Investment in Airport Infrastructure

Essay by cisuxUniversity, Bachelor'sC, March 2004

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Investment in Airport Infrastructure.


Airports face particular problems in the timing and financing of investment. Management must be aware of these problems and develop a style and structure that organises the airport business in ways that support investment decisions.

Investment Policies

Airports are a unique business with unique problems. The facilities must be adequate for safe and efficient operations. These facilities include runways, terminals, parking and access. They are expensive and "lumpy" projects that take time to design and build, and which have no other value. They are considered "sunk costs." Some of these assets are long-lived, in that a runway for example will last more than one hundred years. Growth must be forecast accurately, and wrong decisions will have a potentially disastrous consequence. But airport managers have no control over the airlines or the economic environment that affects travel, and the decision to go ahead with a development plan or to put it on hold will always involve risk.

Investment in airport facilities and services depends on revenues created by that airport or network, thus prices and costs are an important aspect of investment decisions. Income can be derived from the airport business, in the form of landing fees and charges on aeronautical activities, and from strictly commercial activities run by the airport or concessionaires. Whether the decision to invest will pay off depends not only on the airport managers, but also the airlines and their customers. The state of the economy directly affects business.

The management style and structure affects the way an airport develops. Originally, an airport was seen as simply a place to facilitate interaction between the airlines and their customers. Charges and fees were set at a level to reduce or recover costs, but as an essential service revenue was not a primary...