Sunday reader: Airports turn away from planes in a bid to boost revenues

This is the final of four articles taking a deep dive into the world of airport finances in Canada

A busy airfield at Vancouver International Airport. In 2018, the airport earned $244 million in so-called non-aeronautical revenue (photo: Brett Ballah).

On April 28, 2019, a horn sounded summoning jockeys and their steeds for the first-ever horse race at the Century Mile track just outside of Edmonton along the Queen Elizabeth Highway in front of 5,000 fans. Cars lined up for more than an hour just to reach the parking lot. The event marked a significant moment in the Alberta capital – the return of horse racing, whose future was thrown into doubt with the closure of another track in the city.

Fans on the concourse at the Century Mile race track in Edmonton on opening day, April 28, 2019 (photo: facebook.com/cntymile).

But largely unnoticed was the impact on the people who own the land where the new track sits. The land, you see, is part of Edmonton International Airport. At just under 7,000 acres, EIA is the largest airport in the country, so it has lots of surplus space ripe for development. Last year, thanks to the racetrack, new warehouses, a golf course, a new mall, and the world’s largest marijuana production facility, the airport authority collected more than $13 million in revenue from its real estate development – 93% more than the year before.

While a horse-racing facility is unique to Edmonton, the underlying driver illustrates a nation-wide trend. Increasingly, airports are becoming some of the biggest land developers in the country.

Increasingly, airports are becoming some of the biggest land developers in the country.

One priority all airports in Canada share, regardless of size or location, is generating more money from so-called non-aeronautical sources. They argue that the money earned in the form of rents and concession payments lower fees for airlines, and that, in turn, helps keep ticket prices down, and airlines happy and profitable.

Non-aeronautical revenues include parking, concessions for food and retail outlets, and, increasingly, renting out surplus land. They can vary, and individual airports are free to categorize their income as they see fit. Gander, for example, collects money by from the “sale of quarry material,” unique in the country.

Across Canada, airports generated almost $1.4 billion in non-aeronautical revenue in 2018. That represented about 33% of all airport revenues, and rivalling Airport Improvement Fees as the largest source of funds. And the amounts are rising: more than eight per cent in each of the last two years.

This graphic shows non-aeronautical revenues by airport, for Canadian hub airports, 2018.

In raw dollars, Toronto, as Canada’s largest and busiest airport, led the way last year, producing half a billion dollars from its rentals, concessions and parking. While that number was up an impressive 15% over 2017, Toronto is aiming even higher, hoping to generate 40% of all its income from non-aeronautical sources. That has helped the airport hold the line on landing fees for 11 straight years, after criticism in the late 1990s from airlines that it was among the most expensive airports in the world.

Vancouver ($244 million), Montreal ($201 million), and Calgary ($138 million) round out the list of airports in Canada that collected over $100 million in non-aeronautical revenue last year.

There exists in Canada a second tier of airports that collected between $25 and $100 million in non-aeronautical revenue, led by Edmonton International ($73 million). Ottawa and Winnipeg each generated almost $38 million, followed by Halifax which, hampered by its great distance from the city, but helped by being an Atlantic hub, collected $34 million in rents and concessions last year.

This graphic shows non-aeronautical revenues by airport, for the second-tier of Canadian airports, 2018.

Some make money by farming out their expertise. The Winnipeg Airport Authority, for instance, has earned more than $21 million in revenue over the last three years managing airports in Iqaluit and elsewhere in Nunavut.

Finally, among the smallest airports, Victoria International collected the most in non-aeronautical revenue at $14.6 million, or 37% of its budget last year. It was followed by Quebec City, St. John’s and Kelowna, which generates significant rent from KF Aerospace, a leading aircraft maintenance facility.

This graphic shows non-aeronautical revenues by airport, for the smallest Canadian airports, 2018.

When you look at non-aeronautical revenues as a percentage of the overall total, you see that Canada’s airports bring in about a third of their money from rents and concessions. But that average hides some significant differences – and success stories.

Vancouver led the way among hub airports, collecting 43% of its budget off the airfield. The West Coast hub benefits, for example, from having an expanding outlet mall and giant Canada Post processing facility on its land. It also generates millions from the high number of international travellers using the airport, funnelling passengers through the airport’s large duty-free stores in the hopes of encouraging pre-departure buying, particularly on flights to Asia.

Montreal reinstated a similar strategy this year, separating its international concourse from the domestic facility, which the airport says, “will increase the efficiency of international connections and, consequently, maintain and enhance YUL’s air service, especially to fast-growing markets.”

This graphic shows the percentage of non-aeronautical revenue by Canadian non-hub airport.

Among non-hub airports, the percentage of revenue from non-aeronautical sources varies widely, from a high of 51% in Prince George, British Columbia, to a low of 25% in Fredericton, New Brunswick. Fredericton may not be in last place for long as the local authority is partnering with the federal and provincial governments to improve the passenger experience – and generate more revenue in the process – by increasing the size of the terminal by 50%.

Since 2015, the data show non-aeronautical revenue has been growing by leaps and bounds, an average of 7.6% per year, outpacing the rate of inflation by a wide margin. And with very few exceptions, that growth has been consistent, no matter the size of the airport.

This image presents year-over-year comparisons for non-aeronautical revenue for hub airports in Canada.
This image presents year-over-year comparisons for non-aeronautical revenue for hub airports in Canada.

While there is a solid business case to increasing non-aeronautical revenues, there is a bit of a downside too.

With few exceptions, the federal government leases land to airport authorities who pay an annual rent on a progressive scale, similar to the way income tax works. So for the first $5 million in airport revenues (including non-aeronautical revenues), airports pay 1% in rent. But as they earn more, they pay more.

So by the time airports earn more than $250 million in revenue, they’re paying 12% to Ottawa on that highest tranche. So just like a person can change tax brackets, airports, by earning more in rents, concessions and parking, can end up owing more to the feds.

Below: A video shows production at the world’s largest cannabis production facility at Edmonton International Airport (supplied).
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