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22 In-terminal concessions provide important services to passengers while generating needed revenue for airports. This chapter discusses various elements of an airport concession program and some of the issues involved in developing a concession program, including the following: â¢ Competing stakeholder demands â¢ Concession program planning process â¢ Assessment of customer satisfaction â¢ Establishment of realistic expectations â¢ Differences between domestic and international passengers and terminals â¢ Optimization of sales and revenues â¢ Preparation of a SWOT analysis â¢ Common concession program goals 3.1 Competing Stakeholder Demands Because airports are public entities, airport operators face competing demands from stake- holders with an interest in the concession program. These stakeholders typically include the following: â¢ Current concessionaires interested in continuing their tenure under the most advantageous and profitable terms. â¢ Prospective concessionaires seeking a place in the concession program. These could include national companies specializing in airports, regional and local businesses with little or no air- port experience, and minority- and women-owned businesses that qualify under the federal Airport Concession Disadvantaged Business Enterprise (ACDBE) Program. An airport held in high regard by the community would be expected to generate strong interest from busi- nesses seeking to associate with a successful, high-profile community asset. â¢ Airlines, which have an interest in the development of nonaeronautical revenue sources, which may reduce the airportâs reliance on airline fees and charges. Many airlines prefer that their passengers enjoy the benefit of a well-developed concession program, which strengthens the competitiveness of the airport and, by extension, the airline. Airline managers have noted that airport terminals are an extension of the airlineâs brand and the customer experience, as identified in their passenger surveys. â¢ Concession employees, who have an interest in employment stability and, in some cases, may advocate policies that support a union-friendly outcome. â¢ Airport management, which has an interest in growing its revenue base and offering a conces- sion program that enhances the reputation of the airport. Management may also have compet- ing interests that require consideration, such as minimizing capital investment or staff costs. C H A P T E R 3 Establishing Goals for the Concession Program
â¢ Policymakers, including appointed and elected officials who make the ultimate decisions regard- ing the concession program. Policymakers may have different views than airport management about the concession program as well as views that airport management sees as unrealistic. Policymakers may also be lobbied heavily by other stakeholders pursuing their own interests. In recent years, airlines have become supportive of in-terminal concession programs. Airline managers recognize that higher concession revenues help reduce the airport enterpriseâs reliance on airline landing fees and terminal rentals, thereby diversifying the financial base of the airport enterprise. Web surveys and interviews conducted for this research found that 67% of airport concession managers believed that the airline influence on concession programs was positive and con- tributed to a good program, although 79% thought that the overall airline influence was weak. Airport concession managersâ views on airline influence, as represented in a survey conducted for this resource manual, are summarized in Figure 3-1. Concessionaires, however, held a different view, with a plurality holding that airlines did not have a positive influence on the extent and character of concession programs. A similar per- centage held a neutral view, and only 14% indicated that airline influence was positive. Airlines were not always supportive of concession programs, but this has changed in recent years as airlines have given greater attention to the entire passenger experience, including the experience on the ground. As one airline representative noted, airlines may be more supportive of improving concession programs if they are consulted and included in the planning process. Airlines operating major hubs understand that connecting passengers have a choice when it comes to the airport at which they change planes, and the concessions available during their transfer can be a factor in that decision. In markets with competing airports, good concession programs can contribute to creating a positive overall passenger experience and can strengthen an airportâs competitiveness. One airline manager interviewed for this study noted that many airlines have come to see the airport terminal experience, including concessions and services, as an extension of the airline brand. Airlines that operate unit terminalsâthat is, terminals built, financed, leased, and operated by the airlineâhave also become participants in planning and managing concession programs. Airlines have developed well-regarded concession programs, including those at JetBlue Airwaysâ Terminal 5 and American Airlinesâ Terminal 7 at John F. Kennedy International Airport in New York, and Continental Airlinesâ Terminal 3 at Newark Liberty International Airport. Establishing Goals for the Concession Program 23 18% 79% 3% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Strong Pe rc en t o f A irp or t C on ce ss io n M an ag er s R es po nd in g Weak Neutral 13% 67% 21% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Pe rc en t o f A irp or t C on ce ss io n M an ag er s R es po nd in g Negative, constraining the program Positive, contributing to a good program Neutral Source: Airport concession manager survey. Figure 3-1. Airport concession managersâ view of airline influence on airport concession programs.
