Diversifying Nigeria’s airport revenue amid new aerodrome rating

The certification of Lagos and Abuja airports is huge boost for Nigeria. Its coincidence with planned concession of the two facilities could be a new method to diversify the sector’s revenue. WOLE SHADARE writes

Airports before 1990s

Since airline deregulation in the 1990s, the nature of airports has changed dramatically. Airports in the 1970s and 1980s were regarded as transport infrastructure where the emphasis was providing airlines and general aviation with the necessary facilities and services to carry out their operations.

During this time, the relationship between airports, airlines and the Federal Government was intertwined with a clear joint mission to provide the service and infrastructure that in sum became the national transportation system. In a regulated environment, aeronautical revenue was fairly predictable and not subject to market forces.

Airports after airline deregulation

After deregulation, the airlines moved quickly to increase service in many markets. A prolonged expansion of air services took place as airlines in Nigeria operated great domestic service network. In the new competitive environment, airports transitioned from a business model that assumed a predictable level of aviation activity to a model where airports designated as hubs, like the Lagos and Abuja aerodromes are now experiencing rapid growth and other airports experiencing highly changeable levels of air services and air carriers.

Airports quickly realised both the potentials for passenger revenues and necessity to actively engage in the attraction and retention of airlines. This huge potential of the sector to the Gross Domestic Product (GDP) is further propelling the Federal Government to be at the forefront of concessioning many of the viable airports to generate more revenue.

Taking a cue from London Heathrow airport

Some have equated what government plans to do with the concessioning of some aerodromes to how London Heathrow Airport grew to be one of the busiest airports in the world and saw retail revenue grow 7.7 per cent to £612m ($767m) in its full-year results to December 31 2016, representing its strongest growth in recent years.

When Heathrow airport opened, in 1946, the only retail facilities were a bar with chintz armchairs and a small newsagent’s. The first terminal was a tent, a far cry from the four halls, resembling vast shopping malls, at the London airport today. Retail spending per passenger is the highest of any airport. This summer’s consumer crazes include Harry Potter wands and cactus-shaped lilos.

Heathrow’s journey from waiting room to retail paradise is the story of many airports. Before the 1980s, most income came from airlines’ landing and passenger-handling charges. Then non-aeronautical revenue—from shops, airport parking, car rental and so on—rose to around two-fifths of their revenues, of $152bn worldwide in 2015. But amid signs that non-aeronautical income is peaking, especially in mature aviation markets such as North America and Europe, the industry fears for its business model.

State owned aerodromes

When airports were state-owned, and run not for profit but for the benefit of the local flag-carrier, such ancillary income was less important. Airports in Asia, Africa and the Middle East still operate like this. Globally, two-thirds lose money; the share is 75 per cent in China and 90 per cent in India. But most airports in Europe and the Americas have to pay their own way.

Britain led the way with privatisation in the 1980s. Canada leased its major airports to private-sector entities in 1994, and is now considering whether to sell them completely. Squeezed state budgets in America mean that most publicly owned airports are managed by arms-length organisations that must break even. And a wave of privatisation/concession is sweeping Europe, where nearly half of terminal capacity is now owned by the private sector. France’s main airports in Paris are still partly in state hands, but Emmanuel Macron, the president, aims to sell the rest. Latin American countries are following closely behind.

Revenue stagnation

Revenues are stagnating just when airports in America and Europe need more cash to expand, to cope with demand for flights. Without expansion beyond current plans, by 2035, 19 of Europe’s biggest airports will be as congested as Heathrow today, which operates at full capacity, according to Olivier Jankovec, director-general of ACI Europe, a trade group in Brussels.

How government goes about it in manner that is transparent, devoid of controversy remained to be seen. However, many believe it is the best possible way to go considering that it could open up the system for more revenues.

The big question

The question on the lips of many is how government intends to concession the airports when over 400 retailers at the Lagos airports still have their concessions valid till 2020 and beyond. What exactly is the government concessioning bearing in mind that one of the lucrative sources of revenue is the just completed multi-storey car park at the Murtala Muhammed International Airport, Lagos which is financed by a commercial Bank in an arrangement put together when a former Minister of Aviation held sway?

Are the concessionaires of the airports going to be recertified to meet up with new status of Lagos and Abuja aerodromes which had just been certified by the International Civil Aviation Organisation (ICAO) in conjunction with the Nigeria Civil Aviation Authority (NCAA)? These are questions begging for answers.

Former Commandant, Murtala Muhammed Airport, Lagos, Grp. Capt. Ojikutu (Rtd) said he hoped that the certification of the Lagos and Abuja airports almost in quick succession have nothing to do with airport concession.

His words, “We should be careful in thinking along that line as the new operators might need to be recertified for their standards or method of operation might be different from that of the Federal Airports Authority of Nigeria (FAAN)”.

Last line

The business model for airports has changed. The regulatory framework for airport operations, planning and capital projects was instituted when the airport’s principal mission was to provide basic infrastructure for airlines and other aeronautical users. Today, airports support a wide array of businesses, more like an industrial or commercial centre or in some cases, a small city.

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Wole Shadare

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