22nd Annual Southeast Chapter American Association of Airport Executives
Airport Finance and Administrative Conference
General Session V: Revenue Trends at Airports Presented by:
Julie A. Mattlin, MAC Consulting Ken Currie, InterVISTAS February 28, 2011
Non-aeronautical revenue sources are among the most important to an Airport, and have the greatest growth potential •
Aeronautical revenues – Airline, Aircraft, and Passenger Handling Fees
•
Aviation concessions – Fueling, Catering, Maintenance, and Cargo Facilities
•
Terminal Concessions – Food & Beverage, Retail, Specialty
•
Automobile Parking
•
Rental Car
•
Advertising
•
Landside Real Estate 1
Double digit percent increases in revenue per enplanement numbers from 2005 to 2009
Average Revenue Per Enplanement Terminal Concessions Hub Size
Rental Car
Parking
Airline
2005
2009
2005
2009
2005
2009
2005
2009
Large
$1.86
$2.20 19%
$1.58
$1.82 15%
$3.26
$3.84 18%
$8.64
$12.14 41%
Medium
$1.22
$1.40 15%
$2.05
$2.62 28%
$4.50
$5.42 20%
$7.88
$8.83 12%
Small
$1.00
$1.23 23%
$2.57
$2.92 14%
$5.93
$7.08 19%
$6.95
$6.71 -3%
Source: ARN , FAA, airport data
2
Food and beverage and retail concession revenues grew by 30% over 10 years
$1.3B $1.0B
Source: Federal Aviation Administration
3
Medium hub airports had the largest percent increase over the 10 year period 29.2%
32.9% 31.1%
Source: Federal Aviation Administration
4
Sales have increased by 36% and concession revenue by 19% over past 5 years with minimal enplanement growth Top 46 performing U.S. Airports for Sales 35.7%
19.4%
Source: ARN and FAA
5
Top 10 U.S. airports’ sales have increased by 56% and sales per enplanement by 27% over the past 6 years Top 10 Performing U.S. Airports 2005 Airport PIT JFK DCA HNL EWR ANC PDX SFO SAV PHX
2010
Total Sales
Sales per enpl
$72,200,000 $167,442,916 $66,194,151 $79,665,943 $130,912,557 $19,267,859 $52,981,585 $122,166,287 $7,368,408 $148,512,447
$10.88 $8.97 $8.32 $8.24 $8.22 $8.17 $8.13 $7.93 $7.60 $7.60
Total $866,712,153 % Increase Avearge % Increase
Airport
Total Sales
JFK PIT SFO MIA EWR LAS PDX BOS IND RNO
$295,680,194 $47,800,000 $207,888,742 $176,882,510 $171,468,755 $205,667,483 $64,993,559 $127,462,250 $37,021,108 $19,504,571
Sales per enpl $12.90 $11.90 $11.17 $10.48 $10.26 $10.15 $10.04 $10.03 $9.90 $9.77
$1,354,369,172 56.3% $8.41
$10.66 26.8%
Source: ARN
6
Maximizing non-aeronautical revenue requires comprehensive business planning, programming and implementation Management must embrace the “market model” rather than the “infrastructure model”
Focus on understanding and planning for customer needs and expectations. Understand customer expectations
Establish customer relationships
Focus on delivering customer service and pursuing service improvement.
Plan and provide facilities
Operate & maintain the facilities
Deliver the customer experience
Monitor customer experience
Business Planning
Result: optimal revenue based on market conditions and customer expectations.
Maximizing terminal concessions revenue requires special attention: Retail is Detail •
An airport is not just a ‘processing factory’ of passengers and cargo; it is also a ‘people business’: a concentration of emotions, desires and travel stress.
•
Airport retail can underperform if not treated as core business by the airport. Tailor-made retail requires careful and timely planning.
•
Airport’s must respond to quickly-changing consumer desires.
8
Basic rules of successful terminal concessions concepts •
Departing passengers are brought together (as a critical mass) in a central area or square.
•
Retail shops and restaurants are constructed on at least two sides of the square – This allows passengers to be exposed to shops all the time. – “Pinball Effect”: a dialogue of impulses and experiences “bouncing” the passengers from one shop to another.
9
There are four preliminary steps to turn vision to implementation Get set
Financial goals Conceptual ambitions
Analyse
Develop
Demand analysis: airlines
Choice of options/ scenarios
+ consumers, passenger research
Criteria and constraints
Supply analysis: current
Local partnership
partners, benchmarking, trends & developments.
