Airport User Charges and Financing (1)

Transcription

1 Airport User Charges and Financing (1) Amedeo R. Odoni November 5, 2002 Airport User Charges and Financing Objective: Review principal ownership and management arrangements along with principles and international practices in determining user charges and in financing airport investments Topics Ownership and management Relationship with the airlines Regulatory mechanisms Aeronautical and non-aeronautical charges Airport pricing practices and issues Financing airport projects Reference Chapters 7 and 8

2 Forms of Ownership and Management of Airports A. Government-owned; operated by Department or Agency of national government B. Government-owned; operated by municipal/regional Department or Agency C. Government-owned; operated and managed by private contractor D. Operated by an independent Airport Authority which is fully owned by municipal and/or regional and/or national government E. As in D but with minority private shareholders (some shares may be publicly traded) Forms of Ownership and Management of Airports [2] F. Privately-owned (fully or in majority, possibly with some or all shares publicly traded); operated as independent airport authority Tendency toward C - F as airports become larger and more important to local and national economies Many possible variations within the categories E and F often involve a fixed time limit (e.g yrs) Build, operate and transfer (BOT) agreements often associated with E and F May also apply to individual facilities within an airport (e.g., terminals, car parks, etc.)

3 Typical Provisions for Type D Airports Board of Directors appointed by shareholders Often tax exempt or privileged tax status Authorized to acquire land via eminent domain Authorized to undertake construction, manage the airport, and be responsible for all services Authorized to issue tax-exempt revenue bonds Typically expected to be economically self-supporting; authorized to adjust user charges to this effect Can make contributions to owner in lieu of taxes Possibly also operate other infrastructure (e.g., seaports, bridges, tunnels, etc.) All property reverts to owner if Authority is dissolved Typical Public Authority-Operated Major Airport in US Massport (owner and operator of Boston Logan International Airport) Airport staff: 675 people 1998: 27 million passengers; a/c movts Other airport employees: Massport airport revenues: $270 million (86% of total Massport) Estimated economic impact on Massachusetts economy: $5.3 billion

4 Airport Privatization Trend Growing private participation in airport ownership (about 180 airports through end of 2001) Equally important, private-sector management practices are replacing traditional governmentstyle management in an environment demanding economic self-sufficiency Trend toward outsourcing of airport activities, lean airport organizations ( US model ) Accompanied by improved understanding of need for regulatory safeguards to protect public interest and prevent monopolistic practices Confluence of factors leading to the privatization trend A mature industry with large profit potential from non-aeronautical activities Increased pressure from the airlines and the public for operational and economic efficiency Need to react quickly to growth and change Airports perceived as attractive investments Competition among hub airports

5 Privatization examples: Airports with some publicly traded shares BAA (British Arpts Auth y) TBI (UK) Mexican Southeast Airport Group (ASUR) Copenhagen (CPH) Auckland (AIA) Vienna (VIE) Beijing (BCIA) Frankfurt/Main (Fraport) 100% Free Float (London Stock Exchange) 100% Free Float 15% Strategic Partner led by Copenhagen Airport, 85% Free Float (Mexican Stock Exchange) 33.8% Danish Government, 66.2% Free Float (Copenhagen Stock Exchange) 25.8% Auckland City Council, 9.6% Manukau City Council, 7.1% Singapore Changi Airport, 57.5% Free Float (New Zealand + Australian Exchanges) 20% Province of Lower Austria, 20% City of Vienna, 10% Employee Found n, 50% Free Float (Austrian Stock Exch) 65% Beijing Capital Airport Group (Government Owned), 10% Aeroports de Paris (ADP Manag t), 25% Free Float (Hong Kong Stock Exchange) 32.1% State of Hesse, 20.5% City of Frankfurt, 18.4% Federal Republic of Germany, 29.0% Free Float (Frankfurt Stock Exchange) Commercialization and Awayfrom-Home Ventures Fast-growing non-aeronautical revenues as a result of emphasis on commercial activities and other landside services (due to growing traffic and to numbers and longer dwell times of connecting and departing passengers) Ventures away from home, sometimes in activities not directly related to airports (e.g., real estate) Evolving organizational structures reflecting these trends

