An Overview of how Airports Function Airport financing An Overview of how Airports Function

What makes an airport so great? An economic cornerstone in our community Job creation (KSLC is a perfect example) Supports commerce Is a creator of business Encourages tourism Ease of travel for members of the community An economic cornerstone in our community: it creates jobs, brings in revenue for businesses, Allows for major events to take place such as the Olympics, not to mention the ease of travel. KSLC employs 13000 people directly (general rule of thumb for determining the number of jobs created indirectly such as cab drivers etc. is to times number of direct jobs by X3 = 39 thousand people indirectly employed by KSLC

Types of Airports Large and Small Rural and Remote Public and Private Each serves a specific purpose in the Nation’s Air Transportation system There are large and small airports, remote and rural, private and public; all of which serve a purpose, some more important to the public than others. In general, this report will be focusing more on the larger scale public airport facilities in the United States and how they serve as a major economic giant among some of the biggest industries in the world. Also, I will be focusing on how these airports are financed and what “makes them tic.”

Primary Commercial Service Airports Divided into four groups Large hubs: 33 Medium hubs: 35 Small hubs: 4 Nonhubs (between 2500 and 10000 enplanements)

What does my airport do for me Transportation (fastest way of travel) Makes the largest impact on intercity and interstate travel and commerce of any form of transportation Economic growth Competition Expansion of markets Generation of tax revenue which gives back to the community The primary role of an airport is to provide means of transportation of persons and property. The airline industry is vital to America’s transportation system as a whole. Even though there are a number of different means of transportation, air travel has over the years made the most significant impact on intercity and interstate trade and commerce. The next most recognizable benefit that comes from having an airport in a community is the stimulation of economic growth. Things like demand for products and services, competition between businesses and expansion of markets are examples of how this country could not operate the way it does with out a national aviation system. Much of this money does not get circulated back into the airline industry but rather goes towards maintaining and improving surrounding communities.

Airport Expenses Operation and Maintenance Employee salaries Maintenance of airport facilities Payment for utilities Purchasing of supplies Dealing with accidents/incidents and other unexpected day to day expenses In general, the two types of expenses that an airport encounters are capital improvement expenses and operation and maintenance (O&M). Most of the funds an airport receives after it has been established go toward maintaining and running the facility smoothly, safely, and efficiently. These expenses include but are not limited to: paying salaries and wages of airport employees, maintenance of airport facilities, maintenance of runways and other parts of the runway environment, payment for utilities (water, technical equipment, electricity etc.) and also the vast amount of disposable supplies. airfield, terminal, hangars, and general administrative expenses. (four types of expenses)

Operating and Maintenance Expenses Operating expenses fall into one of four categories Airfield (runway maintenance, lights etc.) Terminal (cleaning, plumbing, electricity etc.) Hangars (includes all buildings) General Administrative expenses (employee salary, leasing of land, liability insurance etc.) All operating expenses are divided into four groups: airfield, terminal, hangars, and general administrative expenses.

Capital Improvement Expenses Capital Improvement expenses are periodic expenses that tend to be very large Expansion or building of a new terminal Construction of new runways Purchasing of large equipment such as fire trucks, tow trucks, and other ramp vehicles Acquisition of land Noise restraint equipment (insulation of housing) Some examples of capital improvement expenses include but are not limited to: construction of terminal facilities, construction of new runways, purchasing large equipment such as fire trucks and tow trucks and also the acquisition of land for future expansion.

“If you’ve seen one airport…you’ve seen one airport.” All airports are unique Airport systems function differently Geographical location Organizational setup Take Salt Lake International compared to Las Angeles for example; the population of Salt Lake is much smaller so they have less enplanements. Because of the large number of enplanements at LAX they receive more federal funding. On the other hand, if either airport wanted to buy more land surrounding their particular airport LAX would doubtlessly be paying a higher price. These differences in geographical location tie into how an airport functions within their organizational structure. An airports budget has much to do with how it is structured. For example, larger airports have more personal, equipment etc. and they will also need a more complex administrative structure. Because of this need for a complex administrative structure, it becomes especially necessary for people in administrations to have good relations amongst themselves. To do other wise compromises the safety of the operation.

