University Report: Airport Cities and Non-Aeronautical Profit Drivers

This report delves into the relationship between airport cities and the value chain of non-aeronautical profit drivers. It examines the evolution of airport cities, the significance of non-aeronautical revenue streams (including retail, property, and services), and the economic drivers behind their growth. The report explores the impact of airport cities on neighboring communities and discusses the synergy between location and business opportunities. It analyzes the concept of airport cities, their planning and economic self-sufficiency, and the factors contributing to their development, such as airline deregulation and increased passenger numbers. The methodology includes literature review and analysis of global airport city examples. The report identifies the relationship between non-aeronautical revenue and airport city development, aiming to provide insights into how airport cities can generate greater profits in the long run. It also addresses the challenges and debates surrounding airport city development, including regulatory environments and strategic planning considerations.

Running head: AIRPORT CITIES AND THE VALUE CHAIN OF NON-AERONAUTICAL
PROFIT DRIVERS: A LONG-TERM PERSPECTIVE
AIRPORT CITIES AND THE VALUE CHAIN OF NON-AERONAUTICAL PROFIT
DRIVERS: A LONG-TERM PERSPECTIVE
Name of student:
Name of University:
Author Note:

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AIRPORT CITIES AND THE VALUE CHAIN OF NON-AERONAUTICAL PROFIT
DRIVERS: A LONG-TERM PERSPECTIVE
Executive summary
The paper discusses about airport cities and the value chain activities of the non-aeronautical
profit drivers in the long run. Airports have two sectors for generating revenues which is
categorized into aeronautical and non-aeronautical activities. Non- aeronautical revenues are
generated from the commercial activities which has adequately increased the overall revenue
which helps in the growth of economic activities around the airports. The concept of airport city
has been described by giving perspective of several economists in order to study its potentiality
of generating profits in the long run.

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Table of Contents
Chapter 1: Introduction....................................................................................................................4
1.1 General Introduction..............................................................................................................4
1.2 Background of the Study.......................................................................................................6
1.3 Aims of the study...................................................................................................................8
1.4 Objectives of the study..........................................................................................................8
1.5 Problem statement.................................................................................................................9
1.6 Research Questions..............................................................................................................10
Chapter 2: Literature review..........................................................................................................10
2.1 Evolution of non-aeronautical commercial activities and Airport cities.............................10
2.2 Reasons for growth of economic activities in airport’s sideline and surroundings.............12
2.3 Criteria of an Airport city....................................................................................................14
2.4 Airports and the metropolitan spatial forms........................................................................19
2.4 Concept travel retail and duty-free goods............................................................................21
2.5 Future predictions................................................................................................................22
Chapter 3: Research Methodology............................................................................................24
3.1 Research Onion....................................................................................................................24
3.2. Research Philosophy...........................................................................................................24
3.3 Research Approach..............................................................................................................24
3.4 Research Design..................................................................................................................25

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3.5 Data collection processes.....................................................................................................25
3.6 Data Analysis Method.........................................................................................................26
3.7 Ethical consideration...........................................................................................................26
Chapter 4: Data Analysis, Results and Discussion....................................................................26
4.1 Airport and airport cities in Europe.....................................................................................27
4.2 Airport in South Korea........................................................................................................29
4.3 Airports in Singapore...........................................................................................................31
4.4 Discussion............................................................................................................................33
Chapter 5: Conclusion...................................................................................................................34
References......................................................................................................................................37

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Chapter 1: Introduction
1.1 General Introduction
The airport industry comprise of two sectors from which revenues are driven such as the
aeronautical sector and the non-aeronautical sector. According to a study by Zhang, Wang, & Fu
(2017), the total revenues generated from the airport industry in 2016 was about 161 billion
dollars, out of which 55.4 percent was aeronautical revenue and 39.9 percent is the non-
aeronautical revenue (Jarach, 2017). The total revenue generated from airline industry comprise
of aeronautical revenue and non-aeronautical revenue, where aeronautical revenue is described
as the revenues generated from ground handling and terminal rental charges, whereas the ground
handing concessions revenues are considered under non-aeronautical revenue. It has been said
that the non-aeronautical sector has greater potential to extract bigger revenues from its value
chain activities in the long run and give rise to airport cities (White, 2014). The non-aeronautical
revenues comprise of revenues that is generated from car rentals, property, car parking, retail
concessions, hotels, food and beverage, real estate, utility recharges, fuel and oil costs,
advertising and sources related to airport businesses (Abou ElGheit, & Nageh, 2018). These
activities can give rise to airport city or aerotropolis that will lead to the evolution of a new urban
city around major airports in the long run.
Stewart & Mueller (2014) described that airport city comprise of a large airport area that
has airport terminals, runaways, aprons and a range of airport businesses such as cargo, offices,
logistics, retail and hotels. Presence of airport cities around major airport raises the number of
visitors in the airport as they get a wider range of facilities within that area. This is significant for
the generation of substantial profits and development of a new sector that can help businesses to

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communicate with each other and help travelers with ample benefits (Forsyth, 2017). The
evolution of airport city in long run also enhances the value generated from the non-aeronautical
revenues. Therefore, it can be said that there is a quality relationship between the value chain
activities of the non-aeronautical sector of airport industry and airport city that has the potential
of deriving profits in the long run. The goal of the paper is to understand the relation between
airport cities and value chain activities of the non-aeronautical activities in the long run.
Concept of airport city
Airport cities are considered as a ubiquitous form of airport planning. The concept has been
developed in mid-to-late 1980s which gradually gained prominence in the airline industry. A
large number of factors has led to the growth of this concept such as airline reregulation, revenue
pressures, increased passenger numbers and airport privatization. The prime concern related to
the concept of airport city is to make them economically self-sufficient. The planning foundation
for the creation of green field airport that has been constructed in the last 20-30 years is based on
the concept of Airport City. Airport cities are viewed as broadly based land uses such that the
usage where the area can be effectively used to support the long term financial stability. Thus,
the basis of Airport city is related to the long term profits that can be generated from the non-
aeronautical activities of the commercial sector.
During 1960’s the concept of Airport city was not stipulated as a part of airport planning,
rather it was reflected as a topography of terminal buildings. The efficiency of airport city started
growing since 1970s after a wide range of facilities were developed around airport cities and
industries started growing outside the boundary of airports which was typically organic in nature.

