Vancouver Airport Authority earns revenue from three main sources:
- Aeronautical revenue: We collect landing and terminal fees to recover the operating and capital costs related to airline operations. This revenue amounted to $135.9 million in 2017, an increase of $8.7 million from $127.2 million in 2016. In 2016, we introduced ConnectYVR, an innovative program that freezes aeronautical rates for five years, designed to incent growth and efficiency. ConnectYVR incents carriers to utilize the same aircraft gates for flights to allow YVR to best utilize its terminal infrastructure.
- Non-aeronautical revenue: This includes revenue from concessions, such as duty free, car rental facility charges and advertising, as well as car parking, kiosks and terminal and land rents. Revenue from these sources amounted to $233.9 million in 2017, an increase of $21.9 million from $212.0 million in 2016, due mainly to the increased concessions, car parking, kiosk and rental revenue.
- Airport Improvement Fee (AIF): The revenue earned from aeronautical and non-aeronautical sources is not sufficient to cover both the costs of operating the airport and the required capital projects. Vancouver Airport Authority collects an Airport Improvement Fee (AIF), which can only be used to fund capital projects. Total revenue earned in 2017 was $159.3 million, an increase of $8.9 million from $150.4 million in 2016, due mainly to the 8.4 per cent growth in passenger traffic over 2016. YVR’s AIF remains one of the lowest of the major airports in Canada and continues to provide one of the lowest fees for travel within B.C. and the Yukon.
YVR has the lowest Airport Improvement Fee (AIF) of all major Canadian airports. In addition, YVR is the only major Canadian airport with an in-province AIF of just $5.
Airport Improvement Fees at Major Canadian Airports
*Montreal will increase its AIF from $25 to $30 for travel effective April 1, 2018 and for tickets sold effective March 1, 2018
Non-AIF revenue goes towards covering the costs of operating the airport, which include salaries, wages and benefits, materials, supplies and services, payments in lieu of taxes and insurance. In 2017, these costs increased to $210.6 million, an increase of $20.0 million from 2016. These increases were mainly due to materials, supplies and service costs for legal services, security services, snow operations, baggage sortation, terminal and airside repair and maintenance and utilities, while salaries, wages and benefits costs increased based on the negotiated wage increases per the Collective Bargaining Agreement as well as from an increase in the number of employees.
Vancouver Airport Authority also uses a portion of its revenue to pay rent to the federal government under the Ground Lease, which amounted to $55.3 million in 2017, an increase of $4.7 million from 2016. The increase in rent resulted from the increase of Vancouver Airport Authority’s revenue upon which the rent payment is based. Vancouver Airport Authority paid $16.3 million to the City of Richmond, with a minor contribution to City of Vancouver, for payments in lieu of taxes. We also paid $5.3 million (one per cent of our 2016 revenue) to the Musqueam Indian Band for year one of the 30-year Sustainability & Friendship Agreement between the Musqueam Indian Band and the Vancouver Airport Authority. The agreement is based on friendship and respect to achieve a sustainable and mutually beneficial future for our community.
The total cash needed to pay for capital projects can exceed the amount available after payment of operating costs, ground lease and interest costs. In these situations, debt financing is required. Vancouver Airport Authority takes a conservative approach to debt levels and strives to achieve a reasonable balance between debt and sources of revenue. Consistent with the prior year, we had $550.0 million in outstanding debt financing consisting of a series of three long-term debentures with fixed interest rates and varying maturity dates. Interest cost, which included interest payments, standby fees and service charges, amounted to $30.0 million in 2017, consistent with 2016.
As required under generally accepted accounting principles and in the statement of operations, the costs of capital projects are spread over the useful life of the assets, as opposed to being recognized as the total cash paid for the projects in the current year. This spreading of cost over the useful life is reflected as amortization on the statement of operations, which is a non-cash charge. Total amortization in 2017 amounted to $147.2 million, an increase of $9.3 million from 2016 as a result of new facilities that came into operation.
Vancouver Airport Authority earned $4.8 million in partnership income from the rental of buildings we own.
Total excess of revenue over expenses, which includes amortization, was $84.9 million in 2017, an increase of $0.9 million from 2016. When amortization, a non-cash item, is removed, Vancouver Airport Authority generated $216.2 million of net cash flow, prior to its investment in capital projects.
During 2017, we invested $167.9 million in capital projects. The capital projects included Runway End Safety Areas, Runway Pavement Overlays, South Templeton Parking Lot, Pier D Expansion, Primary Inspection Kiosks and Self-Bag Drops.
In order to pay for these capital projects, the following amounts were used:
- Net cash flow (excluding AIF) of $63.2 million.
- Net AIF in the amount of $153.0 million.
These amounts were more than sufficient to pay for the 2017 capital project costs, which when combined with the cash available at the start of the year leaves $208.0 million in cash available to pay for capital projects in 2018 and future years.