Airlines own and operate unit terminals with concession programs in only a few airports, most notably John F. Kennedy International Airport, LaGuardia Airport, and Newark Liberty Inter- national Airport, all operated by the Port Authority of New York and New Jersey. At most other airports where the airlines build and operate terminals, the concession programs are adminis- tered by the airport operator. 3.2 Concession Program Planning Process Before establishing overall goals for the concession program, it is a good idea for the conces- sion manager to solicit senior management and board-level input on the most important aspects of the concession program and reflect that input in the planning, implementation, and manage- ment of the concession program. Figure 3-2 presents a conceptual diagram of the concession-planning process, highlighting the key steps in establishing concession program goals, the first major task in the planning process. 24 Resource Manual for Airport In-Terminal Concessions Assess Current Program Prepare SWOT Analysisrepar l i Benchmark Comparable Terminalsench ark o par l r i ls Establish Overall Program Goalsstablish verall r r l Prepare Financial Planr r i i l l n Prepare Space Planrepare pace lan Prepare Concession Mixrepare onc ssi ix Establish Business Termsst lis i r s Prepare, Conduct Solicitationrepare, onduct olicitation Implement New ProgramI l t r r Prepare Contracting Strategyrepare o tr cting trategy Establishing Goals for the Concession Program CONCESSION PLANNING PROCESS Figure 3-2. Overall concession planning process and four steps for establishing concession program goals.
To some, the concept of establishing goals may seem elementary. Some airport managers and concession managers feel they have an intuitive understanding of program goals. How- ever, the value of establishing written goals rests as much in the process itself as in the final outcome. Determining goals can help establish priorities, provide guidance for balancing competing interests, and provide a vehicle for soliciting input from others. Importantly, such goals can be used to create reasonable expectations of what the concession program can (and cannot) be. Establishing goals consists of four steps: 1. Assess the current program. 2. Prepare a strengths, weaknesses, opportunities, and threats (SWOT) analysis to guide future planning and decision-making. 3. Benchmark comparable terminals that provide a common framework based on what is achiev- able at an airport with a similar passenger mix, traffic volume, customer demographics, and other attributes. 4. Draft and establish a broad statement of goals based on the above. Once established, the goals will provide a basis for guiding large and small decisions during the planning, solicitation, and implementation phases of a new concession program. 3.3 Assessment of Customer Satisfaction There are few entirely new airports under development around the world, and, in the United States, only a handful of new airport terminals have been developed in recent years. Few conces- sion programs are planned with a completely clean slate, and airport operators will want to eval- uate their current concession programâs performance before planning a new program or updating an existing one. Successful concession managers use a variety of techniques to measure customer satisfaction. Ongoing measurement allows for continuous improvement of the concession program. Depend- ing on the measuring technique used, concession managers can identify issues related to customer service, hours of operation, pricing, product mix, and other matters important to passengers as well as areas needing improvement. 3.3.1 Sales Performance Monitoring At a macro level, careful analysis of sales trends, particularly on a per-enplaned-passenger basis, allows for evaluation of relative performance and can be used to identify favorable or unfavorable trends. A reasonable expectation is for sales performance on a per-enplaned-passenger basis to grow at the rate of inflation. While periods of economic recession may reduce demand in some categories of concessionsâparticularly specialty retail and duty freeâin periods of normal economic growth, it should be expected that sales per enplaned passenger would grow faster than, or at least as fast as, inflation. Between 1998 and 2008, a period that included one recession, but excluded the financial crisis and recession of 2008â2009, the average sale per enplaned passenger for combined food and beverage and retail increased an average of 6.3% per year, or about 3.5% annually when adjusted for inflation. At a micro level, sales performance of individual concession units can be compared with units in the same category (say, newsstands) or within the same area of the terminal building with similar exposure to passengers. Outside of the United States, airport operators with highly developed concession programs, including privately owned airports, use detailed sales and revenue per passenger data to track Establishing Goals for the Concession Program 25
and evaluate performance against plan. Variances from the plan are a cause for investigation. Privately owned airports are very reliant on terminal concessions and other nonaeronautical revenues for their profits, as aeronautical charges are typically regulated. 3.3.2 Passenger Surveys A standard set of evaluation questions asked on a consistent and periodic basis can, over time, provide a benchmark of customer satisfaction. Positive or negative deviations from an estab- lished baseline can indicate favorable or unfavorable trends requiring further analysis and action. Once a baseline is established, ongoing surveys can provide a strong basis for overall program assessment and early identification of trends. BAA, the U.K. airport operator with an excellent reputation for its concession programs, relies heavily on quarterly passenger surveys to monitor performance and identify changing customer preferences. 3.3.3 Customer Comment Cards Long a staple at airports, comment cards in concession units and information kiosks can pro- vide an easy means for collecting customer comments, compliments, or complaints. 