JANUARY/FEBRUARY 2021 / V19 N232
RIGHT-SIZING
CONCESSIONS
A MOVING TARGET
ACDBE Program Challenges Persist ON-AIRPORT
COVID TESTING EXPANDS DRAMATICALLY
READY. SET.
TUK TUK GO!
Paradies Lagardère is thrilled to introduce Tuk Tuk Go, a creative new twist on convenient and highquality grab and go options for travelers and airport staff. Such offerings should be as fun and engaging as our quick and full-service restaurants, and Tuk Tuk Go delivers just that and more. Up and running at OKC, opening soon at YYC‌ and more on the way!
paradieslagardere.com
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16 Size Matters
With traffic low but hopes high, airport properties managers grapple with how to right-size concessions programs for maximium passenger satisfaction and revenue optimization.
20 Program Tweak?
Running an ACDBE-certified business been fraught with challenges for years. Those issues have been exacerbated in the current downturn, prompting new discussions on how to help ensure the small businesses involved will thrive.
24 Testing The Limits
Airports want travelers back in the terminal. Ensuring confidence in the safety of the space is key;, and providing virus testing services could be a major draw.
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4 Letter from the Editor-In-Chief 6 Data Check
28 Airline Fortunes
Ultra-low-cost carriers seize the spotlight as leisure travel ramps up and business flying stagnates.
The 2020 Airport Experience Fact Book reveals the top-performing concessions programs in North American airports in 2019.
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8 Latest Buzz
Undeterred by pandemic, Chicago’s O’Hare International Airport pushes forward with a billion-dollar overhaul of its Terminal 5, which includes 10 new gates.
32 Advertising Index 33 Before You Take Off
LaGuardia Airport’s Terminal B welcomes a singular water feature celebrating the iconic landmarks of New York.
12 Director’s Chair
Savannah/Hilton Head International Airport is managing through the pandemic slightly better than the national average; Director Greg Kelly attributes this – at least in part – to leisure travel.
A X N E W S J A N U A R Y/ F E BRU A R Y 2 0 2 1
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MARCH 2 - 3, 2021
TEAM Desiree Hanson
Executive Vice President
Melissa Montes
SHAPING TOMORROW’S AIRPORT EXPERIENCE.
Publisher
Todd Cusumano Business Development Manager
Carol Ward
Editor-in-Chief
Andrew Tellijohn
Senior Reporter
Shafer Ross
Copy Editor and Writer
Sally Kral
Contributing Writer
David Ward
Contributing Writer
Airport Experience® News Announces Virtual Summit This two-day educational event will convene airport executives, operators and other industry leaders for a series of online events designed to help lay the groundwork for the industry’s future.
For more information on attending or to sponsor, visit airportxnews.com/conference
Barbara Moreno
Portfolio Coordinator
Chad Wimmer
Senior Editorial Art Director
Rae Lynn Cooper
Production Manager
Amanda Gochee
Group Marketing Director
Paige Heady
Senior Marketing Manager
Jenna Rothermel
Marketing Coordinator
Mawuena Bruce
Marketing Coordinator
Simon Kimble Chairman
Greg Topalian
President and Chief Executive Officer
Mark Wilmoth
Chief Financial Officer
Airport Experience® News Is a Division of CLARION Events 6421 Congress Ave., Suite 107 Boca Raton, FL 33487 Phone 561.257.1026 Fax 561.228.0882 To subscribe visit https://airportxnews.com/subscribe/ ISSN: 1948-4445 Copyright © 2021 Airport Experience® News, all rights reserved. Any reproduction of this magazine is strictly forbidden without prior permission from Airport Experience® News.
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FACT BOOK VOL. 23
2020 FACT BOOK HAS LANDED PURCHASE YOUR COPY TODAY
1 2/2021
Dear Readers, JANUARY/FEBRUARY 2021 / V19 N232
RIGHT-SIZING
CONCESSIONS
A MOVING TARGET
ACDBE Program Challenges Persist ON-AIRPORT
COVID TESTING EXPANDS DRAMATICALLY
Happy New Year! I think most of us were happy to say goodbye to 2020 and embark on a new year with new determination and drive to revitalize our businesses and industry. It’s been 12 months since we first started hearing about a new virus in China but few, in the January/February 2020 timeframe, could have predicted just how devastating it would be to aviation. This year begins with high hopes. Vaccines are beginning to roll out throughout North America and around the world. Passenger numbers are still depressed but there are rumblings of a cautious rebound, particularly with regards to leisure travel. Airports and concessionaires are reimagining their relationships and their future positioning as all begin to build back what was lost. As the leader in North American airport concessions coverage and events, Airport Experience News is eager to partner with the industry on its reinvention. In mid-January, we announced that we will host the AX Virtual Summit, an event designed to lay the groundwork for the industry’s future. Mark your calendars for March 2-3 and join us online! More information can be found here. This issue of Airport Experience News also underscores that commitment to rebuilding the industry. Check out this issue’s features on right-sizing concessions and improving the ACDBE program, as well as a look at airline actions and how they might impact airports. This digital issue is supplemented by our webinars, video interviews, podcasts and more. For breaking news and additional multimedia content, check out our website at www.airportexperiencenews.com. The AXN team will continue to partner with airports and concessionaires as together we navigate back to growth. Best regards, Best regards,
Carol Ward Editor-in-Chief Airport Experience News
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MARCH 2 - 3, 2021
SHAPING TOMORROW’S AIRPORT EXPERIENCE. Airport Experience® News Announces Virtual Summit This two-day educational event will convene airport executives, operators and other industry leaders for a series of online events designed to help lay the groundwork for the industry’s future.
For more information on attending or to sponsor, visit airportxnews.com/conference
DATA CHECK
REVENUE LEADERS
The 2020 AX Fact Book Reveals Top Performing Airport Concessions Programs BY CAROL WARD Top 10 Performing North American Airports* In 2019
*based on a survey of more than 80 commercial airports (includes duty free sales) Airport
Enplanements
Total Sales
Sales E/P
John F. Kennedy International Airport (JFK)
31,176,518
$728,098,127
$23.35
Los Angeles International Airport (LAX)
42,814,335
$835,580,260
$19.52
Miami International Airport (MIA)
22,685,074
$401,627,209
$17.70
San Francisco International Airport (SFO)
28,665,071
$499,595,697
$17.43
Montréal–Trudeau International Airport (YUL)
10,125,723
$164,911,568
$16.29
Newark Liberty International Airport (EWR)
23,220,709
$360,245,721
$15.51
Pittsburgh International Airport (PIT)
4,894,337
$72,122,178
$14.74
McCarran International Airport (LAS)
25,217,883
$367,014,034
$14.55
Boston Logan International Airport (BOS)
21,160,354
$284,731,819
$13.46
Phoenix Sky Harbor International Airport (PHX)
23,215,527
$307,488,658
$13.24
Source: AX Fact Book 2020
OVERALL
LAX
was the concessions sales leader in 2019, reaching $835.6 million in total sales. F&B
ATL
had the highest total Food & Beverage sales in 2019 at $394 million. S P E C I A LT Y R E TA I L
ATL
also had $87.56 million in Specialty Retail Sales, the highest among airports surveyed. N E W S S TA N D
LAX
led in Newsstand/Travel Essentials sales, which totaled $144.1 million. DUTY FREE
JFK
topped the list in Duty Free sales, at $243.9 million.
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he top 50 international airports surveyed by Airport Experience News had an average spend per enplaned passenger of $12.22 in 2019, according to the AX Fact Book. The AX Fact Book includes extensive concessions data collected from more than 90 U.S. and Canadian airports. Among the top 50 airports in the survey, the average food and beverage sales came in at $7.96 per passenger in 2019. The retail segment was divided into three separate categories. Specialty retail sales averaged $1.51 per enplaned passenger, while spend per enplaned passenger on newsstand/ travel convenience sales averaged $2.47, and on duty free products averaged $1.42. New York’s John F. Kennedy International Airport (JFK) was the top performer among participating airports, turning in a whopping $23.35 average in concessions sales per enplaned passenger. JFK served 331.2 million passengers in 2019 and recorded concessions sales of $728.1 million. While JFK ranked fifth among participating airports in passenger numbers, the airport led the field in duty free sales at $243.91 million. Los Angeles International Airport (LAX) ranked second in sales per enplaned
T
passenger at $19.52. The airport enplaned 42.81 million passengers and generated $835.58 million in concessions sales in 2019, making it the overall concessions sales leader. Miami International Airport (MIA) ranked third with 22.69 million passengers spending a total of $401.63 million in 2019, translating into $17.70 per enplaned passenger. The top six airports all had sales per enplaned passenger exceeding $15. After the top three, San Francisco International Airport (SFO) recorded sales of $17.43 per enplaned passenger, followed by Montréal– Trudeau International Airport (YUL) at $16.29 and Newark Liberty International Airport (EWR) at $15.51. Hartsfield-Jackson Atlanta International Airport (ATL) had the highest number of enplanements overall, at 55.25 million, but ranked outside the top 10 performing airports. ATL’s performance was also below the average for the top 50 airports, coming in at $10.37 per enplaned passenger compared to the top 50 average of $12.22. ATL led in total sales of food and beverage ($394 million) and specialty retail ($87.56 million). LAX was the leader in total newsstand/travel essentials sales at $144.1 million in 2019, while JFK led the field in total duty free sales at $243.9 million.
