Airport Experience News - July/August 2020 by Airport Experience News

JULY/AUGUST 2020 / V18 N226-227

Airports Face

Infrastructure Conundrum National Brands Push Forward Services Evolve To Meet New Demands A IR L INE DE CI S ION S ;

Airport Repercussions Fitch Advisors Talk Airports

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8 Familiar Favorites

With the present uncertainty of travel, national restaurant brands are luring passengers with familiar fare.

12 Retail Evolution

Retailers have been quick to roll out new product lines focused on safety and sanitation, but longer-term, a more touch-free shopping environment might be warranted.

16 Pampering Protocols

Lounges, spas and other passenger services have retooled their offerings to better serve customers who want a safe and socially distanced experience.

22 Ebbs And Flows

Airport infrastructure development was thriving eight months ago, with airports of all sizes adding space to meet increasing passenger numbers. Now, passenger numbers have plummeted. Some airports are moving forward; others have tapped the brakes.

3 Letter From The Editor-in-Chief 4 Data Check

Business travelers have been the breadand-butter of airports for years. Now they’re skittish about flying and show reluctance to return to air travel until health scares abate.

5 Latest Buzz

Calgary International launched a concessions revamp in mid-2019 to respond to rising passenger numbers and increased demand. Demand has stalled but the transition continues, albeit at a slower pace.

30 One-On-One

Fitch Ratings analysts have put many airports on “ratings watch negative,” but nevertheless see resiliency going forward.

33 Advertising Index 34 Before You Take Off

With parking lots empty, two airports offer drive-in movies to help locals endure COVID19-induced isolation.

27 Airlines

North America’s leading airlines are starting to win back passengers, but full recovery will take years. Analysts predict some airports will thrive while others will falter.

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07 08/2020

Dear Readers, JULY/AUGUST 2020 / V18 N226-227

Airports Face

Infrastructure Conundrum National Brands Push Forward Services Evolve To Meet New Demands A IR L INE DE CI S ION S ;

Airport Repercussions Fitch Advisors Talk Airports

There are a few signs of life in airports these days. As of late July, there were more restaurants and stores reopening, a few more passengers traversing the terminals and some flights booked to capacity. It feels like progress — and to some extent it is — but airlines are still carrying just a small fraction of the passenger traffic they had a year ago. Furthermore, uncertainty is looming over every move made in the industry these days. We’ve heard about the V curve, the (dreaded) W recovery, the square root recovery, the Nike swoosh recovery. Those and others are all predictions, not reality. No one knows how long air travel will be suppressed, how long concessionaires will continue to struggle, how many will survive. Concessions operators aren’t waiting. They’re reassessing their offerings, making changes and shifting gears to adapt their businesses for the long recovery ahead. This issue of Airport Experience News highlights some of those actions. From restaurants to retail to passenger services, we’ve taken the pulse of some of the major players in the industry, finding out how their business approaches are changing as passengers return to the terminals. We’ve also spotlighted some airport development projects that are moving forward, and others that have been back-burnered as airport executives face the new realities. This digital issue is supplemented by our robust news offering that now includes webinars, video interviews, podcasts and more. For breaking news and additional multimedia content, check out our website at www. airportxnews.com. The AXN team will continue to partner with airports and concessionaires as together we navigate back to growth. Best regards,

Carol Ward Editor-in-Chief Airport Experience News

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DATA CHECK

HOLDING BACK

Frequent Travelers Hesitant To Return To Pre-COVID Habits, ICF Survey Shows BY CAROL WARD

afety concerns, business costcutting and the efficacy of video conferencing and other digital tools are tamping down demand for business travel, and those factors are likely to continue to impact demand for the nearterm future, according to data gathered by consulting firm ICF. A survey of nearly 500 frequent travelers – individuals who reported traveling out of state for business or pleasure, weekly, monthly or a “few times per year” prior to the outbreak of COVID-19 – are far more open to domestic air travel in 2020 than international air travel. However, just 42 percent of respondents expect to resume traveling by air domestically this year, versus 24 percent by air internationally. It could be a full year before some take to the skies again. The survey showed that 22 percent of frequent travelers do not expect to travel domestically by air until later than summer 2021, versus 41 percent of respondents who do not expect to resume traveling by air internationally until later than summer 2021.

Frequent travelers are far more open to domestic air travel in 2020 than international air travel.

25% of frequent travelers had lost their job or had someone in

their household who had lost their job.

74% of frequent travelers had canceled or rescheduled travel

since the outbreak or had someone in their household that had. “Initially people expected the business market to recover more quickly,” says Carlos Ozores, aviation principal at ICF, noting earlier surveys conducted by ICF. “I think that there are arguments in favor of both. Obviously, businesses will control their budgets but at the same time, from where we’re sitting, business travel is a necessity. There are many types of business trips that people need to do – they go hand-in-hand with growing and developing a business.”

42% of respondents expect to resume traveling by air

domestically this year, vs. 24% by air internationally.

22% of frequent travelers do not expect to travel domestically by air

until later than summer 2021, vs. 41% of respondents who do not expect to resume traveling by air internationally until later than summer 2021.

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That said, the headwinds are strong. “I think that a combination of factors will hold frequent travel or business travel back, the first being concerns about exposing employees to the disease,” Ozores says. “A second factor is cost-cutting. Companies are trying to cut whatever costs they can, and travel spending is an easy and often discretionary spend. Then there is the impact of video conferencing solutions.” The ICF survey also found that age is highly predictive of attitudes toward future travel, with younger travelers exhibiting more immediate desire to travel, while older travelers intend on delaying travel for some time. Ozores says the biggest growth possibility will come not from business or leisure travel, but from VFR – or visiting friends and relatives – travel. “In a pre-treatment or pre-vaccine environment, the only travel segment that we think is going to be robust – and by no means at sort of pre-crisis levels – but more robust is VFR,” he says. Without a treatment or vaccine, ICF suggests “the best we can aspire to” is traffic levels returning to about 40-50 percent of 2019 levels, Ozores says. “To get to the 80 or 90 percent, we need to have solved this to the point where all three segments – business, leisure and VFR – are back.”

LATEST BUZZ

CALGARY REVIVAL

Pandemic Delays YYC’s Two-Year Concessions Refresh, But Ultimate Goal Is Unchanged BY DAVID WARD

Above: The Flames Grill, which celebrates the Calgary Flames NHL team, is one of 50 new eat and shop locations in the Calgary International Airport concessions upgrade.

algary International Airport (YYC) saw a steady rise in traffic through much of the last decade, reaching nearly 18 million travelers in 2019. That year, realizing that the airport needed to provide more to those customers, YYC embarked on a two-year concessions upgrade, closing a number of shops in the pre-security area, and bringing a focus on the Calgary area and plenty of variety to the program. Though its completion may be delayed by as much as two years as a result of the pandemic, YYC officials said that, when finished, the refreshed concessions program will provide a mix of local and national brands, most of which will now be located post-security. Among the 50 new and renovated eat and shop locations planned for the overhaul are several that have already opened, including HMSHost’s new family casual full-serve restaurant, The Burger Federation, in the domestic terminal, and No Boundaries, an outdoor retail concept from Paradies Lagardère. Other new offerings include

an airport grab-and-go location of local favorite Made Foods, as well as Last Best Brewing & Distilling. The concessions overhaul was announced in June 2019, but Tim Barnes, director of commercial and retail development for The Calgary Airport Authority, says the catalyst for the change was consumer feedback the airport had been receiving for several years in its quarterly passenger surveys. “The surveys found that in our domestic terminal, which is quite a bit older than the international terminal, both food and beverage and retail were scoring quite low,” Barnes says, adding that travelers were looking for more variety, including vegan and healthy dining choices, as well as better value for money. ‘They also really wanted more local options, reflecting a trend on the street side.” Barnes adds YYC officials had also come to the realization that far too many of the airport concession offerings were located pre-security. “In our pre-security area we basically had a shopping mall that had 55 percent of our square footage in food and beverage and retail,” he says. “But pre-security only drove 20 percent of the sales.” The concessions overhaul launched in 2019 with more closures than openings, primarily on the pre-security side. “We were boarding up a lot of stores, and without knowing what was coming, there was the perception among some passengers that the airport was closed,” Barnes says. “Now we’re starting to come out the other end and we had a lot of openings in late 2019 and into 2020.” When the refresh is completed, Barnes says 80 percent of concessions will be postsecurity. Unlike some Canadian airports on the coasts, YYC primarily serves North American passengers. “We’re 70 percent domestic, about 20 percent U.S. and the rest from other parts of the world,” says Barnes. “Calgary is a really big destination

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LATEST BUZZ

for people who hike, climb and fish, especially fly fishing. There wasn’t an outdoor retailer so that was a segment we needed to develop.” The planning phase of the concession overhaul came as many of the leases of YYC food and beverage and retail partners were expiring or were set to expire soon. “We worked with them to determine whether we had the right offering for that space and did research with these partners to find out what content would be better,” Barnes says. “We also had request for interest for several locations, which were very specific briefs, such as an outdoor living store and a local coffee shop.” The airport also updated the concession leases so they are more in line with how things are being done at other airports in North America. “We did a fair bit of benchmarking across the industry to make sure those rates are fair,” Barnes says. “By doing that we created a very level playing field.”

