Final Term Assignment of

Fiscal Aspects of Aviation Management

Topic:

What are the ways to generate revenues for airports? Give your own new and different ideas.

Course:

BS Aviation Management
Semester 7th

Course instructor:

W/C Nadeem Ansari

Submitted by:

Muhammad Arslan Aslam

BAM -9234

 What are the ways to generate revenues for airports? What types of methods should be adopted as different or new for the generation of revenues for airports, give your own new and different ideas.

How Airports Make Money

Traditional Ways to generate revenues for airports
With construction costs increasing, available funding decreasing and periodic downturns affecting the industry, airport operators find themselves continually looking for additional revenue sources to fund projects and sustain operations. There are two main sources to make money for airports that are used to run day to day operations and to retire its debt; invest in infrastructure.

1. Aeronautical sources 2. Non-aeronautical sources

In broad terms, the aeronautical side of the business is made up of fees paid for the traditional core airport-related activities such as the provision of runways, aircraft stands, facilitation and security areas and the associated staff to undertake such activities. In other words, this revenue comes from airport infrastructure utilization. The non-aeronautical revenues come from activities that are undertaken on top of this core business, such as retail, parking, other concessions and rentals. At medium and large airports this revenue may account for over 50% of the total income, growing at much faster pace than aeronautical income or traffic figures and producing greater profit margins.non aeronautical revenues are not essential for all aeronautical activities. The additional income from non-aeronautical revenue is a key component in enabling airports to generate funds for the significant investment they must undertake in terminal and airfield expansion. The commercial revenue stream is essential for positive credit ratings and the airports ability to attract investors, private or public (and the associated financing of large infrastructure projects). Without this revenue, airports would be considered less attractive investments.

ACI Airport Economics Survey (2009)

Airport Council International (ACI) has conducted a reseach to identify the percentage of revenues generated from both sources aeronautical and non aeronautical. The total revenues from both sources by surveying 646 airports around the world is USD90.7bn. The following diagram shows the percentage of revenue generation form both sources for airports.

Aeronautical Non- aeronautical

ACI Airport Economics Survey

Source of Aeronautical Revenue (2009)
This diagram shows that most of the aeronautical revenue is earned due to aircraft movements and 46% revenue is earned from passenger services charges at airports. Aircraft Passengers

ACI Airport Economics Survey

Source of Non-Aeronautical Revenue (2009)
This diagram shows total share of different activities of non aeronautical sources for revenue generation for airports.

F & B 4% Advertising 4%

Car rental 6%

Sources of Aeronautical Revenues

Following are the sources of aeronautical revenues and airports generate revenues from these activities. It is not necessary for every airport operator to generate revenues form all these activities; airport noise related charges and aircraft emission charges are levied at most of UK airports but these are not charged at Pakistani airports. It differs from country to country, culture to culture.

Landing charges; According to the size and weight of the aircraft generally and at some
airports landing charges are levied incorporated with ATC and terminal navigation charges.

1. 2. 3. 4. 5. 6.

Passenger service charges Cargo charges; specially at Rome airports Ground Handling charges Fuel Charges; at Abu Dhabi airport, fuel is provided by the Govt. Parking and hangar charges Security charges Noise-related charges Aircraft Emission Charges; levied mostly at airports in UK Other Charges
ATC Ground Handling Lighting charges; At Paris airports Air bridge charges; at Dublin airport Fire fighting charges Storage facility charges

Sources of Non-Aeronautical Revenues

Here are many commercial (non-aeronautical) ways mentioned from that airports make money instead of generating revenues form aeronautical revenues.

Retail F&B
Duty & tax-paid shops Duty & Tax Free shops Bars & restaurants

Pax & general Services

Car rental Banking Telecoms Advertising Reception services Transportation

Non-aero Infrastructure
Car parks Hotels Petrol stations Conference centers

Industrial
Offices Hangars Warehousing Telecoms Utilities (recharges) Cleaning

Passengers
Land-side services Land-side shops/F&B Air-side services Air-side shops/F&B Duty Free

Meeters & Greeters

Land-side services Land-side shops/F&B

Employees
Land-side services Land-side shops/F&B Air-side services Air-side shops/F&B

Industrial
Terminal services Off-terminal services A study found that airports nationwide have developed many programs to maximize revenue sources. These include:

Fuel sales; Many airports use fuel flowage charges to generate revenues for airports. Pilots may
stop at a general aviation airport simply because it has fuel and to avoid the congestion and traffic at a larger airport. Among the many considerations when initiating fuel service are storage, staffing, insurance, and environmental issues.