Budgeting Because airports have a relatively inconsistent flow of funds, they have special forms of budgets. Most airports operate on one of four forms of budgets. Lump Sum Appropriation Appropriation by Activity Line-item Budget Zero-based budget

Lump Sum Appropriation Simplest form of budgeting Is free of financial restrictions Maximum flexibility is obtained and it is the job of the operator of the airport Most commonly seen in general aviation airports with smaller budgets and less needs

Appropriation by activity Uses a set of guidelines that directs how much money is allocated to various work areas Examples of work areas are: Fire Department, Ground control, Terminal service, Security, bagage handling Although there are limitations placed on various departments, those limitations are subject to change The result is a moderate amount of flexibility

Line-item Budget Most detailed form of budgeting Adheres to a strict set of rules Every operating and capital expense is accounted for Every item is given an numerical code Constant tracking of each item is followed up with analysis and if necessary change to the budget

Zero-based Budget Growing in popularity Theory: “Don’t look back” Programs are reviewed constantly and then ranked in degree of importance Actual expenses are constantly being checked against budgeting expenses This makes the department heads more accountable for what they spend

Airport Revenues Passenger Facility Charges (PFCs) A uniform charge that many airports have adopted Helps in aiding the airport to cover its O&M expenses Current limit is $4.00 Expected to go to $7.00 in near future Really a small price to pay when you think of all the free public services available at airports

Landing Fees A fee incurred by the airlines Based on gross landing weight Helps pay for ground personal and airfield maintenance Used more extensively under a compensatory cost This is one way that the airport recovers the actual costs of the facilities and services that the airlines use

Federal Funding / Grants Federal Funding is a primary source of income for primary commercial service airports Private investing is not unheard of but it is rare There are a number of elegibility requirements for federal funding Most of these requirements are tied to how large an airport is and how many annual enplanements it has

Airport Improvement Program (AIP) There are three main goals of this program maintain that airport system in its current condition aims to bring all airport systems up to current design standards expand the current systems Things grant moneys can be spent on: airport planning, airport development, airport capacity enhancement and preservation, and noise compatibility programs Regardless of which category a given airport falls under, the NPIAS allocates funds primarily to maintain that airport system in its current condition. Secondly, the program aims to bring all airport systems up to current design standards and if there is many money left over expand the current systems.

National Plan for Integrated Airport Systems Airports must be part of the NPIAS if they wish to receive funding from AIP The AIP trust fund is made primarily from taxes The specific moneys that go into the fund are collected from those who AIP benefits directly 10% airline ticket tax, a $6.00 international departure fee, a $0.15 tax on AvGas Based on the number of enplanements funds are allocated accordingly

Concessions, Stores, and Specialty shops Larger Airports have the luxury of space “Prime business real estate” Higher fees Constant traffic Makes for a great source of internal revenues The more money an airport can produce internally the less they need federal funding Reliever airports receive this “overflow”

An Airport’s Relationship with the Airlines One cannot function without the other Two basic approaches Compensatory agreement Residual cost approach

An Airport’s Relationship with the Airlines It is very important that a sound relationship exists between the two counterparts if either is to survive. Each has to give and each has to take.

Who is responsible for financial stability? With a compensatory cost approach it is the airlines who assume the financial risk With a residual cost approach one or more major air- carriers based at that hub accept responsibility Residual cost approach normally found in long-term relationships There is a gradual shift towards the compensatory cost approach Residual cost approach is compensated for by airlines receiving either the deficit or the profit from the residual between revenues and expenses With a compensatory approach…more traffic benefits the airport more than the airlines

Miscelaneous Parking fees Ground Transportation Luggage Carts Sleeping rooms VIP and rest lounges (some require membership)

Conclusion Communities need airports just like airports need airplanes Many of the benefits of airports go unnoticed by the public Communities with airports of substantial size are dependant on their airport even if they don’t know it Nothing is for sure in the Airport industry The key to running a financially sound airport comes down to proper planning, proper knowledge, proper resources (both people and supplies), and a willingness to take things as they come, realizing that that is the nature of the beast.