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LATEST BUZZ
WINDY CITY EXPANSION ORD Pushing Forward On $1.2 Billion Terminal 5 Overhaul BY DAVID WARD
Above: When it formally opens in late 2021 or early 2022, the newly expanded Terminal 5 at O’Hare International Airport will feature 75 percent more space for passenger amenities and concessions.
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he Chicago Department of Aviation (CDA) spent key parts of 2020 looking forward despite the pandemic, as it continued progress on the $1.2 billion expansion of O’Hare International Airport (ORD) Terminal 5 (T5) that adds 350,000 square feet of additional space and 10 more gates. The CDA completed the site/civil construction associated with the expanded aircraft aprons in July and commenced structural steel formation on the building in December as part of the project to remodel and reconfigure
T
substantial portions of the existing terminal. “Work on this difficult project all mobilized during the initial months of the pandemic and is largely on time despite pandemic-related challenges,” says Rob Hoxie, chief development officer, adding that 2021 will see more than $1 billion in capital improvements by the CDA, much of that work on the new terminal. Actual work on the T5 expansion began in 2019 and is expected to be completed at the end of this year or early 2022, despite the challenge of the last 12 months.
LATEST BUZZ
Key Elements Among the highlights of the expanded T5 will be a two-story interior curtain wall made of glass panels on the East Concourse. The tinted panels depict lakes, shallow shores, city buildings, farmland and other highlights of the Chicago area while still allowing natural light to filter through, creating an open and airy feeling for passengers. “Key points of congestion in the terminal, notably the international arrivals hall and passenger security screening checkpoint, will be expanded and reconfigured to reduce wait times, crowding, and congestion,” says Hoxie. “Overall space allocated to passenger amenities, including commercial spaces and passenger lounges, will increase 75 percent, versus the existing terminal.” Many of ORD’s current carriers, including Delta Air Lines, American Airlines and United Airlines, are slated to move from their existing ORD gates to the expanded T5 for both domestic and international routes when it opens.
“Substantial investments are being made to expand Terminal 5’s ability to accommodate all international arrivals, until the future O’Hare Global Terminal (set to open in 2028) can be delivered, and for it to simultaneously accommodate increased levels of domestic activity,” Hoxie says. “O’Hare’s vision for the future will be to migrate Terminal 5 to the terminal of choice for airlines focused on carrying local passengers coming to or leaving from Chicago, regardless of whether the flight is domestic or international or whether it is on a large or small aircraft.”
Future-Proof Design HOK and Muller & Muller are the architectural firms working with the CDA on the T5 design. William Jenkinson, regional leader of aviation and transportation at HOK, says the goal is to create an expansion that works in harmony with the current Terminal 5 architecture. “The new T5 offers a greatly improved customer experience from curb to gate
with enhanced security, spacious gate lounges, upgraded restrooms and advanced technology to help transform O’Hare’s international gateway into a world-class experience,” he says. The pandemic and resulting enhanced industry emphasis on passenger health and safety has triggered some changes in the original Terminal 5 design, Jenkinson says. “Much of the processing along the passenger journeys is becoming digital, touchless and biometric,” he says. “The pandemic seems to be accelerating technological advancement in these areas.” Many of the design tweaks as a result of the pandemic will be especially evident in the areas around gates. “In contrast to the low ceilinged, sometimes densely packed gate areas, our new lounges will have more space, volume, natural daylight and easy access to generous amenities,” Jenkinson says. He adds that restrooms in the expanded terminal are designed not only to be easier to clean but to allow for more spacing between guests and an increasingly touchless experience.
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LATEST BUZZ
Above: The new ORD Terminal 5 design allows for plenty of natural light throughout the concourse, lounges and gate areas, creating an open and inviting environment with views of the airfield and the Chicago skyline.
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David Steele, senior architect at Muller & Muller, says T5’s design will also provide airport officials with the ability to accommodate variations in the economy, flight schedules, and passenger type over time. “Most gates are configured to accommodate multiple aircraft sizes, providing flexible usage of valuable and limited apron space,” he says. “This allows the terminal to accommodate wide body international flights with aircraft as large as the A360, with seamless conversion to an increased number of gates for smaller aircraft typical of domestic and short haul flights.” Other new features include an expanded security checkpoint with almost double the capacity for passenger processing, a postsecurity marketplace with an enlarged and improved shopping and dining experience, and airport lounges with plenty of natural light and views of the Chicago skyline. The CDA is also planning a new parking garage to replace existing surface parking,
which will yield 1,600 additional spaces adjacent to the terminal, and a new-state-ofthe-art baggage handling system to replace the existing 25-year-old infrastructure. “TSA bag screening will be enhanced with consolidation and equipment upgrades using the latest TSA standards and equipment,” Steele says. “This will increase efficiency of bag sorting and delivery times and will also enhance security by bringing T5 up to the highest level of current bag screening processing and technology with the ability to be enhanced as standards are further improved in the future.”
T5 Concessions and Amenities With construction on schedule, Hoxie says the CDA is looking to release RFPs for the concessions in the expanded spaces early this year. “The pandemic did impact the timeline, as CDA was concerned with releasing them earlier in 2020, as originally planned, because
LATEST BUZZ
of the burden that submitting a proposal might put on small businesses during the pandemic,” he says. “However, CDA has been encouraged by the robust response to smaller concessions RFPs it released in July 2020 and looks forward to reviewing the proposals for the new T5 spaces.” Hoxie adds the RFPs will include provisions encouraging the maximum participation by minority- and womenowned businesses. The CDA is keeping both the local business community and other Chicago stakeholders abreast of the project, as well as any new opportunities for small business at both ORD and Midway International Airport (MDW). “In addition to its partnership with Business Affairs and Consumer Protection (BACP), the CDA presents quarterly workshops to educate the public on the best practices in opening concessions at both airports,” Hoxie said. “In partnership with Choose Chicago, the CDA has also executed strategic marketing initiatives to promote Chicago’s airports’ connectivity, amenities, and modernization plans –
driving passenger satisfaction and economic activity. There has never been a more important time for CDA to partner with Choose Chicago to combine its efforts to restore traveler confidence and align strategies that can evolve as the travel climate continues to grow.”
Below: The Terminal 5 gates are now configured to accommodate multiple aircraft sizes, providing flexible usage of valuable and limited apron space, including the ability to handle everything from wide-body international aircraft to small domestic plane.
MARCH 2 - 3, 2021
SHAPING TOMORROW’S AIRPORT EXPERIENCE. Airport Experience® News Announces Virtual Summit This two-day educational event will convene airport executives, operators and other industry leaders for a series of online events designed to help lay the groundwork for the industry’s future.
For more information on attending or to sponsor, visit airportxnews.com/conference
A X N E W S J A N U A R Y/ F E BRU A R Y 2 0 2 1
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DIRECTOR’S CHAIR
POISED FOR REBOUND After Downturn, SAV’s Kelly Says Recovery Is Underway BY CAROL WARD
ditor’s Note: No commercial airport in North America has been immune to the negative impact the COVID-19 pandemic has had on passenger demand. Savannah/ Hilton Head International Airport (SAV), as the gateway to the city of Savannah, Georgia and to leisure destination Hilton Head Island, has fared better than most, tracking about 10 percent better than the U.S. average downturn for airports. Prior to the start of the pandemic, SAV was experiencing record growth, expansion plans were in the works and concessions were thriving. Gregory Kelly, executive director of the Savannah Airport Commission, is hoping to return the airport to its former vibrancy. He spoke with AXN’s Carol Ward about the outlook for 2021 and beyond.
E
Above: Gregory Kelly, executive director, Savannah Airport Commission.
