The Air Transport Research Society has produced a study that benchmarks the financial performance of airports across all regions
Comparing the performance of airports across the globe is a notoriously tricky task. This is understandable considering the wide range of financial models, regulatory systems and operational policies between airports as far apart as Barcelona, Beijing and Boston. In an industry where airports are increasingly looking to gauge their performance against the best in the world - and where airlines are seeking more detailed information on cost, service and productivity about one of their main business partners - any attempt to delve deeper into airport benchmarking is welcome.
In its report, Global Standards for Airport Excellence, the Air Transport Research Society (ATRS) is seeking to develop an annual, evolving process that will perform this job. The society, formed in 1995 and made up of 500 academics, policy makers and industry experts from across the airline, airport and aircraft manufacturing fields, targeted airports after conducting a similar study on airlines. "At present there is no accepted industry practice for measuring and comparing airport performance on various aspects of operational efficiency, productivity, unit cost and financial performance," says the report. "Airports must know what the best practices are for various dimensions of airport operations. This will allow each airport to identify where and how much improvement should be made in order to be on a par with the industry's best practices."
Professor Tae Oum, director of the Centre for Transportation Studies at the University of British Columbia, in Vancouver led the initiative. He says: "It is the most comprehensive report to date in terms of data compilation and using the most reliable methodologies. We read all the reports comparing airports and thought we could contribute by providing more consistency in data collection and comparing airports across continents."
Previous efforts have tended to concentrate on regional comparisons, perhaps only benchmarking airports in North America. The project team, made up of academics from Canada, the USA, Singapore, Japan, Korea, The Netherlands, UK and Israel examined 76 airports worldwide, and hope to reach 100 next year. Leading the three regional teams were Jaap de Wit of the University of Amsterdam, Paul Hooper of the National University of Singapore and David Gillen of Ontario's Wilfred Laurier University.
Productivity push
The traditional ground covered by benchmarking when measuring airport productivity has been labour and capital. To add to this, the ATRS report has gone a step further than simply taking these "partial productivity" measures, and sought to produce a more comprehensive picture, says Oum.
On its own, labour productivity is a "very partial measure of efficiency because it depends on the amount of outsourcing an airport does", he says. "By and large, the report shows North American airports seem to perform better than European or even Asian ones [in terms of labour productivity]. But you have to be careful. It is wrong to compare many European airports, like Frankfurt, where they do all the security checking and cargo handling themselves, with North American ones which outsource this work to private companies."
The second traditional productivity measure is capital, which is often measured by passengers per gate, per check-in desk and per m2 of terminal area. It is combined with runway productivity - effectively aircraft movements per runway. To these two measures, ATRS adds so-called "soft-cost input" productivity, which represents all inputs other than labour and capital, with the most important component being outsourcing or contracting out. The methodology of calculating soft-cost input is well known in other industries, but Oum believes it is the first time it has been used for airports.
The result is Total Factor Productivity (TFP), which is essentially a weighted average of these three partial productivity measures. To make this productivity comparison even more significant across different airports around the globe, ATRS has taken the further step of calculating what it calls Residual TFP, which strips out market and operational differences between airports.
For example, with their economies of scale, large hubs will appear to be more productive than smaller airports, yet that is not necessarily a reflection of higher management skill in operating the airport. The RTFP also takes into account the proportion of the throughput made up of international passenger traffic, which is more expensive to process.
Other factors taken into account are differences in the size of aircraft an airport handles, and the amount of non-aeronautical revenues it makes. Finally, using information from IATA's Global Airport Monitor, an annual survey of passenger service quality, ATRS seeks to strip out variations in how much an airport invests in service.
For instance, Singapore Changi tends to rank highly in the IATA monitor, and the report seeks to take into account the big cost of keeping its quality high with ever-increasing passenger numbers.
"We statistically remove these effects and differences, as we try to compare apples with apples," says Oum. According to the report, the most efficient airport was Seoul's Gimpo (formerly Kimpo). However, with the study being broadly based on 1999 data, it is uncertain whether a Korean gateway will retain its top ranking now that Gimpo has closed and given way to Incheon as the capital's international hub..
Gimpo's success was heavily influenced by its high use of outsourcing to efficient and low-cost third-party providers, including airline companies, Oum says. The Gimpo hub was also a congested airport, giving it a high utilisation rate. At the other end of the scale, the most inefficient airports are both German - Frankfurt and Munich. "These airports try to do everything. This is expensive, and labour and capital intensive. A lack of outsourcing has made them inefficient, and a certain degree of outsourcing would improve their productivity," he says.
ATRS found the ownership structure of the airport had little effect. "We did statistical analysis comparing privatised and non-privatised airports, but we did not see any significant difference in efficiencies," he notes. For instance, both Seoul and Singapore are government-owned and came out well in productivity terms. "Efficiency depends more on the degrees of freedom and autonomy a government gives to airport management rather than who owns it." This echoes findings that ATRS discovered in its benchmarking work on airlines when comparing state and non-state-owned carriers.
When it comes to assessing how an airport performs in cost terms, in the absence of a consistent way to measure capital costs across airports (although it is working on a method to achieve this), ATRS focuses on non-capital related costs. These fall into two areas: labour-related costs and the costs related to purchasing goods and services, including outsourcing.
By aggregating all the different costs, the report produces a unit-cost index to compare airports. The resulting measure records the expense incurred in providing one unit of output. "This is a very well accepted methodology that we have used in the airline, telecommunications, railway, and pulp and paper industries, "says Oum. It shows that North American airports perform particularly well on the cost front, while Japan's Kansai and Narita airports are seven times higher on the unit-cost index as compared to benchmark case Vancouver. Narita and Kansai are "very expensive airports to run", but this in large part reflects the prices they pay for goods, services and labour, he says.
Labour costs
The report found that European airports tend to have much higher labour costs than airports in Asia-Pacific and North America. For example, average labour cost per passenger was $1.54 for North American, $1.51 for Asia-Pacific, and $5.61 for European airports. Again, the study highlights outsourcing as a key cost containment technique employed by the US airports.
The results showed that airports with larger passenger traffic tended to have lower unit cost, showing that economies of scale can be found in airport operations. As expected, airports with a larger percentage of international flights had high unit cost.
In terms of financial performance, the report highlighted the growing importance of non-aeronautical revenue. Some, such as Vancouver, the UK's giant BAA group, Honolulu and Ireland's Aer Rianta, which operates Ireland's airports, all generate over 60% of their revenue outside traditional aeronautical business. Poor performers, such as Beijing, New York Kennedy and Vienna, generated less than 30% in 1999.
Overall, the report found that European airports are much more profitable than their North American and Asia-Pacific counterparts in terms of net income and profit margin. However, North American airports tend to be more productive and have lower cost.
In addition to adding more airports for next year's report, and gathering more comprehensive data from those already featured, ATRS has set itself some ambitious goals for the next edition.
"Since 11 September airports have introduced elaborate systems and security checks - we will see how effective these have been and how cost-efficiently they have been brought in," says Oum. Another dimension that airlines will be pleased to see in future benchmarking reports is a comparison of user charges.
Source: Airline Business
