Singapore's Changi Airport is considered by
many travelers to be the best in the world.
Have a long layover? Stop by the butterfly garden or catch
a Disney film at the airports movie theater. In Qatar's Hamad Airport
for a few hours? For about 50 bucks, travelers can swim laps in a 25
meter indoor swimming pool or workout in a fully equipped gym. Traveling during Christmas? Each year Munich's airport puts
a pop-up holiday market, complete with an ice skating rink, a
microbrewery and 450 real Christmas trees. And then, there's LaGuardia
Airport in New York City. The 1950's and 60's have often been
described as the Golden Age of flying. Traveling by air meant three
piece suits for men, high heels for women, lavish meals and
lots of leg room. Today, at U.S. airports, passengers are
forced to wait in long security lanes and then line up
for fast food, before boarding overcrowded airplanes with
no free meals. So why are U.S. airports so
cash strapped compared to their international counterparts? Airports in the U.S. started to
take shape in the early 1920's. At the time, passenger service
was virtually nonexistent and airlines were flying mostly mail. While a few airfields were
built before World War I, airport construction really began in the
United States when the post office began to experiment with
carrying the mail by air, they needed places to land. During the Great Depression with
big improvements in technology, passenger service suddenly
took off. In 1930, America's airlines
carried about 6,000 travelers. By 1938, that number soared to 1.2 million. Flying was loud, cold and
only business travelers or the wealthy could afford it. Most of
the passengers during the 1930's were business people and they
understood that time is money. As aviation grew, as new airplanes
came in, they understood that this could move them faster, but
also could move financial instruments faster. By 1940, modern
airports started to evolve. Planes got bigger, grass gave way
to pavement and terminal buildings grew, from simple structures that were
small and dingy, to art deco buildings designed by architects. With massive amounts
of public financing, America was well into the jet age. By 2019, thanks in large part
to government cash, the U.S. has more than 19,000 airports. For the most part,
airports in the U.S. are publicly owned and operated by either
a city, a county, a state or in some cases
a public authority. There are thousands of airports, big
and small, but about 500 are consider public use
commercial airports. In its latest ranking of the
most profitable airports in the U.S., the American City Business Journal's said,
the top five airports by revenue were JFK, Newark, San
Francisco, Los Angeles and Miami. Every airport has its own model
for how it brings in cash. Revenue is also dependent on a whole
lot of factors outside of an airport's control, including airline
routes, passenger flows, plus local and
international regulations. But generally speaking, airport
income in the U.S. can be boiled down to
three categories: aeronautical operating revenue, non-aeronautical operating
revenue and non-operating revenue. That first category pulls
in the most cash. Airports in the U.S. make most
of their money from the airlines. And that revenue is everything from
landing fees to terminal rents to fuel sales. In 2016, the most recent year,
the FAA made this data publicly available, U.S. airports collected revenue of $11.3 billion dollars from the airlines,
including landing fees of $3.7 billion dollars, terminal rents of $5
billion dollars and cargo and hangar rentals of
$661 million dollars. Because they are government owned
and receive taxpayer subsidies, airports try to keep costs low. Airport revenue streams are really
based historically on minimizing costs for the airlines. And that kind
of harkens back to the pre-1978 days when the airlines
were regulated by government. As a result, the airports are run
in this kind of cost recovery framework where they collect
revenues from various sources. Non-aeronautical revenue brought in 35
percent of all income for airports across the U.S. For many airports, the biggest
non-airline revenue is from parking. In 2016, U.S. airports collected $5.8 billion dollars from parking
and rental cars. Parking is a big way
that airports can earn money. And so you can see why some
airports might be a little reluctant to have, say, mass transit, because if
people are coming out there on mass transit, they aren't
parking their cars. We're in an unsettled period in terms
of how people are going to choose to access the airport. Ride sharing has been
growing very fast. There is a debate
about autonomous vehicles. Food and beverage operations is another
big source of income pulling in $1.5 billion dollars across
all airports in 2016. And then there's non-operating revenue,
which includes grants from the government and interest earned
on surplus cash when airports invest in things like bonds. The biggest source of income within
this category is the passenger facility charge, that goes to the
upkeep and maintenance of the airport. It accounted for 48
percent of all non-operating revenue. U.S. airports, particularly smaller ones,
also rely heavily on funding from the government. In 2018, the Airport Improvement Program
gave out over $3 billion to more than 1,600 airports. The Airport Improvement Program supports
the runways, taxiways and overall quality and
health of airfields. Despite America's capitalist driven
economy, it's actually Europe that has taken the lead
on privatizing its airports. In the 1980's and 90's, deregulation
and an increase in demand for air travel, along with a scarcity
of public funds, forced many airports worldwide to seek out
some form of privatization. Starting with the UK airports in
the mid-1980's, privatization is now widespread across Europe. In 2018, more than 50 percent of
European airports had some form of private ownership. Many of the European
airports are run by private entities that are looking to maximize
shareholder return and gain a profit. In the United States
there is no profit motive. The European airports have found better
