#24 How do Airports make money?
Dear reader, If you found value from the regular editions, I would greatly appreciate it if you could share the newsletter with your network. You can click here to tweet about it. If you stumbled across this directly, you can find the previous editions here and subscribe to receive a weekly copy in your mailbox!
Shoutout to my friend “Sir” Eepsit Tiwari for the recommendation about this week’s edition.
Who owns the Airports?
Most of the world's large airports are owned by local, regional, or national government bodies who then lease the airport to private corporations who oversee the airport's operation. Recently though, the private players have started to bid for managing the airports. Here are examples of some of the largest airports:
Dubai International Airport is an example of an airport operated by the government.
JFK Airport is owned by the City of New York and operated by the Port Authority of New York and New Jersey.
Changi Airport in Singapore is owned by the Govt of Singapore and operated by the Changi Airport Group as a separate corporate.
In India, the airport ownership is either through the Airport Authority of India (AAI) or through a PPP (public-private partnership) model. Most recently, Adani bought a majority stake in the Mumbai International airport and won a bid to own and manage 6 other airports.
How do Airports make money?
In March 2019, it was reported that global airport revenues grew 6.2 percent to US$172.2 billion! Due to the COVID 19 pandemic, Global airport revenue is estimated to decline by US$97 billion (!!) in 2020.
There are 2 main sources of revenue for airports:
Aeronautical Revenue
56% of all revenue made by airports was Aeronautical revenue. Aeronautical includes the terminal, landing, and passenger fees paid by airlines.
Landing fees are charged per aircraft for landing an airplane in the airport property. Landing fees are calculated through the landing weight and the size of the aircraft which varies but most of the airports have a fixed rate and a charge for extra weight.
In an earlier edition of UBM, I wrote about the business model of Budget Airlines, specifically how they pay fewer fees to Airports for limited services (eg. no aero-bridge)Passenger service fees are charges per passengers for the facilities used on a flight like water, food, wifi, and shows which are paid while paying for an airline ticket.
Aircraft parking is also a major revenue source for airports. Aircraft are parked for a certain amount of time before or after takeoff and have to pay to park there. Every airport has its own rates of parking. Example: John F Kennedy airport in New York City charges $45 per hour for a plane of 100,000 pounds and the price increases with weight.
Non-Aeronautical
40% of all revenue made by airports was Non-Aeronautical revenue. It is recognized within the industry that a happy passenger is more likely to be a spending passenger, and so it can be argued that an airport’s revenue strongly relies on securing a high-quality passenger experience.
Non-aeronautical revenue is gained through things other than aircraft operations. It includes lease revenue from compatible land-use development, non-aeronautical building leases, retail and concession sales, rental car operations, parking, and in-airport advertising.
Concession revenue is one big part of non-aeronautical revenue airports makes through duty-free, bookstores, restaurants, and money exchange.
Car parking is a growing source of revenue for airports, as more people use the parking facilities of the airport.
Fun Facts - Airport Rankings
World’s busiest airport by passenger traffic (2019):
Hartsfield–Jackson Atlanta International Airport (another fun-fact, it has been the world's busiest airport every year since 2000)
Beijing Capital International Airport
Los Angeles International Airport
Dubai International Airport
Tokyo Haneda Airport
World’s best airports (2020):
Singapore Changi Airport
Tokyo Haneda Airport
Doha Hamad Airport
Seoul Incheon Airport
Munich Airport
For more such content, follow me on Twitter.
If you stumbled across this post and would like to receive a weekly article about innovative business models, you can subscribe to this newsletter by dropping your email here.