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Airport Finance & Admin > Airport Revenue > Flashcards

Airport Revenue Flashcards

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1
Q

What are the three categories of revenue that airports use to offset operating expenses?

A
  1. Aeronautical
  2. Non-aeronautical
  3. Non-operating
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2
Q

Define aeronautical revenue and provide some examples

A

Revenues directly related to aircraft operations and safety. Examples include landing fees, land leases, rents, fuel sales, and fuel taxes.

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3
Q

Generally, aeronautical revenues account for what percentage of airport revenue?

A

50%

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4
Q

Define non-aeronautical revenue and provide examples.

A

Revenues that an airport receives that are not directly related to aircraft operation are considered non-aeronautical. Examples include off-airport industrial parks owned by the airport, reservations centers, catering facilities, rental car ops, parking, and concession sales.

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5
Q

What is the advantage of non-aeronautical compared to aeronautical revenues?

A

Non-aeronautical revenues are not encumbered by rate setting limitations. As a result, non- aeronautical revenues at major airports can exceed 50% of gross revs.

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6
Q

What type of revenue is generally important to both GA and commercial service airports?

A

Airport land leases from aeronautical and non-aeronautical use sources.

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7
Q
  1. What are non-aeronautical revenues primarily related to?

2. From 1998 to 2008, how were the increases in this category distributed between airport categories?

A
  1. Passengers
    • medium hubs (90%)
      • small hubs (81%)
      • large hubs and non-hubs lagged behind at 67 & 66% resp., but saw greater increases in non-aero revs that were not pax related.
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8
Q

Define non-operating revenues and provide examples.

A

Non-operating revenues are those not directly related to airport investments. These include passenger facility charges, grants, and interest income.

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9
Q

What determines a signatory carrier and under what agreement are they most common?

A

Signatory Carriers are those that have made a significant commitment to an airport. As a result, they earn negotiated financial considerations. Signatory arrangements are most common at airports with residual agreements.

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10
Q

Rates and fees for revenues such as landing fees can be assessed differently depending on whether the user is ______________ or __________________.

A

signatory / non-signatory

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11
Q

What relationships are defined in a legally binding aeronautical use agreement?

A

Legal, Financial, and Operational relationships are defined.

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12
Q

Often, signatory carriers have a say in airport development plans that may affect rates and charges through what lease provision?

A

Majority-In-Interest Clause

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13
Q

GA, and some commercial service airports, charge an additional percentage or small amount on fuel sales for revenue. By what is this known?

A

Fuel Flowage Fee

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14
Q

What is the primary purpose of use agreements with regard to benefits for airlines and airports?

A

Airlines receive operating rights and airports hopefully get a guaranteed, reliable stream of revenue.

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15
Q

Name some non-traditional revenue sources.

A
  1. TSA Security pilot programs.
  2. Voluntary Airport Low Emissions (VALE) green programs funded through AIP and PFC monies.
  3. Mineral rights on vacant leased land
  4. Marketing and Sales plan improvements
  5. Parking rates and services such as valet and corporate
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16
Q

Define customer facility charge (CFC).

A

A CFC is an additional charge by airports placed on non-aeronautical transactions.

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17
Q

What are the two major characteristics of the residual method?

A

The airport’s financial risk is transferred to the airlines while profits are limited to a negotiated level under the residual method.

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18
Q

What are the traditional methods for determining airline rates and charges?

A

Residual or Compensatory

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19
Q

Airline rates and charges, determined using the Residual method, are set by:
1.
2.
3.

A
  1. Determining an airport’s costs
  2. Calculate non-airline revenues
  3. Subtract non-airline revs. from airport costs to find Residual to be covered by signatory airlines

Notes:

  • Balances costs with revenues, resulting in break-even status
  • Known as O’Hare agreements, often long-term (20 - 30 years)
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20
Q

Residual Agreements can often provide __________ __________ regarding gates, ticket counters, etc., along with a ___________ ___________ ____________ clause, where the air carrier has the right to approve capital projects or selection of airport executive.

A

exclusive rights / majority-in-interest (MII)

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21
Q

Advantages of Residual Agreements to airports, besides transfer of risk to airlines, are:

  2. 4.
A
  1. Security of revenue bond financing
  2. Subsidy of uneconomic facilities
  3. Guaranteed cash flow
  4. Less impact of political decisions on airport financial results
22
Q

Historically, how long were lease arrangements good for and what were the based on?

A

Leases ran from 20 - 30 years, generally the life of an asset.

23
Q

Broadly describe the Compensatory approach.

A

Airports assume all the operational financial risks while being able to retain all profits.

24
Q

Why has the Compensatory Approach become more prevalent since deregulation?
1.
2.
3.

A
  1. Airline’s lack of market commitment with ease of entry & exit
  2. Insecurity of deregulated markets and subsequent financial health of airlines
  3. Start-up airlines desire to keep costs low by avoiding capital-intensive airports
25
Q

Compensatory rates require the airport be responsible for ensuring _______________ do not exceed ______________ received.

A

expenses / revenues

26
Q

The two Compensatory Approach methods are:

A
  1. Cost of Service - fees and charges for each revenue producing center to cover costs.
  2. Public Subsidy Approach - local gov’t subsidizes he difference between revenues and costs
27
Q

The Compensatory Approach promotes managing the airport as ___________ ____________, thus ensuring ___________ do not exceed ____________, rewarding good ___________, allowing use of surplus monies and flexibility of management within limits.

A

business enterprise / revenues / expenses / management

28
Q

“Rate base” is the total of ______ ________ associated with providing airfield __________ and ___________ to aeronautical users.

A

all costs / facilities / services

29
Q

What is rate setting by airports typically based on?