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1.2 Background of the Study
Reports provided by statistical agencies show that non-aeronautical sector generates
about 40 percent of the total revenue derived from the airport industry (Volkova, 2013). This rate
of growth of the non-aeronautical commercial activities is expected to improve in the coming
years due to rise in growth of various sectors and businesses across countries. Retail concessions
has been a significant part of the revenues earned from the non-aeronautical sectors, although
globalization has led to a transformation into airport cities that is exhibiting record substantial
profits. It offers a range of commercial products to the travelers or visitors that ensures customer
satisfaction (Baker, Merkert, & Kamruzzaman, 2015). The retail industry of airports has
extensive facilities like banks, car rental outlets, nursing centers, hotels, exchange offices, drug
stores, shops, restaurants, cafeterias and jewelry stores along with retail services. They are
developing newer revenue streams and commercial models that can help to meet higher customer
demand.
Retailers select their outlets by a bidding process and then capitalize goods as per
effective changes in market-based outcomes. The non-aeronautical sector now comprises of
commercial activities that gives better facilities and amenities to the passengers. As a result, real
estate development planning for airport cities has been taken by major local and international
airports.
Airports cannot derive excessive profits from aeronautical sectors as air fares are
comparatively cheaper, although the maintenance cost comprise a considerable portion of airport
revenues. Due to rising cost of aeronautical activities, airport industry is effectively shifting their
business towards the non-aeronautical businesses such as restaurants, shops, bars, retail shops
and cafeterias (Mantecchini, 2015) with the thought of creating airport cities. The non-

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aeronautical sector has the efficiency to provide other commercial services to customers such as
book and magazine stores, gifts and crafts, car rental outlets and a range of shops with diverse
accessories.
On the contrary, aeronautical revenues are unable to combat the growing operating and
capital costs. As a result, airports are actively dependent on the revenues generate from the non-
aeronautical revenues for their financial variability. The revenues derived from the non-
aeronautical sector is continuously growing which is creating opportunities for the creation of
airport cities in major economies. Airport retailers are dealing in innovative retail partnerships as
per effective changes in retail concessions and outcomes (Marques, Simoes, & Carvalho, 2015).
The values generated from the non-aeronautical sector has about magnificent potential to change
the way goods are produced and served at the retail outlets that can have significant growth.
According to Kidokoro, Lin & Zhang (2016), the rise in non-aeronautical activities will
give rise to airport city as airports are constantly developing themselves by offering a wider
range of services and amenities to the customers. The rise in aero-nautical revenues from the
commercial activities shows the potentiality of creating airport cities that has hotels, shops and
entertainment. Moreover, the rise in airfreight operations has attracted firms to be located near to
airport as it saves transportation costs. Trade through air freight comprise of 65 percent of the
total trade value globally which had led to evolution of airport cities in surrounding areas of
airports. Technical firms are rapidly growing around the airport that can give rise to airport city.
However, according to Graham (2017), business experts are against the creation of airport city as
there is no reliability of gathering long-run profits. This is because there are distinctive features
that differentiate US airports from other airports such as Ireland, UK, Germany, New Zealand
and Australia. The lease agreements, payment details, rental changes, rates based on the recovery

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costs, legally binding contracts, and airfield and terminal facilities vary across airports that can
change the level of income generated from aeronautical and non-aeronautical revenues. Graham
(2017) has effective focused on how regulatory and legislative environment of US airport cities
are traditionally different from airport cities elsewhere.
The creation of airport city as a source of earning the non-aeronautical revenues is based
on an effective strategic plan. While, some people prefer to stay near airports other wish to stay
in the outskirts, away from the chaos. Moreover, travelers might prefer to stay at the hotels for a
longer time as they will eventually move into the city and explore new places. This might lower
the revenues of the airline industry with a significant fall in non-aeronautical revenues.
Therefore, the relation between non-aeronautical revenue with airport city is crucial for
understanding how will the airport city generate greater profits in the long run from the non-
aeronautical sources (Fuerst & Gross, 2018). This is because several debates have revealed the
significance of lesser profits in the long-run with respect to the value chain activities of non-
aeronautical sector of airline industry from the creation of airport city.
1.3 Aims of the study
The aim of the paper is to identify the relationship between airport cities and the value
chain of the non-aeronautical profit drivers in the long run.
1.4 Objectives of the study
The aims of the paper are studied with a set of objectives that is significant for doing an effective
analysis. The paper has the following objectives:

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 To identify and compare the income generated from non-aeronautical sectors of airport
cities and income generated from aeronautical and non-aeronautical other non-airport
cities sector respectively.
 To discuss the relation between airport city and value chain operations of non-
aeronautical sector worldwide
 To identify the variables and economic derivers that has contributed to the performance
of the non-aeronautical sectors and discuss its impact on the neighboring communities.
1.5 Problem statement
The problem statement effectively addresses the issues that needs to be studied and
analyze them with the usage of several tools. The airport sector is continuously shifting itself
from aeronautical sector to the non-aeronautical sector for the generation of substantial profits
from the revenue earned from these sectors. This transformation from aeronautical sector to non-
aeronautical sector can adequately change the way businesses communicate with each other due
to diversification of commercial activities. Previously, the concept of airport city was not
popular, but gradually with globalization and liberalization the demand and opportunities for
commercial activities started growing on a wider basis. This has resulted in the entry of newer
airline companies who operated at low cost and diversified their revenue sources from a number
of non-aeronautical commercial activities.
As a result, economic activities increased in the airport sector due to development of
businesses like as hotels and other accommodations, conference, office and complexes, shopping
clusters. This will lead to faster development of commercial activities and enable an effective
business transaction process. The non-aeronautical sector can give rise to airport city which will
further enhance profits of airline industry. As predicted by Fasone, Kofler & Scuderi (2016), the

