How Do Airports Make Money?

Airports generate revenues in a variety of ways to pay for operational costs (staff, utilities, etc.), fund capital investments, pay for capital borrowing costs, and in the case of private airports, pay a return to investors.

Airport revenues are usually classified into one of two main categories – aeronautical and non-aeronautical revenues. And, in each of these categories, there are a wide variety of ways to generate income.

In many cases, aeronautical revenues alone are insufficient to cover all operational and other costs, and many airports rely on a variety of means to generate additional income through diversified non-aeronautical (commercial) revenue streams. Non-aeronautical revenues are an essential part of airport economics.

In this article, I explore the typical balance between aeronautical and non-aeronautical revenues, take a look into each category, and describe the typical elements found in each.

How Do Airports Make Money?

Aeronautical Vs. Non-Aeronautical: The Two Types of Airport Revenues

According to Airport Council International’s 2021 Airport Economics Report, the split between aeronautical and non-aeronautical revenues, as measured on a global basis is as follows:

Global Airport Revenue Breakdown Aeronautical vs. Non-Aeronautical

On a per passenger basis the average fees generated by airports globally, as measured by the ACI 2021 Report, are as follows:

  • Total average airport revenue per passenger: US$ 18.49, made up of:
    • Total average aeronautical revenue per passenger: US$ 9.99.
    • Total average non-aeronautical revenue per passenger: US$ 7.44.
    • Total average non-operating revenue per passenger: US$ 1.06.

Aeronautical Revenues

Aeronautical revenues are generated from the fees charged by an airport to its airline customers. Airports are unique businesses and apply different aeronautical charging structures. However, these charges usually include three key elements:

  • Per passenger charges: These are levied per passenger on all departing passengers, and often vary by route. These fees are usually passed on directly by airlines to passengers.
  • Movement charges: These are applied on aircraft runway movements, and typically vary by aircraft weight. Some airports modify these standard charges according to the noise rating and/or the emissions rating of each aircraft to encourage airlines to operate more environmentally friendly aircraft.
  • Parking charges: These are usually calculated according to aircraft size and the length of time that an aircraft parks on an apron. Some airports offer a free parking period before charges kick in.

There are other aeronautical charges that some airports elect to charge, including:

  • Infrastructure charges: Fees for the use of specific items of infrastructure or equipment at an airport, e.g., check-in desks, baggage systems, and airbridges.
  • Security charges: Fees levied by the airport to airlines for the provision of security personnel and screening equipment..
  • Airport development levies: A fee charged (usually on a per passenger basis) to help pay for major airport developments when an airport is investing in major capital projects to expand capacity.

Runway

Non-Aeronautical Revenues

Airports’ non-aeronautical revenues are fundamentally important to airport operators, accounting for around 40% of airport incomes on a global basis, and can in some cases offset the cost base for aeronautical charges. They are also an integral part of the passenger experience.

The typical non-aeronautical activities and revenues generated by airports include retail concessions and duty-free, food & beverage, car parking, car rentals, advertising, and real estate rentals.

On a global basis, ACI estimated in its 2021 Airport Economics Report that retail concessions, car parking, and property & real estate income make up almost two-thirds of non-aeronautical revenues (retail – 26.4%, car parking – 20.9%, and property and real estate income – 15.2%).

That said, each airport has its own unique portfolio of non-aeronautical revenue streams, and airports are increasingly diversifying their non-aeronautical revenues and thinking of new ways to make money, often as a way to spread risk and cushion the effects of downturns in traffic that follow on from significant world events such as economic crises and pandemics.

Airports are developing new retail and property opportunities using land that is not needed, or is not suitable, for aviation purposes, some more unusual than others! For example, Brisbane Airport in Australia has an ‘Auto Mall’, complete with a racetrack, car dealerships, restaurants, cafés, and conference facilities.

How Airports Make Money: Case Studies

To illustrate the balance between aeronautical and non-aeronautical charges let’s take a closer look at two case study airports – London Heathrow and Singapore Changi Airport.

We can see from these two case studies that airports classify revenue streams differently. For example, Heathrow classifies car parking income as part of retail income, whereas at Changi Airport it is classified under ‘other airport services. So, it is not always easy to compare airports on a like-for-like basis.

London Heathrow Airport

In 2019, a year that avoids any COVID-19-related distortions, London Heathrow’s revenue breakdown was as follows:

London Heathrow Airport Revenue Breakdown

The airport’s charges are regulated by the UK’s Civil Aviation Authority (CAA) to ensure charges on airlines are levied fairly and reflect actual expected operational costs, whilst also allowing for a reasonable return on investment.

As part of this regulatory regime, Heathrow Airport is subject to a ‘Service Quality Rebate’ scheme whereby the airport operator is obliged to meet specified operational service standards, such as maximum passenger queuing times, and ensuring the availability of airport equipment (airbridges, baggage systems, lifts, etc.). Otherwise, airlines are entitled to certain rebates on the fees paid on the basis that the airport operator has not delivered to airlines (and passengers) the service that was promised, and paid for.     

Heathrow’s regulated aeronautical charging regime is quite complex and introduces some noise and emissions-related levies to incentivize airlines to deploy more modern and sustainable aircraft at the airport.

