The global airport

industry

EAS 415 Airport Planning &

Management
January 2022 Semester

www.cranfield.ac.uk
 Intended learning outcomes

• Understand how airports are owned, managed and organised

• Understand the composition and growth of airport traffic and major

global business challenges for airports

• Understand the key economic and business features of the airport

industry

2
 Airport business challenges: Normal v
COVID-19
Normal pre-COVID COVID-19 effects

Long-term growth in traffic volume but Collapse in traffic volumes. Full recovery
short-term risks (politics) not expected until 2024/25

Climate change and the sustainability Intensification of the climate change and
challenge the sustainability challenge

Congestion and need for investment Delays and cancellation to many capacity
expansion projects

Commercialisation and privatisation Airports seeking state support

Privatisation projects suspended

Rising service expectations from airlines Focus on COVID-19 mitigation measures /

and passengers health and hygene

Opportunities and challenges from Automation and digitalisation will be

automation / digitalisation accelerated

3
 COVID-19

Quarterly airport passenger traffic by region (million)

actual and forecast
2019 to 2021

Source: ACI

Source: ACI

4
 COVID-19

Regional impacts airport passenger traffic volumes

2019 and 2020

2019 2020 2020 as % of

2019
Passengers % share Passengers % share
(billion) (billion)
Africa 0.229 3% 0.079 2% 35%

Asia-Pacific 3.375 37% 1.563 44% 46%

Europe 2.428 27% 0.736 21% 30%

Latin America 0.686 7% 0.275 8% 40%

Middle East 0.407 4% 0.136 4% 33%

North America 2.025 22% 0.784 22% 39%

Source: ACI

5
 COVID-19

World Top 20 airports passenger traffic World Top 20 airports passenger traffic
2019 2020
% change to % change from
2020 2019
Atlanta 110,531,300 -60% Guangzhou 43,767,558 -40.4%
Beijing 100,011,438 -66% Atlanta 42,918,685 -61.2%
Los Angeles 88,068,013 -67% Chengdu 40,741,509 -27.1%
Dubai 86,396,757 -46% Dallas/Fort Worth 39,364,990 -47.6%
Tokyo Haneda 85,505,054 -64% Shenzhen 37,916,054 -28.4%
Chicago O’Hare 84,649,115 -64% Chongqing 34,937,789 -22.0%
London Heathrow 80,888,305 -73% Beijing Capital 34,513,827 -65.5%
Shanghai Pudong 76,153,455 -60% Denver 33,741,129 -51.1%
Paris CDG 76,150,009 -71% Kunming 32,990,805 -31.4%
Dallas/Fort Worth 75,066,956 -45% Shanghai Hongqiao 31,165,641 -31.7%
Guangzhou 73,394,810 -41% Xi'An 31,073,924 -34.2%
Amsterdam 71,706,999 -71% Tokyo Haneda 31,055,210 -63.7%
Hong Kong 71,415,245 -88% Chicago O’Hare 30,860,251 -63.5%
Seoul Incheon 71,204,153 -31% Shanghai Pudong 30,476,531 -60.0%
Frankfurt 70,556,072 -74% Los Angeles 28,779,527 -67.3%
Denver 69,015,703 -51% New Delhi 28,500,545 -58.4%
New Delhi 68,490,731 -59% Hangzhou 28,224,342 -30.6%
Singapore 68,283,000 -83% Charlotte 27,205,082 -45.6%
Bangkok 65,421,844 -75% Dubai 25,836,771 -70.1%
New York JFK 62,551,072 -74% Istanbul 23,330,411 -55.3%
Source: ACI
Source: ACI

6
 Types of airports

Type Inter- Inter’nl Domestic Annual Transfer Examples

continent Market market pax in
market mill
Inter-con hub High High Limited 25-70 High Dubai & Singapore

