THE EFFECT of AERONAUTICAL and NON-AERONAUTICAL CHARGES on AIRPORT REVENUE COLLECTION: the Case of Kilimanjaro International Airport

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THE EFFECT OF AERONAUTICAL AND NON-AERONAUTICAL CHARGES ON AIRPORT REVENUE COLLECTION: The Case of Kilimanjaro International Airport

Raphael A. Kiangi MSCF/0051/2019

M.Sc. (Finance & Investment) Dissertation Institute of Accountancy Arusha

This Document has officially been Submitted in the Institute of Accountancy Arusha – Institutional Repository

November 2020

This Document has officially been Submitted in the Institute of Accountancy Arusha – Institutional Repository

THE EFFECT OF AERONAUTICAL AND NON-AERONAUTICAL CHARGES ON AIRPORT REVENUE COLLECTION: The Case of Kilimanjaro International Airport

Raphael A. Kiangi

A dissertation submitted in partial fulfilment of the requirements for the degree of Master of Science in Finance and Investment of the Institute of Accountancy Arusha

Institute of Accountancy Arusha November 2020

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CERTIFICATION The undersigned certifies that he has read and hereby recommends for acceptance by the Institute of Accountancy Arusha a dissertation entitled: The effect of Aeronautical and Non Aeronautical charges on Airport revenue collection the case of Kilimanjaro International Airport. A Dissertation Submitted in partial fulfilment of the Requirements of the degree of Master of Science in Finance and Investment at The Institute of Accountancy Arusha.

------Dr. Moga Jilenga (Supervisor)

Date......

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COPYRIGHT This dissertation is copyright material protected under the Berne Convention, the Copyright Act 1999 and other international and national enactments, in that behalf, on intellectual property. I Raphael A. Kiangi should not reproduced by any means, in full or in part, except for short extract in a fair dealing, for research or private study, critical scholarly review or discourse with an acknowledgement, without the written permission of the Directorate of Postgraduate Studies, on behalf of both the author and the Institute of Accountancy Arusha.

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DECLARATION I, Raphaeli A. Kiangi do hereby declare that this dissertation is my own original work and that it has not been presented and will not be presented to any academic or non- academic institution, and that to the best of my knowledge and understanding it does not contain any materials previously published or written by another academician except where due respect and reference clearly indicated in this dissertation.

Signature……………………………

Date......

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ACKNOWLEGEMENT I be obligated to the Almighty God for the knack that has given me to work on this research report. The completion of this research report has a remarkable experience by the researcher that is not worth acknowledging without mentioning the role of the key persons for their encouragement. I am so thankful to express my sincere gratitude to all who smoothed the production of this research report. I would like to extend my wholehearted gratitude to my supervisor Dr.Moga T. Jilenga, he persistently guided me since initial stage (proposal) up to the work processing stage (report). If it is a mature and useful report it is because of his quality supervision. Also I would like to express my wholehearted thanks to Dr.Samwel Werema and Dr.Mwaitete for their support during lecture of Research methods for finance and the management of Kilimanjaro International Airport (KIA) for accepting me to collect data for the study. It was good in the sense that I was jovially welcomed and given necessary support by the management and members of staff especially those from Finance & Corporate Service and Marketing. I be obligated my gratitude to KIA Ag. Managing Director Christina Mwakatobe, CPA (T) Mary E. Kimambo Director of Finance and Corporate Services, Mr. Gift Shine and Mr. Gaudence Sigonda who played a very great role in assisting me for the whole period of the research. I say thanks very much to all of them. Finally, my special thank go to my family, relative and friends, who assisted me through constructive ideals, materials and the financial support. I also acknowledge my classmate, Wiston George, Witness Urio, Gloria Magadula, Samwel Saruni and Havashimana Sylvanne for their diligent assistance throughout the period I have been conducting this research report, they have been of great support. Lastly I acknowledge my lovely wife Anna Simfukwe and my lovely child Travis for their tolerance, moral support and understanding during pursuance of my studies especially during the time I spent away from home. They are all cherished for their untiring tolerance.

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ABSTRACT Relating to the international air transportation industry, today as discordant as those pertaining to Airport charges imposed at international airports. Aeronautical and Non-Aeronautical activities obvious are two sides business. Despite recent globalization and liberalization of the aviation industry, in a large number of countries, it is still owned and operated by governments. International Airports in Tanzania such as JNIA and KIA depend much on Aeronautical charges rather than Non-Aeronautical charges to finance its expenditure which is very risk because if no or few flights operate at the Airport means that no or few revenue will be generated. Commercial airports use non aeronautical sources to generate between 35% and 40% of their revenues. There are only 5 out of 58 airports owned and managed by TAA can fully finance their operations. Different countries focused on the challenges facing aviation sector in revenue collection. Also experience shows that International Airports of Tanzania still using social maximization approach instead of using profit maximization approach in generating airport revenue. Most of Tanzanian Airports fail to finance its expenditure efficiently and effectively. Therefore, this study determined the effect of Aeronautical and Non-aeronautical Charges on Airport Revenue collection at KIA, Tanzania. The study aimed to determine the effect of Aeronautical and Non-Aeronautical charges on Airport revenue collection at Kilimanjaro International Airport. The study used case study design in Kilimanjaro International Airport for the period between2010 to 2019. Secondary data were used collected from the management of KIA. Data were analysed using STATA, SPSS and Excel Software. Multiple liner regression was used for prediction. The findings presented using Tables and figures. The study is relevant to all aviation stakeholders.

The study reported the variation in airport revenue collection can be influenced by PSC, LPF, RUF and SCF but less influence with SCF. The MLR model for the outcome observed as ARC = 7.66E+07 + 0.723(PSC) + 0.911(LPF) + 3.676(RUF) - 19.449(SCF). This exposes that passenger service charge, landing & parking fee, rental & utility fee and sales concession fee can be used to predict airport revenue collection at KIA. In case of RUF and SCF to predict ARC also the equation for regression model assumption found as ARC= -1.234E+10 + 22.901 (RUF) - 18.378 (SCF).This model presented R2 of 0. 845 imply RUF and SCF is a predictor of ACR explained by 84.5% with Non- Aeronautical charges but the model is not stable for SCF because of negative value. Besides, the study found significant results on Aeronautical charges to predict ARC. The R Square value of 94.2% with p<0.001 shows the model fitness. The regression model is good predictor presented as ARC =669033627.8 + 0.33 (PSC) + 1.533 (LPF) especially for LPF significant indicated with p=0.037 while PSC found to be insignificant at p=0.508. Hence the institution can use both Aeronautical and Non- Aeronautical charges as it has impact in generating revenue.

The study discloses that Aeronautical and Non-Aeronautical charges are significance to explain about airport revenue collection at Kilimanjaro International Airport given that almost all covariates had positive coefficient. Consequently, the Airport authority has to be more carefully on the policy decision on how passenger service charges landing & parking fee, rental & utility fee and sales concession fee can be implemented to increase airport revenue collection.

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TABLE OF CONTENTS Table of Contents CERTIFICATION ...... iii COPYRIGHT ...... v DECLARATION ...... vi ACKNOWLEGEMENT ...... vii ABSTRACT ...... viii TABLE OF CONTENTS ...... ix LIST OF TABLES ...... xi LIST OF FIGURES ...... xii LIST OF ABBREVIATIONS ...... xiii CHAPTER ONE ...... 1 INTRODUCTION AND BACKGROUND OF THE STUDY...... 1 1.1 Introduction ...... 1 1.2 Background of the Study ...... 2 1.3 Statement of the Problem ...... 4 1.4 Research Objective ...... 4 1.4.1 General Objective ...... 4 1.4.2 Specific Objective ...... 4 1.5 Research Hypothesis ...... 5 1.6 Significance of the Study ...... 5 1.7 Limitation and delimitation of the Study ...... 5 1.8 Scope of the study ...... 6 1.9 Layout of the Report ...... 6 CHAPTE TWO ...... 7 LITERATURE REVIEW ...... 7 2.1 Introduction ...... 7 2.2 Strategies for Generating Airport Revenue ...... 7 2.3 Theoretical literature review ...... 9 2.4. Variable measurements and operationalization ...... 11 2.4.1 Aeronautical charges ...... 11 2.4.2 Non-Aeronautical Charges ...... 12 2.5 Critical Appraisal of ICAO Principles and Guidelines on Charges ...... 13 2.6 Empirical Literature Review ...... 14 2.7 Conceptual Framework ...... 16 2.7.1 Passenger Service Charges ...... 16 2.7.2 Landing & Parking fee ...... 17 2.7.3 Sales Concessions, Rental of premises and “free zones” ...... 18 2.8 Research gap ...... 20 CHAPTER THREE...... 21 RESEARCH METHODOLOGY ...... 21 3.1 Introduction ...... 21 3.2 Research Design ...... 21 ix

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3.3 Research Area ...... 21 3.4 Variable Measurement ...... 21 3.5 Data collection methods ...... 22 3.5.1 Secondary Data ...... 22 3.5.2 Model Specification ...... 22 3.6 Ethical Consideration ...... 23 CHAPTER FOUR...... 25 PRESENTATION, INTERPRETATION OF FINDINGS ...... 25 4.1 Introduction ...... 25 4.2 Descriptive statistics of the study ...... 25 4.2 MLR Assumptions for Aeronautical and Non-Aeronautical effect on ARC ...... 28 4.3 Presentation and interpretation of findings ...... 31 4.3.1 The influence of passenger service charges, landing & parking fee, rental & utility fee and sales concession on ARC at KIA...... 31 4.3.2. The effects of rental & utility fee and sales concession in predicting ARC at KIA...... 33 4.3.3 Passenger service charges and landing & parking fee are significant to explain about Airport Revenue collection ...... 35 CHAPTER FIVE ...... 37 CONCLUSION AND RECOMMENDATION ...... 38 5.1 CONCLUSION ...... 38 5.4 RECOMMENDATIONS ...... 38 5.2 STUDY LIMITATIONS ...... 39 5.3 AREA FOR FURTHER STUDY ...... 40 REFERENCES ...... 41 APPENDICES ...... 45

