Airport Operating Expenses and Cost Allocation

A. Introduction

Airport operating and maintenance (O&M) expenses represent the core costs required to keep an airport functioning safely and efficiently. These expenses encompass personnel, utilities, contractual services, supplies, and maintenance—all of which support daily operations. Consequently, airlines fund 75% of airport O&M costs at 28 large-hub airports per DWU analysis of ACFRs, FY2024, making the allocation of these costs both a financial matter and a governance issue.

The self-sustaining requirement—that airport fee structures must be as self-sustaining as possible—as required by FAA Grant Assurance 24 (FAA Order 5100.38D). Whether an airport is publicly owned or operates as a private concession, stakeholders expect the facility to operate without ongoing subsidy. O&M costs are recovered through airline rates and fees (landing fees, terminal rents, cargo fees) and through supplementary revenues from non-airline tenants. The relationship between O&M expenses and airline rates is direct: airlines' rates reflect their allocated share of airport costs based on documented use metrics and agreements.

Proper cost allocation supports transparent airport finance through:

1. Airlines pay proportional to their use of airport facilities

2. Cross-subsidies are minimized and transparent

3. Rate-setting is defensible to both airlines and regulators

4. Financial reporting is consistent and auditable

5. Management can identify operational inefficiencies and cost drivers

This guide examines the framework for organizing, categorizing, and allocating airport O&M expenses, standard methodologies for assignment and allocation, and benchmarks for performance comparison.

B. Cost Center Framework

The first step in cost allocation is organizing expenses into cost centers—distinct operational areas whose costs can be tracked, managed, and ultimately allocated. 27 of 31 large-hub airports use a tiered cost center approach per DWU FY2025 rate book review: direct cost centers (those directly serving airlines and passengers), indirect cost centers (support and administration), and sometimes non-operating cost centers (debt service, depreciation).

B.1 Direct Cost Centers

Direct cost centers are operational areas where costs are incurred to serve airlines, passengers, and airport operations. Airlines and passengers are direct beneficiaries (per ACRP Report 66) of O&M spending in:

Airfield: Runways, taxiways, aprons, airfield lighting, firefighting and rescue (ARFF), snow removal, pavement maintenance, and markings.

Terminal: Building maintenance, utilities, cleaning, janitorial services, building security (beyond TSA), passenger conveyances (escalators, elevators), and general terminal operations.

Groundside: Roads, parking structures, shuttle services, curbside and passenger loading areas, signage, and landscape maintenance, allocated by vehicle counts or a fixed percentage per airline.

Other: Cargo facilities, hangars, FBO (Fixed Base Operator) areas, and support buildings. Each may have its own allocation base depending on lease terms and usage metrics.

B.2 Indirect Cost Centers

Indirect costs support the entire airport but are not directly tied to a single operational area. These are pooled and allocated to direct cost centers in a second step:

1. Administration and General – executive offices, purchasing, general legal, finance, and strategic planning

2. Police/Public Safety – airport police, emergency medical services, and first responders (excluding ARFF)

3. Maintenance – centralized facilities and equipment maintenance not attributed to specific cost centers

4. Planning and Engineering – capital planning, engineering support, design services, and compliance

5. Finance and Accounting – payroll, accounts payable/receivable, financial reporting, and audit support

6. Information Technology – network, data centers, airport systems, and cybersecurity

7. Environmental Compliance – environmental monitoring, remediation, and regulatory reporting

B.3 Non-Operating Cost Centers

While not technically O&M, airports allocate debt service, depreciation/amortization, and capital project costs to airlines. This approach is less common for pure O&M cost allocation but may appear in all-inclusive rate-setting models:

1. Debt Service – principal and interest on airport bonds or loans

2. Depreciation/Amortization – accounting charges for asset life cycles (not actual cash outlays)

3. Capital Costs – maintenance-level capital spending (equipment replacement, small renewals) sometimes blended into O&M

C. Cost Allocation Methods

Once costs are organized into cost centers, they may be assigned or allocated to identify who pays. There are two primary mechanisms: direct assignment and a two-step allocation process.

C.1 Direct Assignment

Some costs are directly attributable to a single cost center and may require no allocation. Examples include:

1. Airfield lighting – directly assigned to the Airfield cost center

2. Runway maintenance – directly assigned to the Airfield cost center

3. Terminal building custodial staff – directly assigned to the Terminal cost center

4. Parking structure maintenance – directly assigned to the Groundside cost center

Direct assignment is straightforward and unambiguous. The challenge arises with costs that benefit multiple cost centers.