3.3.4 Complaint Letters Letters and emails from customers may be indicators of a significant problem requiring inves- tigation, especially if multiple complaints are received from different customers. 3.3.5 Social Networking Sites Social media have skyrocketed in popularity in recent years and are used by many companies and organizations to establish relationships with customers, supporters, and users. The opera- tors of Detroit Metropolitan Wayne County and Tulsa International Airports use social network- ing sites such as Facebook and Twitter to collect comments, complaints, and suggestions about their airports, including the concession programs. Social networking sites can provide a means for an airport operator to establish a relationship with airport users and learn more about their attitudes and concerns. 3.3.6 Mystery Shoppers Third-party professional shopping services (sometimes called âmystery shoppersâ or âsecret shoppersâ) can provide trained professional shoppers who provide written documentation of all aspects of the customer experience, including, for example, the attitudes of employees, mainte- nance and cleanliness of facilities, and time waiting for service. Use of a third-party service pro- vides a degree of objectivity that may be helpful if disputes rise to a higher level of management, involve elected officials, or are headed to litigation. An extensive mystery-shopping program is in place at Dallas/Fort Worth International Airport, with units shopped and reported on an average of more than once a month. The Airport board uses this information in evaluating individual tenant performance and in exercising its options to extend a lease term. 3.3.7 Focus Groups Focus groups that include regular airport users under the direction of a skilled facilitator can identify the strengths and weaknesses of a concession program and provide more in-depth and subjective analysis and discussion than can be achieved through surveys and other means. 26 Resource Manual for Airport In-Terminal Concessions
3.3.8 Website Comments The airport website can also be used to solicit comments from customers and suggestions about future concession improvements, such as new food and beverage concepts or passenger services. 3.4 Establishment of Realistic Expectations Airports have different strengths and weaknesses. It is not reasonable to expect the operator of a small hub airport to create a concession program on par with that of a major international gateway or for an airport with an older, less efficient terminal to be able to provide the conces- sion space needed to take full advantage of the market. Figure 3-3 summarizes the major factors affecting concession program demand and potential for high performance. These factors are the following: â¢ Terminal configuration. The layout of the terminals and the number of passenger flows affect the ability to create concessions seen by large numbers of passengers. Older terminals were generally not optimized for concessions. â¢ Average trip length. Passengers making short trips tend to arrive later and spend less time in the terminal. On average, short-haul passengers spend less money than long-haul passengers, who are more likely to make convenience retail purchases and food and beverage purchases for use or consumption during their trip. â¢ International versus domestic. As noted in the preceding section, international passengers generally make longer trips, have favorable demographic and income characteristics, and have a higher propensity to spend. An international passenger connecting to a domestic flight also tends to spend more when using a domestic terminal compared with a passenger making a purely domestic connection. Airports with significant international connecting traffic, such as Miami and San Francisco International Airports, have higher passenger spend rates in their domestic terminals due to their numbers of connecting international passengers. â¢ Passenger dwell time. Longer dwell times in the terminal correlate with stronger concession sales, particularly in food and beverage concepts, such as casual dining restaurants, and in spe- cialty retail shops. Establishing Goals for the Concession Program 27 Source: LeighFisher. Figure 3-3. Factors affecting concession program demand and performance potential.
â¢ Originating versus connecting. Connecting passengers have limited time to deplane and transfer to their connecting gates and, therefore, on average have less time to use concessions compared with origin and destination (O&D) passengers. The average spending of connect- ing passengers is about 70% of that of originating passengers. â¢ Purpose of travel. In most concession categories, leisure travelers have a higher propensity to spend than business travelers, although business travelers are also good convenience retail and food and beverage customers. â¢ Passenger demographics. Not all passengers are alike. Airports serving affluent communities with high disposable incomes have an advantage. Similarly, airports serving major tourist des- tinations have a higher spending passenger mix and higher spending on gifts and souvenirs than airports mostly serving business travelers or travelers visiting friends and family. â¢ Traffic peaks. Heavy activity peaks can strain the ability of concession units to handle demand, resulting in suboptimal performance. Providing sufficient capacity is particularly challenging at connecting hubs, which may have between four and eight busy periods of intense passenger activity per day, with relatively low activity in between. On the other hand, airports with mostly point-to-point service are less subject to peaks and better able to accommodate demand throughout the day. â¢ Location of concession space. As in all types of real estate, location is critically important. The best concession spaces have exposure to large numbers of passengers. The ideal location will be visible and available to 100% of passengers in a post-security location. Specialty retail shops, in particular, need exposure to large numbers of passengers to be successful. â¢ Quantity of concession space. Providing the optimal amount of concession space is challeng- ing