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LIST OF TABLES Table 2.1: Kilimanjaro International Airport (Aircraft Parking Charges)……………………...... 20 Table 4.1: Study descriptive statistics for ten observation ...... 25 Table 4.2 Test for Stationarity...... 27 Table 4.3: Pearson Correlation Multicollinearity Assumption of Aeronautical and Non-Aeronautical predictors effect on ARC Outcomes ...... 29 Table 4.4: ANOVA results on effect of Aeronautical and Non-Aeronautical charges on ARC at KIA. .... 32 Table4.5: Coefficients for ARC practices of Aeronautical and Non-Aeronautical charges ...... 33 Table 4.6: ANOVA results on effect of Non- Aeronautical charges on ARC at KIA...... 35 Table 4.7: Coefficients for ARC practices of Non- Aeronautical charges ...... 35 Table 4.8: ANOVA results on effect of Aeronautical charges on ARC at KIA...... 37 Table 4.9: Coefficients for ARC practices of Aeronautical and Non-Aeronautical charges ...... 37

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LIST OF FIGURES Figure 2.1: Conceptual framework…………………………………………………………...... 21 Figure 4.1: Source of Revenue Trend for Ten Years ...... 26 Figure 4.2: MLR Normal P-P Plot of Regression Standardized Residual for Aeronautical and Non- Aeronautical charges on ARC...... 30 Figure 4.3:MLR Histogram for normality distribution of Aeronautical and Non-Aeronautical to predict an outcome (ARC) ...... 31 Figure 4.4: MLR Normal P-P Plot of Regression Standardized Residual for Non-Aeronautical charges on ARC...... 34 Figure 4.5:MLR Histogram for normality distribution of Non- Aeronautical to predict an outcome (ARC)34 Figure 4.6: MLR Normal P-P Plot of Regression Standardized Residual for Non-Aeronautical charges on ARC...... 36 Figure 4.7:MLR Histogram for normality distribution for Aeronautical to predict an outcome (ARC) ...... 36

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LIST OF ABBREVIATIONS

AERA Airports Economic Regulatory Authority AFN Federal aviation administration ATCL Air Tanzania Company Limited BAA British Airport Authority CLRM Classical Linear Regression Model DME Distance measuring equipment IATA International Air Transport Association. ICAO International Civil Aviation Organization JNIA Julius Nyerere International Airport KADCO Kilimanjaro Airports Development Company KIA Kilimanjaro International Airport NAS National Aviation Services SPSS Statistical Package for Social Science TAA Tanzania Airport Authority TCAA Tanzania Civil Aviation Authority UAS United Aviation Service VOR Very high frequency Omni-directional range

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CHAPTER ONE

INTRODUCTION AND BACKGROUND OF THE STUDY 1.1 Introduction Civil Aviation is the most modern form of transport. Despite recent globalization and liberalization of the aviation industry, in a large number of countries, airport is still owned and operated by governments or government-owned endeavours. Furthermore, it happens to be one of the most regulated industries in the world.

“In 2015, 3,545 billion passengers travelled by air around the world (IATA, 2015). It was predicted that figure increased by around 4% every year (Boeing, 2015). These developments in aviation are also taking place at airports to meet increasing demand. Along with this change, airports need to increase capacity and improve infrastructure activities. Therefore, to meet their costs and contribute to future investments, airports need to generate revenues (Halpern & Graham, 2013)”.

“Airport revenues show a great improvement with commercialization. From the mid-1990s, airports began to focus on non-aeronautical revenues. They have started to create opportunities for commercial revenues such as rent, concession, parking and consulting (Francis, Humhreys & Ison, 2004)”. “In recent years, non-aeronautical revenues have increased significantly (Francis et al., 2004; Bilotkach, Clougherty, Mueller & Zhang 2012; Graham, 2009; Fuerst, Gross, & Klose, 2011)”.The providers of airports and air navigation services are not completely free to fix their charges. International Airports which are open to public use have to follow ICAO guidelines some of which are binding on the States which are signatories to the Chicago Convention.

“Currently, 185 States in the world are signatories to Chicago Convention, including Tanzania. Accordingly, Tanzania is bound to follow the provisions of the Chicago Convention in regard to fixation of airport charges. Furthermore, in most cases, the providers of services must obtain the approval of the corresponding government or regulatory authority in regard to the revision of Aeronautical charges and Non-Aeronautical charges. Tanzania is one of such countries. ICAO also publishes every year a “Survey of International Air Transport Fares and Rates” which provides an overview of international fares and rates”.

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1.2 Background of the Study

Very few issues relating to the international air transportation industry are today as discordant as those pertaining to Airport charges imposed at international airports. An airport is a multi-product firm. It has two obvious sides to its business: Aeronautical and Non-Aeronautical/concession activities. Aeronautical revenues include aircraft landing charges, aircraft parking and hangar facility fees, passenger service charges and air traffic control charges (if the service is provided by the airport authority), with landing and passenger service charges being most important.

Non-Aeronautical revenues are those generated from non-aircraft related commercial activities in the terminals and on airport land. Non-Aeronautical/Concession operations include running or leasing out shopping concessions of various kinds, car parking and rental, banking and catering, with terminal concessions and car parking and rental being most important. Many airports generate a much higher proportion of their income from Non-Aeronautical/concession activities than from aeronautical operations.

“According to Doganis (1992) reported that in medium to large U.S airports, concession operations had contributed between 75-80% of total airport revenue. Indeed, in 1990, more than 90% of total revenue at Los Angeles airport was from commercial operations. Furthermore, concession revenue has grown faster than aeronautical revenue. For instance, the Hong Kong International Airport generated the same amount of revenue from its aeronautical and commercial operations, while in late 1980s and 1990s concession revenue accounted for 66-70% of total revenue (Zhang and Zhang, 1997)”.

“More importantly, concession operations tend to be profitable Jones, Viehoff &Marks (1993) showed that, in 1990- 1991, concession activities at BAA’s three airports around London (Heathrow, Gatwick, and Stansted) were far more profitable to BAA than the activities financed through aeronautical charges. The operating margin from aeronautical charges was 7% for the three airports as a group, while the operating margin from concession revenue was 64%. Concession operations at a large, busy airport can achieve high returns for the landlord (the airport)”. The better the location, the greater will be the location rents. Large, busy airports clearly have location-based market power, with both their aeronautical and concession services. Despite recent globalization and liberalization of the aviation industry, in a large number of countries, it is still owned and operated by governments or government- owned undertakings. Moreover, aviation industry happens to be one of the most regulated industries in the world. Many airports in the world today are privatized, pursuing profit-maximization, rather than social-welfare-maximization as a public-owned airport should do.

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“The Tanzania Civil Aviation Authority (TCAA) is implementing a Radar installation project across 4 sites Julius Nyerere International Airport (JNIA), Songwe Airport, Mwanza Airport and Kilimanjaro International Airport (KIA) in the country since 2018, with 63 billion shillings on the mark, that will tremendously boost aviation, whereas with radar surveillance, security will be upgraded resulting in more traffic attraction for Tanzania airports (Kombe, Kitima & Mrema 2018)”.

“According to the 2010 ACI report, the worldwide total airport income in 2009 reached USD 95 billion, whereas aeronautical revenues accounted for 53.5%, and non-aeronautical revenues made up 46.5%. Non-aviation revenues (NAR) rose by 3% in 2009, driven by the retail sector (+2%), real estate (+10%), car rental concessions (+9%) and food and beverage (+7%)”. “In Europe, ACI-Europe (2010) shows that the revenues of European airports, in the last decades, have shown a gradual increase in the non- aviation category, reaching 12.1 billion Euros (47% of total revenues) in 2009”. Such figures show how NAR represents a vital component in airport management and can determine their financial viability especially in a downturn period, since they generate higher profit margins than aeronautical activities. International Airports in Tanzania such as JNIA and KIA depend much on Aeronautical charges rather than Non-Aeronautical charges to finance its expenditure which is very risk because if no or few flights operate at the Airport means that no or few revenue will be generated. Other International Airport such as Dubai International Airport, Heathrow International Airport and Doha International Airport depend on both Aeronautical and Non-Aeronautical charges but most of its revenue are generated from Non- Aeronautical charges to finance its expenditure. In addition to the usual shops, restaurants, bars and car-hire kiosks, some of the larger airports provide an extensive range of other services for their customers both within the terminal buildings and on airport land. The most notable example here is Frankfurt airport where the additional commercial activities include cinemas, bowling alleys, a discotheque, hairdressers, supermarkets and a conference Centre and hotel. “For instance, according to ACI report of April 2020 due to COVID- 19 the Airport will lose USD 76 billion both Aeronautical and Non-Aeronautical for full year of 2020”. KIA is among of the Airport that will be affected because International flight such as Qatar Airways, KLM Royal Dutch, Ethiopian Airline, Turkish Airline and Condor Air has stopped landing at the airport from April to July. This led this current study to determine the effect of Aeronautical and Non-Aeronautical charges on Airport Revenue collection at KIA.

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1.3 Statement of the Problem “Non-Aeronautical revenue offsets the financial risk associated with airline industry volatility (Carlisle, 2015). Commercial airports use non aeronautical sources to generate between 35% and 40% of their revenues (Kramer et al., 2015)”. The general business problem is that failure to leverage non aeronautical revenue-generating initiatives can negatively impact airport business operations. The specific business problem is that some airport managers lack strategies to generate non aeronautical sources of revenue. “Despite of the efforts that have been undertaken by the Government of Tanzania, such as, improving airport structures and installing state-of-the-art aviation technological gear across the country, and construction of more than 10 airports in Tanzania and revitalizing Air Tanzania Company Limited (ATCL) the nation’s flagship airline (TAA, 2019). There are only 5 out of 58 airports owned and managed by the Tanzania Airports Authority (TAA) can fully finance their operations”.

“The 5 airports (8.6%) that can generate enough revenue to finance their recurrent expenses are the Julius Nyerere International Airport (JNIA), Mwanza, Arusha, Mafia and Lake Manyara airports (Jacobs, 2020)”. “Since 2016, the government pursuing the improvement of more than 10 airports in Tanzania and revitalizing Air Tanzania Company Limited (ATCL) the nation’s flagship airline (Guston, 2018)”. The study, therefore determined the effect of Aeronautical and Non-aeronautical Charges on Airport Revenue collection at KIA, Tanzania

1.4 Research Objective 1.4.1 General Objective To determine the effect of Aeronautical and Non-Aeronautical charges on Airport revenue collection at Kilimanjaro International Airport.

