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Airline Agreements 11
Compensatory terminal cost centers tend to be more common in larger airports that gen-
erate greater revenues.
· Hybrid. This term is used loosely in the industry to describe vastly different methods of calcu-
lating rates and charges. It is frequently used to describe an airport that uses different method-
ologies in the separate cost centers. For example, BWI, SEA, and STL use a cost center residual
methodology in the airfield and a compensatory methodology in the terminal. The term hybrid
is also used to describe methods of calculating rates where the basic charges are established,
either by a residual or compensatory approach, and the charges are then offset by surplus rev-
enue. The amount of surplus revenue applied is determined by specific formulas in the agree-
ment and varies considerably in the industry. For example, PDX (with a residual terminal cost
center) has agreed to share up to $30 million in Port cost center revenues with the signatory
airlines over the 5-year term of the agreement (at $6 million per year). Port cost center is defined
as the cost center to which revenues and expenses associated with ground transportation, air
cargo, and other aviation and non-aviation cost centers are allocated. There are restrictions
on the availability of the Port revenue (e.g., required debt coverage ratios). A novel addition to
the concept of revenue sharing in the PDX agreement is a reduction in the amount of the Port
revenue sharing by a decrease in O&M expenses based on a specific formula.
See CRP-CD-81 (enclosed herein), Appendix to Chapter 1, Airline Agreements, for excerpts
from the PDX Airline Agreement for provisions regarding the calculation of rates and charges.
Many airports are moving to a controlled revenue sharing, with the formulations customized
to the airport's particular financial needs and circumstances.
See CRP-CD-81 (enclosed herein), Appendix to Chapter 1, Airline Agreements, for excerpts
from the SEA and STL Airline Agreements for provisions regarding the calculation of rates and
charges.
Other important components of rate making are as follows:
· Variable space rent. Most airports attach weighted values to different space in the terminal
generally based on location and accessibility. Some airports use the weighted values to dis-
courage airlines from renting excessive space of a type that is limited (i.e., ticket counter).
See CRP-CD-81 (enclosed herein), Appendix to Chapter 1, Airline Agreements, for excerpts
from the SEA and STL Airline Agreements provisions with variable rates for different classes
of space.
· Non-signatory premium. Most airports charge a non-signatory premium in both the airfield
and terminal. The premium ranges from 10 to 25%.
· Apron charges. The treatment of apron costs varies considerably. Some airports treat it as a
component of the airfield and do not charge a separate fee. This approach has fallen out of
favor with the emergence of low-cost carriers who tend to use their gates more heavily and,
therefore, prefer a separate fee rather than loading it into the airfield, which benefits carriers
with more gates and less utilization. The trend is to establish a separate cost center and charge
a separate apron fee. The basis for the apron fee varies. A few airports establish a fixed fee by
type of aircraft (narrowbody versus widebody) adjusted annually. Most airports establish
either a per square foot or per linear foot rate with the square foot rate becoming more pre-
ferred as it more accurately reflects the total square feet of the apron utilized.
1.17 Billing, Payments and Adjustments
Fixed rentals (e.g., exclusive or preferential terminal rents) in most agreements are due and
payable without invoice on or before the first of the month. Most airports provide a "courtesy"
invoice. For variable rents and fees (common/joint-use space, other use fees and landing fees), most