Heathrow’s aeronautical charges and rebates (effective January 1, 2022) are summarized below:

  • Movement Charge: This is applied to each movement (landing and take-off). For aircraft weighing in excess of 16 tonnes (most commercial aircraft) the standard charge varies from £558 to £9,840 depending on the noise classification of the aircraft, with the lowest charges applied to Chapter 14 aircraft, and the highest charges applied to the noisier Chapter 3 aircraft (not that there are many Chapter 3 aircraft still flying at Heathrow Airport). If an aircraft movement takes place within Heathrow’s Noise Quota Period (23:30 – 06:00), then the movement charges are multiplied fivefold.
  • Emissions Charge: In addition to the Movement Charge there is a NOx emissions landing charge of £29.53 per kg of NOx based on an aircraft’s ascertained NOx emissions.
  • Departing Passenger Charge: These range from £13 to £55, depending on the destination.
  • Transfer/Transit Passenger Charge: These range from £10 to £41, depending on the destination.
  • Remote Stand Rebate: There is a rebate of £4 per passenger applied to flights arriving or departing from a remote stand, i.e. a stand not directly connected to the terminal building.
  • Aircraft Parking Charges: Free aircraft parking applies for the first 90 minutes for widebody aircraft, and 30 minutes for narrowbody aircraft. After these time periods, charges are applied per 15-minute period at a rate of £62 for widebody aircraft and £29 for narrowbody aircraft. All aircraft parking is free between 22:00 and 06:00.
  • Sustainable Aviation Fuel (SAF) Incentive: Airlines receive a rebate when using SAF at Heathrow. The total incentive amount is £10m in 2022 and the amount each airline receives depends on its expected allocated share of SAF tonnage for the year.

Heathrow’s expected breakdown of regulated aeronautical charges for 2022 are shown in the chart below. Aircraft Movement Charges include the Emissions Charge and take into account the SAF Incentive. The Departing Passenger Charges take into account the Remote Stand Rebate.

Departing per passenger charges account for almost 60% of the total regulated aeronautical revenues.

London Heathrow Aeronautical Revenues Breakdown

Heathrow Airport Limited has been gradually increasing the movement charge proportion of aeronautical revenues relative to the passenger charge proportion. This is an attempt to incentivize fuller aircraft, thereby making more efficient use of valuable airport capacity, and improving the per passenger environmental impact of each flight.

In addition, reductions in passenger charges directly flow through to the end airline ticket price, helping to stimulate demand; an important post-pandemic consideration.

Additionally to these charges, there is a whole host of other regulated charges imposed on airlines using the following facilities at Heathrow Airport:

  • Check-in desks
  • Fixed electrical ground power and pre-conditioned air
  • Utilities: Water and sewerage, electricity, and gas
  • Staff ID and airside vehicle pass issuance
  • Staff car parking
  • Hold baggage screening and baggage handling systems
  • IT
  • Assistance to passengers with reduced mobility
  • Airport waste services

Heathrow’s non-aeronautical revenues comprise mainly of the following:

  • Retail: Concession fees from retail and commercial concessionaires, and direct income from car parks, advertising, etc.
  • Other regulated charges: The recovery of costs incurred for the provision of facilities such as baggage handling and passenger check-in desks.
  • Heathrow Express: Fare revenue from the Heathrow Express rail service.
  • Property: Income from the rental of airport property, such as aircraft hangars, warehouses, cargo storage facilities, maintenance facilities, airport offices, and airline lounges.

Singapore Changi Airport

Changi Airport’s three main categories of revenues are as follows:

  • Airport service fees (aeronautical revenues): These comprise aircraft landing, parking, and aerobridge fees, and passenger service and security fees.
  • Airport concessions and rental income: Rental income from retail tenants or rental income derived from the rental of airport properties.
  • Other airport services: These mainly comprise revenues from cargo services, franchise fees, utility charges, consultancy fees, carpark revenue, and other sundry income.

Just like with Heathrow, to avoid any COVID-19-related distortions, I chose the 12-month period to the end of March 2020 to look at the split of revenues at Changi Airport:

Changi Airport Revenue Breakdown

Changi Airport’s aeronautical charges (effective 1st April 2022) are as follows:

  • Aircraft Landing Charge: This varies according to aircraft weight in four categories – up to 50 tonnes, 51 to 100 tonnes, 101 to 360 tonnes, and more than 360 tonnes. There is a fixed charge ranging from S$0 to S$4,337, and a per tonne element ranging from S$10 to S$14 for each tonne over the category minimum weight. There’s also a 40% discount on the landing charge for off-peak landings between 02:00 and 06:00 as long as the aircraft arrives and departs within this 4-hour window.
  • Aircraft Parking Charge: These fees vary according to the size of the aircraft and Changi Airport has four size categories which are computed by multiplying aircraft wingspan by aircraft length. The charges are applied for each full or part 24-hour period with the first three hours free of charge. The fees range from S$50 for small aircraft to more than S$100 for large aircraft.  
  • Airbridge Charges: The fees for the first three hours and for each subsequent hour range from S$88 to S$515.
  • Passenger Service and Security Fee: S$35 for departing passengers and S$ for transit/transfer passengers.
  • Aviation Levy: S$6 for departing passengers.
  • Airport Development Levy: S$11 for departing passengers and S$3 for transit/transfer passengers.

In addition to these aeronautical fees, Changi Airport tenants such as airlines are required to pay staff car parking charges, and an Airport Service Charge, in addition to any rentals paid for tenanted areas. The latter covers the provision of plant and equipment (e.g., air conditioning), power supplies and water supplies for common areas, cleaning of common areas, general maintenance, and refuse collection.

Summary

Airport revenues are usually classified into one of two main categories – aeronautical and non-aeronautical revenues.

On a global basis, ACI estimates that aeronautical revenues make up around 60% of total airport revenues, with the remainder coming from retail, property rental, and other activities. Non-aeronautical revenues are an essential part of airport economics, as well as being an integral part of the passenger experience.

Airports are developing new retail and property opportunities as a way to diversify and reduce the impact of sudden traffic downturns that can significantly impact traditional airport retail revenues.

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