1.4.2 Specific Objective i. To examine the influence of passenger service charges, landing & parking fee, rental & utility fee and sales concession on airport revenue collection at Kilimanjaro International Airport. ii. To assess the effects of rental & utility fee and sales concession in predicting Airport Revenue collection at Kilimanjaro International Airport. iii. To determine whether passenger service charges and landing & parking fee are significant to explain about Airport Revenue collection.

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1.5 Research Hypothesis The study was guided by the following hypothesis formulated from the specific objectives to answer the above specific objectives.

H01: Passenger Service Charges, Landing & Parking fee, Rental & Utility fee and Sales Concession do not jointly influence Airport revenue collection at KIA.

H02: Rental & Utility fee and Sales Concession cannot contribute to Airport revenue collection at KIA

H03: Passenger Service Charges and Landing & Parking fee cannot be significant to explain about Airport revenue collection at KIA.

1.6 Significance of the Study “According to Lennon (2016), airports contribute to economic stability in a certain country. Through diversification, airport operators can continue to operate without relying on one source of revenue (Everett, 2014). A one-size-fits-all approach does not exist to assist airport managers in developing flexible strategies to generate income to offset volatility in the air transportation industry (Kramer et al., 2015)”. This study may be significant because a deeper understanding of how Non- Aeronautical generate revenue at KIA could increase the success of existing and aspiring airports, thereby contributing to economic growth and increasing the prosperity of airport employees and their families as well as surrounding communities. The Board of Directors of KIA, Tanzania Civil Aviation Authority (TCAA) and TAA and managers of various Airports will use the findings of this study to develop strategies focused on encouraging different Aeronautical and Non-Aeronautical charges in order to increase Airport revenue collection in Tanzanian Airports. The findings of this study will also contribute to the existing knowledge and provide literature to scholars in the field of aviation. Lastly, the findings of this study will be useful to policy-makers both in the government aviation sector and private aviation sector especially in strengthening policy considerations in this sector of aviation. Such policy improvement may be useful in enhancing the guidelines on how to improve the performance of aviation industry in terms of Airport revenue collection.

1.7 Limitation and delimitation of the Study The researcher faced difficult in accessibility of information from the Management of KIA because some of it were not easily acquired due to confidential. The second was timelines due to limited time to conduct the study. Another limitation was financial constrains due to the effects of COVID-19 pandemic which restricted the availability of funds to complete the study.

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The study was accommodated the limitations in the following ways; Due to minimal time, researcher delegated time and effort in conducting the study. Also, due to limited time and funds, the study was limited to one location of KIA. The researcher was used skills, experiences in the management, profession, and theoretical orientation in research methods to fulfil the research objective. Researcher received a permission from the Managing Director of KIA Development Company to access those confidential data for the purpose of conducting the study. Also, researcher secured additional funds to complete the study in the stipulated time.

1.8 Scope of the study The main focus of this study was to determine the effect of Aeronautical and Non aeronautical charges on Airport revenue collection at KIA over the period of 2010-2019. The study was conducted at KIA became the first International Airport to be privatized in Africa in 1998 and is now operated by KIA Development Company (KADCO), a company is now fully owned by the Government of United Republic of Tanzania. Also, KIA is nearest to where the researcher is working hence it helped to cut cost of travelling from the case study. Moreover, it was easy for the researcher to access data from the Management of KIA.

1.9 Layout of the Report This report constituted five (5) chapters, chapter on covered introduction of the problem. While, chapter two covered theoretical literature and empirical studies, also covered conceptual framework, and research gap. This chapter is followed by chapter three which covered the research methodology, chapter four represented finding and discussion and the last chapter conclusion and recommendation presenting the entire layout of the study undertaking.

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CHAPTE TWO

LITERATURE REVIEW 2.1 Introduction The perseverance of this professional and academic literature review is to recap, compare, and contrast sources that relate to the research topic. A literature review provides a clear picture of a research topic, identifying literature that contributes to the research. “The literature review process ensures avoidance of unintentional duplication, allowing the researcher to contribute to the existing literature. Reviewing literature assists in the identification of research questions and gaps (Baumeister, 2012)”. The literature review was also important for the reason that helped the researcher to familiarize with theoretical and empirical literatures on the determination of the effect of Aeronautical and Non Aeronautical charges on Airport revenue collection at KIA also it helps the researcher to sharpen the research objectives and research hypothesis, methodology of the study including research design and approaches to data analysis. The review of literature was also essential in identifying the gaps in previous studies. For the review of professional and academic literature for this research study, the review was organized into Aeronautical and Non-Aeronautical charges, strategies for generating airport revenue and theoretical and empirical review of the relevant literature. The strategy for searching for literature for this study involved the following databases: Science Direct, Government databases, including those of the TAA, KIA and TCAA, Google Scholar and SSRN

2.2 Strategies for Generating Airport Revenue Airport Authority must be able to create flexible strategies that take advantage of new opportunities for revenue generation. “Carlisle (2015) stated airport managers and investors must look for new opportunities for revenue generation managing risk while taking advantage of opportunities. Managing airports require a global and social awareness that fosters airport financial performance in an ever- changing aviation market (Carlisle, 2015)”. “Forecasting demand provides an evaluation of the changes in costs, revenue and the possible need for capital investment allowing airport managers to plan for required infrastructure changes (Carlisle, 2015)”. “Understanding when revenue may be lower allowing Airport Authority to implement cost reduction processes and possible alternative strategies for revenue generation. Geography no longer isolates problems. The ever-changing global economy requires an airport business model that is creative and flexible (Carlisle, 2015)”.

“Airports require a variety of revenue sources. A successful strategy for generating airport revenue includes five elements: customer focus, services provided by the airport, real estate and natural

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resource development, innovative financing, and improving existing businesses (Kramer et al., 2015)”. A key element to successfully planning for future success is forecasting. A successful strategy for forecasting at airports includes; current air travel demand, key issues that affect forecasting air travel demand, and risk management techniques (Carlisle, 2013). “Kramer et al. (2015) described the use of technology and untraditional opportunities for airport operators to generate revenue. (Kramer et al. 2015)”. “As mobile technology continues to advance it changes the way passengers interact with airlines and airports (Kramer et al., 2015)”.

“Technology provides airport leaders and business leaders with key information about passengers and what they purchase making it easier to forecast demand (Kramer et al. 2015)”. To gain customer information, airport operators should develop a system to track customer characteristics. “This tracking system provides the airport with information on the type of traveller business or leisure, how often they visit the airport, and what they purchase while at the airport. Customer surveys are also great tools for gaining customer information (Kramer et al., 2015)”. “The data gathered from customers allows airports to forecast demand. Through data analysis airports can measure their performance. Checking profitability of goods or services, mystery shoppers, and customer surveys are all effective data gathering tools (Kramer et al., 2015)”.

“Airport Authority must be able to create strategies that take advantage of the expected growth worldwide passenger demand. The Airport's Council International (ACI) reports that global passenger travel will continue to increase at about a four percent per year rate. At this rate of growth, airports will need to account for passenger capacity to double every 18 years (Burger, 2015)”. “This increased demand for capacity forces airports in small to medium markets to find creative ways to generate revenue (Burger, 2015”).

“Fasone, Kofler, and Scuderi, (2015) indicated that airport operators should develop strategies incorporating existing sources with new opportunities for securing revenue from passengers. The key is to increase passenger flow without overcrowding. Overcrowding decreases the ability of passengers to find comfort impacting their desire to shop at the airport (Fasone et al., 2015)”. “Finding the correct passenger throughput allows airport operators to maximize the potential for both Aeronautical and Non- Aeronautical revenue. Improving terminal areas and developing innovative contracts with airlines decreasing airport costs and increasing airport revenue (Fasone et al., 015)”.

“There is no defined business strategy template for airports. Airport operators must develop strategies that work in their geographic location or market (Brutsch, 2013)”. One strategy is international business ventures. “These ventures have both risk and reward. Airport operators may not have the expertise 8

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needed to successfully negotiate an international business venture exposing the airport to financial risk (Brutsch, 2013). A key to the success of international business operations at airports is to understand how the current airport facility can meet the needs of international passengers (Brutsch, 2013)”.

“An effective business model framework for airlines has three components core logic, configuration of value chain activities, and organizational assets (Daft & Albers, 2013). Airport Authority can use this framework to assess airline business models during contract negotiations. Daft and Albers (2013) stated the core logic component of an airport business model indicates how the airport connects to its environment and how the airport will generate value within this environment. The configuration of value chain activities represents how the airport’s structure produces value for customers (Daft & Albers, 2013). The value chain component has three dimensions inbound, production, and marketing and assets. Assets are the resources and capabilities of an airport that are used to create value (Daft & Albers, 2013)”.

2.3 Theoretical literature review “A theoretical literature review like a theory is a collection of interrelated concepts, but not necessarily well worked-out. The theoretical framework guides researcher in determining what should be measured, and what statistical relationships it should look for (Vicent & Norma 2006)”. The researcher used ability to pay principle, benefit theory and the Principle of Maximum Social Advantage to explain theories on Aeronautical and Non aeronautical charges on Airport revenue collection. Benefit Theory: “According to Cynthia (2009), Benefit Theory argues that the state should levy taxes on individuals according to the benefit conferred on them. The more benefits a person derives from the activities of the state, the more he should pay to the government”. This principle has been subjected to severe criticism on the following grounds: Firstly, “if the state maintains a certain connection between the benefits conferred and the benefits derived. It will be against the basic principle of the tax. A tax, as we know, is compulsory contribution made to the public authorities to meet the expenses of the government and the provisions of general benefit. There is no direct quid pro quo in the case of a tax”. Secondly, “most of the expenditure incurred by the slate is for the general benefit of its citizens, it is not possible to estimate the benefit enjoyed by a particular individual every year”. Thirdly, “if we apply this principle in practice, then the poor will have to pay the heaviest taxes, because they benefit more from the services of the state. If we get more from the poor by way of taxes, it is against the principle of justice”.