Inter-nat hub Low High High 25-70 High Bejing & Johannesburg

Domestic hub None Low High 10-70 High Denver

LCC metro None High High 10-25 Low Stansted & Don Muang

Regional None Varies Varies 1-20 Low Kuching & Hamburg

Touristic None High Low 5-20 Low Jeju & Tenerife Sur

City-Centre None High High 1-5 Low London City & Toronto City

Remote None None High <1 Low Sandakan & Tromso

Non-pass’ger Focus on cargo, MRA, business aviation Liege & Seletar

7
 Who manages an
airport?

• Airport operator manages a single airport

✈
or multiple airports

• At each airport, the operator:

Owns and manages airport infrastructures and
systems

✈
Provides services to airlines and passengers

✈
Has responsibility for managing safety and

✈
security

✈
• Airport services are sometimes:

✈
provided by other organisations
out-sourced by airport operator

• Airport operator maybe an investor in

airports in other countries

8
 The airport value chain eco-system
Airside and Passenger Terminal eco-system : a typical international hub airport
Infrastructure Infrastructure owner Service provider Primary Customer
ATC tower / systems Air Navigation Authority Air Navigation Authority Airlines
Runway & taxiway Airport Operator Airport Operator Airlines
Fire & Rescue Airport Operator Airport Operator Airlines
Fuel Systems Airport Operator Fuel company Airlines
Airside Airside Operations Airport Operator Airport Operator Airlines
Aircraft Handling Airlines / GH Operators Airlines / GH Operators Airlines
Hangars Airlines / MRO Airlines / MRO Airlines
Cargo Terminals Airlines / Integrators Airlines / Integrators Airlines / Integrators
In-flight catering Catering companies Catering Companies Airlines
Immigration Airport Operator Customs Authority Airlines
Check-in Airport Operator Airlines / GH Operators Airlines
Security Airport Operator Various Airlines

Passenger Baggage system Airport Operator Airport Operator Airlines

Terminal Retail units Airport Operator Retailers Passengers
Offices Airport Operator Airport Operator Airlines / various
Data / flight info Airport Operator Airport Operator Airlines

9
 The airport value chain eco-system

Landside value chain: a typical international hub airport

Infrastructure Infrastructure owner Service provider Primary Customer
Road Access Local municipality Local municipality Passengers / suppliers
Public Transport Terminals Airport Operator Transport Operators Passengers
Public Transport Access Transport Operators Transport Operators Passengers
Landside Hotels Hotel Brands Hotel Brands Passengers
Car parks Airport Operator Airport Operator Passengers
Offices Airport Operator Airport Operator Various
Business Parks Various Various Various

10
 % Distribution of passenger traffic by airport
ownership type by region
Ownership 2018
11 18 1
47 75 66 43
Private
• State ownership is common 89 82 99
53 57 State 100%
25 34

• Spread of privatisation

La pe

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ac
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m
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as
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-A

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Af

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N
• Different models Source: ACI Incentivising the private sector to invest in airports

100% public Public-private 100% Private

ownership partnership
• Globalisation of airport
management Multiple
Airport
Operators

Single
Airport
Operators

11 11
 Economies of
scale
Average Total Cost per Passenger (Pesos):
Mexican Airports
• Airports are capital intensive 2019

• Costs in short/medium term are

fixed

• Economies of scale – cost per

unit of traffic (average costs) falls
as traffic expands

• Diseconomies of scale

• New capital expenditure raises

unit costs in the short-run Source: Mexican Airports Annual Report

12 12
 Dublin airport capital expenditure
Capacity expansion (million)
risks 2001-2017
€ 500
€ 400
€ 300
• The airport capital expenditure (capex)
cycle € 200
€ 100
€0
• Capex incremental and discrete

200 1
200 2
200 3
200 4
200 5
200 6
200 7
200 8
200 9
201 0
201 1
201 2
201 3
201 4
201 6
201 7
• Business risks with discrete expansion
Capacity and traffic in the capex cycle
• Capex is sunk and irreversible

Traffic and capacity

• Capex creates short-run under- Under-utilisation
Capacity
utilisation and raises costs
Traffic

