Have you ever wondered how airports make money? Has it crossed your mind that some airports are actually working at a loss despite the high traffic that passes through them on a daily basis? Well, the truth is that there are two types of air facilities – some that are run as successful commercial companies and others that are governmentally supported and operating with minimum or no profit at all.
When it comes to the question of how much do airports make, the answer is more complex. Basically, airport revenue depends on many factors – size, passenger flow, airline routes, type of planes serviced, trends in the global economy and last but not least on the local and regional regulations.
Now, let’s have a look at what makes an airport a successful undertaking that generates income.
How do airports generate revenue?
How exactly do airports make money? There are two basic sources of income for an airport: one is the commercial activity and the other type is based on aeronautical and other revenue. Internationally about 40% of the airport revenue comes from commercial activities, while the bigger chunk of the pie belongs to aeronautical and other revenue. What actually lies behind these terms?
The aeronautical revenue comes from the main activity of the airport – airport fees that include, terminal, landing and passenger fees, noise and environmental charges and other payments related directly to the operation of the airport.
The commercial activities performed on the territory of the airport are also a great source of income. Here we include revenue from retail concessions to duty-free shops, restaurants, etc., renting terminal space, parking lots and the like.
In both cases the bigger the airport is, the higher the revenue.
Does airport ownership matter?
There are privately-owned airports and airports that are run by governments but in both cases, they are operated as businesses aiming to generate money. When it comes to how airports make money, the ownership is not of great importance. The principle described above is valid for them all.
There is a difference however when the size of the airport is concerned. Many small airports are owned by the government and charge much lower fees just in an attempt to attract the airlines. An airport that has less than 1 million passengers per year makes much less profit than international airports such as Heathrow, for example.
Airport ownership in the UK and in the USA
There is also a significant difference in the ownership of airports in the UK and in the United States. The USA is lagging behind when it comes to privatization of air fields. As a matter of fact, there is only one single US airport that operates commercial flights, which is completely privately owned – that is Branson Airport in Southern Missouri, which has actually been struggling to make a profit and to attract airlines for several years now.
The greatest difference between the UK and the USA when it comes to ownership is that in the UK the biggest airports are privately owned, while in the US privatisation started with smaller air fields. In the UK ten of the fifteen busiest airports are privately owned and doing quite well in terms of profit.
Do airports make money from passengers?
Despite the fact that there are many cargo flights and cargo airports, the biggest revenue for airports comes from passengers on commercial flights.
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Let’s have a look at how London Heathrow Airport – the busiest airport in the world that is fully privately owned – makes money. At present, it serves 650 flights daily, which equals to 78 million passengers flying through the facility each year. It costs nearly one and a half billion in USD to run the airport ($1,485,650,000 per year to be more precise) and in order to break even, Heathrow needs to generate $19 per passenger and here is how it does it.
The airport receives a cut of every sale made by the various retailers on its territory. Restaurants bring $0,95 per passenger, retail shops – $5,15, parking lots – $2,03, car rentals and VIP lounges – $3,04. The express train from the airport is also operated by Heathrow, which gives them another $2,15 per passenger. This totals to $13,32. Note, that this is one of the highest retail revenues per passenger in the world. For example, Washington Dulles Airport makes just $5,68 per passenger and Paris Charles de Gaulle Airport makes $10,92 per passenger.
While the figure is impressive, it is still below the $19 needed to break even. So, where does the rest come from? The answer is simple – from flights.
How much do airports make from flights?
The greatest part of the revenue that an airport makes actually comes from flights. Here is a summary of what Heathrow receives every time a plane lands or takes off from the facility.
- An average of $9,500 for each landing plane. The price varies depending on the size of the plane and larger ones pay higher fees that cover runway time, gate space, check-in area. A small 76-passenger Bombardier Dash 8 will pay just $999, while a Boeing 747 will be charged $11,600.
- Departing aircraft are charged again based on the number of passengers and their destination. A passenger flying outside Europe costs the airline $58. If the passenger connects through Heathrow the fee drops to $44 and if the aircraft is parked at a remote stand and not at a gate the fee per passenger is reduced to $39.
If we make a rough calculation we will see that a small Dash 8 flying on a domestic route will be charged a total of $2,400 for both arrival and departure, while the large 747 flying on a long-haul route will bring $31,700 for the airport. Naturally, airlines with frequent flights from Heathrow have contracts for discounted prices.
At the end of the day, the airport receives about $29 from the ticket of each passenger, which added to the $13,32 retail value is more than the $19 it needed to break even. The revenue is used for covering the construction of the new Heathrow runway or other airport facilities improving its work.
How can airports make more money?
Arriving passengers generate less income because they usually get off the plane, go through the airport and leave while departing and connecting passengers are those who stay at the airport and actually dine at restaurants or use the airport retail shops. So, trying to keep those passengers longer at the airport facility is a way to make them spend more. Faster check-in services equal more free time for shopping. Passengers required to arrive at the airport earlier also spend a longer period at the facility that can possibly turn into revenue.
Servicing more long-haul than domestic flights is the other key to generating more profit. For airports such as Heathrow, that operate close to their maximum capacity (650 out 657 possible flights per day) the only option is to welcome larger planes carrying a greater number of passengers. A smaller plane will take the same time on the runway as a larger one but generate significantly less revenue. Here is the reason why Heathrow operates just 8 domestic flights and focuses on long-haul services while expecting how Brexit will affect its overall performance.
This is in a nutshell how airports make money – by being run as a smart business regardless of their ownership. And next time you fly through Heathrow, you will know that you are bringing your fair share of about $23 of net income.