The reader will almost certainly have heard the concepts OPEX and/or CAPEX at some point, and they may have raised doubts as to their correct meaning and application. In this article we will discuss the true scope of these terms in the airport sector, and how they affect the financial model of an airport.
Both OPEX and CAPEX play a key role in the economic viability of an airport.
OPEX (OPerating EXpense) - Operating Expenses
OPEX refers to those costs, both fixed and variable, that are necessary for the operation of a business or system. Therefore, OPEX can be assumed to be the running costs or operating costs of our business.
In the airport field, the main elements that usually make up this OPEX are the following:
- Staff costswhich include payroll and social security costs for the airport operator's own staff (executives, middle management, supervisors, technicians, operators, drivers, administrative staff, etc.).
- Operating Costswhich include the costs of services necessary for the daily operation of the airport (internal and external cleaning, transport, check-in systems, consultancy, etc.).
- Basic ConsumptionThe costs of necessary consumables (electricity, water, gas, fuel, communications, etc.) are included.
- Equipment and Systems Maintenancewhich can either be carried out in-house or through subcontracting (electromechanical systems, air conditioning, electrical and electronic systems, luggage systems, fire protection, water pumping, etc.).
- Infrastructure Conservationwhich include the costs associated with the maintenance of own infrastructure (terminals, car parks, sewerage, signalling, roads, etc.).
- Other Expenditurewhere all other additional and necessary costs (insurance, marketing, taxes, other, etc.) are included.
CAPEX (CAPital EXpenditure) - Capital Expenditure
CAPEX refers to those capital investments that are necessary over time for the business to create or continue to create profits. In other words, 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 field, the main elements that usually make up this CAPEX are the following:
- Establishment and Expansion Investmentswhich include the necessary investments in airport infrastructure. These establishment and expansion investments are usually large in amount, and apply mainly to the following elements:
- Land Acquisition
- Investments in Civil Works (earthworks, runway, taxiways, aprons, aprons, control tower, terminal building, SEI building, power plant, other buildings, etc.).
- Beaconing
- Investments in facilities (terminal building, control tower, transmitter centre, SEI building, power plant, access and roads, etc.).
- Investments in Equipment and Systems (terminal building, control tower, etc.).
- Replacement InvestmentsThese investments, also known as REPEX, do not really represent an extension of the infrastructure but, as the name suggests, a replacement of the asset due to its deterioration over time or the end of its useful life. These replacement investments apply mainly to the following items:
- Recreational facilities (runways, taxiways, lay-bys, etc.)
- Beaconing
- Facilities
- Equipment and Systems
What is the importance of these concepts in the Financial Model?
Both OPEX and CAPEX play a role in the a key role in the economic viability of an airportand form two of the main inputs to the Financial Model of the airport business.
A correct prognosis of OPEX and CAPEX will serve, among other purposes, to be able to evaluate the real financing needs (either with own funds or bank loans) based on the operational needs for funds (NOF), to know the break-even point of a new airport and, above all, to estimate the economic benefits of the activity.
The elaboration of OPEX and CAPEX prognoses requires an in-depth knowledge of the airport business, as well as of the specific variables of the airport under study (location, political situation of the country, legal and financial conditions, etc.).
Therefore, if you need to simulate the financial results of your airport business, make sure you have OPEX and CAPEX prognoses prepared by specialists in this field. Otherwise, the uncertainty and risk of your model will probably be too great to be taken into account.
