Airports long term finacing problems
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Airports long term finacing problems
This week's Economist has an article highlighting long term problems in airport finances
Passenger numbers are booming (up 6.3% last year) but revenue per pax is falling - Schipol, CdG & Frankfurt are down 4-8%
Uber etc are hitting US income where 40% of non-aeronautical income is from car parking (Yurop 20%) and car hire (20% (Yurop 3%) - US budgets are around 10% down
And airport coconstruction costs continue to rise at twice the rate of inflation..............................
Passenger numbers are booming (up 6.3% last year) but revenue per pax is falling - Schipol, CdG & Frankfurt are down 4-8%
Uber etc are hitting US income where 40% of non-aeronautical income is from car parking (Yurop 20%) and car hire (20% (Yurop 3%) - US budgets are around 10% down
And airport coconstruction costs continue to rise at twice the rate of inflation..............................
I think that the larger "hub" airports will be fine. They have a captive market and are able to "sweat their assets" as the troughs between peaks fill up. Overall revenue is up - its just not increasing as fast as passenger numbers. You will no longer have nice empty surroundings like you did in earlier years of aviation but that's a price of cheaper fares.
The problem is the smaller airports relying on fickle LCCs (possibly Irish based). I remember over a decade ago a knowledgable person predicting that Ryanair's growth would be limited by the ability of airports to subsidise them. He was wrong in this case (so far) but I wouldn't want to be manager of such an airport. Have a look at the thread on half of airports not having a water fountain. They are trying to make money with car set down charges, selling bottled water and other goods at stupid prices, offering expedited security for a fee so you catch your flight, etc because the landing fees are so low. That irks people off and is not good in the long term. (Parallel with BA?)
Heathrow may be a special case in that it is regulated and can raise prices for existing passengers who will efectively be cross-subsidising future travellers (a bit like London rail commuters) - an airline couldn't get away with this. Presumably that was the case for ZRH, FRA and other "hub" airports that have built new facilities.
If you look at "Boris Island" (ok the only way it will ever get built is if Mr Johnson becomes PM) the cost is quoted as £50 bn. I don't know the assumed cost of capital - it could probably be financed using cheaper debt rather than more expensive equity financing but I am certainly not the expert - but lets assume that depreciation and finance cost is £5bn p.a. Lets say that it has 100m passengers p.a. That would cost the passenger £100 per round trip. Hmm - doesn't look great to me.
The problem is the smaller airports relying on fickle LCCs (possibly Irish based). I remember over a decade ago a knowledgable person predicting that Ryanair's growth would be limited by the ability of airports to subsidise them. He was wrong in this case (so far) but I wouldn't want to be manager of such an airport. Have a look at the thread on half of airports not having a water fountain. They are trying to make money with car set down charges, selling bottled water and other goods at stupid prices, offering expedited security for a fee so you catch your flight, etc because the landing fees are so low. That irks people off and is not good in the long term. (Parallel with BA?)
Heathrow may be a special case in that it is regulated and can raise prices for existing passengers who will efectively be cross-subsidising future travellers (a bit like London rail commuters) - an airline couldn't get away with this. Presumably that was the case for ZRH, FRA and other "hub" airports that have built new facilities.
If you look at "Boris Island" (ok the only way it will ever get built is if Mr Johnson becomes PM) the cost is quoted as £50 bn. I don't know the assumed cost of capital - it could probably be financed using cheaper debt rather than more expensive equity financing but I am certainly not the expert - but lets assume that depreciation and finance cost is £5bn p.a. Lets say that it has 100m passengers p.a. That would cost the passenger £100 per round trip. Hmm - doesn't look great to me.
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"...revenue per pax is falling..." is an interesting term. Airports are forgetting why they exist. They are there to provide a service to airlines and in turn, the passengers of these airlines. They are not hotels, shopping centres, restaurants, retailers, hairdressers etc. Unfortunately their greed knows no bounds and they chisel, pry and prise every bloody cent out of their victims, because that's what they are. Until they fully understand why they exist they will continue to lose revenue. Take Schiphol. I'm convinced this place has a Flight Prevention Department. They make sure flights do not leave on time with CDM (a complete bloody joke) and flights do not arrive on time by reducing runway availability to appease a handful of tree huggers and moaners. The result is late running flights and passengers rushing from one place to another to catch a flight. Pissed off, rushing passengers are not good shoppers!
No doubt millions will be spent of surveys asking the wrong questions in order to find out what they already know. Then MBA'ed consultants will be commissioned and that will result in bonuses all round and even more shops. All the time the requirements of airlines and their passengers will be ignored. And the revenue will continue to decrease. The modern world we live in!
PM
No doubt millions will be spent of surveys asking the wrong questions in order to find out what they already know. Then MBA'ed consultants will be commissioned and that will result in bonuses all round and even more shops. All the time the requirements of airlines and their passengers will be ignored. And the revenue will continue to decrease. The modern world we live in!