ways to extract higher dollar amounts from their passengers. In 1996, Congress created the
Airport Privatization Pilot Program, allowing for experimentation with
public-private partnerships at a limited number of airports. But it wasn't until the
mid-2010's that privatization really started to gain momentum in the U.S. In the face of decaying
infrastructure, a handful of U.S. airports have started to abandon the
public model and turned to private money to fund
billion dollar projects. Just take LaGuardia. In numerous
customer surveys, LaGuardia Airport has consistently ranked the
worst in the U.S. In 2018, 28 percent of LaGuardia
flights were delayed, placing its second to last in the
ranking of America's largest airports, according to the
Department of Transportation. Laguardia Airport was very crowded,
it had low ceilings, the furniture was very tired. After 9-11 where you had to put
in all these security lines, you would have lines everywhere. In 2016, New York State and
the Port Authority partnered with Delta Airlines and LaGuardia Gateway Partners
to completely rebuild the airport. The airport is now
getting an $8 billion overhaul. The public-private partnership model has become
more of a trend at airports around the world, according
to the World Bank. Public-private partnerships are a very,
very important part of the planning, I would say
at most airports. The government has limited funds. LaGuardia Gateway Partners, the group
that will finance, construct and operate Terminal B, said
the redevelopment, expected to be finished by 2022, will provide a
host of new services to passengers, including restaurants like Shake Shack, La
Chula and stores like FAO Schwartz. We've introduced the shops,
the amenities, larger hold rooms, higher ceilings, lots
of natural light. Behind me is a
park area with trees. There are many things that private
enterprise does much better than public agencies. And one of them, we believe,
is actually operate both the commercial and the operational side
of an airport. And more airports across the U.S. are also on the way to
getting massive multi-billion dollar makeovers thanks to cash
from private companies. New York's JFK Airport is planning
to spend $13 billion, including $12 billion in private funding
for improvements including two new international terminals. Los Angeles Airport is spending $14
billion on a giant expansion. LAX Integrated Express Solutions was
selected to design, build and operate the terminals
passenger train. The Automated People Mover is
LAX's first public-private partnership project. Since 2000, U.S. airports have had to withstand a
number of critical events that have had a major impact
on their bottom line. Following the September 11th attacks, for
the first time since World War II, the number of airline
passengers declined for two consecutive years. Additional security at U.S. airports has placed an even
greater burden on airport operations. This puts a lot of
capital requirements onto the airports. So they had to take on a lot
of debt, in order to reconfigure their terminals. The financial crisis that started
in 2007 was another blow to airports. In 2008, air passenger
traffic dropped again at airports around the country. What I think was
a larger impact was the slow recovery following the
Great Recession. In historical recessions there's been a
pretty quick bump back in terms of passenger traffic increasing
once the recession was over. Here, we saw a multi-year period of
a malaise with low growth in the 1 to 2 percent or less than
1 percent and that really started to challenge airport finances. Another factor, dragging down profit
margins for some of the country's medium to
smaller size airports. There are fewer airlines flying today
than there were in 2009. In the 10 years to 2018,
the airline industry has experienced multiple mergers and acquisitions. In 2008, Northwest Airlines
merged with Delta Airlines. In 2010, Continental Airlines
merged with United Airlines. And in 2013, U.S. Airways and American Airlines
parent AMR merged. That was good news for a few
larger hub airports, but many smaller airports were forced to deal
with the economic fallout. A hub airport has a large
number of connecting flights from one dominating airline. The mergers that have been happening and
the shrinkage from 10 or 12 major airlines in this country
down to what, three, four? That's been a huge challenge. Airports can really grow, look
at Atlanta, Chicago, Dallas. Those that have maintained hubs,
they're dealing with growth. Airports that had been hubs, they've
had to deal with decline. According to Airports Council
International, industry consolidation had a big impact on
several regional airports, including Pittsburgh, St. Lewis, Cincinnati,
Memphis and Cleveland. If part of a business is severed and
you have a lack of cash flow, that money is not flowing into
an airport, you're going to suffer. That means restaurants closed down. That means employees get laid off. That means revenue is not
coming into that airport. While flying is generally cheaper and
safer than it's ever been. An increase in travelers will
put massive pressure on existing airport infrastructure. U.S. airlines and foreign
airlines serving the U.S. carried about a billion passengers in
2018, up 5 percent from the previous year, according to
the Bureau of Transportation. Millions of people go through
LaGuardia, just for everyday maintenance and wear and tear, to keep
the floors clean, to keep the lights on, that takes
a lot of money. And U.S. airports are getting
older, according to the Airports Council International. They say airports will need
over $100 billion in infrastructure spending over the next five years. A useful time period for an airport
to exist is between 25 and 30 years before it
becomes non-competitive. Right now, the average age of a
terminal in the United States is a little over 40 years, so we're
way beyond the international number. While airports in the U.S. have shown signs of improvement
in recent years, additional passengers, tightening budgets and
growing competition will force cash strapped airports to seek out
new sources of financing to compete on the world stage.
