Investment In Airport Infrastructure Essay

940 words - 4 pages

Investment in Airport Infrastructure.IntroductionAirports 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 PoliciesAirports 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 concern. This has been called the "traditional airport model". As the airline business has grown the need to invest in the infrastructure has forced a more professional management style, with the aim of increasing revenue until the airport itself has become a profit centre. This is known as the "commercial airport model" and is becoming the norm.The investor needs to see that the return will be adequate, and will place the money where it will give the greatest expected net present value. This value is calculated for various investment opportunities, and takes into account the expected increase in revenue against the cost of the development and the interest rates. In order that the airport will be attractive for investors the management must see that revenue from current operations is maximised. Charges and fees for direct airside activities might be fixed through contract or government rulings, but landside business opportunities, including rental and concession income, will not be so restrained. Airlines, handling agents and freight shippers will pay for the space needed for their...

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