PM
They are there to provide a service to airlines
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The money has to come from somewhere
Airports cost a lot to build and run - whoever owns them has to get a return on the captal otherwise you're running a subsidised oepration and someone (eg the rate payer or taxpayer) is paying.
If you sell the asset to the private sector - becasue you can't afford to pour money in for updates etc - they're going to want to turn 10% at least profit over investment to be competitive in the stock exchange. Public Sector might want 5% margin butthey are constricted on what they can borrow for investment
If income continues to slide cp passeneger growth you'll get more over crowding, more "inovative" charges, less maintenance etc etc
Airports cost a lot to build and run - whoever owns them has to get a return on the captal otherwise you're running a subsidised oepration and someone (eg the rate payer or taxpayer) is paying.
If you sell the asset to the private sector - becasue you can't afford to pour money in for updates etc - they're going to want to turn 10% at least profit over investment to be competitive in the stock exchange. Public Sector might want 5% margin butthey are constricted on what they can borrow for investment
If income continues to slide cp passeneger growth you'll get more over crowding, more "inovative" charges, less maintenance etc etc
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"...revenue per pax is falling..." is an interesting term. Airports are forgetting why they exist. They are there to provide a service to airlines and in turn, the passengers of these airlines. They are not hotels, shopping centres, restaurants, retailers, hairdressers etc. Unfortunately their greed knows no bounds and they chisel, pry and prise every bloody cent out of their victims, because that's what they are.
PM
PM
Concurrently airlines like FR demanded low charges from airports who couldn't afford to turn away their business - the likes of Hann, Charleroi, Beauvais, Liverpool, etc Essentially a perfect enviornment for "competition" and "free market" spiral to the bottom has occurred. Thats meant shops where seats used to be. Minimum-wage ground handling monopolies where careers used to be. Thats what we, as customers, asked for. These are the consequences of cheap fares. The difference in farming, call centres, etc is the burdens of lowering costs are put on employees/animals, rather than the end customer.
The exponential growth of FR, U2, W6 while the network airline groups like AF/KL, LH and IAG continue to grow and lower their cost bases, headline fares and the size of premium cabins demonstrate what the travelling public want - low fares.
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"These are the consequences of cheap fares." - well said Brian!!!
Trinity - I'm not sure exactly what you mean - if you mean Financial Engineering then most of it is thought up in the City of London and that's one of our (only) export industries these days
Trinity - I'm not sure exactly what you mean - if you mean Financial Engineering then most of it is thought up in the City of London and that's one of our (only) export industries these days
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...airlines like FR demanded low charges from airports who couldn't afford to turn away their busines
The short-term robbery of passengers is seen by them for exactly what it is - profiteering. Knowing you will get ripped off means offsite parking, taking your own food and sweets on board and buying books and magazines at supermarkets before travelling. When the travelling public feel they are getting value for money they might start spending again. Until then, the rapacious owners and avaricious management must start gettihg used to ever decreasing yields.
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Piltdown
When you invest or buy a pension do you go for the most ethical shares or the ones that provide the highest return?
It's easy to say "foul, greedy & heartless" but that's what people who invest in them (or get a pension from them) want - maximum return.
If ANY outfit doesn't make a profit how does it re-invest? You finish up like so many publicly owned outfits with declining infrastructure, lack of maintenance etc
The profit motive isn't brilliant but its the best mechanism we have.
When you invest or buy a pension do you go for the most ethical shares or the ones that provide the highest return?
It's easy to say "foul, greedy & heartless" but that's what people who invest in them (or get a pension from them) want - maximum return.
If ANY outfit doesn't make a profit how does it re-invest? You finish up like so many publicly owned outfits with declining infrastructure, lack of maintenance etc
The profit motive isn't brilliant but its the best mechanism we have.
Last edited by Heathrow Harry; 20th Aug 2017 at 08:33.
Piltdown Man - I hope you always chose the highest airfare available in the expectation that the airline is then passing on a reasonable price for the airports services...
On the profiteering point - can you point out which airports are making excessive profits?
On the profiteering point - can you point out which airports are making excessive profits?
HH
"most of it is thought up in the City of London and that's one of our (only) export industries these days"
Those responsible for financial engineering are not based in the City of London, per se, and their incomes are shown in $. There "thinking" which will be a method to avoid taxation set by HMG is made under an umbrella of off shore entities, frequently used by large corporations to move their financial responsibility elsewhere. Like those enjoying coffee at the airport after purchasing goods on line for their travel.
The City of London is only a square mile of the whole, most bank HQ's & etc are elsewhere.