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Ability to Pay Theory: “The most popular and commonly accepted principle of equity or justice in taxation is that citizens of a country should pay taxes to the government in accordance with their ability to pay. It appears very reasonable and just that taxes should be levied on the basis of the taxable capacity of an individual. For instance, if the taxable capacity of a person A is greater than the person B, the former should be asked to pay more taxes than the latter (Cynthia, 2009)”. The Principle of Maximum Social Advantage “This principle of Maximum Social Advantage is given by Pigou and Dalton. They extended the ability- to-pay principle to include the benefits of public expenditure. This principle seeks to balance the social advantage of public expenditure and the social sacrifice involved in the payment of taxation. Pigou called this principle as the Principle of Maximum Aggregate Welfare," while Dalton explained it as the Principle of Maximum Social Advantage. According to this principle, economic welfare of the community is the goal of state’s economic policy. But the problem is how to determine the measures' which will lead to maximum social advantage” . Airport charging systems “According to ICAO guidline and principles charging systems at international airports should be chosen in accordance with the following principles: Any charging system should, so far as possible, be simple and suitable for general application at international airports. Charges should not be imposed in such a way as to discourage the use of facilities and services necessary for safety, such as lighting and navigation aids. Charges should be determined on the basis of sound accounting principles and may reflect economic principles as required, provided that these are in conformity with Article 15 of the Convention on International Civil Aviation and other principles in the present policies. The charges must be non-discriminatory both between foreign users and those having the nationality of the State in which the airport is located and engaged in similar international operations, and between two or more foreign users. To avoid undue disruption to users, increases in charges should be introduced on a gradual basis; however, it is recognized that in some circumstances a departure from this approach may be necessary. Where charges are levied by different entities at an airport, they should, so far as possible, be consolidated for invoicing purposes. The combined revenues should be distributed among the entities concerned as applicable. 10

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Maximum flexibility should be maintained in the application of all charging methods to permit introduction of improved techniques as they are developed. Airport charges levied on international general aviation, including business aviation, should be assessed in a reasonable manner, having regard to the cost of the facilities needed and used and the goal of promoting the sound development of international civil aviation as a whole” . Charges collection “States should ensure that a legal framework for the collection of charges is in place. Airports and ANSPs or, where applicable, a State, should have an effective system for the collection of charges. Accounting systems must be precise and invoicing accurate. The system should also include credit control and enforceable recovery procedures. It is recommended that the entity responsible for air navigation services consider participating in joint charges collection when it is advantageous”.

2.4. Variable measurements and operationalization The Concept of Aeronautical and Non-Aeronautical charges

Presently, all the airports, irrespective of the ownership, levy charges for the facilities provided. However, the level of charges differs from airport to airport. Airport charges are broadly divided into aeronautical charges and non-aeronautical charges. These are sometimes called traffic related charges and non-traffic charges. Aeronautical charges directly affect the airline operations while non- aeronautical charges do not have a direct impact on airline operations.

2.4.1 Aeronautical charges “Aeronautical activities are activities that take place in areas such as airports and terminals where airlines operate. Traditionally aeronautical revenues include landing fees, passenger service charges, parking and hangar fees, ground service charges if provided and cleaning fees (Doganis, 1992)”. “These fees are often collected by airline operators through the '' Airport Use Agreements '' (Battal, 2006)”.

“According to Park (2004) the aeronautical charges include the following.

Landing charges: (including lighting and terminal air navigation services charges). These include charges collected for the use of runways, taxiways and apron areas, including associated lighting, as well as for the provision of approach and aerodrome control.

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Hangar and apron parking charges: These include charges collected from aircraft operators for the parking of aircraft and their housing in airport-owned hangars, including any charges for leasing of such hangars to aircraft operators. Passenger service charges: These include passenger service charges and other charges and fees collected for the use of terminal and other passenger processing facilities. Security charges: These include charges and fees collected for the protection of passengers and other persons at the airport, the aircraft and other property. Noise charges: Charges collected to cover the costs incurred on alleviation of noise produced by the aircraft when using the airport. Cargo handling charges: To cover the cost of providing cargo handling facilities, its storage and processing. Other charges on air traffic operations: These include all other charges and fees collected from aircraft operators for various other facilities and services provided at the airport for the operation of the aircraft, such as aerobridge or surface transportation facilities for the use of passengers for travelling between aircraft and the terminal building”.

2.4.2 Non-Aeronautical Charges “Non-aeronautical revenues are all commercial revenue sources operating on terminal and airport land, which are not directly related to aircraft operations (Doganis, 1992). They are rental incomes, ground allocations, retail sales incomes (gained from Duty-Free sales, catering etc..), car park, renting car, electricity-water-natural gas charges and other commercial incomes. Besides, some airports also carry out different facilities like swimming pools, bathrooms and karaoke (Kim & Shin, 2001; Geuens, Vantomme, & Brengman, 2004). After the deregulation in 1978, many airports experienced an increase in non-aeronautical revenues. This is due to the fact that many general aviation airports experienced declines in flight numbers and fuel sales, and therefore they tried to create new opportunities to increase their revenues, as a result of the current of globalization and commercialization, the emergence of low cost airlines and the fall of aeronautical revenues with state regulations (Kramer, 2010; Fasone, Kofler, & Scuderi, 2016)”.

“According to Park (2004), charges for Non-Aeronautical services generally include the following;

Ground handling charges: These include charges and fees collected from aircraft operators for the use of facilities and services provided by the airport for the handling of aircraft and/or the concession fees collected from the concessionaires of ground handling services.

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Aviation fuel and oil concession fees including throughput charges: These cover concession fees, including any throughput charges, payable by oil companies or any other entities for the use of airport facilities and the right to sell or distribute aviation fuel and lubricants at the airport. Charges for in-flight catering services: These include charges for the use of facilities provided by the airport to the in-flight caterers and also the concession fee. Charges for operating restaurants, bars, cafeterias and providing catering services: This covers fees and charges payable by commercial enterprises or other entities for the right to operate restaurants, bars, cafeterias and providing catering services at the airport. Charges payable by duty-free and other shops: These include the fees and charges payable by commercial enterprises or any other entity for the right to operate duty-free and other shops at the airport. Charges collected from: Travel agencies and hotel reservation counter, Automobile parking, Automobile rental agencies, Automobile service stations, Public admission fees or fees for guided tours to the airport, Concession fees for establishing hotels at the airport, Charges for the rights of advertising, Rentals for space from airlines and cargo agents While aeronautical charges are generally determined after taking into account the cost of providing facilities, the charges for non-aeronautical facilities are maximized according to demand except for certain essential facilities”.

2.5 Critical Appraisal of ICAO Principles and Guidelines on Charges “The ICAO guidelines place a number of restrictions on the contracting States in regard to fixation of airport and air navigation services charges. These are discussed in the succeeding paragraphs. Motivation for economizing in costs: Charges based on costs without any consideration as to how the expenses are incurred, could lead to wastage of resources. This does not provide any motivation to the airport administration to economize on the cost of providing the services. Moreover, if the airports have to strictly recover only the costs, there will be little motivation for generating additional revenues. Non-discrimination between users: It means an airport service provider cannot give any preferential treatment to its national carrier or any other carrier in the matter of facilities or charges with a view to attracting new carriers. To follow this principle is very essential; otherwise there can be retaliatory and other actions from other States, which will not be in the best interest of the sustained growth of the international aviation industry in the world as also in individual countries. Single Till’ approach: As per ICAO guidelines, while determining the costs and revenues, all the revenues, both aeronautical and non-aeronautical, should be taken into account. As the overall cost of providing the services is the primary basis for setting the airport charges, this principle means that the 13

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benefit of larger generation of non-aeronautical revenues should go to reduce aeronautical charges. In other words, the extra revenue generated from non-aeronautical charges should be passed on to the airlines in the shape of lower charges. Thus, non-aeronautical revenues are supposed to cross- subsidize aeronautical activities. In modern parlance, this is called ‘Single Till’ approach”.

2.6 Empirical Literature Review “There have been many studies done about airport revenues and revenue resources (Wells & Young, 2004; Doganis,1992; De Neufville et al., 2013; Graham, 2008; Asford et al., 2011). Gillen and Martin (2014) have examined the balance between airport non-aeronautical revenues and aeronautical revenues in a study where the importance of non-aeronautical revenue of specialized airports was emphasized”.

“Bilotkach et al. (2012) analyzed the factors that determine the aeronautical charges of 61 European airports consider revising 1990-2007 with the panel data analysis by using ‘’German Airport Efficiency Project’’ (GAP Project) data. The results show that aeronautical charges are lower at airports and private airports that use single-till system. In addition, charges are not falling due to high demand in the airports used as hubs”. “Kratzsch & Sieg, 2011; D'Alfonso, Jiang, & Wan, 2013 anticipated that higher aeronautical charges will bring more aeronautical revenue, but lower charges will increase the number of passengers to be converted into commercial revenues thanks to increasing number of flights. Kratzsch and Sieg (2011) also concluded that aeronautical charges would be more tolerable as additional non-aeronautical revenues were obtained for airports that were not very busy in operation”. “Saounatsos (2007) examined aeronautical revenues of 70 airports around the world. Based on IATA fare schedules, the costs for a flight operation with a Boeing 777-200 were evaluated taking into account each charge rate. The study emphasizes the need to cooperate with airports and airlines and concludes that airports need to improve their non-aeronautical revenues while aeronautical charges need to remain at a certain level for competition”. “According to Graham (2009), the share of non-aeronautical revenues in all revenues has increased over the years in the study that focuses on the importance of non-aeronautical revenues today. In the study examining 20 European airport data, it was determined that non-aeronautical revenues reached 41% in 1983 and 50% in 1998”. “Francis et al. (2004) emphasized that non-aeronautical activities are more advantageous than aeronautical operations in European airports in the study that examined the development of low-cost

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airlines and their relationship with airport-airline operators. Oum, Adler and Yu (2006) also show that the share of non-aeronautical revenues is much higher than aeronautical revenues in the private airports. Fuerst et al. (2011) examined aeronautical revenues and the amount of non-aeronautical revenues per passenger by airports in the study based on the leading Europe airports. It is concluded that the amount of aeronautical revenue per passenger was higher in busy airports”. “Van Denver (2007) examined airport charges and revenue structure and conducted an econometric model, and found that non-aeronautical revenues of 55 major US airports were more than half of all incomes between 1998 and 2002”. “Graham (2008) examined European airports’ revenues and cost structures. In the study, aeronautical revenues and non-aeronautical revenues between 1983 and 2007 were given proportionally and it is seen that non-aeronautical revenues increased”. “Focusing on non-aeronautical revenues as a strategy to increase airport revenues and the subsidization of aeronautical revenues through non-aeronautical revenues had been proposed many times (Zhang & Zhang, 1997; Niemeier, 2002; Czerny, 2006)”. “According to Graham, 2008 & Fuerst et al., 2011, the revenue structure also varies in the continents, even in countries and even at airports. For instance, the proportion of non-aeronautical revenues accounts for more than half of all revenues at airports in North America and Africa / Middle East, 46- 48% in all revenues in Asia-Pacific and about 30% in Latin America. Among the non-aeronautical revenues composed of many activity items, the most important sources are retail sales with 22%, real estate with 19% and car park revenues with 18%”. “Charles (2017) conducted a study on the aviation industry in India and observed a growth of 1.74% in the passenger traffic carried by scheduled domestic airlines for July 2017 over the same period in 2017 but still incurred heavy losses. Some of the many reasons behind these losses are as follows; ATF is the major cost component in the airline’s operations. The cost of fuel for Indian operators accounts for nearly 45% of the total operating costs which is around 34% for most operators in other parts of the world. One of the major reasons is the high sales tax levied on ATF by respective state governments. In different states of the country, the sales tax on ATF ranges as high as 25-30%. Moreover, direct import of ATF was not allowed until recentl”y.