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Many of the new concessions focus on popular local brands, including the Flames Grill, which features images and memorabilia from the Calgary Flames NHL hockey team. Paradies Lagardère has been operating at YYC for more than 20 years. Gerry Savaria, executive vice president, says the insights gained from that experience help guide what new concepts it brought to YYC officials. “Our proprietary brand for the outdoor enthusiast, No Boundaries, builds on Alberta and the Calgary region’s enthusiasm for enjoying life in the Canadian Rockies,” Savaria says. “Rundle Essentials offers excellent gourmet food items from the region and Vino Volo will deliver its awardwinning wine bar as well as a new gourmet market concept for travelers to enjoy.” YYC also recruited Made Foods, a popular Calgary chain that focuses on fresh, locally sourced ingredients, including vegan and other healthy options. “The need for

healthy, convenient food options while traveling has never been greater,” Chris Dobson, president of Made Foods, said when the refresh program was announced. “Travelers can count on us to offer a selection of fresh, delicious local meals, both made-to-order and ready to eat, with endless options for all dietary preferences and keeping your health top of mind.”

The Pandemic Pause Barnes says passengers seemed pleased with many of the new stores that opened in the first stages of the concessions upgrade. “We’ve seen an uptick, but we didn’t see a significant uptick because a lot of the concourse was under construction in 2019 Below: YYC officials lured wellknown Calgary chain Made Foods to the airport to provide travelers with grab-and-go and made-toorder foods, including vegan and other healthy options.

LATEST BUZZ

and the first quarter results were skewed by March and Covid,” he says. “From a revenue standpoint they’re voting with their wallet and some of the early changes we made are significantly outperforming what was there before in those locations.” But with traffic at YYC now off significantly like it is at airports around the globe, Barnes says much of the CAN$15-$17 million (US$11.07-$12.55m) in planned investment from concession partners is currently on hold until demand returns. “We are working with partners on exactly that,” he says. “Our original schedule will be significantly delayed and it’s likely we’ll have to prioritize. The ones that are on the top of the list will come first.” Barnes says YYC is looking to determine a revised project schedule that fair to both the airport and the concessionaires. “No one’s really in a situation where they can dictate terms,” he adds. “We have to work collaboratively.” That spirit of cooperation is echoed by Paradies Lagardère. “The YYC team understands the reality that

Top, Left; One example of the dramatic concessions upgrade at YYC is this location, in which a modest arcade (left) was replaced with No Boundaries, the Paradies Lagardère outdoor retail concept (top) to better serve the hiking, skiing and fishing fans who come to the area.

concessionaires are facing and how we need to re-open units and invest our cash in an intelligent manner to ride out the current storm,” says Savaria. “We are aligning our own construction and store reopening schedule and the airport’s anticipated return of flights and traffic for a cohesive level of coordination.” Barnes says the concessions overhaul now probably won’t be completed until 2021 or 2022 instead of the original plan

for 2020. “Our current forecast pushes in 2023 for things to get back to where they were in 2019,” he says. “We’re conservative because no one has a crystal ball at this point.” But Barnes says the new stores and postsecurity focus will serve the airport well once traffic does return. “We’re sourcing local food and beer as much as we can,” he says. “We want to be far more consistent and really reflective of our local market.”

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CONSISTENCY AND COMFORT Familiarity, Uniformity Give National Brands Leg Up In Uncertain Times

BY ANDREW TELLIJOHN

Local flavor has been the sexy “must have” for airport concessions programs in recent years, with requests for the latest brew pubs, restaurants and service spots dominating RFPs across the country. But it’s also been conventional wisdom that during times of stress, travelers on the road want the comfort, familiarity and consistency that comes with well known brands, from McDonald’s and Subway to Smashburger and Chipotle.

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Operators haven’t been able to afford to keep everything open in recent months, with the COVID-19 pandemic bringing air travel to a near standstill. But airports still need to have something open for those travelers still boarding planes. With their familiarity and, in some cases, their ability to operate with small staffs and in a more flexible manner, it’s fallen heavily on those national brands to be the chosen few. “I’ve talked to a lot of operators who are having a difficult time getting people back to work,” says Roger Schwandtner, co-owner of the consultancy Airport Retail Development. “Labor has been a huge issue right now.” He has traveled through about a halfdozen restaurants since the pandemic brought traffic to a near standstill and he says in some of them, brands from Potbelly to Burger King have been the primary food outlets available. In many cases, whether in its traditional form or in a hastily planned, scaled-down model, those brands also feel they can provide a place people want to turn to for comfort food in a time when travel is even more stressful than normal. “I’ve always believed that passengers find national brands comforting when traveling because they appreciate the consistency that comes with the brand, no matter where they land,” says Chris Burr, director of non-traditional development for Dunkin’ Brands. “Now, due to the changing complexity of the airport environment and further stresses added by the outbreak, national brands are more comforting than ever before, as customers seek consistency in safety procedures, training and their meals.”

Safety First Dunkin’ Brands gave its franchise partners the decision to continue operating if they wanted to, provided they could do so while complying with federal, state and county mandates. Some locations closed. For the many that have stayed open through the entirety of the COVIDdriven downturn, it was not business as usual. In some cases, such as at T.F. Green International Airport (PVD), the Dunkin’ location was the only dining option open. With the safety of its employees and guests in mind, the company closed its

dining rooms and implemented several enhanced safety standards and measures. “A non-traditional store does not require chairs, tables, dishware, etc.,” says Burr, adding, “This minimized surface area and disposable model paired with our POS system and Dunkin’ mobile ordering, where available, has offered customers a virtually contactless experience and the ability to social distance while enjoying their meal.” Safety was key at the three of five Chipotle airport restaurants that have remained open through COVID. Those three locations all have inline or food courtstyle seating controlled by the airport, so they’ve always been take-out only locations. The company has continued regularly monitoring Centers for Disease Control and Prevention, the U.S. Food and Drug Administration and other local guidelines in each market and following industry-leading protocols that won the chain accolades from the global research firm Ipsos Consumer Health & Safety Index for health and safety compliance during the outbreak. “We’ve taken additional precautions to safeguard our employees and our guests,” says spokeswoman Erin Wolford, noting that includes increased sanitization, elevated frequency for personal hygiene requirements, floor decals and line markers separating guests, table tents and chair mats. The sudden need for contactless features came out of left field, but the entire operation team at Burger King focused on such procedures in the areas of currency exchange and food handling, adds Clayton Lawrence, who leads the company’s non-traditional efforts. Adding masks and gloves was easy, as they were already part of the brand’s protocol, but Burger King

Above: Since COVID-19 shut down travel, national operators, such as Dunkin’ Brands, have at times been one of few food options remaining open, if not the only one.

also started doing quick health surveys and taking worker temperatures to ensure they were healthy. Burger King, he says, has always had rigorous health standards. “That’s something we can hang our hat on,” he says. “Now, as this happened, it forced us to very quickly look at how we can be even better and operate in a way that our team members, guest, owners and authorities had the utmost confidence in what we’re doing.”

Staying True To The Brand While he believes Burger King quickly adapted to the health ramifications of operating during COVID, Lawrence admits that the company faced more challenges adapting to operating its airport locations the last few months than it did in its street-side locations. Traffic patterns are significantly different, and no two airports operate quite the same. “Every space was a little bit different,” Lawrence says. “There was some really key learning on the non-traditional side that we’re still doing our best to adapt to … so our guests and partners can stay as close to normal or get back to the new normal as quickly as possible.”

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Going Forward Right: Menu flexibility that can significantly reduce staffing needs has been one selling point at airports where Einstein Bros. Bagels concepts have remained open during the pandemic.