Time
13
 Airport monopolistic /
Competition for
market power airline services
• Local
• Hub
• Airport markets traditionally considered • Destination
monopolistic

• High entry barriers / high costs of new Competition for

entry passenger
spending
• Hub airports market power over their • Duty-free
hub airlines • Car Parking

• Subject to state economic regulation

Competition for
advertising
• Airport industry argues that market is income
more competitive • Airport v other
channels

14
 Airport revenue
% breakdown of sources of airport
revenue by region
• Two main sources of revenue 2018
Aeronautical Commercial
Aeronautical Commercial 100%
• Charges • Revenue 80%
paid by from other 60%
airlines sources 40%
20%
• Regulated • Un-regulated 0%

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Am
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La

N
Source: 2019 ACI World Economics Report

15
 Airport revenue

Sources of revenue: Flughafen Zurich AG Sources of revenue: Beijing Capital

(Zurich Airport Company) International Airport
2019 2019
Property
International 10%
12%
Car Parking 2%
Property 7%
Other 4%
Car Parking 7%
Advertising Aeronautical
Other 9% Aeronautical 10% 37%
54%
%
l9

Advertising… F&B 3%
tai

Retail 32%
Re

F&B 2%

Source: Annual Report Source: Annual Report

16
 Airport costs % breakdown of sources of airport cost
(world average)
2018

• Personnel (labour) costs largest

source of costs – but declining Capital
costs Operating
36% costs
• Extensive use of out-sourced 64%
services contracts
Other
3%
• High depreciation reflection of
capital intensity
Other
Interest 36% Personnel
• Cost structure also dependent 34% 35%
on business models
Depreciation
63% Contracted
services
22%

Communications utlities,
waste & energy
7%

17 17
 Airport costs

Singapore Changi airport cost structure Fraport Group cost structure

2019-2020 2019

Depreciation of fixed
assets
Personnel 15%
12% Interest
Depreciation Personnel
of fixed Services & payments
Security 6% 37%
assets
28% 13%
Property
tax Other
3% 5%
Interest
Maintenance Contracted
payments Insurance
14% services
12% 1%
CAAS 20%
Other Materials -
services Lease &
8% consumables
10% rental
16%
payments
0%

Source: Singapore Changi Airport Annual Report 2019-20 Source: Fraport Annual Report 2019

18
 Airport profitability

Financial performance by business segment Profit margin vs annual passenger

Schiphol Group (€ million) traffic: Norwegian airports
2019 and 2020 2019
2019 2019 2020 2020
Operating Operating Operating
%
Operating 90% Stavanger
chge
Revenue Profit margin Revenue Profit margin Oslo
70%
Bergen
Aeronautical 618 -0.03% 217 -65% -152% 50%
Security 352 0.03% 104 -70% -175% 30% Trondheim
Retail / F&B / 10%
199 72% 68 -66% 26%
Advertising
Car parking 114 45% 48 -58% -19% -10%
Property 271 68% 97 -64% 5% -30%
Small regional airports
Dutch airports 108 11% 39 -63% -120% -50%
0 10 20 30 40
International 12 48% 11 -8% 42%
Annual passenger traffic
Source: Schiphol Airport Group Annual Report 2020
Source: Avinor Annual Report 2019

19
 Airports and air cargo

Airport air cargo traffic trends

2019 and 2020
2019 2020 % change from
2019 to 2020
Cargo (million % share Cargo (million % share
tonnes) tonnes)
Africa 2.5 2% 1.9 2% -22.4%
Asia-Pacific 46.9 39% 41.2 38% -12.6%
Europe 21.5 18% 18.9 17% -11.8%
Latin America 5.7 7% 4.6 4% -19.5%
Middle East 8.8 7% 6.7 6% -23.5%
North America 34.4 23% 35.2 32% +2.0%
World 119.9 108.5

