Targeting Non-aeronautical Revenue at Airports

For the Federal Airports Authority to broaden its revenue base aimed at revamping airport infrastructure, industry experts posit that the agency must fully exploit nonaeronautical revenue sources, writes Chinedu Eze

Many industry observers are of the view that the high charges imposed on airlines by the Federal Airports Authority of Nigeria (FAAN) is because it has not introduced comprehensive non-aeronautical revenue sources, which could increase its earnings in that area to about 35 percent.

It is believed that when an airport management increases its non-aeronautical revenues it tempts to reduce its charges on airlines, which would in turn reduce the cost of tickets. With reduction in the cost of tickets, it is expected that more people would prefer to travel by air and as more people come to the airport they patronise businesses and other service providers and generate more revenue for the airport management.

Conversely, when too many charges are levelled on airlines they pass the charges to their customers through the cost of tickets thereby reducing the number of people that travel by air, as many who could afford cheaper tickets may not be able to buy exorbitant tickets. Multibillion Dollar Sub-sector According to Airport Council International (ACI), global airport revenue from non-aeronautical sources has risen to 38.8 percent to $60.4 billion. ACI said non-aeronautical revenues continue to be a vital component of an airport’s bottom line.

“This source of revenue tends to generate higher net profit margins, whilst providing airports with more diversification of income streams which then serve as additional cushion during economic downturns where passenger numbers may drop or passenger spend may decrease in one area or other,” ACI noted.

Non-aeronautical revenues are such revenues that accrue from non-airline services such as parking and landing charges, fuel surcharge, baggage taxes and others that relate to passengers but include revenues generated from businesses around the airport, advertising, meeters and greeters and others.

Increasing Aeronautical and Nonaeronautical Revenue

A source told THISDAY that with a boost in non-aeronautical, if all loopholes are closed and revenue systems automated, FAAN could increase its annual revenues from the present N45 billion to about N70 billion.

With the huge revenue generation, the agency, according to sources, could effectively and efficiently carry out major developmental projects without seeking funds from the federal government.

It should also be able to offset its fiscal liabilities, enhance welfare package for its workers as well as improve the facilities at all the airports under its management.

With a boost in non-aeronautical and tight fiscal regulation, FAAN may be able to fund the provision of safety critical facilities and equipment without resort to government.

Measures FAAN could adopt to improve revenue include the automation of every process that generates revenues for the agency in all the airports under its management and a comprehensive development and optimising of non-aeronautical revenues sources.

“First, FAAN has to capture the data of revenue potential which will determine the amount of revenues to expect; it will have to ensure that there is transparency, which means that every amount of money generated is captured; then it will have to streamline all its activities so that at a glance everyone will have the picture of what is generated”, an inside source told THISDAY.

Modern Airport Terminals

Investigations have showed that in Europe, Americas and in the Gulf regions, nonaeronautical revenue has risen to 70 per cent of the total revenues generated by airports but in Africa, besides South Africa, non-aeronautical revenues are still below 50 per cent of the total revenues generated by airport services and in Nigeria it is below 30 per cent.

The former CEO of Bi-Courtney Aviation Services Limited (BASL), which built and is managing the Lagos airport domestic terminal (MMA2), Christophe Penninck explained to THISDAY in an interview that modern airports are seen as economic development centres so it is built and created to attract businesses in addition to providing the critical service of passenger facilitation and air travel.

“The purpose of an airport all over the world is changing. It is not only to take one person from point A to point B but it is economic development centre. Look at Johannesburg, it has wonderful airport. Do you know many shops it has? I was there when it moved from being a small terminal to what it is now. I was there when they were transforming it. It was difficult to operate but now they have tripled the shops inside it.

“It is a whole new experience; people enjoy travelling through Johannesburg airport because you have things to do. You don’t necessarily waste your time sitting down, you can spend your time either shopping, enjoying a massage, ice cream. So the non-aeronautical in the new airport is almost more important than the aeronautical revenue. The aeronautical revenue should be for investment in security, in safety and the maintenance of all the equipment to make sure that an aircraft can land in any weather condition,” Pinninck said.

Infrastructure

On the infrastructural limitations the Murtala Muhammed International Airport has, Penninck said there should be a way to transfer passengers from domestic to international terminal and vice versa.

“We should device the means to have a link between the terminals here (domestic) and international. Whatever means you may choose, whether monorail, rail or otherwise but we should have a shuttle between both terminals to create the hub system in Nigeria. What we have now is that first of all you go through the hassles at the international terminal, you are endlessly in traffic and by the time you end here you might have even missed your flight.

