New Year, New Industry?

BY SALLY KRAL

Left: Laurie Noyes of Tampa International Airport is optimistic about the future of the industry, noting that the pandemic required the implementation of new technology and improved efficiencies, which will ultimately make the industry stronger.

Left: Concessions programs across the country (Denver International Airport pictured) are seeing positive growth signs but are stymied by labor shortages and other challenges.

(photo provided courtesy of Denver International Airport) Left: Andrew Weddig, executive director for the Airport Restaurant & Retail Association, says that without continued rent relief from airports, concessions operators are unlikely to see recovery in 2022.

It’s been an undeniably difficult two years for the airport industry, and with no end in sight it can be difficult to be hopeful about what 2022 might have in store. Still, many airport professionals are bolstered by 2021’s positive traffic trends and other encouraging signs of a rebound.

“I’m incredibly optimistic,” says Laurie Noyes, vice president of concessions and commercial parking for Tampa International Airport (TPA). “Between a resumption of international travel, new technology and improved efficiencies, I think the industry will come back smarter and stronger.”

Candace McGraw, CEO of Cincinnati/

Northern Kentucky International Airport

(CVG), feels similarly, noting that CVG expects to end the year serving 65-70 percent of 2019 passenger volumes. “Most of that has been leisure travel, but I’m optimistic that passenger travel in all forms will begin to return in earnest in 2022,” she says. “As the industry stabilizes, I’m hopeful airport and industry leaders can continue to look to the future as opposed to being ‘heads down’ and focused on survival.”

But some in the industry see things a little bit differently. “The next year will see improvement but remain very challenging,” says Andrew Weddig, the newly appointed executive director for the

Airport Restaurant & Retail Association

(ARRA). “Just as many others did in the aviation industry, concessionaires took on significant debt during the pandemic and will not be recovered until that debt is paid off and, of course, that can’t happen until there is positive cash flow. From my point of view, 2022 looks less like recovery and more like another year of survival.”

Indeed, even those with a more optimistic outlook recognize that there’s still a long road ahead. “We’ve learned a lot from the pandemic, but pandemicrelated disruptions will not end in 2022,” says Ingrid Hairston, vice president of properties and business development for Birmingham Airport Authority, operator of

Birmingham-Shuttlesworth International

Airport (BHM), and outgoing chair of the commercial management committee for

Airports Council International – North

America (ACI-NA).

And the industry will have no choice but to confront these obstacles head-on. “We need to be ready to tackle big challenges around issues such as advanced air mobility, workforce and sustainability,” CVG’s McGraw says. “As I often say, there is no shortage of good and challenging issues on which to focus.”

Above: Ingrid Hairston of Birmingham Airport Authority hopes that relationships between airports and concessionaires will be more interactive and engaged in the coming year, noting that flexibility and responsiveness to changes on both sides will be key for success.

Remaining Challenges

Air travel has been slowly but surely trending up from 2020 levels, but there’s still a good deal of uncertainty that will continue to keep the industry on its toes in 2022.

“The Delta variant definitely has delayed the resurgence of an earlier recovery of air travel,” says Lew Bleiweis, executive director of the Greater Asheville Regional Airport Authority, which runs the Asheville Regional Airport (AVL). “Leisure markets are recovering more quickly than business markets, with some nearing or exceeding pre-pandemic levels of passenger numbers. Business travel will rebound next year, but I believe companies really are taking a look at their travel needs and will cut back on travel slightly for virtual options.”

Bleiweis adds that international travel has been slowly trending up, and with the recent announcement of border reopenings, recovery should start to increase, especially in the new year.

“Uncertainty on passenger travel related to pandemic variants remains a big challenge, as it impacts airport revenues such as parking and concessions, and affects overall budget planning,” CVG’s McGraw notes. “Additionally, the tight labor market with increased wage rates continues to

Above: Candace McGraw, CEO of Cincinnati/Northern Kentucky International Airport, notes that the tight labor market continues to be a major challenge for airports, impacting everything from parking to concessions to customer satisfaction to overall budget planning.

impact our ability to fully recover out of the pandemic. The workforce shortage is also an inhibitor to providing the level of customer service we would desire.”

Staffing challenges are, indeed, very real. “Many concession programs across the airport industry are still suffering – one of the major concession operators, for example, recently had over 1,000 open positions,” Bleiweis says. “Many smaller airports are also suffering with ground transportation shortages. In Asheville, we’ve had passengers wait in excess of two hours to get transportation to their final destinations. It takes time and energy to handle this type of mass hiring.”

Hairston notes that the root causes of the labor shortage are difficult to define, which makes predicting the end of it

Above: Airports around the country have been holding job fairs to attract workers but many report lackluster attendance and few new hires.

difficult as well. “High workforce needs and few jobseekers has put workers in the driver’s seat,” she says. “Concessionaires and airports are offering significant wages, bonuses and benefits to attract employees with only limited success. Many potential employees are seeking work environments that are more aligned with their needs, values and preferences. I don’t expect labor shortages to ease until community COVID levels, the work environment, childcare, school access, and wages and benefits collectively improve.”