Airport parking revenues; Parking continues to be a reliable funding source for airport
operators. Additional opportunities for increasing parking revenues include premium parking services, parking lot enhancements, parking for non-airport use, and off-airport privilege fees.

Rental car revenues; In addition to privilege fees and rentals, rental car concessionaires at
some airports collect a customer facility charge, or CFC, from customers. These funds are used to pay the operating and capital costs of a consolidated rental car area or a structured facility and may also include the cost of transportation to the terminals.

Terminal concessions; Depending on the size of the airport and terminal facility, retail or
concession sales at airports may be another way to bring in revenue. At commercial service airports, concession sales have increased dramatically as airlines discontinue meal service and

passengers arrive earlier to get through security. Airport operators have been able to maximize revenues through reinventing their terminal concessions programs by recognizing the customer and creating an inviting shopping or dining experience.

Advertising programs; Several airports are cashing in on advertising revenue. Modern airport
advertising programs specialize in the sales and maintenance of advertising sites at airports by using technology, sponsorship opportunities, and nontraditional advertising locations.

Commercial development and land use; Airport operators generate revenue from a variety
of revenue producing leases from non-airline operations including manufacturing, warehousing, freight forwarding, and farming on airport land. Commercial development and land use have been implemented through coordinated planning efforts and consideration of FAA restrictions on land development. Airports needing additional information on leases can refer to several resources on leases, rates and charges, and insurance requirements. In addition to the more typical revenue generators, the ACRP survey uncovered some innovative methods airports are using as well. These examples include:

Late fees on leases; Several airports reported that they charge late fees on leases, and one
airport noted that it received more than $15,000 one year on late fees alone.

Innovative pavement use; Airports are charging for the use of closed runway and other
pavement for driver training and motorcycle safety courses. Several airports rent out their facilities for use in filming commercials.

Golf course land lease; Airports are leasing land adjacent to the airfield, but owned by the
airport, for golf course development.

Industrial park land leases; Many airports reported building industrial parks and warehouse
space on airport land adjacent to the airfield. User fees for crop sprayers; One airport charges an annual fee to all business aircraft based at the airport.

Donations and fundraisers; Several airports hold fundraisers and solicit large donations from
airport supporters.

Leasing other spaces; One airport indicated that it leases space on the beacon tower for a cell
phone antenna.

Traditional Ways to generate revenues for airports in Pakistan (aeronautical revenue)

Civil Aviation Authority of Pakistan is main authority (backed by the Govt. of Pakistan) that takes the responsibility to run day to day operations at both international and domestic Pakistani airports. All Pakistani airports are entities of the government of Pakistan except Sialkot International Airport that first private Pakistani airport which build by private investors from Chamber of Commerce Industries and other investors/business men.

CAA of Pakistan drives its revenue from two sources i.e., Aeronautical and Non-Aeronautical

Aeronautical revenue consists of: Landing & Parking Aerobridge Charges Aircraft Power Supply System Route Navigation (en-route charges) Passenger Services (Embarkation fee) Major Non-Aeronautical revenue generating areas are: Commercial Licenses Land Leases Space Rentals Ground Handling Royalties on Meal Uplift Advertisement Cargo Throughput

LANDING OF AIRCRAFT
For assessing landing charges, the total weight of an aircraft shall be maximum take-off weight allowed as specified under the regulation of the State in which the aircraft is registered (Certificate of Airworthiness).
Airport International Flights (Amount In US$) Up to Exceeding One Ton One Ton Non-International Flights (Amount In Pak Rs) Up to Exceeding Exceeding One Ton One Ton 20 Tons and up to 20 Tons LANDING CHARGES PER TON 15.00 8.22 22.5 18 93 15 8.22 15 15 78

International Airports Domestic Airports

Landing charges shall be paid to the CAA and if not so paid, shall be debt due to CAA jointly and severally from the owner and the commander of the aircraft in respect of which charges are payable. For the purpose of enforcing payment of charges the CAA may refuse to permit an aircraft to take-off from an aerodrome until all charges have been paid. Unless an alternative arrangement has been made, all charges for use of the aerodrome are payable by the pilot of the aircraft on demand or before the aircraft departs from the aerodrome.

Payment
The payment of the landing charges shall entitle the aircraft to: a) The use of aerodrome for arrival and departure. b) The use of radio and night landing installations at the aerodrome. c) The supply of all available information as to routes and weather conditions.

PARKING OF AIRCRAFT
The first 6 hours are free. The daily parking charges will be levied for any period exceeding 6 hours to 24 hours and thereafter for 24 hours. The monthly rates of the parking charges shall be twenty times, the daily rates and quarterly rates shall be forty times the daily rates.