6 A Traditional Organizational Chart for an Airport Policy Source Chief Executive Legal Planning Administr ve Environm l Commercial Financial Public Communic ns Human Resources Engineering / Technical Operations A two-tier organizational chart with staff (support) units and line (operating) units Board of Directors Chief Executive Legal Administrative Planning Financial Human Resources Public Communications Deputy Director Engineering and Technical Commercial Operations Handling Environmental

7 Organizational chart for Airport Authority operating several airports Policy Source Chief Executive Public Communic'ns Admin've Services Deputy Director Finance Law Aviation Department (Director) Other modes Staff Aviation Sea Airport 1 Airport 2 Airport 3 Road Environmental Operations Engineering Rail Organizational Structure: The Amsterdam Schiphol Group Corporate Staff Board of Management Domestic Airports International Project Consult Schiphol Airport Real Estate Support Services Inform'n + Communic'n Technology Business Unit: Airlines Business Unit: Retail Business Unit: Passengers

8 Economic Regulation of Airports Airports, with a few exceptions, are natural monopolies for O/D traffic Widespread concern about potential abuses in pricing airport facilities and services Increasingly sophisticated regulation (UK in lead): price caps tied to inflation rates and/or traffic growth Fundamental issue: aeronautical vs. nonaeronautical charges Single-till vs. dual-till controversy (or airport vs. airline) Regulatory Price Cap Formulae (RPI = retail price index; CPI = consumer price index) Location Formula Review period Comments Argentina RPI (20% of 3 years annual growth rate) Australia RPI x 5 years Aim is to remove regulation eventually BAA RPI x 5 years Single till Copenhagen CPI 4 years Review in 2002 Mexico RPI x 5 years Dual till Vienna RPI x 5 years x depends on traffic growth

9 Regulatory Price Controls at Privatized Airports BAA pricing policies regulated by Monopolies and Mergers Commission through CAA RPI - x formula: annual rate at which an airport can increase its aeronautical charges cannot exceed retail price index (RPI) by more than x% 1999: Heathrow, Gatwick x= 3%; Stansted x= -1% Intent: improvements in airport financial performance must come from productivity gains, not price increases Vienna: allowable annual rate of increase in charges depends on rate of traffic growth; the higher traffic growth, the lower the increases allowed Slots plus Congestion Pricing: Landing Fees, BAA (2001) Heathrow Gatwick Stansted Aircraft weight (tons) Peak Off-peak Peak Off-peak Peak Off-peak MTOW <MTOW < MTOW For MTOW > Apply to domestic and international flights Note: Peak varies by airport (Heathrow peak: 07:00-9:59 and 17:00-18:59 GMT, April 1-Oct. 31)

10 Indicators of productivity at three publicly traded airports BAA Copenhagen Vienna Passengers (m) Employees 10,900 10,017 1,300 1,399 1,800 2,644 Passengers/ employee Total annual costs ($m) 6,600 12,400 9,200 13,200 3,300 4,500 1,100 1, Staff cost ($m) Total cost/ passenger ($) Staff cost/ passenger ($) The single till approach Aeronautical Revenues (Regulated) Non-Aeronautical Revenues (Unregulated) Single Till Target Rate of Return Traffic Forecast Asset Base Estimation of Maximum Aeronautical Unit Charges RPI-X RPI X

11 The dual till approach Aeronautical Revenues (Regulated) Non-Aeronautical Revenues Services (Unregulated) Aeronautical Till Non-Aeronautical Till Target Rate of Return Traffic Forecast Asset Base Estimation of Maximum Aeronautical Unit Charges RPI-X X US (Quasi-) Analogy: Residual Cost vs. Compensatory Residual Cost Approach Airlines assume financial risk by agreeing to pay costs not allocated to other users or not covered by non-airline sources of revenue In return, airlines are charged only for residual costs not covered by other revenue sources Compensatory Approach Airport operator assumes financial risk of running the airport Operator charges airlines fees and rental rates so as to recover actual costs

