From being mere points of interchange between surface transport and air services, airports have grown into centres of economic activity with a wide range of services for passengers and shippers. For many the traditional break-even goal of airports has been replaced by a clear profit orientation and even airports which are wholly government-owned are being run as competitive businesses. The assertive marketing activities of Amsterdam/Schiphol, the wide scope of international technical consultancy undertaken by Aéroports de Paris and the international involvement of Aer Rianta - the Irish Airports Authority - in retailing, all illustrate that it is not only the privatised airports like Vienna, Copenhagen and the BAA plc-owned airports which are out to make profits.
With these trends clearly established, the interest in monitoring and comparing airport performance is increasing. Are privatised airports more efficiently run than public sector airports? Do airports operated as part of national networks, such as those in Spain, Portugal and Norway, perform better than individual airports? As airports become commercially oriented they are keen to identify the strong performers in the industry and to identify and adopt the best practices.
Airlines also have a keen interest in airport performance. Over the past 10 years they have aggressively cut costs in the face of increasing competition. At the same time they have seen the charges at many airports increase substantially with the result that user charges are rising as a proportion of airline operating costs. Air-lines therefore have a genuine interest in identifying which airports are being inefficiently managed, to add substance to the lobby against increases in user charges. Economic regulators of privatised or autonomous airports also have good reason to monitor airport performance.
Despite these justifications performance monitoring or so-called benchmarking - much in vogue in the airline industry and indeed many other sectors - is less firmly established in the airports sector. The reason is that there are serious problems of comparability. Even within Europe, airports differ widely in the range of activities undertaken, the cost of inputs, quality of facilities, ownership structure, and of course, scale and traffic composition. Airports commonly monitor their own performance but typically avoid inter-airport comparisons on the basis that they are not so much comparing apples with oranges, as with Mulligatawny soup. Beyond a tenuous commonality of basic function, different airports have little in common.
The Economic Performance of European Airports, a study published earlier this year by the Department of Air Transport at Cranfield University, in association with the Transport Studies Group of the University of Westminster, attempts to tackle the airport comparability concerns head-on. The study takes 25 European airports and analyses their unit costs, revenues, labour productivity and profitability based on 1993 data. Since the activities of these airports vary - some provide services such as groundhandling, security services and approach control, while others do not - the study takes published airport data and makes a series of adjustments to take account of this. The resulting airport data is standardised, so that each airport's performance is presented as if it undertook a uniform set of activities:
1 No involvement in groundhandling.
2 No involvement in air traffic control (ATC).
3 No involvement in security services.
4 Commercial activities all operated as concessions.
5 Terminal cleaning contracted out.
For each airport detailed cost, revenue and staff data for the particular activities were obtained for which adjustments were made, in some cases using assumptions based on experience at other airports. Dusseldorf for example provides ramp handling services, an activity which generates substantial costs and revenues and is highly labour intensive. In order to provide a fair comparison of airport performance between Dusseldorf, which obtains some 35 per cent of its revenues from handling, and say Nice, which has only a trivial involvement in handling, the costs, revenues and staff numbers associated with groundhandling were removed from the Dusseldorf analysis. In turn, a hypothetical concession income from handling agents has been added to Dusseldorf's revenue. Similar adjustments are made for ATC, security, commercial activities and terminal cleaning, where appropriate.
Another argument often raised in comparing airport performance is the difference in cost of living between countries. This problem is addressed by using purchasing power parity exchange rates, rather than market exchange rates. Purchasing power parity exchange rates are calculated by dividing the cost of a given basket of goods in one currency by the cost of the same basket of goods in another country. So effectively they convert currencies on the basis of equalising buying power rather than on the basis of prevailing market conditions.
The 25 airports in the study represent a cross- section, from the largest European airport, London/ Heathrow, to small airports such as Cardiff, UK and Vigo, Spain. The airports come from 13 different countries, 11 of which are within the European Union. The sample includes privately owned airports, such as Glasgow, partially privatised airports, such as Copenhagen, publicly owned but independent corporations, such as Amsterdam and airports which are incorporated into the state Civil Aviation Authority, such as Stockholm/Arlanda. The sample also includes the unique binational airport of Basel-Mulhouse, which has two check-in concourses and arrivals halls, one of each in France and Switzerland.
The unit costs and unit revenues in the study are calculated per work load unit. The work load unit used combines passenger output with freight and is either one terminal passenger or 100 kg of freight. Chart 1 shows the size of the airports measured in work load units. At six of the airports - Basel-Mulhouse, Geneva, Amsterdam, Vienna, Dublin, London/Gatwick - over 90 per cent of this traffic is international. Only the Spanish airports, Nice and Oslo have more domestic than international passengers (chart 2).
