Published in January 2016 issue
Things you wouldn’t expect to see at your local airport…
Gas drilling and breweries may not seem to have much in common with airports. But they’re part of the current trend that sees airports striving to explore and seek unconventional sources of revenue.
By Chunyan Yu, PHD
Pittsburgh International Airport (PIT) has been struggling to rebuild its traffic base while dealing with massive debts since US Airways’ 2005 dehubbing. Therefore, the royalty deal it clinched with Consol Energy for natural-gas drilling—$500 million over 20 years—is like a timely rainfall for a withering flower. The deal will help to lower the fees paid by airlines and to fund well overdue infrastructure and facility improvements. Under the 2016 budget approved by the Allegheny County Airport Authority board, $10 million in projected gas-drilling revenue will be earmarked for airline fee reduction.
Pittsburgh’s new revenue source came mostly by luck, as the airport happens to sit on top of the Marcellus Shale. On the other hand, Denver International Airport’s (DEN) current efforts to find a concessionaire to establish a brewery in the newly built Westin Hotel, scheduled to open in November, shows that airports are thinking outside the box to find new ways to attract passengers and generate revenue.
Traditionally, airlines are an airport’s main source of revenue; they pay landing fees for the use of the airfield as well as various space rental fees and service charges to use terminals for gates, check-in desks, baggage make-up, baggage claim, and so on. This means that an airport’s revenue stream is heavily influenced by the volatility of the airline business. Over the last three decades, to contain these ups and downs, airports have evolved into business entities that assiduously seek more diversified revenue sources.
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Non-aeronautical revenues are increasingly becoming a vital source of income for airports. In 2014, on average, 58% of the US small hub airports operating revenue was generated by non-aeronautical sources, with car parking and rental the largest revenue generators. For large and medium hub airports— where non-aeronautical revenues accounted for 42.3% and 49.6% of the total 2014 operating revenue, respectively—car parking and rental were also the largest sources. At non-hub airports, on the other hand, most non-aeronautical revenues came from lease payments for land and non-terminal facilities. For example, in 2014, land and facility leases accounted for half of the non-aeronautical revenues and 35.7% of the total operating revenue of Daytona Beach International Airport (DAB).
The Air Transport Research Society (ATRS) Global airport benchmarking team provides a comprehensive performance comparison in terms of revenue generations for over 200 airports worldwide. Its annual report points out that, while car parking and rental are the main sources of revenue for airports in the US, duty-free shops and other retail concessions are the main revenue generators for airports in Europe and Asia Pacific. The study also finds that airports with higher shares of non-aeronautical revenue tend to achieve higher productive efficiency, which may imply that airports with proactive commercial opportunity development programs tend to manage their operation more efficiently than those that rely more heavily on aeronautical revenue bases.