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WARD: You’ve been leading Savannah International Airport for several years, and the airport was doing extremely well up until March of 2020. Can you share the impact the pandemic has had, and how you’ve managed through the crisis? KELLY: January and February were great – they were our strongest January and February on record. We were getting ready for another record setting year, anticipating 1.6 million enplanements versus 1.5 in 2019. March started out very strong, but by mid-March the bottom started to falter, and by the end of March the bottom had fallen out. As an airport operator, you always have to plan, train and be ready for crises and significant incidents. Inherently, we are prepared for disruptions and are prepared to go into an emergency response mode. Communication is the most important factor in working through a situation. We started immediate activation of our [Emergency Operations Center] to communicate with all tenants and communicate effectively with our passengers and our employees. We were very aggressive with that, taking the lead in handling a situation that was evolving in front of our eyes as best we could. We
were like everybody else: we’re trying to assess the situation and then stabilize what we could. Once things were stable, we were in a situation where we had to start making business decisions based on projections that were shaky at best because it was an evolving situation. Like everybody else, I was talking to our peer groups and industry partners to try to formulate some kind of path forward, from a business standpoint and from an operational standpoint. We handled it like a crisis and we managed through it. Now, we’re still in a crisis but we think we have a clearer picture of where we’re going. WARD: In the midst of all this you attracted Southwest Airlines to SAV. How big a deal is that for your airport? KELLY: We expected to have success with Southwest one day. We certainly didn’t expect it to come during a pandemic. It seems counterintuitive that we would get more air service during the worst possible downturn. Because we’re a leisure market and that is a segment that seems to be traveling more than the other segments, we were the beneficiary in terms of Southwest accelerating its decision to start service here.
DIRECTOR’S CHAIR
Above: Concessions at SAV have been hard hit by the downturn in passenger traffic. Airport officials have revised lease terms to charge only percentage rents through at least April 2021. Below: Savannah/Hilton Head International Airport was recording record growth pre-pandemic. Recovery is underway, buoyed by new service from Southwest Airlines starting this spring.
WARD: Do you anticipate that traffic will be returning in the coming months, especially with a vaccine on the horizon? KELLY: Generally speaking, after Christmas and New Year, historically our traffic has tapered off to some degree, although we were starting to work through that prior to COVID. We’re looking at January and February as significantly slow months, then for March we do expect an increase – we think it will be a pretty healthy bump that will put us back up to perhaps 50 to 40 percent off where we were in 2019, and we expect summer demand to be pretty strong. We’re anticipating that after January and February we’ll be back up to a somewhat respectable recovery rate – 10 percent above national average is where we’ve been hovering. March is also when Southwest starts with six daily flights to five cities, with over 30,000 seats. We serve Hilton Head and other parts of coastal Georgia. I think people have shown that during the pandemic they’re wanting to go to outside destinations and we certainly offer that here.
WARD: Given the downturn in traffic, are you pushing forward on infrastructure projects? KELLY: Because we had unprecedented, year-over-year double-digit growth in passengers for the past four years, we were exceeding the timelines for expansion that our master plan called for. We had fast-tracked our terminal capacity expansion plans and were prepared to begin construction on the expansion of our terminal building, a new security checkpoint area and increased apron parking – overflow parking for aircraft. When March came around, we put a freeze on everything to assess what was going on. Now we’ve re-prioritized our expansion plans. The terminal expansion plan is a little further down on the list of our capital projects. We will go 100 percent design on the terminal expansion and new gates and the checkpoint expansion – we’ll have that done this year, so we’ll have the documents ready in case the recovery comes quicker than what we are
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DIRECTOR’S CHAIR
seeing right now. We’re anticipating that passenger traffic will come back rather quickly, but having said that we have to conserve our cash right now. WARD: Turning to your concessions program, which companies currently offer concessions at SAV? KELLY: Our primary concessionaire on the food and beverage side is HMSHost and on the retail side is Paradies Lagardère. Then we have a handful of local small business operators. WARD: How have you supported your concessionaires through the crisis? KELLY: We didn’t wait for them to come to us. We had a [minimum annual guarantee] that was based on 2019 sales, which were record sales levels, and were experiencing 1986 enplanement levels. The reality of the business situation was there. Early on we offered a three-month deferment of payments, then we extended that through the end of September. When we saw this was going to be deeper than expected,
we did a temporary restructuring of our leases that shifted from MAG based to just percentage of sales through April 2021. From there we’ll see where things go. WARD: Are most of your concessions open, and what is your plan for reopening? KELLY: We’re about 70 percent open. Paradies pretty much stayed open – they’ve been very good about keeping their stores open and rotating hours to reflect demand. We used to know the plane schedules months in advance, now it’s a weekly adjustment. On the food and beverage side there’s a bigger challenge. HMSHost was pretty aggressive with shutting down and furloughing people early on. It’s been a slower track to get things back open but as our passengers are coming back, they’ve been good at gradually opening different venues. We’re sensitive to their needing to be viable from a business standpoint and we want to do everything we can to support that,
while at the same time making sure we have enough options for the passengers using our facilities. WARD: Are there any other major developments or initiatives you’d like to discuss? KELLY: We’ve had a big challenge with landside access at the interstate exit. We’ve been aggressively working on an initiative that would improve that interchange and hopefully eventually create a flyover solution. It’s a pretty big undertaking. The interchange is on airport property so it’s something we have to take the lead on. Also, as we’ve shifted priorities, air cargo is also a top priority for us. Our cargo complex is not adequate to support the demand here, and furthermore it’s in the middle of our redevelopment of the general aviation quadrant of the airport. We have a pretty big air cargo initiative underway – 150,000 square feet, with sizeable aircraft parking.
Left: Terminal expansion was imminent before the pandemic hit. Now they’ve been backburnered but design is being finalized to ensure readiness once conditions improve.
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AXiNsider is an interview-style podcast featuring in-depth discussions with professionals, leaders and wave-makers in the airport and concessions industries.
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DOWNSIZING? 16
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Despite Talk Of The Need For Right-Sizing, Airports Largely Focusing On Short-Term Concessions Program Tweaks BY ANDREW TELLIJOHN The Metropolitan Airports Commission (MAC), in mid-2020, began working with consultancy SI Partners to determine a reopening plan to implement for 2021 as the effects of the COVID-19 pandemic lessen. MAC, which operates Minneapolis-St. Paul International Airport (MSP), and SI Partners met with the entire slate of MSP’s operators, as well as an ACDBE working group to determine what the plan would look like. It calls for continuing to waive the minimum annual guaranteed rent payment through July, then returning to that structure based on the percentage of traffic at the airport: 40 percent of MAG at between 50-59 percent of traffic from 2019; 60 percent of MAG at 60-80 percent of traffic and full-MAG at 80 percent or more of 2019 traffic. “Everybody we were working with told us if they get between 75 percent and 80 percent of the 2019 numbers, they, for the most part, would feel like they would be completely back to being able to operate in the fashion they had been,” says Eric Johnson, director of commercial management and airline affairs.
Full-Sized Program
Above: Metropolitan Airports commission staff worked with SI Partners and all of its concession partners to establish a schedule in which the airport will open locations and re-establish a minimum annual guarantee, which is on hold until at least July.
There have been discussions throughout the industry of whether airports need to consider downsizing, or right-sizing, their concessions programs and whether COVID19 might be the impetus for that taking place. Most airports, at this point, are keeping their planning in the relative short-term – one year at a time, sometimes less. At MSP, with vaccines being distributed and precautions being taken at airports, Johnson says staff is planning as though the program will maintain its size and traffic will be high enough by 2022 in order for MAG to be fully restored. Could a smaller program or contracts without a MAG be
in play? Maybe, depending on how the industry is trending down the line, but not in the middle of existing concession agreements. “We’re in the midstream of concession agreements,” he says. “We’re going to continue to work with the operators to make sure we’re coming back with something that works for everybody.” And the MAC’s plan, Johnson emphasized, did draw significantly on discussions with tenants. In addition to the phased MAG reinstalment, MAC changed the formula it would apply for each operator’s required mid-term refurbishment, which resulted in an approximate 30 percent average decrease in cost for most, and gave them two more years to complete upgrades. And it allowed for the creation of a below-the-line hospitality charge of up to 4 percent to compensate for implanting a $15-per-hour minimum wage; allow operators to use the entirety of Minneapolis and St. Paul for street-plus-10 percent comparisons rather than primarily the Mall of America and another suburban mall; offered three-year lease extensions to operators if they request them it at least 18 months before their scheduled expiration; expressed openness to operators to find sublease agreements and reduced utility costs for those operators whose units are closed. “Obviously, this is all fluid,” Johnson says. “We’re going to continue to evaluate and take a look at this as we move forward through the year.”
New Programs At CDA, MSY Not Shrinking After discussions with its consultants and financial planners, the Chicago Department of Aviation (CDA), which operates both O’Hare International
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17
“This is a new program and they’re all excited to be here,” she says. “We’ve not heard anyone asking about getting out of the program.”
SFO May Decrease
Above: Louis Armstrong New Orleans International Airport opened a new terminal just before COVID-19 hit, but officials say they’re confident the entire concessions program will be open by year-end.
