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6This chapter provides an overview of revenues from in-terminal concession programs at U.S. airports; an introduction to the major types of in-terminal concessions, all of which are addressed in greater detail in later chapters of this resource manual; and a summary of recent trends and events that have shaped todayâs airport concession programs. 2.1 Revenues from In-Terminal Concessions Although numbers of enplaned passengers at our nationâs airports have been volatile at times, airports and concessionaires have benefited from generally steady long-term growth in numbers of enplaned passengers, along with real growth in concession spending. This section presents an overview of traffic growth at U.S. airports, aeronautical and nonaeronautical revenue sources, and average passenger spending at U.S. terminal concessions. 2.1.1 Traffic Growth Over the last four decades, the numbers of enplaned passengers on U.S. airlines have grown, on average, in 4 out of every 5 years. Since 1970, numbers of U.S. enplaned passengers have increased fourfold, at an average annual growth rate of 3.7%. In 2009, U.S. commercial enplaned passengers totaled 695 million, about 8.8% lower than the all-time high of 762 million in 2007. In-terminal concession revenue correlates strongly with changes in passenger traffic. Figure 2-1 illustrates the long-term growth in numbers of U.S. enplaned passengers since 1970. Over this period, growth in passenger traffic was interrupted five times by recessions, wars, and the terrorist attacks of September 11, 2001. Although growth in passenger traffic is occasionally disrupted by macroeconomic events, the recovery periods are typically short, and positive growth has returned relatively quickly. Of the five instances when year-over-year passenger traffic declined, in only three instances did the downturns extend for more than 2 consecutive years. This record of positive traf- fic and revenue growth has attracted strong interest in airports by potential concessionaires, as well as service providers, lenders, and investors. 2.1.2 Airport Revenue SourcesâAeronautical and Nonaeronautical Airport revenues are classified by the FAA as either aeronautical or nonaeronautical. âAero- nautical revenuesâ generally refers to revenues from the use of airfields, aircraft aprons, and air- line terminal buildings. âNonaeronautical revenuesâ generally refers to revenues from other activities, including passenger-related sources, such as parking, rental cars, and terminal conces- sions, and nonpassenger-related sources, such as commercial ground leases, sale of mineral C H A P T E R 2 Overview of Airport Concession Programs
rights, or other revenue-producing activities. Figure 2-2 shows the split between aeronautical and nonaeronautical revenues for all U.S. commercial service airports (i.e., airports with at least one scheduled airline aircraft operation per day). The data are for 2009, as extracted from the FAA Compliance Activity Tracking System (CATS) reports filed by each airport operator (FAA n.d.). Airport operating revenues totaled nearly $15.7 billion in 2009. Of this amount, nearly $6.7 billion, or 43%, came from nonaeronautical sources. Figure 2-2 also shows revenue from in-terminal concessions, which account for, on average, about 21% of total nonaeronautical revenues. In-terminal concession revenue, as reported to the FAA, total $1,408 million and include revenues from food and beverage ($465 million); retail, including duty free ($570 million); and services ($373 million). These amounts represent pay- ments to the airport sponsors from concessionaires and other service providers. The FAA does not provide a separate breakout for retail excluding duty free. The contribution from nonaeronautical revenues varies widely among airports and depends on a number of factors, including the following: â¢ Availability of land for commercial or other nonaeronautical uses â¢ Distance from the major population centers and availability of alternate forms of ground transportation, which can affect demand for automobile parking and rental cars â¢ Passenger demographics, which can affect spending â¢ Numbers of international passengers, which can produce duty free and higher overall retail spending â¢ Time spent in the terminals by passengers (also referred to as dwell time), which can also affect spending Overview of Airport Concession Programs 7 Sources: Air Transport Association of America 2011. FAA Forecast and Performance Analysis Division 2010, Table S-10, p. 22. Figure 2-1. Enplaned passengers per year since 1970.