for all but a few airport operators. As terminals age and accommodate higher volumes of passengers, there is heavy competition for the use of space and the ratio of space to numbers of passengers decreases. Providing additional concession space can be expensive and may not be cost-effective in most cases because of the high cost of expanding a terminal. Evaluation of the factors listed above can be useful in identifying the appropriate benchmark airports and setting reasonable concession program goals. A small hub airport with only domes- tic traffic and short-haul flights cannot be expected to produce a concession program on par with that at a major international gateway airport. However, the small hub airport can be compared with airports that have similar characteristics and traffic levels to gain insights into what can real- istically be achieved. Identifying airports that are âbest in classâ can be particularly helpful in establishing reasonable goals and the business strategies that can help achieve those goals. 3.5 Differences between Domestic and International Passengers and Terminals International terminals, particularly at some major overseas hub airports, have concession programs that produce the airport industryâs highest sales and revenue and the largest conces- sion space relative to passenger traffic. This section describes the key differences between inter- national and domestic passengers and international and domestic terminals and some of the underlying reasons for the differences. 3.5.1 Differences between Domestic and International Passengers Compared with domestic passengers, international passengers have a number of desirable char- acteristics that make them attractive as concession customers. On average, international passengers â¢ Arrive at the airport earlier and spend more time in the terminal â¢ Take flights with longer stage lengths (distances), thereby increasing their needs for food, read- ing material, and other amenities 28 Resource Manual for Airport In-Terminal Concessions
â¢ Have higher average incomes â¢ Tend to be more sophisticated travelers and customers than domestic passengers â¢ Often come from countries with high consumption taxes, such as value-added taxes (VATs), excise taxes on luxury goods, and higher import duties and, therefore, have more incentive to make high-value purchases to realize savings 3.5.2 Domestic versus International Terminals Busy international terminals at U.S. airports typically have higher sales and revenue potential because of the more attractive passenger demographics and purchasing power of the typical international traveler. International terminals do somewhat better than domestic terminals in food and beverage sales because of the longer flights; furthermore, the less-frequent service to long-haul destinations encourages earlier arrival at the airport and longer passenger dwell times. The longer trips also encourage more spending on reading materials, health and beauty items, snacks, travel accessories, and other traditional convenience items. The greatest difference between international and domestic terminals is the higher spending in duty free shops and, to a lesser extent, specialty retail shops in international terminals. Duty free shops are a major draw in most international terminals and produce the highest sales per enplaned passenger and sales per square foot among all airport concessions. Specialty retail shops also benefit from international passengers and their higher propensity to spend. Longer passenger dwell times and more attractive passenger demographics provide a stronger base for supporting specialty retail sales. Duty free performance varies more widely than other concession categories because of differ- ences in spend rates that correspond with the nationalities of departing passengers. Airports on the U.S. West Coast serve more of the higher spending Asian visitors. (Spending by nationalities is discussed further in Chapter 4.) Foreign currency exchange concessions are a lucrative source of revenue in busy international terminals, although they face increased competition from ATMs, which provide funds in local currency from foreign accounts, often at a lower cost to the customer than foreign currency exchange concessions. Nevertheless, foreign currency exchange concessions produce strong rev- enues and are seldom viable in domestic terminals. International terminals can support more concession space than domestic terminals. (Estab- lishing space requirements using a supportable space model is discussed in Chapter 5.) 3.5.3 Comparison of U.S. and Overseas Concession Programs There are fundamental differences between U.S. airports and their overseas counterparts. U.S. and non-U.S. concession programs should be compared using caution because of differences in passenger characteristics, local taxation, historical attitudes toward airport concessions, and other factors. Airports outside the United States often accommodate a higher percentage of international pas- sengers and a lower percentage of domestic passengers compared to airports in the United States, where domestic activity is dominant. For example, of the three airports with the highest conces- sion salesâLondon Heathrow, Seoul Incheon International, and Dubai International Airports, each with annual sales over $1 billionâthe percentage of departing international passengers is very highâmore than 80% at London Heathrow, around 98% at Seoul Incheon, and 100% at Dubai. By contrast, the three busiest U.S. airports have relatively small shares of international passengersâChicago OâHare (16%), Hartsfield-Jackson Atlanta (10%), and Los Angeles (28%) international airports. (The largest shares of international passengers among large airports are Establishing Goals for the Concession Program 29