Airport (ORD) and Midway International Airport (MDW), looked long-term last spring when working with its concessionaire partners, both with respect to immediate and longer-term rent relief measures, says Amber Ritter, chief commercial officer. The department forgave two months of rent including minimum annual guarantees for two months and then allowing operators to pay percentage rent, deferring MAG payments for 18 months. The CDA, into 2021, reset MAG to be dependent on gross revenues or enplanements from 2020. “Those numbers are going to be low,” Ritter says. “So, they’ll be able to take advantage of the fact that their MAG has been reduced. In a lot of cases the leases have a floor to how low the MAG can go, but we’re removing that floor. So, if a concessionaire only sold $10 worth of goods, gross revenues were $10, then their MAG would be based on that $10 for 2021.” T he lowest f loor was actually considerably higher than $10, Ritter says, but the point remains the CDA wanted to work with its many partners to ensure they could get through the difficulties together. So far only one of its hundreds of operators has closed permanently, she says, adding that the city’s belief is that programs at both airports ultimately will return to full capacity at some point in the future.
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Additionally, in mid-2020, MDW was among the fastest recovering airports in the U.S. So, CDA has worked with Midway Partnership to be as nimble as possible, which Ritter concedes is not always easy, in making sure that opening levels track with passenger increases. A redevelopment of MDW, in tandem with the Midway Partnership, has largely been on pause during the pandemic. But Ritter cites the creation of a program that allows quick pop-ups and kiosks that can open quickly to satisfy passenger needs as one method of ensuring there are enough services available. “You can’t just snap a finger and open more restaurants,” she says. “For the most part we’ve had to reassess the program and we’re trying to work with them to make sure the plan captures reality, but also our longer-term plans for the airport.” At Louis Armstrong New Orleans International Airport (MSY), 29 of 46 concessions concepts were open heading into the holidays, up from 13 at the peak of COVID’s impact on the region. Henrietta Brown, deputy director of aviation for business and finance, says the airport is monitoring security checkpoint traffic counts and ticket sales to phase the openings, but all locations are expected open by the end of 2021. Right: Staff installs distance spots/assembles hand sanitizer stations present all over the San Francisco Airport. Officials do expect the concessions program could shrink a bit post-COVID-19.
While MSY, MSP and the city of Chicago aren’t planning to reduce concessions programs at this time, some airports might be thinking differently. At San Francisco International Airport (SFO), nearly two-thirds of the food and retail concessions have either stayed open or were reopened before 2020 ended. And very few concessionaires have terminated contracts, though spokesman Doug Yakel says the airport anticipates seeing some ownership transfers and, perhaps, a slightly smaller program going forward. “We do expect a marginal decrease in the size of the total program longer term,” he says. “The airport continues to have ongoing discussions on the need to further right-size the concession program.”
Most Planning Short-Term For Now While MSP has made longer-term plans, several airports are keeping options open. Charlene Reynolds, interim director of aviation services at Phoenix Sky Harbor International Airport (PHX), says 53 of 136 total concessions at the airport were open as of late December. There’s at least one operator and one shop open on each concourse and communications among airport staff and operators are regular. “We are constantly working with the airlines to monitor passenger activity, and when there is demand to open additional shops and restaurants, we are working with our operators to do so,” she says. Long-term planning is squishier. Reynolds acknowledges the impact that COVID-19 has had on the industry and adds: “We continue to look to passenger traffic and for trends on what travelers most want when traveling through the airport so that we can tailor our program to meet passenger demand.” The relief package passed at Denver International Airport (DEN) requires that all concessionaires reopen by February 1, though spokeswoman Alex Renteria acknowledges some uncertainty when asked if all will. “There is no way to know for sure,” she says. “We hope all our concessionaires will come back stronger than ever, but we have to wait and see.” Charlotte Douglas International Air port (CLT) is following the agreements as recommended by the Charlotte Douglas International Airport Economic Recovery Task Force in May 2020 on the provision of rent relief with its operator partners, HMSHost Corp. and Paradies Lagardère, and has been working with them to reopen on a schedule mirroring the return of passengers, says Ted Kaplan, acting chief business and innovation officer. They “have reopened significant portions of their respective operations as of December 2020,” he says. “All remaining restaurants and stores will be reopened as CLT continues its operational recovery.”
Above: Nearly 40 percent of concessions at Phoenix Sky Harbor International Airport are open and airport staff are working with airlines to monitor demand and open more spaces as needed. Long-term, the program will be tailored to meet passenger demand.
Needed More Service To Begin With While right-sizing discussions typically look at the need to shrink programs, some airports didn’t have enough concessions before COVID-19 hit. At Seattle-Tacoma International Airport (SEA), COVID is unlikely to create a long-term downsizing. Until late2020 brought back some restrictions to indoor dining, the airport had around 90 percent of its units up and running. SEA is undergoing the Central Terminal expansion, an International Arrivals Facility and a North Satellite modernization and is in planning for a new North Terminal, all of which are aiming to resolve space and amenity shortages. “Our region is growing and housing prices are not going down,” says spokesman Perry Cooper. “So, we are not an example of expected downsizing.” Chris Jones, spokesman at McCarran International Airport (LAS), says that while the Las Vegas City Council has
deemed it acceptable for concessionaires who wish to terminate their contracts to do so, none have. “To be honest, we were a bit underserved prior to COVID, so even at a reduced traffic volume, we likely won’t need to downsize the program once things return to a more normal traffic level,” he says, adding that it remains true even if travel during a recovery remains below the record-high 51.5 million passengers served at LAS in 2019.
Seeing An Opportunity Kim Becker, president and CEO at San Diego International Airport (SAN), sees the current situation as an opportunity. The airport is planning a new terminal and she acknowledges that COVID might have an impact on some decisions that will be made for the program in the new terminal, as well as for contracts in Terminal 2 that will be ending at about the same time. But she thinks this might be an opportunity to find a new approach to the program going forward. “We’re in a really unique time right now,” she says. “We’ve got about three years to make that happen and it will take all of three years to make that happen. It will be an exciting time, because it’s a great time to re-look at the entire program.”
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Daniel Nguyen was about one-third finished with construction on his latest restaurant at Portland International Airport (PDX) in mid-2020 when the COVID-19 pandemic wiped out air travel for the bulk of the year. It was one of six new locations he’d won across three different airports and he was excited to start growing his company more substantially. Instead, Nguyen, CEO and founder of Bambuza, halted construction in anticipation of the struggles ahead. “We pretty much hunkered down from the get-go,” he says. “I think that has a lot to do with how we can be in survival mode and still function.” He’s slowly ramping up again. His existing restaurants – one each at PDX and at Seattle-Tacoma International Airport (SEA) – are both operational. He’s about to launch some interim locations at John Wayne Airport (SNA) in Orange County, CA, where he’d won the rights to open four coffee shops in conjunction with The Coffee Bean & Tea Leaf. His status as an Airport Certified Disadvantaged Business Enterprise (ACDBE) has helped immensely in his efforts to grow.
ACDBE UPKEEP Industry Offers Insights On Areas Program Could Improve BY ANDREW TELLIJOHN
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“If we didn’t have the program, we wouldn’t be able to have the opportunities we do have,” he says. “If there are people saying it’s no longer needed, I would disagree with that. We need to have a program like that to allow people who are new to the industry to get their foot in the door.”
Program Not Perfect But the ACDBE program is not without its challenges. When he was just getting started in airports, Nguyen says like many he found access to capital a significant impediment. While most of his operations are solo and that’s how he prefers it, he does have an interest in joint ventures down the line, but also finds some of the rules and regulations complex. And, at times, airports’ expectations of smaller companies and those smaller companies’ resources for completing those requirements are not in alignment. “There is a disconnect between the airport expectations, the intent of the federal ACDBE program and the capabilities of a small business,” he says. “The intent of the program is to make it easier for small businesses to be able to participate in the business opportunities within the airport setting.” Stakeholders say the program has helped bring a lot of new participants to the industry, but could serve those companies and airports even better with a few tweaks. Federal Aviation Administration officials, during a call in late 2019 with the Airport Restaurant & Retail Association (ARRA), encouraged discussion on these topics into the new year. “Let’s have roundtables and listening sessions on the topic and figure out what it should be,” Gene Roth, director of national external operations program for the Federal Aviation Administration, said recently on an ARRA-hosted call.
Finding Financing Long-term and newer program participants and ACDBE observers point at financing as the most significant challenge. Mary Morgan, president of Morgan Group Ventures, says since its inception, banks have not understood the business and
Daniel Nguyen, CEO and founder of Bambuza, says he’s benefited from the ACDBE program but could use a broader understanding of joint ventures and improved access to capital to support growth.
venture capitalists want a piece of the profits or equity. Many have tried finding solutions, but the challenge still limits access. “Where ACDBE participation is required on large contracts, they require large dollars,” she says. “That’s not an easy thing for a true ACDBE to be able to navigate.” That’s part of why there are a relatively small number of companies that truly grow and stand the test of time in the program. “It all goes back to the financial question,” she says. That’s only going to be exacerbated by hits taken during the COVID era. When times were good, cash flow was around 4.5 percent pre-tax while rent was typically around 17 percent to 18 percent, says Andy Weddig, owner of AWeddigConsulting. Many companies will soon have to add deferred rent to their costs. “If you’re only making four, you can’t just pay back rent,” he says. “It takes four years for each year.” That’s going to make helping ACDBEs figure out the financing piece even more
important in the short-term, says Roz Mallet, president and CEO of PhaseNext Hospitality. It’s not great having prime operators lend to ACDBE partners when times are good, because rates are typically higher than banks charge, she says, adding that with money tighter than normal for them too, those primes may be less willing to lend anyway. “Who is going give the DBEs the money to do any of this?” Mallet asks, adding that there are some who believe the program should go away altogether. “I don’t think that’s the right thing either,” she says. “Small businesses are suffering, but they are still the backbone of this country. There needs to be a programmatic perspective around how to help DBEs get back on their feet.”