â¢ Terminal configuration, which can dictate concession space layouts and sales performance â¢ Airport management practices and emphasis on developing nonaeronautical revenues â¢ Other factors unique to each airport Figure 2-3 shows the variation in the percentage of nonaeronautical revenues for a represen- tative group of airports in 2008 based on FAA CATS Report 127 filings by airport operators (FAA n.d.). The cost of providing new and expanded terminal and airfield facilities may result in higher airline charges, therefore lowering the share of nonaeronautical revenues, which can account for as much as 85% of total revenues (at Richmond International Airport) and as little as 33% of total revenues (at Chicago OâHare International Airport). Based on 2009 data reported to the FAA, on average, small hub airports earn 54% of their operating revenues from nonaeronautical sources. This percentage decreases to 49% for medium hub airports and to 40% for large hub airports. Figure 2-4 shows the shares of total U.S. terminal concession revenue according to airport hub status. Terminal concession revenue tends to decline with passenger activity levels, reflect- ing the economies of scale of larger airports. The 30 airports classified as large hubs accounted for 80% of total terminal concession revenue and about 70% of total U.S. airline passengers in 2009. The 38 airports classified as medium hubs accounted for about 14% of total terminal concession revenue and about 19% of total passengers. The 68 small hub airports accounted for 5% of total terminal concession revenue and about 8% of passengers. The 383 nonhub commercial service airports accounted for only 1% of terminal concession revenue and about 3% of total airline passengers. 8 Resource Manual for Airport In-Terminal Concessions Parking and Ground Transportation $2,799 Food and Beverage $465 Retail and Duty Free $570 Services $373 Rental Cars $1,417 Hotels $33 Other $549 Passenger Airline Aeronautical Revenue $7,328 Non-Passenger Aeronautical Revenue $1,631 Land and Non-Terminal $527 Nonaeronautical Revenue $6,735 Total Operating Revenues $15.695 Billion Total Nonaeronautical Revenues$6.735 Billion Source: FAA n.d. Figure 2-2. Total 2009 operating and nonaeronautical revenues for all U.S. commercial service airports (dollars in millions).
Overview of Airport Concession Programs 9 Source: Jacobs Consultancy, Inc., 2008, Table 8, p. 51. Data are for 2008 as reported by individual airports on FAA CATS Report 127 (FAA n.d.). Figure 2-3. Nonaeronautical revenues as a percentage of total revenues for selected airports and airport systemsâFY2008.
Figure 2-5 shows the changes in concession revenues at all U.S. commercial service airports by major FAA hub category between 2000 and 2009. After the downturn in traffic in 2002 fol- lowing the attacks on September 11, 2001, there were six straight years of growth until 2009 and the global recession. Between 2001 and 2009, the services category grew by 157%. Food and bev- erage and retail revenues grew 24% and 23%, respectively. 2.1.3 Average Passenger Spending In 2008, passenger spending on food and beverage, specialty retail, convenience retail, and duty free averaged $7.77 at small hub airports, $7.66 at medium hub airports, and $15.97 at large hub airports. Figure 2-6 presents a summary of 2008 concession performance by category and by hub size. 2.2 Types of In-Terminal Concessions The number, type, and variety of concessions vary by airport. The major categories of in- terminal concessions discussed in this resource manual are food and beverage, convenience retail, specialty retail, duty free, advertising, and services. 2.2.1 Food and Beverage At U.S. airports, food and beverage concessions generally occupy the most space and are the most productive in terms of sales and revenue. Food and beverage concessions typically occupy approximately 60% of concession space, although the total amount of concession space varies widely. Food and beverage concessions at large hub, medium hub, and small hub airports average 4.5 square feet, 6.5 square feet, and 10.4 square feet of space per 1,000 passengers, 10 Resource Manual for Airport In-Terminal Concessions $5.2 $23.4 $76.0 $465.5 $6.1 $24.8 $82.7 $455.7 $9.0 $22.2 $45.0 $373.0 $- $50 $100 $150 $200 $250 $300 $350 $400 $450 $500 Non Small Medium Large Revenue to Airport Operator (millions) Services and other Retail and duty free Food and beverage Source: FAA Compliance Activity Tracking System (CATS) Reports as of December 4, 2010 (FAA n.d.). $0 Figure 2-4. Total 2009 concession revenues by category and airport hub size (dollars in millions).