enplaned at Miami [49%] and New York Kennedy [47%] International Airports. The largest share of international passengers overall is accommodated at a small hub airport, Orlando Sanford International Airport, used as a gateway by European charter carriers.) The relatively larger volumes of international passengers provide these airports with greater sales and revenue potential and, therefore, the ability to support larger and more upscale con- cession programs. However, this traffic is highly concentrated; in 2008, the 10 busiest U.S. air- ports in terms of total passengers accommodated 70% of U.S. international passengers, and the 20 busiest U.S. airports accommodated 89% of all U.S. international passengers. 3.5.4 The European Experience Airports in Europe were the first to exploit the commercial potential of retail in general and duty free in particular. Shannon Airport in Ireland, once a popular refueling stop for flights between North America and Europe, was the first airport to offer duty free shopping. In time, duty free/tax free shopping became a mainstay of European airport concession programs because of the high percentage of Europeans making intra-Europe flights that involved a border crossing, thereby providing opportunities for passengers to buy heavily taxed luxury goods at low prices. Because of the greater reliance on the VAT in Europe and the high duties on imported luxury goods, airport shopping represented real value for money compared with prices in local âhigh streetâ (main street) shops. The combination of savings, high percentages of international pas- sengers, and high customer spending allowed the creation of small shopping malls in the termi- nals of European airports. High taxes and duties are major drivers of demand. Figure 3-4 presents a summary of VAT rates for member states of the Organisation for Economic Co-operation and Development (OECD) in 2008. Figure 3-5 presents a summary of taxes on liquor, and Figure 3-6 presents a summary of taxes on cigarettes in OECD countries in 2007 (the latest year for which such data are available). For passengers residing in the United States, duty free shops do not have the same appeal as they do for residents of other countries. In the United States, import duties are relatively low, and local taxes are a fraction of the VAT levied in many industrialized countries. Supermarkets, department stores, and âbig boxâ discount retailers sell at prices that are compet- itive with U.S. duty free shops. The large volumes of international passengers and the demand for luxury goods also drive ter- minal design. International terminals in Europe often feature a single security checkpoint that leads to a major concession area. The single flow of passengers is ideal for creating a large and diverse concession program. Terminals are designed to take full advantage of the spending potential of international passengers. With the 1999 abolition of duty free sales for passengers traveling between European Union (EU) member countries, a coalition of airports, duty free concessionaires, and product suppli- ers agreed on a plan to continue the strong value proposition of airports, with each party con- tributing to keep prices relatively low. Airport operators reduced rent, concessionaires reduced their margins, and suppliers reduced their costs to create what are known as travel value or travel retail shops. Many of these shops offer two-tier pricing, with passengers departing for destina- tions outside the EU able to buy at lower prices and realize even greater savings. This two-tiered system offers relative value for the intra-EU passenger while offering larger savings for interna- tional passengers, replacing much of the revenue that would have been lost after the EU move to abolish intra-EU duty free sales. The European experience offers a distinct contrast to the evolution of concessions at U.S. air- ports. Historically, European airports offered genuine savings and an extensive mix of retail shops; U.S. airports evolved from a model characterized by large, often exclusive, contracts 30 Resource Manual for Airport In-Terminal Concessions
awarded to the highest bidder, driving prices higher and limiting selection to high-margin mer- chandise. The result was high prices and low levels of service, usually in generic and utilitarian concession units. While European passengers have long expected competitive pricing and good value, the same has arrived relatively recently at U.S. airports, where changing customer percep- tions on pricing and value have taken considerable time and effort, mostly in the last 20 years. Local regulations can also make a difference. For example, by law, local shops in Amsterdam must close at 6 p.m. and on Sundays, while the airport is exempt from this requirement. In response, an extensive pre-security concession program serving the substantial numbers of arriv- ing passengers and employees has been developed at Amsterdam Airport Schiphol. Frankfurt Airport has similar advantages, including a license to sell alcoholic beverages after regular local closing hours and on Sundays. 3.5.5 Airports in Asia Asian airports also provide their passengers with good value. In addition to high consump- tion taxes, excise taxes, and import duties, in many Asian countries, luxury brands are not widely sold and are restricted to sale in a few department stores, limiting price competition. Cosmetics are particularly expensive in Asia, and airport duty free shops offer a strong selection of brands at attractive pricing compared with local department stores. Establishing Goals for the Concession Program 31 Source: OECD n.d., Table IV.1 Figure 3-4. Value-added tax rates for select countries (2010).
32 Resource Manual for Airport In-Terminal Concessions Note: âWhiskeyâ is assumed to be 40% alcohol by volume and 0.75 liter bottle. Excludes beer and wine. VAT or sales taxes are additional. Source: OECD n.d., 2009, Table IV.5. $2.02 $2.76 $2.77 $2.92 $3.29 $3.41 $3.44 $3.62 $4.08 $4.43 $4.64 $4.76 $4.91 $5.04 $5.12 $5.24 $5.45 $5.56 $5.56 $7.18 $8.75 $9.95 $9.00 $11.66 $16.42 $19.25 $19.37 $23.62 $0.00 $5.00 $10.00 $15.00 $20.00 $25.00 Iceland Italy United States Canada Spain Luxembourg Austria Japan Portugal Germany Greece France Slovak Republic Netherlands Switzerland Denmark Hungary Belgium Czech Republic Poland Finland New Zealand United Kingdom Ireland Sweden Australia Norway Turkey Korea 102% of retail value regardless of alcohol content Figure 3-5. Comparison of 2007 local excise taxes on liquor (in U.S. dollars).