“High airport charges: The airport charges are very high in India as compared to other countries. The Airports Economic Regulatory Authority (AERA) recently approved a massive 34.6% rise in Delhi’s India Gandhi International Airport charges making it among the world’s most expensive airports”. “The study by Charles (2018) also showed that service tax was a challenge. He argued that, there is 12.4% service tax on air tickets in India. The aviation industry players frequently use third party services for ticketing,

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aircraft maintenance, and ground handling, which come under the regime of service tax leaving Indian operators into trouble in stiff competition, this service tax on air tickets and on the services purchased by Indian airline operators further add to the operating costs”. “A similar study by Andrew (2018) conducted in Egypt shows that, there are service or challenges that, no airline can escape. Air travel in Egypt is facing tough competition from railways, the railways were facing competition with the introduction of low- cost air carriers therefore various steps were taken to improve the rail services in the country. Many new trains with improved service quality have been introduced offering passengers a good substitute compared to air travel. However, there is an overall growth in air passenger traffic but this has affected the traffic negatively”.

“A study by Peter (2019) showed that there is stiff competition in aviation industry which leaves the operators helpless, high operating costs along with highly price sensitive consumer profile compel Botswana operators to reduce passenger fares in order to compete for market share, this tendency to lure passengers through attractive discounts and low fares has resulted in price wars in the industry”. “Chen (2016) study in Congo showed that flight delays are a common and everyday scene but they leave huge impact on operators as well as the economy. The delays result into money costs, time costs and cost of lost demand because it discourages many air passengers. A delay in flights not only negatively affects the aviation industry but other industries as well because aviation largely connects people with their businesses”.

2.7 Conceptual Framework Conceptual framework is a model of how one theory makes logical sense of the relationship among the several factors that have been identified as important to the research problem. It is a narrative outline presentation of variables to the studies and hypothetical relationships between and among the variables. “It aims at indicating the most important areas to be covered by the study. As we cannot build a house without its foundation, a research work also needs foundation (Adam & Kamuzora 2008)”. In the conceptual framework/model there are two types of variables, the dependent/explained variable and independent/explanatory variables. The dependent variable of this study was Airport Revenue Collection which was measured by independent variables which were Passenger Service Charges, Landing & Parking fee, Rental & Utility fee and Sales Concession fee.

2.7.1 Passenger Service Charges Efficiency of collecting airport charges levied on passengers should be considered to avoid queues and delays at airports. It is recommended that where the collection of a passenger service charge directly 16

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from passengers at an airport gives rise to such facilitation problems, these charges should be levied through the aircraft operators where practicable. The need for consultations between airport entities and users at the local level with a view to alleviating collection problems should be emphasized. “Passengers embarking an aircraft at Kilimanjaro International Airport shall pay Airport service charge as follows; Domestic flight TSH 10,000/= and International flight USD 40 This charge is included in the flight tickets for the passengers travelling on scheduled flight”.

2.7.2 Landing & Parking fee “Landing fees are determined by flight origin, aircraft engine type, and aircraft weight (Messer, 2013)”. “Airport Authority charge higher fees for international flights and larger aircraft with larger engines (Messer, 2013). Flight origin and the number of seats on the aircraft determine terminal fees (Messer, 2013). As with landing fees, terminal fees are higher for international flights (Messer, 2013). Larger aircraft have the potential to carry more passengers and have higher terminal fees (Messer, 2013)”. “To confirm the number of landings at an airport, airport Authority can obtain data from the airlines, air traffic control (ATC), and fixed base operators (FBO; Messer, 2013). This triangulation of data ensures a more accurate account of landings and reduces lost revenue (Messer, 2013)”. “It is believed that the landing fee was first introduced in Britain under the Air Navigation Act signed on 30 April 1919 by Winston S. Churchill, who was then Secretary of State for Air. The Act set the accommodation charge and the landing fee due at Royal Air Force aerodromes open to civil traffic (Plaignaud, 1977)”. “There are usually two ways of specifying the amount of landing charges based on the aircraft's weight: either as an "accumulative charge" or as a "straight charge’’.

“The landing fee is sometimes accompanied by a variable surcharge, particularly for night landings or for certain peak periods of the year or for peak traffic hours. The surcharge can be viewed as an incentive for reducing or even eliminating night traffic for environmental reasons. At KIA landing fees are charged per single landing as 1000kg or part thereof. These charges are based on the maximum takeoff weight of the aircraft as authorized by the certificate of airworthiness, the setting which is centralized and done by the Government and categorized depending on the Airport category. Standard Charges = Charges per 1000kg or part thereof. Aircraft registered in Tanzania = USD 5 or Equivalent Tanzania Shillings. Foreign registered Aircraft = USD 5 Surcharge 30% of the standard charge is charged for night operations”

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“Most airports grant free parking to aircraft for a limited amount of time after landing. Beyond that time, aircraft are charged for the amount of time they stay at an airport. For example, apron parking is free for the first three hours after landing in Brazil and thereafter, aircraft are charged 20% of the landing fee per hour or part thereof. The parking charges may also consider the type of parking area, the time period and other factors. At some airports, the charges for parking on the apron, at a gate position and in the hangar, differ significantly. Time-of day differentiation may also exist. At London-Heathrow Airport, parking during the peak period costs four times more than off-peak parking (AD, 1983). San Francisco Airport offers long-term parking at a reduced rate. Charges are also sometimes imposed for removing fuel or oil stains from the ground, for example in Paris”.

Table 2.1 Kilimanjaro International Airport (Aircraft Parking Charges) Charges in Aircraft (After the first two Aircraft Weight hours) Foreign Registered Aircraft Aircraft Registered in Tanzania Up to 20,000kg TSH 1000 per 12 hours or thereof USD 5 per 12 hours or thereof 20,000kg- 60,000kg USD 5 per 6 hours or thereof TSH 1000 per 6 hours or thereof More than 60,000kg TSH1000 per hour or thereof USD 5 per hour or thereof Source: www.kilimanjarointernationalairport.co.tz- Aircraft parking charges

2.7.3 Sales Concessions, Rental of premises and “free zones” “Income derived from such sources as concessions, rental of premises, and “free zones” is important to airports. It is recommended that, with the exception of concessions that are directly associated with the operation of air transport services, such as fuel, in-flight catering and ground handling, non-aeronautical revenues be fully developed, while keeping in mind the interests and needs of passengers and the public, and ensuring terminal efficiency”. Usually sales concession is charged on an agreeable percentage on the annual sales turn over to KADCO’s clients who operate at KIA. Sales concession is an agreeable amount charged to the renters based on their annual turnover from their audited financial statements provided to KIA Management. Sales concession is usually charged basing on the following scenarios: Some of the trades are charged with concession fee basing on their annual turnover. However, this turnover figure is based on their audited financial statement provided to KIA management and the percentage rate is as per contractual agreement entered between Airport Authority and their trades. Also, there are some other renters whose financial statements are not audited due to the volume of their business size. Hence, KIA authority has set a fixed annual amount of concession figure on their 18

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sales amounting to USD 430.70 VAT inclusive. Though, the fixed amount for sales concession to such small renters cannot justify their actual sales volume.

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Figure 2.1 Conceptual framework

LANDING & PARKING FEE

AIRPORT RENT & PASSENGER REVENUE UTILITY FEE SERVICE COLLECTI CHARGES ON

SALES CONCESSION FEE

2.8 Research gap Most of the study reviewed, such as Charles (2017), Charles (2018), Andrew (2018), Peter (2019) and Chen (2016) focused on the challenges facing aviation sector in revenue collection. Also, for instance the study of Shine Gift (2019) focused on the assessment of factors influencing electronic revenue collection at KADCO by using GePG system, hence none of the study determined the effect of Aeronautical and Non-aeronautical Charges on Airport Revenue collection. Also experience shows that International Airports of Tanzania still using social maximization approach instead of using profit maximization approach in generating airport revenue, as we all know that the primary objective of financial manager is to maximize value of the firm, hence still using Airport as a social maximizing rather than profit maximizing like other International Airport around the world do on generating airport revenue make most of the Tanzanian Airports fail to finance its expenditure efficiently and effectively. Therefore,

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this study determined the effect of Aeronautical and Non-aeronautical Charges on Airport Revenue collection at KIA, Tanzania.

CHAPTER THREE RESEARCH METHODOLOGY 3.1 Introduction This chapter comprises the research design, research area of the study, variable measurement and data collection methods. The chapter also comprises reliability and validity of the study, data analysis and ethical consideration.

3.2 Research Design

“The study used case study design because of the quest of the study for an in-depth assessment of the effect of Aeronautical and Non aeronautical charges on Airport revenue collection. This section described the plan, structure and strategy of investigation employed to obtain answers to research questions in the study (Kumar, 2002)”. “The design used because, Kothari (2009) defined research design as the arrangement of conditions for the collection and analysis of data in a manner that aims to combine relevance to the research purpose with economy in procedure”.

