Chapter 10

Strategic Management in Airport

Dr. Rohafiz binti Sabar

Transport and Logistics Department
College of Business
Room 257 , Main Building of COB
D/l: 04-9283664
email: rohafiz@uum.edu.my

November 2017 Transport and Logistics Department

 Who is the Airport Manager

• Profession has evolved over the years

• Many skills, communication is important
• Airport manager always caught in the middle
– board and staff
– aviation interests and community
– national issues and local issues
– promotion of the public good with the need to
balance the budget
 Overview of Industry
• Airports and airways provide infrastructure
• Airports are very size diverse/activity is highly skewed
• Each community is unique; therefore, each airport is unique
• Airport is a machine, not just a place
• Airports can be a capital good and/or a consumer good
• US airports are operated in a different manner from those in
the rest of the world.
• Airport Industry is a small one in terms of total employment
 Organization
• Organization chart defines relationships, not job descriptions
• No two airports are organized in the same manner, but...
• The work relationships are frequently organized in these basic
groups:
– Operations and Maintenance
– Finance and Administration
– Planning and Engineering
– Marketing and Public Relations
 Organization

• The organization chart is a snapshot, it is only

accurate at a point in time.
• The organization chart does not show the
informal relationships that exist in all
organizations
• The organizational chart may provide an
insight into management's priorities
 Ownership
• Common forms of airport ownership
– City/County
– Airport Authority
– Multipurpose authority
– State
– Federal
• Know the advantages of the authority method of ownership
• Most common method of public airport ownership is the
City/County. However, there is a slow transition to the
authority.
 Economic Structure
• The costs of running an airport can be grouped into two
categories:
– Operating Expense (and Maintenance) includes:
• Salaries/Benefits (takes up about half of costs)
• Utilities/supplies (tales up other half)
– Capital Expense
• Depreciation/Interest
– most City/County airports don’t include this area, but
authorities do
• Equipment replacement
• Understand the definition of depreciation and operating expense & capital
expense
 Economic Structure

• The total cost of running an airport is equal to

operating expense plus capital expense
• Question: How much revenue does an airport
need?
• Answer: The BREAK-EVEN NEED
 Economic Structure

• The sources of airport revenue can be

grouped in two categories
– Operating Revenue includes rents, landing fee,et.
– Non-operating Revenue includes interest earned
• Airport revenue base varies significantly by
airport size
 What ARE aeronautical charges?

The fees for the use of uniquely aeronautical infrastructure

and services provided by airports

Related to use of airport infrastructure by

aircraft, and
airline passengers
 Important to airports ……..

The major source of revenue at most of them

Important to airlines ……..

A major and inescapable cost

Important to passengers ……..

A major, inescapable and VISIBLE cost

 A major and inescapable cost
20%
20%

8%
8%

AEA airlines easyJet

AEA airlines easyJet
 Charges are set …

by government

by the airport
with approval of government or
government-appointed organisation
 In fact, around the world …

The framework of charges is very uniform

Their structures are similar

BUT levels can be very different among

very similar airports
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Guidance for aeronautical
charge structures
Cost-related
Transparent
Non-discriminatory
 Framework of charges
Two types of charge, related to:
Aircraft movements
runway, taxiway use
airport infrastructure
parking
Passengers
use of passenger terminal
(PFC- passenger facility charge)
security inspections
Additional aircraft-related charges

TNAV - terminal area navigation

approach aids, ILS, ATC in the terminal area
Environmental
noise
engine emissions

Airbridge use
generally not an “extra” where most stands are contact
 Landing charge

Related to weight of aircraft, usually as a unit

charge per 1000kg (per tonne) of MTOW
Unit rate per tonne may
INCREASE with weight of aircraft,
DECREASE
Charge may be modulated by
Where the flight arrives from
Environmental charge
Time of day
 Airport Noise

• Things to do about airport noise:

– quiet the aircraft
• who: airline
– move the aircraft
• who: ATC
– move the people
• who: airport with federal help ($)
• curfew is avoiding the issue
 Airport Noise

• Noise management
• Single event is inadequate
• Cumulative noise profile is preferred because
it quantities these “irritants”
– frequency, intensity, time of day, duration
 Environmental penalties

NOISE penalty very common,

often incorporated in aircraft- specific landing
charge “bands”
Usually a wide “neutral” band of aircraft landing in
daytimes