Clarifying Joint Ventures Weddig would also like to see some clarification regarding f joint ventures, which make up more than 80 percent of ACDBE participation in airports these days.
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Financing challenges facing ACDBEs are only going to become more prevalent as prime concessionaires smaller companies often borrowed from face their own financial challenges, says Roz Mallet, president and CEO of PhaseNext Hospitality.
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For example, typically debt is held by the ACDBE participant, not by the joint venture. “That was intended to make sure the ACDBE had true skin in the game,” he says, though there are others ways for the JV to do so. The real goal is to ensure that ACDBE operators have real roles and share in the financial risk and are not just there for a payoff. So, finding the ideal way to fund those ventures is important. One thing that would help, Weddig says, is if airports found ways to provide funding or at least were more diligent about directing ACDBEs to funding sources. He also wonders about the possibility of creating a private equity fund aimed at ACDBE operators. “I don’t think there is anything particularly wrong with the program,” he says. “What I see are there need to be tweaks around financing and participation.” Ken Weeden, president of Ken Weeden & Associates, would also like to see some additional guidance on joint ventures. He’s concerned that the prime-as-lender strategy may not only be hampered by the current financial struggles, but also may undermine the integrity of joint venture partnerships. Program guidelines, he says, call for ACDBEs to be independent small businesses. “If you owe somebody in business you are working with hundreds of
Consultant Ken Weeden, president of Ken Weeden & Associates, says ACDBEs need training on the basics of the ACDBE program around details like specifics of contracts and compensation.
thousands of dollars, how independent can you be?” he asks. He also wants to see more training on the program aimed specifically at ACDBE participants. As it is, many barely understand the basics of what’s in their contracts and when or how much compensation they will receive. “I think they need to revisit it and make it clear,” Weeden says. “They need to emphasize education of the ACDBEs to understand … how their compensation is being calculated.”
Standardizing Certification Another long-term program hot potato that has gained attention again in recent months is inconsistency across states in the certification process. For years, many in the industry have called for reciprocity among states or a uniform process for certifying DBEs, but it has remained elusive. Phase Next’s Mallet among those who think the process should be simpler. “To me, we should really be looking at a universal standard versus every state is different,” she says. Kurt Schwager, vice president of business and operations at Jacobsen|Daniels, says it would be helpful if the process were simply consistent. “I would hope you would be consistent with the qualifications from state to state,” he says. “So you realize I can be certified or I can’t. If I can’t, that’s okay too. At least I know.” He says the appeals process can be maddening at times. When, in the past, the company has been denied certification, it’s tried setting meetings with gatekeepers. Usually, if they can have a discussion, they leave with an understanding of why or a reversal based on a clarified answer or two. But those meetings aren’t always allowed to take place.
“When we’ve been given the chance to meet face-to-face, have the discussion and explain the information, most every time we do come to an understanding,” he says. “I like that process. What stinks is when we don’t get the opportunity to address the committee and have that discussion. That’s really hard to swallow.” Of course, a certification doesn’t guarantee a company will win, but more certified companies make it easier for airports to get the deepest possible pool of qualified candidates from which it can choose. “Then you have choices,” Schwager adds.
Building Incentives To Grow Michael Freilich spent nearly 30 years working for the federal government helping oversee the Disadvantaged Business Enterprise and other airport civil rights programs. He recently started Michael Freilich Consulting, where he works with DBEs and primes on their interactions with airports and business partners to make sure their efforts are compliant with Federal Aviation Administration and U.S. Department of Transportation guidance and regulations. Freilich notes that over the years he’s seen several ACDBEs have substantial success at a level where, whether they are ACDBE certified or not, airports want to retain their businesses. Anecdotally, he’s also aware that many companies also try hard to stay under the DOT’s business size and personal net worth caps that govern eligibility for the program due to concerns about what would happen if they could no longer be certified. While he doesn’t want to see anyone thrown from the program, Freilich also wonders if its structure has forced companies of the program has created the unintended consequence of try to limit upward growth so they can stay in the program. “In the non-DBE world, you want to get as rich as possible,” he says. “It’s unfortunate. It’s really no one’s fault, it’s an unintended consequence of how the program is structured.” He suggests that the program’s stakeholders could create incentives for certified businesses to grow beyond the program by softening the landing. One possible example, he says, would allow
companies that outgrow the program to not only have their participation counted toward airport goals for the remainder of their contracts, as is current practice, but also have the business eligible to help fulfill participation goals during a phase-out period over several years rather than getting removed as an ACDBE all at one time. The ongoing participation, Freilich says, could include a mentorship requirement where the growing firm works with new or less experienced DBE entrants to help them become successful. This concept could help larger ACDBEs reach a softer landing while also potentially providing a path for new disadvantaged business participation to increase again, as called for in a 2017 report from the Office of the Inspector General for the U.S. DOT. “Airports understandably get comfortable working with the same firms over and over,” he says. “You don’t want to push out firms that are successful. You don’t want to penalize them. You also want to allow newer people to come in.” Schwager says he can see the upside of such a proposal. Even as a mid-sized ACDBE, his company is starting to mentor firms new to the business. “We’re doing it because someone gave us the chance and we want to return that favor,” he says. “There is, I imagine, that difficult area where you graduate and now you are the smallest of the non-ACDBE firms and you’re still at quite a disadvantage. Just yesterday you were an ACDBE firm and that offered you certain opportunities.”
Establishing a phase-out process that includes a mentoring component might be one way to soften a potential exit from the ACDBE program for larger members, says Michael Freilich, founder of Michael Freilich Consulting.
Hoping To Outgrow While there may be some details stakeholders would like to iron out, most acknowledge that the industry is better off with the program than it would be without, though at least one ACDBE operator has no plans to be encumbered long-term by business size or net worth caps. Bambuza’s Nguyen has been certified as such since 2014. In addition to the contracts he had started building out, he had bids at several airports that put their solicitations on hold when the pandemic hit. He’s looking forward to getting started again. “We’d love to be able to get to the point where we could outgrow the program,” he says. “That’s a long-ways away but that’s our intent.”
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Airports Offer Options While Industry Seeks National Or International Testing Standards BY SHAFER ROSS
Right: California’s Ontario International Airport is offering rapid-result drive-up testing in its Parking Lot 3, between Terminals 2 and 4.
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The coronavirus pandemic rocked the aviation industry in 2020. Very suddenly, the booming demand for air travel dropped off and airports began seeing mere fractions of previous traffic levels. That depression in travelers has persisted since, though experts are now hopeful that 2021 and the multiple new vaccines rolling out will bring them back, though slowly. “We need a consistent and harmonized approach to health and safety, especially on the international front,” says Kevin Burke, president and CEO of Airports Council International – North America (ACI-NA). “ACI has been engaged in ongoing conversations on the international stage about reopening international travel safely.” With things looking up, airports across the country and the world are considering what they can do to draw more people back to air travel. In addition to opening up concessions and enforcing health and safety measures to entice travelers, many airports are looking to instill confidence and encourage travel by offering multiple testing options for the COVID-19 virus on airport grounds. “It’s conceivable – and I believe – that we will need to learn how to co-exist in travel and in our everyday lives with COVID-19 for years to come, even as there is to be a medical solution therapeutic vaccine this year or early next year,” said Deborah Flint, president and CEO of the Greater Toronto Airport Authority (GTAA), operator of the Toronto Pearson International Airport (YYZ), on an industry call in November of 2020. “The sentiment of the public is going to take some time. So, I believe that a testing regime and a design system across aviation is really, really important. “We did a trial with Air Canada and McMaster University here because we wanted to understand… more about the 14-day quarantine and what level of efficacy the public was getting from that 14 days,” Flint continued. “Then also to test how testing works in the airport environment.” An interim analysis report on the progress of the study – one of the largest of its kind and the only one collecting follow-up data from participants at two separate points following the initial test – was released in late November 2020. McMaster Health Labs (MHL) said that only one percent of participants tested positive for COVID-19. Of the positive cases, 70 percent were identified with the first round of testing at the airport, with a majority of the remaining positive cases (30 percent) being identified during the second round of testing on the seventh day. “The pilot phase has demonstrated the feasibility of airport-based testing with self-collected nasal/oral swabs as well as home-based collection during quarantine,” MHL reported as part of its preliminary insights. Full results are expected in January 2021 but had not yet been released at press time.
