There is an increasing perception of airports as enterprises rather than as just public services so that they are expected to break even at best. The driving factor has been the realization by private investors and other airports stakeholders’ potential in airport business in the domestic and global markets, governments need to igniting competition and depoliticize decision making process. The fiscal stress associated with operating the airports is another major reason for the privatisation efforts
The intention by the governments to look for ways of making airports efficient, competitive and more importantly financially viable as much as possible has a trend of privatisation of the organisations. The main objective of this strategy has been for the governments to gain access to the private capital for development. This driven by the realization by the leading airport officials and operator groups for merged airports that there is a lot of potential in airport business in the domestic and global markets (Ernico, 2012). The governments have also aimed at stimulating airlines and air service competition since the process of privatisation ensures that management of the airports compete to offer the best services to airlines and passengers and thus improve on quality. In addition, there is the need to obtain maximum returns for the communities from airport assets through monetization. The other reason is the introduction of more innovative entrepreneurial ideas within the airport where a government can get non-airline revenues from taxes on such creative businesses (Carneya and Mew, 2003). The governments also aim at offloading the burden of fiscal policies by shifting risk of capital development, debt and the airport operations to private sector. The governments also aim at accelerating delivery of projects while at the same time de-politicizing decision making at the airports.
The privatisation of airports by governments has become a trend due to many benefits the process brings about as compared to related risks.
References
Carneya, M., Mew, K. (2003). Airport governance reform: a strategic management perspective.
Ernico, S., Boudreau, D., Reimer, D., Beek, S. (2012).Considering and Evaluating Airport Privatization
A change in a firm’s ownership has effects on its performance since different owners usually have different goals and incentives. When an airport is under government ownership, it is operated by bureaucrats whose main objective is social welfare function or their personal agenda. When an airport is privatised, its main objective is to maximise on shareholders’ value thus a pursuant for efficiency in productivity.
Change of airports management from government to private ownership makes the firm to focus its operations more on commercial basis instead of being under the guidance of non-economic political goals. This means that the new management will put much efforts to improve on the efficiency of the firm in terms of operations and overall service delivery to customers. The operations will thus be focused on the customer needs and thus strategically orienting the activities towards better services which will eventually translate to increased shareholders’ value (Kan et. al 2014). The change in ownership will also enhance airports competitiveness since enhanced service delivery will attract strategic alliance among global dominant airlines. The strategic alliance among airlines will positively influence the efficiency of the airports as the airlines can share the airport facilities in handling more traffic. The removal of political influence in the decision making comes with a lot of deregulation which removes the bottlenecks to effective decision making. The deregulation unleash various forces that drive the desirability of airports as business opportunities and this finally translate into competitive strategies applied by the organisations to attract more airlines and investors. Airlines are a big competitive force in the aviation industry and come with new business models to outdo one another (Carney & Mew, 2003). This makes new airport management to consider news of offering value to airlines as their main clients.
Therefore, performance of airports depend on the new management arrangement and objectives. It is also determined by how the new management approaches the conditions of the market and competition in which the airports operate.
Reference
Carney, M., & Mew, K. (2003). Airport governance reform: a strategic management perspective. Journal of Air Transport Management, 9(4), 221. doi: 10.1016/S0969-6997(03)00003-6. 222-224
Kan Tsui, W. H., Balli, H. O., Gilbey, A., & Gow, H. (2014). Operational efficiency of Asia–Pacific airports. Journal of Air Transport Management, 4016-24. doi:10.1016/j.jairtraman.2014.05.003. 21-22
The need for airports to be self-sufficient financially and to have a profit maximization objective plays a big role in the determination of charges set. The pressure to maximize profits has seen airports result to balancing the aeronautical revenue and the non-aeronautical revenue. The major factors influencing costs and revenue relates to the policies set by various authorities for the aeronautical revenues, concessions among airlines and others charges that may be imposed on airlines.
The policies set by ICAO guidelines provides some guidelines on principles that airports use for business among all the countries. The aeronautical revenue, the landing charges should be set according to the formula for aircraft weight. The maximum take-off weight is a measure that is used while setting local restrictions. Allowance is thus supposed to be made while using fixed charge for every aircraft or combination of weight-related element and fixed charges in some situations like peak periods and congested airports. The aircraft dimensions, permissible take-off weight and length of stay is a basis used to set charges relating to hangar and parking charges (Vojvodić, 2008). The basis is also used in determining landing fees, surcharges or rebates and passenger charges. These determine the costs.
The concessions operations also determine the revenue and pricing policies of airports across the globe. Factors such as subsidies form concessions and aeronautical operations may also determine the marginal-cost pricing on operations at the airport. The concessions are determined by traffic handled by airports, behaviour of passengers and concession management which also determine the commercial revenues. The un-aeronautical revenues are also determine by the strategies adopted by the firm such as marketing plans which affect the activities that generate revenue in the airport (Bilotkach et. al 2012).
In essence, amount of revenue collected and cost associated with airports are primarily influence by the aim of the airports to at least break-even. Polices and other factors that restrict charges are all aimed at ensuring efficiency of the airports in profit making and service delivery.
References
Bilotkach, V., Clougherty, J., Mueller,J., Zhang, A.,(2012) Regulation, privatization, and airport charges: panel data evidence from European airports. 76- 85
Vojvodić, K. (2008). Airport concessions. 96-97
Benchmarking refers to a technique that evaluates the performance of an organization with an aim of monitoring and improving the operations against a standard. Benchmarking is used by airport management for improvement and comparison of internal performance.
Airport benchmarking involves two comparisons which assist in performance measurement; internal benchmarking where the airport evaluates and compares its current performance with past performance; peer bench marking where the airport’s performance is compared against that of other airports over a certain period of time or at one particular time. It is a critical tool that allows an airport to evaluate core measures such as operations and passenger number which are important drivers to the overall performance (Wyman, 2012). The evaluation of these measures and comparison with other airports help to indicate performance efficiency of the firm in relation to competitors.
Benchmarking also help to indicate the security and safety measures undertaken by the firm and whether they match the industrial standard. Such measures are supposed to be focused on customer service which significantly affects the competitiveness of the firm in attracting customers. These measures also include commercial or finance issues that relate to airport charges, financial power, its sustainability and how each commercial function of the firm is faring (Francis et. al 2002). Bench marking thus help the airport to determine whether the price charged are in line with laid down principles set by regulators such as ICAO (Wyman, 2012). These include focusing on cost effectiveness and productivity. This refers to the relationship between the output and input, and the cost needed for obtaining a nonfinancial output. The overall benefit include the comparison of the airport with others in regard to profitability, growth or decline on yearly basis.
In conclusion benchmarking process help the airports to structure the operations in a manner that will enable them achieve superior performance efficiency. It allows the firms to investigate best practices of external industry and include them into their normal operations to achieve profitability.
References
Wyman, O. (2012).Guide to Airport performance measures. Airports Council International.
Francis, G., Humphreys, I., Fry, J. (2002). The benchmarking of airport performance.240-446