On the other hand, Lawrence says he’s confident Burger King will continue getting the opportunity to keep its airport locations open because the brand offers exactly what airports need during a time like this, he believes. And the chain has been able to stay open without making many changes to a significant and, by quick-service restaurant standards, fairly complex menu. “They’re really looking for an affordable product with a good reputation and a good customer following that serves three day-parts,” he says. “It was natural for Burger King to stay open because of what we offer.” Never was there a point, he adds, where the company closed even a quarter of its airport operations. Of locations that did close, many are beginning to reopen as flight numbers begin slowly increasing and airports bring temporarily mothballed portions of their buildings back into operation. There were some supply chain interruptions, Lawrence acknowledges. It didn’t affect the ability to get a Whopper or a chicken sandwich but might have meant customers couldn’t get a syrup or an extra ketchup. “It’s something we take incredibly seriously at Burger King,” he says. “There is trust in national brands. There is a lot of connection with our brand. It’s a brand that our loyal guests love. We don’t want to betray that trust.”

Flexible Menu Einstein Bros. Bagels, on the other hand, used menu flexibility as a selling point for keeping its airport operations running. About 75 percent of its 30 locations stayed open, though most operated at significantly reduced capacity,

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says Nicholas Schaefer, senior vice president of development. The company gave operators the gift of flexibility, allowing them to choose between smaller, easier to operate menus that allowed them to open but staff down to minimize losses, especially in venues where traffic was down as much as 95 percent and sales were as low as $300 per day. Some were as simple as just bagels, schmears and coffee, Schaefer says. Others offered some egg sandwiches and made-toorder items. “What we’ve tried to do operationally was be flexible, be sensitive to the decline in traffic,” he says. “You have to stay open because they need to serve something to the traveler who is there, but you can’t create an operation like normal, where you’ve got a barista, you’ve got three sandwich makers, you’ve got two cashiers. … At Einstein’s you don’t have to fire the whole thing up to provide service.” Well before the pandemic hit, Schaefer adds, this has been one of the company’s selling points. Einstein’s is always flexible enough to ramp up or down with changes in demand. “We’re a relatively easy brand to operate,” he says. “We have a very competitive cost and royalty program for the airports because of the volume we get. Einstein’s is a good decision for these guys from a financial perspective while they’re going through distress.” The traveling public, he says, has largely been understanding of the challenges associated with operating these last few months. In addition to scaled down menus, Einstein also has had some supply chain challenges, as distributors lost drivers and routes. “It’s a huge domino effect,” he says.

That will provide some ongoing hiccups, Schaefer adds, as airports continue reopening. It will take some time not only for the brands, but also for their suppliers to add staff and make the changes necessary to get up to full speed. “In many ways it’s more difficult to ramp up than it was to shut down,” he says. “For the most part the public is understanding that and appreciative of having some level of service.” While there are challenges, Dunkin’s Burr believes that as airports do ramp up, national food brands will be among the drivers. He’s had conversations with franchisee partners who have relationships with multiple brands that have told him they plan to reopen their Dunkin’ locations before their full-service or sit-down facilities, “showcasing another level of flexibility offered by our non-traditional Dunkin’ models,” he says. “We’ve designed our Dunkin’ models to cater to an on-the-go lifestyle and have adapted in these times to ensure a relatively contactless, entirely disposable and modernized experience for guests as we all adjust to the new normal.” As the industry returns, Burr says Dunkin’s well prepared. The company’s high-frequency, low-touch, affordable-ticket business model will serve it well as airports open up. “We’ve aligned with the airport industry to evaluate a higher need for mobile orders, gate delivery, and ghost kitchen operations, among others, to ensure we’re meeting consumer needs in a socially distanced world,” he says. “As traffic increases, we expect our franchisees to adapt and be prepared for the environment, while maintaining our brand standards and serving up premium pours and grab-and-go snacks,” Burr says. Burger King’s Lawrence says he knows traffic won’t come back in a “light switch fashion,” but adds that he is cautiously optimistic going forward that, with a lot of indicators pointing in the right direction, the few Burger Kings that did close will open soon. “It’s an elaborate dance,” he says of the balancing act airports and operators face on determining who will open when. “I anticipate after a lot of conversation with our partners that when they can open any Burger King concepts, that we would be at the very forefront of their plans due to the nature of our brand,” he says.

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Above; Passengers at LaGuardia Airport can buy masks, gloves and sanitization products via self-checkout in new Hudson stores.

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NO TOUCHING Airport Retailers Develop New Practices Amidst Safety Concerns BY SHAFER ROSS

It’s no secret that COVID-19 and its growth as a global pandemic has brought a lot of significant change in a short amount of time. In airports particularly, the new expectations the general public has for cleanliness and health-conscious practices are higher than ever. Passengers are trickling back to the airport, and with them come a slew of new offerings and practices to keep people safe. “Before COVID even began, we started to notice a change in traveler behavior that was shifting toward a more independent shopping experience that fit their busy, on-the-go lifestyle, which has only been enhanced as a result of the pandemic,” says Brian Quinn, executive vice president and chief operating officer of Hudson.

“We have to think differently now, and an enhancement to our merchandising assortment is key as more travelers are prioritizing health and safety.” Like many retailers, Hudson has begun offering personal protective equipment (PPE) for purchase in their airport stores. Passengers worried about contracting the air- and surface-born COVID-19 can buy masks, gloves and sanitization products to help them stay protected during their travels. “With any normal situation or trend, we proactively adjust our offerings to meet customers’ needs and interests,” says Shiri Stroeing, senior vice president and chief information officer for Paradies Lagardère. “We approached COVID-19 in

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Right: Hudson has begun offering personal protective equipment (PPE) for purchase in new vending machines and in its airport stores.

a similar manner by delivering enhanced or completely new items to match current consumer demands.” Paradies Lagardère retail outlets also began offering PPE, along with fashion designed and branded masks, phone cleaners and tools to help travelers touch public surfaces as infrequently as possible. In addition to new product offerings, airport retailers are beginning the preparation for new protocols with educating their employees. “Stellar’s team is executing a strategic plan that includes contactless interaction, guest communication, shop modifications, and safety protocols,” says Jim Schmitz, vice president of business development for Stellar Partners. “And it all starts with our employees. We have trained them on our new procedures and implemented wellness checks along with new cleaning and stocking processes and interacting with guests while in protective gear.” Even on the street, consumers will be worried about how their traditional shopping experiences will translate in the new retail landscape, and they may be even more on edge while traveling. While they may not know specifically what to expect as they return to air travel, shoppers will want to know that the stores already have a plan in place. “In specialty stores, we have implemented a ‘fitting’ room standard whereby each article of clothing a guest wants to try on will be ‘sanitized’ before and after the fitting,” Schmitz says. “The same applies for jewelry; new jewelry handling procedures are in place to ensure gloves are used and all jewelry will be sanitized after it has been tried on.” Bhavesh Patel, vice president, airport retail concessions for Unison Consulting, doesn’t think the need for higher standards of cleanliness will be a short-lived trend, and in fact believes those standards will continue to be upheld by airports. “I

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think that airports are going to want to see innovation being developed by concessionaires in regard to this area because I think health awareness is going to be more of an issue going forward.”

A Contact-Less Future? But returning travelers won’t just be looking for health-tailored offerings and sanitation practices when shopping at the airport. In addition to new selections, shoppers will want even less contact during the most important retail touchpoint: checkout. “Interactions and transactions with less contact were already being considered and tested in the pre-COVID-19 era as an effort to enhance speed of service and customer convenience,” Stroeing says. “For example, we already offered fast pay options, such as Apple Pay, Google Pay and all other digital wallet payments, on a wide scale in our travel essential stores. In 2019 at Hartsfield-Jackson Atlanta International Airport (ATL), we opened The Goods@ ATL store featuring our self-checkout kiosks, which account for 35 percent of the overall transactions.”

Above: In addition to PPE, shoppers at Marshall Retail Group’s Bowery Bay Shops at LaGuardia can purchase products to keep them safe as they continue their travels.

Stroeing says that the pandemic has changed how people view the checkout process in a shop. Before, she says, more independent checkout options were something of a sign of forward-thinking innovation, while it’s now become the potential new standard for safe and health-conscious shopping. In adhering to customers’ need for distance, though, the challenge of providing a memorable and warm experience through a mask or from six feet away arises. “Customers are still looking to engage with associates, and so we’ve modified our checkout configuration to reduce almost all contact other than verbal communication,” says Hudson’s Quinn. Despite the measures taken to distance and protect, the automation of certain processes frees up employees for customer service. “With tap-and-go capabilities, product selfscanning by customers, and the elimination of signatures on most transactions, our team members can spend more time than ever assisting our customers.”

