Reconsidering the airport business model

Abstract

Until deregulation in 1978, commercial airports in the United States enjoyed a status comparable to public utilities. Airlines charged rates established by the federal government on a cost recovery basis, and marketshare was the driver for airline business models. Today the airline business model is based on controlling costs to maximise profits. In the USA, unlike other countries, local governments own, control and operate airports. Yet increasingly airports serve as economic engines for the communities in which they are located. Competition for airlines, passengers and other customers, globalisation and technology make airports more like private businesses than government organisations. Although publicly owned, airports must become more commercially focused and profit-motivated in order to survive. This phenomenon is largely driven by the airlines’ shift in strategy from market share to profitability. In this environment, airports must be competitive, responsive to customer requirements, and provide added value. With fuel price volatility, shrinking air service and pressures on airport budgets, only the most business-savvy and agile airports will be sustainable in the future. The purpose of this paper is to provide a framework that airport operators can apply to develop and enhance a business strategy for surviving and thriving in a changing environment. The airport business model developed at a small (non-hub) commercial service airport in Eastern Pennsylvania (LNAA approach) will illustrate the application of this framework.