An Overview of how Airports Function

AIRPORT FINANCING

What makes an airport so great?An economic cornerstone in our

community

Job creation (KSLC is a perfect example)Supports commerceIs a creator of businessEncourages tourismEase of travel for members of the

community

Types of AirportsLarge and SmallRural and Remote Public and PrivateEach serves a specific purpose in the

Nation’s Air Transportation system

Primary Commercial Service AirportsDivided into four groups

Large hubs: 33

Medium hubs: 35

Small hubs: 4

Nonhubs (between 2500 and 10000 enplanements)

What does my airport do for meTransportation (fastest way of travel)Makes the largest impact on intercity and

interstate travel and commerce of any form of transportation

Economic growthCompetitionExpansion of marketsGeneration of tax revenue which gives

back to the community

Airport ExpensesOperation and MaintenanceEmployee salariesMaintenance of airport facilitiesPayment for utilitiesPurchasing of suppliesDealing with accidents/incidents and other

unexpected day to day expenses

Operating and Maintenance ExpensesOperating expenses fall into one of four

categoriesAirfield (runway maintenance, lights etc.)Terminal (cleaning, plumbing, electricity

etc.)Hangars (includes all buildings)General Administrative expenses

(employee salary, leasing of land, liability insurance etc.)

Capital Improvement ExpensesCapital Improvement expenses are

periodic expenses that tend to be very large

Expansion or building of a new terminalConstruction of new runwaysPurchasing of large equipment such as

fire trucks, tow trucks, and other ramp vehicles

Acquisition of landNoise restraint equipment (insulation of

housing)

“If you’ve seen one airport…you’ve seen one airport.”

All airports are uniqueAirport systems function differentlyGeographical locationOrganizational setup

BudgetingBecause airports have a relatively

inconsistent flow of funds, they have special forms of budgets.

Most airports operate on one of four forms of budgets.

1) Lump Sum Appropriation2) Appropriation by Activity3) Line-item Budget4) Zero-based budget

Lump Sum AppropriationSimplest form of budgetingIs free of financial restrictionsMaximum flexibility is obtained and it is

the job of the operator of the airportMost commonly seen in general aviation

airports with smaller budgets and less needs

Appropriation by activityUses a set of guidelines that directs how

much money is allocated to various work areas

Examples of work areas are: Fire Department, Ground control, Terminal service, Security, bagage handling

Although there are limitations placed on various departments, those limitations are subject to change

The result is a moderate amount of flexibility

Line-item BudgetMost detailed form of budgetingAdheres to a strict set of rulesEvery operating and capital expense is

accounted forEvery item is given an numerical codeConstant tracking of each item is followed

up with analysis and if necessary change to the budget

Zero-based BudgetGrowing in popularityTheory: “Don’t look back”Programs are reviewed constantly and

then ranked in degree of importanceActual expenses are constantly being

checked against budgeting expensesThis makes the department heads more

accountable for what they spend

Airport RevenuesPassenger Facility Charges (PFCs)A uniform charge that many airports have

adoptedHelps in aiding the airport to cover its

O&M expensesCurrent limit is $4.00Expected to go to $7.00 in near futureReally a small price to pay when you think

of all the free public services available at airports

Landing FeesA fee incurred by the airlinesBased on gross landing weightHelps pay for ground personal and airfield

maintenanceUsed more extensively under a

compensatory costThis is one way that the airport recovers

the actual costs of the facilities and services that the airlines use

Federal Funding / GrantsFederal Funding is a primary source of

income for primary commercial service airports

Private investing is not unheard of but it is rare

There are a number of elegibility requirements for federal funding

Most of these requirements are tied to how large an airport is and how many annual enplanements it has

Airport Improvement Program (AIP)There are three main goals of this program1) maintain that airport system in its current

condition2) aims to bring all airport systems up to current

design standards3) expand the current systems

Things grant moneys can be spent on: airport planning, airport development, airport

capacity enhancement and preservation, and noise compatibility programs

National Plan for Integrated Airport Systems

Airports must be part of the NPIAS if they wish to receive funding from AIP

The AIP trust fund is made primarily from taxes

The specific moneys that go into the fund are collected from those who AIP benefits directly

10% airline ticket tax, a $6.00 international departure fee, a $0.15 tax on AvGas

Based on the number of enplanements funds are allocated accordingly

Concessions, Stores, and Specialty shopsLarger Airports have the luxury of space“Prime business real estate”Higher feesConstant trafficMakes for a great source of internal

revenuesThe more money an airport can produce

internally the less they need federal funding

Reliever airports receive this “overflow”

An Airport’s Relationship with the Airlines

One cannot function without the other

Two basic approaches

Compensatory agreement

Residual cost approach

An Airport’s Relationship with the Airlines

It is very important that a sound relationship exists between the two counterparts if either is to survive.

Each has to give and each has to take.

Who is responsible for financial stability?With a compensatory cost approach it is the

airlines who assume the financial risk

With a residual cost approach one or more major air-carriers based at that hub accept responsibility

Residual cost approach normally found in long-term relationships

There is a gradual shift towards the compensatory cost approach

MiscelaneousParking fees

Ground Transportation

Luggage Carts

Sleeping rooms

VIP and rest lounges (some require membership)

ConclusionCommunities need airports just like airports need

airplanesMany of the benefits of airports go unnoticed by the

publicCommunities with airports of substantial size are

dependant on their airport even if they don’t know itNothing is for sure in the Airport industryThe key to running a financially sound airport

comes down to proper planning, proper knowledge, proper resources (both people and supplies), and a willingness to take things as they come, realizing that that is the nature of the beast.