Airport

International Airports Domestic Airports

Non-International Flights (Amount In Pak Rs) Up to Exceeding Exceeding One Ton One Ton 20 Tons and up to 20 Tons HOUSING CHARGES PER TON FOR 24 HOURS 3.92 3.92 15 15 54 3.92 3.92 13.5 13.5 40.5

International Flights (Amount In US$) Up to Exceeding One Ton One Ton

PARKING OF AIRCRAFT AT AEROBRIDGE GATE

Aerobridge charges are fixed for initial two (02) hours. 50% of the charges will be levied on the subsequent parking for every hour and/or part thereof. Docking time shall be the period beginning from the time an aircraft docks-in into the Aerobridge and when it leaves the Aerobridge.
International Flights (Amount In US$) AIIAP, Lahore 183.00 145.00 107.00 Domestic Flights (Amount in Pak Rs) JIAP, Karachi & AIIAP, Lahore 2000.00 1750.00 1250.00

2.7 Aerobridge gate charges shall be levied in addition to parking charges. Type Of
Aircraft B-747 DC-10 Tristar, IL-86, A-300 and Equivalent. Not larger than B-707 or DC-8

JIAP, Karachi 188.00 150.00 112.00

HANGARAGE CHARGES
The charge for hangar age is same as that of Parking. If a hangar is placed entirely at the disposal of an operating company, the company will be charged the standard rent for the hangar under separate arrangements and housing charges will not be recoverable for its aircraft housed thereon. When housing space, which has been paid for in advance, is not used, the same may be used for the housing of other aircraft and no refund shall be made to the lessee unless he is prevented by the housing of other aircraft from obtaining accommodation for his aircraft.

AIR NAVIGATION FACILITY CHARGES FOR LANDING FLIGHTS

For assessing Air Navigation Services Charges the total weight of an aircraft shall be maximum take-off weight allowed as specified under the regulation of the State in which the aircraft is registered (Certificate of Airworthiness).

Using airport

International Airports Domestic Airports

International Flights (Amount In US$) Per Flight Up to Exceeding Exceeding One One Ton 20 Tons Ton and up to 20 Tons 10 50 160 10 50 160

Non-International Flights (Amount In Pak Rs) up to Exceeding Exceeding 5 Tons 5 Ton 20 Tons and up to 20 Tons 150 750 100 500

400HZ AIRCRAFT POWER SUPPLY SYSTEM (APSS) AT JIAP, KARACHI, AIIAP, LAHORE AND ISLAMABAD
400 HZ Aircraft Power Supply System (APSS) is available at JIAP, Karachi, AIIAP, Lahore and Islamabad airport. The charges applicable are fix for initial one hour and then for each segment of 15 minutes.
For All Type Of Aircraft For International / Domestic Flights JIAP, Karachi US $ 80.00 AIIAP, Lahore US $ 70.00 Islamabad US $ 80.00

SURCHARGES (REFUELING) Aircraft shall not be kept on a hydrant refueling bay beyond 120 minutes thereafter an additional fee at the rate of 2% of the landing fee shall be levied for every 15 minutes or part thereof for any such excess stay on the stand. This surcharge shall not be applicable during the period when the aircraft has been docked at the aerobridge gate. REDUCTIONS (TECHNICAL LANDING) All flights making technical landing (not entitled to embark or disembark passengers, load or un load cargo and mail) at JIAP, Karachi and AIIAP, Lahore will be levied 50 percent of the current Landing Charges. AIR NAVIGATION FACILITY CHARGES FOR OVER FLIGHTS For assessing Air Navigation Services Charges the total weight of an aircraft shall be maximum take-off weight allowed as specified under the regulation of the State in which the aircraft is registered (Certificate of Airworthiness).
Weight Of The Aircraft Rate 5 Tons to 40 Tons 208.3 41 Tons to 120 Tons 273.4 121 Tons to 160 Tons 312.5 161 Tons to 250 Tons 351.55 251 Tons and above 416.65

PASSENGER SERVICE CHARGES Unless specifically exempted the following passenger service charges shall be charged from each passenger. This charge shall be collected by the airlines on behalf of the CAA.
Title Of Account International Passengers (Amount In Pak Rs) First Class Business Economy Passenger Paid Charges Per Passenger 1000 1000 500 Nil Domestic Passengers (Amount In Pak Rs) All Class 100 20

Embarkation Fee Government Airport Tax

At Pakistani airports, revenue generation from non aeronautical sources is not much in focus by the CAA of Pakistan. So the trend is adopting gradually to maximize revenue from commercial activities at Pakistani airports.

