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How Do Airports Generate Revenue?

Airport income comes from both aeronautical and non-aeronautical sources.

By University Alliance
How Do Airports Generate Revenue?

Aviation is big business, with global airport revenues hitting $131 billion in 2013, a 5.5% increase over the previous year, Airports Council International (ACI) reported in 2015. That income can be divided into two components: aeronautical and non-aeronautical.

Aeronautical revenue comprises the majority of airport income, and includes airline terminal space rentals, airline landing fees, and usage fees for terminals, gates, services and passenger counts.

U.S. airports generated about $10 billion in aeronautical revenue in 2013, or about 55% of total operating revenue, according to Federal Aviation Administration (FAA) data.

Airlines act as airport tenants, paying rent for counter and gate space, training facilities, storage facilities, hangars, offices and maintenance facilities. They additionally pay for landing and parking fees, and to hold a lease on ticket counter and gate space to occupy an exclusive area.

“Most airports create a contract with airlines wishing to use its facilities, typically known as a Use and Lease agreement,” the ACI noted.

In 2013, terminal fees, rents and utilities accounted for 45% of aeronautical revenue, with landing fees accounting for 30%. The ACI report found that airports generated $11.88 in aeronautical revenue per passenger.

In aeronautical revenue, passenger-based charges are trending upward, according to Airport World.

Non-Aeronautical Revenue on the Rise

Airports are increasingly focusing on non-aeronautical revenue to deal with the unpredictability of the airline business cycle.

According to the Airports Council International-North American Concessions Benchmarking Survey, non-aeronautical revenue reached almost $8.2 billion in 2013, or 45% of total operating income.

For each passenger, airports generated $8.14 in non-aeronautical revenue, which includes a variety of income sources. Let’s take a closer look at some of these revenue streams.

Parking, Ground Transportation and Rental Cars

Parking and ground transportation fees comprised 41% of total non-aeronautical revenue in 2013, or $3.4 billion, the Concessions Benchmarking Survey found. Ground transportation includes taxis, limousines, shuttles and buses that transport airline passengers.

At 19.8%, rental car-related fees represented the next largest segment of non-aeronautical revenue for U.S. airports, totaling $1.6 billion.

Concessions and Retail

Two major factors work in airports’ favor when it comes to generating income from retail and concessions sales.

First, airline passengers typically have more spending power, according to the ACI survey. As of 2013, passengers had a median household income of $75,000 to $90,000, compared to a national median of a little more than $52,000.

Second, the heightened security measures mandated after the terrorist attacks of Sept. 11, 2001, mean passengers are spending more time in airport terminals, arriving early to ensure they clear security in time to make their flights.

Increasingly, airports are featuring more food and beverage options, expanding their offerings beyond national franchisers to include local restaurants and vendors.

In 2013, U.S. airports generated $587 million from food and beverage sales, or about 7.2% of non-aeronautical revenue.

Airport retail, meanwhile, is evolving from chocolate bars and magazines to designer clothing and locally produced goods, transforming the terminal into what has been described as a “travel megastore.”

The prevalence of smartphones, apps and other mobile technology means that retailers and concessionaires can customize their offerings with geo-specific targeting.

Worldwide, airport retail sales will see continuing growth through at least 2020, supported by rising passenger traffic and an improving economy, according to a 2015 report by Verdict, a research and analysis company.

The beauty products and fashion sectors are expected to enjoy the strongest growth, with more clothing retailers opening airport locations, the Global Airport Retailing report found.

Automated retail units also are a growing trend, with a presence in 53% of North American airports, according to the ACI’s Concessions Benchmarking Survey. Those units, which averaged gross sales of about $107,000 in 2013, provide travelers with 24/7 access to personal electronics, cosmetics and other consumer items.

These “upscale vending machines” allow airports to produce income in locations that would be too small for regular stores.

Commercial Development, Advertising and More

Office buildings, business and industrial parks, rail and transport infrastructure, retail centers, hotels and logistics hubs are all potential commercial projects on airport property that can boost non-aeronautical revenue streams.

Airports also generate revenue by selling advertising space inside and outside terminals. Additionally, sponsored spaces, special events and branded areas can generate operating income while improving airport ambiance and the passenger experience.

As Airports Council International noted in a 2013 report: “Airports worldwide have evolved from infrastructure providers into sophisticated, business-oriented service providers. … The revenue generated from non-aeronautical revenue often determines the financial viability of airports.”

Category: Aviation Management