How Do Airports Make Money |
How Do Airports Make Money:- Lounges at the Airport, Why they are giving all services for free on Credit Cards and this is the reason Airlines give business class a special treatments, so more people choose business class. Imagine it as you are entering a mall for which you have paid in Advance Airports are designed so when you move towards boarding gate they deliberately made the passage for you thru the shopping stores before you reach your flight. To make people shop and Airports biggest weapon to generate revenue is known as To overcome this many countries built Duty Free Zonen 75%-85% Sales that happen on Duty Free is thru Alcohol and Cigarettes. This is the reason, Private Companies are so eager, they even take loans to build an Airport. See, to build an Airport, it takes billion of rupees. Not just governments but private companies also invest in these whenever you travel by Air to a destination. You never pay extra to use the Airport then how do these Airports make money ? What exactly is special about their business model ! Why companies are ready to invest billions in such ventures. The Duty Free Zone of the Airport What is the story behind making it Tax Free. In todays world, where people make money by selling Air Filled Balloons.
Then how Airport Lounges are extending all facilities free of cost thru credit cards ? We are all discuss all these things in detail today, so next time when you go Airport you know how your money is working for them and why you get a Samosa (Indian Snack) for Rs.150 at the Airport Music Being Played. PM Modi: Inside entire Uttar Pradesh, Connectivity would be benefited with Airway.
Airport Business Mode |
Airport Business Mode:- To build an Airport how much would it cost depends on multiple things like Location, size, facilities, infrastructure, Land Acquisition cost of that particular area all these factors matter. Recently few Airports have been planned by the Government, like when Navi Mumbai International Airport was planned it costing was calculated as 16700 Crore INR but by the year 2021 costing rose till 25000 crore INR. Similarly, Jewar Airport in Noida which is being built its cost has been estimated to be upwards of 30000 crore INR. To build an Airport, such huge investment is difficult for a private player to invest that’s why In India, Airports are built by Government of India
however in a few cases of building an Airport, Governments Introduce Public Private Partnership (known as PPP Model)where Private company along with government builds an Airport basically Ownership remains with the government. Operations are handled by Private Companies to let modernization happen. Like New Delhi is Indira Gandhi International Airport is owned by Government. However its run by a company in Delhi International Airport Limited, its not just about cost of building an airport after having the money invested and Airport is built to run that Airport also, has its own cost. Like Employee Salaries, Airport Infrastructure, Runway Maintenance and Repair. Utility Bills like Water, Electricity, Gas and these have their own bills
Airport Security and Safety provisioning has its own cost Air. Traffic Control operational expenses Marketing and Administration, Management Expenses all these cost millions of rupees. Along with this all Airports of India operate under Airport Authority of India (AAI) which is a government organization, and all Airports need to pay AAI. And they also need to pay because All Airports Traffic Control Communications and navigation services everything is handled by AAI only. Even if an Airport is build under PPP Model which means a Private company is also involved that Airport also needs to share their revenue with AAI. Many Regulations like Safety and Security Regulations. Environment Regulation, these are the regulations for which a fee needs to be paid to AAI. Airport Operating Cost As, Now we have understood how much money is required to build an Airport but even after building running an airport also needs money. Lets now see how much money is needed to operate an Airport.
Taking Delhi as an example |
In Delhi Indira Gandhi International Airport the ownership is with government but is run by a private company. Now what expenditures are done by the private company such information is not usually publicly available. But in a years time how much revenue they generate in a year and what profit they make from it can be seen on this chart. Based on these available details we can calculate the cost of operations of this private company.
For Delhi Airport in the year 2020 their revenue was 4243.62 crore INR and from and from that they made 13.1 Crore INR as profits. Total income – Profit would give us the Total Expenses. If we calculate this, 4243.6 – 13.1 = 4230.5 (in Crores INR). This means in a year Delhi Airport spends this much money in operating including the salaries and other expenses included. As per the Data, at Delhi Airport, every year approx. 3.5 Crore(37.14 million) passengers visits. With this calculation Delhi Airport, for every passenger who arrives to catch a flight, Airport spends approx. Rs.2000 on them and this is an estimated data this data may be little off, due to many factors involved. Sometimes companies take loans for which interest is payable that’s why data can be a bit off. Whatever facilities Airport extends from security to salaries bills, etc. from that calculation we can assume Rs.2000 is spent on each passenger. First they are building an airport with such huge money investment and then spending money on passengers every year. The Airport is not running any NGO or charity they need to recover this expense that too with profits. Lets discuss about, Delhi Airport who is investing this money how would recover this from the passengers
Duty Free and the Free lounges we are talk about those later in this article. An Airport Makes Money in 2 Ways.