12 Compensatory vs. Residual Airports Compensatory (BOS, PANYNJ, LAX, TPA) No sharing of concession revenues with airlines Charge airlines for full estimated cost of their use of airfield facilities and passenger terminals Assume financial risk of operations and keep any profit Residual* (ORD, DFW, CVG, MIA, HNL) Share concession revenue with airlines Can charge airlines for shortfall in debt service Share financial risks and rewards with airlines Some Points of Contention Regarding Privatized Airports Monopolistic pricing Investment criteria and cost of capital Commitment to issues of public concern Digression from airport-related activities Employment One or multiple operators of MAS Cross-subsidies among airports if owner of many airports

13 Background on User Charges Controversial issues, with varying practices around the world; little guidance available; occasional government intervention Chicago Convention (1944), Article 15, Chapter 2: uniform conditions for aircraft of all Contracting States non-discriminatory charges for international air services publish charges and communicate them through ICAO Bermuda 2 Agreement (UK/US, 1977): user charges may reflect, but shall not exceed, full costs, including fair return on assets after depreciation ICAO Doc. 9082/4 (1992, 2001) Statements by Council on Charges for Airports and En Route Navigation ICAO Doc (annual) Manual of Airport and Air Navigation Charges Statements by the ICAO Council: Airport Charges General Majority of international airports operate at loss Airports operated by autonomous authorities seem to outperform government-operated ones States should consider the broader economic implications of airports when shaping policies Council is concerned about economic situation of airports in developing countries proliferation of charges on air traffic (some of these charges are for unnecessary services) increase in cost of air navigation services

14 Statements by the ICAO Council: Airport Charges [2] Cost Basis for Airport Charges Principle: International users must bear their full share (but not more) of the cost of the airport Airports should maintain full financial records Full cost includes operating cost of airport and essential services, as well as interest, depreciation, repairs and management No charges for facilities not used Airports may produce revenues > costs A user s ability to pay should not be taken into account until all costs are assessed Types of User Charges: Aeronautical Landing (and/or takeoff) Terminal-area air navigation Passenger service (terminals) Cargo service Aircraft parking and hangars Security Airport noise Ground (ramp and traffic) handling En route air navigation

15 Landing fee ICAO Council Statements: Should base on maximum permissible takeoff weight (MTOW), except under airport limitations Should compute on basis of a rate per 1000 kg; rate may vary at certain weights May be just a fixed charge up to a weight threshold Should include cost of lights and other landing aids -- these should not be optional Should not depend on stage length Note: Ability-to-pay a main factor; inefficient at congested airports Other Aeronautical Charges Terminal Air Navigation -- Sometimes charged separately; allocated between airport operator and ATM service provider Passenger Service -- Charged on a per passenger basis; usually paid directly by airline, but with notable exceptions; head taxes (e.g., PFC in US) may be a form of passenger service fee Cargo Service -- Per ton or other unit measure Parking and Hangar Charges -- Based on MTOW and/or aircraft dimensions; often no charge for occupancies of less than normal threshold (2-6 hours); rate may differ for contact vs. remote

16 Noise-Related Charges Increasingly common; usually part of landing fee Often depend on time of day and/or aircraft noise characteristics Stage 1, 2 and 3, but often finer subdivisions Cover noise mitigation cost + demand management ICAO Statements: should be imposed only where noise problems exist; should recover only costs of noise alleviation; should not be prohibitively high for the operation of some aircraft Note: Some airports (Stockholm, Zurich, Geneva) have introduced noxious emissions charges Security Charges Varying practices National police or other government security agency; airport operator; third-party contractor Supervision is state responsibility Users requesting or requiring additional security may be charged more Often part of passenger service charge ICAO Statements: authorities may recover costs but no more

