Empirical evidence points out the existence of economies of scale in landing operations, which means that as an airport increases its traffic, the cost per unit of traffic declines. On the other hand, there are decreasing returns to scale when handling passengers inside the terminal. The required time to process a passenger through a terminal increases with airport size. Hence, the optimal dimension of an airport would depend upon a delicate equilibrium between both elements (Walters, 1978).

Airport costs are compound by labor, capital and other operational costs. Among western European airports, staff or labor cost is the largest item, representing on average around 42% of total cost.<sup>9</sup> In a few cases, where airport authorities are involved in activities usually undertaken by concessionaires, such as handling services, the percentage may rise to 65%. The second major heading is given by capital charges (interest and depreciation). For most European airports this figure varies between 20 and 35 per cent. In contrast, the cost structure of US airports appears to be quite different. Staff costs have a weight that on average may reach 22%, with capital charges increasing to 44% of total costs. These differences can be explained by the different way both groups operate. For instance, labor cost contrasts may be explained by the common practice at many US airports of renting terminals and other facilities to airlines, which sometimes may even own the facility. The fact that handling activities are usually carried out by concessionaires also contributes to labor cost contrasts. Regarding differences in capital charges, it should be noted that capital bond markets have been frequently utilized by US airports to finance their development. Europeans, however, have been more dependent on government budget allocations.

# **1.6.- The problem of externalities at airports**

When users of airport infrastructures impose a cost/benefit upon non-users (or even upon other users on the system), it is said that there is an externality. In other words, airport users are not bearing all the costs generated by the services they require. Regarding negatives or bad externalities, it is noise to which most airport externalities studies have been devoted (see Walters, 1978; Nelson, 1980; Levesque, 1994). However, pollution and congestion are also bad externalities that cannot be neglected from a regulator's point of view.

The main economic problem of externalities is quantification and subsequent valuation. For example, a highly sophisticated technology is required to measure aircraft pollutants emissions. Regarding noise, measurement is not an easy matter either. However, accousticians have devised ordinal scales constructed as weighted averages of the high frequency peak noise and the number of times at which the noise of an aircraft is heard.'° In order to measure congestion," this has to be linked to airport capacity (see above). Taking capacity as a given, there is an international standard for aircraft movements of an average delay not exceeding four minutes. Longer aircraft waiting times would indicate congestion problems, which may be also measured by using weighted averages.

9 See Doganis (1992). For example: The Noise Number Index in the UK, the Composite Noise Rating and the Noise Exposure Forecast in the US, and the Isosophique in France.

" Congestion is a type of negative externality imposed upon other users in the system. 9