Source: ACI

20
 Airports and air cargo
Top 20 airports cargo (tonnes)
2019
% change
2019
from 2018
• Airport operator has limited role in the Hong Kong 4,809,485 -6.1%
air cargo value chain Memphis 4,322,740 -3.3%
Shanghai 3,634,230 -3.6%
Louisville 2,790,109 6.4%
• Dominated by airlines, integrators & Incheon 2,764,369 -6.4%
Anchorage 2,745,348 -2.2%
Freight Forwarders Dubai 2,514,918 -4.8%
Doha 2,215,804 0.8%
Taipei 2,182,342 -6.0%
• Direct revenues to airport from air freight Tokyo Narita 2,104,063 -6.9%
insignificant Paris CDG 2,102,268 -2.5%
Miami 2,092,472 -1.7%
Los Angeles 2,091,622 -5.4%
• Indirect revenues from property Frankfurt
Singapore
2,091,174
2,056,700
-3.9%
-6.3%
development related to cargo Beijing Capital 1,957,779 -6.0%
Guangzhou 1,920,181 1.6%
Chicago 1,758,119 -3.8%
London LHR 1,672,874 -5.6%
Amsterdam 1,592,221 -8.4%
Source: ACI World Airport Traffic 2019

21
 Airport
digitalisation

Autonomous Self-service
Excellence in systems systems
Optimise
Customer
Revenues
experience

Reduce &
Optimise Data Remote monitoring
Minimise
Efficiency
Costs

B2C Communication

22 22
 Airport
stakeholders

Airlines Passengers
• Stakeholders are those groups
or individuals in society that have
a direct interest in the
Suppliers Regulators
performance and activities of an
airport National
Third-party
Governmen
providers
t
• Shareholders maybe the most Airport
Management
important Local
Banks /
Governmen
Lenders
t

• Modern progressive airports aim Planning Shareholde

Authority r
to serve the needs of all
stakeholders Citizens Employees

23 23
 The role of ACI

• Airports Council International (ACI) is the world

trade association representing airports

• Promoting the airport interest when engaging

with government & regulators

• Setting common standards across the industry

(accreditations)

• Training and Management Development

• Data

• Regional Offices

24
 Airport Strategy

Passenger experience Competitive platform for airlines

• Hospitality • Infrastructure quality
• Efficiency • Charges
• Digital engagement • Service quality

Sustainable operations and growth Financial performance

• Net zero airport operations • Retail excellence
• Investment in sustainable aviation fuels • Commercial revenue growth
• Community relations / Noise management • Cost control / efficiency

Business Diversification Economy

• Investments in other airports • Connectivity to the world
• Investment in other service companies • Inward investment
• Collaboration and alliances • Tourism

Employees
• Employee satisfaction
• Training and personal development
• Competitive salaries and benefits

25
 World airport development snapshot

EUROPE
Corporatised JAPAN
Mostly privatised Limited Privatisation
Over-supply

INDIA
Congestion
Limited privatisation
Needs investment
AFRICA CHINA
USA & CANADA Limited Corporatisation
Municipal ownership / Municipal ownership
Growth in pax and cargo
not for profit model Limited privatisation
Investment needed
High investment

MIDDLE-EAST
Expanding & competitive.
Risks
Non-corporatised

LATIN AMERICA
Dominance of Brazil SE ASIA AUSTRALIA / NZ
PPP privatisation Corporatised Mature Market
Limited privatisation Privatised system
Some are leading

26
 Economic impact of
airports
Staff
• Many airports promote benefits to local, employed
regional and national economies.

• Airport site hosts a number of

companies
Salaries of
• Scale of activity depends on size of staff
airport employed

• Three economic effects from these

companies

Turnover
Capital
spending

27
 Economic impact of airports

Catalytic
Facilitation of access to
/ from the the city /
region
Induced Multiplier effect
Economic activity
generated by direct and
indirect impacts
Indirect
Suppliers that are off-
airport that support on-
site companies

Direct On-site activities

Companies linked to airport /
airline aviation supply-chain

28
 Catalytic impacts

Tourism Company Business

location Productivity

29
Any questions?
r.pagliari@cranfield.ac.uk
www.cranfield.ac.uk
T: +44 (0)1234 750111