Left: Results for the rapid tests at ONT are processed onsite and can be available to passengers in as little as 20 minutes, Steve Lambert says.
Airports Introduce Testing Just a few months ago, COVID tests were hard to come by. Now, airports across the country seem to be booming with options for getting tested prior to travel. Pre-security, post-security and drive-through options for testing are designed to help travelers feel more confident in their health status as they decide whether or not to fly. “Testing is an important component of a risk-based multi-layered approach to health and safety and helps boost travelers’ confidence,” says ACI-NA’s Burke. “More and more, we are seeing an increase in the accessibility of COVID-19 testing at airports, and many more are planning to come online in the months ahead.” Certainly, many airports have partnered with local or national health services providers to offer passengers and the community options for coronavirus testing. “Everything fell into place. It’s an industry that has sprung up as a result of COVID, so there are a number of vendors out there doing this sort of thing,” says Steve Lambert, media representative for California’s Ontario International Airport (ONT), in regard to the volume of companies that currently supply COVID19 testing and lab services. “The airport’s an attractive place to put up [a testing site].” ONT is offering rapid-result drive-up testing in its Parking Lot 3, between Terminals 2 and 4. Participants must register for their test ahead of time on the Covid Clinic website, the company partnering with ONT to administer and process the tests.
“Their track record was good and clearly they had their infrastructure in place, and they had the ability to mobilize and get their staff out there,” Lambert says of the process of choosing which organization to partner with on this venture. “We anticipated the demand would be pretty strong for this, so the last thing you want to do is align with a partner that wouldn’t have the capacity to manage that kind of workload, but they were able to demonstrate their ability to do that and, sure enough, it’s proven to be true.” ONT’s demand predictions were correct, with as many as 400 tests per day being
processed at the airport. Results for the rapid tests – which are processed onsite, eliminate the wait times inherent to tests that must be packaged and shipped for processing and are available to passengers in as little as 20 minutes, Lambert says. “By the time you go through the drivethrough and park your car and get to TSA, you should have your results back with you.” With such a brief wait between testing and receiving the results, passengers may be able to feel more confident in the idea of boarding a plane and enjoying their destinations. In fact, confidence in health and safety in air travel is at the fore of everyone’s focus. Kevin Dillon, executive director of the Connecticut Airport Authority (CCA) – which runs Bradley International Airport (BDL), where both in-terminal and drivethrough options for COVID-19 testing are available – says a travel advisory issued by the state requiring a 14-day quarantine stalled the little growth the airport had Below: At Bradley International Airport, both in-terminal and drive-through options for COVID-19 testing are available.
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managed to eke out since the peak of the pandemic, leading the CAA to consider how to entice people back to the airport. “If you go back to the height of the pandemic in Connecticut back to last April, we were down about 97 percent in passenger traffic year over year. But what we saw in May and June was that we did start some level of recovery,” Dillon says. He adds that testing, especially during periods of quarantine in certain areas of the country, makes travel more palatable. At first, an in-terminal facility was opened to a strong reception. Once demand was established to be so great that even non-travelers wanted to come into the airport to get tested, Dillon says it was time to offer a second option for the community at large. “We had people in the general public trying to come into the terminal testing site,” he says. “So, we said if we open one in the parking lots and make it a drive-through, then we can not only handle the overflow of our passengers, but make it available to the general public, as well.” The convenient drive-up option means that not only can anyone who wants one get tested, but travelers tired after a long flight can deplane, collect their things, get in their car and get tested on the way home from the airport.
Looking Forward As COVID-19 continues to spread and viable vaccines are still only beginning to roll out to small pockets of the population at a time, it seems the industry will have to forge a path forward before the pandemic
is eradicated. The challenge, then, is to convince the general public that traveling by air can be safe and instill confidence that the system at large is keeping health and safety a priority. “While airports and airlines have always been collaborative partners, we are experiencing unprecedented levels of collaboration between airports and airlines, and other industry stakeholders,” says ACI-NA’s Burke. “In fact, we partnered with Airlines for America (A4A) and other aviation stakeholders on independent research from the Harvard T.H. Chan School of Public Health on the mitigation strategies being deployed by airports and airlines to ensure health and safety.” It makes sense, then, that airlines would be eyeing up these new testing facilities on airport grounds that could serve as additional measures to mitigate the risks of catching the virus while traveling. “I certainly think the airlines are curious about how the program is working and what level of reception we’re getting from passengers,” says BDL’s Dillon. “I do think there’s potential applications to partner with the airlines, but let’s face it: it’d make much more sense if there was a uniform program across the country if, in fact, testing is going to be required. Folks in the industry are talking about it, particularly as a way to jump-start international traffic.” This is something many in the aviation space, including trade organizations like Airports Council International - World, A4A and the International Civil Aviation Organization (ICAO), have been touting
Left: LAX is working with Clarity Labs, a certified partner of the State of Hawaii’s Department of Health, to ensure healthy passengers and safe travel to the islands.
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Above: Los Angeles International Airport is currently offering options for getting tested for COVID-19 on airport property in multiple terminals.
as a means to encourage international air travel, and it could work domestically, as well. In fact, Los Angeles International Airport (LAX), which is also currently offering options for getting tested for COVID-19 on airport property, is working with a certified partner of the State of Hawaii’s Department of Health. Due to the pandemic, the state has mandated that all incoming travelers present a negative COVID test provided by one of these pre-approved organizations. “The company that’s providing the lab facilities, Clarity Labs, is one of the certified partners for Hawaii’s current solution, and based upon that, the airlines that fly to Hawaii are very interested in working with us to understand how our solution might be used by their passengers,” says Justin Erbacci, CEO of Los Angeles World Airports (LAWA) which operates LAX. “We know many of them are using our testing facility to help them with their trips to Hawaii. We’ve continued to collaborate with the airlines.” In collaborating with so many partners – airlines, health service providers, labs, other airports, etc. – it becomes apparent that a standard for testing for COVID-19 in airports might behoove the industry as a whole. “We believe that a national standard – or even an international standard – is very important,” says Erbacci. “We’ve been pushing for standardization around many aspects of the travel experience during COVID. But we’re not waiting around for a standard. We have the approach that we need to put things in place as soon as possible that we think are important to keep our passengers and our employees healthy and safe, and to help us to stimulate travel both domestically and internationally.”
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AIRLINE FORTUNES
AIRLINE UPHEAVAL Route Changes, Hub Vulnerability And Potential Consolidation Are All Factors In Air Travel Recovery BY CAROL WARD
7-Day Rolling Year-Over-Year Change (%) in Systemwide Traffic and Capacity* Traffic (RPMs) Capacity (ASMs)
(48)
30-Mar-21
16-Mar-21
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5-Jan-21
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24-Nov-20
27-Oct-20
10-Nov-20
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15-Sep-20
1-Sep-20
4-Aug-20
Source: A4A member passenger airlines as reported to A4A on a consolidated company basis (including branded code share partners)
18-Aug-20
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7-Jul-20
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9-Jun-20
26-May-20
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18-Feb-20
21-Jan-20
(70)
7-Jan-20
20 10 0 (10) (20) (30) (40) (50) (60) (70) (80) (90) (100)
* RPM = revenue passenger mile; ASM = available seat mile
n the middle of a pandemic, a airlines, particularly low-cost and ultranumber of airlines low-cost carriers who are looking to gain and airports are announcing new share and rebuild business. For example, Jan Feb Mar Apr May Jun Jul Aug Oct Allegiant Nov announced Dec air service. inSep mid-January 21 20 To be clear, overall air travel remains new nonstop routes, including service to 1.5 down dramatically compared to 2019 and three new cities. Frontier Airlines pushed 0 the start of 2020, but there are small wins forward with 11 new routes announced in (2.0) (20) and pockets of growth that have buoyed December, focusing on leisure destinations spirits at some airports at even the darkest in the U.S., Caribbean, Mexico and Central (40) of times. America. (60) Last autumn, Southwest Airlines led the “If you are a Spirit or a Frontier or an pack by announcing 12 new destinations, Allegiant, you’ve just been pushing things (64.0) (80) some of which launched in the fourth out as fast as you can go, expanding the Nearby international (79.2) (83.7) (87.8) leisure destinations like quarter and some of which (92.6) will launch in network where possible,” says airline (90.0) (100) (97.0) (99.2) Mexico and the Dominican the first(98.8) half of this year. Southwest’s overall industry analyst Robert Mann. “If you’re Republic were the best flying remains depressed, butInternational the company, Non-U.S. international Citizen International Arrivals U.S. Citizen Departuresa balanced business and leisure airline like performing faced with surplus aircraft, has seized the Southwest, you’ve pushed into a place like routes in 2020, according Source: U.S. Department ofto Commerce Travel and Tourism / APIS data * Gateway-to-gateway passengers on U.S.revenue and foreign scheduled and charter airlines [International and general aviation JohnNational Heimlich, vice Office using DHS-I92 opportunity to gain incremental O’Hare Airport] (ORD) president and chief and increase market share by adding both that you probably would never have economist, Airlines for large and small markets to its roster. had a chance to get into under normal America. Southwest isn’t alone. The industry has circumstances. It’s a once in a lifetime seen significant activity from a range of opportunity, which they’ve seized.”