Those associates could also be conducting the transactions there on the product floor immediately as the customer decides to make a purchase. Stu Holcombe, managing partner of Travel Retail Partners, says airport retailers can look to the practices some stores on the street have been implementing for years. “How do we engage? How do we deal with the consumer? I think one of the new trends that we will see…is not necessarily going to a designated cash [register] area to pay,” Holcombe says. “I think you’re going to see more payments on the floor, similar to what you do in Apple Stores. So, the associate as the ability to swipe your credit card or tap it right there on the floor next to the product. “The transaction is going to happen where the engagement happens,” he adds. Providing a variety of safe, socially distant checkout options in-store is great for passengers who like to wander and browse during dwell times, but they don’t address a possible increase in gate-hugging

due to fears surrounding exploring the terminal. Holcombe believes this type of traveler can be served via mobile device. Holcombe says location-based mobile push notifications sent through services like Google already send users alerts to their devices when they come upon businesses they frequent, and a natural development would be to adapt that model so airport retailers could use that data to send targeted advertisements as travelers make their way to their gate. “The technology is in its infancy,” he says. “But I do know that a lot of brands are starting to look at it.” App-based retail ordering is a growing option, as well. “We are working with potential partners to offer ordering via mobile devices with delivery to the gate,” says Roderick McOwan, chief development officer for Marshall Retail Group. “Basically, the mobile airport ordering that allows you to pay from your phone and then skip the line to pick up, therefore ensuring contactless retail.”

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In mid-June, The Chiroport owner John Harrison was working at one of his company’s three locations at Minneapolis-St. Paul International Airport (MSP). The C Concourse location was open, albeit part-time, but two others were closed. “Probably I’ve seen in a week, what I would see in half a morning on a [pre-pandemic] Monday,” Harrison says. “Business is down quite a bit – 90 percent for sure. It almost matches exactly what the airports are seeing in traffic.” The company’s location at Las Vegas International Airport (LAS) was closed

Right: The Chiroport hasn’t had to make changes due to the pandemic, and is experiencing slow increases in demand as passengers return.

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at the time, but the Atlanta International Airport (ATL) location was open. “The doctors are there – we’re letting them keep what they make and we’re using it as a barometer as to how things are changing at a different airport.” The Chiroport’s business has been hit hard by the COVID-19 pandemic that shuttered many airport businesses from mid-March to June, but the company was relatively lucky in that it didn’t have to make changes to its offering. “We’re obviously wearing masks, and we always clean up after people get treated, and we wipe everything down again beforehand,” Harrison says.

“The only thing that’s different is that we’re very specific about letting everyone know [about the cleaning procedures].” Minute Suites is undertaking a similar public relations campaign called Clean & Serene. Dan Solomon, co-founder and director of Minute Suites says the company has always had “a hospital grade standard of cleanliness,” and that little has changed other than a doctor-advised shift to a different cleaning agent. What is new is the company’s messaging to customers. “We’ve always adhered to this cleanliness model – focusing on safety and cleanliness – and never felt a need to really broadcast it,” Solomon says. “That’s changed – the world changed it.” Other passenger services businesses haven’t had it so easy. From new cleaning and customer interaction protocols to altered amenities to shifts in business focus, passenger services companies have had to revamp in light of the pandemic. Many have spent the past few months with their businesses shuttered, creating roadmaps for reopening with social distancing top of mind.

XpresSpa’s Gamble Perhaps the most marked departure from business as usual has come from XpresSpa, which in late June launched its XpresCheck pilot program at Terminal 4 at John F. Kennedy International Airport (JFK), the first full-service, in-airport testing facility in the United States. XpresCheck is geared specifically to airport employees and has the capacity to provide 500 COVID-19 tests per day to airport workers. The XpresCheck at JFK is a new modular site constructed in the Arrivals Hall at Terminal 4. The site holds nine separate testing rooms and provides the ability to conduct both COVID-19 testing as well as antibody testing. These services will be available to all airport employees, including airline employees, contractors and workers, concessionaires and their employees, TSA officers, and U.S. Customs and Border Protection agents. Both antibody testing and polymerase chain reaction (PCR) testing are available on-site, and the tests are sent to outside laboratories. “Since the onset of this pandemic, we have thought that we can and should play a significant role within the travel sector in the fight against COVID-19 and

other highly contagious diseases in the future given our airport relationships, infrastructure, workforce with TSA clearance and strong desire to keep everyone safe,” CEO Doug Satzman told Airport Experience News. The JFK location was the only location to be announced at press time, but Satzman says XpresSpa is negotiating with other airports. XpresSpa in June partnered with marketing and wellness agency HyperPointe to extend its XpresCheck screening and testing services to airports across the U.S. The JFK location is a new structure, but Satzman said some of its 46 locations across 23 airports could be reactivated and redeployed as XpresCheck locations, subject to airport approval. At the same time, XpresSpa has been making changes to its core offering in light of the pandemic, as have other spa and related services companies. At Be Relax, updated health and safety protocols are being implemented at the company’s nearly two dozen locations in North America. “We’ve added plexiglass between the manicurist and the customer, and we’ve

Above: Updated health and safety protocols are being implemented at Be Relax’s nearly two dozen locations in North America, including its most recent venue at LaGuardia Airport.

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Left: Be Relax’s latest offering is infrared therapy, a touchless process.

also added plexiglass dividers in our lounges to keep the six feet distancing,” says Tina Guarracino, vice president of external affairs and business relations for Be Relax. “We’ve got temperature screening for both staff and customers, we have screening questionnaires that we will be asking every customer when they come in, we will provide them with masks – our staff as well as the customer – just to get them used to a new normal.” In addition, Guarracino says air purifiers, hand sanitizer stations and other cleaning tools will be apparent inside the spas. At its new LaGuardia Airport (LGA) location, Be Relax is offering a touchless option – infrared therapy. “We don’t need a massage therapist,” Guarracino says of the new machine. It’s something new for the passenger to try. It’s private and it will be cleaned after every service.” Guarracino says Be Relax has television screens inside its spas broadcasting the company’s efforts on its Be Safe at Be Relax campaign.

Right: Gameway’s new procedures include cleaning all equipment in front of the guest to convey safety.

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Many companies are telling passengers the ins and outs of their cleaning protocols. Gameway is taking it a step further. The gaming lounge operator says travelers need to witness the enhanced procedures. “Our belief is that seeing is believing,” says co-founder Jordan Wahlbridge. “For us, it was really important that the customer knew that cleaning was a high priority.” That’s particularly important because each customer is issued a controller, headphones, a PlayStation and is escorted to an

individual seat. “There are a lot of touch points in there and they’re reusing products from other customers. The question was, how do we make the new customer feel comfortable?” “When a customer approaches and they want to go to the station, we clean the controller and the heads headsets in front of them,” Wahlbridge describes. “Then we walk them to the station. And then, again, we clean the chairs, the deck, the table…. Every touch point that they have is disinfected in front of them. When customers are able to see that we’re disinfecting something in front of them, then they feel far more comfortable to want to sit down and have a great experience.” As Gameway’s two Dallas/ Fort Worth International Airport (DFW) locations were opening mid-summer, the state required usage of just 50 percent of capacity. That’s not sustainable longterm, Wahlbridge says, but will allow the company to tweak and make changes as traffic ramps up.

Lounge Business Revamp More comprehensive business shifts have come with common-use lounges. Lounges were closed almost across the board when the pandemic accelerated in March. Now, many are reopening with a new focus on social distancing. Airport Dimensions, which has 13 airport lounge locations throughout the U.S., created “guiding principles” in revamping the experience. “Our goal is to strive to create a clean and safe and healthy hospitality atmosphere, but not a clinical environment,” says Nancy Knipp, president, Americas for Airport Dimensions. “There are many things we have to do differently, but we want to make sure that people recognize that the lounge is still a hospitality experience and it’s something that they want to enjoy.” Knipp describes an array of largely behind-the-scenes efforts, from HEPA filtration systems that purify air to overall enhanced cleaning and sanitation protocols. Customer-facing changes include touchless registration, new seating patterns and altered food and beverage options.

Left, below: Commonuse lounges operated by Airport Dimensions will offer limited seating, pre-packaged food options and contactless check-in.

