How Airports Make Money - YouTube

This video was made possible by Squarespace.

After this, watch the video I made for their channel.

More about it after the video.

Airports are incredibly complex and challenging businesses but, in many cases, they’re businesses

that make money.

Many airports are owned by governments but still then, they’re often operated as businesses—just

businesses that are publicly owned.

The majority of airports make their money through what they earn from passenger carrying

commercial flights using their facilities.

Some airports are cargo focused and fund their operations through cargo flights but the ones

that you’ve most heard of, such as London’s Heathrow Airport, rely almost entirely on

passenger flights.

While the amount of cargo going through Heathrow is significant thanks to passenger aircraft

transporting cargo in their holds, the number of dedicated cargo flights is low in proportion

to the airports 650 daily flights.

They make their money off of the 78 million passengers flying through each year.

Heathrow is the busiest airport in the world that is fully privately owned—the UK government

owns no stake in it—and so it is perhaps the best example of an airport built to turn

a profit.

It costs $1,485,650,000 per year to run Heathrow airport.

This includes costs like the $494 million Heathrow pays in salaries to its 6,500 employees.

Now, 76,000 people actually work at Heathrow but only those 6,500 actually work for Heathrow.

The company that runs Heathrow, Heathrow Airport Holdings, is only really responsible for the

oversight and administration of the airport.

Within Heathrow’s walls, though, there are hundreds of other companies operating.

Those 70,000 other people work for the airlines, the baggage handling companies, the air traffic

control company, the restaurants, the rental car companies, the bus companies, and all

the other different employers at the airport.

There are, of course, plenty of other costs involved in running the airport from the $232

million per year in maintenance to the $113 million yearly utility bill for water, electricity,

internet, gas, and more, but overall, that number, $1.5 billion, is what it costs to

run the sixth busiest airport in the world.

That’s more than it costs to run the 1.3 million person country of Swaziland.

So how do they pay for that?

On a per passenger basis, it costs $19 to run Heathrow Airport.

Essentially, that means Heathrow needs to make $19 from each passenger that passes through

its doors in order to break even.

Of course, some passengers are more profitable than others.

Arriving passengers generally just get off the plane, go through customs, and leave immediately

without buying anything while connecting and departing passengers generally have more time

to shop at the airport.

Retail is incredibly important to the profitability of any airport.

This is part of the reason why its in the airports best interest to make the check-in

and security process as quick as possible—so passengers have more time to shop.

Heathrow makes money through retail by receiving a cut of every sale made.

On average, restaurants earn the airport 95 cents per passenger, retail stores earn them

$5.15 per passenger, the parking lots add on another $2.03, then all the other smaller

sources of retail revenue such as rental car companies and VIP lounges account for another

$3.04.

Rather uniquely, Heathrow also operates the express train from the airport to Paddington

Station in London which makes them another $2.15 per passenger.

All in all, the airport makes $13.32 from passengers through purchases on top of their

actual airplane ticket and, its worth pointing out, this doesn’t mean that passengers spend

$13.32—this means that Heathrow makes $13.32 per passenger.

This is their cut—actual spending at the airport per passenger is much higher.

Now, you may think that this amount of retail revenue per passenger is high and you’d

be right, it is.

In fact, it’s one of the highest retail revenues per passenger of any airport worldwide.

In comparison, Washington Dulles Airport makes $5.68 per passenger, Auckland Airport makes

$7.71, and Paris Charles de Gaulle Airport makes $10.92 per passenger through retail.

Heathrow is an expert in making passengers spend.

They use all sorts of tricks and tactics to increase passenger spending.

For example, in Terminal 3, to get from security and to the gates, all passengers have to walk

through duty free which increases sales enormously.

Heathrow also doesn’t display the gate for flights until around 45-90 minutes before

departure.

This is common in European airports, but uncommon elsewhere.

Because of this, passengers wait in the central area where shops and restaurants are until

just before their flight which leads to more time with passengers exposed to the retail

environment.

Being one of the very few airports with non-stop service to all six inhabited continents, Heathrow

also has the advantage of being an airport focused on long-haul service.

These flights tend to carry the wealthiest passengers and, while worldwide passengers

arrive an average of 2 hours and 17 minutes before their flight, Heathrow passengers arrive

2 hours and 51 minutes before which means they have more time to shop at the airport.

As mentioned, though, the airport needs to make $19 per passenger and retail only earns

them just over $13.

The rest of it comes from flights.

Each plane that lands at Heathrow pays the airport an average of $9,500.

Of course it varies hugely by aircraft—a 76 seat FlyBe Dash 8 isn’t paying the same

as a 345 seat British Airways 747—but $9,500 is the average per visit to Heathrow.

