Challenges of airport economics for financial management

Abstract

This paper discusses the fundamentals of airport economics, governing the business in general. Based on representative ACI data, the structure of airport finances and resulting profitability will be exemplified from a global and regional perspective. The major characteristics will be identified from this, impacting on revenue and cost levels, capital productivity and structure, as well as capital spending. Due to their relationship with airline customers as well as travellers, airports are two-sided businesses. Moreover, infrastructure costs do not vary in direct proportion to traffic throughput. This makes airports fixed cost businesses in nature, continuously searching for new airlines, passengers and cargo in order to achieve economies of scale and increase commercial revenue at the same time. In combination with the investment cycle, this poses unique challenges for financial management in the sector beyond the typical activities of working capital management and investment funding. Airports and airlines are intrinsically linked and rely on one another to operate efficiently. Nevertheless, they are based on considerably different business models. While airlines are able to flexibly respond to changes in traffic flows by adjusting capacity, airports have to commit to long-term planning decisions to safeguard capacity many years ahead. Operating efficiency, capital productivity and cost of capital as well as an appropriate capital structure are essential for financial success.