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“We have worked with architectural firms to come up with seat coverings that indicate that a seat is being [set aside] for social distancing,” Knipp says. “It also gives us the ability to change quickly, so if you come in with family, you don’t have to sit six feet apart if you’re used to traveling together. “We didn’t want to take all our seats out. We wanted to do it in a way that gave flexibility. “The bar area is another challenge – the bar area is a critical part of our experience,” Knipp continues. “We’re eliminating a lot of the seating. The bartender will be taking orders behind a plexiglass shield that then he can move or can have the drink set somewhere else for people to pick up.” For food, the previous self-serve buffet model has been discarded in favor of a range of pre-packaged foods that are given to passengers by an attendant. Airport Dimensions is also working with Grab – both companies are owned by Collinson – to provide lounge guests with the ability to pre-order food from the lounge for pickup on the way to the gate. “That’s the first phase,” Knipp says. “Long term, we’re looking at different aspects of digital and e-commerce so guests can actually or order their food from their seat or preorder it before they come in.” Plaza Premium Group is taking similar steps at its North American lounges. Under

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a “We Care for Your Wellbeing” campaign, the company has introduced “wellbeing ambassadors” to assist lounge guests as they adhere to new protocols. “The team will encourage everyone to practice social distancing while queuing at entrance, unwinding in the relaxation area or enjoying meals in dining zone, [and will] be present within the lounge to offer our guests hand sanitizer and assist guests at the self-serve food stations,” says Song Hoi-see, founder and CEO. “They will also measure body temperature, if preferred, in selected locations where government allows.” Plaza Premium lounges are divided into zones – relaxation areas, dining area, kids’ zones, individual work areas – all with social distancing in mind. Song says food and beverage is a “highrisk area” and came up with new protocols to address concerns. “As consumers will prefer less human interactions and as much contactless procedures as possible, we will gradually deploy a self-ordering mobile app in selected locations as it helps to reduce queuing for food and promote social distancing,” he says. “A certain aspect of self-serve food stations will remain but are enhanced with individually-portioned and packaged items for heightened level of hygiene.” Escape Lounges from MAG USA are taking a different approach to food and beverage. “Lounges have

Above: Plaza Premium has introduced “wellbeing ambassadors” to assist lounge guests as they adhere to new protocols.

traditionally had a buffet-type service – that’s probably not going to work – certainly not initially and maybe not forever,” notes CEO Martin Jones. “We’re moving toward a maître d-type approach, where [someone] will come to the table to take the order. Of course, people can view [the menu] on their phones but we want a much more personalized service.” MAG USA is also offering touchless check-in, social distancing and downloadable digital content, stressing the importance of the latter in the new post-pandemic environment. “We’re not going to want reusable paper around the lounges,” Jones notes.

Optimistic Outlook Despite the challenges posed by social distancing and cleanliness needs, airport lounge operators are generally optimistic about the return of passenger and their embrace of what’s on offer. Lounges offer respite from the crowds that airports will have again someday, Jones notes. “I think they’re going to continue to be hugely important for two reasons,” he says. “Travelers will want to make sure

Right: MAG USA’s Escape Lounges are shifting to digital content instead of traditional magazines and newspapers to eliminate contamination issues.

they have a location where they can socially distance, which is incredibly difficult in an airport to achieve. “It’s going to be hugely important for airports as well,” he continues. “Lounges have a unique position where they drive aeronautical and non-aeronautical revenues. They play a huge role in attracting airlines. From a non-aero revenue point of view they are critically important, not just for the rents and the rates we pay the airport for the space, but for the experiential extension it can give….” Song notes that the new protocols throughout the airport will require passengers to arrive earlier. “This presents an opportunity for airport hospitality services provider like us,” he says. “The airport lounge is always seen as ‘getaway’ at the airports to stay away from the main crowd, however, in the era of post-COVID-19, it becomes a safe and worry-free environment for travelers to

enjoy a moment in between custom check and boarding.” And with everything currently in flux as the pandemic evolves, operators stress that it’s important to be flexible. Airport Dimensions’ plan for weathering the crisis calls for three stages: readiness, reopening and recalibrating. Most locations have gone through the first two; recalibration will

come a bit later. Knipp says the company wanted to signal flexibility to airports. “Just because we do something on the first day, if that doesn’t work or we feel like there’s a better way to do it, we’ll react to it,” Knipp says. “If we’re fortunate and the guests are pouring in the door, we may have to reassess how we do things. We’re going to recalibrate sooner rather than later.”

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CAPITAL UNCERTAINTY COVID-19 Accelerates Some Projects, Puts The Brakes On Others BY ANDREW TELLIJOHN LaGuardia Gateway Partners announced in June that the first phase of its LaGuardia (LGA) Terminal B project – a $5.1 billion project redeveloping one of the nation’s over-capacity and under-cared-for airports – was completed and open. The completion of the Arrivals & Departures Hall for the new Terminal B, where departing passengers check-in and pass through security to a new collection of post-security food and retail or arrivals pick up their baggage and head for their destination, meant that 80 percent of this project was finished. COVID-19 had some impact on the project. There were challenges, for example, with regulations changing on the fly. “It’s one thing to work to the building code and the regulations that you knew were on the books,” says George Casey, chair and CEO of Vantage Airport Group and director of the LaGuardia Gateway Partners board. “It’s another when new things come into place that are events that were unforeseen.” But he credited the experience and flexibility brought to the project by Vantage and its partners, who were able to keep workers safe and construction largely unimpeded. “[We] couldn’t keep up the exact pace we had before, but we could still keep generally on track with nominal interruption,” he says “COVID set us back a matter of weeks, but not multiple months.”

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Accelerating Projects LaGuardia Gateway Partners unveiled phase one during a time when travel was down more than 90 percent across the country. While most of the news across aviation through the second quarter of 2020 was bleak, some airports kept plowing forward with infrastructure investments to set themselves up for the future. Nobody wanted to see the industry’s traffic drop dramatically, but many of the airports that have chosen to keep moving forward on infrastructure projects have been able to speed up portions, simply because managing heavy traffic flow has been largely taken out of the equation. That was true for Vantage when it was completing the first phase at LGA. “There were circumstances where lower traffic levels allowed us to work through construction, logistics, operational and management issues,” he says.

Right: LaGuardia Airport Partners recently unveiled the Arrivals & Departures Hall for the new Terminal B at LGA. COVID-19 slowed progress, but the ability to work with few passengers around kept the project close to its original timeline.

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Some, including LaGuardia Gateway Partners, even used the downturn in passenger counts to accelerate projects that otherwise might have been phased. Low traffic levels will substantially accelerate the completion of a new terminal at Salt Lake City International Airport (SLC), where the first phase of construction is scheduled to be finished in September. After it became clear the degree of impact COVID-19 would have on the industry, airport officials met with Delta Air Lines and other stakeholders to determine whether they could speed up the next phase. Initially, says Bill Wyatt, SLC’s director, the plan had called for continuing to use portions of the old airport as the new facility was being completed. But with traffic down they decided instead to tear down those facilities earlier than planned. “It’s going to save us two years on the project and could save us up to $300 million or so in capital costs,” Wyatt says. “Most importantly, during the course of construction, not only does it reduce risk, but it reduces annual operating costs, because operating the old airport and the new airport at the same time was going to be, relatively speaking, expensive. We’re excited about it.” He acknowledges some risk in making the call to bump things up from a completion date of 2027 to around December 2024. If a COVID-19 vaccine is discovered quickly and travel starts taking off, “We’d be pretty tight,” he says, adding that “I don’t really expect that. … It feels like we have somewhere between a threeand five-year ramp back to what people would have considered to be normal.” The Port of Seattle opted to continue with many of its expansion and modernization projects at space-constrained SeattleTacoma International Airport (SEA). The largest of those are the $780 million International Arrivals Facility and the $485 million North Satellite Renovation and Expansion. These and other projects were considered for acceleration because certain elements could be done simultaneously rather than through sequencing required to limit the impact to airport operations, traffic and passenger experience. The Port saw moving forward as a way of helping boost the local economy through the COVID19-related downturn and provide jobs to locals.

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“As one of the largest public sector builders in the region, the Port is uniquely positioned to help lead the region’s recovery,” notes Peter Steinbrueck, president of the Port of Seattle Commission. “Our goal is to help keep construction workers employed by providing certainty to large public works construction projects, accelerating some projects where feasible, and by supporting our private sector partners.”

Not Just Large Airports Many of the highest-profile projects are ongoing at LGA, John F. Kennedy International Airport (JFK), Los Angeles International Airport (LAX) and other international hubs, but work is moving forward across the country in small- and medium-sized airports, as well. Kansas City International (MCI) waited years to get approvals necessary to replace three dated terminals with a new, stateof-the-art facility. With construction well underway when COVID hit, the airport has continued making progress toward an early 2023 opening.

Above: Low traffic levels due to COVID-19 will allow Salt Lake City International Airport to shave a couple years and up to $300 million in costs from the construction of its new terminal.

Below: The Port of Seattle continued with several of its expansion and modernization projects in order to keep the economy functional and people employed.