1st they earn from Aeronautical Revenue and
2nd they earn from Non-Aeronautical Revenue.
Lets discuss Aeronautical Revenue first International travel scale and airport business has grown a lot. Back in the older days, people were not travelling internationally much specially if we talk about India. In year 1991 around 19 lakh(1.9 million) people travelled abroad and by the year 2018 this number is larger than 2.5 crores(25 million) per year.
Aeronautical Revenue
Whatever be the Airline, after they have purchased the aircrafts but they still don’t own the Airport. That’s why on any Airport to land their Aircrafts all airlines need to pay a fee and this fee is always added to your ticket price. First in this list is Landing Charges. Every Airplanes has its weight and based on this they need to pay the landing fee. What amount would be charged to what planen that will explain later in this article.
They do need to pay the landing fee but after this aircraft also needs to pay the parking fee. All aircrafts from the time of landing till their take off time, whatever time it was at the airport, a parking fee is charged for it. If any Airplane is parked overnight then they need to pay charges for this as well.
This parking fee depends on Airport’s Location. Aircraft Size, how much time it was on the Airport. After this comes Passenger Service Fee this is also charged from Airlines this fee is charged by Airport, depends on per passenger basis this includes Airport Security Fee. Terminal Service Fee and fee for passenger facilities. This fee also mentioned on the tickets also Apart from User Development Fee fuel surcharges are also applicable.
Let me explain this with a example for your better understanding. Lets assume, a plane from Air India Boeing 787 Dreamliner if this Lands at Delhi Airport. How much Delhi Airport would charge for this landing. A Boeing 787 Dreamliner has a seating capacity of 250 it wighs 1,15,000 KGs. If we convert this into matric tons his is 115 Metric Tons for its weight. The Image you have on screen, this is the rate per metric ton One Metric Ton is charged at Rs.599.52 INR. And if its beyond 100MT then rates from 2nd highlighted line are applicable. So when Boeing 787 plane of Air India will land on Delhi Airport, based on its weight the 1st costing for landing
would be Rs.1,32,000 INR after this Delhi airport would also charge around Rs.2500 for parking. As passengers would need a path to enter the plane. A Aero-Bridge would also be used Airport provides a Aero bridge and they charge Rs.3080 INR for this. This pricing can be higher for International flights but we have taken an example of Domestic flight here. Now as this plane of Air India has a seating capacity of 250 passengers and Airport would charge Rs.550/- per passenger separately. This will on number of passengers as Rs.550/- each. 250 x 550 = 1,35,500. Air India needs to pay this fee for each passenger to the Airport, even if all the seats are sold or not they would still need to pay this. User Development fees is between Rs.100 to Rs.400 so lets for the example consider this to be Rs.200 INR. The cost I am referring to, you can see it mentioned in your ticket. All these charges which have explained user development passenger service charges this is charged by the Airports to the Airline and Airline operators charge you for these. Also all the things will be explaining later all those costs are recovered from your pocket itself. From time to time, Some more charges gets added. Like in 2021, instead of Fuel Throughput Charges. Delhi airport charged Rs.65.98 INR to Airlines as a new fee if taking example of recent ticket this charge would also be applicable. Apart from this, Every Airport also charges Aviation Security Feesto the Airlines which is per passenger on domestic flights is Rs.200 and you need to pay this too. If we see these costs Landing and Parking fee Rs.550 INR.
User development fee Rs.200 INR passenger service fee Rs.50 INR.
Aviation Security Fee Rs.200 INR. So without getting into a lot of calculations you should understand that whatever amount. Airport spends on a passenger around 50% of that cost, Airports recover from these charges. Earlier we calculated that an Airport Spends around Rs.2000 INR per passenger, out of which Rs.1000 INR the Airport is able to recover this way. After this the Airline Companies are free to decide what ticket price they should have Airline companies, from long haul routes passengers and business class passengers earn larger money. Cause long haul routes and business class tickets are expensive and Airport does not care if a seat has a economy class passenger or business class passenger or from long haul route Airport charges same price for each seat, be it occupied or vacant.
