Deciphering Airport Charges for Airlines

Introduction

Airport Charges for Airlines refer to fees levied by airports on airlines for the use of airport infrastructure, services, and facilities. These charges are a significant component of an airline’s operating costs and vary by airport, country, and the type of service provided.

Types of Airport Charges

1. Infrastructure charges such as Landing Fee, Parking Fee, Overflying Charges, Terminal Navigation Charges etc. that are applicable to each flight operation.
2. Location Based Charges such as Noise Surcharge, Anti-pollution Tax, Night Landing Surcharge etc. that are applicable only for certain locations.
3. Usage Based Fee such Runway Lighting, Aerobridge, Check-In Desk, External Power Unit etc. that are applicable only if availed.

Significance in Airline Operating Costs

For most of the airlines, these constitute around 25% of the direct operating cost approximately equal to 10% of the total operational cost.

Mandatory Nature of Aviation Charges

Over 90% of aviation services are essential for an airline to operate at an airport or navigate through an airspace, making these charges largely unavoidable. This mandatory reliance, coupled with limited alternatives, renders aviation charges mostly non-negotiable. Consequently, airport and airspace authorities hold a monopolistic position, allowing them to set standardised rates applicable to all operating airlines.

Challenges in Negotiation

Airlines often negotiate long-term agreements with airports to manage these costs. However, that is still limited to major scheduled carriers and that too at the hub locations.

Complexity of Charge Computation

Most of the aviation contracts have complex business logics to compute the charges and may require various operations data such as flight movement data, overflying distance for various Flight Information Regions (FIRs) travelled along with service-usage data in some cases. In addition, the rates may be dependent on certain aircraft properties such as Maximum Take-Off Weight (MTOW), Aircraft Wingspan and length, Aircraft type or various operations drivers such as Parking position, Parking hours etc. In certain cases, the rates may further vary based on location-based drivers such Noise category, NOx emission rate, night landing timings etc.

Moreover, the operational data required for these computations is often sourced from various independent systems, which are typically maintained manually. This fragmented and inconsistent data management makes it highly challenging to integrate information from different systems and use it effectively for calculating the expected charges.

Challenges in Invoice Verification

In addition to the inherent complexity of charge computation, the process of verifying invoices for aviation charges has traditionally been manual for most airlines. However, the intricacy of rate calculation makes it highly challenging for invoice approvers to manually determine the expected charges with full accuracy. As a result, invoice verification often relies on historical averages and is typically limited to cross-checking the number of flights operated and a summary-based verification.

These challenges hinder an airline’s ability to efficiently review invoices, often resulting in errors and overpayments due to excess billing.

Focus Areas for Cost Control

There are majorly 3 areas where an airline needs to focus on:

1. Vendor Contracts
2. Operations Data sources
3. Invoices Management and Verification.

Let us see how these different areas impact the overall cost control:

Vendor Contracts

As outlined above, aviation charges are driven by complex business logic for rate determination, making manual computation impractical. Automating the calculation of expected charges is therefore a critical investment area for airlines to enable effective invoice verification.

Below areas need to be covered in the process of Contract automation:

• Central contract repository for maintaining complex business rules for rate derivation
• Business programs for auto-calculation of rate drivers such as Parking hours based on flight
timings, usage of aero-bridge based on parking positions, applicability of night surcharge
based on different timings by seasons etc.
• Integration with reference masters such Aircraft masters for aircraft properties, Tax masters
for application of taxes, holiday calendars etc.
• Maintenance of discounts and rebates

Operations Data Sources

As aviation charges require operations data from various data sources, integrating those into a central data repository is an integral part of the cost control. Further, integration of the data warehouse with the contract repository is another integral step towards automatic expected billing calculation for accurate invoice verification.

Invoice Verification and Processing

With introduction of IATA SIS platform, many of the airport and airspace authorities has moved to processing their invoices via SIS and thereby providing structured, readable invoices. However, still a lot of authorities are continuing to the conventional paper-based billing using their individual formats due to lack of automation. Further, nearly one third of the invoices (both electronic and paper based) are summarised and lack granular details for accurate verification. Common invoicing errors include duplicate billing across same or multiple invoices, billing for non-operated flights, quantity and rate mismatch, incorrect rate drivers like Aircraft type, Maximum take of weight, Great Circle distance etc. Since most of these errors can’t be managed effectively in the traditional manual verification process, AP automation is an important investment area for airlines.

Addressing Invoicing Errors through Automation

Below are the areas that need to be covered under Invoice automation:
• Automated loading of electronic invoice
• Validation of duplicate billings
• System verification of both detailed and summary level invoices
• Highlighting the reasons in case of discrepancies and detailed discrepancy reports for vendor
follow-up
• Tracking of rejected invoices along with payment status (On Hold, Paid in Full, Paid accepted)
• Tracking of Credits received from supplier against the rejections.
• Automated interface of invoice documents to the ERP for supplier payment and maintenance
of payment status.

Conclusion

To summarise, the complexity of rate derivation logic and the lack of centralised data make it nearly impossible for airlines to manually verify aviation charges with complete accuracy. Consequently, airlines often rely on summary-level checks based on experience, leading to frequent overpayments. However, with targeted investments in automating the accounts payable (AP) process, airlines can not only accelerate the entire workflow but also reduce costs by identifying and recovering over-billings.

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