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profits generated from the airport city may not enhance the revenue and value chain activities of
the non-aeronautical sector in the long run. Moreover, according to economists, creation of an
efficient airport city that will act as a economic hub for businesses is very complex and different
as all regions does not have the same demand and market for economic activities. Under such
cases, generation of profits from the non-aeronautical sectors becomes insignificant and thus,
airport cities will be inefficient in the generation of such profits in the long run. This makes it
problematic for the airport industry on generation of revenue from the non-aeronautical activities
in the long run.
1.6 Research Questions
The problems in the paper is studied through research questions that is dependent on the
objectives of the paper. The research question for the paper are as follows:
 What is the level of income generated from the aeronautical sectors of airport cities by
making a comparison between the income generated from aeronautical and non-
aeronautical sectors?
 What is the impact of locations and air travelers for the creation of business opportunities
from non-aeronautics sector with respect to consumer demand and supply in the market?
 What is the relation between airport city and value chain operations of non-aeronautical?
 What are the variables and economic drivers that has improved the performance of the
non-aeronautical airport sector and estimate its impact by understanding its demand,
sales, dependence and growth?

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Chapter 2: Literature review
2.1 Evolution of non-aeronautical commercial activities and Airport cities
According to Peneda et al., (2011) the concept of airport city has been addressed with
respect to change in the airport centered real estate development. Airport cities has been a major
economic hub for extracting substantial growth and profits of the airport industry and helps in
the development of several other sectors. However, the transformation of airports into an airport
city is difficult. Several airports have failed in the attempt of creation of airport city which
comprise of several aeronautical facilities. The evolution of airport cities has a significant impact
on the aviation industry in the past decades. Globalization has led to a rise in the growth of the
non-aeronautical sectors and airport operators are actively reliant on the revenues generated from
the non-aeronautical sector. Real estate developreferement has been planned by investors and
airport operators. The rise in air traffic and airline operations increased after rise in trade and
business activities which had raised the demand for airlines. However, this rising demand is
balanced by provision of better aeronautical services. The cost generated from such services is
very high and there are several costs that is maintained by the aviation industry.
Traditionally, air transport was seen as a sector for aircrafts and the flow of passengers
and goods across economies. There have been major structural changes in the air transport
systems that has reformed the sector into a new market place for generating profits.
Liberalization and globalization provoked the emergence of new trends in the air transport sector
such as emergence of global airline alliances, establishment of hub and spoke networks, arrival
of low-cost carriers, and privatization of airports which has affected the regulation of airport
business. Privatization of airports allowed the shareholders and investors to study the processes

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and introduce automation which increased the access of commercial sectors in the airline
industry. This has helped airports to diversify the range of services without the regulation of
government control that can affect the performance of the sectors, although it limited the
government aid to airports. On the contrary, newer airports were formed that offered lower prices
with effective performance and was backed by low cost airline companies. This regulated the
market power that led to the establishment of alliances globally. As a result, airports have
modified its revenue sources and engaged more into the non-aeronautical business activities.
Slowly and steadily, the surrounding area and airport’s landside led to the entry of airports into
the real estate business. The effect was a rise in new development concepts around the airport
city.
2.2 Reasons for growth of economic activities in airport’s sideline and
surroundings
Airports in the most economically advanced countries has highways and interchanges,
several big stores, possibly railway lines, residential subdivisions, distribution centers, shopping
malls, buildings with signage for the air cargoes, offices, shopping arcades, hotels and motels,
terminals, parking lots and run ways. Almost all the airports around the world now provide these
commercial facilities. This has changed the performance of the airport industry as they are able
to bring about magnificent profits that is important for the development of aeronautical activities
that requires huge service cost of maintenance (Appold, 2015). The growth of the non-
aeronautical sectors has raised economic typical questions about the efficiency of delivering
economic profits from these sectors in the long run.
Thus, in order to answer this question, it is important to estimate the reasons for the
growth of economic activities around the surrounding region of airports. It has been observed

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that most of the economic activities are located near the airports that has altered the area into a
metropolitan region. The motivation of choosing the surrounding location of airport is based on
the choice, preference and business activities of the people. Some businesses are directly related
to airport and its operations, such business have a rising demand in the surrounding areas. Some
are attracted to any node of activity while others open business to remain segregated from the
urban overflow priced out of the central city. Some firms open business are other firms has been
doing so such that a trend of opening newer firms has been seen around airport regions.
Gradually, airports transformed as one of the most dynamic centers for economic
activities after the introduction of entertainment and commercial services inside the passenger
terminals. The landside areas of airports were revolutionized into a range of businesses like
hotels and other accommodations, restaurants, shopping clusters, conference halls, office
complexes, leisure facilities and exhibition centers. Airports act as an efficient logistics and
distribution center for creating employment opportunities, driving incomes and hubs of business
contacts. This has gradually shaped the growth of the metropolitan areas on the less developed
areas by taking several forms of metropolitan central business districts and altering them as
newer development poles. Revenue generated from the aviation sector can be governed at
different spatial scales in relation to microscale of the passenger terminal to regional or
metropolitan scale. Appold (2015) has effectively designed a framework to indicate conditions
that shape the development of airport cities and established a relationship between them.
According to a survey, conducted by Appold ( 2015), with 30 respondents from their personal
interviews, there are four factors that has an impact on the development and performance of
airport cities such as economic potential of the surrounding area, connectivity of the airport and

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its surrounding, sustainable development context and commercial behavior of the airport
operator.
As per the report, the effectiveness of airport city is dependent on the commercial attitude
of the airport operator, connectivity of airport with its surroundings, the context of airports with
respect to sustainable development and economic potential of airport’s landside and surrounding
area. Airports are making terminal renovations for maximizing the visibility of commercial
offers by taking operational requirements into account. The rise in passenger flow is configuring
in the proviso of more fluid pathways and shops near the waiting areas to make them more
accessible for people. Airports are shifting towards infrastructural development for providing a
better experience to the customers and increasing demand for commercial activities. Moreover,
there is lot of costs faced by the aeronautical sectors and creation of considerable amount of
profits is inadequate (Siska, 2014). This encourages airport operators to shift towards generation
of non-aeronautical revenues from commercial stores.
The improvement of airport activities has affected the aviation sectors in several ways.
Firstly, globalization has led to creation of airports that are effectively increased the airline
alliances, provision of low cost carriers, creation of a hub for commercial activities that has
reduced the pressure on airport charges. Globalization has been effective in the generation of
economic profits by providing capacity, security and safety needs, value added and increased
market volatility (Wang et al., 2011). This has raised the reliance on non-aeronautical revenues
and diversification of this revenue has led to creation of real estate development plans. In
correspondence to the real estate development plans, the airport sector is looking for provision of
airport cities and eventually into aerotropolis.