Only the business class section is able to recover the expenditure of entire economy class alone this is the reason Airlines extends a special treatment to business class flyers
so they keep returning to business class. And if the seats don’t get sold out till last then Airlines offer tickets at very cheap prices cause whatever be the rate they sell their seats even if the seat is vacant they would still need to pay for it to the airport. How pricing of Airline seats are decided we have already discussed that in Airline article earlier if you want you can watch that article as well. Lets come back to Airport,
that Rs.2000 INR which was the expenses of the Airport out of which Rs.1000 Airport recovers like this only and rest of the money Airport earns by Non-Aeronautical Revenue.
Non-Aeronautical Revenue
Non-Aeronautical Revenue is the revenue which is not directly from the passengers but is taken indirectly by the airport. Normally, if you need to go somewhere by flight, for that you either by your car or thru cab you reach till airport. After that you enter the Airport and take the flight to your destination and exit the airport from there and if airport needs to be profitable then in this entire cycle until you are in the Airport they need to earn money from you and Airports have many ways to do this. The most common method here is selling products
inside a Airport. There are lots of Retails Shops, Restaurant, Food Outlets, Book Stores, Alcohol shops are located from where passengers buy these. Now Airport, from all these shops charges rent or in many cases from the total sales at these shops Airport charges a Specifc Percentage as their cut not only this, but even from your home you head towards the Airport using car, taxi or cab, auto rickshaw, Shuttle Service or busses.
Whatever you use to reach the Airport Airport earns from these too thru parking charges. If you, by your own car or you have come to see off someone from your family and you need to park your car then you need to pay for this. Even if you go using a public transport the point where airport starts Pickup Zone and Drop Off zones are made and to access these areas, Airport takes a charge.
Now these charges may appear very small but if I tell you the charges involved at Delhi airport by a calculation you should be able to relate. Delhi airport, to park a four wheeler for half an hour charges Rs.120 INR for a hour charges Rs.170 after that for every extra hour Rs.100 and if you park for 5 to 24 hours then charges upto 600 INR. If this is a two wheeler Rs.60 for the 1st hour then Rs.30 extra for each hour and from 8 hours to 24 hours would charge Rs.300 apart from this if you come by cab in those cases also, the Delhi Airport. Would charge you some amount from the CAB Delhi Airport’s terminal 1 and 3 would charges the Cab aggregators like UBER Rs.150 INR as a surcharge. Even if you don’t use the public transport then even if you go to Delhi’s Airport by your car or thru a cab, you’ll need to pay Rs.150 – Rs.200 INR. This sounds like a small figure earning but many airports from their non-Aeronautical earnings earn upto 20% – 30% from this parking fee.
If I talk about only Delhi’s Airport 67.3 million passengers have reached there and this leads to a remarkable earnings. As we have already discussed Delhi Airport spends around Rs.2000 on each visiting passenger out of which Rs.1000 earned from Aeronautical Revenue and if we add up the parking revenue in this per passenger earns around Rs.150 per passenger from parking also Apart from this. Airports also make money from Property and Real estate too Airport makes sure they hold the area around it would lease or rent it to hotels and businesses at the right moment.
Just before you reach Airport, in Airport vicinity the advertisements you notice like billboards, digital screens or whatever promotional material Airport charges a lot of money to brands for those too. It is believed that at Airport as compared to any other location having a high paying customer, greater are the chances so the advertising rates here are also very expensive.
Its not like that Airport sells Advertising spaces Only outside the Airport Terminal they sell both inside as well as outside the terminals sells Advertising spaces.
Now with all this covered when you enter a airport you’ll feel like entering a mall for which you have already paid in advance that’s why your tickets are checked and without having a ticket you would never be allowed to enter a airport and the moment you enter the airport the water bottle of Rs.20 INR starts getting offered at Rs.100 and if you have plans to eat anything
the bill might reach a few thousands.
The longer time you spend at Airport the more money you would be spending in-fact they are designed in a way that when you move towards the boarding gate deliberately, Airports make sure your walk thru the stores to reach your flight.
