Chapter 7

Airport and airline relationship

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
1 Transport and Logistics Department July 2009
 Conventional structure of airline or airport organisation:

Shareholders
The most important
relationship within the
board is between Chairperson
chairperson and MD
Managing Director / Chief Executive Officer

Directors

Staff

In the UK it is generally
seen as good practice in The term ‘General Manager’
all but the smallest may be used for senior
organisations to managers below the level of
separate the roles of director who are responsible
Chairman and Chief for a significant functional
Executive area

2
 Four broad areas of corporate governance (1):
 Effective board of directors – balance between
executive and non-executive directors such that no one
individual or small group can dominate decision making.
Clear division of responsibilities and accountability, with
proper procedures for the appointment of new directors
and the provision of good quality information to facilitate
directors’ discharge of their responsibilities.
 Directors’ remuneration – there should be a proper
policy and the remuneration of each director should be
disclosed in the annual report. Policy should be clear, no
director should determine their own remuneration. It
should be performance related and should be sufficient to
recruit and retain directors of the right calibre.

3
 Four broad areas of corporate governance (2):

 Relations with shareholders – regular dialogues and

communication with shareholders, particularly
institutional investors. Proper investor relations
programmes are encouraged. Provision for shareholder
voting. Honesty and clarity of disclosure and integrity of
information are required by the capital markets.
 Accountability and audit – the board is responsible for
the company’s financial position, risk management and
future prospects. It is also responsible for the adequacy
and integrity of the internal control system, setting up of
the audit committee in a formal and transparent manner,
reliable and clear financial reporting in line with high
quality standards, and an appropriate relationship between
internal and external auditors.

4
Other commentators on corporate social responsibility* suggest that the
above four areas are too narrow and that it covers three areas -- ‘the
triple bottom line’:

 Economic

 Social

 Environmental

5
 Reminder of the conventional structure of airline and
airport organisations:

Shareholders

Chairperson

CEO/MD

Directors

Staff

6
Generic, non-airline organisation chart for a small business:

Some other advisory /

staff functions may
report direct to the CEO

Managing Director / Chief

Executive Officer

Finance Administration Operations Marketing

Director Director /Production Director
Director

7
 Chief Executive/ Managing Director

Financial/ Operations Marketing/

Administration Commercial
Budgets, cash, profits Flight Ops Market research
Business management Technical Ops Competitor analysis
Accounting Ops Ground and Airport Ops Route and network
Compliance with accounting Compliance with safety management
rules regulation Scheduling
Admin and IT Brand management
Employment and HR Product design
Legal Advertising and promotion
Facilities Selling of capacity at the
Business case evaluation correct price (revenue
management)
Reservations (capacity
management)
Distribution
Customer relationship
management
8
IT or IM is one of the
most difficult
functions to place in
the organisation
chart.
Slightly modified
organisation chart.
Managing Director / Chief Note so far cargo has
Executive Officer been ignored.

Finance Human Ground Flight Technical Marketing

Director Resources Operations Operations Director Director
Director Director Director

Accounting Recruitment etc Airport ops Flight Technical Market research

Revenue Training including operations oversight Scheduling
accounting Payroll Check in oversight Line Product Pricing
Budgets Industrial Baggage Ops maintenanc / Reservations /
Purchasing relations Security control e Revenue
Fuel Catering Pilots Minor management
Treasury Flight crew checks Advertising
Facilities training Heavy Distribution
Cabin crew maintenanc Sales
training e Customer
Technical service
supplies Alliances
9
 The organisation of individual airport depends on:

 Local regulatory requirements

 Ownership and control (government / private)
 Cultural environment
 Size
 Product (Scheduled/Regional/Charter/Low-cost)
 History
 Key individuals
 Decisions about out-sourcing

Remember that: “structure should follow strategy”

10
The above also applies to airports, but additional issues are:

 Size of airport (local, regional, international) and nature of

activities (domestic, international, passenger, cargo, hub,
non-hub etc)
 Individual airport or part of a airport group – or part of an
airport system ?
 Importance of commercial (non-aeronautical) revenues

11 andy_hofton@hotmail.com
 The organisational structure of any airport also depends
on where it is in the evolutionary process:

1. Small local airfield / airport – emphasis on operational

issues
2. Early growth – brings / results from marketing activities
and uses original infrastructure
3. Significant growth – requires major new infrastructure,
requires new capital, forces greater commercialism
4. Planned development – strong commercial and financial
focus, strategic planning of infrastructure
5. Change in ownership – move from public to private
ownership, from part of transport infrastructure to a
commercial business
6. Part of a national or international group of airport or
transport companies

Again this argument will also apply to airlines, but the difference is
that there are more ‘start-up’ airlines run by entrepreneurs than there
12 are start-up airports
Transition from airport authority to airport enterprise

Corporatisation Commercialisation Privatisation

Airport Authority Airport Infrastructure Public Sector

Business Enterprise Private Sector

Corporation

Independent Customer/market orientated Private sector finance

management Quality management Shareholder value
Accounting Customer satisfaction Private sector management
transparency Profit orientated Profit orientated
Easier access to Business development
finance
with or without
different methods…
change of
Concession
ownership
Management contract
Less bureaucratic
Trade sale
Build, Operate,
Transfer
13
 Airport outsourcing decisions

 Typical functions likely to be outsourced

Professional services such as legal, market research and advertising
Retailing (but not retail strategy)
IT including passenger information systems
Ground handling (see airline list)
Baggage handling (see airline list)
Terminal and property cleaning
Property maintenance (including grass cutting etc)
Detailed facilities design Most airports out-source the
Building project management provision of retailing to
Security specialist companies
Terminal Air Traffic Control

 Basis for outsourcing

Costs and overheads
Specialist skills required or commodity skills required ?
Additional resources required (including capital)
Flexibility
Regulatory / competition requirements
Availability of suitably qualified companies to provide outsourced services
14
 General issues in the management of outsourcing:

 Contract issues
Price and performance
Service level agreements
Meet employment and safety legislation

 Specific Performance management -- SMART

Measurable A narrow, purely financial evaluation of

Accurate / Achievable
Reliable / Realistic
Timely
(need regular review)
decisions about outsourcing may lead to
the wrong result if issues involving
customer service and brand position are
overlooked. Should the company really
outsource call centres ?

15
 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

 Important to airports ……..
The major source of revenue at most of them
60

55

50

45

40

35

30
1998 1999 2000 2001 2002 2003 2004

<15mn pax >15mn pax

Important to airlines ……..
A major and inescapable cost

20%
20%

8%
8%

AEA airlines easyJet

AEA airlines easyJet
 Important to passengers ……..
A major, inescapable and VISIBLE cost
E>netsaver fares from Birmingham!
Once again we have increased our range of fantastic destinations
for you to jet off to later this week. Take your pick from one of the
great cities listed below,

Destination Fare Tax Total

Prague £70 £64 £134
Oporto £70 £53 £123
Rome £75 £47 £122
Athens £85 £55 £140
Istanbul £100 £71 £171
Important to passengers ……..

A major, inescapable and VISIBLE cost

Birmingham (BHX) to Hong Kong (HKG) : Departing: Tue 18 Nov - Returning: Mon
24 Nov

.
Your Award Options
Normal flight award - Fare Conditions
Miles required per
Passenger Tax and Fees
person
Miles & More Member 120,000 Miles 330.20 GBP

Total 120,000 Miles 330.20 GBP

 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
 Ne
w
Y

€ 3,000
€ 6,000
€ 9,000
€ 12,000

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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
 Environmental penalties
 NOISE penalty very common,
often incorporated in aircraft- specific landing
charge “bands”
 Usually a wide “neutral” band of aircraft landing in
daytimes
 Penaltiesfor 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%
 Landing charge (runway + TNAV)
(1) Increasing cost per tonne as MTOW increases -
DELHI

DEL

850
Euro

750

650

550

MTOW (tonnes)
450
70 80 90 100 110 120 130
(2) FALLING cost per tonne as MTOW increases – OSLO

16,000

14,000

12,000

10,000
NOK

8,000

6,000

4,000

2,000
tonnes
0
0 50 100 150 200 250
 (3) MAXIMUM charge and PEAK charge MANCHESTER
1,800
peak
1,500

1,200
GBP

900

600
off-peak
300

0
0 100 200 300 tonnes 400
 (4) FLAT charge and PEAK charge
1,500

1,000
GBP

500
peak

off-peak
0
0 100 200 300 tonnes 400
 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
 Passenger charges from Jordanian airports

JOD

Jordan nationals 25
Jordan nationals resident in Arab
15
countries
non-Jordanians 10
 I Introduction

II Structure and level of

aeronautical charges
III Issues ….

