Like the rest of the travel sector, airports have suffered a lot from the crisis, and although they have been less talked about than airlines for the moment, their case will soon reach the top of the pile. Their status (sometimes private, sometimes public, sometimes mixed) may have protected them, but at some point the question of funding their operations and investments will arise.
An opportunity to take stock of a little-known but not uninteresting subject: how do airports live and fund themselves? And how will they get through the crisis?
We’ll focus on the French model here, but the overall pattern is pretty much the same everywhere, with a few differences (direct collection, redistribution, sharing of roles between the airport and the state).
Airports live on fees and taxes
Airport resources fall into three main categories, depending on their nature.
The primary source of financing for airports is the fees they charge for the use of their facilities (passenger and landing fees).
They are used to finance and operate infrastructure (terminals, runways, etc.). They are paid for by the airlines, but not exclusively. It also includes fees paid by businesses inside the terminals.
Next come service fees. These are used to finance investment in and operation of air safety-related infrastructure (control towers, landing systems, etc.). Again, they are paid for by the airlines to the airport.
Finally, there are taxes (civil aviation tax, airport tax).
In theory, the civil aviation tax funds the operations of the DGAC ( French Civil Aviation Authority) and air traffic control. In practice, 15% finances the DGAC, and the rest falls neatly into the state budget and is used for other things.
The airport tax finances airport safety (distinct from air safety). Depending on the airport, it varies from €1 to €14 per passenger, and its total value is around €1 billion.
They are levied by the airlines on passengers, collected and redistributed by the government to the airports.
These are the main sources of revenue for airports, even if they only benefit indirectly or partially from some of them. For example, air traffic control is financed by the State, even though it is a resource from which the airport benefits.
Increasingly commercial resources
While air taxes and charges were originally used to finance air travel, airports have developed other resources over time.
We’ve come a long way from the days when an airport was a place where you just dropped in to catch a flight. The multiplication of security measures and controls, and the growth of large connecting hubs, mean that people are spending more and more time in airports.
Real commercial zones have thus developed to “occupy” passengers and satisfy their needs. At major international airports, fees from these commercial activities account for almost 50% of revenues, and will eventually exceed this figure, even if the current crisis has postponed this deadline.
(Almost) self-sufficient financing
The principle has always been that air transport should pay for itself, i.e. be able to self-finance its own operations and investments, unlike rail transport, for example.
While this is generally true, there are certain exceptions to the principle.
Firstly, at the level of the airport tax, which is no longer sufficient to meet the ever-increasing safety demands placed on the sector. The French government has thus made up the shortfall between declared security expenditure and the amount of tax collected, to the tune of just under €100 million in recent years. But in many other countries, for example, the cost of security is borne exclusively by the state.
Secondly, sometimes the amount of investment required to build or operate an airport exceeds its normal resources. This may affect a small regional airport as well as a major international hub, for different reasons. In this case :
- The airport is eligible for state subsidies.
- Public-private partnerships (PPPs) can be set up
- Full privatization may be possible
All this is not without raising issues. We know that low-cost carriers blackmail certain national airports, asking them to finance part of the operating costs of their routes. It is therefore logical to question the fact that an airport receives subsidies from the State and then subsidizes an airline, especially when the latter is not exemplary in terms of respect for social legislation.
The growth in commercial royalties is not without causing reactions either. While other fees are regulated and their increase subject to government approval, these are not. As a result, airports have a “two-tier” fee structure, with one part of the fee linked to aviation activities and subject to regulation, and the other to commercial activities, which are not.
In some cases, these commercial revenues are not even taken into account in the financing capacity of airport infrastructures. As a result, airports are trying to finance their investments solely with the increases in “air” taxes and charges granted by the State, as they are unable to incorporate commercial revenues into their financing capacity. In the opposite case, the State could consider that resources are sufficient without increasing taxes. The big losers, from their point of view, are of course the airlines, on whom these increases fall, and who think airports don’t always them.
A business model undermined by the crisis
To put it simply, in the French model, it’s current traffic that finances airport operations and investments.
A model that has generally worked so far, but which may well hit a brick wall in the months ahead.
Over the past year, airports have logically seen their revenues plummet, leading them to cut costs (terminal closures, etc.). But while the recovery is taking shape in a more or less distant way :
1°) Needs will increase (sanitary controls and constraints)
2°) Revenues will return, but not in line with needs.
Today, French airports are already unable to finance the cost of security. We’re talking about half a billion euros in lost revenue.
After the losses recorded in 2021, they won’t have the means to cope with the recovery unless airport taxes increase radically, not to mention the fact that some airlines haven’t even paid the taxes due.
And this is where the problem lies. In terms of taxes, French airports are already among the most expensive in Europe, and an increase in taxes will benefit their European competitors, who will be all the more competitive in comparison.
Bottom line
France had succeeded in finding a self-financing model for air transport that worked, even if it was beginning to show its limits in terms of investment needs for the biggest hubs.
The crisis is likely to put everything back into question, and after the airlines, the French government is going to have to come to the rescue of the airports on a massive scale. And there’s no evidence that this will obviate the need for a more thorough overhaul of the model in the future, with greater involvement by local authorities or, conversely, greater reliance on the private sector.
Photo : Roissy CDG by EQRoy via shutterstock