From restaurants to retail shops duty free shops, books stores
all these would be prominently visible in that path. Reaching airport at right time is also confusing airport already has all the modern technologies. You should ask anyone around your friends too if you have a flight around 1 lock then what time should you reach the airport someone would say 2 hours earlier some 2.5 hours and if its an international flight then they can speak even more this is a difficult thing to idea about how much crowded the airport would be is it festival time then reaching earlier might help usually people reach a hour or two earlier itself. So they don’t end up wasting the expensive air ticket
If an Airport wants, they can automate the luggage system etc
which can help people save time but this is confusing and that’s why people tend to reach early, and give extra time to the airports. That’s why there cannot be a solution to this problem.
The passengers who roam inside the Airport comparing that with the seating arrangement is less than that in the main area so from the baggage counter to security. When people are standing, and should they feel like sitting should go and sit in a open restaurant and end up shopping there Airports places retails shops and dining area strategically in those places where
most of the passengers go like near the boarding gates so those stores get maximum visibility.
If you noticed, when talking about Delhi Airport when it comes to restaurant, bar, fast food chain. Who’s name would not be visible there and in all these Airport’s cut can be between 10-25%. But its also possible in a few cases where they don’t take a cut from sales but charge a higher rent to balance the equation. With these ways airport generates 150-200 INR per passenger from your food and drink expenditure Duty Free Shops.
For Making people shop and generate revenue the biggest weapon airport has, is known as “Duty Free ShopsDuty Free Shop†aren’t available when you are taking a domestic flight they are only available for International Flights.
On these “Duty Free Shop†there are no Local or national Takes applicable like applicable at a local stores around the country. Mostly “Duty Free Shop†would be available only at Airports International Arrivals or Departures Areas.
Where passengers, either before taking the flight or after the flight, can shop from these duty free. The Logic behind setting up a Duty Free Shop is if you are coming to India from USA
and you purchase something from the US Based Airport then you would be paying the taxes in US and when you will reach India
you’ll need to pay taxes here too.
Adding up all these taxes would make that product very expensive
and if such things would happen, why would anyone shop at the airports same product they would purchase from their country’s local market for cheaper price tag.
To solve this problem, many countries setup the Duty Free Zone
and if you buy anything, you won’t need to pay any taxes.
This started First time in 1947 at Shannon airport in Ireland
the first Duty Free Shop was started as they made those shops tax free,particularly at that time everyone started buying from this airport only and were not buy from other airports.
That’s why gradually every airport started offering this option as Duty Free Shop where only international passengers can make a purchase. It is believed that International travelers have a higher purchasing power and Airport makes the most profit from this particular zone. At Duty Free Shops you get products cheaper by up to 20-30%.
If we talk about Indian Airports alone. Revenue from Duty Free sales for Total non-aeronautical revenue contributes up to 15-20% and this includes 75-80% Duty Free sales from Alcohol and cigarettes itself you cannot buy unlimited from a duty free shop
there are confusions about this too. Central Board of Excise and Customs as per CBEC Limits a passenger can buy from Duty Free Shops. For Maximum of 25000 INR only and if talk about alcohol, upto 2 litres is the limit per International passport Airport Lounge. Access with Credit cards.
Now if we talk about Airport Lounge by providing access to this, Airport earns a lot of money. A separate area is made inside the Airport where comparatively from other areas special treatment is given to passengers this area is known as Airport Lounge.
This area as compared to the general area of the airport gives more premium experience to the passengers and airport takes a cut from the lounge owners too. Although Lounge owners pays the Airports to run a lounge but they also make good money from the lounge which ultimately would go from your pocket only.
First lounge owners setup a Direct Entry Fee which if I quote Delhi Airport is generally around Rs.1800 INR And in many cases
lounges have their own membership programs but if you have a credit card you usually get free lounge access although credit companies pays to the lounge owners. But offer their card customers free access to the lounge credit card companies do so as its believed. People who travel by air, have a higher purchasing power and if they are given such offers then instead of using any other company’s credit card would prefer cards offered with such offers like free lounge access.
This does help companies in selling their credit cards but they are also able to charge a higher annual fee like instead of 500 INR would charge 900 INR instead. Also when the customers would use that company’s card to make other purchases this would give the card companies double benefits how this profit would happen is already discussed on another Credit Card article how credit card companies make profits.
If you want you can watch that article Although it costs billions to build up an Airport but Airports make huge profits from this Apart from the 2-3 years Covid affected period
airports never makes a loss this is the reason private companies even ready to take Loans to Invest in Airport construction.
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