I always wonder if I am an airline trying to fly into a city like Hong Kong, do I have a choice to fly to another airport other than Hong Kong International Airport?
Within the Pearl River Delta, there are 5 airports to fly to: Hong Kong, Macau, Guangzhou, Shenzhen and Zhuhai. However, due to the geopolitical structure of the Pearl River Delta, Hong Kong and Macau is a Special Administrative Region which means they have their own immigration jurisdiction separate from China. Although, the airports are relatively close to each other, you will need a visa to get into China if you are not a Chinese citizen. In other words, if you want to get into Hong Kong, you don’t have much choice but to fly into Hong Kong International Airport.
Let’s not single out Hong Kong. There are many airports in the region that are similar. Singapore? What choice do I have if I do not want to fly into Singapore Airport?
Geography
Many of these airports are blessed by geography. Due to the size of its city or nation, the catchment area is basically not enough to accommodate another airport.
Flag Carrier
All these monopolistic airport is home to its so called “Flag Carrier”. The major base of this airline is solely in this airport. The passenger growth of this airport correlates closely to the growth of this sole airline.
What is a monopoly?
I went to google and found a good definition in the Investopedia website.
Are airports monopolies?
Yes.
As mentioned, due to its geography some airports are monopolies. They are the only seller of such a service in the city or country. If I want to fly into Hong Kong, what choice do I have?
Airports are highly regulated. Most Airports Authority are government statuary body or non-profit organizations granted by the government to operation and develop the airport. Another potential airport operator cannot bid to enter to operate the airport if they wanted to.
They are the price maker for everything from landing fees to shops rental fees in the terminal. The benchmark maybe only other similar airports in the region or rental prices in the city downtown.
Price war to cut away any competitors is nonexistent. The only competitors are other airports in the region that might try to take away another airline transiting in a particular airport but all these monopolistic airports have its dominance in the region that the lost of passenger traffic is possibly too high if they do not fly through these airports.
No.
Technically, you might call airports a state monopoly? Or a natural monopoly. Are they true monopolies?
Airports are not monopolies because they are mainly managed by the government to facilitate trade and movement of people in and out of the city. It is not in the city’s interest to make the airport costs so high to deter airlines to fly into the city.
Moreover, the success of the airport is based on the success of the “Flag Carrier” flying out of the airport. It must be mutually beneficial for the airport and the “Flag Carrier” to succeed together. The costs of flying in and out of the airport will be passed onto the “Flag Carrier” as well. The “Flag Carrier” succeeds, the airport will succeed as well.
The real benefit? Unlimited revenue stream as being a monopoly.
“Unlimited” might be the wrong word, but in many of these “monopolistic” airports, they do not need to advertise a great deal to attract airlines to fly to their city. The “Flag Carrier” often in these airports are aggressive in expanding their route network and these “hubs” often brings as much transit passengers to these airports than passengers visiting the city alone.
Unlimited Passenger Stream
Do airports grow passenger or airlines grow passengers? Is this a chicken or egg question? We often see “Flag Carriers” citing that they cannot grow their airline because there is not enough capacity in their hub airport. The airport needs passengers and aircraft to fly because this is where the revenue comes in. In tern, these airport management entities could reinvest these into further developing and growing the airport.
Predictable aircraft traffic
Most major airports have predictable aircraft traffic that brings in predictable number of passengers throughout the year.
Passenger spending power
Air travel is mainly for passengers that have dispensable income. Majority of business and leisure passengers have the spending power to spend money in the airport.
Increase dwell time
With increased security and possible post COVID-19 future, passengers might be asked to come to the airport even earlier to avoid missing their flights. There is one thing that airports are counting on is the increased dwell time in the airport terminal to spend money. Remember, every burger you eat and every bottle of wine you spend in the airport terminal, a percentage of that goes directly to the airport pocket together with the rent that these airport concession needs to pay to the airport.
The psychological state of passengers
Once you get passed check-in, in the airside of the terminal, many passenger’s psychological state turns from a bit anxious to more relaxed. They are often on holidays and in the mood to spend money.
Lucrative business for concessions
Yes. Airports will take a cut of your profit made in your coffee shop inside the terminal and your rent will probably be on par with the best location in city downtown but you have a number of things going for you as mentioned above and again below:
1.) Unlimited Passenger Stream – you don’t need to worry about growing passenger traffic in the airport.
2.) Predictable passenger traffic – the flight schedules are mostly fixed and you know exactly when there will be more passengers during the day and where they are going to. You can even have a pretty good demographics of passengers going through a particular area in the terminal at a particular time.
3.) Spending power – passengers have spending power.
4.) Dwell Time – passengers are spending more time in the terminal to spend money.
5.) Psychological state – many passengers are in the mood to spend money.
Monopolistic airports will never have trouble finding quality concessions because of the reasons above. This in turn will draw in increased concession and rent revenue to the airport.
Heaven for advertisement
The airport terminal is a heaven for advertisement with many areas in the airport having almost 100% visibility for travel passengers in some locations in the terminal. Therefore, airport advertisement is a lucrative business for both the airport and the advertising agent.
This is an oversimplification
The financial side is import to an airport but the main duty of an airport is a facility to safety transport people from landside to airside to the airplane. The airport needs to generate enough revenue to mainly their aeronautical facilities in a state that is safe for passengers and aircraft to fly in and out of.
Many issues in these monopolistic airports are spreading the runway usage across 24 hours. The hub airlines operates in banks of flights having crest and trough in traffic throughout the day. Whilst airports are wanting to build extra runways and terminal to accommodate more passengers, airports are also trying to lure airlines to fly to the airport when it’s less busy with landing and parking fees incentives.
The airport have significant economic benefit to the city as a whole. It is a huge employer with numerous support entities hiring thousands of people to support air travel.
Post COVID-19
Airports have long realized that they cannot depend on airlines to bring in revenue and passenger traffic to them alone. Many of these airports are developing into a maga-intermodal city where they can create the airport as a destination in its own right and not only because you are travelling on a flight. This serves multiple purposes as the airport could support the community that lives near the airport. Also, this could allow transit passengers with longer transit time with more to do. The transit time alone might not be a deterrent factor flying into the airport if there are more to do in the airport.
There could be overcapacity in some of these airports in the near future as many are in the midst of building extra runways and terminals. However, it is inevitable that air travel will come back and continue to grow in the next 10 to 20 years with growing dispensable income in many developed and developing countries.