Behind the Takeoff: Airport Financing

Whether you’re a frequent flyer or a newcomer to the world of aviation, understanding how airports manage their finances can be fun and interesting! Today, the Austin-Bergstrom International Airport’s (AUS) Aviation Administrative and Business Development Division manager, John Gallo, will take you through the basics, shedding light on the intricate web of revenue streams, contracts, and negotiations that keep AUS flying high.

Let's start with the foundation: AUS operates as an enterprise fund. What does that mean? It means we generate our own revenues to sustain our operations. While AUS is owned and operated by the City of Austin, unlike other City of Austin departments funded by local Austin taxpayer dollars, AUS relies on a variety of income sources to cover our expenses and fund capital projects.

“The airport is its own unique ecosystem, and it's almost like a city within a city. Airports have to be self-sustainable.”

So, where does the money come from? The short answer is three revenue streams: airport revenue, grants and bonds, but let’s dive deeper. At the heart of airport financing are airline fees and rents, the primary revenue generators. These fees are charged to airlines for using airport facilities, including landing fees, terminal rentals, and gate leases. Additionally, airports collect revenue from various other sources such as parking fees, ground transportation fees, concessions, advertising, rental cars, and land leases. Each of these revenue streams plays a vital role in ensuring the financial health of the airport. Contracts form the backbone of airport financing, with airports entering into agreements with airlines, concessionaires, and other business partners. These contracts outline the terms of engagement, revenue-sharing arrangements, and obligations of all parties involved. Managing these contracts effectively is essential to ensuring compliance and maximizing revenue generation.

But what about funding for large-scale projects? Airports often rely on a combination of bonds, grants, and passenger facility charges (PFCs) to finance capital improvements and AUS is no different. Bonds backed by airport revenues allow airports to raise funds for significant infrastructure projects, like our Journey With AUS expansion program while spreading the cost over time. Grants from the Federal Aviation Administration (FAA) and other agencies provide additional funding for airfield improvements and security enhancements. Meanwhile, PFCs collected from passengers help finance terminal upgrades and other passenger initiatives.

One of the key challenges in airport financing is striking a balance between financial sustainability and affordability for airlines and passengers alike. As the airport undertakes large-scale expansion projects, AUS must ensure that equity remains a priority while maintaining competitive pricing for airlines and attracting new carriers.

To do so, airports must negotiate airline agreements. Negotiating airline agreements is a complex and lengthy process that requires careful consideration of various factors. These agreements dictate the terms of engagement between airports and airlines, including fees, gate access and minimum service requirements. Negotiations often span several years and involve multiple stakeholders, including airlines, airport executives, and regulatory agencies.

How are airline fees determined and paid? That ties directly into the airline lease agreement. Most airports operate off of rates by ordinance. Ordinances are allocated from the local government agency on the structure of how the airport rate model is set up to charge airlines. AUS has an airline use and lease agreement that has been in place since the airport's origin in 1999. While there have been some modifications over the years, AUS is currently negotiating with the airlines for a brand new ten-year use and lease agreement. While AUS services nineteen airlines, only seven of them, our signatory airlines, are in negotiation.

What are signatory airlines? The airlines that sign the use and lease agreement are called signatory airlines. Certain parameters qualify airlines to be signatories. Usually, a level of activity is required, a level of rent paid to the airport, several turns on a gate to lease a gate, or at least ticket counter space. If an airline qualifies and signs the agreement they are contractually obligated to AUS for 10 years. If a signatory airline chooses to leave AUS before the 10 years, they can, but they will still be paying the airport for the leased space in the terminal for the remainder of the term.

What about the other 12 airlines? Non-signatory airlines traditionally pay a higher rate but are on a month-to-month contract. They utilize a shared-use counter and share gates with other airlines.  But once they give a 30-day notice, they can leave. The biggest difference between a signatory and a non-signatory airline is that a non-signatory airline doesn’t have to pay out the remaining years of a contract when they leave. However, if an airline meets the definition of signatory status, it can join the lease agreement to become a signatory airline at any time.

Does AUS make a profit? There's a term called days of cash on hand; it’s a standard amount of money that the FAA mandates that airports have on hand in case of a catastrophic event or if another pandemic happens. That way the airport would have enough money to operate and maintain the airport without airline support or revenues.

Currently, AUS has well over 600 days of cash on hand which is considered a healthy amount for a large airport. This is what is considered AUS’s profit.

Again, AUS does not receive any local Austin taxpayer dollars and our revenue cannot go back into the City’s general fund. Money made at AUS by AUS stays at AUS.