Airports are extremely expensive in every respect imaginable. From the multi-million dollar runways to the multibillion dollar terminals, airports cost significantly more than most people might think; not to mention the hundreds of employees that demand wages. The aviation industry is notorious for being unstable and completely unpredictable. It is common for airlines to fold under extensive economic pressure, but it is essentially unheard of for airports to go bankrupt. A report by Airports Council International says that airports are making more money than ever before. It is known that airlines make money through airfare tickets, but how do airports make money?
The money that airports make can be divided into two main categories: aeronautical revenue and non-aeronautical revenue. According to the Airports Council International report, non-aeronautical revenue accounted for 44.8 percent of total operating revenue, or $7.56 billion compared with $9.31 billion, or 55.2 percent in regular aeronautical revenues. Additionally, 70 percent of airports are now focusing on increasing non-aviation revenue as a way to cope with the volatility of the
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airlines business cycle, including selling to non-flying passengers, which is a big change from 1990 when only a third of airports were trying to tap the wallets of those customers. Airports create aeronautical sourced revenue in several ways.
One of the biggest ways is landing fees. Landing fees are charges paid by aircraft, or the company that owns the aircraft. Landing fees can vary greatly between airports. Large congested airports, with most of the landing slots are held by airlines, are able to charge premium prices because of supply and demand, while less congested airports charge less because the demand is not as high. In fact, most general aviation airports do not charge any landing fees. Pilots can land and take off as they please. The price of the fees can be based on any number of factors including weight, number of seats, time of day, aircraft home airport, and operator class. Some airports may charge a fee for specific types of operators, such as a large airline or a small commuter
plane. Airports can also create aeronautical revenue through various services designed to aid the airlines. For example, most airline jets have fuselages that stand very high off the ground. Airlines rent stairways or the more expensive jetways from airports. Airlines must also pay airports for passenger service charges, security charges, noise-related charges, and emissions-related aircraft charges. Airlines must also rent terminal space from airports, which accounts for a large part of airports’ total revenue. Airlines must also have places to keep their jets when they are not being used or when they are undergoing maintenance. Airports can rent or sell their multimillion dollar hangars and line space out to airlines. Small municipal hangars and line space are often owned by the airport, which in turn are sold or rented out to private pilots. Airports often get money through privately owned FBOs. A fixed-base operator (FBO) is an organization granted the right by an airport to operate at the airport and provide aeronautical services such as fueling, hangaring, tie-down and parking, aircraft rental, aircraft maintenance, flight instruction, and similar services. One of the biggest roles that an FBO will play is aircraft fueling. Airports charge flowage fees (a dollar amount per gallon of fuel sold by an FBO). And at many airports, it doesn't matter if the company selling fuel loses money; the flowage fee is required. Some airports require FBOs to pay a minimum capital contribution toward airport infrastructure. At Denver International Airport, at least $10 million of infrastructure is needed to open a new FBO. Once the lease expires, the airport owns the land, forcing the FBO to sign a new lease. Excluding privately owned airports, land users pay for their lease but own none of the actual property. FBOs are often tasked with maintaining airports’ multimillion dollar ramps and facilities. Basically, when it comes to FBO management - you built it, you pay for it, and the airport owns it. Although aeronautical revenue accounts for a huge amount of money that airports make, non-aeronautical revenue accounts for the largest source of airport revenue. For instance, at the West Palm Beach International Airport in Florida, non-aviation sources accounted for more than 60 percent of the airport's operating revenues in 2014. One of the biggest growth markets in airports is automated retail units selling products from everything from hair care products (in FDA-friendly 3-oz. units) to the latest technology. According to the survey, 50 percent of America’s airports now have a number of these retail kiosks, up from 41 percent in 2012. The kiosks are being placed in areas that would not be able to host normal-sized shopping units and can offer passengers last-minute purchases. With passengers spending on average 90 minutes at airports before they depart, everything is focused on making the trip as convenient and relaxing as possible. As a result, convenience stores, shops, and restaurants are abundant in airport terminals in an effort to maximize profitability and the downtime for the passenger. It is not uncommon for the exact same convenience shop to have several locations within a single terminal. One thing that passengers can count on is that the prices at any terminal shop or restaurant will be very expensive. At large hub airports, in-terminal concessions account for over 10% of an airports total revenue. With technology constantly improving, airports would be foolish to not use technology to their advantage. Airports that provide wireless internet service for travelers find that short-term contracts allow them to assess their needs as technology and the needs of users evolve. Under