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2.3 Criteria of an Airport city
While developing the structure of airports, a new concept was modelled in US that has
typically led to the evolution of airport cities. It was focused that airports should not be viewed
only as a stopping place for satisfying the public demand. Instead, airports can be used as a space
for meeting the complex requirements of the people. As a result, airports started developing
themselves which effectively comprised of shops, restaurants, hotels, entertainment places and
related businesses (Siska, 2014). These complementary services that bore the characteristics of a
city revolved around the neighboring region of the airports which led to the development of such
complex idea and effectively led to the growth if city structures. The concept of airport city was
born this way and Professor John D. Kasarda was recalled as the father of this concept who has
provided several dimensions to the concept that has effectively led to the development of airport
city.
According to Professor John D. Kasarda, the rapid growth of commercial activities at and
near the airports enable the air travellers as well as the local residents to get a place for engaging
in business, find entertainment or have delicious meals within a distance that can be covered
within 15 minutes. The change in land usage patterns and functionality of the commercial
services has converted the region of airports into Airport cities. On the contrary, many of these
airports have spontaneously and organically evolved over the years which has caused several
conflicts and environmental problems (Siska, 2014). The process can be remarkably improved by
the provision of a properly structured strategic plan for urban development and infrastructure in
the future. In the process of creation of Airport Cities, several processes can be effectively
planned that will enhance the efficiency of airports which are as follows:

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 Activities relating to air freight operations such as storage, transportation and production
within the vicinity of airports such that space for such activities must be separated from
services offered by the offices and in passenger traffic as they are solely directed for trade
 Accessibility between the key points based on the time and not on the basis of distance
 Formation of residential complexes and business offices that is likely to be connected
through express trains and motorways
 Creation of major economic centers around the airports due to a rise in economic
activities relating to trade and efficient transfer of goods across economies.
 Provision of mixed use economic design solutions and residential services for the
frequent travelers and employees within the surrounding region of airports. This can
facilitate the access to the airport by individual or a range of local servicers as they seek
out for the residential services.
 Keeping a clear focus on the cluster style development rather than operating on a chain
style developed strategy because it is very important to maintain enough green space
between the clusters
 In short, the growth and development of airports and its surrounding areas needs to be
sustainable with the process of smart growing
These strategies were not implemented in the most commonly used airport development
plans as these approaches were not significantly studied before the creation of effective
development schemes for airport cities. Focus was given for preserving the local interest in
relation to political considerations that are functionally fragmented and conflict progressed. As a
result, development of a newer concept was necessary that combines the real estate development
strategies and airport planning synergies (Appold, & Kasarda, 2013). The goal was to create an

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Airport City that meets the most crucial condition for development such as airport cuties are
socially beneficial, economically efficient and sustainable in the long run by keeping in mind
about the aesthetics and preserving the environment. The problem in the literature is to
understand how the goals are to be attained and whether they are created in the vicinity of major
airports.
Critical Factors for Development of Airport Cities
Airport cities have effectively transformed themselves as the major economic hubs for
business that extracts substantial profits. Although, airport cities helps in regulating business and
bring about considerable growth, the gradual advancement of an airport city is very complex.
Many airports around the world have considerably failed in the attempt of creation of airport
cities that serves as a major economic hub in that city or region. The evolution of the airport
cities as a process of economic development is dependent on the major trends in the aviation
sector in the past decades. The rise in liberalization and globalization has led to a strong
dependence on the non-aeronautical revenues of airport operators. The strategy to develop the
real estate as a part of effective planning and infrastructure is centered near the airports as a way
of maximizing the revenue generated from the non-aeronautical sector (Peneda et al., 2011). A
need for revenue diversification was significant for raising the overall revenue collected from the
non-aeronautical sector. The development of an airport city is dependent on four critical factors
which are given below:
 Economic potential of the surrounding area
 Context of sustainable development
 Connectivity of the airport and its surroundings
 Commercial attitude of the airport operator

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New trends triggered due to liberalization, globalization and related phenomena that has
significantly led to the advent of low cost carriers, establishment of global airline alliances,
emergence of hub-and-spoke networks and progressive privatization of airports. All these new
patterns had profoundly affected the airport business because the opportunities provided by the
airline sector has developed. Government started privatizing the airports and limited the aid
provided by them (Naletina, Damić & Bebek Gorički, 2019). As a result, several unknown
airports entered the market who offered a relatively lowered fees but has an effective
performance as compared to the older ones. The advent of low cost companies into the market
has led to an increased power for the airlines market as the airline network actively increased
with the establishment of alliances worldwide. The growth of global alliance has diversified the
revenue sources of airports and they are more interested in the revenues collected from the non-
aeronautical sectors. This has led to the entrance of airports into the real estate business in the
landside and surrounding area of airports.
Airports have developed themselves into dynamic centers that is efficient for economic
activity as it incorporates a wider range of activities that stimulates economic growth.
Entertainment and commercial activities are provided inside the passenger terminals such that
passengers boarding in or out from flights can see once they are in the terminal area. On the
other hand, businesses have clustered in the landside areas which comprise of conference and
exhibition centers, hotels, shopping centers, leisure facilities, office complexes, accommodations
or leisure facilities. Non-aeronautical revenues generated from the commercial activities is due to
the interaction between airport operators and users that range from agents related to cargo
operations, passenger oriented institutions who pay concession fees or rents to the airport
authority as per the commercial arrangements binding these agents.

