Airline Handbook Chapter 8: Airports

Commercial aviation helps drive more than 10M American jobs and 5 cents of every dollar of U.S. GDP
Commercial aviation drives more than $1 trillion per year in economic activity
In 2012, U.S. airlines moved more than 48,000 tons of cargo per day
In 2012, the value of a kilogram of U.S. merchandise exported by air averaged 121 times the value exported by sea
For every 100 airline jobs, some 360 are supported outside of the airline industry
Federal taxes constitute $61 – or 20% – of the price of a typical $300 domestic round-trip ticket
In 2011, U.S. airlines carried 16 percent more passengers and cargo using 10 percent less fuel than in 2000
Domestically, airlines drive 5% of economic activity but account for 2% of man-made GHG emissions
From 2000-2011, airlines reduced GHG emissions by 11% while transporting 16% more passengers and cargo
From 1975-2011, U.S. airlines and their partners reduced significant noise exposure by 99%
Commercial air travel is the safest form of intercity transportation in the United States
In the most recent decade, scheduled air service on U.S. airlines was seven times safer than in the 1970s
From 2000-2012, U.S. airlines improved the on-time arrival rate from 72.6% to 81.9%
From 2000-2012, U.S. airlines reduced the flight cancellation rate sharply from 3.30% to 1.29%
Airfares are a bargain: From 2000-2012, U.S. CPI rose 33% while average domestic fare rose just 14%
Adjusted for inflation, the average round-trip domestic airfare fell 15% from 2000
2007 domestic flight delays cost the United States approximately $31 billion
In 2012, the value of U.S. merchandise exported by air reached an all-time high of $427B
In 2012, U.S. exports of air-travel services reached an all-time high of $39.5B, driving a $5.1B trade surplus
In 2012, U.S. passenger and cargo airlines spent more than $50B on fuel, averaging 36% of operating expenses
In 2012, U.S. airlines posted the lowest annual rate of mishandled baggage ever recorded
FAA projects U.S. air travel demand to top 1 billion passengers in 2027
In 2012, US airlines flew 83.4 million passengers in scheduled international service - a record high
In 2012, the total value of merchandise exported from or imported to the United States by air exceeded $927 billion
In 2012, 7.15 teragrams of merchandise was exported from or imported to the United States by air

	Airline Handbook Chapter 8: Airports
	PubZone1 The United States possesses the largest, most extensive aviation system in the world with more than 19,700 airports, ranging from the largest airports that enplane 25-45 million passengers annually to small grass or gravel strips serving only a few aircraft each year. Of these, 3,356 are designated as part of the national airport system and are therefore eligible for federal assistance. The federal interest in capital investment for airports is guided by several objectives, most notably ensuring safety and security, preserving and enhancing the system's capacity, helping small commercial and general aviation airports, funding noise mitigation and protecting the environment. NATIONAL SYSTEM AIRPORTS – 3,356 total airports categorized as follows: Commercial Service Airports (503 airports) – publicly owned airports that have at least 2,500 passenger boardings each calendar year and receive scheduled passenger service: 382 primary airports designated as large, medium, small or nonhub (more than 10,000 passenger boardings each year) and 121 nonprimary airports (between 2,500 and 9,999 passenger boardings each year) Reliever airports (269 airports) – those designated by the FAA to relieve congestion at Commercial Service Airports and to provide improved general aviation access. General Aviation Airports (2,560 airports) – the remaining airports including privately owned, public use airports that enplane more than 2,500 or more passengers annually and receive scheduled airline service. Ownership Although almost all commercial airports in the United States are publicly owned, the private sector plays a significant role in their operations and financing. Employees of private companies – airlines, concessionaires and contractors – account for 90 percent of all employees at the nation's airports. The largest source of capital for airport development is tax-exempt bonds, secured by future airport revenue and subject to the scrutiny of credit-rating agencies. In other countries, most airports are owned and operated by national governments. Privatization The possible sale or lease of commercial airports in the United States to private companies has generated considerable attention in recent years. Several factors, such as providing additional private capital for development, have motivated greater interest in airport privatization. Concerns over the possible abuse of the monopoly power of an airport, along with long-established legal and regulatory protections for existing airport investments and their revenue streams, however, have held back wholesale airport privatization in the United States. Even if a sale or lease transfer could overcome legal obstacles, the ability of a private airport to operate profitably is uncertain. A privately owned airport would not be eligible for tax-exempt debt financing, federal airport grants or passenger facility charges (PFCs). Since these sources constitute the majority of capital funding at most airports, financing costs would rise significantly. As part of the Federal Aviation Reauthorization Act of 1996, Congress established an airport-privatization pilot program that exempted up to five airports from legal requirements that limit their sale or lease to private entities and allow private operators to receive federal grants and collect PFCs. A single commercial service passenger airport (Stewart/Newburgh, New York) joined the program. While the facility was originally operated by a private management company under a 99-year lease, they subsequently