Overview of Airport Concession Programs 11 $375 $334 $310 $429 $496 $492 $547 $570 $465 $464 $396 $416 $439 $428 $447 $533 $585 $570 $181 $191 $218 $246 $254 $280 $309 $315 $466 $1,127 - 200 400 600 800 1,000 1,200 1,400 1,600 1,800 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Services and other Retail and duty free Food and beverage Source: FAA Compliance Activity Tracking System (CATS) Form 127 Reports for years indicated (FAA n.d.). All categories $1,020 $944 $1,114 $1,178 $1,219 $1,389 $1,470 $1,501 $921 $ 0 Figure 2-5. Changes in concession revenues at all U.S. commercial service airports 2000â2009 (dollars in millions). $5.34 88.1$ 17.1$ 50.7$ 29.8$ 79.51$ 05.4$ 59.1$ 12.1$ 63.1$ 66.7$ 20.9$ 94.3$ 71.2$ 72.0$ 00.0$ 39.5$39.5$ dna dooF egareveB ecneinevnoC liateR ytuDliateR ytlaicepS ytuD-.lcxe( latoTeerF )eerF ytuD htiw( latoT )eerF regnessaP denalpnE rep selaS Large Hubs Medium Hubs Small Hubs Source: Airport Revenue News 2009. Data are for 2008. Figure 2-6. 2008 average concession sales per enplaned passenger by category and hub size.
respectively. The range of food and beverage space varies between 2 square feet and 10 square feet per 1,000 enplaned passengers at large and medium hub airports and between 4 square feet and as much as 17 square feet at small hub airports (with one small hub reporting 26 square feet per 1,000 enplaned passengers). The types of food and beverage services offered at airports generally include the following: â¢ Casual dining restaurants offering meals, snacks, and full bar service, typically with wait staff and table service. â¢ Quick-serve (also called quick-casual) units offering specialized meals, snacks, and nonalcoholic beverages, typically using counter service. Quick-serve is the broadest service category and may include snack concepts (ice cream, frozen yogurt, cookies, and generic snack bars) and Mexican, Asian, sandwich, delicatessen, pizza, hamburgers, and many other concepts. Quick- serve units are often co-located in food courts where they share customer seating and back- of-house facilities and create a major destination for food and beverage services. â¢ Bars offering a full range of alcoholic beverages, as well as snacks and light meals, using wait staff or counter service. â¢ Specialty coffee units offering premium coffee and espresso drinks, tea, pastries, juices, and, in most cases, packaged sandwiches and salads. The number of primary passenger routes of travel through the terminal (i.e., flows) leading to departure gates and the volume of passengers in each separate flow are major determinants regarding the number of concession units that can be supported. At many airports, food and beverage services are considered the most important concession from a customer service standpoint. Unlike specialty retail or duty free, which are discretionary purchases, food and beverage services are a necessity for many passengers and achieve the high- est sales penetration by passengers. According to multiple surveys at airports by Airport Inter- viewing and Research, a survey research company, 73% of passengers on average make purchases at concessions. Of these, 68% make a food and beverage purchase, 25% make a newsstand pur- chase, and 11% make a specialty retail purchase. Some passengers make purchases in multiple categories. Food and beverage concessions are also used by airport employees more than any other concession. The operators of some airports, such as Fort Lauderdale-Hollywood and Sacramento airports, encourage concessionaires to offer employee discounts by assessing a lower percentage rent on sales to employees. 2.2.2 Convenience Retail Convenience retail includes traditional airport retail concepts such as newsstands and news/ gift shops, as well as newer hybrid retail concessions, such as convenience stores. Convenience retail concessions offer a merchandise mix that has few parallels outside of transportation terminals. Newsstands are the most ubiquitous convenience retail concession, offering a merchandise mix centered on a large assortment of newspapers, magazines, and hardback and paperback books. Other newsstand merchandise typically includes sundries, candies, mints, gum, cigarettes and tobacco, health and beauty aids, traveler conveniences, and a range of souvenirs and general merchandise. News/gift shops are larger, traditional airport retail units that offer newsstand merchandise, but devote a significant amount of overall space to souvenirs, gifts, packaged foods, and general merchandise. Although they are still the dominant form of airport retail concession, news/gift shops at larger airports have been supplemented by specialty shops. 12 Resource Manual for Airport In-Terminal Concessions