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Significant interactions occur between the agents using the non-aeronautical services that
compose the user’s stakeholder group. The role of such interactions is that the group of
stakeholders includes business visitors, and hinterland, passengers, workforce on one hand and
on the one hand, the group comprise of transport providers and business organizations (Peneda,
Reis & Macário, 2011). As a consequence, the composition has effectively resulted in a
multitude of relationships between several user institutions or agents which is based on business
tractions, service provision between businesses and passengers, supply and demand between
public transport providers, visitors or passengers and the most important, employer- employee
relationship that is based on businesses and workforce.
The concept of airport city
As mentioned by Fuerst & Gross (2018), the concept of airport city originated in the
United States during 1970s. During that period, the concept of airport city simply referred to the
business and industrial parks that was located right next to an airfield. Several changes have
occurred in the current period who have different perspective relating to the concept. According
to architects and urban planners, airport city is a new urban form which is growing and giving a
special dimension for the interaction between three sectors, real estate development, airport-
centered commerce and multimodal transportation (Appold, & Kasarda, 2013). In order to be
qualified as an airport city, the urban form must have the qualitative features of city that
comprise of services, environment and quality.
Economists disagree with the proposition and consider airport cities as a way of
generating enormous profits due to clustering of economic functions at and around the airport.
Airport city is viewed as a marketing tool and a business strategy by the Airport operators who
takes the benefit of the business opportunities created by its own operations by attracting

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companies to the airport’s territory and surroundings. The airport authorities actively handle the
protests of the people as per effective changes in market based strategies and outcomes that can
adequately lower the enormous profits.
2.4 Airports and the metropolitan spatial forms
Aviation industry has been a major sector for providing employment opportunities to
skilled and unskilled labors. This has adequately changed the values of people in the past few
years with a direct and positive impact on the income level and gross output of the economies. A
report provided by the Bureau of Transport Statistics in 2003 reports that a higher population of
people live, work and travel through airports. This has a direct relationship with large number of
regional and international destinations that is frequently visited by travelers due to its popularity
as a tourist spot, important business destinations and trade purposes. These activities contribute
around two-third of the passenger traffic in airline industry.
Previously, people moved into areas near the airport cities as it was much cheaper than
the urban city areas. Moreover, airport area was treated as a real estate taboo, comparable to a
chemical plant or landfill. This was the condition fifteen years earlier when globalization has not
kicked in a wider range. The terminals of the airports happen to be the busiest places in the
metropolitan cities, most of which has international cargo gateways for the export and import of
goods. These goods help in serving the urban cities as the performance of economies are now
dependent on the value of net export and competitive advantage. This concept has gained
immense attention such that firms produce those goods in which they have a competitive
advantage such that they have a production efficiency with cheaper cost and lesser time
(Harshani & Welmilla, 2017).

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Accordingly, firms export goods or intermediate goods in which they have a competitive
advantage to other firms who then use it for further production that lowers the overall costs and
enable them to produce the goods at lower costs. This is how the performance of each sector is
dependent on one another which requires a large number of people to continue with the trade
operations. Thus, airports came to be known as the major employment centers and the employees
require a place for living to continue with the urban services. This helps in lowering
transportation cost and saves time which is efficient for business activities which helps in
generating profits (Aynalem, Birhanu, & Tesefay, 2016).
Many of the people travelling via airport are transferring and travelling the goods. A
report showed that out of 79,000 air travelers, 31,500 were flying for business purpose in
Atlanta. Airports in US has estimated about 50 million passengers annually that raised the
revenues derived from the non-aeronautical commercial activities. These activities provided
employment opportunities to a large number of people which helps lowering the unemployment
gap of the economy both for skilled and unskilled labors (intext reference please).
2.4 Concept travel retail and duty-free goods
International travelers have the flexibility of getting products from duty free retail outlets
and shops. Retailers are normally imposed with higher taxes; however duty-free shops are
exempted from the obligation of paying high taxes or exercise duties. Duty and travel industry
ensure a revenue over 15.4 billion Euros in United Kingdom and is continuously growing. These
duty-free retails provide an alternative source of income to the airports. Over 40 percent of
global revenues of airports are extracted from the non-aeronautical commercial activities has
adequately led to the formation of duty free and travel retail. This sector itself generated 68.6
billion dollars revenues globally (Bush, & Storey, 2016).

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Airports represents a greater portion of duty free and travel retail, although it is also
available at the border shops. This attracted major retail shops into the area, most of which is
mainly dominated from the industrial area. Airports are heavily used by business dealers,
tourists, and other people who spend a lot of time in the area before and after the departure. They
require food and other amenities during that period and setting retail shops becomes effective for
business development and effective growth; especially when there is duty free retail (Suwala,
2015). This raises profit of retailers and more shops are being built in the area to raise the non-
aeronautical revenues. Larger airports generate larger amounts of revenues for getting highest
level of retail revenues from each passenger that actively covers 80 percent of profit margins.
Smaller airports are also relying on retail revenues as they handle around 25 million dollars each
year and extract about 40 percent of profits from duty free travel retail activities (Suwala, 2015).
This helps in financing the airports and the infrastructural development.
2.5 Future predictions
Economists predicts that globalization is steadily transforming in to an era where major
airports will become the next boom towns. Alternatively, airport cities will become as the
relatively wealthiest area with speedy and connectivity needy segments of the population.
Previously, airports were created in faraway areas in order to get greater space and avoid the
congestion and noise of the urban areas. However, in the current generation, it has been seen that
surrounding areas of airports are not only efficient for business but for other livelihood purposes
as well. Airports are becoming as urban microcosms and attracting cities to develop around
them. Airfreight operations are the fastest modes of transportation for goods which has enhanced
confidence among businessmen. This has become attractive for manufacturers, warehouses for
building industries around it. The concept of travel retail has gained a greater confidence among