3.3 Research Area This study was carried out at KIA. This area had been selected due to the facts that it was easier for the researcher to meet with management of KIA for research permit to conduct the research in a free way of accessing data and information which might be confidential. Also, the researcher opts to conduct his research at KIA as a means of cost reduction as the researcher is currently working place. Also, study selected the area for understanding the dynamics present within a single setting.

3.4 Variable Measurement Both dependent and covariate variables was examined. The study determined the effect of Aeronautical and Non aeronautical charges on Airport revenue collection. Multiple Linear regression analysis was used to quantify the variables as stated in the study. The study had dependent variable which was Airport Revenue Collection and the covariate variables which were Passenger Service Charges, Landing & Parking fee, Rental & Utility fee and Sales Concession fee. Those independent variables used to determine the effect of Aeronautical and Non aeronautical charges on airport revenue collection at KIA.

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3.5 Data collection methods “The study systematically used secondary data collection method to enable researcher to answer relevant questions and evaluate outcomes. Data collection is the process of collecting and measuring information of selected variables in an established systematic manner (Vinayak &Mousami, 2019)”. Generating data is an essential part of any research which is limited by time. However, time should not be taken as an excuse in failure of collecting detailed data to support the study. “The case study design allows the use of observations of past records materials (Leedy & Ormrod 2010)”.

3.5.1 Secondary Data “Secondary data was used to enhancement the findings. Secondary data are those already been collected by someone else (Kothari 2004)”. The study used documentary review of secondary data collection method where large part of study was retrieved its data from documentary sources.

3.5.2 Model Specification The following mathematical model was used; ARC=f (PSC, LPF, RUF, SCF, μ) Where by: ARC= Airport Revenue Collection PSC= Passengers Service Charge LPF = Landing & Parking fee RUF = Rental & Utility fee SCF = Sales Concession fee μ= Error term/ Disturbance term Basing on the theoretical relationship among variables, a multiple regression model was developed as per the objective of the study and expressed as per below:

ARCt = f (β0+β1PSCt+β2LPFt+β3RUFt+β4SCFt +μt) Where by: F is a function of ARC= Airport Revenue Collection PSC= Passengers Service Charge LPF = Landing & Parking fee RUF = Rental & Utility fee SCF = Sales Concession fee

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B0 is a constant term

B1 –B5 is Coefficients of the variables µ is Error term/ disturbance term t is time effect.

3.6 Validity and Reliability of Research data “Reliability refers to the consistency of the research instruments (Kothari, 2004)”. “Any research can be affected by different kinds of factors while, extraneous to the concerns of the research, can invalidate the findings" (Seliger & Shohamy, 1989)”. Since the data was of time series, researcher was encountered with number of issues relating to Stationary, Normality, Heteroscedacticity and multicollinearity which would affect the validity and variability of the regression results.

3.6.1 Classical Linear Regression Model Assumptions To maintain the data validity and robustness of the regressed result of the research, the CLRM assumptions were tested for identifying any misspecification and rectifying them so as to augment the research excellence. There were CLRM assumptions that needed to be fulfilled and that was tested in the study, which were: errors equal zero mean test, stationarity, normality, homoscedasticity, multicollinearity and linearity tests.

Stationarity Test “Stationarity implies that the mean, variance, and autocorrelation of a variable do not change over time. The absence of stationarity can strongly influence the behavior and properties of the series, so that the tests about the regression parameters cannot be validated (Sarbapriya, 2012)”. In this study, stationarity of the data was tested using Phillips Perron test where a T- Statistic greater than 5% indicated that the data has no unit root test and is stationary and it attempts to satisfy the stationary conditions for all the variables. This was guided by the following hypothesis;

H0: Data was non-stationary and had a unit root

H1: Data was stationary and had no unit root

The Errors Have Zero Mean (E (e) = 0) “According to Brooks (2008), if a constant term is included in the regression equation, this assumption will never be violated. Thus, the regression model used in the study included a constant term, even if not significant”.

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Checking for Normality “The normality assumption assumes that the errors of prediction are normally distributed. The Skewness-Kurtosis, Shapiro Wilk tests and Bera- Jarcques Statistics test can be used to check the null hypothesis that the sample was drawn from a normally distributed population (Park, 2002)”. Shapiro Wilk test (histogram) was used to check whether residuals are normally distributed. To check if the residuals of the model were normally distributed, a new variable of residual was applied. Checking for Homoscedasticity; To test for homoscedasticity, the Breush-Pagan Test and Normal P.P Plot was used to test if residuals had constant variance, The null hypothesis would not be rejected if the p-values of test was considerably greater than 0.05, the hypotheses was applied as per below:

H0: Residuals were Homoscedastic (Constant variance)

H1: Residuals were Heteroscedasticity.

Multicollinearity Test “Multicollinearity refers to the situation in which independent variables are highly correlated; resulting in a paradoxical effect, whereby the regression model fits the data well, but none of the independent variables has a significant impact in predicting the dependent variable (Gujarati, 2004). The existence of multicollinearity was tested using Pearson coefficient of correlation and calculating the Variance Inflation Factor (VIF) where a VIF coefficient greater than 5.0 will indicate the presence of multicollinearity”.

Linearity Test Linearity is usually most evident in a plot of the observed versus predicted values or a plot of residuals versus predicted values. A preferable method of detection is the examination of residual plots.

3.6 Ethical Consideration Since the nature of the study was based on the determination of the effect of Aeronautical and Non aeronautical charges on airport revenue collection at KIA, the following major ethical issues was taken into consideration while conducting the study. In presenting the material, methods and procedures, objectivity in avoiding biasness in data analysis, openness in disclosing the research findings, integrity, confidentiality and respect to intellectual property by proper citations was considered.

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CHAPTER FOUR

PRESENTATION AND INTERPRETATION OF FINDINGS 4.1 Introduction

This chapter presents the interpretations and presentation of study results. The data has been analysed by using STATA, SPSS and Excel then presented by Tables and Figures. The study aimed to “determine the effect of Aeronautical and Non-Aeronautical charges on Airport revenue collection at KIA”. The study started with demonstration of presentation of descriptive statistics, multiple linear regression (MLR) assumptions for model prediction then followed by presentation of the results according to the research hypothesis.

4.2 Descriptive statistics of the study The study presented the descriptive statistics distribution for all variable used. This aimed to show average variation difference of the variables before further assumption and analysis of the findings. The information displayed that the dataset is a balanced time series data set with a total of ten observations acquired from four sub revenue sources and each sub revenue source observed for the period of ten years. Consider Table 4.1

Table 4.1: Study descriptive statistics for ten observation

Variable Mean Std. Dev Min Max ARC 9.00e+09 3.48e+09 4.18e+09 1.60e+10 PSC 3.91e+09 2.15e+09 1.72e+09 7.36e+09 LPF 4.57e+09 1.75e+09 2.15e+09 7.83e+09 RUF 1.18e+09 1.56e+08 9.44e+08 1.39e+09 SCF 3.08e+08 5.00e+07 2.56e+08 3.95e+08 Min=Minimum; Max= Maximum; Std. Dev = Standard Deviation

From Table 4.1 it is observed that average airport revenue collection by the sampled sub revenue sources during the period of 10 years was about 9.00e+09. The average of passenger service charges was 3.91e+09. The mean of landing and parking fee was about 4.57e+09. The average rental & utility fee in the total revenue was 1.18e+09 and the mean of sales concession fee was about 3.08e+08. Also, the study presented the findings to compare the trend contributed by each independent variable in a certain year from 2010 to 2019 to the airport revenue collection. The comparison aimed to identify how each of the independent variable contributed to the dependent variable (Airport revenue collection). Consider Figure 4.1.

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1.6E+10

1.4E+10

1.2E+10

1E+10

8E+09

6E+09

4E+09

2E+09

0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

ARC PSC LPF RUF SCF

Figure 4.1: Source of Revenue Trend for Ten Years

Passenger service charge Passenger service charge from the graph above verified that it has a great influence to the Airport revenue collection at KIA. For instance, from the above graph, passengers’ service charge has been increasing from 2010 to 2019 due to expansion of the runway and renovation of terminal building at KIA, marketing, provision of better customer care service at the Airport and good security procedures which Airport security provide at KIA. Landing & parking fee From the graphical representation above showed that landing & parking fee also has a great influence on airport revenue collection. In 2017 to 2019, it peaks with high trend due to the fact that the regularity of aircrafts increases at KIA due to great number of tourists who visited to different destinations in Tanzania through the KIA gateway. Rental & Utility fee Rental & utility fee collections contribute to the airport revenue collection to KIA. However, from the analysis of the graphical representation above, it is showed that rental & utility fee has not great influence to airport revenue collection, this is due to the fact that KIA has several lease agreements and charged her tenants according to square meter, 1 square meter is charges 14 USD and it seems that there is no action taken for those tenants who fail to pay their rent.

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Sales Concession fee Sales concession at KIA is charged on an agreeable percentage on the annual sales turn over to KIA clients operate at Kilimanjaro International Airport environs. The study showed that from 2010 to 2019, KIA management collected small amount of sales concession from their clients which have contributed small amount on the Airport revenue collection at KIA. Therefore, the Management of Kilimanjaro International Airport should focus more on sales concession to identify possible failures in collection of its money from its renters.

4.3 Data analysis ‘’Regression analysis of time series tends to use data from the past in studying relationships. If the future resembles like the past then these historical data can be used to forecast the future. But when the future forecasting differs significantly from the past, then these historical relationships may not be reliable’’. STATA, SPSS and Excel software is very sensitive to number of sample needed to give out a clear relationship of the variables. Before estimating the relationship among variables it was important to ensure that the data set had no unit root. This helped to avoid the concerns of having unauthentic regression model.