17 Air Navigation Charges: Statements by the Council Costs to be taken into account should include only those related to services and facilities under ICAO Regional Air Navigation Plan Approach and Airport Control Charges should be associated with landing fee may take aircraft weight into account, but less than in direct proportion Route Air Navigation Charges should take into account distance flown, and aircraft weight (in less than direct proportion) Charges for Service Not Over Provider a State may charge for services rendered anywhere collection of charges in such cases may be difficult EUROCONTROL: Air Navigation Facility Charges The EUROCONTROL Formula: Charge = (service unit rate) x (# service units) r = t N # service units = (distance factor) x (weight factor) N = d P distance factor = Great-circle distance (in 100s of km) (Great-circle distance is reduced by 20 km for each takeoff or landing within a concerned state) Max permissible takeoff weight weight factor = 50 Airport Systems Planning & Design / ARO

18 EUROCONTROL Example 300 km flown by 200 ton aircraft in a country with a fee of $50 per unit # of units 300 = = 50 6 Charge = 6 x $50 = $300 EUROCONTROL En Route Air Navigation Unit Rates (1998, in ECU) Austria 58 Belgium 78 Bulgaria 60 Croatia 41 Cyprus 24 Czech Republic 45 Denmark 52 France 62 Germany 67 Greece 26 Hungary 25 Ireland 23 Italy 45 Luxembourg 78 Malta 35 Monaco 42 Netherlands 46 Norway 49 Portugal 40 Romania 37 Slovakia 68 Slovenia 65 Spain 48 Sweden 44 Switzerland 74 Turkey 38 UK 80

19 EUROCONTROL: Principles for Estimating Charges Cost recovery increased from 15% in 1971 to 100% in 1982 and thereafter A single charge is imposed regardless of number of States overflown; each State is then allotted its share Cost base pre-set for all States, includes depreciation (buildings, equipment, vehicles) interest on capital expenditures return on investment for working capital operating, maintenance, training & admin. costs Ground Handling Services Traffic Handling Representational Services Communications Handling documents and load control Passenger handling with exception of State services Cargo and mail handling services Airport information services Ramp Handling Baggage handling Loading/unloading Catering transport Interior cleaning Toilet service Water service Passenger transport De-icing Fueling Starting Marshalling, parking

20 Provision of Ground-Handling Services Alternative sources of services: Airport operator (Authority or State) Airline itself ( self-handling ) One airline to another ( third party service ) Independent, specialized server Availability of at least two competitive sources is typically required or encouraged Extensive personnel requirements Ground Handling Arrangements at Some North American Airports (1996) Type of Handling Permitted Fees Location Selfhandling Third party Independent Amount Paid by handler Vancouver Yes 5 1 Fixed fee Ind. Montreal Yes Calgary Yes Atlanta Yes Yes Boston Yes 3 4 5% Ind. + 3P Dallas-Ft. Worth Yes Yes Denver Yes % Ind.+ NS 3P Detroit Yes* Ind. New York JFK Yes Yes 3 5% Ind. + 3P Los Angeles Yes Yes 7 10% NS Miami Yes Yes 6 Varies Ind. Chicago O Hare Yes Pittsburgh Yes Yes 1? Ind. San Francisco Yes Yes 4 $50 Ind. Seattle-Tacoma Yes Yes

21 Employees and activity at selected airports (2000) Empoyees Pax (m) Cargo (000 WLU/empl. tonnes) BAA 10, , Cop hagen 1, Vienna 2, Frankfurt 14, ,700 5 Munich 4, Rome 6, Schiphol 1, , Consultation with Users: Statements by the Council Consultation should precede any significant changes in charging systems Airport operators should seek user views and reach agreement Two-months advance notice of proposed changes Authorities should have power to implement changes Airports and users should plan new developments together; share forecasts and information