An analysis of the total unit costs per work load unit reveals that Basel-Mulhouse and Vienna have the highest in the sample, followed by two of the smaller airports in the study, Vigo and Cardiff (chart 3). The lowest costs per WLU were at Oslo/Fornebu, Lisbon, Madrid, Geneva and Copehagen. The effects of scale on unit costs were evident from an analysis of both the UK and southern European airports, which showed decreasing unit costs as airport size increased (chart 4). The southern European airports have lower unit costs than the UK/Irish airports.
In terms of labour productivity, or WLUs per employee, the study again identifies Oslo as the star performer. After Oslo, Geneva, Stockholm and London/ Heathrow top the labour productivity rankings, while Vienna joins the smaller airports Cardiff, East Midlands, UK, Bilbao, Newcastle, UK and Vigo, at the bottom (chart 5).
It would be simplistic and incorrect to conclude from this ranking that Vigo is badly administered. The study identifies relationships between labour productivity and a variety of factors including the traffic peaks of passenger flows during the year, average aircraft size, the breakdown of passengers between scheduled and charter mode and also the size of the airport.
Chart 6 illustrates how labour productivity is seen to decline as the traffic peaks of monthly passenger numbers increases at the UK/Irish and northern European airports for example. While Oslo's performance still appears creditable, its relatively even flow of passengers throughout the year makes it easier for airport management to achieve a high level of labour productivity. Conversely, the relatively low labour productivity of Cardiff airport can be partly explained by the variability in monthly passenger numbers.
Similar conclusions can be drawn from a comparison of another measure of labour productivity, revenue per employee, with airport size (chart 7). As airports increase in size up to around 10 million work load units, there appear to be clear benefits of scale. However, based on the small sample of larger airports in the survey, these benefits of scale appear to diminish at around 20 million passengers.
Unit aeronautical revenues vary quite substantially across the sample airports, reflecting in part the wide variation in the level of airport charges. At most European airports, passenger charges are higher for international passengers than for domestic passengers and in many cases landing fees are also higher for international flights. Not surprisingly therefore the survey showed that aeronautical revenues generally rise in line with an airport's share of international traffic (Chart 8).
The exception was the UK/Irish airports for which aeronautical revenues decrease as international traffic increases. Aeronautical charges at Heathrow and Gatwick are regulated on the 'single till' principle: in determining the level of airport charges, the total income is taken into consideration. The major London airports have a large proportion of international traffic, which generates high levels of non-aeronautical or commercial income and enables them to have low aeronautical charges. The highest non-aeronautical revenues are generated by Vienna, followed by London/Gatwick and Heathrow, Basel-Mulhouse, Cardiff, East Midlands and Amsterdam (chart 9). The weakest airports for non-aeronautical income are Lisbon, Vigo and Bilbao.
The most significant source of non-aeronautical income at many airports is duty free revenue which is only generated by international passengers. In general, international passengers tend to spend longer at airports and are interested in a broader range of services, such as banks, than domestic passengers. The study confirmed that non-aeronautical revenues increase in line with the share of international traffic: the weak performance of Nice in generating non-aeronautical revenue for example reflects the high proportion of domestic traffic at that airport. The UK airports outperform most of their continental European rivals when their non-aeronautical revenues are measured against the proportion of international traffic.
The performance measures say nothing about the quality of European airport infrastructure, or the variety of ownership forms and company goals. Nor does the study reveal which airport is 'the best in Europe.'
However, it does give a good insight into the varying performance of the European airports. Oslo appears to have very low costs and high labour productivity, but this partly reflects the fact that the old Fornebu terminal is operating well beyond its planned capacity. Vienna appears to have very high costs and weak labour productivity, but generates very strong revenues, both from aeronautical and commercial sources. The southern European airports in the study appear to have low costs but also generate weak revenues, while the UK airports have particularly strong commercial revenues.
In terms of profitability, the revenue:expenditure ratio gives a measure of airport profitability that is unrelated to airport size. Here Oslo comes out on top once again at 272 per cent followed by London/ Heathrow (211 per cent). Next come Madrid with 194 per cent, Glasgow (165), Newcastle (153), London/ Gatwick (150), Barcelona (147) and Geneva (145). Oslo and Heathrow, the most profitable airports, generate over $2 in revenue for every $1 spent. In general the most profitable airports - Oslo, Heathrow, Madrid and Glasgow - are run by companies which operate several airports. This suggests the profits from the large airports are being used to support the smaller, less profitable airports in the group.
By this measure the performance of Europe's airports in terms of generating profit is far better than that of Europe's airlines. As the recently published Efficiency of the world's major airlines, a comparative study published by Cranfield University in association with Airline Business showed, even the more successful carriers, such as Southwest and British Airways only achieved revex ratios of 115 and 109 respectively in 1993. And if Southwest and BA were ranked by revex ratio alongside the 25 European airports in the survey, Southwest would scrape into seventeenth place and BA would be twentieth.
Source: Airline Business
