Profitability in the airline versus airport business: A long-term perspective

Abstract

There is a perception within the air transport industry that airports are able to achieve substantially higher profit levels than airlines. This can cause considerable friction in the airline-airport relationship; however, there is only limited evidence in the literature to support these claims. Hence the overall aim of this paper is to explore this issue in depth and to compare the financial performance of European airlines and airports by undertaking both a cross-sectional assessment of the two sectors to analyse their comparative performance during the same time period and also by undertaking a longitudinal assessment to determine the comparative variability of the performance of the two sectors over time. A sample of 20 European airports and airlines was used for this analysis. Data for a long-term time trend were used to take account of the cyclical nature of the industry. A number of financial ratios relating to profitability, debt/asset management and capital productivity were used. The results show that, first, airlines and airports have different capital structures and perform substantially differently according to a number of financial criteria, but are much more similar in terms of their reported returns on assets or capital employed. This is primarily due to the more capital intensive nature of the airport business and the higher leveraged airline sector. Secondly, in many areas of financial performance, the airline industry has a more variable performance than the airport sector when the whole economic cycle is considered.