Airports are large entities that require adequate financial management for efficient operations. The main objectives of financial management of airports to understand the financial and economic aspects in the airline industry. Analysis should be made to the financial trends and their impacts on the airport. In order to analyze the financial management of the airport, one should consider the airport revenues, airport expenditure, accounting principles for airports, and financial statements by focusing on Miami International Airport operating in the United States.
Airport Revenues
Larger airports have become complex businesses that have several functions which extend beyond the airfield operations. Airport revenues can be divided based on operating and non-operating revenues. Operating revenues are derived from services related to the movement of passengers, aircraft, and cargo through the airport. It could include revenues derived from aviation fees, rentals and commercial operations such as management agreements and concessions.
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Non-operating revenues are usually derived from non-aeronautical activities. Some examples of non-operating revenues could be derived from community land use, business attraction, economic development, and public finance tools. Revenues from non-operating activities could be derived from retail activities such as land rental and other industrial activities. Non-operating activities are also related to non-aeronautical activities surrounding the airport facility. Specific revenues can be derived from advertising, sales of food and beverage, car rentals, taxi services, and hotels and restaurant services (Moore & Ashford, 2013).
Airport Expenditures
Airport expenditures can also be divided operating expenditure and non-operating expenditure. Operating expenditure are costs that are necessary for the operation of the airport business. Examples of operating expenditure in the airport facility include personnel costs, daily service costs, basic consumption consumptions, maintenance of equipment, maintenance of infrastructure, and other expenses (Vogel, 2016). Personnel costs could include payroll and social security costs while daily operating costs could include consultation, transportation, and cleaning services. Basic consumption may involve electricity and water costs. Maintenance of airport equipment including electrical systems, baggage handling systems, fire protection, and air conditioning.
Non-operating expenditures within the airport facility mostly deals with capital investments. These are investments paid over time so that the business can continue to create profits. Airport capital investments could involve acquisition of land, investment in facilities, and investment in equipment and systems. Facilities that could be purchased may include control tower, terminal building, and access roads.
Accounting Principles for Airports
Accounting principles that are used in United States airports follow a specific set of rules. The Generally Accepted Accounting Principles (GAAP) is usually applied equally to all airports. The GAAP requires that accounting manipulation of the financial statements should follow the specific rules and guidelines. Other financial dimensions that should be considered when conducting financial operations of airports could include the rates and charges and trust bond document which is unique for each airport (Wu, 2016). These are capital agreements made to define requirements dealing with revenues, operating expenses, and annual debt service.
Financial Statements
The preparation of financial statements and airport budgets are supposed to be prepared for one fiscal year. The budget planning considers the basic operating revenues and expenses for a specific period. Generally, the amount of revenue and expenses generated in an airport facility are usually dependent on the size of the airport in terms of the number of services and operations provided. Financial statements in the airport facility should be presented through an audited financial report showing financial data of the previous year. The financial report should have the introductory section, a financial section, and a statistical section. The financial statement should have a statement of net position, a statement of revenues, expenses, and changes in net position, and a statement of cash flows.
Example of Miami International Airport (MIA) in the United States
Miami International Airport (MIA) is an airport in the United States that is operated by the Miami-Dade Aviation Department. The financial statements of the airport are represented through the statement of net position, cash flows, and changes in net position. The accounting follows the Generally Accepted Accounting Principles where the financial statements have been presented in a narrative overview and analysis through the form of management’s discussion and analysis.
Some of the airport operating revenues of Miami International Airport were identified as aviation fees, rentals, environmental remediation, and commercial operations. The non-operating revenues of the airport include passenger facility charges, and investment incomes. The operating expenses of the airport included the environmental remediation, commercial operations, depreciation and amortization, and the general and administrative expenses (“Miami-Dade Aviation Department Financial Report,” 2019). All of these expenses were represented in the financial statement.
Conclusion
The financial management of airports has to take into consideration several factors such as the revenues, expenditures, accounting principles, and the representation of financial statements. The revenues and expenditures are divided into operating and non-operating sources where operating sources are required for the running of the airport. The accounting principle used to manipulate and present financial should follow the Generally Accepted Accounting Principles. Financial statements should follow the GAAP and are presented annually through the use of the financial report. Analysis was done on the Miami International Airport financial report and the report provided an example of how the financial information is represented.
References
Miami-Dade Aviation Department Financial Report. (2019). Retrieved from http://www.miami-airport.com/library/pdfdoc/Finance/Miami-Dade%20Aviation%20Department%209-30-18%20ISSUED%20CAFR.pdf
Moore, C., & Ashford, N. (2013). Airport Finance, 2nd Edition. Springer Science, Business Media, LLC.
Wu, D. (2016). Three Dimensions of Airport Finance. Retrieved from https://dwuconsulting.com/airport-finance/articles/three-dimensions-of-airport-finance
Vogel, H. A. (2016). Challenges of airport economics for financial management. Journal of Airport Management , 10 (4), 416-435.