As TPA’s Noyes points out, airports are not an easy place to work. “And with so many street locations also looking for help, it will be some time until the pipeline of talent is refilled in its entirety,” she adds.

ARRA’s Weddig believes that the longerterm solution to these labor challenges is a joint effort among all employers in the airport ecosystem to improve the perception – and reality – of working in the airport. “This involves working together to solve challenges such as easing commuting to the airports, more convenient and less expensive parking, providing childcare, and simplifying the recruitment and badging processes,” he explains. “These are the sort of enhancements to the work environment that could make airport and concessions jobs more attractive to potential employees.”

Left: Lew Bleiweis of the Greater Asheville Regional Airport Authority says federal funding is likely to fall far short of airport industry needs for 2022.

Continued Needs

Many, if not all, possible solutions to the myriad challenges that airports and concessionaires are still facing require monetary support. For airports, the proposed Infrastructure Investment and Jobs Act – which includes $25 billion to repair and upgrade U.S. airports – is a start, but still lacking.

“Airports have significant infrastructure needs to expand terminals, airfields and other upgrades in order to meet current and future demand – the infrastructure bill will provide needed funding to help airports, but it still is not enough,” Bleiweis says. “An ACI-NA capital project study shows there is a need of over $115 billion in capital over the next five years. The amount that’s currently being discussed on the Hill is a fraction of what is truly needed.”

Bleiweis believes that the federal government should still increase the passenger facility charge that is assessed to each enplaned passenger to fund needed capital improvements at airports. “This charge hasn’t been increased in more than 20 years, yet all costs related to capital projects have increased dramatically during that time,” he notes. “The users of airports should pay appropriate fees to utilize the facilities, and this system would help keep airports current and competitive in the global market.”

CVG’s McGraw notes that even in the absence of an increased passenger facility charge, the infrastructure bill is a step in the right direction to help airports move forward with much-needed terminal development projects. “Investments in airports put people to work and have longlasting reverberations,” she says. “While we’re well-positioned to lead economic recovery, airports are generally limited with what revenues can be generated to support existing and future projects, so any amount of new or additional funding will be welcomed and impactful for us.”

Still, McGraw adds, financial support will need to continue beyond the current proposed bill. “Especially as passenger volumes return, airports need to have the ability to continue creating capacity for passenger and air cargo growth. That is true at CVG, where we’ve had 25 percent year-to-date growth in cargo volumes in 2021. Airfield projects and passenger facility enhancements and upgrades, for instance, will need continued investment to keep pace with returning demand and new technologies.”

As for concessionaires, support will need to continue coming from their airport partners. Early on in the pandemic, airports made certain changes and allowances to lease agreements, including waiving minimum annual guarantees (MAG). Concessionaires are hoping that these allowances will stay in place for the near future – if not longer.

“Airports recognized that the catastrophic effect of the pandemic made a number of lease provisions impossible to perform and waived and modified these provisions accordingly, which points to an additional long-term challenge facing airports and concessionaires: leases should be modified in general so that the effects of future catastrophic events are handled within the lease rather than through realtime, ad hoc policy actions,” ARRA’s Weddig says. “Although specific instances remain, lease rental concessions are gradually expiring and seem less likely to be extended. Failure to extend rent relief is a major challenge for concessionaires. With passenger volume stuck at approximately 75 percent of its pre-COVID levels, continuing forecasts of a two-to-three-year recovery to 2019 traffic levels, and an even slower recovery of sales in certain sectors of the industry, it’s probable that most concession operators will not generate sufficient cash flow to pay MAGs in 2022. It’s critical for the industry’s ongoing financial viability and sustainability that MAGs be waived for the balance of 2021 through 2022.”

Weddig notes that another way airports can provide critical support to concession operators is by allowing operational flexibility in terms of store openings, hours of operation, and product selection and menus. “We need to be able to better align operations with flight schedules and, more importantly, passenger flows,” he adds. “Keep in mind that there are still substantial gaps between flight schedules and actual passengers; we cannot confuse seats with passengers.”

Hairston hopes that relationships between airports and concessionaires will be more interactive and engaged in the coming year. “Economists expect economic and travel industry instability to extend into 2024 – this creates the potential for strained operations and strained relationships,” she says. “Flexibility and responsiveness to changes in the industry will be key for success. While traffic is steadily increasing for now, we don’t know how new federal directives, staffing issues, COVID variants or supply chain issues will impact passenger levels or require that we adopt changes to concession operations. I expect frequent communications on passenger traffic, new or evolving regulations and sales performance will continue. The need to constantly evaluate performance and to make quick adjustments based on those observations will create the need for closer engagement.”

And as traffic approaches 2019 levels, airports will begin to address the concession leasing needs that were deferred in 2020, Hairston adds. “I expect RFP recruitments to be extensive in 2022, as many airports curtailed RFPs over the last two years and short-term leasing actions taken in 2020 are beginning to expire. Recruitments in 2022 will give airports the opportunity to address those needs.”