“Steel erection has been going well and we’re in the early phases of the elevated roadway construction,” says Justin Meyer, deputy director of aviation for marketing and air service development. “The parking garage will begin soon.” The Concourse B Modernization project at Memphis International Airport (MEM), which involves widening corridors, increasing the size of boarding areas, raising ceilings and adding natural light to improve the aesthetics so the airport can consolidate all operations in that building, was deemed essential and kept on track. And Asheville Regional Airport (AVL), which has been bursting at the seams for several years, has continued planning and executing some preparatory projects for a new terminal building, with hopes of a late 2021 or early 2022 groundbreaking. Executive Director Lew Bleiweis certainly never anticipated this kind of decrease in passenger travel and he hopes travelers return soon. But for an airport that had been overflowing with record travel in recent years, the slowdown

actually has been helpful in making sure some of the planning gets done well. “It really puts us either equal to or in front of the eight ball rather than flying behind it,” he says. “It gives us time to catch up, gives us time to properly plan while our passenger numbers are down. Hopefully they will not be down too long, but this is not going to be a “V” shaped recovery. We will have a growth period of time so we can appropriately plan.” The decrease in traffic, Bleiweis says, actually makes certain aspects of planning and executing a project easier. For example, AVL is currently upgrading sewer and water infrastructure necessary for starting on a new terminal build. That work is taking place in front of the existing facility. “We anticipated a nightmarish experience with traffic and travelers going through, reducing our drive lanes in font of the terminal by half,” he says. “We weren’t quite sure what was going to happen, but we had to move forward with it. With the lack of traffic right now, we’re able to move through that project pretty easily and it’s not disrupting a lot of travelers.”

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Above: Kansas City International Airport remains on track to introduce a state-of-the-art terminal in 2023. The building will replace three obsolete terminals.

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Other Projects On Hold While construction crews have been busy at several airports across the country, some municipalities have made the decision to put the brakes on projects. Pittsburgh International Airport’s (PIT) $1.1 billion modernization, aimed at rightsizing the facility for its future as an originand-destination airport rather than a hub, is slated to include a new landside terminal tucked between the current airside building’s C and D arms. That project was indefinitely placed on hold when Pennsylvania Gov. Tom Wolf ordered nonessential businesses closed earlier this year. At San Francisco International (SFO), a $1 billion project to renovate a portion of Terminal 3 where United Airlines operates has been put on hold until at least the end of the year. The big buck project that will create 190,000 square feet of new space and targeted upgraded amenities, architectural finishes and more concessions, had been slated to start in June, but lack of passenger and flight activity shelved it. “Lack of passenger demand doesn’t warrant taking on the debt service associated with a $1 billion project,” says spokesman Doug Yakel. Yakel and Mark Van Loh, president and CEO at the Jacksonville International Airport (JAX), both experienced some relief that they were still a few months away from breaking ground on their big projects when COVID tanked travel. JAX was initially down 95 percent in travel counts and Van Loh suspects it’ll be

three to five years before traffic returns to 2019 levels, a record-setting year for many airports. The airport has decided to move forward on some smaller projects, such as a terminal re-roofing and baggage claim renovation. But JAX decided to hold off on building its new $200 million Concourse B. “We had already started lining up financing. We had hoped to break ground late this summer,” he says. “I’m so glad we didn’t have the steel coming out the ground when this hit. We were fortunate in that aspect, that we didn’t start.”

Little Bit Of Both Then there are air ports where projects are both moving forward and temporarily backing off. At Dallas-Fort Worth International Airport (DFW), for example, airport officials had been working with American Airlines on the construction of a new terminal. A fourgate expansion of Terminal D, that acted as phase one of the project that would result in a new Terminal F, is proceeding as planned, as is the completion of a new integrated operation center, says Bill Begley, spokesman. The new Terminal F building, however, is indefinitely on hold. “These projects are important for the airport, and so they also are important for the region,” he says. “At the appropriate time, we will sit down with American Airlines and discuss what comes next for the Terminal F project.”

AIRLINES

ROUGH SKIES

Despite Looming Challenges, Aviation Analysts Are Bullish Long Term BY DAVID WARD

here’s no sugar-coating it: the current demand scenario is grim for both airlines and airports of all sizes, with little hope of a fast snapback in either leisure or business travel. “This summer is going to be the worst on record and I am very concerned about the fall because it’s very uncertain when business travel is going to return – and when it does it will a fraction of what it was before,” says Henry Harteveldt, president and travel industry analyst with San Francisco-based Atmosphere Research Group. “We need to accept the fact that most of 2020 will be a write-off year.” Next year is expected to be better, although concerns remain that while leisure travel will begin to come back,

business travel may remain curtailed as firms look to cut expenses where they can. “If we get to 50 percent year-over-year increase in 2021, that would be strong growth,” says Stephen Van Beek, director and head of North American aviation for consulting firm Steer. “We’re forecasting a 90 percent recovery in three years and 100 percent in four years.” The return of both domestic and international traffic is not simply a matter of passengers feeling safe when they fly, but also the long-term global economic impact of the current pandemic, according to William Swelbar, chief industry strategist with Delta Airport Consultants. “Not only am I concerned about the air travel consumer’s confidence that flying is safe from a health perspective, I am just as concerned that there will not be the same ability to buy air travel,” he says. “I remain of the view that a significant number of jobs in place on March 1 are not coming back.”

Airlines Persevere Carriers will have to adjust the new economic reality, Swelbar says, adding that it’s almost certain that frequency will be lost as airlines stay cautious about adding capacity for the sake of market share. “At this point and barring a tidal wave of new virus cases, we do not believe that any major carrier will fail as they all have built war chests full of liquidity,” he says. “However, I am not so confident that all connecting hubs in place on March 1, 2020 will be connecting hubs on March 1, 2022. The network carriers in particular are going to be smaller.”

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AIRLINES

15 Most Impacted Airports By Hub Grouping1

(Measured by absolute traffic impact, July 2020 Update)

Large Hub Airports

Medium Hub Airports

Small Hub Airports

Hartsfield-Jackson Atlanta International

Austin-Bergstrom International

Memphis International

O’Hare International (Chicago)

Raleigh-Durham International

Norfolk International

Los Angeles International

Nashville International

Richmond International

San Francisco International

Louis Armstrong New Orleans International

Will Rogers World (Oklahoma City)

Denver International

San Jose International

Reno-Tahoe International

Seattle-Tacoma International

St. Louis Lambert International

Louisville Muhammad Ali International

Dallas/Fort Worth International

Kansas City International

T. F. Green (Providence)

McCarran International (Las Vegas)

San Antonio International

Spokane International

Boston Logan International

Sacramento International

El Paso International

LaGuardia (New York)

Dallas Love Field

Boise International

Minneapolis-St. Paul International

William P. Hobby (Houston)

Gerald R. Ford International (Grand Rapids)

George Bush Intercontinental (Houston)

John Wayne (Orange County)

Tucson International

Newark Liberty International

Cleveland Hopkins International

Birmingham-Shuttlesworth International

Phoenix Sky Harbor International

Pittsburgh International

Savannah/Hilton Head International

Orlando International

Oakland International

Tulsa International

1. Reflects actual throughput for January and February 2020. March – December 2020 estimated based on June 2020 v. June 2019 published schedules. Source: Delta Airport Consultants, Inc.

15 Most Improved Airports By Hub Grouping1 (Measured by percentage change in traffic impact, July 2020 v. June 2020) Large Hub Airports

Medium Hub Airports

Small Hub Airports

Fort Lauderdale-Hollywood International

Southwest Florida International (Fort Myers)

Atlantic City International

Dallas/Fort Worth International

West Palm Beach International

Myrtle Beach International

Miami International

Nashville International

Destin-Fort Walton Beach

Philadelphia International

Charleston International

Bozeman Yellowstone International

Orlando International

Indianapolis International

Harrisburg International

Salt Lake City International

St. Louis Lambert International

Northwest Florida Beaches International (Panama City)

Tampa International

Jacksonville International

Key West International

Baltimore/Washington International Thurgood Marshall

Bradley International (Hartford)

Pensacola International

Phoenix Sky Harbor International

Eppley Airfield (Omaha)

Tulsa International

Charlotte Douglas International

John Glenn Columbus International

Wilmington International

Detroit Metropolitan Wayne County

Cleveland Hopkins International

Sioux Falls Regional

Newark Liberty International

Louis Armstrong New Orleans International

Colorado Springs

Minneapolis-St. Paul International

William P. Hobby (Houston)

Savannah/Hilton Head International

Boston Logan International

Pittsburgh International

Springfield-Branson National

McCarran International (Las Vegas)

Kansas City International

Palm Springs International

1. Reflects actual throughput for January – March 2020. April – December 2020 estimated based on July 2020 v. July 2019 published schedules. Analysis includes traffic for the following carriers: AA, DL, UA, WN, AS, B6, NK, F9, G4, and SY. Airports within the 48 contiguous states only, excludes EAS markets. Source: Delta Airport Consultants, Inc.

