For Immediate Release April 6, 2006

The following article appeared in the March/April
issue of Travel Retailer International:

The power of amenities

The US aviation industry is facing a fresh challenge as air traffic levels exceed those in the peak year of 2000. Despite the figures, however, most airlines still struggle to make a profit.  The Center for Airport Management managing director Stephen Freibrun explores why.

The combination of near-record airport traffic and considerable financial losses sustained by airlines is leading to increased pressure on the aviation industry to lower all costs, including those incurred at airports. But the focus is not on costs alone. 

As airlines turn to airports to reduce charges, airports are aggressively pursuing opportunities to increase non-aeronautical revenues. Increasingly, airlines are unable or unwilling to pay not only for basic operations, but also for the expansion of facilities necessary to meet continued traffic growth. This puts pressure on airport managers to meet the diverse needs of  passengers, leading them to examine all aspects of their airport assets—including terminal amenities, land and buildings—and to think creatively about new passenger services and retail development opportunities that might generate higher non-aeronautical revenues.

An airport is essentially a conglomerate, with up to 20 Strategic Business Units (SBUs) generating revenue and incurring expenses.  For some SBUs, the airport plays the role of a fixed-fee landlord, so it is in the airport’s best financial interests to ensure an optimum ten-ant mix and rent structures. For others, airports may have a vested interest in increased gross sales, which will also boost their revenues.  Today some airports view properties in a new light, prioritising hotels, logistics and distribution parks and especially retail development as well as a host of profitable niche cargo and aviation support opportunities.  Revenue optimisation studies help airports to assess their potential return on investment. Management should take steps to help improve the financial performance of each line of business and define the steps necessary to achieve enhanced revenues. In analysing airport assets, the goals should be to create passenger amenities, leverage property development opportunities and explore any measures that can produce incremental revenue. 

Satisfaction guaranteed
Driven by the need to increase revenues and passenger satisfaction levels, many airports have made a commitment to long-term con-cession improvement programmes. This focus has had an impact on variables such as size, layout, assortment and design. As airport con-cessions have become more sophisticated, they have begun to look and feel like off-airport dining and shopping establishments. The travelling public has responded to these changes, as is shown by the financial success of many new dining, shopping and service options.  

Airports are beginning to understand that the traditional approach to airport retailing is changing. Today’s airports now cater for a range of passenger types that is unparalleled in its diversity. There can be as many as 12 passenger profiles at one airport, ranging from an American male business traveller making a connecting flight to a South American female leisure traveller aged between 35 and 54. The motivation to purchase, and the spend characteristics—how much, on what and why—vary between passenger profiles. Would we expect the two examples above to use the airport in the same way? No. It is vital to ensure that the implementation of trends is considered in the context of whether they are right for the airport, given its regular passengers. Let’s examine a couple of recent trends.

First is the question of inflight meals. Most airlines have eliminated free meals on board domestic flights in the past few years, and some carriers have launched boxed inflight meals and snacks for purchase, with mixed success. Delta Air Lines discontinued its meals-for-purchase programme in the first half of 2005.  This presents a clear opportunity for food and beverage operators to capitalise on the potential to increase sales to passengers who want to take meals on board or eat at the airport before their flight. The most common concern among passengers was once the fear of flying. Since September 11 2001 security concerns have grown, but passengers also worry about being left hungry inflight, so a good selection of packaged, convenient meals is crucial. 

In the line of vision
Secondly, airport security checkpoints have an impact on passenger dwell times in retail areas. While the time spent in security queues has fallen since 2001, waiting times can still be long at peak periods and at times of heightened security. When planning landside concessions, a key consideration should be the visibility of security checkpoints. The biggest enemy of a retailer is a long queue. Studies show that people will join queues as early as possible for fear that they will grow even longer. This anxiety hinders browsing, spending and, ultimately, airport revenues.  But if security points are visible from landside concessions, passengers are more likely to relax and continue to shop and dine. 

Looking for new opportunities to maximise revenues through a diverse programme of amenities is just one of many steps that airports can take to enhance the airport experience for the flying public, and therefore increase profitability for the airport and its retail tenants. Ultimately, the ideal concession mix is based on a facility’s characteristics, passenger mix, and spend motivations. Progressive airports require a plan designed to increase sustainable revenue in all lines of business. The airport must be able to continue to generate new revenue, while maintaining the flexibility to adapt business practices to the future needs of its passengers, tenants and community changes.

Stephen Freibrun is managing director of The Center for Airport Management (CAM), a division of Simat, Helliesen and Eichner (SH&E).  CAM has helped almost 50 airport clients in the past 12 years to improve non-airline revenues while enhancing customer satisfaction. Founded in 1963,SH&E is the biggest consulting firm dedicated exclusively to commercial aviation, with offices in New York, London, Washington DC, Boston, Los Angeles, Portland and Chicago.

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