Most airport operators allow convenience retail units to offer bottled water, juices, and other cold beverages as a passenger convenience. A recent addition to the convenience retail category is the convenience store, offering typical newsstand merchandise along with snacks, delicatessen items, and cold and hot beverages. The convenience store concept serves as a âone-stop shopâ that can provide the time-limited passenger with the most often purchased items in a single transaction. According to a national concessionaire surveyed for this project, 15% to 45% of airport pas- sengers typically make a purchase at some type of convenience retail concession. 2.2.3 Specialty Retail Specialty retail refers to a retail shop offering a specialized line of merchandise, such as jew- elry, leather goods, personal care products, luggage, gadgets, travel accessories, sports apparel, shoes, cosmetics, regional arts and crafts, clothing, toys, candy/chocolates, or other merchan- dise. Specialty retail includes in-line shops as well as kiosks, retail merchandise units (RMUs), carts, and, more recently, sophisticated vending machines. Specialty kiosks and RMUs are often branded and may include established national and international brands, local brands, and some airport-only brands. Specialty retail shops require greater numbers of passengers and, depending on the concept, certain types of passengers. Surveys have shown that less than one-quarter of airport passengers visit specialty retail shops, with only 10% to 15% of passengers making a purchase at such shops. In-line specialty retail shops tend to be smaller than newsstands or news/gift shops, typically between 500 square feet and 900 square feet, although some concepts may support up to 1,300 square feet of space. In addition to in-line shops, specialty retail kiosks are an important part of the retail program at airports, where concession space is limited. Specialty retail kiosks may range in size from 200 square feet to 450 square feet and can be located along walls within circulation corridors of concourses. Figure 2-7 shows an example of specialty retail kiosks at Oakland International Airport. The kiosks are located across from a row of food and retail concessions bordering the circulation cor- ridor and holdroom space. The airport operator used the kiosks to provide an expanded retail offering and create a dynamic concession cluster featuring a food court, a newsstand, a Mexican casual dining/bar restaurant, and the specialty retail kiosks. Overview of Airport Concession Programs 13 Figure 2-7. Specialty retail kiosks at Oakland International Airport.
2.2.4 Duty Free Duty free shops are retail shops that mainly sell high-end luxury goods in five traditional core categories: perfumes and cosmetics, liquor, tobacco, fashion, and candy/chocolates/confectionery. Duty free shops, with some exceptions, sell merchandise that is free of import duties, excise taxes, and local and state sales taxes. Sales are, by law, limited to departing international passengers. Merchandise to be sold is purchased by a duty free operator directly from manufacturers and suppliers rather than through normal distribution channels, such as regional wholesalers and distributors, thus avoiding wholesale markups. Merchandise is delivered âin-bond,â that is, in sealed containers under the supervision of Customs authorities. The combination of direct pur- chase from manufacturers and tax and duty free status results in large gross margins, which translates into attractive pricing for customers, particularly on expensive luxury goods. Airport operators share in these high margins through high guaranteed and variable percentage rents. Depending on the size of the market and the nationalities and preferences of the international passengers, the duty free operator may also provide branded luxury boutiques or branded shop- in-shop displays featuring menâs and womenâs fashion items, gourmet foods, single-malt scotch, or other luxury goods. The value proposition for duty free shops varies with the customersâ nationalities. Passengers from countries with high import duties, high sales taxes, or value-added taxes (VATs) or coun- tries that levy high excise taxes on certain luxury items are most likely to find duty free shopping attractive. Generally, passengers from Europe and, in particular, Asia come from high-tax envi- ronments and are avid duty free customers. Customers from Asia also tend to be very brand con- scious and are heavy consumers of branded luxury