“So we must change that. It is a big project but it is something that has to be done at government level. It is an investment the same way that Lagos State has invested or is investing now in this mono rail, the same thing should be done here at international airport. Make it a seamless connection between international airport and domestic,” Penninck said.

He also remarked that to improve safety government should ensure there are efficient landing equipment at all the airports, including airfield lighting which will enable airlines to fly to any airport at any time.

“The Murtala Muhammed International Airport must be well equipped enough to handle domestic and international flights on both runways and in all weather conditions. And the same thing should be done in Abuja. Abuja really should have second runway and then Port Harcourt should also have a descent terminal and better landing equipment. What the previous minister has done is good, that is starting the modernising of equipment at all the airports. It is a good step but on this particular airport, it is better connection between domestic and international and better landing equipment,” the former BASL CEO said.

Customer Satisfaction

ACI said that for airport to develop nonaeronautical revenue sources it must meet customer satisfaction and it must be friendly and secure at the same time.

“Faced with a shifting paradigm in the business model, airports are distributing their focus from a strictly aeronautical standpoint to fulfilling an increasing demand in non-aeronautical services which their infrastructure and positioning well allows them to do,” ACI said. ACI also said that there has been increasing trend in airports across the world turning to non-aeronautical commercial sources of income to sustain airport profitability. It noted that global non-aeronautical revenues reached $58bn; which is 40 percent of global airport revenues.

“The airport revenue model is becoming increasingly diversified, as airports continue to look beyond being an infrastructure provider to more profitable commercial enterprises. The diversification and increasing reliance on commercial income sources also provides a cushion during adverse economic times, such as financial crises and epidemics such as the recent Ebola and Zika outbreaks. Globally, the income generated from commercial revenues shows that retail, car parking and property lead the way,” the Council said.

Pressure on Airlines Finances

According to the International Air Transport Association (IATA), one of the reasons why air transport has not developed in Africa to contribute significantly to the GDP of various countries in the continent is because governments see aviation as elitist and charge airlines huge taxes that make it impossible for them to operate profitably. In the same way, they charge huge taxes on aviation fuel, known as Jet A1.

During the IATA Aviation Day held in Abuja on May 23, 2016, the international organisation, urged African governments to tackle the excessive surcharges on fuel, which could make fuel purchases on the continent up to 20 percent more expensive than the global average.

“Airlines operating to Ethiopia, Gabon, Ghana and Kenya are particularly affected by above market fuel costs. These surcharges increase airlines’ cost burden when they are already operating in a challenging environment. They also hinder growth in an industry that delivers extensive socio-economic benefits,” IATA said.

Building Attractive Airports

Airport management experts reason that airports could be built to be attractive to both people who are travelling and others who come to enjoy the services available at the terminals. For this to happen, airports must be built to attract businesses with different services, which would in turn attract people. For example, at the Lagos airport, the new domestic airport terminal, known as MMA2 has attracted the supermarket, Spar, a gym, banks, eateries and other businesses, which attract people, including those who don’t intend to travel.

A FAAN staff once told THISDAY that the agency could invite investors to take up spaces at the Mallam Aminu Kano International Airport, Kano to establish businesses, from shopping malls, restaurants to other types of businesses, including aircraft maintenance centre, clubs, cold storage facility, product packaging for export of goods, plazas, business centres, gold course, health clinic, TV and movie filming facility etc.

Reducing Charges on Airlines

To ensure robust airline operation, it is expected that FAAN should review downwards its charges on airlines to ensure that they do not go under and to ensure that they attract more people to the airports.

President of Aviation Round Table (ART) Gbenga Olowo said air transport should be seen by government as vehicle for development and therefore should support it by reducing charges paid by airlines, at least, at this time.

“Should government understand and appreciate the importance of airlines to national economic stimuli and growth; then the heavy burden of loading the many user charges on tariff should stop immediately. Airlines are not revenue collectors.

Travel agents, banks or appointed agencies should begin to collect Passenger Service Charge (TSC), Ticket Sales Charge (TSC), VAT, Fuel Charges, etc., deduct commission and remit balance through the International Air Transport Association (IATA) clearing house to the agencies.

“The airlines will safe 15 percent user charges presently eroding the tariff yield. Collection on tickets as it is done in other economies has proven unworkable in Nigeria. Airports should also be compelled to source non-aeronautical revenue just like most modern airports in the world,” Olowo said.