Airport budgets are prepared for one fiscal year. The budget planning experts consider basic operating expenses and revenues made for the period. The amount of expenses and revenue generated depends upon the size of the airport in terms of operations and the number of services airport provides. Let us see more about how airport financial management takes place.
Developing and maintaining an airport needs a large amount of funds. The principle sources of this capital include −
International organization loans that are required to be repaid in the same foreign currency.
Commercial loans from national financial institutions, which are usually available at highest interest rates.
Equity or bonds from commercial capital market including private investors, and investments banks.
Extension of credit from contractors and suppliers.
Foreign governments invest in airport development for under-developed nations.
Airports need to generate sufficient revenue to pay for their operating costs such as manpower salaries, maintenance, electricity, and more that are aligned to actual operating of the airport.
Airports derive their revenue from rents, charges and fees imposed upon airlines, various concessionaires, such as car rental companies, restaurants, newsstands, taxi and van services, catering and baggage services, fuel provision, and parking.
This revenue is generated by applying the following charges −
Passenger Service Fees − Against security and facilities at airports.
Airline Rents − Airlines pay rents for the space they occupy at ticket counters, gates, baggage counters, gates, baggage handling, maintenance, and catering facilities. They also pay takeoff and landing fees, parking fees, and fuel fees.
Development Fees − Against infrastructure development at international airports.
Government Subsidies − They are required to seal the gap between budgeted revenue and operating expenses.
Fuel Sale − Selling fuel for the aircrafts which halt at the airport for refilling on longhaul routes.
Late Fees on Leases − Many airports charge late fees on leases.
Renting out − Several airports rent out non-used pavements or runways for the purpose of taxiway driving courses and for filming commercials.
There are no set guidelines on how the airport operation managers must determine the rates of charges for the use of airport building, facilities, and equipment. The reason behind this is, the airports are not commercial entities; but public funded facility.
Still, the common method the airport managers employ is to assess the prices charged by the neighboring airports for offering services and facilities.
If an airport is not generating revenue for its overall operating costs, it cannot survive in the market for long as it gets difficult. The most generic reasons of selling an airport are −
It is constantly failing to generate self-sufficient revenue.
The revenue is insufficient to repay the loans taken at the time of its development.
It is underused and in such case the cost of maintenance is also high.
In some cases, the airport owner decides to generate the cash required for other infrastructure projects.
Governments of developed countries view airports as assets as well as business. Their government sells all or a partial interest in existing airports or airport authorities.
Developing countries lack the resources for airport development, hence they rely on private capital and expertise. Their governments tie up with private sector organizations to finance and develop new terminals or airports. Private sector businesses can manage airports and also business in better ways.
Airport sales have taken place in four countries, and another seven have announced plans to sell their major airports. Franchises for new airport capacity projects are under way in 17 countries and under study in 14 others.
There are three major privatization modes −
The following are the most common benefits of airport privatization −