IV En route charges
AMS Amsterdam
ATH Athens
BJL Mumbai
BUD Budapest
CDG Paris Charles de Gaulle
DUB Dublin
FCO Rome Fiumicino
FDF Fort de France
FRA Frankfurt
GIG Rio de Janeiro
ICN Seoul Incheon
KUL Kuala Lumpur
LHR London Heathrow
LIS Lisbon
LOS Lagos
MAD Madrid
PBM Paramaribo
PEK Beijing
SOF Sofia
WAW Warsaw
 Landing charge, 2008
€ 4,000

€ 3,500

€ 3,000

€ 2,500

€ 2,000

€ 1,500

€ 1,000

€ 500

€0
0 50 100 150 200 250 300 350
Aircraft MTOW thousands of Kg (TONNES)
 Airbus A319

MTOW 64 tonnes 80% load factor

132 seats 106 passengers
95 terminal
1 hour(s) parking 11 transfer
 £20

£40 £80 !!

http://www.hmrc.gov.uk/budget2008/bn72.pdf
PBM
LOS
GIG
CDG
AMS
ATH
SOF
WAW
BUD
LHR
FRA
ICN A319, 80%
LIS load-factor
FDF
PEK
BJL
Airport charges
FCO
DUB aircraft related
KUL passenger related
TAX
MAD

€0 € 1,000 € 2,000 € 3,000 € 4,000 € 5,000

 Airbus A340-311

MTOW 257 tonnes 80% load factor

294 seats 236 passengers
212 terminal
3 hour(s) parking 24 transfer
PBM
CDG
LOS
FDF
GIG
AMS
WAW
LIS
ATH
SOF
FRA
BUD
LHR
MAD
FCO
PEK Airport charges A340, 85%
ICN
load-factor
aircraft related
DUB
passenger related
BJL TAX
KUL

€0 € 4,000 € 8,000 € 12,000 € 16,000

€ 45
A340 A319 Airport charges in terms of Euro
€ 40
per passenger
€ 35

€ 30

€ 25

€ 20

€ 15

€ 10

€5

€0
CDG

FDF
BUD

DUB

FRA

GIG
FCO

KUL
ICN
ATH

LHR

PEK
MAD
BJL

SOF
AMS

PBM
LIS

LOS

WAW
 I Introduction

II Structure and level of

aeronautical charges
III Issues ….

IV En route charges
Transfer passengers
 Transfer passenger charge (PFC + security)

100%

80%

60%

40%

20%

0%

CDG
FDF

FRA

BUD

DUB
GIG

KUL

FCO
ATH

PEK
ICN

LHR

MAD

SOF

BJL
AMS
PBM
LOS
LIS
 Amsterdam, 2007

24 million passenger departures

10 million TRANSFER departures

Transfer discount 11.66 euros

Sky Team benefit 117 million euros

 Aircraft-related
v
passenger-related
 Percentage of charge
aircraft related

60%
% of aeronautical charge which is
50% aircraft-related (A319 operation)

40%

30%

20%

10%

0%
CDG
FDF

DUB

BUD

FRA
FCO

GIG

KUL
PEK
MAD

ATH

LHR

ICN
SOF

AMS

PBM
EWR

LOS
LIS

WAW
 I Introduction

II Structure and level of

aeronautical charges
III Issues ….

IV En route charges
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

 Suriname
Spain
South Korea
UK
China
Italy
Germany
Netherlands
Nigeria
France
Portugal
Bulgaria
Greece
Poland
Hungary
Ireland
A340
Brasil
A319
United States
Malaysia
overflight charge for 100 km
€0 € 50 € 100 € 150 € 200 € 250