goods. The difference in the international passenger mix at airports can make a material difference in duty free sales and revenue. Duty free sales for U.S. East Coast airports averaged about $8.50 per enplaned international passenger in 2008, while duty free sales at U.S. West Coast airports with higher percentages of passengers from Asia averaged just over $13.00 per enplaned inter- national passenger. Outside the United States, major international airports, such as Dubai International, London Heathrow, and Seoul Incheon International airports, produce duty free sales approaching $1 bil- lion annually because of their large volumes of international passengers, limited domestic traf- fic, and airline service to high-tax, high-duty destinations. 2.2.5 Advertising In-terminal advertising includes traditional static airport advertising displays such as wall posters, backlighted wall displays, wall wraps, and large-format displays. Other advertising media in airports may include interior and exterior loading bridge wall wraps, ads on luggage cart panels, banners and column wraps, and dynamic displays including flat-panel monitors, video projection systems, and displays with alternating, changeable printed media. The development of light-emitting diode (LED) displays, such as those used as high- definition video walls in sports stadiums, is providing new opportunities to create free-form, custom displays capable of dynamic graphics and video. Figure 2-8 shows a large and dramatic wall wrap at a highly trafficked area in the terminal at Munich airport. Airport operators have also implemented nontraditional advertising strategies including air- port advertiser-based, closed-circuit audio programming (in-terminal radio); advertising- supported television in holdrooms, such as the CNN Airport Channel; manufacturer-sponsored 14 Resource Manual for Airport In-Terminal Concessions
televisions in holdrooms, such as the sponsored Samsung displays that usually offer local pro- gramming; sponsored childrensâ play areas; sponsored business centers; and naming rights arrangements, such as exclusive pouring rights for soft drink companies. Advertising using wall wraps within loading bridges is also becoming common and, in many cases, can provide advertisers with access to passengers travelling to a specific destination when the assignment of departure gates is well established. In-terminal advertising is mostly managed by a few specialist companies; however, some air- port operators use local out-of-home advertising contractors, and the operator of at least one airport, Jacksonville International Airport in Florida, manages its advertising program in-house. 2.2.6 Services Services include a variety of amenities and personal services for passengers, such as the following: â¢ Automated teller machines (ATMs), usually provided through a bank, although sometimes installed in airports by commercial vendors. â¢ Baggage storage services, where luggage can be stored for a few hours or a few days. Lockers are also available in some airports, although security regulations have restricted their use. â¢ Business centers offering express delivery pickup, copying, printing, computer use, and other business services. â¢ Foreign exchange kiosks, booths, or in-line units offering currency exchange services, sale of travelersâ checks, and cash advances on credit cards. â¢ Game rooms offering coin- or token-operated video games. Changes in technology, availabil- ity of home and portable gaming devices, and noise concerns have reduced the viability of these machines in airports. â¢ Hair salons and barber shops. â¢ Internet kiosks. â¢ Luggage carts, which in the United States are usually offered on a pay basis. Free use of carts is offered in the international arrivals areas of some airports. Internationally, luggage carts are most often provided for free by the airport operator and carry paid advertising. â¢ Luggage wrapping, where suitcases are covered with clear plastic for protection, and luggage shipping, mainly for international passengers as an alternative to paying excess airline bag- gage charges. â¢ Massage services and spas offering a variety of massages, manicures, pedicures, facials, and other spa services. Figure 2-9 shows a typical spa unit at San Francisco International Airport. â¢ Medical clinics, offering urgent care to passengers, prescriptions for travelers in need, and gen- eral medical services to employees. Medical clinics may also provide employment and FAA Overview of Airport Concession Programs 15 Figure 2-8. Example of large format airport advertising display at Munich Airport.