Concession plan: retail mix, local flavour, conceptual design, performance, identity & branding, organization
SWOT ĂŽ Financial modelling
Options generation
10
Implement
Detailed design, Technical specs
Business Plan, Action programs
Tender & contract Review
Non-Aeronautical Revenue Trends •
• • • •
Customer-centric terminal concession programs – A shift from “main street” branding to “local branding” – Ensuring street pricing to avoid monopoly pricing – Creation of the “food to go” concept – The increased use of carts and kiosks – Service concessions becoming a larger percent of overall concession mix Leveraging of the “Airport City” concept Development of consolidated rental car facilities Increased commitment to “going green” Expanded parking amenities
11
Airports with modern retail management and configuration earn 80% or more of their retail food & beverage income airside. Old Concept
New Concept
12
A shift from “main street” branding to “local branding” is consistent with the airport’s role as the gateway to a market
25% 50% 25%
Source: 2010 ACI‐NA Benchmarking Study
13
Airport bars have evolved from places for “those who must� to attractive respites on the concourse JFK
SEA
14
With the elimination of most in-flight catering services, food-to-go is an essential element of meeting the travelers needs and wants SYD
BHM
FLL 15
In addition, services have become an increasingly important element of the airport experience
16
The 2010 ACI Concession Winner is an excellent example of applying these concepts Vancouver International Airport
Artwork, water features, aquariums, and unique interior design and architecture all work together to create mini “town squares� around which food & beverage are focused.
17
Airport Cities concepts are a natural extension of airports controlling surrounding lands so that they are used in ways accretive to airport activity Aerotropolis • Separated real estate development • Near the airport • Private development Airport Corridor • Integrated real estate and infrastructure development • Between airport and city • Partially government planned
Airport City • Integrated development of airport and real estate • In the heart of the airport Airport authority driven (planned) • Infrastructure node
18
Airport Cities Concepts are always unique to the circumstances found in each airport and market Economy
Multi-modal infrastructure
Vision
Airport Master Plan Land use plan
Implementation
Strategy Business models
Airport City elements
Marketing
Partners
Phasing
Investment Revenues
Early adapters Mix
Airport Cities concepts allow you to control additional links in the transportation value chain 19
Development of Consolidated Rental Car (CONRAC) Facilities has occurred at over 50 airports nationwide
Source: Auto Rental News
20
Consolidated rental car facilities provide numerous benefits •
• • •
The concept is “green” because – The number of buses on the airport curb is reduced – Rental car facilities are not duplicated by each company – Typically requires less land Financed by rental car activity through CFCs Gives the airport greater control over rental car company activity Reduces the amount of space needed for rental car companies in the terminal 21
OAK
FLL
PHX
There are several items to consider when negotiating a Customer Facility Charge (CFC) • • • • •
All rental car companies using the airport must collect CFCs All rental car companies using the airport must pick up and drop off customers at the facility Require a security deposit or letter of credit in lieu of a security deposit CFCs should be held in trust and submitted monthly Consider contingent rent
22
The amount of the CFC varies depending of the method of assessment
23
Over $1.1 billion stand alone CFC debt transactions in past 14 years
Denver DFW $140 mil $78.6 mil
Houston $151.2 mil
Phoenix $260 mil
Anchorage $62.8 mil
Rhode Island $48.8 mil
Orlando $62.8 mil
Atlanta $211.9 mil
New Orleans $96.5 mil
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
24
Nashville $66 mil
2009 2010 2011
Airports have an increased commitment to “Going Green” • Sustainability – System that meets current needs without compromising the resources available for meeting future needs. • Renewable waste • Recycling • Example Indianapolis – Tenant Improvement Manual – Materials shall follow LEED – EnRoute Spa 25
EnRoute Spa constructed its tenant space using the “green concept” at IND
• Natural cork flooring • Recycled acoustic ceiling • Bio wheat countertops • Energy efficient lighting • No toxic chemicals
26
Expanded Parking Amenities is critical to maximizing revenue in this largest revenue source at the airport •
In order to maximize revenue, airport operators must have an appropriate inventory of parking products – hourly, daily, long term
•
Each product must distinguished by – Convenience to the terminal – Amenities such as valet, frequency of shuttle operation and other services – Prepayment options and reservations via the internet – Links to frequent flyer programs, etc.
•
Dynamic pricing to constantly match with demand
•
Management of cross-elasticities of demand between parking products 27