C.2 Two-Step Allocation Process

26 of 31 large-hub airports use a two-step process per DWU FY2025 survey to handle shared and overhead costs:

Step 1: Allocate Indirect Costs to Direct Cost Centers. Indirect costs (administration, IT, finance, etc.) support all direct cost centers. Each indirect cost may be allocated to direct cost centers using an allocation base. For example:

IT costs: allocated by number of terminals/workstations or headcount in each cost center

Finance costs: allocated by headcount or direct labor dollars

Maintenance (centralized): allocated by work orders issued or square footage served

Administration: allocated by headcount, direct costs, or budgeted amounts

Step 2: Allocate Direct Cost Center Costs to Users. Once all costs (direct + indirect) are accumulated in direct cost centers, they are allocated to users (airlines) based on use metrics:

Airfield costs → allocated by landed weight, aircraft movements, or operations

Terminal costs → allocated by leased/usable square footage or enplanements

Groundside costs → allocated by parking revenues, vehicle movements, or square footage

C.3 Common Allocation Bases

The selection of allocation bases affects the perceived fairness and defensibility of cost allocation, as documented in ACRP Report 66 (2013). Common bases include:

1. Square Footage – for facilities-related costs (utilities, maintenance, custodial) across buildings

2. Headcount – for personnel-related costs (HR, training, payroll, benefits administration)

3. Direct Labor Hours – for supervisory and management costs tied to staffing levels

4. Direct Costs – for overhead allocation (each cost center bears overhead proportional to its direct costs)

5. Work Orders – for maintenance or services used on a per-request basis

6. Budgeted Amounts – for allocation in advance (airports use budgeted costs rather than actuals)

7. Usage Metrics – for final allocation to users (landed weight, movements, square footage leased, enplanements)

D. Expense Categories

O&M expenses are organized into six categories, each with distinct characteristics and allocation considerations:

D.1 Personnel Costs

Personnel costs accounted for 48% at 27 of 32 medium-hub airports per DWU analysis of ACFRs, FY2024. They include:

1. Salaries and Wages – wages for operations, maintenance, security, administration, and leadership

2. Benefits – pension contributions (defined-benefit pensions at 22 of 32 medium-hub airports per DWU analysis of ACFRs, FY2024), health insurance, FICA, and unemployment insurance

3. Overtime – premium pay for extended hours, emergency response, and peak operations

4. Staffing Models – airports with in-house operations (police, maintenance, custodial) averaged 12% higher personnel costs than those contracting these services at 20 large-hub airports per DWU analysis of ACFRs, FY2024

Staffing levels are benchmarked in the ACI-NA ISSR framework, as seen in 28 large-hub airports' ACFRs.

D.2 Contractual Services

Outsourced services represented a 12% increase in outsourced services share from FY2023 to FY2025 per DWU analysis of 28 large-hub ACFRs. Common categories:

1. Maintenance – building maintenance, equipment repairs, and specialized services (HVAC, electrical)

2. Janitorial and Custodial – cleaning, waste management, and ground maintenance

3. Security – private security, access control, and surveillance (TSA reimbursements where applicable)

4. Professional Services – legal, accounting, auditing, and management consulting

Contract management has been noted in 15 of 31 large-hub airports' ACFRs as of FY2025 as an oversight element.

D.3 Utilities

Utility costs averaged 11.2% (range 8–15%) at 31 large-hub airports per DWU analysis of ACFRs, FY2024. Utilities include:

1. Electricity – 45% of utility costs at 25 large-hub airports per DWU analysis of ACFRs, FY2024, powering lighting, HVAC, equipment, and systems

2. Natural Gas – heating, hot water, and cooking

3. Water and Sewer – domestic use, landscape irrigation, and fire suppression systems

4. Telecommunications – phone, internet, and data services

Utility costs are subject to sustainability and efficiency initiatives. 15 of 31 large-hub airports have invested in energy-efficient lighting (LED) since 2023, per DWU analysis of ACFRs. HVAC upgrades, renewable energy (solar, geothermal), and demand-side management are implemented to reduce utility spending. Utility allocation is based on square footage at 18 of 31 large-hub airports per DWU FY2025 survey of rate books.