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DRIVERS: A LONG-TERM PERSPECTIVE
investors and businessmen and is expected to have the biggest growth opportunities in the
upcoming years.
Populations and businesses tend to evolve around areas that provide quicker access to
other places. Cities tend to grow across river ports, junctions on railroads, sea ports and
highways which are crucial for business purposes. As people, products and idea revolve around
these areas, opportunities of engaging into knowledge and business operations flow with
increasing opportunities for people. According to Appold, & Kasarda, (2013), transit-oriented
development will continue to flourish and airports will lead to evolution of airport cities that will
not only be the most valuable area for business but will increase the profits of non-aeronautical
revenues of airports. It has been said that airports are the engines for economic development.
However, all economies do not have resources or demand to create airport cites and so it
cannot be said whether airport cities will raise profits earned from the non-aeronautical sector in
the long run. This is because, areas around airports needs to have sufficient demand for air travel,
highly developed infrastructure and proper geographic location. Aviation policy decision makers
can either make or break city’s vision of becoming an international hub as making a good policy
and formulating them is very complex due to socioeconomic, environmental, political and
market issues. Cities like Amsterdam and Singapore has effective airport cities that derives
profits for airport sector in Europe and Asia respectively. On the contrary, Paris has failed to
emerge as one of Western Europe’s leading international gateways.
Similarly, Montreal and Dulles have been inefficient in the creation of airport cities.
Although the concept of airport cities was introduced in 1960, airports are being effectively
planned on the basis of non-aviation usage of airport land as a source of revenues. The first
iteration of this concept in Australia was made in Melbourne airport and Tullamarine, although

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DRIVERS: A LONG-TERM PERSPECTIVE
effectiveness of such planning has been unreported and there is still no airport city in Australia.
This creates a gap in the paper such that there is no evidence that airport cities will generate more
revenues as a part of non-aeronautical activities in the long run. This is because stimulation of
airport cities is based on demand and geographical locations as per business requirements. The
gap can be effectively estimated by understanding the dependent and dependent variable and
then creating a relationship with each other. It has been mentioned that airport cities will
contribute to the non-aeronautical revenues in the upcoming years. As a result, the revenues of
non-aeronautical sector are the dependent variable and airport cities is the dependent variable.
Chapter 3: Research Methodology
3.1 Research Onion
The strategies involved in the development of a quality research is known as research
onion which suggests the mono-method, mixed method and multi-method choice of the
researcher as per the elements needed in a research for the effective analysis. Research
methodology is conducted in six ways such as research philosophy, approach, design, data
collection process, data analysis method and ethical considerations which will be described
below.
3.2. Research Philosophy
Research philosophy is a belief about the way in which data about a topic should be
collected and analyzed for a proper paradigm as each topic has its own characteristics and traits.
In general, research philosophies are of four types, interpretivism, realism, positivism, and
pragmatism. In order to compare the income generated from non-aeronautical sectors of airport
cities and income generated from aeronautical and non-aeronautical sectors of non-airport cities,

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AIRPORT CITIES AND THE VALUE CHAIN OF NON-AERONAUTICAL PROFIT
DRIVERS: A LONG-TERM PERSPECTIVE
financial reports from the airport cities and non-airport cities are taken. These reports are
quantitative in nature and so the positivism approach will be used as it relies on data and
statistics.
3.3 Research Approach
Research approach are the important actions that is taken for the completion of the paper
for attaining effective results. Broadly, two types of research approaches are used such as
inductive and deductive approach respectively. The approach of establishing a new theory based
on research and knowledge is known as inductive approach which is followed when there is little
or no literature on the topic and creation of their own ideas or theories are effective for
ascertaining appropriate results. The approach which uses values and models that have been used
previously by other researchers for the attainment of desired data is known as deductive
approach. As the research uses quantitative data, it is important to follow the deductive approach.
3.4 Research Design
The structure and the technique that will be followed in the paper with the help of which
the data analysis can be guided is known as research design which are categorized as
explanatory, exploratory and descriptive research design respectively. The explanatory approach
is focused on explaining the aspects of the study in a detailed manner. Exploratory approach is
used to investigate a problem that has not been properly described. Descriptive research is used
to describe a population, phenomenon or situation. The exploratory approach will be used as it
investigates the role of non-aeronautical revenues from the airport cities and comparing them
with the revenues generated from the non-airport cities.

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3.5 Data collection processes
The process of collecting the data is effective for doing the analysis as it based on the
type of data collected by the researcher. Data is collected either from primary means or
secondary sources. Primary data is collected by the researcher through interviews, surveys,
questionnaires or experiments. Such that information and data is already presented in
government or official websites. As quantitative data will be used, it is important to conduct the
paper with the usage of secondary data that can be gathered from official websites. The data for
income and revenue of the non-airport and airport cities will be collected from the financial
reports for three or more years which will be significant for the provision of effective results.
3.6 Data Analysis Method
This model suggests ways of conducting the analysis this is the most important part of
research as the outcomes will be obtained from the analysis. The data will be collected from
authentic sites that will be significant for effective results and analysis as per effective time
frame and objectives. The revenues generated from the airport cities and non-airport cities will
be compared and then measured as per the objectives of the paper. In order to differentiate the
performance of the airports as per the revenues generated from airport cities and non-airport
cities, data from few airports are taken.
3.7 Ethical consideration
Ethical considerations are the issues that can arise in the course of the paper with respect
to authentic data sources. The main ethical issues in a research paper are informed consent,
beneficence, respect to anonymity and confidentiality and respect for privacy. Informed content
protects the right of the researcher such that participants are well informed about the evaluation

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DRIVERS: A LONG-TERM PERSPECTIVE
being conduction. Other considerations are used to protect privacy and conduction the data
collection and analysis in an ethical manner.
Chapter 4: Data Analysis, Results and Discussion
This is the most important section of a dissertation as the analysis is done in this section
which is then interpreted in order to relate them with the literature review. The analysis will be
based on data gather from airport cities and non-airport cities in the same area as the objective is
to compare the income generated from non-aeronautical sectors of airport cities and income
generated from aeronautical and non-aeronautical other non-airport cities sector respectively
(Peneda, Reis, & Macário, 2011). The revenue generated from the airports will be then compared
to find the significance of non-aeronautical revenues and airport cities as a driver of long profits
and growth. The best way to answer this question is to find some Airport Cities in Asia, Europe
in regions like Singapore, Amsterdam and South Korea and also some normal airports in the
same regions. A comparative analysis of the financial reports will be made in the region.
4.1 Airport and airport cities in Europe
Amsterdam Airport Schiphol serves as the third busiest airport in Europe and eleventh
busiest in the world with respect to aircraft movement and passenger volumes. It has turned out
into an efficient city as it serves as the biggest business hub in the region with respect to other
airports. Airport Schiphol is located near to North Holland which connects the city of
Amsterdam which is considered as a good location due to its connection with the other
transportation services in the region.

