Investment in Airport Infrastructure

A major problem with attracting investors is the length of time that will pass before a return is seen, since simply building a new runway will not by itself attract more flights. Advertising, promotion and support from the government or the local council is needed. A depressed economy will reduce travel, and in a worst-case scenario such as the September 11 terrorist attack, travel by air will be severely reduced. A congested airport will offer the most profit since unit costs are at their lowest, and under these conditions it could make sense to raise fees, since that is unlikely to reduce demand. Nevertheless, sound business practice calls for charging at a rate closer to the marginal costs for access in order to maximise use of the facilities. Unfortunately, marginal cost pricing will result in losses while the facility is under-utilised, and the airport might have to be subsidised until usage approaches saturation. Considerations of noise and congestion, and of promotions and development that assist the airport business complicate this matter further. The under-lying aim should always be for growth, since this is the fundamental way to profit.…