some wireless connection agreements, the airport receives a portion of the fee creating extra revenue while the rest of the fee goes to the internet service provider. Many airports have free wireless internet connection, but then sell advertising space one the launch page. Airports also make money through advertising with banners, pictures, and other promotions. Banners draped across jetways or along the exterior of terminals are raising the bar on non-aeronautical revenues are one of the biggest forms of airport advertising. Furthermore, advertisements can be used to improve an airport’s image and propose modern and creative ideas to travelers. In Johannesburg, South Africa, advertisements have been placed on the side of runways for passengers to view. In the past decade, sponsorship opportunities have been moved to the forefront of airport advertising and have emerged as a specific business discipline. The benefit of sponsorship programs is that they help bring in extra revenue while providing a valuable customer amenity at the same time. For example, in a sponsorship effort with the airport, a vendor provided flat-screen TVs at no cost in the newly constructed Dallas Fort Worth International Terminal. Single locations have been known to have several sponsorship programs. These sponsorship programs do not replace the airport’s identity and are often temporary. They simply provide the airport with extra money, make the airport prettier and more functional, and provide travelers with more amenities. Another huge source of airport income comes from parking. Parking fees account for the first and third largest sources of income at medium hub and large hub airports respectively. Most large airports have gigantic multi-level parking garages which can hold thousands of cars at a time. These garages bring in millions of dollars a year, but also cost a lot to build and maintain. As a result, airports have found ways to make their parking systems as cost efficient as possible to maximize profitability. Several large airports have implemented cashier-less parking systems. This saves the airport money as there is no need to pay for exit-cashier workers and cars can enter and leave quicker. A second way that airport have made their parking systems more cost efficient is by implementing ticketless parking. This minimizes the use of parking cashiers through credit in/out control systems and Automatic Vehicle Identification (AVI) transponders. The last main source of non-aeronautical revenue that airports get is rental car services. Airports can make money from rental car companies on several ways. The first way is from percentage (or privilege) fees. Rental car companies located on-airport typically pay privilege fees of up to 10% of gross revenue from car rentals, or a minimum annual guarantee, whichever is greater. Some more ways that airports make money from rental car companies are terminal rentals and land leases. Rental car companies typically rental ticket counters and sometimes office space in terminals and then pay rent to the airport operator. Additionally, airports lease out their property to rental car companies so that they have a place for fuel, cleaning, vehicle storage, and for maintenance facilities. Airports cost millions of dollars each year to operate, and cost even more to build. As a result, airports must get their revenue from a large variety of sources; the majority of which are non-aeronautical sources. Airports manage to survive economic struggles, despite the constant closing of bankrupt airlines. These airports are making more money than ever before, and they do it through many creative and innovative ways.
For starters a few days before the attack on 9/11, the airlines stocks did go up. Which means the supply and demand was greater. America was making more money, which is good. The airlines that stocks markets went up, were the airlines that were hijacked which than lead to them going bankrupt. Gabi Logan was saying on USA today “ Despite this government-funded measure, several prominent American airlines declared bankruptcy not long after the 9/11 attacks.” Due to bankruptcy more than just money was
As unemployment has remained relatively steady from 2003 to 2007, the Gross Domestic Product for the United States has increased. The Air Transportation Industry contributes an average of 0.4 percent to the GDP. However, has GDP has increased, the Air
One of the most common expenses was corporate airplanes. Such travel arrangements cost many fold compared to a commercial airline. The cost per hour would be close $5000. Moreover, these aircrafts would not carry any other passengers except for the corporate managers and would take them to their destination and fly them back. This put the entire cost of the aircraft on
Airborne should strengthen and continually improve its services domestically, since it gives larger revenues, then strengthen its alliances internationally, so as to serve the demands of the international market. To add on its profitability, Airborne should lease out a portion of the airport facilities to other airlines, so that it could have other source of income to compensate the maintenance costs of the airport.
Revenues on Per-Passenger Basis: For simplicity, and clarity, all models were generated using per-passenger revenue information. Using this marginal revenue calculation as opposed to a disaggregated marginal and total revenue model offered the advantage of compensating for data that was not fully contained within the case. This allows assumptions to be made about continuous and linear marginal revenue curve.
Recently Qantas has partnered up with Emirates in an effort to channel Europe-bound travellers through Dubai International Airport in a mutually beneficial arrangement, an example of business-to-business geographic segmentation marketing.... ... middle of paper ... ... Indirect Taxes on International Aviation*.
