Airport Revenue Diversification (2010)

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The synthesis thus far has described how the airport business model has evolved and the regulatory and accounting con- text for aeronautical and non-aeronautical activity at airports. Part 2 (chapters three and four) examines how airports integrate revenue diversification strategies into the planning process (this chapter) and reports on various incentives and partnerships airports use to accomplish non-aeronautical development (chapter four). AIRPORT PLANNING PROCESS To receive federal and state funding, airports are required to have an ALP that consists of a narrative and a graphic pre- sentation to scale of existing and planned airport facilities, their location on the airport, and the pertinent clearance and dimensional information required to show compliance with applicable standards. The narrative of an ALP provides a history of the airport, forecasts of aviation activity, an assess- ment of facility requirements, a justification for future capital projects, and an analysis of any environmental impacts and plans for mitigation. Every public airport in the National Plan of Integrated Air- port Systems (NPIAS) has at least an ALP and many airports have master plans. The master plan process amplifies the ALP in that its main function is to focus on facilities and future needs. The master plan considers the airport role, vision, and possibilities, and examines various alternative configurations for airport land in a 25-year time frame. Master plans would include land that can be used for non-aeronautical purposes; however, the real focus is on aviation facilities. Today, because airports are now complex businesses, the master plan has become part of a larger planning framework where many airports have a strategic plan as well as a master plan, business plan, and marketing plan. But it is the strategic planning process that formulates the vision and direction for the airport (see Figure 18). The strategic plan sets forth the foundation for airport initiatives and defines the roadmap that the airport could follow to achieve its vision and goals. All other planning ini- tiatives should be aligned with the strategic plan (Ricondo & Associates 2009). Figure 19 places the strategic plan in the context of other typical airport planning activities. Each of these plans would include an action plan that defines near- term objectives, activities, resources, and staff requirements to implement, communicate, monitor, and evaluate progress. 16 PLANNING FOR NON-AERONAUTICAL DEVELOPMENT Non-aeronautical development requires attention to a planning process that parallels the planning framework that is typical for aeronautical facilities. Revenue diversification would be incorporated into the strategic plan, and options and risks considered. Development plans would be included in the mas- ter plan and specific near-term action items would be carried out in the business and marketing plans. In more concrete terms a non-aeronautical development would include the following steps: 1. Articulate the vision, short- and long-term goals for revenue diversification consistent with the airport’s vision. 2. Complete a SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats) a. Evaluate the airport’s assets—traditional and non- traditional i. Land, location, market for goods and services ii. Natural resources iii. Non-aviation assets (corporate headquarters, hospital, university, training facilities). b. Understand realistically the customer base for the airport’s assets i. Passengers ii. Employees iii. Community iv. Research and development v. Cargo and logistics vi. Other location-sensitive businesses vii. Our airport is attractive because. . . . c. Know constraints and limitations on non-aeronautical development i. Grant assurances and obligations ii. Other legal, physical, and environmental con- straints on property development iii. Infrastructure and site preparation costs. d. Consider the competition i. Other airports in the region ii. Local retail centers, industrial or business parks iii. Parcels of land available for development close to the airport iv. Airports outside the region seeking similar “movable assets and businesses.” 3. Evaluate development options a. Land use plan b. Civil engineering analysis CHAPTER THREE PLANNING ISSUES