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remarkable % Change YOY in Total* U.S. - International Air Passengers: 2020 vs. 2019
AAirlines: X N E W S Estimated J A N U A R Y/Average F E BRU Daily A R Y 2Cash 0 2 1 Burn* (in Millions) U.S.28 Passenger
Estimated U.S. Airline Industry Passenger Traffic Change (%) vs. 20
AIRLINE FORTUNES
The “Big Three” network carriers – Southwest, expected to have success at American Airlines, Delta Air Lines and some point, but not during a pandemic. United Airlines – have also made moves. “It seems counterintuitive that we United, in particular, signaled a temporary would get more air service during the shift in strategy by shifting away from worst possible downturn. Because we’re a international routes and instead adding leisure market and that is a segment that multiple Florida destinations. seems to be traveling more than the other The net result is a service map that segments, we were the beneficiary in terms differs significantly from what was in of Southwest accelerating its decision to place pre-pandemic. Airlines are shuffling start service here,” he says. service, trying to carve out their place in a Bill Swelbar, chief industry analyst significantly lower demand business. for Swelbar-Zhong Consultancy, says “Airlines are experimenting with their developing markets like Savannah or networks, they’re moving traffic around,” Palm Springs, CA, make sense. They are says Steve Van Beek, a director at Steer. leisure destinations that historically have “Long-term schedules sometimes are commanded relatively high ticket prices. changed as [departure day nears]. We’re “I’m really bullish on many of the small 7-Day Year-Over-Year (%)a insignal Systemwide Traffic and Capacity* seeingRolling schedules almost Change used as hub markets,” he says. “I think that there’s for20 carriers trying to measure demand, tremendous opportunity.” 10 then sometimes they’ll reduce their Steve Van Beek, a and Van Beek agrees, noting that smaller director at Steer, says 0 frequencies or make adjustments. markets in leisure destinations are wellTraffic (RPMs) smaller market leisure (10) poised for recovery. He expects to see destinations are best Capacity (ASMs) (20) bookings start to ramp up in March and positioned for recovery (30) this year. April for summer travel, assuming the (40) By all accounts, it’s leisure travel that vaccine rollout goes relatively smoothly. (48) (50) will drive the first wave of recovery. After “Some of the destination airports - Florida, (60) the quarantines endured throughout North Palm Springs, Texas Gulf Coast kinds of (70) (70) America over the past year, travelers are airports - are doing okay from a recovery (80) anxious to visit family and friends or try to standpoint. You can see recovery at 60 (90) explore new destinations. Business travel, percent to 70 pecent for some of those (100) on the other hand, is expected to remain airports, but those are by and large domestic stubbornly in the doldrums. leisure travelers.” Gregory Kelly, executive director of Helane Becker, managing director and the Savannah Airport Commission, senior research analyst covering airlines at Source: A4A member passenger airlines as reported to A4A on a consolidated company basis (including branded code share partners) * RPM = revenue passenger mile; ASM = available seat mile says Savannah International Airport Cowen, predicts a strong rebound for leisure (SAV), which attracted new service from travel. “For 2021, I think domestic leisure
30-Mar-21
16-Mar-21
2-Mar-21
2-Feb-21
16-Feb-21
19-Jan-21
5-Jan-21
22-Dec-20
8-Dec-20
24-Nov-20
10-Nov-20
27-Oct-20
13-Oct-20
29-Sep-20
15-Sep-20
1-Sep-20
18-Aug-20
4-Aug-20
21-Jul-20
7-Jul-20
23-Jun-20
9-Jun-20
26-May-20
12-May-20
28-Apr-20
14-Apr-20
31-Mar-20
17-Mar-20
3-Mar-20
18-Feb-20
4-Feb-20
21-Jan-20
7-Jan-20
Focus On Leisure
% Change YOY in Total* U.S. - International Air Passengers: 2020 vs. 2019 Jan 20 0 (20)
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
(87.8)
(83.7)
(97.0)
(90.0)
(79.2)
(92.6)
Dec
1.5 (2.0)
(40) (60) (80) (100)
(64.0) (99.2)
(98.8)
Non-U.S. Citizen International Arrivals Source: U.S. Department of Commerce National Travel and Tourism Office using DHS-I92 / APIS data
U.S. Citizen International Departures * Gateway-to-gateway passengers on U.S. and foreign scheduled and charter airlines and general aviation
A X N E W S J A N U A R Y/ F E BRU A R Y 2 0 2 1
29
AIRLINE FORTUNES
will probably be down about 5 percent, maybe 10 percent, from pre-pandemic levels,” she says, although she acknowledges that “a lot depends on quarantines and border opening and vaccinations and testing.” That’s converse to her expected performance of domestic leisure travel – she’s predicting that sector will be about 88 percent down from 2019 levels this year. Nearby international leisure destinations are also perking up, according to John Heimlich, vice president and chief economist of Airlines for America. In a recent webinar, Heimlich pointed to the relatively strong demand for markets like Mexico and the Dominican Republic, and said he expects that trend to continue into 2021. The more vibrant markets “tend to be beach-oriented or leisure or visiting -friends-and-relatives-markets with no or few travel restrictions,” he noted. “And they’re warm.” For the two mentioned – Mexico and Dominican Republic – traffic from the United States was down 41 percent and 39 percent, respectively, in 2020. Business travel, both domestic and international, are expected to be far behind on the recovery curve. “We think recovery will be four to five years at this point,” Becker says. “And we don’t think domestic business is coming back 100 percent. “There are three cohorts of business traffic,” Becker continues. “There are the road warriors, the frequent business travelers and the infrequent business travelers. The infrequent business travelers
Certain hub airports will be vulnerable due to the smaller size of major U.S. carriers, according to Bill Swelbar, chief industry analyst for Swelbar-Zhong Consultancy
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Analyst Helane Becker says a merger among the three dominant ultra-lowcost carriers would create a formidable force at a time when leisure traffic is expected to rebound quickly.
will try to figure out a way to be even more infrequent. The frequent business traveler will become infrequent and the road warriors - some will stay as frequent and some will become frequent.” Van Beek, however, says is more confident in a full business travel recovery, especially if the global industry moves forward on some sort of medical passport or other means to prove vaccination. “I’m extremely skeptical when I hear people say that there’s going to be a structural falloff in business travel that isn’t related directly to the recession, or perhaps to confidence in the virus,” he says.
A New Hub Structure? The increasing importance of domestic leisure travel and the slow restart to business travel and international travel could result in a shift in hub structures over the coming months and years, industry experts say. That’s especially true because the network carriers – those that operate a hub-andspoke system – have said publicly that will be smaller, to the tune of 10 percent to 20 percent this year. “If they’re going to be 20 percent smaller, it’s hard to envision a network that was operated in 2019 being operated in 2022,” Swelbar says. “Also, I, I don’t think we’ve seen all of the fleet reductions yet. “I do believe that the recovery will be uneven, much as it was after the great recession,” he continues. “Not all regions of the economy came back at the same time and with the same veracity. If we have an uneven recovery, it’s going to impact some hubs more than others. But when we start to bring back those traffic pools out of the Northeast and along the West Coast there’s going to be a lot more throughput for the airports than there is today.” Swelbar was hesitant to predict which hubs will be
affected but said that smaller hubs and those that are strong international connectors might be vulnerable. Van Beek agrees that hubs may see some changes. “I think people are feeling pretty good about the primary hubs and less well about either the secondary hubs, or what sometimes people call focus cities,” he says. “Recovery at the secondary hubs may take a little while, or the airlines may decide either to close secondary hubs or to just eliminate the focus city, and just serve them as a regular airport rather than pushing a lot of aircraft through.” Van Beek says his clients are preparing for multiple future possibilities. Unlike in previous downturns, where traffic returns are fairly predictable, the uncertainty surrounding travel restrictions, vaccine requirements and economic factors are making forecasts more difficult than ever before. “Our clients are really thinking about preparing for multiple futures and recovery that could take two years or recovery that could take five or six years,” he says. “A little bit depends on what type of airport you are. Right now, the ones that are hurting the most are those with a large share of international traffic.” The “normal” recovery model could also be upended. “We always think of recovery is happening from the hubs out,” Van Beek adds. “So that would mean that the airports like a San Francisco, Los Angeles, New York would recover before the regional airports that surround them.” But, with the earlier recovery of leisure travel this time around, the stalwart business hubs might take longer to revive, he says. Complicating things further is the fact that Southwest, traditionally a pointto-point carrier, is increasingly using a hub-and-spoke-like approach to at least a portion of its flying. “They are truly becoming a hybrid,” says Swelbar. “There’s
(99.2)
(97.0)
(98.8)
U.S. Citizen International Arrivals
(83.7)
(87.8)
(90.0)
(92.6)
U.S. Citizen International Departures
National Travel and Tourism Office using DHS-I92 / APIS data
AIRLINE FORTUNES
* Gateway-to-gateway passengers on U.S. and foreign scheduled and charter airlines and general aviation
7-Day Rolling Year-Over-Year Change (%) in Systemwide Traffic and Capacity* Traffic (RPMs)
(48)
2-Mar-21
16-Feb-21
2-Feb-21
19-Jan-21
5-Jan-21
2024F
22-Dec-20
8-Dec-20
24-Nov-20
Optimistic
10-Nov-20
2023F
27-Oct-20
13-Oct-20
Pessimistic
29-Sep-20
2022F
15-Sep-20
1-Sep-20
18-Aug-20
4-Aug-20
2021F
21-Jul-20
23-Jun-20
2020E
7-Jul-20
(70)
9-Jun-20
10 0 (10) (20) (30) (40) (50) (60) (70)
26-May-20
28-Apr-20
14-Apr-20
EstimatedCapacity U.S. Airline Industry Passenger Traffic Change (%) vs. 2019 Levels (ASMs)
31-Mar-20
Consolidation and New Competition
17-Mar-20
3-Mar-20
refunds - capital expenditures - interest expense - repayment of debt
18-Feb-20
Mar
4-Feb-20
Feb
business strategies.
