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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,
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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,
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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.
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 cost of every passenger’ 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 airports only has flights to eight destinations 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
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.
This video was made possible by Squarespace.