Flying Into Money: Palma airport

Which is the most profitable airport in Spain? The answer is neither of the two airports with the greatest passenger numbers - Madrid's Barajas and Barcelona's El Prat. It is the third airport on the passenger list, i.e. Palma's Son Sant Joan, which also happens to be the fifteenth busiest airport in Europe.

This is the second year running that Palma has claimed the airport profitability crown, its operating profit for 2011 up fractionally to 44.68 million euros. Palma has been vying with Alicante for the top spot, the airport in the Valencia region having held the crown in 2009.

That Palma's main rival has been Alicante probably tells a story. Both are airports with high volumes of tourism traffic, serving some of the densest populations of tourism; Benidorm being one in the case of Alicante.

The profit tells only part of the story. In 2011 Palma airport turned over more than 200 million euros; a profit percentage of some 20% on revenue generated is healthy for any type of business. The revenue and the profit help to explain why the regional government has been so keen to get its hands on the airport and manage it at least in partnership.

The ambitions of Balearic politicians to be able to add the airport to the region's balance sheet and profit and loss account (mainly or in fact totally a loss of course) have been dashed for varying reasons. Firstly, it was because the airport, despite its traffic, didn't meet the level of passenger numbers to qualify it for regional government management. Secondly, and more recently, there has been the threat (or promise, if you prefer) of privatisation or partial privatisation.

It was this threat that brought about the air-traffic controllers' strike, the fallout from which is still going through the courts. But it is a threat that is more on the cards than before. National government has its eyes on privatisation as a means of helping to cut the national burden. Airports, such as Palma's, would be prime targets, one would have to believe.

Palma can manage to generate such healthy profit for a number of reasons. Its income, as with all airports, is derived through numerous revenue streams, and some - all probably - are from services and concessions that come at a high price. Without putting an actual figure on them, someone I know well who runs a car-hire agency (without an office in the airport) alluded the other day to the astronomical rents for these offices. And these are but one of the many revenue streams that filter through to making Palma airport such a profitable business.

Charges that the airport can make are not solely due to demand. There is also the fact that it occupies a vast area of prime real estate. As a consequence, it commands premium prices, and these are ones that are demanded of other concessions. Its value as real estate is a further reason why the government would wish to have a piece of the action. Assets are as valuable to a government as they are to a corporation.

This property value adds a further dimension to any privatisation. Through a combination of the land premium and the premium that Palma airport can demand of airlines by way of landing fees, the potential for any future movement (downwards) of these fees would be questionable. Yet this is exactly what airlines have been calling for, if the airport is to create greater traffic in the winter, which, by extension, would mean greater numbers of winter tourists.

It is perhaps instructive to appreciate that, despite the lower volume of winter traffic, Palma can still be the most profitable of Spain's airports. In purely business terms, being more amenable to airline demands wouldn't necessarily make sense, though one might think that additional revenue from other streams of business, also currently affected by lower winter traffic, would compensate for any discount on landing fees.

While Palma is the jewel in the crown of Spanish airports, the same cannot be said for other airports in the Balearics. Ibiza does reasonably well. It made a profit of almost 3.5 million euros, but it also operates with a debt. Not a huge one, but debt nevertheless. Palma, on the other hand, has no such worries. But then there is Menorca. It made a loss of getting on for eleven million last year. It has an accumulated debt of over 161 million euros.

This is perhaps an example of have and have not in Balearics tourism. Menorca has been suffering badly in all sorts of ways. And in these times of austerity and of government looking on drains on resources, the airport in Menorca might need to watch out. So also might Menorca.


Any comments to andrew@thealcudiaguide.com please.