Airline and travel industry profitability has been strapped by a series of events starting with a recession in business travel after the dotcom bust, followed by 9/11, the SARS epidemic, the Iraq wars, rising aviation turbine fuel prices, and the challenge from low-cost carriers. (Narayan Pandit, 2005) The fallout from rising fuel prices has been so extreme that any efficiency gains that airlines attempted to make could not make up for structural problems where labor costs remained high and low cost competition had continued to drive down yields or average fares at leading hub airports. In the last decade, US airlines alone had a yearly average of net losses of $9.1 billion (Coombs, 2011).
Air travel has developed into the main form of transportation this century and its demand will double in the next 20 years. In order for airlines to maintain their profitability, they have turn to airline revenue management. Ever since deregulation, airlines have adopted this system to maximize revenue and profitability. What exactly is revenue management? Is a system designed to take advantage of the market, by segregating the market population into different categories of consumer needs, income, and overall behavior of the consumer. Through this process airlines carriers enhance product availability and price to maximize revenue.
These costs are distributed to each airline as they use this resource to transport passengers. As new politicians are elected to Congress and new administrators take charge of the FAA, new regulations regarding this industry. These regulations affect everything from mergers to the airspace that the airlines operate in, as well as what hubs and airports each airline operates out of. These factors are not issues that the industry faces, the TSA, the Transportation Security Administration, creates an unnecessary burden for the passengers attempting to travel from one location to another. The TSA inspections required before a passenger is allowed to board their respective flights allows time for each passenger to become frustrated with the amount of time they have to allot for inspection as well as the invasion of their privacy.
Airports can be considered as important national resources of most countries in the world. The main responsibility of an airport is in transportation of people and goods and in internal and global business. They are where the nation’s aviation system connects with other modes of transportation and where state responsibility for managing and regulating air traffic operations intersects with the role of governments that own and operate most airports. However, most major airports are owned and operated by the private sectors. This is due to several reasons such as to improve efficiency and economic performance, be more competitive as well as to maximize the community’s return from the airport assets in which public enterprise found out to be less efficient in term of its production and management.
Within the airline industry currently the airlines can be divided into low cost airlines and full service airlines. The low cost airlines targets customers that are seeking no frills connectivity between cities at low ticket prices. The full service airlines provide several add-ons like free meals, on plane entertainment, and communication facilities. The target market for full service airlines are customers who are willing to spend extra for the services that the airlines provides.
Although mainly out of AirTran’s control, their income and costs are highly associated to the cost of fuel.
Airline industry is affected by no. of factors such as fuel price fluctuations, high fixed costs, strong influence of external environment and excessive use of marginal costing by carriers. Recessions in the industry tend to last longer, while recovery periods are generally shorter. Over the past nine years, it is observed that industry has made losses for five years and during the profitable years margins were on a lower end. The airlines industry is acutely sensitive to external events such as wars, economic instability, government policies and environmental regulations.
Economics is an extremely important aspect of the today’s society, especially, since it aids in the allocation of limited resources. Supply and demand are aspects and fundamental concepts of economics, which is considered the foundation of a market economy. In fact, the association between demand and supply underlie the forces responsible for the allocation of resources. Therefore, given the importance of supply and demand and its impact on the market economy, one will elaborate on the law of supply and demand. In addition, one will discuss how these fundamental concepts of economics apply and impact the prices of Airline tickets.
This will lead to the limitations on the number of routes the international carriers fly, flight schedules, fares, etc. The past five years witnessed an increase in the cost of fuel, leading many airlines into bankruptcies, which resulted in consequences such as the $30 billion loss faced by the US airline industry as estimated by the US Airport Transport Association. One of the major political factor of globalization that affected airline industry was 9/11. In order to deter future terrorist threats, several security rules and regulations were enforced, which led to the increased cost of aviation operators to administer the fundamental training and personnel to follow these rules. Additionally, the post 9/11 period saw a decline in passenger and consumer requirements, negatively affecting the airline profits. There was a revenue drop of dollar 22 billion and three years were taken to recover them. But these revenues were dropped by 14% during the global financial crisis during the years 2008 and 2009, which was reclaimed to a large extend in the following year. The 9/11 period brought forward a huge global impact such as decline in traffic, revenues and profitability, increase in oil price and bankruptcies,