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Robert Mann, president of RW Mann & Company, says carriers will do what they can in the short-term to both raise and preserve capital. That includes reducing scheduled capacity and grounding aircraft while also monetizing idled equipment opportunistically in non-standard ways to generate cash, such as flying all-cargo, zeropassenger operations. “Airlines live on cash, and cash flow modeling is limited by the unknown – unknowns of airline self-help effectiveness and government/civil actions, including localized, successful relaxation/restoral of stayat-home orders, availability of rapid testing, ‘COVID Passports,’ and the wide availability of an eventual oral vaccine,” he said Airlines will also make the case for additional financial support from the federal government, Mann says, adding, “An industry call for a ‘GRANTS 2.0’ package is likely by early August 2020, to allow time for legislative action.” While cuts in capacity and frequency are likely, Harteveldt says most carriers should continue to support their hub airports throughout the downturn. “Airlines have invested a significant amount of money in creating their hub airports, and while their strategies for those hubs will differ depending on the market, I don’t expect to see airlines drop any of the hubs,” he says. “It may be that some hubs will shrink, but it’s also possible that some hubs will perform so well and return to former capacity so quickly that they can grow.” That doesn’t mean every hub airport will continue to see the same support. “Before Covid-19, American Airlines had already begun to reduce its presence at Phoenix Sky Harbor International Airport (PHX), so it will be interesting to see if American still considers Phoenix to still be a hub or not in the future,” Harteveldt says. There’s also the increasing likelihood of airline employee furloughs, once the restrictions on layoffs that were tied to the carriers receiving funds from Coronavirus Aid, Relief, and Economic Security (CARES) Act expire this fall. In early July, United Airlines announced it could furlough as many as 36,000 workers – nearly 40 percent of its staff – starting Oct. 1 if travel demand remains weak. Other carriers are expected to announce similar moves with the one impact being a reduction in service to some mid-size airports, especially those located near cities with a major airport.

AIRLINES

15 Least Improved Airports By Hub Grouping1

(Measured by percentage change in traffic impact, July 2020 v. June 2020) Large Hub Airports

Medium Hub Airports

Small Hub Airports

San Francisco International

Hollywood Burbank

St. Pete-Clearwater International

Seattle-Tacoma International

San Jose International

Orlando Sanford International

Reagan National (Washington D.C.)

Dallas Love Field

Eugene

Midway (Chicago)

San Antonio International

Westchester County

Dulles International (Washington D.C.)

Ontario International

Long Beach

Los Angeles International

Oakland International

Lubbock Preston Smith International

Portland International

Mitchell International (Milwaukee)

Rogue Valley International-Medford

San Diego International

Raleigh-Durham International

Phoenix-Mesa Gateway

John F. Kennedy International (New York)

Sacramento International

Birmingham-Shuttlesworth International

LaGuardia (New York)

Albuquerque International

T.F. Green (Providence)

Hartsfield-Jackson Atlanta International

Buffalo Niagara International

Dayton International

George Bush Intercontinental (Houston)

Cincinnati/Northern Kentucky International

Long Island MacArthur

O’Hare International (Chicago)

Austin-Bergstrom International

Syracuse Hancock International

Denver International

John Wayne (Orange County)

El Paso International

McCarran International (Las Vegas)

Kansas City International

Manchester-Boston Regional

“When there’s growth we’ve seen carriers expand outside, say, Boston, to Manchester and Providence, and when there’s a recession we see that traffic pulled back,” says Van Beek.

Most Airports Should Survive Even with some cutback in service and frequency, Van Beek says he is optimistic about the prospects for most airports to survive, in part thanks to the money provided in the CARES Act. “The $10 billion put into U.S. airports, is much more than got put into airports in Canada and Europe,” he says. “That meant U.S. airports didn’t have to cut to the bone.” Airports will likely have to adjust the landing fees they charge carriers, Van Beek adds, simply because many routes will not be profitable for airlines until demand returns. “When traffic goes down, in order to cover the cost of the airfield, airport used to be forced to raise their rates dramatically,” he says. “What airports are trying to figure out now is how to adjust those rates that then allow airlines to come in and pay something reasonable and then gradually adjust those rates as traffic increases.” Many airports have already announced plans to postpone some gate expansions and other infrastructure projects. Other steps could include cutting airport operating costs, Harteveldt says. “What remains to be seen is whether small to mid-size airports reopen all of their

facilities or decide to shutter a terminal or a concourse and consolidate operations into a smaller footprint to reduce expenses, at least on a temporary basis, to make life better for workers and for concessionaires,” he says. As traffic returns in the coming years, the largest airports, especially those that are hubs to major carriers, are expected to be the first to recover, Swelbar says. “We are of the view that the recovery will very much mirror the recovery from the Great Recession,” he says. “First will be the large hubs; then the medium hubs; then the small hubs; and hopefully as many non-hubs as possible.” Swelbar remains bullish on the majority of the medium hub and small hub airports. “I do not see a return to 2019 levels in 24 months for all, and for some 36 months will likely not be enough time,” he says. “But you have to like their chances because these sized markets can sustain a large regional aircraft as well as a small mainline aircraft.” Swelbar adds, however, that not every airport is going to have the frequency of flights necessary to convince passengers to stay local. Some are expected to drive to the larger hubs for more flights and better fares. “While I want all airports to survive, it is hard to imagine that being the case, particularly for non-hub airports within a reasonable driving distance to a large hub airport or an airport offering ULCC service,” he says.

As traffic returns in the coming years, the largest airports, especially those that are hubs to major carriers, are expected to be the first to recover. – William Swelbar, chief industry strategist, Delta Airport Consultants.

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ONE-ON-ONE

AIRPORT RESILIENCY Fitch Ratings Analysts See Underlying Health In Nation’s Airports BY CAROL WARD

itch Ratings recently released its latest assessment the health of airports amidst the global pandemic. While risk varies by airport, Fitch by and large sees resiliency in the airport sector, buoyed by solid airline relationships and strong liquidity levels. Fitch says it is taking a conservative look at passenger demand in the future, with the ratings group assuming enplanement levels in calendar-year 2020 at half of what they were in 2019. The model assumes recovery of 85 percent in 2021, 95 percent in 2022 and 100 percent in 2023, all relative to 2019. While the ratings agency also modeled two additional coronavirus downside cases to reflect a more difficult recovery, its current projections are based on the former model. Senior Director Seth Lehman and Director Jeffrey Lack, both in Fitch’s global infrastructure and global finance group, spoke with AXN’s Carol Ward about their approach to assessing the financial health of U.S. airports in this uniquely challenging time. WARD: Your recent reports say airports have been fairly resilient in this crisis. What’s the longer-term prognosis? LACK: The strength of the airports comes from their lease and use agreements. These have stood the test of time and allow the airports to recoup their costs from the airlines. That’s why we see a lot of resiliency. Right now, we are seeing the non-airline revenues down dramatically, given that there are not many passengers flowing through the airports. The airlines are still paying in full – some airports are giving waivers where airlines can [defer payments] for a period of three to six months. However,

Seth Lehman, senior director, Fitch Ratings

Jeffrey Lack, director, Fitch Ratings

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they’re going to collect those funds later on. What we’ve seen is that, historically, the airlines always make their payments to the airports because they need the airports to operate and to generate cash flow. Even when airlines go into bankruptcy, they don’t reject the operating agreements with airports. Also, what they pay to the airport relative to their overall cost structure – including fuel and labor costs – is a small piece. We think longer term that airports will remain resilient. Right now, there is uncertainty regarding the future of employment volume and where the trough will be. We do expect temporary shocks to the debt service coverage profile, as well as leverage. Our ratings are forward-looking over a more stabilized, longer-term horizon, so we’re looking to that period after this temporal shock. WARD: Your ratings right now are based on an assumption that traffic will recover at a somewhat modest pace, but will recover without any future major shocks, correct? LACK: Right now [we’re working with a] forecast that enplanement volume will return to the 2019 level by 2023 or 2024. That’s not to say that beyond that there couldn’t be future shocks, but this is looking at a five-year horizon. WARD: Have you considered a more immediate shock, like a second major wave of this pandemic that would ground everybody again? LACK: Airports are going to be influenced by government decisions and restrictions on where airlines can fly or not fly. It’s hard to tell how governments will react if there is a second wave of the coronavirus. It’s still

ONE-ON-ONE

2020 Liquidity Coverage Ratio U.S. International Gateway and Primary Hubs Liquidity Coverage

(x)

