Airport Charges: Challenging the Conventional Wisdom

Patrick Lucas by Patrick Lucas | Dec 16, 2021

Like other businesses in the aviation ecosystem, airports are businesses in their own right. However, even with significant cost-cutting exercises throughout the pandemic, the financial stress endured by airport operators due to sustained passenger traffic losses could have longer term consequences in terms of slowing down future infrastructure development. Fundamentally, airports will remain infrastructure-intensive businesses for the foreseeable future—this translates into unavoidable high fixed costs that must be financed. On top of this challenge, there is also no denying the fact that financial support from governments to airports due to COVID-19 has been relatively limited across multiple jurisdictions compared to air carriers.

The current crisis represents an unprecedented challenge for the industry’s financial viability as airports have had to refinance and negotiate terms with creditors. Debt levels continue to balloon. As airports remain an immovable asset with limited or no alternative uses, the heightened debt levels and the changing risk profiles of the industry has meant that financing costs are increasing.

The airport business amidst the pandemic
Source: ACI World; *Based on industry sources subject to variance across jurisdictions and historical elasticities between operating expenditures (OPEX) and airport traffic levels

Airport charges: Turning the page on the regulatory relics of the past

The industry is also at an important crossroads in how we think about the economic regulation of airports and airport charges. That is, if airports had price flexibility based on the competitive landscape many of them face, charges that are levied on airlines would adjust to certain realities and market conditions. Yet, it is important to remind critics that regulated airport charges across many jurisdictions in their current state are inversely linked to traffic levels. In other words, this means that when traffic rises, charges fall (and vice versa).

Even though airport charges represent a small proportion of airline costs and have a minimal impact on passengers, the revenue generated from aeronautical charges represent as much as 55% of all airport revenues (including passenger and aircraft related charges). And 24% of all airport revenues come from charges that are levied on airlines. Even though airline-related revenues rank third after non-aeronautical revenues and passenger related charges in terms of airport revenues source, they are still vital for the financial viability of airports. Revenues from airport charges are the lifeblood of airports needed to recover costs and to finance infrastructure for the benefit of the traveling public.

Airport charges are small % of total air fare (2019 USD)
Source: ACI World Policy Brief – Modernizing Global Policy Frameworks on Airport Charges: Ensuring the Efficient Use of Infrastructure for the Benefit of the Traveling Public with InterVISTAS Analysis of Sabre MIDT Airfare Data, Ancillary Revenue Data from IdeaWorks, and ACI Economics Data.

Global airport revenues by source (2019)
Source: ACI World Airport Economics Survey

There is full recognition that both airlines and airports have suffered greatly from this crisis and the resulting financial shortfall. Both need each other to thrive along with many other actors in the ecosystem. Thus, developing models of airport charges that allow better risk sharing between airports and airlines will be an important consideration going forward. Such transactions and commercial agreements are more apt at dealing with market realities and ensuring that infrastructure is used efficiently for the benefit of the traveling public.

New policy brief on modernizing global policy frameworks on airport charges

In supporting a more efficient aviation ecosystem, ACI World has developed a new Policy Brief on the critical need to modernize global policy frameworks on airport charges. The Policy Brief considers the significantly altered competitive landscape that both the airport and airline industries have experienced over the last decades and following the pandemic. It recommends that:

  • Policies on airport charges should ensure that they serve the best interests of the travelling public and local communities.
  • Strictly cost-based airport charges should be reconsidered as they do not ensure that infrastructure is used more efficiently for the benefit of the travelling public.
  • The primary focus of charges be on market needs and signals for the efficient use of infrastructure.
  • In consideration of the changed competitive landscape, the best way forward is through commercial agreements between airports and airlines.
  • In the exceptional situations where economic regulation of charges is deemed necessary, light-handed oversight formats is preferred.

ACI World acknowledges the assistance of InterVISTAS Consulting Inc. and the support of Oman Airports Management Company, ACI Africa, ACI Latin America-Caribbean, and ACI North America in preparing this Policy Brief.

Modernizing Global Policy Frameworks on Airport Charges: Ensuring the Efficient Use of Infrastructure for the Benefit of the Travelling Public
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Patrick Lucas

Patrick Lucas

Vice President Economics, ACI World
An economist by profession, Patrick has over 20 years of international experience in analytical posts. In his role as Vice President, Economics, he leads ACI’s policy positions related to economic regulation and charges, privatization, taxation, commercial activities, infrastructure management, and airport slots. He is responsible for ACI’s major flagship publications – The World Airport Traffic Report and the Airport Economics Report. He also oversees the production of ACI’s World Airport Traffic Forecasts and Airport Economics Key Performance Indicators. Lastly, Patrick delivers courses in Airport Economics as a member of ACI’s Global Training Faculty. Prior to joining ACI, Patrick worked for a United Nations statistical office where he contributed to major global reports aimed at monitoring economic and social progress.
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