How to Maximize revenues for airports; Defining new Ideas

Although the aviation industry has faced some challenges in recent times, terminals provide a wealth of opportunity to generate fresh ideas for revenue generation. Corporate and retail businesses can put themselves forward to the world, and the millions of passengers that pass through, travelling for work or pleasure. They also provide the opportunity for companies to work together in an environment in which they wouldnt usually come into contact.

Maximizing revenues for airports located in Pakistan

When deregulation trend for airports was started in 1987, after the deregulation of US domestic market (airline sector) in 1978. The airport operators tried to increase revenues of airports and reduce costs because further investment was much difficult after diminishing Govt. ownership of airports throughout the world. Now there are many ways to generate revenues for airports in the world. Airports are trying to reduce their costs and want to increase their profits through commercial activities. In Pakistan, CAA should take following initiatives to generate revenues for airports especially Jinnah Intl. Airport, Karachi, AIIAP, Lahore, BBIAP, Islamabad, and Sialkot Intl. Airport.

Barber shops; Now a day, people have become fashion oriented, they adopt different hair styles.
I recommend that there should be barber shops at major airports of Pakistan where traffic/passenger demand is high.

Conference rooms; Sialkot is one of the industrial cities of Pakistan and its airport is built by
private investors and business men. It is necessary source for them to travel abroad and export goods. So, there is a need of conference rooms at Sialkot intl. airport and BBIAP, Islamabad because many events or company meetings will be held there.

Internet facility; internet facility is not much common in our society but many people or tourists
use internet as a fun like checking mail or updating status on face book and it will be very beneficial for foreigners to take guidance to their final destination by Google map.

Play land for children at airports; At major airports in Pakistan there should be a facility of
play land at airports. They will just like fun lands having videos games; racing and shooting games

and other especially for children. Meters and greeters will also be beneficial instead of those passengers who have to face flight delay and have children. These activities can be started on the behalf of some fast food companies like McDonalds etc.

Airport shuttle service; in big cities of Pakistan, airport shuttle should be run to transfer
passengers at near by areas of airports and this project will be applicable in major and congested cities of Pakistan like Lahore and Karachi.

Aero shops/Aviator shop; there is a need of an aviator shop in which many aviation related
products like aviator T-shirts, aircraft models, aviation jackets, pilot uniform, aviation watches , key chains, flight computers and aviation magazines etc. would be available. The buyers would be anyone or mostly aviators.

Hotel & restaurant

Flight delays Guests and their revenue stay on property with a discounted meal or beverage: By monitoring airline information from the comfort of their hotel, distressed travelers can wait out a flight delay in the property's restaurant or bar. Hoteliers can offer a discounted "Stranded Guest" beverage, appetizer or sandwich coupon to assist guests in need, and keep them on property. Guests would rather be at your hotel: Who wants to spend the night sleeping on a terminal couch, eating another fast-food meal or brushing their teeth in a public restroom? If flights are delayed, keep the guests where they belong - on property. Place a sign next, display offering guests inconvenienced by cancelled flights or lengthy delays a "We Understand - Stranded Guest Distressed Rate." Offer stranded guests a discounted rate to build goodwill and repeat business. Bad weather can mean good food: When bad weather takes over, so can your F & B team. If your flight information display begins to report weather delays, have your team put together a "Distressed Traveler Sandwich Special" and offer food-to-go packages for guests who are facing delays.

Urgent need for further investment (Expansion)

The pressure on infrastructure will not let up as global air traffic is set to double within 20 years. Dozens of major international airports continuously operate at or over capacity. It is due to their efficiency, flexibility and innovations that the air transport system has been able to absorb ever growing passenger numbers. Sweeping requests to reduce or freeze airport user charges are short-sighted and ultimately do not promote efficient airport operations given the urgent need for investment in new infrastructure. They are also proving to be detrimental to airline and system efficiency as the continued growing of traffic. Lack of airport capacity produces significant cost due to delays in the air and on the ground to the disadvantage of the wider economy. All above mentioned activities require space at airports (expansion) which needs investment and it is according to the volume of the traffic at Pakistani airports.

Solar and Wind (energy) Project

In Boston, there's a wind power demonstration project underway at Mass ports Logan International Airport, where 20 6-foot-tall wind turbines began whirring in 2008. These are roof-mounted models with a very pleasing design. In fact, they look like aircraft propellers.

The success of these and other projects, and the availability of energy grants, incentive programs and some stimulus money, is luring other airports around the country to cross the green line. This project will be much beneficial to produce electrical energy because in our country (Pakistan) where electricity problem is very common and at airports there is much spare place for the installation of power and energy plants that will produce electrical energy. This energy will be used by airport authority, it will reduce cost to some extent but it also requires investment by the approved authority. Improper Use of Airport Property could be one of the major causes of increasing cost of airports.