Liquidity + CARES Act Coverage

6.0 5.0 4.0 3.0 2.0 1.0 0.0

MWAA

O'Hare

U.S. Regional Airports

San Francisco

DallasFort Worth

Port of Seattle

Miami

JFK IAT

TOGA

Liquidity + CARES Act Coverage

Harrisburg

Indianapolis

Burlington

New Orleans

San Jose

San Antonio

St. Louis

Louisville

Cleveland

Dayton

Port of Oakland

Memphis

Buffalo

Birmingham

El Paso

Rhode Island

Alaska Airport System

10.9

Palm Beach

Milwaukee

Ft. Myers/Lee County

Fresno

10.9

Raleigh Durham

Kansas City

Hartford

Boise

Ontario

Nashville

Northern Mariana Islands

Cincinnati

Burbank

10.7

Liquidity Coverage

32.3 42.4 23.4 25.4 19.7 27.4 19.6 34.6 16.4 19.5 12.8 16.9 10.5 13.6

Albuquerque

(x) 10 50 8 6 4 2 0

PANYNJ

Long Beach

LAX

Richmond

Atlanta

CARES – Coronavirus Aid, Relief and Economic Security Act. Note: Liquidity Coverage Ratio calculated as the sum of the cash-funded debt service reserve fund plus unrestricted cash, divided by total debt service payments due in 2020. Terminal projects, such as JFK IAT and TOGA, were not directly eligible for CARES Act grants. Source: Fitch Ratings.

ongoing right now, and we are seeing in the U.S. how this could potentially cause a recession given how long the economy has been shut down. I don’t know that governments would react in the same way if there is a second wave. That’s hard to know and would be outside of the realm of our forecast. Right now, we’re working with the assumption that there will be a vaccine at some point, and that the volumes will slowly improve. LEHMAN: We try to be very conservative about how we are looking at traffic in the coming months, and we always adjust if circumstances change. WARD: Have all the airports you track been put on credit watch negative? LACK: The majority of our airports are on what we call a rating outlook negative. What that means is, looking out over a one- to two-year horizon, there could be negative action over that timeframe. We do have smaller airports that are serving regional markets that have weaker franchise strength. We see those markets having more acute risks due to carriers either not putting back service or just weaker service areas where the economy could take longer to recover. Given the weaker positioning and the more acute risk, those are on what’s called “rating watch negative.” Some examples

would be Dayton, Ohio; Fresno, California; Harrisburg, Pennsylvania. WARD: In a recent report, Fitch called out Charlotte International (CLT), Chicago Midway (MDW) and Dallas Love Field (DAL) as particularly vulnerable because they rely largely on a single carrier. Is that because you think a carrier could go bankrupt or disappear? LACK: I think that naturally an airport that is serving just one carrier will inevitably be higher risk, according to our criteria, than a diversified airport. It’s not necessarily a negative when [the airport serves as a hub], but I think these markets have the highest concentration, in our rated portfolio, of a single carrier. They are subject to scheduling decisions of that carrier. If that carrier decides, coming out of the coronavirus, to put fewer flights in that airport, that’s naturally going depress volume levels. LEHMAN: We know that airlines have multiple hubs in their networks, and we try to draw an opinion on which hubs are viewed as primary hubs and most important to the airline. We then identify other hubs where there could be some contraction if the demand starts to become less robust.

A X N E W S JU LY/A UG U S T 2 0 2 0

ONE-ON-ONE

WARD: Among small and medium hub airports, which are most vulnerable and why? LACK: For a given market, we look at the franchise strength and then at the financials. At highest risk are many of the smallest airports that have the least amount of service – they don’t have much diversity in the flight routes and just have weaker underlying service areas. Those predominantly are the ones on the rating watch negative. For the least risk we have some stronger cities, airports that have very low amounts of debt outstanding, and are just in strong financial positions. Then in the moderate risk, an airport might have some slightly stronger service areas but have a lot of debt on the books right now. Or you could have some smaller airports that are strong in their financials. They may have more cash on hand than they do debt outstanding – that allows them to be lower risk given their strong financial profile. WARD: Are you concerned about any specific actions of airlines and the impact those actions might have on the airports that you that you rate? LACK: Historically, when an airline goes into bankruptcy, they typically have not rejected the leases with the airports, so they continue to serve the airports and they continue to make payments. The good thing about entering the pandemic now is that the airlines were in a better position than they were going into the financial crisis. They had more liquidity, less debt, and were just in a better position in terms of their ratings as a starting point. We have seen some negative migration in those airline ratings, but they’re still better off than they were 10 or 15 years ago. Each airline is making different operational decisions. Some airlines are returning service quicker than others. Some airlines are keeping middle seats unoccupied. We’re paying attention to the actions because some airlines may say they’re bringing back service, but if there are limitations on seats or if there are other barriers, it can make a difference on whether the airports are able to benefit from the increased service up to the fullest level possible.

“The good thing about entering the pandemic now is that the airlines were in a better position than they were going into the financial crisis. They had more liquidity, less debt, and were just in a better position in terms of their ratings as a starting point.” – Jeffrey Lack 32

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“As traffic builds up, some airports have been more amenable to [using] a percentage of sales formula versus a minimum guarantee formula. If the downturn is prolonged and airports continue to use percentage of sales, the airport does build up a loss of revenue they were otherwise budgeting.” – Seth Lehman WARD: Airports received CARES Act money to help them through this time. A lot of the concessionaires and other tenants are seeking rent relief. Do airport actions in relation to their non-aeronautical tenants have an impact on how you view them? LACK: We’ve been talking to airport management and by and large, most of what they’re doing are deferrals. And the main change is that they’re switching to a percentage of rent instead of having and enforcing the minimum annual guarantees. As volumes improve, we think these other revenue streams will improve as well. And as you pointed out, the CARES Act does provide a little bit of buffer so that when these revenue streams tied to passenger volumes that are depressed, the airports can make up that differential. LEHMAN: During the period when traffic was very low there were a number of concession locations that were shut down. The airport is financially harmed by these closures. As traffic builds up, some airports have been more amenable to [using] a percentage of sales formula versus a minimum guarantee formula. If the downturn is prolonged and airports continue to use percentage of sales, the airport does build up a loss of revenue they were otherwise budgeting. They have to then pick a battle – how do they mitigate that risk? The CARES Act is helping now but we expect it will not be repeated. It will be up the airport management figure out what the appropriate actions is. LACK: A lot of the U.S. airports tend to have strong liquidity or cash positions as well. That gives us a little bit of comfort, that in an absolute worst case they could draw upon their own liquidity in the short term to meet any sort of debt service or rate covenant obligations that they might have.

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BEFORE YOU TAKE OFF

CAR-PARK ENTERTAINMENT Airports Tap Empty Parking Facilities To Offer Drive-In Movies BY SHAFER ROSS

Above: The economy parking lot at Winnipeg Richardson International Airport can accommodate up to 200 cars, with a nine-by-five-meter HD screen and seven screenings planned in the months of June and July.

A X N E W S J U LY/A UGU S T 2 0 2 0

ince mid-March, many everyday avenues of entertainment have had to temporarily close their doors as the world weathered the isolating effects of the COVID-19 pandemic. With many people suffering “cabin fever,” two North American airports decided to mix things up a bit, while adhering to CDC guidelines for social distancing. In June and July, California’s Ontario International Airport (ONT) opened up its Parking Lot 5 to locals who wanted to drive over, tune in via FM radio signal and watch a free movie. Two fifty-foot screens showed movies on four different nights, beginning with the first showing which took place in mid-June. “This was a free event, at a time when people have been looking for a safe, entertaining diversion,” says Steve Lambert,

a media representative for ONT. “The city lined up a vendor and together with our community engagement and marketing team put together a series of four movie nights through July 31.” The airport, the City of Ontario and Street Food Cinema collaborated to plan and execute the drive-in movie series. The event facilities could accommodate up to 300 cars, and the airport asked that guests register online in advance to help with crowd management. Officials at Winnipeg Richardson International Airport (YWG) had a similar idea. “Winnipeg Airports Authority strongly believes in supporting our community and facilitating innovative ideas like a pop-up drive in movie theatre,” says Michel Rosset, communications specialist at YWG. “We’re proud to be able to provide part of the airport campus to make this memorable experience possible.” The economy parking lot at YWG can accommodate up to 200 cars, with a nine-by-five-meter HD screen and seven screenings planned in the months of June and July. Proceeds from the showings target several local charities, including the Health Sciences Centre Foundation COVID19 Crisis Response Fund, Winnipeg Harvest and United Way Winnipeg, all organizations currently working to help the community fight the effects of COVID-19. “This felt like a great opportunity for us to bring people to the airport campus during a time of low travel to create lasting memories and spread joy within our community,” says Rosset. “We are proud to be the backdrop for this unique experience where community members can enjoy a safe night out and at the same time, support local organizations making a difference in our community during this difficult time.”

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