrivals and departure management systems. The new Athens airport opened in 2001 and the expanded airport in Berlin-Schonefeld may be ready for operation in the late 2000s. Oslo. Airlines are much more capable than airports of adapting to market growth by redistributing capacity across the networks. competitive pressures and the rapid growth of low-cost carriers. 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. could optimize traffic flow in and out 269 . partly due to the high growth of the express sector and partly because the current bellyhold capacity of passenger aircraft is insufficient. and pharmaceuticals are the most international and are heavily reliant on air travel for the transportation of their high-value/low-weight products. New airports are also planned for China. increasingly by sharing capacity with alliance members. The rapidly expanding knowledge-based industrial sectors such as computing. 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. This has put further pressures on the already congested runways at many airports. Very few new airports or fully expanded airports have been built in the United States or Europe in 1990s. Macau. this is seen as a major hurdle to achieving the full benefits of a deregulated market. Shanghai. communications. Bangkok. Airports lack this flexibility. such as Africa and Middle East. typically using relatively small aircraft types. The consequences are growing congestion and delays although. or even by adding extra aircraft to the fleet. A number of privatizations in South America should enable greater investment in this region. 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. for example. In the remaining areas of the world. 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. Denver. Technical improvements at the airport. Even if there is a gradual slow-down in the rate of growth in certain passengers markets. In Europe. The shortage of airport capacity in Asia is currently not too serious an issue due to the recent opening of new airports in. 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.The impact of 11 September 2001 and future prospects travel cost – as well as international trade. admittedly. 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. and Bangalore.

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

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

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

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

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

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

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

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