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Airport terminal OPEX and CAPEX

It is almost certain that at some time the reader has come across the terms OPEX and CAPEX, and it is possible that you have had some doubts about their correct meaning and application. In this article, we will discuss the true scope of these terms in the airport business, and how they affect an airport’s financial model.

Both OPEX and CAPEX play a key role in the economic viability of an airport and make up two of the main entries in the financial model of the airport business.

 

OPEX (OPerating EXpenditure) – Operating costs

By OPEX we refer to those costs, both fixed and variable, which are necessary for the operation of a business or system. Therefore, OPEX can be understood as the cost of the functioning, or operating expenses, of our business.

In the airport business, the main elements that make up this OPEX are the following:

  • Personnel costs, including the payroll and social security costs of the airport’s own staff (executives, middle managers, supervisors, technicians, operators, drivers, administrative staff, etc.).
  • Operating costs, including the costs of the services required for the daily operation of the airport (interior and exterior cleaning, transport, check in systems, consulting, etc.).
  • Basic consumption, which include the costs of necessary consumption (electricity, water, gas, fuel, communications, etc.).
  • Maintenance of equipment and systems, which may well be carried out by the airport’s own staff or through subcontracting (electromechanical systems, air conditioning, electrical and electronic systems, baggage handling systems, fire protection, water pumping, etc.).
  • Maintenance of infrastructure, which includes the costs associated with the maintenance of the airport’s own infrastructures (terminals, car parks, sewage, signage, roadways, etc.).
  • Other expenses, where we find the remaining additional and necessary costs (insurance, marketing, taxes, other, etc.).

 

CAPEX (CAPital EXpenditure) – Capital Investment

By CAPEX we refer to those capital investments that are necessary over time so that the business can create, or continue to create, profits. That is to say, the investment in CAPEX by a company involves investment in a fixed asset or in improving an existing asset (equipment, infrastructure, property, land, patents, etc.).

In the airport business, the main elements that make up this OPEX are the following:

  • Investments in establishment and expansion, which include the necessary investments in airport infrastructure. These establishment and expansion investments are often very large amounts and apply mainly to the following elements:
    • Acquisition of land.
    • Investments in civil works (movement of land, runway, taxiways, lay-bys, aprons, control tower, terminal building, fire and rescue service building, power plant, other buildings, etc.).
    • Ground lighting.
    • Investment in facilities (terminal building, control tower, transmitter centre, fire and rescue service building, power plant, access and roads, etc.)
    • Investment in equipment and systems (terminal building, control tower, etc.).

 

  • Investments in refitting, also known as REPEX, and which don’t really represent an extension of the infrastructure, but, as the name suggests, a replacement of the asset due to its deterioration with the passage of time or because of reaching the end of its useful life. These replacement investments apply mainly to the following elements:
    • Resurfacing (runway, taxiways, lay-bys, etc.).
    • Ground lighting.
    • Equipment and systems.

 

The importance of these concepts in the financial model

Both OPEX and CAPEX play a key role in the economic viability of an airport and make up two of the main entries in the financial model of the airport business.

A correct analysis of OPEX and CAPEX will serve, among other things, to assess the actual funding requirements (either with own funds or through loans) based on the operational needs for funds, to establish the break-even point of a new airport and, above all, to estimate the economic profits from the activity.

The assessment of OPEX and CAPEX requires an in-depth knowledge of the airport business, as well as the variables specific to the airport that is the object of study (airport location, political situation in the country, legal and financial constraints, etc.).

Therefore, if you need to simulate the financial results of your airport business, make sure your assessment of OPEX and CAPEX was developed by specialists in this field. If this is not the case, the uncertainty and risk for your business model will probably be too large to be undertaken.

 

 

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19/03/2018

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