Asian travelers are also very brand conscious and are more willing to spend large sums on lux- ury brands and fashion while travelling abroad. In Korea, a bottle of whisky carries an excise tax equivalent to 100% of the price of the product, making duty free shops at airports outside of Asia quite attractive to Asian residents. For years, the most desirable international passengers were Japanese. According to McKinsey & Company, a consultancy, Japan is the worldâs second largest luxury goods market after the United States and accounts for between 10% and 20% of luxury goods sales depending on which categories are included in the definition of luxury goods (Atsmon, Salsberg, and Yamanashi 2009). A combination of domestic taxes and duties, cultural traditions, high brand consciousness, and relative affluence made Japanese passengers the most desirable in the world for concessionaires at airports outside of Japan. In recent years, Japanese travel and spending have declined following a decade of economic stagnation. According to Generation Research, a duty free consultancy, Japanese duty free sales Establishing Goals for the Concession Program 33 $- $5 .0 0 $10. 00 $15. 00 $20. 00 $25. 00 $30. 00 $35. 00 $40. 00 $45. 00 S pai n It al y Gr eec e Fr anc e Lux em bourg Fi nl and Be lg iu m Po l and Sw eden Au st ri a Po rt ugal Ko re a Sw it ze rl and H ungary Sl ov ak R epub lic C anada J apan Un it ed St at es D enm ar k Tu rk ey Ne t herl ands Ge rm any Ic el and Ir el and Un it ed Ki ngdom Au st ra lia No rwa y Ne w Z eal and Note: VAT or other sales taxes are additional. Source: OECD n.d. Figure 3-6. Comparison of local excise taxes on cigarettes (200 cigarettes) in 2007 (U.S. dollars).
have declined over the past decade, as has Japanâs tradition of omiyage, or gift giving (Generation Research 2010). There has also been a decline in the number of young single women travelers, a fashion-conscious market that boomed prior to the economic downturn. Meanwhile, numbers of passengers from China are growing at a rapid pace, as are their spend rates. While their purchasing preferences differ from other Asian travelers, Chinese passengers are expected to grow in terms of numbers and relative affluence. 3.6 Optimization of Sales and Revenues Concession sales and revenues can be optimized over the long term by ensuring that the con- cession program is sufficiently sized to take advantage of the market potential. Many U.S. air- ports are undersized relative to total passenger demand; lack concession space where it is needed, in post-security departure areas; and have too much space where it is not needed, particularly in pre-security areas and locations that are not along the primary passenger flow. There are two primary ways to improve revenues and customer service: increase the scale and increase the scope of the concession program. Figure 3-7 illustrates conceptually how sales and revenues can be optimized by increasing the scale (amount of viable concession space) and scope (adding supportable new concepts that increase customer choice and encourage incremental sales) of the concession program. 3.7 Preparation of a SWOT Analysis For concession managers, a good starting point for the concession planning process is to pre- pare a SWOT analysis for the concession program, juxtaposing the current programâs strengths, weaknesses, opportunities, and threats. Strengths and weaknesses refer to internal matters that can be controlled by the airport operator, while opportunities and threats refer to external mat- ters over which the airport operator has little or no control other than to adopt measures to mit- igate the potential threats (i.e., risks). 34 Resource Manual for Airport In-Terminal Concessions Current Concession Program SC AL E SCOPE â¢ E xpand curren t co nc es si on areas to ad d ca pa city â¢ A dd space in und erserve d areas â¢ A dd carts, kiosks where space is limited â¢ R eal lo cate use of existing spac es â¢ A dd new concept s â¢ E xpand range of offerings in existing conc es si ons â¢ A dd new conc es si onaires to increase competition Optimize d Concession Program Source: LeighFisher. Figure 3-7. Optimizing revenue by increasing the scale and scope of the concession program.