flight physical examinations, treat work-related injuries on behalf of airport employers, admin- ister drug screening tests, administer flu shots and vaccinations, and provide other services. â¢ Pay telephones. Demand for pay telephone services has declined dramatically with the popu- larity of cell phones, but are still a necessary service for many passengers. â¢ Postal services, including the sale of postage, express mail, mailboxes, mail drops, and other postal services. At larger airports, a service center may be staffed by the U.S. Postal Service. â¢ Shoeshine stands. â¢ Wi-Fi, which was first offered on a pay basis, but is now offered by many airport operators through sponsorships or as a free service. The availability of these services will depend upon such factors as the layout of the terminal building, numbers of passengers, and availability of suitable locations. Airports with efficient layouts and concentrated passenger flows are best able to offer a broad range of services. Clus- tering services together can make them easier for passengers to find. 2.3 Attributes of Successful Concession Programs The profile of airport concessions has increased steadily over the years. Passenger surveys show that concessions, which are used by more than half of all passengers, are an important factor in evaluating the overall passenger experience of the airport. The highest-rated airports in the United States and around the world all have highly regarded concession programs. The 2009 ACI World Airport Service Quality passenger survey, a voluntary, fee-based pro- gram administered by ACI, which involves surveys of passengers around the world, ranked Seoul Incheon International, Singapore Changi, Hong Kong International, Beijing Capital Interna- tional, and Ghandi Hyderabad International airports as the best airports worldwide (Airports Council International 2010). All of these airports have well-regarded concession programs. In North America, the airports serving Austin, Halifax, Ottawa, Jacksonville, and Portland, Maine were ranked as the best airports in terms of their well-regarded concession programs. The ACI-World 2009 Airport Service Quality Index award winners are shown on Table 2-1 (Airports Council International 2010). 16 Resource Manual for Airport In-Terminal Concessions Source: San Francisco Airport Commission. Figure 2-9. Spa concession at San Francisco International Airport.
Successful concession programs share a number of key attributes. â¢ Aesthetics. Successful concession programs are characterized by concession units that are con- temporary in design, visually interesting, built with durable high-quality materials, and invit- ing to potential customers, and that complement the terminal building and surroundings. â¢ Capacity. The ability to meet customer demand during seasonal and daily peaks affects customer service and revenues. The peak demand characteristics of airports vary and must be taken into account in planning the concession program. â¢ Customer service. Most purchases are discretionary. Passengers do not travel to the airport to shop or eat. Providing helpful customer service is important to maximizing sales and encouraging multiple purchases. â¢ Revenue production. Revenue production is a principal objective of any concession program. However, airports with successful concession programs have demonstrated that revenue pro- duction is not an end in itself; rather, it is the result of successfully incorporating multiple attributes into the concession program and providing passengers with an array of concession choices that meets their needs. â¢ Sense of place. Successful concession programs often reflect the unique attributes of their city and region, offering passengers from other places a brief look into the local community and culture. Whether it is barbecue in Memphis, Cuban food in Miami, seafood in Seattle, or beignets in New Orleans, concession programs benefit by offering local favorites. Bringing in successful local food and retail concepts and incorporating local materials and design aesthet- ics can also help create a sense of place that differentiates the airport from others. Overview of Airport Concession Programs 17 Table 2-1. ACI World 2009 airport service quality index award winners. Source: Airports Council International 2010. BEST AIRPORTS WORLDWIDE 1. Incheon (ICN) 2. Singapore (SIN) 3. Hong Kong (HKG) 4. Beijing (PEK) 5. Hyderabad (HYD) BEST AIRPORT BY SIZE OF AIRPORT Fewer than 5 million passengers 5 â 15 million passengers 1. Halifax (YHZ) 1. Hyderabad (HYD) 2. Ottawa (YOW) 2. Austin (AUS) 3. Portland (PWM) 3. Cancun (CUN) 4. Guayaquil (GYE) 4. Nagoya (NGO) 5. Jackson (JAN) 5. Jacksonville (JAX) 15 â 25 million passengers 25 â 40 million passengers 1. Baltimore/Washington (BWI) 1. Incheon (ICN) 2. Taipei (TPE) 2. Singapore (SIN) 3. Shenzhen (SZX) 3. Tokyo Narita (NRT) 4. 4.New Delhi (DEL) Kuala Lumpur (KUL) 5. Salt Lake City (SLC) 5. Shanghai Pudong (PVG) Over 40 million passengers 1. Hong Kong (HKG) 2. Beijing (PEK) 3. Denver (DEN) 4. Dallas Fort Worth (DFW) 5. Houston George Bush (IAH)
