Blogs

Airport operators in Asia-Pacific

  • Revenue sources of airport operators
  • What brings more aircraft to an airport?
  • How more aircraft affect performance of an operator?
  • Importance of retail outlets at an airport

 

The aviation industry is projected to grow rapidly in the next few decades. The total number of flight boarding across the world was 3.2 billion in 2016 and the number is expected to reach 7.2 billion by 2035.

The major chunk of demand arises from the Asia-Pacific region, the area captures 41% of the total demand. In addition, Asia-Pacific is anticipated to seize the huge civil aviation market in the near future due to the lessened regulations on trade and investment and numerous holiday destinations.

According to the IATA (International Air Transport Association) report, out of the top ten countries with the highest traffic growth, five are from the Asia-Pacific region; China, India, Indonesia, Malaysia and Thailand. The compound annual growth rate of passengers in the world is 3.7%, whereas in Asia-Pacific it is 4.1%. This is second highest in the world after the Middle East.

The increase in passenger traffic brings in more revenue but also increases the overhead costs. Additionally, the overcrowding may spoil a passenger’s experience and lead to a fall in a number of airlines selecting an airport as a transit point.

In this blog, Televisory examined the performance of three major airports operators from Asia-Pacific region; Airport of Thailand (AOT), Malaysia Airport Holdings (MAH) and Beijing Capital International Airport (BCIA).

The AOT was established in 2002. It operates 6 airports in the nation and in 2016 catered to 120 million passengers. This was 21.3% higher than 2015. Furthermore, out of the 6 airports, Suvarnabhumi Airport (BKK) and Don Mueang international airport are the major international airports. Suvarnabhumi Airport is the 12th (world) and 9th busiest (Asia) and it is the largest in the country. Secondly, MAH operates 39 airports in Malaysia, most of which are domestic. BCIA operates only one airport in the capital city of Beijing, China.

The number of passenger traversing through airports was 90.6 million in 2016 and all these airports are currently overutilized.

Furthermore, the airport operators earn their revenue through two segments namely aeronautical and non-aeronautical. Aeronautical revenue includes passenger service, landing and aircraft parking charges, bridge services, and other minor commercial activities. Non-aeronautical revenue consists of car parking fees, retail rentals (restaurants and shopping) and baggage services.

Beijing Capital had the highest aeronautical revenue per passenger. The cumulative number of the passenger was approximately the same for AOT and MAH. However, the difference in aeronautical revenue is considerable owing to different business models. AOT operates 4 international and 2 domestic airports, whereas MAH majorly operates domestic airports (37 out of the 39). The aeronautical revenue was at the same pace till 2016 as there was no commendable growth. BCIA witnessed a 1% growth in 2016 as compared to 2015 and grew only by 8% during 2012-16.

The aeronautical revenue majorly consists of Passenger Service Charges (PSC) and landing and parking services. PSC is the charge imposed by airport operators on airlines, but airlines transfer these charges to passengers. It includes security component and facilitation services. Therefore, it is increasing, with the number of passengers. Moreover, for Beijing Capital and MAH, the PSC was almost half of that of AOT. This was due to few free services provided to passengers like baggage carts, shuttle services at terminals and 72-hour free transit without visa at the Beijing airport. These components affected the aeronautical revenue of the Beijing Capital. The second significant factor that influenced the aeronautical revenue for Beijing Capital was Air China, which is the largest airline player in the nation. Thus, in order to promote the national business, the PSC was kept lower for Air China. It is not surprising that PSC for MAH is lesser than compared to AOT and BCIA since it is mostly catering to domestic passengers.

Second important component of aeronautical revenue is the landing and parking charges imposed on aircraft. It was the highest for BCIA as the number of airlines were more than MAH and AOT. Beijing airport is very engaged as it provides a high standard of services and facilities and this leads to a greater landing and parking charges. On the contrary, MAH and AOT’s landing and parking charges were almost stagnant. MAH started a novel practice to attract new airlines and waived the landing fees for 3 years, offered a 75% off in the 4th year and a 50% off in the 5th year. MAH propose to give similar incentives to existing airlines for adding new destinations using the airports operated by the firm. Likewise, AOT also implemented schemes to attract scheduled air traffic to its international airports. Hence, apart from the waiver, other discounts were also announced for domestic as well as international airlines. The waivers and discounts offered by MAH and AOT are affecting the landing charges and thus, leading to a decrease in aeronautical revenue.

The non-aeronautical revenue constitutes 44% of the revenue for airports worldwide. In the Asia-Pacific, this constitutes of 51%. The non-aeronautical revenue comprises retail shop rentals and parking for passenger vehicles. Hence, more facilities for food and shopping will lead to a high non-aeronautical revenue. The number of passengers and average time spent by passengers on an airport affects this component. The below graphs show the non-aeronautical revenue of airport operators, which majorly consists of retail and rentals.

Beijing Capital portrays Chinese culture and serves native food at the airport. There are several shopping stops and eateries at the terminals which provide high non-aeronautical revenue. The food service area at the airport comprises 72 food stalls, these serve a variety of food ranging from local Chinese cuisines to western dishes; ice cream to coffee. This also offers décor and conducive meeting joints at the terminals. There is a domestic retail area apart from the food zone, duty-free stores, banks, business centre and internet facilities. The commercial area is larger than the biggest shopping complex in Beijing.

AOT has 4 international airports, but there are no shopping stops and limited food options. The firm is more focused on outdoor attractions and arranged different facilities to visit nearby tourist spots. According to the company, there is a requirement to invest in retail and food shops.

The retail services available at the domestic airports of MAH are limited. The firm operates only two international airports and the retail services available at the international airports are not at par with those offered at Beijing Capital International Airport.

AOT operated at the highest EBITDA margin of 62%. Presently, there is an overutilization of AOT’s infrastructure and it will cause wear outs. But, plans have been formulated to handle the increasing passenger traffic and expansion. AOT incurred a high utility expense, but a greater revenue generated through PSC offsets this expense.

The second highest EBITDA margin was of BCIA, operating at 52%, this is commendable as the operator has a single international airport and provide world-class facilities. The staff cost margin was the lowest owing to cheap labour in China.

The lowest EBITDA margin was of MAH due to a high staff and maintenance expenses, and for the waivers and discounts extended to airlines. The company is trying to reduce the employee expenses by decreasing bonuses of the staff. 

In conclusion, a high number of aircraft landings and passenger arrivals generate a great amount of revenue for airport operators. However, the overutilization of airports results in elevated maintenance costs, this can erode the margins. Hence, most airlines would like to use an airport as a transit if charges imposed are low and the facilities are superior. These low charges will result in more airlines using a facility and low revenue, but a high number of passengers. If an airport consists superior retail outlets and restaurants, this can compensate for a low aeronautical revenue from airlines. 

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