Using the evaluation measures described in Section 3.3 and interviews with concessionaires and peers at other airports, as well as industry consultants, the concession manager can develop a set of attributes that helps define the current program. This simple technique, used in many aspects of business analysis, can also help provide an eas- ily understood snapshot of the current concession program that can be readily understood by senior management, policymakers, airport staff, and other stakeholders. Table 3-1 presents an example of a concession program SWOT analysis. 3.8 Common Concession Program Goals For some, a statement of goals for the concession program may seem like a statement of the obvious. However, during concession program planning and implementation, it may become apparent that some concession program goals are in conflict with others. This section presents an overview of some common concession program goals. Establishing Goals for the Concession Program 35 Table 3-1. Example of a concession program SWOT analysis. Source: LeighFisher. POSITIVE NEGA TI VE STRENGTHS WEAKNESSE S Strong origin-destination market Lack of post-security space to meet demand Consistent long-term growth in traffic Lack of utilities in some co ncession units limits cooking and types of food concept s Re latively good layout for concessions Lack of local food and retail concepts Local economy growing at a faster rate than national econom y Surplus of pre-security space Strong interest in our concession program by potential concessionaires Some older concessions appear date d Planned terminal expansion will provide new concession spaces Some concepts are weak, tire d Below average spend rate compared with benchmark airports High sales per square foot in post-security areas of terminal indicate a lack of capacit y OPPORTUNITIES THREAT S Additional low-cost airline service could stimulate traffic and concession sale s Terminal expansion may dilute traffic in some areas of the existing terminal, requiring rebalancin g Expiration of major concession agreements in 2013 allows time to plan a new progra m One airline is financially weak and may fail or be acquired, with unknown consequences in terms of future p assen g er demand We ll known local food concepts could boost spend rate s Lack of consens us on need for conces sion at Board level Low spend rate compared to other benchmark airports shows good upside from an updated progra m Current concessionaires may oppose program expans io n Specific opportunities for more specialty coffee, more specialty retail, and food court expansion IN TE R N A L FA CT O RS EX TE R N A L FA CT O RS
3.8.1 Good Customer Service Concession programs should strive to provide good service to customers. There are several factors involved in good customer service: â¢ Concession staff who are well trained, knowledgeable, friendly, and motivated â¢ Reasonable pricing, offering value for customers â¢ Variety in the concession offerings that provide plenty of choices for customers â¢ Hours of operation that match passenger demand â¢ Capacity to ensure good levels of service, even during peak periods â¢ Consistent product quality 3.8.2 Branding and Sense of Place High-performing concession programs create a strong and cohesive identity. To frequent travelers, airports tend to look similar, as do the concessions. The operators of many airports with successful concession programs have differentiated their programs by including local brands, cuisine, shops, merchandise, and services in their programs, offering local passengers both familiar brands and local favorites and nonlocal passengers variety and choice. Local brands can help differentiate the airport and create a sense of place. 3.8.3 Concession Theming Developing a common theme creates a unity of design and brings the attributes of the local community into the airport. Use of local materials, architectural references, history, and culture can contribute to concession theming. Vancouver International Airport is an example of an air- port with strong use of theming (see Figure 3-8). Local materials, such as stone and wood, are used in Vancouver International Airportâs dÃ©cor; cultural references, such as native art and totems, are incorporated in its design; and exterior views of nearby mountains are also incor- porated. Concessions at the airport reflect this theme through the use of design features and materials that complement the passenger terminal, creating a unity of design. 36 Resource Manual for Airport In-Terminal Concessions Source: LeighFisher Figure 3-8. Example of concession theming (Vancouver International Airport).
3.8.4 Effective Design and Aesthetics Strong retail design can motivate customers to visit concessions. For concession managers and concessionaires wishing to create effective designs, a natural tension often exists between the base building architect and the interests of good retail design. In major overseas terminal projects, it is common for a separate retail architect to be engaged to ensure that the concession program is represented in the planning and design process of the terminal. 3.8.5 ACDBE Goals ACDBE participation goals vary from airport to airport and within concession categories because the goals are based, in part, on the availability of ACDBEs and all other businesses in the market that are ready, willing, and able to seek a particular concession opportunity. ACDBE goals largely reflect local values and sensitivities, which are often influenced by minority and womenâs business groups, local community organizations, trade associations, and the interest in concession opportunities by DBEs. Approaches for achieving ACDBE participation goals through various contractual arrangements are addressed in Chapter 7. Although the emphasis on ACDBE participation will vary depending on local circumstances, such participation is usu- ally reflected in most goal statements. 