Penalties for noisy aircraft can be high, particularly

for night operations
E.g. night landings at Munich by aircraft not in the
airport’s “bonus list” are three times higher.
 Environmental penalties

• Emission penalty less common

related to specific emission profile of engine type
– applied to all flights
E.g. for each kg of NOx produced in the LTO
(landing/take-off) cycle
Heathrow £1.10 (EUR1.50)
Stockholm SEK50 (EUR5.40)
– or may have a band of “neutral” engine types
E.g. Zurich surcharge on landing charge of 0%-40%
 Passenger charges

Passenger Facility Charge (PFC)

Each departing passenger, modulated by:
destination
terminal passenger, transfer or transit

Security charge
Per capita: may be included in the PFC
 En route charges

Generally related to the distance flown

And often to the weight of the aircraft

 En route charges

Eurocontrol formula

= unit charge per 100 km * √(MTOW ∕ 50)

The unit charge is specific to each country and/or FIR

 Overview of Industry

• Air
• Air (planes)- Privately owned
• Air (ways)- Federal ownership
• Air (ports)- Local government
 Structure of Relationships

• Airport executives manage multiple

relationships, primarily based on persuasion
rather than command
• The contract only summarizes the relationship
• The relationships are most workable when
risk/reward and authority/responsibility are
balanced between the parties
 Structure of Relationships:
Concessionaires
• A business relationship wherein the airport
extends a franchise
• A management contract is different-this is a
method to hire a firm to perform a specific
service
• Customary financial mechanisms include:
– minimum guarantee and/or
– % of gross income
 Structure of Relationships:
General Aviation
• Primarily conducted through a Fixed Based Operator (FBO) that provides
services to GA users, such as:
– parking and storage
– fuel and oil
– maintenance and repairs
• An alternative method is for the airport owner to provide these services
directly to GA users (if so, service can be monopolized)
• Customary financial mechanisms include:
– land rent
– fuel flowage fees (5 cents/gal delivered)
• Relationship with GA is difficult to characterize and different from other
segments of aviation
 Structure of Relationships:
Airlines

• As much our partner as our tenant

• The ground rules for this relationship was
significantly altered by the 1978 Airline
Deregulation Act and the relationship
continues to evolves
• Customary financial mechanisms include:
– charging building space based on -per square
foot per year
– $/1000 maximum gross landing weight
 Structure of Relationships:
Airlines
• Compensatory (Larger airports)
• Cost-based pricing
• Airport in Control
• Shorter term
• Risk/Reward- Airport
 Structure of Relationships:
Airlines

• If full airport residual, landing fees are frequently the

balancing mechanism
• Definition of cost still open to debate
• Instead of negotiated agreement, airport can set
compensatory rates by ordinance, either as a total policy
or as a short term option for non-signatory carriers
• Trend in industry:
– Compensatory
– Shorter term agreements
– Revenue diversification
 Structure of Relationships:
Insurance
• Liability- three main areas where litigation
arises
– aircraft operations (accidents)
– premises operations (slip and falls)
– sale of products (food and beverages)
• Liability concerns, frequently insured by
separate endorsement:
– hangerkeepers, airshows, garagekeepers
– officers and directors, environmental
 Capital Funding

• How is interest rate determined?

• Risk perception of the airport
– financial performance
– strength of market demand
– contract with airlines
• Market condition at the time of sale
• Since the 1978 Airline Deregulation Act
– rating agencies have focused greater attention on
local economic strength
 Budgeting

• Importance to Airports
– no profit motive
– set goals
– reveals problems
– grants authority for action
• busting your budget is a symptom of problems
 Budgeting

• Budgeting methods
– lump sum (most flexibility)
– activity (terminal, airfield)
– line item, more detailed computer coding)
 Budgeting

• Approaches to preparing budgets:

– add a little each year
– zero based (pure, prepared from the ground up
each year)
• May need a occasional variance to keep
operating
 Public Relations

• The principles
• Believe it, Love it, Live it
• BUT, DON”T STAND TOO CLOSE TO THE
DREAM
 Public Relations

• The target audiences

• External
– business public
– general public
• Internal
– Business public
– Employee public
 Public Relations

• The objectives
• Build an image
• Keep communicating
• Answer complaints
• Network in airport community and city
community
• Don’t forget your own employees