17 c. Demand analysis d. Real estate market analysis e. Estimate of capital expenditures f. Identification of highest and best uses for available parcels g. Potential stakeholders h. Constraints and obstacles i. Potential projects and partners j. Timeline k. Cost/benefit and economic impact. 4. Prepare a business plan (short- to medium-term action plan) a. Set measurable objectives b. Department-level action plan that guides day-to-day implementation c. Marketing and public relations plan when appropriate. 5. Execute the business/action plan. 6. Monitor, evaluate, improve. This approach to non-aeronautical activity can be integrated into an all airport land planning effort or completed separately. The following example of planning for revenue diversification was accomplished by Dayton International Airport. DAYTON INTERNATIONAL AIRPORT STRATEGIC BUSINESS PLAN Dayton has a long aviation history beginning with the Wright brothers and the first manned flight flown from Dayton in 1905. Fascination with powered flight led several businessmen, including E.G. Beichler, President of Frigidaire; Frederick B. Patterson, President of National Cash Register; and Charles F. Kettering, Vice President of General Motors and President of the General Motors Research Group, to invest approxi- mately $187,300 to build a private airport on 311 acres north of Dayton. The airport opened at the end of July 1929 and went into receivership during the Great Depression. In 1934, the city of Dayton leased the airport and in 1936, the local business community raised $65,000 to purchase the airport, which it subsequently turned over to the city for one dollar. Dayton’s storied history continues. During World War II the airport became an army training field. The army acquired various parcels of land around the airport and constructed a heavy duty parallel runway. In 1947, the Federal War Assets Administrator deeded “Dayton Army Airfield,” containing more than 551 acres of property and related mil- itary facilities, to the city of Dayton and extinguished its lease of the airport (http://www.flydayton.com/index.php?page= history). Today, Dayton International Airport (DAY) is consider- ably larger, spanning 4,500 acres, and has three paved run- ways (see Figure 20). In the 1980s, Emery Worldwide built a cargo hub at Dayton, which it continued to expand until the early 1990s. Piedmont Airlines operated a passenger hub at DAY for three years starting in 1986, until USAir acquired Piedmont in 1989. USAir and its successor company US Air- ways discontinued long-haul routes out of Dayton, but con- tinued to operate DAY as a Midwest focus city. Today, Air Tran Airways and Frontier Airlines provide low-cost service Inputs Outputs Internal & External Stakeholder Views Strategic Plan Competition Information Internal Performance Audit Industry Trends Environmental, Operational, Financial Constraints Communication Plan Monitoring Plan Strategic Planning Mission & Vision Statement Strategic Goals Action Plan/Responsibility Assignments Key Performance Indicators & Targets FIGURE 18 Strategic planning process. Adapted by KRAMER aerotek inc., from Ricondo & Associates, Inc. (2009). FIGURE 19 Airport planning process. Adapted by KRAMER aerotek inc., from Ricondo & Associates, Inc. (2008).

18 at Dayton. The airport is also served by Air Canada, American, Continental, Delta, Midwest, United, and US Airways. Com- petitive fares at Dayton attract passengers from the Cincinnati/ Lexington area. Dayton has a number of unoccupied cargo and industrial buildings designated for aeronautical use and many undevel- oped acres. In 2008, the airport completed a Strategic Business Plan to serve as a framework for future business decisions. The plan presents a mission-vision-values statement, and long-and short-term goals for five strategic areas: operational excellence, customer service, business development, regional partnerships, and air service. Figure 21 shows Dayton’s mis- sion, vision and values statement and Figure 22 is an exam- ple of how Dayton framed its strategic initiatives for revenue diversification and development of non-airline businesses. In August 2008, Dayton began a comprehensive study of development options to determine the highest and best use of 650 acres on the airport designated for both aviation and non-aviation uses. The study has brought together various disciplines including land use planning, civil engineering, socioeconomic analysis, environmental assessment, project finance, and real estate market research to identify the highest and best uses of the proposed areas, identify constraints and obstacles that could hinder the development process, and define the development options. FIGURE 20 Dayton International Airport airfield layout. Source: Dayton International Airport (2009). Our Mission We contribute to the prosperity of Southwest Ohio by connecting it to the rest of the world through our aviation system. Our Vision Our airport facilities are the gateways of choice for travelers, airlines, and entrepreneurs in Southwest Ohio. Our Values Public Service Continuous Improvement Excellence Results FIGURE 21 Mission, vision, and values for Dayton International Airport. Source: Dayton International Airport, Strategic Business Plan (2008).

19 FIGURE 22 Dayton International Airport sample of strategic initiatives. Source: Dayton International Airport (2008). Business Plan: View of Our Flight Plan into the Future Strategic Initiative: Business Development Strategy To maximize non-airline revenues by optimizing utilization of airport assets and aggressively expand alliances with new business partners. Short-range goals Construct a 3-level parking garage as part of the five-year $110 million airport capital improvement plan. Expand rental car ready-return facilities by adding 250 rental vehicle spaces. Facilitate development and construction of a nationally branded hotel on airport grounds. Expand on-airport surface parking by approximately 1,000 spaces. Obtain Federal Aviation (FAA) acceptance of a “Master Plan” and FAA approval of an “Airport Layout Plan” (ALP) and “Exhibit A” property map for Dayton International Airport, which collectively chart the Dayton International Airport’s course for the next 20 years. Complete a business development database for the revitalized airport website that lists available Airport sites and buildings, infrastructure, regional supply chain, and available business incentives. Release approximately 400 acres of Airport property for non-aeronautical uses and complete a comprehensive land-use study that will define the “highest and best use” for the property. Long-range goals • Lease 400 acres to bring new business to enhance airport revenues and job growth in the Greater Dayton Region. • Lease 1.2 million square feet (former UPS facility) for cargo or aviation-related business. • Connect the airport to adjacent rail line to make it an inter-modal facility. Measurable outcomes Increase total annual airport revenues. Raise non-airline revenue as a percentage of total annual revenue. Increase annual cargo landed weight. Increase total annual concession revenue per enplaned passenger leased space. Increase net annual parking revenue per enplaned passenger.