3.8.6 Local Participation Incorporating local businesses and their concepts and products in an airportâs food service and retail offerings can help differentiate the airport, stimulate additional sales, and create a sense of place that is comforting to local users and passengers and interesting to visitors and connect- ing passengers. Under the terms of 49 Code of Federal Regulations (CFR) Part 23, Participation by Disadvan- taged Business Enterprises in Airport Concessions, airport operators cannot grant preferences to local businesses in the award of concessions. However, preferences can be granted for local brands or concepts, as these can be operated by both local and national companies. Major national concessionaires have become skilled in licensing local brands and adapting them for the different airport operating environment. Nevertheless, the use of local operators and concepts requires managing some risks. The local brand may not be as effective as a national brand, and the local operator may have difficulty operating in the complicated airport environment. How- ever, there are numerous examples where local businesses have been successfully incorporated into the airport concession program, such as Dallas/Fort Worth, Denver, Philadelphia, and San Francisco International Airports, among others. The airport operator can help potential opera- tors understand the challenges and risks through local outreach sessions and by educating inter- ested companies. 3.8.7 Social Responsibility and Sustainability Airports are economic engines in the communities they serve. Policymakers are increasingly focused on both economic development and social responsibility, which can be defined as the impact of the airport on society at large. The Airports Council InternationalâNorth Americaâs Airport Sustainability Committee defines airport sustainability, as follows (2010): A holistic approach to managing an airport so as to ensure the integrity of the Economic viability, Operational efficiency, Natural resource conservation, and Social responsibility (EONS) of the airport. Establishing Goals for the Concession Program 37
Sustainability is one aspect of social responsibility. New terminals are being developed to meet a specific level of Leadership in Energy and Environmental Design (LEED) standards. LEED standards were developed by the U.S. Green Building Council to serve as an internationally rec- ognized green building certification system. Airport operators have responded to the concerns of policymakers by adopting a range of techniques to create concessions that minimize environmental impacts and increase long-term sustainability. The emphasis on sustainability will vary widely, largely reflecting the standards of the local community. Some major concessionaires have voluntarily adopted sustainability stan- dards for all of their operations and incorporate LEED planning principles in the design and con- struction of new concession units. 3.8.8 Minimizing the Administrative Burden The administrative costs of managing a concession program vary according to such factors as the overall size of the airport, the number of contracts and concessionaires, the relative sophis- tication of concession management staff, and other factors. Airport operators seeking to mini- mize their administrative costs tend to use concession agreements covering a larger percentage of concession space, up to and including multiple prime or master concession agreements. Min- imizing administrative costs is unlikely to increase concession revenues over the long term, how- ever, as the relative performance of airports using larger, fewer concession agreements differs from that of airports with more contracts and tenants. (See comparison of concession manage- ment approaches presented in Chapter 8.) Minimizing administrative costs may not be cost- effective if the concession program performance is suboptimal. 3.8.9 Investment and Revenue Goals Revenue is not a stand-alone goal. Experience has shown that airports with well-developed and highly regarded concession programs are also among the highest revenue producing airports. Not all airports are created equally and, in establishing revenue goals, the realistic assessment of the revenue potential of the airport must be made, which is best accomplished by benchmarking terminals with similar characteristics. Similarly, full development of the airport concession pro- gramâs revenue potential may not be possible without capital investment in concession space; modifying existing terminal areas to add concession space; constructing common areas, such as food courts; adding utility capacity; or other investment. 3.8.10 Pricing and Value Goals Airport operators typically adopt pricing policies that influence the nature of the concession program. However, pricing is only one factor in creating value for the customer. Street pricing, while popular with customers, is only achievable if the cost structure for concessionaires, includ- ing rent, is viable. The goals described above are not exhaustive. Local issues may result in the introduction of other goals into the planning process. Figure 3-9 presents a conceptual diagram illustrating how goals are used as input when creating the optimal concession program. The importance of concession program goals changes with the size of the airport, as shown in Table 3-2. Respondents to surveys conducted for this research ranked customer service as the most important goal regardless of airport size, while goals such as increasing competition and managing the administrative burden were least important. Pricing was more important at medium and small hub airports, perhaps reflecting the smaller number of concessionaires and 38 Resource Manual for Airport In-Terminal Concessions
lack of internal competition typical of such airports. Design and aesthetics were considered of similar importance at all airports. Overall, the top-ranked goals for all airports were customer service, pricing, and securing the best tenants in each concession category. As an example, goals used during redevelopment of the concession program at Seattle-Tacoma International Airport were the following: â¢ Represent Seattle and the Northwest â¢ Provide increase in nonairline revenue â¢ Provide competitive âstreet pricingâ â¢ Include both local and national concepts â¢ Provide great customer service â¢ Be responsive to market dynamics â¢ Provide seamless transition management â¢ Adhere to reasonable Port of Seattle staffing requirements Establishing Goals for the Concession Program 39 Customer Service Design and Aesthetics Pricing/Value âSense of Placeâ Minimizing Administrative Burden Optimal Concession Program Balancing Common Program Goals Investment/Revenue ACDBE Goals Concession Theming Local Participation Social Responsibility Figure 3-9. Balancing common concession program goals. Goal Large Hubs Medium Hubs Small Hubs Customer service 1 Securing the best tenant in each category 2 Financial (increasing revenue to the airport) 3 Design/aesthetics 4 Local brand/"sense of place" 5 Reasonable pricing 6 Competition 7 Managing the administrative burden 8 1 6 2 4 5 3 7 8 1 2 3 4 6 3 8 7 Source: LeighFisher using data from the airport surveys conducted for ACRP Project 01-11. Table 3-2. Relative importance of concession goals from survey.