ACI airport report: – economic impacts of non-aeronautical activities

Summary

• ACI World's data analysis of airport-related non-aeronautical revenue generation is examined.
• Globally, just less than 40% of airport revenues in 2016 were generated from non-aeronautical sources.
• The Middle East is the strongest area for such revenue generation; Africa the weakest.
• The Middle East also accounts for the highest collection in retail concessions per passenger.
• North America leads in car parking revenue generation, despite the impact of TNCs, but such revenues are still not a big earner for airports in all regions.
• Most non-aeronautical revenues in Africa are derived from duty-free sales.
• The euro area scores highly in many categories for the total of revenues generated.
• There is no wide differentiation between different regulatory modes (single/dual/hybrid till) in how they impact on non-aero revenue generation.
• There is surprisingly little variation either in how airport ownership models (wholly/partly public/private) influence non-aeronautical revenues, but the statistical outlier of the 'not-for-profit' airport merits scrutiny.

The key performance indicators (KPIs) are based on an annual survey in 2016 that generated responses from 919 airports in the 2016 financial year. Together, those airports handled six billion passengers or about 78% of worldwide passenger traffic in that year.

Asia Pacific represents the largest portion of the sample (265), followed by Europe (235), and Latin America (184).

The largest category was airports with less than one million ppa (298) and the smallest category at above 40 million ppa (38).

Efforts were made to ensure that a broad range of airport types and locations were included, such as those from advanced economies, emerging and developing economies, ASEAN countries, euro area, the BRICS, the 'Next 11' and so on. (See the Glossary at the end for explanation).

To put the matter into context, total airport industry revenues in 2016 amounted to USD161.300 billion, of which USD89.3 billion (55.4%) was aeronautical revenue and USD64.3 billion (39.9%) non-aeronautical. (Non-operating revenues accounted for USD7.7 billion).

Non-aero revenues were the greatest in the Middle East, where they came within USD200 million of the aeronautical total, and in Asia Pacific. They were the weakest in Africa, where they accounted for just 25.7% of the revenue total.

The table below is a synopsis of the revenue data in the report.

Estimated industry revenues (USD millions) by region and percentage changes: 2016

Region	Total revenues	2015-16 change	Aero Revenues	2015-16 change	Non-aero revenues	2015-16 change	Non-operating revenues	2015-16 change
Africa	3,500	12.6%	2,400	11.1%	900	7.0%	200	78.1%
Asia-Pacific	50, 200	9.3%	25,200	9.3%	22,100	6.9%	2,900	61.8%
Europe	54,300	3.1%	32,500	3.6%	20,700	3.6%	1,100	(-22.9%)
Latin-Am Caribbean	9.700	(-2.6)%	6,100	8.7%	3,300	(-20.3)%	300	53.1%
Middle East	13,400	9.2%	6,700	10.1%	6,500	7.7	200	20.7%
North America	30,200	7.1%	16,400	4.5%	10,800	5.0	3000	38.6%
World	161,300	5.8%	89,300	5.9%	64,300	3.6	7,700	25.5%

Source: ACI Airport Economics Report.

The notable statistics in this tabular summary are a very large increase in 'non-operating' revenues apart from in Europe and the startling decline in non-aeronautical revenues in Latin America and the Caribbean.

There are four tables in the report which will be of particular interest to all airport operators, actual and potential investors, and organisations that are interested in doing business with an airport as their client. They are:

• Non-aeronautical revenues as expressed by per passenger expenditure
• Duty-free concessions revenues
• Commercial activities and infrastructure
• Non-aeronautical infrastructure

Non-aeronautical revenue expressed as USD per passenger*

(*Note that in all these examples the results may have been skewed by the (high/low) volume of responses).

The highest per passenger spend in retail concessions in 2016 was, perhaps unsurprisingly, in the Middle East (USD8.89). The lowest, however, was not in Africa (USD1.50) or Latin America (USD1.50) but in North America, at just USD0.49.

In food and beverage outlets the Middle East again led the way (USD0.78), but North America is in second place at USD0.44.

North America leads in car parking - as might be expected, since it is a well-developed revenue source there - at USD2.37. Surprisingly, Africa scores higher (USD0.59) than either Latin Am-Caribbean (0.44) or Asia Pacific (USD0.49).

Rental car concessions are not a big earner in any region. The highest is in North America (USD1.01), but the world average is just USD0.44.

Advertising also remains a comparatively underdeveloped revenue stream based on these statistics.