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Table 1: Revenue report of Amsterdam Airport Schiphol during 2017 and 2018
Source: (Chandra, & Hillegersberg, 2019)
Table 2: Revenue report of Amsterdam Airport Schiphol during 2016 and 2017
Source: (Chandra, & Hillegersberg, 2019)
The above data in Table 1 and Table 2 respectively, helps in understanding the revenues
gathered from the aeronautical and anon-aeronautical activities of the airport city. Only the
revenue generated from airport charges falls under aeronautical revenues while the rest are
categorized as the non-aeronautical revenues which comprise of concessions, rent and leases,
advertising, hotel activities, parking fees, services and activities on behalf of third parties and
others (Conventz & Thierstein, 2011). The overall income derived from non-aeronautical
activities is greater than those derived from aeronautical activities when revenues are compared

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AIRPORT CITIES AND THE VALUE CHAIN OF NON-AERONAUTICAL PROFIT
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with 2016-2017 and 2017-2018 respectively. The revenues generated from the airport cities will
be effectively increased in the sessions as per effective changes.
There are three other airports in Netherlands such as Eindhoven airport, Rotterdam The
Hague Airport and Groningen Airport Eelde. Rotterdam The Hague Airport is effectively
growing and has about a million passenger each year due to provision of low cost air lines.
However, the performance of Rotterdam The Hague Airport is improving due to its provision of
facilities and amenities that is improving the quality of airports in the region and leading to
potential profits. Moreover, the surrounding is gradually developing, although there has been
little trace about the evolution of airport cities. Rotterdam The Hague Airport is a normal airport
in Amsterdam that does not have an airport city. The financial report of Rotterdam The Hague
Airport has been taken to consider the growth and revenue generated from normal airports. The
value generated from these airports is very low in comparison to the value generated from the
non-aeronautical activities of Airport Schiphol as a part of overall revenue. The schemes of
regulating airports into airport cities is based on locations, connectivity and effective
management systems. Revenues generated from the airport city shows its relative growth during
the years with respect to specific changes in services that is offered by Airport Schiphol.
4.2 Airport in South Korea
Incheon International Airport serves as the biggest airport in South Korea with an airport
city which is also reputed as one of the busiest in the world. It has revolutionized the business
environment in South Korea. Instead of transforming the airport into a huge value business
destination, it is developing the region into a representative tourism and business hub in North
East Asia. It is renowned as one of the best airports due to its services and cleanliness. It

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AIRPORT CITIES AND THE VALUE CHAIN OF NON-AERONAUTICAL PROFIT
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provides facilities like golf course, spa, ice skating rink, video game center, private sleeping
rooms, indoor gardens, fancy restaurants, branded shops and may more.
Table 3: Tend in revenue of Incheon International Airport in 2016 2017
Source: (Gitto & Mancuso, 2019)
Although the revenue derived from aeronautical activities is high, it is lower than the
non-aeronautical revenues that comprises of all the commercial activities around the airport
cities. Thus, airport cities can help in generating long-term profits to the airport. The revenue
earned from aeronautical sector does not rise by potential amounts, whereas revenue from non-
aeronautical sectors has increased by about four million dollars (Lee & Kim, 2018).

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AIRPORT CITIES AND THE VALUE CHAIN OF NON-AERONAUTICAL PROFIT
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Figure 1: Comparison between the revenues generated from Flights and Passengers in the period
between 2015 -2019
Source: (Gitto & Mancuso, 2019)
Figure 1, shows comparison between the revenues generated from passengers and flights
in Incheon International airport in South Korea which are basically aeronautical and non-
aeronautical revenues. The revenue growth has been positive, although most of it is contributed
by passengers due to the commercial actives which raises the revenues of non-aeronautical
sectors.
South Korea has other airports as well such as Yangyang, Jeju, Ulsan, Muan Yeosu.
These airlines are significantly smaller than Incheon airline that has effectively received huge
sales due to active changes in market based policies and outcomes which has transformed the

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internal state and led to growth of the Korean airlines (Jung & Yoo, 2016). Jeju Airport is now
structuring itself into an effective system that will raise the commercial activities with respect to
provision of suitable services around airports. Airports like Ulsan, Muan Yeosu and Yangyang
are comprtaively smaller and does have a passenger flow about 6-10 thousand respectively.
4.3 Airports in Singapore
One of the most successful stories of airport cities can be seen in Changi Airport which
serves as the biggest transportation hub in Asia. It is one of the busiest ports in the world with
respect to international passenger and cargo traffic. The net profit rose by 849 Singapore dollars
in 2018 which has been contributed by the commercial non-aeronautical activities retaining to
concession sales, air freight, passenger services and commercial arrangements (Bok, 2015).
Figure 2: Revenue report of Changi Airport
Source:

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AIRPORT CITIES AND THE VALUE CHAIN OF NON-AERONAUTICAL PROFIT
DRIVERS: A LONG-TERM PERSPECTIVE
The revenue report of Changi airport has been collected for four consecutive years, 2015,
2016, 2017 and 2018 respectively. The trend is upward sloping denoting the potential increase in
Changi’s revenues. The revenue directly generated from airport concessions and retail income is
the highest which serves as the most important source of revenues generated from non-
aeronautical revenues. This shows the upward trend in the parameter as per effective changes in
value based services and outcomes. It is a major tourist attraction due to its luxury 5-star hotels,
shops and branded products, world class restaurants and large number of attractive leisurely
activities (Sezgin & Demiral, 2019). These commercial activities has influenced the revenues
have served the economy over the years that have raised the level of income opportunities for a
large number of people with respect to provision of commercial services.
Other airports in Singapore are Paya Lebar Airport, Kallang airport and Seletar airport.
However, these airports are not used an efficient hub for businesses like Changi as Kallang has
closed operations for passengers and Paya Lebar is used as a military base in the regions.
Similarly, Seletar Airport was an active airport in Singapore which was just 20 kilometers away
from Changi international airport. However, due to several management problems, the airport
was unable to operate efficiently and the revenues generated from the aeronautical sources was
low to manage the overall airport business. As a result, the Changi Airport Group took over the
management of the airport from them and used them for the extension (Graham, & Ison, 2016).
Moreover, Changi offered extensive services which attracted tourists and helped in maintaining
the airline services. Therefore, it can be said that non-aeronautical revenues are important in
handling the overall airport business and operation. A transportation of airports into airports
cities helps in bringing adequate non-aeronautical revenues and drives more visitors in that
regions in comparison to other airports in that regions.