â¢ Value. Historically, value for money has not always been a widely held attribute of airport con- cession programs, with some airport operators allowing concessionaires to charge customers what the market will bear. Airport operators have adopted a variety of pricing policies, rang- ing from true âstreet pricingâ to no pricing policy at all. While pricing is important, it is not the only component of creating value for customers. â¢ Variety. Passengers want choices in food and beverage, retail, and services. The broader the range of choices, the more likely it is that the customer will find something he or she wants, and the more likely it is that the concessionaire will achieve higher sales and that the airport operator will have higher revenues. â¢ The âwowâ factor. Passengers spend considerable time in airports, and concessions provide choices on how to use that time. Concessions that are unique, visually interesting, and excit- ing add to the overall passenger experience. 2.4 Recent Trends in Concessions In recent years, a number of broad trends have helped shape the current state of in-terminal concession programs. These trends include the following: â¢ Raised expectations. As airport operators improve their concession programs, frequent trav- elers including elected officials, members of the media, civic leaders, and other influential residents, will naturally compare airports they visit with their home airport. As concession programs have become larger, more developed, and more successful, the attention they receive in airport industry publications, the business press, and the general media has increased. â¢ Decline in airline meal service. With changes in airline competition, particularly the rise of low-cost carriers (LCCs), airlines have reduced costsâincluding limiting free meal serviceâ to remain price competitive. The decline in free meal service has increased demand for in- terminal food and beverage services, including food that can be taken aboard the aircraft and enjoyed in-flight. Airlines compete for this business with in-flight snack and meal sales, but the offerings are limited compared with what can be offered within terminals. â¢ Healthy, fresh food. Airport operators have responded to changes in customer demand for fresher, healthier foods by adjusting their concession mix to include freshly prepared foods, including foods cooked or prepared to order within concession units, often in sight of the cus- tomer. At the same time, the use of centralized commissary food preparation has declined. Pas- sengers have embraced good, fresh food and rewarded concessionaires and airports that have emphasized quality and diversity in their food and beverage offerings. In the 1990s, offerings at airports were expanded to include more branded foods, including fast foods. While tradi- tional fast food brands still have a place at airports, fresher, higher quality concepts that respond to the preferences of passengers seeking better or healthier foods are also being offered. â¢ Local and regional brands and concepts. According to the survey conducted for this research project, about 29% of the food and beverage brands at airports are local or regional, while about 26% of specialty retail brands are local or regional. Another 10% of newsstands carry the name of a local or national newspaper or magazine, a news or business television network, or a local television station. â¢ Local and national âcelebrityâ chefs. Recent competitive proposals for airport food offerings have spurred a rise in food and beverage concepts that are licensed or created by celebrity chefs made popular through cable food networks. Kathy Casey, Todd English, Masaharu Morimoto, Wolfgang Puck, and Martin Yan are a few of the well-known chefs who have created success- ful restaurant concepts for airports. Similarly, cable televisionâs Food Network and the Culi- nary Institute of America have partnered with airport concessionaires to create new and unique food and beverage offerings. â¢ Smaller leasing packages, more concession agreements. As airport concessions have grown in scale and sophistication, airport operators have sought to increase the level of competition 18 Resource Manual for Airport In-Terminal Concessions