The world average is USD0.15, with the Middle East the regional leader at USD0.3 and, surprisingly again, North American trailing in at just USD0.03.

Aviation catering services record expenditure of mere cents per passenger in most cases, the statistical outlier being the Middle East (USD0.18), where it is nine times the global average.

Property and real estate revenues and rents are a much better revenue source, with three regions (Europe, Asia Pacific and the Middle East) in the USD1.5 to USD1.75 bracket, but again North America, which may be impacted by the ownership structure there, trailing in at USD0.35.

The report goes on to assess these statistical values by a series of measures, including airport size (<1mppa to >40mppa); single, dual or hybrid till regulatory system; ownership structure (five categories from wholly government-owned to wholly privatised); selected economic groupings (advanced and emerging economies, emerging aviation markets and selected prospect markets, BRICs, MINT - Mexico, Indonesia, Nigeria, and Turkey etc.); and finally World Bank Income Group.

There is a great deal of data. Some of the salient points are examined below.

Per passenger spend in retail concessions was USD2.85 in airports of >40mppa and USD0.33 in airports of <1mppa (11.6%). However, for rental car concessions the figure was USD0.54 in the smallest airport category and only USD0.51 in the largest.

There was no commonality in expenditure across the three regulatory categories (single, dual and hybrid till). The only conclusion is that there is no impact on expenditure from the selected system.

Fully private ownership and operation of an airport impacts hugely on per passenger expenditure in the retail concession category (USD3.78 100% private, vs. USD1.46 100% government-owned and USD1.00 not-for-profit). However, that dichotomy does not necessarily apply to all categories. For example, 100% privately owned airports were bottom of the table for food and beverage expenditure and second bottom for advertising, while sitting at almost double those recorded for government-owned PPP airports.

Per passenger expenditure tends to be greater in the European Union and the euro area (a separate category) than elsewhere, notably in the retail concession category. The BRIC countries do not score too highly but the 'Next 11' countries do, in that category and in property revenues and rents.

As one might expect, the propensity to spend is considerably higher in high income OECD and non-OECD country airports than in low income countries. In some cases, the high income countries expenditure per passenger is 20 times higher.

Duty-free revenue

Statistics on duty-free revenues are expressed again as revenue per passenger (USD) and also as duty-free concessions as a percentage of total retail concessions.

The first statistic that leaps out is that - albeit from a sample of only seven airports - 100% of non-aeronautical revenues in Africa were derived from duty-free sales. That figure falls to 34% in Latin America. The world average is 70%.

The difference between airports of >40 mppa and those of <1 mppa is enormous: USD4.73 pp expenditure in the first case and USD1.30 pp in the latter. That is despite the fact that the smallest airport category gleaned almost the same revenues from duty-free activities as did the biggest airports (63% vs. 73%).

Unlike the general non-aeronautical revenue categories, in this particular one the average spend was much higher in 'single till' regulated airports (USD6.77 pp) than in dual till regulated ones (USD1.57), with the hybrid till figure at USD2.41.

Another surprising statistic arises out of the ownership category. The average duty-free expenditure per passenger at wholly privatised airports was USD1.72. For wholly government-owned airports it was almost four times as high, at USD6.56, while wholly government-owned airports gained 87% of their non-aeronautical revenues from this activity, versus 56% for wholly privatised ones.

The most startling statistic of all is the USD9.64 pp expenditure reported by the Next 11 country category airports. They also accounted for 95% of all non-aeronautical revenues, a figure exceeded only in the subcategory 'Emerging and developing economies - sub-Saharan Africa'. (Two of the 'N-11' countries are in Africa but only one [Nigeria] is sub-Saharan).

Again, the highest income category for duty-free expenditure per passenger is that of 'OECD' countries (USD3.92), although only 79% of expenditure is in this specific category compared to 91% for 'low income' countries.

Commercial activities and infrastructure

This is a very detailed section concerning, inter alia, the average retail concession revenue per retail outlet, food and beverage revenue and revenue per car parking space. Those three categories are dealt with here.

Average retail concession revenue per retail outlet (*USD 000s)

(*All figures in the following sections are stated in USD 000s)

The Middle East led the field easily here, with revenues of USD1229 per outlet, followed by Europe on USD791. North America had the second lowest revenues at USD216 per outlet with Africa last at USD160, which is not much less.

The highest revenues came from airports in the 25 - 40 mppa category rather than the largest (>40 mppa) one, at USD1117. The average at airports with less than one million ppa was just USD47.

There was no great variation between the different regulatory charging systems, with a span of USD481 to USD730 recorded.