A

An assessment of airfield asset costs and expenses.

30
Q

What four things should an airport anticipate providing to aeronautical users in consultation over changes in rates and charges?

A
  1. Historical financial info for two previous fiscal years
  2. Economic, legal, or financial justification
  3. Traffic info for previous two years
  4. Planning and forecast info applicable to fees
31
Q
  1. The establishment of an airport’s “rate base” must be __________, ____________, and _____________.
  2. Subsequent adjustments are required to be on a schedule that is __________ and ____________.
  3. Further, the “rate base” may consider _________ _________ requirements.
A
  1. reasonable, consistent / transparent
  2. timely / predictable
  3. cash flow
32
Q

For airport sponsors that operate more than one airport, what three things must be shown to include more than one airport in the rate base of a main airport?

A
  1. The airport proprietor is also proprietor of second airport
  2. The second airport is currently in use
  3. Costs of other airports are reasonably related to aviation benefits of first, such as relieving GA traffic or supporting a navaid
33
Q

Because of reduced financial predictability and resources, airports are:

  1. ___________________
  2. ___________________
  3. ___________________
  4. ___________________
A
  1. Reducing Expenditures
  2. Postponing Capital Projects
  3. Making Productivity Improvements to Staff & Facilities
  4. Increasing Revenue Dvrsfctn from non-airline business sources
34
Q

What effect do shorter lease agreements have on bonds issued by the airport?

A

With airline volatility and shorter lease agreements, airport revenues are more unpredictable. Bonds, therefor, are not rated as highly. This makes it more difficult to raise money.

35
Q
  1. For airports that receive AIP funds, what is the threshold for filing a required financial report to the FAA?
  2. How is this report documented and de facto, what else has it grown to describe?
A
  1. 2500 enplanements per year

2. FAA Form 5100-127 / Airport revenue centers

36
Q

What are the three airport development strategies for commercial and industrial property?

A
  1. Lowest Risk - Airport issues long term ground lease to a developer that usually also delivers a percentage of gross revenue. Often, development reverts to airport at lease end.
  2. Highest Risk - Airport is the developer and responsible for finding tenants and management. Greatest potential return.
  3. Joint Venture - Airport and one or more partners enter into complex agreements to develop parcel. Used for most large ventures.
37
Q

Name intangible leadership characteristics of airports in non-aeronautical development programs.

A
  • Airport stewardship aligns airport interests and community goals
  • Respect for airport’s competencies
  • Knowledge of each party’s interest in a project
  • Constant networking
  • Attention to details and the money
  • Airport staff that functions effectively
38
Q

Airport incentive programs to airlines initially focused on reducing ___________ ___________ __________ but now target reducing air carrier __________ _________.

A

market entry risk / airport costs

39
Q

Regarding property management, what are the four most common types of lease agreements?

A
  1. Straight
  2. Graduated
  3. Revaluation
  4. Percentage
40
Q

A Straight Lease ___________ ___________ throughout its term.

A

remains constant

41
Q

A Graduated Lease provides for __________ in _________ and ___________ at previously arranged _____________.

A

changes, rents, fees, intervals

42
Q

A Revaluation Lease provides for __________ ____________ of the property and rent ______________ to current ____________.

A

periodic valuations, adjustments, values

43
Q

A Percentage Lease calls for rents equivalent to a percentage of ___________ _____________, which are common in ___________ lease agreements.

A

business sales, concession

44
Q

Leasehold Agreements give the lessee (tenant) _________ _________, or with use agreements, the right to __________ a particular ___________ for a ___________ of ___________.

A

real property, conduct, activity, period, time

45
Q

Provide examples of non-aeronautical development projects around the country

A
  • Pittsburgh - Corporate HQ for Dick’s Sporting Goods
  • Kansas City - Air and Truck Intermodal Center
  • El Paso - Businesses related to border trade & military synergies
  • Edmonton - Intermodal rail, road, and air with deep water port
  • Miami - Extensive ground transportation hub
  • SW Florida Int’l - Ambitious reuse program of former terminal site
46
Q

Provide examples of revenue diversification.

A
  • Convenience Stores
  • Gas Stations
  • Clinics and Drug Stores
  • Hotels
  • Pet Kennels
  • Recreational Facilities
  • Self Storage Facilities
47
Q

Provide examples of ancillary land uses.

A
  • Temporary and Special Events
  • Easements and Rights-of-Way
  • Agriculture
  • Mineral Extraction
  • Renewable Energies - solar, geothermal, wind, biofuel, etc.
  • Utility Services
  • Precious Metal Storage
48
Q

What are some tools that an airport can take advantage of in communicating with its tenants to ensure grant assurance compliance?

A
  • Minimum Stds (for commercial aeronautical activities)
  • Airport Lease Agreements
  • Tenant Hdbks, etc.
49
Q

What are typical sections contained in a commercial lease agreement?

A

Recitals, Grant of Lease, Lease term, Rates/Fees/Charges, Taxes, Security Deposit, Improvements, Obligations for repair, Covenants by Tenant, Indemnity, Insurance, Signage and use, Subletting, Damage to premises, Condemnation/Eminent Domain, Title, Signature Block

50
Q

What are some tools that an airport can take advantage of in communicating with its tenants to ensure grant assurance compliance?

A
  • Minimum Stds (for commercial aeronautical activities)
  • Airport Lease Agreements
  • Tenant Hdbks, etc.
51
Q
  1. Many airports now utilize a combination of the Residual and Compensatory Method for setting airline rates and charges. By what is this known?
  2. What is the key issue for all three methods?
A
  1. Hybrid

2. How costs are defined

Airport Finance & Admin (9 decks)

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