This issue of Airport World is organised around the theme of ‘planning and design’ and in the pages that follow you’ll find features on innovative terminal design, some of the latest and greatest retail and F&B offerings, and factoring in environmental stewardship when designing terminals and much more.
Airports the world over are raising the bar when it comes to modern designs that seamlessly blend form and function, and many can rightfully be called architectural marvels of the modern world.
But what does it take for an airport to build a new terminal or renovate an existing one? I think it’s important to introduce this issue with a look at the numbers behind the airports that are wowing the world’s travellers, as well as discuss the significant challenges associated with the upkeep of airport infrastructure.
Airport cost structures are characterised by predominantly high fixed costs in the operation and maintenance of major infrastructure components, such as runways and terminal buildings. As airports in many regions of the world reach full capacity due to growth in throughput, the expansion of such facilities inevitably increases the personnel expenses, maintenance costs, utilities and capital costs related to operating these fixed assets.
As underscored in the 2015 ACI Airport Economics Report, airports saw their operating expenses, capital costs and total costs increase year-over-year by 7.3%, 7.2% and 7.3% respectively in 2014.
Capital costs, which represent 38% of airports’ total costs, are made up of depreciation on infrastructure and interest expenses. Depreciation, which is the cost of a fixed asset allocated over time, makes up as much as 60% of capital costs and more than one fifth of all costs and expenses incurred by a typical airport.
And smaller airports are particularly challenged when it comes to costs. Airports that serve smaller markets tend to have higher overall costs on a per-passenger basis. This brings us to the challenge of attracting investment, the topic of our upcoming conference in Goa, India, taking place on December 6-8 in co-operation with ICAO and the International Transport Forum at the OECD.
The challenge of attracting and funding investment is pervasive throughout the industry. Even major airports continue to face the challenge of meeting demand and maximising the catalytic effects that they and the larger industry offer national economies.
In order for that to occur, one of ACI’s principal tasks is to ensure that the regulatory and oversight models of governing authorities facilitate, and not impede, the necessary investments into airport infrastructure. To do so, old views of the airport industry should be re-examined and new, tailored regulatory models need to be put in place.
In today’s industry, the reality is that airport market power is often fleeting and limited and, even where it remains to some degree, it is practically limited by several countervailing realities.
First, competition is omni-present with today’s gateway hubs competing vigorously for connecting and origin and destination (O&D) traffic. Second, airports sharing a metropolitan region compete for
O&D traffic, often exacerbated by the presence of low-cost carriers encouraging vibrant point-to-point competition.
Third, the growing commercialisation of airports and their focus on the generation of non-aeronautical revenues not only keeps aeronautical charges to a minimum but also typically provides the difference between profitability and loss. Fourth, let’s not forget that airline consolidation in mature markets such as Europe and North America, and the ubiquity of the three airline alliances, is making competition among airports for air service more intense than ever, encouraging airports to provide incentives and often rebate or waive aeronautical charges – hardly the behaviour of a monopolist exercising abusive market power.
So, in reality, today’s global aviation industry has only a few airports that possess a significant degree of market power. Even for those that do, the reliance on non-aeronautical revenues incentivises airports to expand and make use of all available capacity.
These reasons are why ACI strongly shares ICAO’s views that light-handed oversight is preferable and the best place to start airport-airline negotiations is with airports and their users sitting down to collaboratively address service standards, airport charges and the best way to pay for services the airport renders to its users and passengers.
The public interest is in the safety, security and environmental and economic sustainability of the aviation industry. Airports, airlines and air traffic managers are all suppliers to destinations, passengers and shippers.
The industry is vital to the global economy and it is incumbent upon government to make rules that are fit for purpose and that foster investment in airports so that they can meet current and future demand.