That goes to pay for things like gate space, a check in area, and the runway time itself.

The airport charges a fixed amount per aircraft landing—for the small Bombardier Dash 8

it would be $999 while for the large 747 it would be $11,600.

On departure, airlines are then charged again this time per passenger.

For each passenger flying to a destination outside of Europe the airline is charged a

base of $58 but this charge is reduced if a passenger connects through Heathrow rather

than originating or if the aircraft is parked at a remote stand rather than a gate.

All in all, a fully loaded 76 seat FlyBe Dash 8 flying a domestic route to Edinburgh, for

example, would be charged about $2,400 for its whole visit, arrival and departure, while

that British Airways 747 flying a long-haul route to New York, for example, would be charged

$31,700.

It’s worth noting that these are the published prices—in reality, many airlines with significant

numbers of flights at Heathrow have agreements with the airport that reduce their costs.

Breaking it down, what those numbers mean is that Heathrow gets, on average, $29 of

the cost of every passenger’s ticket.

As you can see that means that Heathrow makes a fair bit more than it costs to run the airport.

The company mostly uses this operating profit to pay off debt from prior projects and to

pay taxes so in the end, they’re only truly making about $8.20 off of each of their passengers,

but what these numbers also mean is that, by design, Heathrow is incentivized to attract

long-haul flights.

The airport is currently at capacity.

Their maximum number of flights per day is 657 and they currently have 650.

They really have no more capacity which means one of the only ways for them to grow financially

is to bring in larger planes.

The 76 seat FlyBe Dash 8 takes up the same time on the runway that could be used by another

345 seat British Airways 747 while the airport would make vastly more money by having that

747 land.

This is no doubt part of the reason why Heathrow is so poorly connected to the country that

it’s in—the UK.

The airport only has flights to eight airports in the UK which means the airport has exactly

the same number of destinations in the UK as it has in China.

Meanwhile, Amsterdam Airport Schiphol, in the Netherlands, has flights to 25 destinations

in the UK.

That means that for the vast majority of UK residents living outside of London, it’s

easier to connect to wherever they’re going through Amsterdam than the airport in their

capital city.

The reality is that Heathrow is a commercial company.

While most UK residents would likely want to see domestic flights to their largest airport

it just doesn’t make commercial sense to operate short and cheap flights to Heathrow

in the place of highly lucrative long-haul flights.

It’s not only less lucrative for the airport, it’s also more costly for the passenger

than flying to other smaller airports.

Of course, not every airport is like Heathrow.

Not every airport is a commercial company.

That’s just because, in many cases, running an airport the way the public wants it to

be run is bad business.

About two thirds of all airports worldwide lose money.

In many cases that’s because they’re government run and just not that focused on making money.

The US is a country that has not yet gotten around to airport privatization like the UK.

There is only one single privately owned and operated airport in the US with commercial

passenger flights—that’s Branson Airport in Southern Missouri.

Unlike Heathrow, which turns a considerable profit, Branson airport is loosing money and

has struggled to keep airlines flying there for more than a few years.

It’s not like Branson was the only attempt at running a private airport in the US—National

Express, a UK based transport company, took over Newburgh airport 60 miles north of New

York City in 2000, but it too failed and sold the airport back to the government.

The difference between airport privatization in the US and the UK is that in the US, the

smallest airports went private while in the UK, the largest airports did.

In the UK, ten of the fifteen busiest airports are privately owned and operated.

Meanwhile, only four of the fifteen least busy airports in the country are privately

owned.

That’s because small airports, in most cases, just don’t make money.

Smaller airports being government run and unprofitable in the US allow for a sort of

indirect subsidy for airlines to operate there.

In these cases, airports are willingly charging airlines less than it costs to run the airport

to operate there in order to attract them to fly there.

City, county, or state governments are willing to do this because they view air service as

a stimulant to economic development.

The merits of private versus public airport ownership can be debated, but proponents of

publicly owned airports will argue that they’re essential pieces of infrastructure while those

for airport privatization will argue that commercial ownership leads to lower costs

and better service.

Even in the UK public opinion is split on whether airports are better off public or

private.

What’s sure, though, is that running an airport, whether public or private, is not

easy and that the fact that a few hundred aircraft taking off per day is all it takes

to fund the multi billion dollar business of Heathrow is almost as impressive as the

planes themselves.

Now that you’ve finished this video, there’s another one I made for you to watch.

Squarespace asked me to make a video explaining why, “design is not a luxury.”

That phrase might not make sense now but the whole point of the video I made is to explain

it so make sure to watch it.

You can either click the annotation on-screen now or it’s linked at the top of the description.

Oh, and fair warning, I go on camera in it.

Thanks for watching and we’ll see you again in two weeks for another Wendover Productions

video.