"most of it is thought up in the City of London and that's one of our (only) export industries these days"
Those responsible for financial engineering are not based in the City of London, per se, and their incomes are shown in $. There "thinking" which will be a method to avoid taxation set by HMG is made under an umbrella of off shore entities, frequently used by large corporations to move their financial responsibility elsewhere. Like those enjoying coffee at the airport after purchasing goods on line for their travel.
The City of London is only a square mile of the whole, most bank HQ's & etc are elsewhere.
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I think most people understand that the term 'City of London' is often used to refer not to a geographical location but to the financial community. London is the world's largest centre, I believe, for what is euphemistically called Asset Management, AKA tax avoidance, tax evasion, and money laundering.
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Welll.... there is no doubt that any prolonged decline in income will be noticed by the owners pretty quickly and their future planning will be based on this.
They can cut costs and try and find more "innovative" ways of raising income - but I'd expect airline charges (and thus fares) to rise at the major airports. The LCO's will continue to play off the smaller airports as long as they can so expect more changes in routings from there.
In the long term you'd expect a steady decline in the smaller airports - losses, more value as housing, business parks etc so I'd expect more developers to buy in (think Manston, Carlisle, Doncaster, Teeside, Prestwick, Coverntry as airport s likely to disapear). This will reduce the LCO's options eventually I guess.....................
They can cut costs and try and find more "innovative" ways of raising income - but I'd expect airline charges (and thus fares) to rise at the major airports. The LCO's will continue to play off the smaller airports as long as they can so expect more changes in routings from there.
In the long term you'd expect a steady decline in the smaller airports - losses, more value as housing, business parks etc so I'd expect more developers to buy in (think Manston, Carlisle, Doncaster, Teeside, Prestwick, Coverntry as airport s likely to disapear). This will reduce the LCO's options eventually I guess.....................
One of the bizarre aspects is how airport management will make longwinded public pronouncements about how they favour public transport etc, but given they now can make more per pax from car parking than from aviation ops, their actual management goals are the reverse.
The recent case where Heathrow was trying to charge the new Crossrail service what came to several pounds per arriving rail passenger, which was thrown out by the courts, was a notable new one.
The recent case where Heathrow was trying to charge the new Crossrail service what came to several pounds per arriving rail passenger, which was thrown out by the courts, was a notable new one.
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The problem begins when airports (and airlines) think about passenger numbers rather than profitability. A LCC goes to an airport and says "we can triple your passenger numbers, but we're not going to pay you a penny because of the additional footfall we create and retails profit you can thrive on." The LCC CEO will be a hero for bringing on board another destination (even if that means one flight each week) and bigger passenger numbers. The airport manager figures triple passenger numbers is going to make him a real hero in his employer's eyes, and is enthused. Problem? The airport facilities need to be expanded in order to accommodate triple passenger numbers and larger aircraft. So funding is called in --- at a price, it must be said ---- and now the airport is faced with lower revenues per passenger from the carrier as well as the cost of finance and higher overhead. Who covers the revenue requirements? You guessed it, it's Joe Dokes walking through the door. So long as everyone is convinced a flight across the globe in the equivalent of a sardine can for the price of a ticket on a carnival ride is a good thing, the business infrastructure provided by regional airports and regional operators will continue to deteriorate.
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Welll.... there is no doubt that any prolonged decline in income will be noticed by the owners pretty quickly and their future planning will be based on this.
They can cut costs and try and find more "innovative" ways of raising income - but I'd expect airline charges (and thus fares) to rise at the major airports. The LCO's will continue to play off the smaller airports as long as they can so expect more changes in routings from there.
In the long term you'd expect a steady decline in the smaller airports - losses, more value as housing, business parks etc so I'd expect more developers to buy in (think Manston, Carlisle, Doncaster, Teeside, Prestwick, Coverntry as airport s likely to disapear). This will reduce the LCO's options eventually I guess.....................
They can cut costs and try and find more "innovative" ways of raising income - but I'd expect airline charges (and thus fares) to rise at the major airports. The LCO's will continue to play off the smaller airports as long as they can so expect more changes in routings from there.
In the long term you'd expect a steady decline in the smaller airports - losses, more value as housing, business parks etc so I'd expect more developers to buy in (think Manston, Carlisle, Doncaster, Teeside, Prestwick, Coverntry as airport s likely to disapear). This will reduce the LCO's options eventually I guess.....................
You really think DSA is likely to disappear? Brexit brings uncertainties I know but Wizz had carried it for years and has been adding routes. As long as Wizz remains I think Donny is safe whatever else happens. It has a decent catchment area and awareness and PAX are growing.
I do agree that some smaller airports are likely to face tougher times or fold altogether though, especially if we have another major recession. Blackpool is a good example of how a smaller airport's fortunes can decline for the reasons you suggest above.
Success must be influenced by catchment area. I am aware that many of the airports whose doors have closed to pax, or that are struggling, are in close proximity to the coast: Manston, Plymouth, Blackpool, Prestwick, Teesside, Humberside.
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