4.3.1 Data stationary test Phillips Perron test was taken into consideration to identify stationary before analyzing the data. This is guided by the following hypothesis

H0: Data was non-stationary and has unit root

H1: Data was stationary and has no unit root

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Table 4.2 Test for stationarity

AT 1st DIFFERENCE AT 2nd DIFFERENCE Variables T- Statistic Critical Decision T- Statistic Critical Decision value value ARC Z(rho) -8.548 -12.500 Not Z(rho) -10.241 -12.500 Stationary Z (t) -1.957 -3.000 stationary Z (t) -3.061 -3.000 PSC Z(rho) -7.050 -12.500 Not Z(rho) -15.221 -12.500 Stationary

Z (t) -2.366 -3.000 stationary Z (t) -6.238 -3.000 LPF Z(rho) -10.50 -12.500 Stationary Z(rho) -14.309 -12.500 Stationary

Z (t) -3.262 -3.000 Z (t) -5.463 -3.000

RUF Z(rho) -14.60 -12.500 Stationary Z(rho) -15.886 -12.500 Stationary Z (t) -8.342 -3.750 Z(t) -12.145 -3.000 SCF Z(rho) -13.89 -12.500 Stationary Z(rho) -14.153 -12.500 Stationary Z (t) -4.702 -3.000 Z (t) -7.761 -3.000

All variables were tested using Phillips Perron test at first and second difference as shown in table 4.3 above. The results shows that Airport revenue collection (ARC) and passenger service charge (PSC) were not stationary at 1st difference while other variables landing & parking fee (LPF), rental & utility fee (RUF) and sales concession fee (SCF) were stationary. Moreover, after conducting 2nd difference all variables became stationary and has no unit root where the T- Statistics were greater than 5% critical value

4.4 MLR Assumptions for Aeronautical and Non-Aeronautical effect on ARC Before analysing the data, the process involved checking the assumptions to make sure that the data actually can be computed using MLR. The study considered this because it is only appropriate to use MLR if the data has an “authorisation” of assumptions that are required to give a valid result. This is because multiple regression can be used to address a variety of research hypothesis and explain how well a set of variables (Independents) is able to predict a particular outcome (ARC). The variables were measured at the continuous level that is to say dependent variable ARC and independent variables, PSC, LPF, RUF and SCF. Sample size is among the important assumption to be 28

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considered. The study considered different assumption such as Multicollinearity, Linearity, Normality, Outlie, and homoscedasticity. Multicollinearity

The study considered independent variables to show relationship with dependent variable, but not each independent variable to have high correlation. This because performing Multiple regression, it does not require multicollinearity or singularity. This means a set of variables (independent variables) for prediction to have the correlation of above 0.8 and these surely do not contribute to a good regression model. The assumption in Tables 4.3 depicted that there is high correlation between dependent and independent variable means the study met assumption. This is due to the fact that Multiple regression was not used as it is just one technique but a family of techniques that can be used to explore the relationship between one continuous dependent (ARC) variable and a number of independent variables or predictors also based on the results from variable inflation factors there was no multicollinearity problem due to the fact that VIF coefficient is less than 10. Tables 4.3: Pearson Correlation Multicollinearity Assumption of Aeronautical and Non- Aeronautical predictors effect on ARC Outcomes

DV vs IDVs ARC PSC LPF RUF SCF ARC 1.000 0.942 0.969 0.893 0.261 PSC 0.942 1.000 0.953 0.884 0.511 LPF 0.969 0.953 1.000 0.894 0.431 RUF 0.893 0.884 0.894 1.000 0.511 SCF 0.261 0.511 0.431 0.511 1.000 DV=Dependent Variable; IDVs=Independent Variables

. estat vif

Variable VIF 1/VIF

psc 1.39 0.720521 ruf 1.38 0.725195 scf 1.31 0.760675 lpf 1.23 0.814770

Mean VIF 1.33

Linearity, Outlie, and homoscedasticity for Aeronautical and Non-Aeronautical predictors effect on ARC

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Outlie is considered as a point on a scatter plot that is far away from the regression line indicating that it has a large residual. In this study met the assumption since no outlies observed. This because outlie is an observed data point that has a dependent variable value that is very different to the value predicted by the regression equation. Also, the homoscedasticity, were considered where the variances along the line of best fit remain similar along the line. Also, the assumption of equal variances (homoscedasticity) met because it assumes similar variance when the data is along the line indicating that different samples have the same variance, even if were recorded indifferent time intervals also Breusch Pagan Test for heteroscedastic indicated that the probability value is 0.8659, which is greater than 5% level of significance, therefore we accept the null hypothesis that data are homoscedastic (constant variance).

Normal P-P Plot of Regression Standardized Residual 1 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2

Expected CumProb 0.1 0 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1 Observed Cum Prob

Figure 4.2: MLR Normal P-P Plot of Regression Standardized Residual for Aeronautical and Non-Aeronautical charges on ARC.

Breusch-Pagan / Cook-Weisberg test for heteroskedasticity Ho: Constant variance Variables: fitted values of arc

chi2(1) = 0.03 Prob > chi2 = 0.8659

Normality for Aeronautical and Non-Aeronautical predictors effect on ARC

The study checked the residuals (errors) of the regression if the line is approximately normally distributed. The methods to check this assumption include using either Shapiro Wilk test (histogram with

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a superimposed normal curve) or a Normal P-P Plot. But the histogram (Shapiro Wilk test) displayed indicated the data were normal distributed and nearly less skewed (Figure 4.3).

Figure 4.3: MLR Histogram for normality distribution of Aeronautical and Non-Aeronautical to predict an outcome (ARC)

4.5 Presentation and interpretation of findings

This section presents the findings of data gathered from KIA management to answer research hypothesis.

4.5.1 The influence of passenger service charges, landing & parking fee, rental & utility fee and sales concession on ARC at KIA. The specific research objective was to examine the influence of Aeronautical and Non-Aeronautical charges on ARC. This intended to test the hypothesis “Passenger Service Charges, Landing & Parking fee, Rental & Utility fee and Sales Concession do not jointly influence ARC at KIA”.

The study findings indicated that, there is positive linear relationship between independent variable to examine the influence revenue collection. That is an increase in efficiency of the independent factors, goes hand in hand with the increase in KIA revenue collection performance. The results showed a positive and significant relationship with value of R2=0.9511 implying that 95.11% of the variation increase of ARC at KIA is explained by Aeronautical and Non-Aeronautical such as PSC, LPF, RUF and SCF practices and 4.69% is explained by other variable not mentioned in the model called error term (µ) . Also, the analysis of variance from the findings indicated there is a relationship between dependent 31

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variable (ARC) and the independent variables (PSC, LPF, RUF and SCF) and reported how well the regression equation fits the data (i.e., predicts the dependent variable). The p-value approach (p<0.0018) as the probability of rejecting the null hypothesis indicated that the multiple regression model predicts the dependent variable significantly well for ARC in the institution (Table 4.4). Table 4.4: ANOVA results on effect of Aeronautical and Non-Aeronautical charges on ARC at KIA.

Sum of Squares Df Mean Square F Sig. Regression 1.1920E+19 4 2.9800E+18 24.32 .0018b Residual 6.1271E+17 5 1.2254E+17 Total 1.2533E+19 9 1.3925E+18 ANOVA=Analysis of Variance; b=Predictors; a=Predictors MLR Model summary [; R Square=0.9511; Adjusted R Square=0.9120; Std. Error of Estimate=3.5E+08]

Coefficients for ARC practices of Aeronautical and Non-Aeronautical charges

Regression analysis determined the magnitude of the effect of the significant of Aeronautical and Non- Aeronautical charges of ARC. The magnitude from the values of the coefficients of the independent variables and thereafter the regression line obtained. From the MLR line, the study observed relationship between the dependent variable (ARC) and the independent variables (Aeronautical and Non-Aeronautical charges). Next the study considered which of the variables included in the model contributed to the prediction of the dependent variable. The information in the output box labelled Coefficients (Beta) under Standardised Coefficients. The study compared variables, at the standardised coefficients, not the unstandardized ones. ‘Standardised’ means that these values for each of the different variables have been converted to the same scale so that the study compare the Aeronautical and Non-Aeronautical charges. Then in case of constructing a regression equation, the study used the unstandardized coefficient values listed as B.

The study reported p=0.053 for PSC, p=0.015 for LPF p=0.028 for RUF and p<0.000 for SCF. Therefore, the findings indicated that the use of both Aeronautical and Non-Aeronautical charges practices are significant predictive to ARC for KIA. The coefficients of the independent variables β1, β2

…. βn imply there is relationship except for SCF indicated with negative ( - ) sign as decrease of revenue when both combined. From Table 4.4, the value of β1 was 0.723, β2 = 0.911, β3 = 3.676 and β4 = - 19.449. The finding infer that increase in efficiency of the PSC, LPF and RUF practices affect ARC when well managed unlike for SCF.

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The coefficient for the model in other words, it tells how much of the total variance in the ARC is uniquely explained by Aeronautical and Non-Aeronautical charges and how much R squared would drop if a certain Aeronautical and Non-Aeronautical will not be included in the MLR model(Table 4.5). Table4.5: Coefficients for ARC practices of Aeronautical and Non-Aeronautical charges Unstandardized Standardize t Sig. 95.0% CI for B Coefficients d Coefficients B Std. Error Beta Lower Bound Upper Bound Constan 7.66e+0 2.11e+08 0.36 0.732 -4.67e+08 6.20e+08 t 7 PSC 0.723 0.286 0.435 2.52 0.053 -0.013 1.460 LPF 0.911 0.248 0.462 3.66 0.015 0.271 1.550 RUF 3.676 1.200 0.241 3.06 0.028 0.591 6.762 SCF -19.449 2.090 -0.283 -9.30 0.000 -24.823 -14.075 CI=95.0% Confidence Interval for B

The obtained regression equation is Y= β1x1+ β2x2 +β3x3+ β4x4 + β5x5 …………….βnxn

Hence; ARC= 7.66e+07 + 0.723(PSC) + 0.911(LPF) + 3.676(RUF) - 19.449(SCF)

4.3.2. The effects of rental & utility fee and sales concession in predicting ARC at KIA. In this research question the study aimed to assess the effect of Aeronautical charges on ARC. The study tested the hypothesis if Rental & Utility fee and Sales Concession cannot contribute to Airport revenue collection at KIA. From the use of four predictors in research hypothesis one, now only two independent variables were tested against outcome. The assumptions similar with research hypothesis one was presented due to decreases in predictors expecting that the output will not be the same. Note that the assumption of multicollinearity cannot be tested for research hypothesis two and three because it cannot change regardless of reducing number of predictors unlike to other assumption of multicollinearity.

Linearity, Outlier, and homoscedasticity for Non- Aeronautical charges on ARC

The study observed linearity since all point almost close to zero means there is less outlier. This indicated the study can run MLR analysis. In case of homoscedasticity, the line is along the line of best fit suggesting equal variances for sample size drawn (Figure 4.4).