and attract a broader range of concession concepts to their airports. To effect this change, the operators of larger airports are awarding multiple concession agreements and using more direct leasing to improve their concession mixes and attract high-quality specialist tenants. â¢ Branding. For passengers, travel involves a series of decisions and risks, and brands are a way of minimizing the risk of a poor decision while in the airport. Passengers have indicated a strong preference for the proven and familiar. Brands can also provide a proven, built-in quality con- trol system with external monitoring that reduces the airport operatorâs risk of substandard operations. For example, brands with off-airport locations can be used as a benchmark for ensuring that prices are consistent with the pricing policy at the airport. â¢ Kiosks, retail merchandise units (RMUs), and wall-huggers. With airport concession space often constrained by the needs of airlines, many airport operators are incorporating RMUs or kiosks in their concession programs as a means to increase revenues, expand the concession offering, and provide services in underserved areas of the terminal. For example, at Hartsfield- Jackson Atlanta International Airport, retail and food and beverage RMUs have been installed on concourses where passenger demand exceeds the supply of concession space. Wall hug- gers, a form of RMU that takes minimal floor space and stands against an available wall, are also effective in space-constrained airports. â¢ Less time pre-security. Online check-in and self-service check-in terminals have decreased the time passengers spend in pre-security areas, allowing them to proceed directly to the secu- rity checkpoint. â¢ Increased security checkpoint processing times. Although automation is reducing the time passengers spend at ticket counters, they are spending more time in security queues undergo- ing more stringent security inspections. TSA security checkpoint procedures have increased passenger processing times and lengthened queues, which has, in turn, reduced demand for pre-security concessions and increased demand for post-security concessions. Stress and anxiety related to security inspection also reduces spending, as illustrated conceptually in Figure 2-10. Overview of Airport Concession Programs 19 Source: LeighFisher. Figure 2-10. Passenger stress and willingness to spend.
â¢ Volatility in passenger demand. Until the attacks of September 11, 2001, there were few exam- ples of âsystemic shocksâ that could broadly affect airline passenger demand. Previous events, including air traffic controller strikes and airline bankruptcy filings, did not compare to the sudden downturns caused by security concerns following the attacks of September 11, 2001, or the decrease in demand resulting from the âgreat recessionâ of 2008â2010. (The 2002â2003 severe acute respiratory syndrome [SARS] epidemic also caused sharp declines in passenger travel, mostly to or within Asia.) The heightened sensitivity to systemic declines in passenger demand has caused concessionaires and airport operators to consider the financial effects of a decline in traffic and the effect of such a decline on the obligation to pay minimum guarantees. While long-term passenger demand is expected to grow, the concern over a sudden traffic decline is being factored into decisions by concessionaires, particularly where the length of term is short and there is less time for a recovery. â¢ Changes in the airline industry. LCCs claimed a 27% share of domestic passenger traffic in 2009 and in 2010 provided more than 29% of available domestic seats. Much of this share is taken from the established network, or legacy, carriers, and the remainder is new traffic stim- ulated by new service and lower fares. Other changes in the airline industry include the rapid growth in LCC traffic at secondary airports serving major cities, a decrease in the share of connecting traffic flowing through major hubs, and a shift to LCCs in price-sensitive leisure markets. Airline bankruptcies and consolidations through mergers (AirTran Airways and Southwest Airlines, Delta Air Lines and Northwest Airlines, US Airways and America West Airlines, Continental and United Airlines) have resulted in some significant shifts in traffic, particularly at connecting hub airports. â¢ Integration of concession areas with holdrooms. Some new airport terminals are blurring the line between airline-leased holdrooms and concession areas with good effect, making it easier for passengers to use concessions without losing sight of their departure gates. The JetBlue Airways terminal at John F. Kennedy International Airport in New York includes devices for remote ordering of food and beverages along with holdrooms with tables and counters so that passengers can eat close to their departure gates. At San Francisco Interna- tional Airport (see Figure 2-11), in its redevelopment of Terminal 2, food and beverage con- cessions are located closer to departure gates, and alternative types of seating (including benches, tables, and chairs) and traditional airport seating are mixed to allow passengers to enjoy their food and beverage purchases closer to their departure gates. 20 Resource Manual for Airport In-Terminal Concessions
Overview of Airport Concession Programs 21 Source: San Francisco Airport Commission 2009, p. 20. Figure 2-11. Example of concessions integrated with holdrooms.