Again, in this instance there was no significant variation between ownership categories, with wholly government-owned airports averaging USD781 per outlet and fully privatised ones USD650.

One statistic that has not been reported so far, but which is common to most categories throughout the report, is the low performance of 'not-for-profit' airports, although it is perhaps to be expected. While the sample size here was only two airports, the average per outlet revenue was just USD92. Such airports - there are plenty in Canada for example - would appear to be a goldmine for concession operators unless there are other, additional charging mechanisms in play.

The euro area was again the one with the highest revenues of the economic groupings listed (USD746) except for the unusual category of airports in "major exporters of manufactured goods" (USD894). The lowest revenue result was recorded in the 'ASEAN 5' airports (sample size 23) at only USD5, considerably lower than sub-Saharan Africa and the MINT countries.

There is a huge discrepancy between the revenue figure for high income OECD countries (USD1003) and lower middle income countries (USD98).

Average concession food and beverage revenue per F&B outlet - restaurants (USD 000s)

Broadly speaking, the figures in this analysis are similar to those for retail concessions. The Middle East (USD375) again leads the field but this time only just ahead of Europe (USD356).

The largest airport capacity (>40mppa) also generated the largest revenues from F&B operations per outlet. That may have something to do with the higher degree of long haul flights and associated check-in/wait time and/or transit time.

In this instance, single till regulatory airports generated by far the lowest per-outlet revenue, at USD54.

There was hardly any difference at all in the revenue generation between wholly government-owned (USD190) and wholly privately owned (USD188) airports.

Again the euro area generated most per-outlet F&B revenue in its category, at USD395.

Speculating on the reason behind this, one possibility is the fact that there are so many LCC and ULCC flights within this region, with long check-in times, and where passengers have made long surface journeys to get there already, in order to fly 'point-to-point'. The relative price of airline food versus that of the typical low cost airport food might also come into the reckoning. The fact that the average concession revenue of airports in the <1mppa category (globally) is only USD24 does not necessarily negate this possibility, since many European airports servicing ULCCs like Ryanair and Wizz Air are small, with few daily flights.

Finally, high income OECD airports generate most F&B concession revenue (USD340) but the differentiation with low income country airports is not so great in this instance (USD71), which supports the discussion in the previous paragraph.

Revenue per car parking space (USD 000s)

The measure of average airport revenues from car parking is perhaps the most intriguing, given that this has been a high growth area - half the airports in the UK, for example, put their car parking charges up in 2018 and many now charge simply to drop off passengers - versus the fact that using private cars to access the airport is against the ecological ethos of many airport owners, especially those in the public sector.

At the same time, the revenue segment is under attack from Transportation Network Companies such as Uber and Lyft (which specialises in airport work), both of which have filed for IPOs, and countless clones worldwide as well as the traditional taxi services, which have had to re-evaluate their model.

North America easily leads in this category, with the average per space revenue at each airport weighing in at USD3.73. Africa trails at USD0.89, but that is perhaps more than might have been expected.

Again there is a significant difference between the revenues raised at the largest airports of >40mppa (USD4.23) and the smallest category of <1mppa (USD1.08), but it is not as large as in some other measures. Smaller airports can often only be reached by private vehicle.

The differentiation between regulatory measures is insignificant.

Car parking is a favoured non-aero revenue method of both publicly and privately owned airports irrespective of environmental policies. There was hardly any difference in 2016 between wholly government-owned (USD3.31) and wholly privately owned (USD3.81). Interestingly, a fairly high figure was also recorded for 'not-for-profit' airports (USD2.65).

The euro area again figured highly in this set of measures but the highest revenue figure accrued, for the second time, to the vague 'major exporters of manufactured goods' category (USD3.31), while sub-Saharan Africa recorded the lowest (USD0.38). Overall, all the 14 categories in this section, with the exception of sub-Saharan Africa and the ASEAN 5 countries, had revenue figures of USD1.39 or more.

High income OECD countries again led the way in the World Bank Income Group measures set (USD3.41), but that was less than five times as high as 'low income' countries (USD0.73). In other categories, the difference has been 10 times or more.

Non-aeronautical infrastructure

The final section of the report is concerned with the physical infrastructure connected to the provision of non-aeronautical revenue generators. Some measures are quite detailed, so only three of them are dealt with here: average number of retail outlets; average number of food and beverage outlets; average number of individual parking spaces.

Average number of retail outlets - stores/shops

One might expect a correlation with the statistics in the previous section, but that is not always the case. For example, Africa has slightly more than one third of the average number of retail outlets (11) of the world average (31). Asia Pacific easily leads this category (64), more than twice the number in the Middle East, which begs the question why it does not score higher by other measures.

