We write a lot about how strongly COVID-19 has affected the world’s airlines, but what has it done to the airports that host the planes flown by all those air carriers? To answer this question, we must first understand how essential airports are to the economic development of cities, countries, and regions. In short, the relative health of airports has a large economic impact. Here’s why:
- They provide services to airlines and all the employees of those carriers.
- They help move millions of passengers daily around the world, all of whom spend money.
- They transport thousands of tons of important and sometimes vital cargo daily.
- The air transport of people and goods is a net benefit to countries, industries, and consumers.
COVID-19 Stalls Development
At this point, with airlines across the globe struggling to survive because of the coronavirus’ impact, there’s little doubt that almost all airports have been hit hard. This blow to air carriers and the airports that play host to them is stalling development in emerging markets, a point which has been noted by more than a few economists over the last year. The broader impact on the global economy, including in the United States, is likely large and long-lasting, given that most US airlines aren’t predicting a return to normal operations until 2022 or 2023, at the earliest.
A 2016 study by the Airports Council International (ACI) says that there are more than 4,000 airports around the world that host scheduled airlines of one size or another. In 2017, these airports generated revenues of $172.2 billion, up 6.2 percent from the year before. This steady increase no doubt carried through on a year-over-year basis until around March of 2020. That month, the COVID-19 pandemic began to seriously affect many countries, who in turn responded by severely curtailing air travel as a means of trying to stop the spread of the virus.
Airport ownership also runs the gamut from fully private to fully public. These airports also play host to many concessionaires, who are typically contracted to deliver services in an airport by that facility’s owners or airport authority or something similar. To say that concessionaires have been hit hard by the lack of air travelers in most airports would be an understatement.
Even publicly owned airports, such as are commonly seen in the US, must generate revenue so that they can continue to operate without being a severe drain on local tax bases. Airports and all their economic activities are meant to create jobs, lucrative economic activity, and then return money to their local economies, not take revenues from them, after all.
Airlines, especially ‘anchor airlines’ at hub airports, typically create the largest share of their airports’ revenues. At base, these facilities are engaged in commercial relationships with both air carriers and passengers, and they generate two types of revenue streams:
- Aeronautical revenues: These revenues are derived from landing, parking, transit/transfer, and various passenger fees. In 2017, aeronautical revenues accounted for about 56 percent of the revenue airports generated.
- Non-aeronautical revenues: This income is derived from retail concessions allowed to operate within an airport, and include duty-free stores, car parking, rental car businesses, food and beverage businesses like in-airport restaurants, and advertising. For 2017, non-aeronautical revenues came to about 40 percent of airports’ income.
Airport Fixed Costs
Airports also have high fixed costs because they provide and maintain a great deal of infrastructure (terminal buildings, cargo buildings, etc.) and safety and security services such as airport fire and police departments. Because of these fixed costs, airport operators such as government airport authorities have only a limited ability to cut costs during economic downturns. These operating expenses account for about 65 percent of total costs at a typical airport, and they include:
- Staff costs of 30 to 40 percent.
- Contracted services (concessions facilities, etc.) of 20 to 25 percent.
- Utilities of around 7 percent.
- Rent or concession fees of 7 percent.
Air travel and tourism directly and indirectly contribute around 10 percent of global Gross Domestic Product (GDP), and they support 330 million jobs worldwide, which is approximately the population of the United States. In some countries, airports play a vital role in domestic economic activity. According to the International Finance Corporation (IFC), Jamaica’s major air facility – the Montego Bay Airport – was directly and indirectly responsible for (or it was also responsible for inducing) about 11 percent of the country’s GDP and 12 percent of its employment.
The Bottom Line
Just from this brief overview of the economic impact COVID-19 has had on airports, it’s clear that the coronavirus is having a deep, negative impact on airport traffic and revenue. The combined effects of government lockdowns and travel bans and quarantines, for example, will continue to push air travel demand lower for at least the first half of 2021, according to many airlines. Because passenger traffic has been depressed worldwide (by the equivalent of 620 MILLION passengers just in the first quarter of 2020, before global shutdowns were implemented), there has been a near freeze on both aeronautical and non-aeronautical revenue normally generated by airports.
In Q1 2020, for example, those revenue streams declined by 35 percent worldwide (approximately $14 billion) and by a whopping 90 percent in Q2 (or around $39 billion). For all of 2020, total passenger traffic declined by 50 percent, to 4.6 billion passengers as well as a 57 percent decline in airport revenues, to just $97.4 billion compared to pre-COVID-19 forecasts. No industry can take such severe hits to the economic bottom line without experiencing serious problems at some point.
Kelly Hoggan, Founder and CEO of H4 Solutions, previously served as assistant administrator for operations at the Transportation Security Administration. In that role, he was responsible for aircraft and checkpoint security operations at the nation's 450-plus commercial airports.