assigned their interest to the Port Authority of New York & New Jersey, with the Port Authority assuming control in November 2007. As a result, Stewart is removed from the Privatization Pilot Program. As of Oct. 25, 2010, there are four active applications in the program: Chicago Midway International Airport, Gwinnett County Briscoe Field, Luis Muñoz Marin International Airport and Hendry County Airglades Airport. National governments of many foreign countries have historically owned and operated airports; over the past decade and a half many countries have begun to privatize all or parts of their nation's aviation system. The United Kingdom, which sold its major commercial airports in 1987, is one of the few countries where airports have generated profits for their shareholders. Organizational Structure & Governance Airports in the U.S. that receive scheduled commercial service typically are owned by cities or counties and operated by governmental units. Types of airport ownership/management structures include: Department of City/County Government – the head of the airport department reports to the mayor or city/county manager; another variation is where the airport is governed by an appointed commission that is subordinate to the city council or board Component of State Government – the airport is controlled by the state rather than the local government with the Department of Transportation or a subagency owning and operating the airport Airport Authority/Commission – these are autonomous bodies with an appointed board that makes final decisions on policy and expenditures Port Authority – airport management reports to the head of the Port Authority who also oversees the marine facilities and other related transportation departments Bifurcated Arrangement – the city or an individual corporation operates the airport terminal while the state manages the airfield Joint-Use Airports – an airport that the U.S. military owns but by written agreement with a governmental unit described above allows civilian aircraft use of the airport Because airports resemble small cities, they are organized accordingly, with departments that include purchasing, engineering, finance, legal, operations, personnel, administration, security and public relations. They also have fire and police departments and must handle such typical municipal duties as trash and snow removal. Financing Commercial service airports, contrary to popular misconception, are not funded by government general fund tax dollars – federal, state or local. Rather, those airports are funded either directly or indirectly out of aviation revenue generated by airlines, their passengers or airport vendors in the form of direct payments or through earmarked taxes collected from aviation system users. Over 80 percent of commercial service airport revenues are generated via the aeronautical activities on the airports; the balance coming from concessions revenues, interest, etc. Airports rely on a variety of public and private funding sources to finance their capital development, including airport bonds, federal and state grants, PFCs, and airport-generated income. Airport Improvement Program (AIP) Airport grant programs are funded from taxes and fees specifically collected for that purpose. As of January 2011, these included a 7.5 percent domestic ticket tax and a $3.70 per-person per-flight-segment fee for all domestic flights, except to certain rural airports. A $16.30 international arrival tax and a $16.30 international departure tax (both adjusted for the annual rate of inflation, beginning Jan. 1, 1999), a 6.25 percent tax on domestic air freight, a 4.3 cents-per-gallon domestic air fuel tax, and taxes on the fuel used in small planes and for noncommercial purposes also fund the grant programs. These revenues are credited to the Airport and Airway Trust Fund (AATF), created by Congress in 1970 to fund improvements to airports and the nation's air traffic control system. The FAA dispenses grants (more than $3.8 billion annually) to airports out of the fund for projects under the Airport Improvement Program (AIP). Passenger Facility Charge (PFC) Since 1992, airports gained the right to charge airline passengers a $3.00 fee, known as a passenger facility charge, which the airlines collect as an add-on to the airfare. Effective April 2001, Congress authorized an increase in the maximum PFC rate that airports can charge passengers – $4.50 per segment, with a cap of $18.00 for a round trip. These taxes must be pledged to specific capital improvements that will: (1) preserve or enhance safety, capacity or security of the national air transportation system; (2) reduce noise; or (3) enhance competition between or among air carriers. Every PFC is tied to specific capital improvement projects that have been approved by the FAA, and the fee expires when all of the money needed for the approved projects has been raised (unless new projects have been approved under a separate application). As of August 2011, 384 airports receive federal government approval to levy this tax. More than $2.7 billion in PFCs were collected in 2010, and the FAA has already authorized the collection of more than $66 billion. However, even though one of the main objectives of the PFC program is to increase airport safety and capacity, only 14 percent of collected funds have been used for airfield safety and capacity improvements. In fact, more PFC funds are now being spent on interest for capital projects (35 percent) than are being spent on airfield safety and capacity. Passenger facility charges, when used wisely, have been a useful tool in meeting aviation infrastructure needs. Revenue Bonds More than 95 percent of all airport debt issued since 1982 has been in the form of general airport revenue bonds (GARBs), which are secured by an airport's future revenue. Capital improvements such as the construction of a new terminal or parking garage are sometimes funded privately (for example, by an airline if the new facility is for its exclusive use), but more often through the sale of revenue bonds by the airport operator. Revenue bonds are repaid, with interest, from the future revenue the new facility generates. For example, revenue bonds sold for a new terminal would be repaid with the rent the airport collects from the airlines and other tenants using the terminal. Usually, the airport owns all of the facilities built on its property, regardless of how their construction was financed. Facilities built for exclusive use of a tenant, however, are sometimes leased to that tenant for a long period of time. Years ago, general obligation bonds, which are backed by the taxing power of a governmental unit, were far more common because of their stronger credit standing and, therefore, lower financing costs. The decline in general obligation bonds reflects the improved acceptance of GARBs by investors. Today, smaller commercial service and general aviation airports are the most common issuers of general obligation bonds for airport development. Airport Costs With the exception of some small and nonhub airports that receive subsidies from their municipality, U.S. airports are self-sustaining. The revenue, collected from businesses, passengers and shippers using the airport, covers most of the operating expenses associated with operating the airport. Typically, companies doing business at an airport (airlines, car rental companies, restaurants, stores, etc.) pay rents for the space they occupy. Many businesses also pay a gross-receipts fee based on the total value of their business at the airport. Airlines do not pay gross-receipts fees, but pay flight fees based on the weight of each aircraft that lands and/or departs. In some instances, they also pay aircraft parking and fueling fees, or make direct payments on long-term airport debt. Rate-Making Concepts There are two common methods for computing air-carrier fees: residual and compensatory. In a residual agreement, the signatory airlines accept the financial risk and guarantee the airport sufficient revenues to meet its operating costs and debt-service costs. Under the residual method, after an airport deducts all non-airline revenue from its total annual expenses, the airlines are responsible for the remaining (residual) amount, and rates are set accordingly. Compensatory agreements are generally found at mature airports that have realized successful revenue generation. The airport undertakes the risk of meeting costs but also receives all the upside advantage. Under the compensatory method, an airport is divided into various cost centers (e.g., airfield, terminals, parking areas), and airlines pay a share of those costs based on the amount of space they occupy, planes they land/depart and other measures of airport use. While the fees airlines pay to airports represent a small portion of overall airline operating costs, they have been one of the industry's fastest-rising costs. Revenue Diversion Of increasing concern to airlines (and many airport operators) has been local political interest in diverting money away from airports for other nonaviation purposes. This activity, known as revenue diversion, is prohibited by federal law, but is allowed, in a few instances, under special arrangements that were "grandfathered" in the federal statutes addressing this issue. Regulation of Airports As mentioned in Chapter 6, airports that receive scheduled air service by carriers must be certified by the FAA as operating within strict federal safety guidelines for design and operation. This certificate is known as a Part 139 certificate after the section of the federal air regulations (FARs) dealing with airport safety. Part 139 certificates are the equivalent of the Part 121 certificates for airline operations. Airports also may have to comply with state and local regulations, although these usually deal with environmental or administrative matters rather than strictly with safety. Airport Capacity Airports have two components – landside and airside. Landside includes an airport's roads, parking lots, passenger drop-off and pick-up points, check-in areas, baggage-claim areas, and concession areas. Airside includes aircraft gates, aprons, taxiways and runways. Landside capacity is the number of passengers per year that the airport's roads, parking lots and terminals can handle. Airside capacity, on the other hand, is the number of aircraft operations that the airport's runways, taxiways and gates can accommodate safely. Landside is geared toward the movement of ground traffic (people and packages) into and out of the airport, and airside to the movement of air traffic into and out of the airport. The FAA calculates an airport's airside capacity using an engineering formula that takes into account the various ways an airport's runways are used, or not used, in different wind and weather conditions. Known as an Engineered Performance Standard (EPS), it is expressed in aircraft operations per hour. Decisions that the FAA air traffic control division makes about the flight paths carriers will follow in and out of an airport also affect airside capacity. Airport capacity, or lack of it, is one of the most significant issues facing civil aviation. A great deal of attention has been focused in recent years on getting more capacity out of airports that already exist. This can be done by adding, extending or altering runways, taxiways and landing aids or, perhaps, by changing departure and approach patterns. These and other capacity enhancements, however, can encounter opposition from residents of surrounding communities, who often want to see airport operations scaled back because of environmental concerns. Building entirely new airports in less densely populated areas, on the other hand, is a far more expensive option to expanding existing facilities, and often less convenient for most travelers. Go to Chapter 9 PubZone2