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Normal P-P Plot of Regression Standardized Residual 1 0.8 0.6 0.4

0.2 Expected CumProb 0 0 0.2 0.4 0.6 0.8 1 Observed Cum Prob

Figure 4.4: MLR Normal P-P Plot of Regression Standardized Residual for Non-Aeronautical charges on ARC. Normality of Non- Aeronautical charges on ARC

The Non- Aeronautical charges on ARC indicated the data were normal distributed. If the line is approximately normally distributed means there is no residuals error of the regression. Hence the study computed MLR prediction (Figure 4.5).

Figure 4.5: MLR Histogram for normality distribution of Non- Aeronautical to predict an outcome (ARC)

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The effects of RUF & SCF in predicting ARC

The results from MLR Model summary indicate R2 = 0.848 statistically significant at p=0.001, this imply RUF and SCF is a predictor of ACR. Hence the study reported that ARC is explained by 84.5% with Non- Aeronautical charges (Table 4.6). Table4.6: ANOVA results on effect of Non- Aeronautical charges on ARC at KIA.

Sum of Squares Df Mean Square F Sig. Regression 9.241E+19 2 4.620+19 19.546 .001b Residual 1.655E+19 7 2.364E+18 Total 1.090E+20 9 ANOVA=Analysis of Variance; b=Predictors; a=Predictors MLR Model summary [R=0.921a; R Square=0.848; Adjusted R Square=0.805; Std. Error of Estimate=1537481048]

Furthermore, since Non- Aeronautical charges is a predictor ARC but the model is not stable for SCF because of negative value. At certain point the increase of ARC revenue will tend to decrease by having only one stable source of RUF that is significant at p=0.001 and less influence from SCP with p=0.167(Table 4.7). Table 4.7: Coefficients for ARC practices of Non- Aeronautical charges Unstandardized Coefficients Standardized Coefficients t Sig. B Std. Error Beta Constant -1.234E+10 4138095380 -2.982 0.020 RUF 22.901 3.819 1.027 5.996 0.001 SCF -18.378 11.928 -0.264 -1.541 0.167

The obtained regression equation is Y= β1x1 + β2x2 …………….βnxn

Hence; ARC= -1.234E+10 + 22.901(RUF) - 18.378(SCF)

4.3.3 Passenger service charges and landing & parking fee are significant to explain about Airport Revenue collection Furthermore, the research specific objective was to determine whether passenger service charges and landing & parking fee (Aeronautical charges) are significant to explain about Airport revenue collection. The study hypothesized that passenger Service Charges and Landing & Parking fee cannot be significant explain ARC at KIA. Before the presentation of findings, the study tested the assumption.

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Linearity, Outlier, and homoscedasticity for Aeronautical charges on ARC

This study reported moderate outlier observed in regression line/scatter plot indicating skewness of the data. The small variation of points designates different in variance of charges between one year and another. The small variation gives the loop to run another assumption predicting the effectiveness of Aeronautical charges (Figure 4.6).

Normal P-P Plot of Regression Standardized Residual 1

0.8

0.6

0.4

0.2 Expected Cum Prob Cum Expected 0 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1 Observed Cum Prob

Figure 4.6: MLR Normal P-P Plot of Regression Standardized Residual for Non-Aeronautical charges on ARC.

Normality Aeronautical charges on ARC. The observed figure indicated small variation of data means the information on revenue collection was skewed. Since there is no perfect normality of data and failure of one assumption cannot hinder other assumptions which met criteria, then the study assessed more on regression analysis to identify if there is any influence of Aeronautical charges to increase revenue (Figure 4.7).

Figure 4.7: MLR Histogram for normality distribution for Aeronautical to predict an outcome (ARC)

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The effects of PSC & LPF in predicting ARC

Additionally, the study found significant results on Aeronautical to predict ARC. The R Square value of 94.2% with p<0.001 shows the model is stable with large F value of 56.956 model fitness (Table 4.8). Table 4.8: ANOVA results on effect of Aeronautical charges on ARC at KIA.

Sum of Squares Df Mean Square F Sig. Regression 1.026E+20 2 5.132E+19 56.956 .000b Residual 6.308E+18 7 9.011E+17 Total 1.090E+20 9 ANOVA=Analysis of Variance; b=Predictors; a=Predictors MLR Model summary [R=0.971a; R Square=0.942; Adjusted R Square=0.926; Std. Error of Estimate=949272565.4]

Still, the regression model for the variable is good predictor especially for LPF significant indicated with p=0.037 while PSC found to be insignificant at p=0.508. Hence the institution can use Aeronautical charges as it has impact in generating revenue (Table 4.9). Table 4.9: Coefficients for ARC practices of Aeronautical and Non-Aeronautical charges Unstandardized Coefficients Standardized Coefficients t Sig. B Std. Error Beta Constant 669033627.8 1126402366 0.594 0.571 PSC 0.33 0.484 0.209 0.698 0.508 LPF 1.533 0.596 0.770 2.574 0.037 CI=95.0% Confidence Interval for B

The obtained regression equation is Y= β1x1 + β2x2 …………….βnxn

Hence; ARC= 669033627.8 + 0.33(PSC) + 1.533(LPF)

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CHAPTER FIVE

CONCLUSION AND RECOMMENDATION

5.1 CONCLUSION The study met assumption to test the regression to predict the effect of Aeronautical and Non- Aeronautical charges on ARC. The process of checking assumptions was done to make sure that the data actually can be computed using MLR. The study considered this because it is only appropriate to use MLR if the data has an authorization required to give a valid result. The study found significant results to explain prediction model. The study reported the variation in airport revenue collection can be influenced by PSC, LPF, RUF and SCF but less influence with SCF. The MLR model for the outcome observed as ARC = 7.66e+07 + 0.723(PSC) + 0.911(LPF) + 3.676(RUF) - 19.449(SCF). This exposes that passenger service charge, landing & parking fee, rental & utility fee and sales concession fee can be used to predict about airport revenue collection at KIA. In case of RUF and SCF to predict ARC also the equation for regression model assumption found as ARC= -1.234E+10 + 22.901 (RUF) - 18.378 (SCF).This model presented R2 of 0. 845 imply RUF and SCF is a predictor of ACR explained by 84.5% with Non- Aeronautical charges but the model is not stable for SCF because of negative value. Besides, the study found significant results on Aeronautical to predict ARC. The R Square value of 94.2% with p<0.001 shows the model fitness. The regression model is good predictor presented as

ARC =669033627.8 + 0.33 (PSC) + 1.533 (LPF) especially for LPF significant indicated with p=0.037 while PSC found to be insignificant at p=0.508. Hence the institution can use Aeronautical charges as it has impact in generating revenue.

Also, the study discloses that Aeronautical and Non-Aeronautical charges are significance to explain about airport revenue collection at Kilimanjaro International Airport given that almost all covariates had positive coefficient. Consequently, the Airport authority has to be more carefully on the policy decision on how passenger service charges, landing & parking fee, rental & utility fee and sales concession fee can be implemented to increase airport revenue collection.

5.4 RECOMMENDATIONS Since almost all variable seem to have impact to determine ARC, the study recommends the following: 1) The Airport authority should control the rate of charges to airline and passengers so as to ensure that they are reasonable in order to influence and encourage the use of KIA

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2) KIA ground handling service to Airline is provided by groundling handling companies such as Swissport, NAS and UAS, Airports Authority can provide that service at a lower cost adding a revenue stream for the airport. 3) KIA own large amounts of real estate to protect runways and lessening the noise impact to the public. This valuable real estate can be used to generate airport revenue through traditional lease agreements and irrigation scheme to the employees and other people surrounding the Airport. 4) Airports Authority can generate airport revenue through the development of natural resources on airport property such as construction of fish pond, poultry project and establishment of small zoo at the airport. 5) Airport parking is a potential money-making business opportunity. KIA management has to operate airport parking and not outsourcing to other company and has to treat it as a business in order to generate more airport revenue through airport parking. 6) Airport authority in addition to small shops, restaurant and bar can also provide a wide range of other services for the passengers and other customers both within the terminal buildings and on airport land (landside) such as Cinemas, Bowling Alleys, Night Club, Hairstylists, Malls/Supermarkets, Conference Centre and Hotel in order to influence more revenue collection at the Airport. 7) Airport authority should improve its marketing strategies domestically and internationally to attracts more airline and individual to use KIA due to the fact that KIA is the African safari gate way, its sits centrally on a shadow of the Northern Tanzania tourist destinations, it is in the middle of the three voted natural wonders of Africa; Mount Kilimanjaro, Serengeti National Park and Ngorongoro Crater. 8) The study calls for policies to be established which will create favorable operating environment at the Airport, encouraging passengers and other customers of KIA hold on commercial culture that will lead to better understanding of business opportunities that KIA offered. 9) Airport authority has to introduce noise charges to the airline for the noise which aircraft produce in the apron area in order to compensate the impact of noise pollution and Airport authority. 10) The study recommends for further research which will bring more importance of the use of Non- Aeronautical charges in order to increase airport revenue collection because the study revealed that Airport authority collect more revenue from passenger service charges and landing & parking fee which is category of Aeronautical charges.

5.2 STUDY LIMITATIONS The researcher faced with little availability of data only for (10) years. Though researcher collected his data on a yearly basis covering the period between 2010 to 2019. In the forthcoming, more study of determine the effect of Aeronautical and Non-Aeronautical charges on Airport revenue collection is needed that will bring more consistent information as the dimensions of data will be increasing as time goes on.

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5.3 AREA FOR FURTHER STUDY However, the results have shown that Aeronautical and Non-Aeronautical charges jointly influenced Airport revenue collection, it is fortified for other researchers to carry out a similar study using different methodology and other variables which can influence airport revenue collection.

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APPENDICES APPENDIX 01: Unit root test at 1st differencing

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APPENDIX 02: Stationary test At 2nd differencing

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APPENDIX 03: Regression Output

APPENDIX 04: HETEROSCEDASTICITY

APPENDIX 05 MULTICOLLINEARITY . estat vif

Variable VIF 1/VIF

psc 1.39 0.720521 ruf 1.38 0.725195 scf 1.31 0.760675 lpf 1.23 0.814770

Mean VIF 1.33