21-Jan-20
2)
7-Jan-20
ed Average Daily Cash Burn* (in Millions)
12-May-20
20 10 still a lot of point-to-point flying in their 0 system and always (10) will be - that’s just the nature of the beast. But if they connected (20) 35 percent of their (30) passengers pre COVID, I I’ve got to believe (40) that that number is going (50) meaningful way.” to go up in a fairly (60) time, in their shift to At the same (70) capitalize on leisure market demand, are ($129) routes. That (80) ($133)more point-to-point flying (90) may ease as business travel rebounds or it may become (100) a permanent fixture in their
Source: A4A and various airline equity analysts
Source: A4A member passenger airlines as reported to A4A on a consolidated company basis (including branded code share partners)
* RPM = revenue passenger mile; ASM = available seat mile
In 2021, in the early throes of a tumultuous pandemic recovery, the first new airline in more than 20 years is expected to launch. Salt that have been the bread and butter of the lower cost carrier space,” he says. “I could Lake City-based Breeze Airways, founded network carriers over the years. I’m not saying see a combination occurring outside of the by JetBlue founder David Neeleman, has a that there’s just competition in the ultra-lowBig Four carriers. Not to say that is easily % Changeservice YOY intoTotal* U.S. - International Air Passengers: 2020 vs. competition 2019 goal of bringing low-cost mid-sized cost space. There’s going to be done, but I think it’s less difficult from a markets. The company has said that it will for passengers that have historically been regulatory standpoint, and you would have Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov D pair “hundreds and critical at filling airplanes from hubs as well.” very little network overlap. I think it’s far 20hundreds of city pairs that can support a nonstop 1.5 flight.” As the new carriers come on stream, more difficult to think of any of the three Another airline, 0Houston-based XTRA some industry experts are also weighing the network carriers doing anything more than (2.0)by Airways is reportedly being launched possibility of consolidation among existing maybe acquiring an unaligned carrier…. (20) former United Airlines chief financial officer airlines. “You could argue that there are too Andrew Levy, although details on the new “I think in a Biden administration, many airlines,” Mann continues. “There (40) venture are scarce. mergers are going to be really tough, frankly,” is a middle tier of airlines that are not big (60) an Airbus 220, smaller Breeze will be flying says Becker. She adds that low levels of cash enough and not low cost enough – they (64.0) than the larger regional jets being flown. and depressed stock prices for all airlines are probably are most exposed.” (80) These jets, also being flown by JetBlue and also impacting change. “I think that while Becker says JetBlue and Hawaiian (79.2) (83.7) (87.8) merger (90.0) Delta, allow for (100) more point-to-point flying consolidation makes some sense right now, (92.6) Airlines are potential candidates. (97.0) (99.2) rather than connecting, Van Beek points there’s enough capital(98.8) within the airlines so She believes United would like to acquire out. that nobody has to file for bankruptcy, as International JetBlueDepartures and thought that might be a good Non-U.S. Citizen International Arrivals U.S. Citizen The new carriers will also bring new long as revenue starts to pick up. Nobody possibility despite the recent alliance options for travelers. “IU.S.believe going toTravel andhas a cost problem. Everybody has a revenue between JetBlue and American Airlines in Source: Departmentwe’re of Commerce National Tourism Office using DHS-I92 / APIS data * Gateway-to-gateway passengers on U.S. and foreign scheduled and charter airlines and general aviation see some amazing competitions in the ultraproblem.” Northeast markets. Becker also sees merit low-cost carrier space,” says Swelbar. Because The Big Four carriers are likely to in a combination of the three leading ultraof their fleet choices, the new carriers “will be remain, Mann predicts. “If there is to be low-cost carriers: Spirit, Allegiant and able to tackle some of those smaller markets consolidation, it’s likely to be around the Frontier. “In 2014, [the three carriers combined] were less than 3 percent of the industry’s capacity and in 2019 there were 8 percent of U.S. Passenger Airlines: Estimated Average Daily Cash Burn* (in Millions) Estimated U.S.Becker Airlinenotes. Industry Tr the industry’s capacity,” “InPassenger a recession those are the kind of airlines that 10 are going to grow. Their balance sheets are 0 in pretty good (10) shape, they haven’t had to (20)of money, they already have borrow a lot (30) they don’t have big interest low costs. And (40)to handle. They lease as many payment nuts ($129) ($133) ($142) (50) aircraft as they buy. (60) ($179) “So that(70) is a merger that would make Dec Jan Feb Mar sense,” she says. But2020E she warns: “It’s hard 2021F 20 to put two airlines together. Three would Source: A4A and various airline equity analysts Pessimistic probably put management over the top.” * Ticket and cargo sales - cash operating expenses - cash refunds - capital expenditures - interest expense - repayment of debt Source: A4A and various airline equity analysts
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10/28/20 12:30 PM
BEFORE YOU TAKE OFF
LAGUARDIA LASER LIGHT SHOW Terminal B’s Water And Light Experience Showcases New York BY SHAFER ROSS
Left: A 4,000-gallon water fountain using recirculated water from inside the airport was unveiled by the Port Authority of New York and New Jersey and LaGuardia Gateway Partners in November.
hough the pandemic may have many subconsciously hunkering down and focusing on the bare necessities, New York’s LaGuardia Airport (LGA) has not only pushed forward with the $5.1 billion overhaul of its Terminal B but has installed a truly unique feature at the heart of the terminal’s shopping center. A 4,000-gallon water fountain using recirculated water from inside the airport was unveiled by the Port Authority of New York and New Jersey (PANYNJ) and LaGuardia Gateway Partners, which operates LGA’s Terminal B, in November. The water feature, developed by French company Aquatique Show, uses 450 individually controlled nozzles programmed to form unique shapes and patterns, interwoven with two curtains of water descending from the ceiling. The result is a water show that features a series of lasers projecting New York landmarks and attractions in bright colors onto the sheets of falling water.
T
Click to watch a video of the innovative new water feature at LaGuardia Airport.
“This innovative feature reflects the vibrancy and uniqueness of New York City and offers passengers an unexpected and entertaining experience as they travel through the terminal. As we redevelop Terminal B at LaGuardia Airport, we could not imagine a better and more exciting feature piece to greet passengers as they travel to and from New York City,” says Stewart Steeves, CEO of LGP. The Empire State Building, the Statue of Liberty and the Bronx Zoo, as well as full-color visions of iconic yellow cabs, are just some of the images cast in light on the fountain’s centerpiece. Throughout the visual display, music is also playing: a new rendition of the famous “New York, New York,” from the 1977 film of the same name. The water, displays and lights are timed to the music, creating an immersive experience designed to engage all passersby. LGP says the ultimate goal was to celebrate New York city with the show, and the featured locales were all chosen for that purpose. “[The] laser light show displayed on a falling curtain of water is truly inspirational. It is a symbol of the arts and culture of New York,” Rick Cotton, PANYNJ executive director, said at the unveiling of the water feature. “We’re delighted that what we see in the new Terminal B embodies the global standard airport that was at the center of Governor Cuomo’s vision for the new LaGuardia Airport.”
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