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4.4 Discussion
From the above analysis between airport cities and non-airport cities, it is evident that
revenue generated from the non-aeronautical revenues is more than the aeronautical revenues
generated from the airport sector. This has made significant changes in the commercial activities
and led to the formulation of airport cities. Similarly, the aeronautical revenues of airports is
lower than the revenue generated from the commercial activities of airport cities which goes
under the non-aeronautical revenues. One of the biggest factor for this growth is the connectivity
with respect to road and rail that gives access to and from the airport. On the bass of this
connectivity, development of commercial activities was clustered and connected. It is also based
on air connectivity such that more connections attracted more companies to locate their business
in the proximity of the airport, although this factor was largely influenced by geographic and
aviation network wise. For example, the Changi airport has an extensive location that connects
major cities and regions. As a results, businesses started growing in that region with the
expansion in commercial services for getting more non-aeronautical revenues that is extensively
earned from economic activities. Moreover, it is evident that aeronautical revenues are inefficient
to handle the airport operations as the regulation of Seletar Airport was given to Changi Airport
due to its inefficiency to balance the revenues and earn profits. On the contrary, an airport city
derives significant profits which can be a threat to other airports operating in the same regions as
it can attract passenger demand.
Chapter 5: Conclusion
The paper has effectively studied about the role of airport cities in deriving non-
aeronautical revenues that will help in supporting the value chain activities in the long run. The

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AIRPORT CITIES AND THE VALUE CHAIN OF NON-AERONAUTICAL PROFIT
DRIVERS: A LONG-TERM PERSPECTIVE
concept of airport cities originated in during 1980s after airline regulation due to globalization
and privatization that increased business activities across economies. The concept started as a
planning foundation for almost every green field airport that was built in the past 20-30 years.
Airports cities are first structured in US due to rise in complex demand of the people. It was no
longer viewed only as a stopping place for passengers but can be used for satisfying the
complementary services that has the characteristics of a city. This has effectively led to a rapid
growth in commercial services in the surrounding region of airports.
As a result, a new approach was taken to take care that effectively combined the real
estate development and planning and a range of other activities that has effectively increased the
level of economic activities and helped in the generation of profits. The rise in growth of this
concept has been backed by a strong reliance on globalization and liberation which has
adequately changed the range of economic activities that has led to improvement of several new
economic activities due to introduction of low cost carriers, establishment of global airline
alliances, emergence of hub-and-spoke networks and progressive privatization of airports. Due to
lesser government regulation, new companies entered the market that generated market power as
they established alliances worldwide.
Airports eventually developed into dynamic centers for economic activities that
incorporated a wider range of commercial and entertainment services inside passenger terminals
that transformed the landside areas into business center with advantages of hotels and other
accommodations, conference and exhibition centers, leisure facilities, office complexes and
shopping clusters. Commercial revenues are generated due to the interaction between airport
operators with the users which range from agents using cargo services, organizations and
stakeholder group. Airport operators view the airport city as a marketing tool and a business

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AIRPORT CITIES AND THE VALUE CHAIN OF NON-AERONAUTICAL PROFIT
DRIVERS: A LONG-TERM PERSPECTIVE
strategy to take the benefit of increased business opportunities by attracting companies to the
airport’s territory and surroundings.
Discussion of the concept of airport city with the investors and business did not lead to
consensus, although it reinforced the different perspectives of agents toward this type of
development and fuel future growth. The main definition that is derived from the study is that
airport city is foreseen as the agglomeration of mixed-use property developments in and around
airports and is only efficient due to the variety of land uses present that is only seen in cities.
This shows that there is no prior concept to airport city, different agents perceive the airport city
concept differently.
With the change of time, the concept of airport city gradually developed and it is actively
dependent on four critical factors like connectivity, economic potential of the area, commercial
attitude of the airport operator and in the context of sustainable development. The concept can be
related with the data analysis which shows that airport cities are extensive drivers of long run
profits. The rise in development of airport cities has raised the non-aeronautical revenues that is
effective for raising the aeronautical and non-aeronautical services of airports However, creation
of airport city is only effective if the region has greater connections with respect to physical
infrastructure and has economic potentiality in regard to labor market, supplies, location, demand
for goods, enterprise networks, passenger demography and location of their surroundings. Areas
with lower production cost are efficient for the development of the sector otherwise the cost of
regulation might hamper the growth of business and commercial activities. However, this is only
efficient with respect to the commercial attitude of the operator in the context of sustainable
development such that it provides more economic benefits to the economy and has less negative
externalities. This can be related the analysis such that all airports are unable to develop airport

37
AIRPORT CITIES AND THE VALUE CHAIN OF NON-AERONAUTICAL PROFIT
DRIVERS: A LONG-TERM PERSPECTIVE
cities and lack in certain parameters with respect to the four critically addressed parameters.
There is no doubt that airport cities are effecting drivers if long run profits, however it is only
adequate when the surrounding area has economic potential. Moreover, airport city offers a
range of services that attracts customers in that area and can lower the demand for airports in that
regions which does not have airport cities. Airport cities exhibit wealthy development and record
substantial profits, however development of such concept is very complex. Therefore, airport
cities are profitable for the value chain activities non-aeronautical activities only when the area
has huge potential fir development with respect to network connectivity, economic profits and
sustainable development goals.
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