The difference measured by airport size is enormous, as one might also expect. An average of 238 for airports of >40mppa, but only four for airports of <1mppa.

There was no differentiation at all between regulatory systems.

Unusually, while the figures were identical for wholly public and wholly private airports, the category 'government-owned/privately operated, including PPPs' scored higher (44) by some margin, which hints at the drive behind P3 projects such as individual terminals and the need to justify them by way of the highest possible RoI.

The highest score in this category, though, was 'not-for-profit' airports (45), which again throws out a question. If such airports can offer retail concession outlets to this degree, why can they not make them generate more revenue?

In the 'Selected Economic Groupings' measure, the euro area did not fare too well here, recording only 20 units on average, compared to 66 in the ASEAN 5 countries and 60 in the 'Next 11'. A similar situation to the 'not for profit' airports, in that there are very high numbers of outlets, but in this case the revenue generation is higher.

There is not a great differentiation between high income area airports and low income area ones. The OECD high income average is 26, compared to 19 for low income. However, in one of those anomalies that do occur, the category 'lower middle income' (for which there was a large sample) scored the highest, at 67.

Average number of food and beverage outlets

There is little variation between this category and the preceding one (retail outlets). The statistics that stand out are a strong showing again from 'not-for-profit' airports and especially from the ASEAN 5 countries, where the average number of food and beverage outlets is 81, compared to only nine in the euro area. Moreover, 'lower middle income' airports have by far the greatest average number by the World Bank Income Group measure, at 69.

Average number of individual car parking spaces/passengers per individual parking space

The final set of statistics under scrutiny here is the average number of individual parking spaces. Of course, that is going to depend on the size of the airport, the number of air services and the available alternatives.

It goes without saying that the average number of spaces will be far fewer at an airport with <1 mppa than at one with >40mppa and that is the case (319 vs. 15,747).

What is more interesting is the measure of passengers per individual parking place. In the former case, it was 1,021 in 2016 and in the latter 3,542, suggesting that such small airports actually make better provision for private vehicle owners than do the largest ones.

In these statistics, and for no discernible reason, it was the 'hybrid till' regulatory system where there as the greatest number of parking spaces by the charging system measure (5,117).

Another odd statistic was that by the 'Ownership Model' measure, not-for-profit airports had by far the highest number of parking spaces (5,964) and the lowest number of passengers per parking space (1,733).

In the Selected Economic Groupings category, the vague 'Major Exporters of Manufactured Goods' region airports scored the highest at 5752 spaces, together with a low 2,036 passengers per space.

Finally, in the World Bank Income Group category high income OECD countries' airports had an average of 6,319 spaces, easily the highest, together with the lowest passengers-per-space average of 1,748.

The next set of KPIs for non-aeronautical revenues will be published by ACI World in 1Q2019.

Glossary:

Single, dual and hybrid tills

Single till - under the single till principle airport activities (aeronautical and non-aeronautical) are taken into consideration to determine the level of airport charges.

Dual till - under the dual-till approach the full costs associated with the airport and its essential ancillary services are allocated between the airport owner/operator and the airport users. The costs allocated to air traffic include only those costs associated with the facilities that are actually used by the aircraft operators and the end users. No adjustment is made to this cost basis to reflect non-aeronautical revenues accruing to the airport.

Hybrid till - the cost basis is established based on a combination of the single-till and the dual-till approaches. For example, the airport owner/operator may choose to recover landing costs on the basis of the single-till approach while establishing terminal costs on the basis of the dual-till approach.

BRIC

In economics, BRIC is a grouping acronym that refers to the countries of Brazil, Russia, India and China, which are all deemed to be at a similar stage of newly advanced economic development.

Next 11

The Next 11, also known as N-11, are the eleven countries that are poised to become the biggest economies in the world in the 21st century, after the BRIC countries. They are South Korea, Mexico, Bangladesh, Egypt, Indonesia, Iran, Nigeria, Pakistan, the Philippines, Turkey and Vietnam. The phrase was first coined in 2007. There is an argument that Indonesia should actually be a BRIC, hence BRIIC, along with South Africa, but that country did not make the N-11 (or N-12 as it would have been).

MINT countries

MINT is an acronym referring to the economies of Mexico, Indonesia, Nigeria, and Turkey.

ASEAN-5

An acronym for Indonesia, Malaysia, the Philippines, Singapore, and Thailand.