I've noticed ads for airports in magazines lately. Not airlines, but airports. I thought airports were public utlities. How do airports make money? - Courtney P. (Sacramento, CA)
In the United States, airports are mostly public utilities, but like most public utilities, their income is a mixture of public and private funding. Many airports are owned and operated by airport authorities which can be branches of local or state governments, or by the governments directly. In Alaska, for example, many of the larger international airports are owned and operated by the State of Alaska. In Chicago, the airports are owned by the city. Some airports are privately owned - Indianapolis was for some years managed by BAA, a British consortium famous for operating airports like Heathrow.
Airports are often partially funded by public funds from the city and state in which they are located, as well as by federal grants to some airport in some cases. Airports have access to public funds because they are major economic engines in enhancing commerce which is in the public's best interest, thus the public has a share in their upkeep.
Airports are also valuable real property. Many are confounded as to why McDonald's, a purveyor of inexpensive hamburgers, is one of the world's largest and most successful companies. The answer is it's not about the burgers, it's about land. McDonald's is the world's largest private landowner, holding the deed to more square footage of the planet than the distant second place, the Roman Catholic Church. The maxim here is that it's not burgers or fries or extra pickles that make the money or hold value well - it's the land the restaurant sits upon. The airport business is a real estate business, and if the airport is prime real estate, it commands a premium.
Airlines are, of course, an airports major tenants. They pay rent for their counter and gate space, offices, training facilities, storage facilities, hangars and maintenance facilities. This is in addition to landing and parking fees levied by airports for every aircraft that touches down. In the US, domestic airlines normally operate to an airport frequently enough to hold a lease on ticket counter and gate space remodeling both to meet their specifications, and are normally the exclusive occupants of a space. At larger US international gateways and at most airports in Europe, airlines operate less frequently (often only once a day) and don't need to lease ticket counter or gate space for the entire day. In these cases the airlines rent or lease office space for administrative functions, and their staff (or contracted staff) check in and board flights at "common use" ticket counters and gates, for which the airlines pay hourly use fees.
The lease agreements can backfire on airports, however, as allowing a carrier exclusive use of a gate as long as they hold the lease can decrease throughput should a carrier reduce flights. There can be cases where an airline is not using all it's leased space, but won't end the lease to prevent other airlines access to the airport. For many carriers it can be more cost effective to maintain leases that aren't being used to deny competitors from encroaching on their turf. This can hurt airports that would potentially earn more from gate space that is being leased and used so they can collect landing fees and Passenger Facility Charges. Many airports solve this problem by writing minimum use clauses into their lease agreements.
Speaking of Passenger Facility Charges, that's another question we frequently receive. PFC's are collected on airline tickets and paid to airports by the airlines. While collective public funds provide part of the funding for airports, passengers who use the terminal are also expected to pay a fee for their use of the airport. PFC's were made possible by an act of Congress, and use of their proceeds is limited by Congress to passenger facility improvements. This means an airport can enhance security, safety, or limit noise, expand capacity or enhance air carrier competition.
Airports also lease space to other tenants, including car rental companies and concessionaires, who pay airports a per square footage lease rate, and a small percentage of their revenues. Outside the terminal airports earn revenues from leases of airport land to tenants such as hotels, airline caterers, and private aviation companies. At Denver International Airport, the airport also derives revenue from several oil wells on airport owned land.
Believe it or not, airports actually do compete with each other. An easy example would be New York City, which has three large airports within close proximity. Two of them have substantial intercontinental services. Many carriers serve both Newark and New York JFK, but many times an airline will make a choice between them. Singapore Airlines serves both airports, but it is from Newark that passengers can depart on the airlines exclusive Business Class only nonstop to Singapore. JFK departing passengers must stop in Frankfurt on their way to the Asian city state. San Francisco International recently ran ads targeted at Australian passengers, encouraging them to consider the airport over LAX as their US point of entry.
The takeaway: Airports operators are essentially land barons in the real estate business.
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