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A I R P O R T C O O P E R A T I V E R E S E A R C H P R O G R A M ACRP REPORT 121 TRANSPORTAT ION RESEARCH BOARD WASHINGTON, D.C. 2015 www.TRB.org Research sponsored by the Federal Aviation Administration Subscriber Categories Aviation ⢠Economics ⢠Planning and Forecasting Innovative Revenue Strategiesâ An Airport Guide Lois S. Kramer KRAMER AERotEK inc. Boulder, CO Steven Landau EconoMic DEvElopMEnt REsEARch GRoup Boston, MA Jeffrey Letwin schnADER hARRison sEGAl & lEwis llp Pittsburgh, PA Michael Moroney MichAEl G. MoRonEy & AssociAtEs Danville, CA
AIRPORT COOPERATIVE RESEARCH PROGRAM Airports are vital national resources. They serve a key role in trans portation of people and goods and in regional, national, and inter national commerce. They are where the nationâs aviation system connects with other modes of transportation and where federal respon sibility for managing and regulating air traffic operations intersects with the role of state and local governments that own and operate most airports. Research is necessary to solve common operating problems, to adapt appropriate new technologies from other industries, and to introduce innovations into the airport industry. The Airport Coopera tive Research Program (ACRP) serves as one of the principal means by which the airport industry can develop innovative nearÂterm solutions to meet demands placed on it. The need for ACRP was identified in TRB Special Report 272: Airport Research Needs: Cooperative Solutions in 2003, based on a study spon sored by the Federal Aviation Administration (FAA). The ACRP carries out applied research on problems that are shared by airport operating agencies and are not being adequately addressed by existing federal research programs. It is modeled after the successful National Coopera tive Highway Research Program and Transit Cooperative Research Pro gram. The ACRP undertakes research and other technical activities in a variety of airport subject areas, including design, construction, mainte nance, operations, safety, security, policy, planning, human resources, and administration. The ACRP provides a forum where airport opera tors can cooperatively address common operational problems. The ACRP was authorized in December 2003 as part of the Vision 100ÂCentury of Aviation Reauthorization Act. The primary participants in the ACRP are (1) an independent governing board, the ACRP Oversight Committee (AOC), appointed by the Secretary of the U.S. Department of Transportation with representation from airport operating agencies, other stakeholders, and relevant industry organizations such as the Airports Council InternationalÂNorth America (ACIÂNA), the American Associa tion of Airport Executives (AAAE), the National Association of State Aviation Officials (NASAO), Airlines for America (A4A), and the Airport Consultants Council (ACC) as vital links to the airport community; (2) the TRB as program manager and secretariat for the governing board; and (3) the FAA as program sponsor. In October 2005, the FAA executed a contract with the National Academies formally initiating the program. The ACRP benefits from the cooperation and participation of airport professionals, air carriers, shippers, state and local government officials, equipment and service suppliers, other airport users, and research orga nizations. Each of these participants has different interests and respon sibilities, and each is an integral part of this cooperative research effort. Research problem statements for the ACRP are solicited periodically but may be submitted to the TRB by anyone at any time. It is the responsibility of the AOC to formulate the research program by iden tifying the highest priority projects and defining funding levels and expected products. Once selected, each ACRP project is assigned to an expert panel, appointed by the TRB. Panels include experienced practitioners and research specialists; heavy emphasis is placed on including airport pro fessionals, the intended users of the research products. The panels pre pare project statements (requests for proposals), select contractors, and provide technical guidance and counsel throughout the life of the project. The process for developing research problem statements and selecting research agencies has been used by TRB in managing cooper ative research programs since 1962. As in other TRB activities, ACRP project panels serve voluntarily without compensation. Primary emphasis is placed on disseminating ACRP results to the intended endÂusers of the research: airport operating agencies, service providers, and suppliers. The ACRP produces a series of research reports for use by airport operators, local agencies, the FAA, and other interested parties, and industry associations may arrange for work shops, training aids, field visits, and other activities to ensure that results are implemented by airportÂindustry practitioners. ACRP REPORT 121 Project 01Â15 ISSN 1935Â9802 ISBN 978Â0Â309Â30867Â0 Library of Congress Control Number 2015939588 © 2015 National Academy of Sciences. All rights reserved. COPYRIGHT INFORMATION Authors herein are responsible for the authenticity of their materials and for obtaining written permissions from publishers or persons who own the copyright to any previously published or copyrighted material used herein. Cooperative Research Programs (CRP) grants permission to reproduce material in this publication for classroom and notÂforÂprofit purposes. Permission is given with the understanding that none of the material will be used to imply TRB or FAA endorsement of a particular product, method, or practice. It is expected that those reproducing the material in this document for educational and notÂforÂprofit uses will give appropriate acknowledgment of the source of any reprinted or reproduced material. For other uses of the material, request permission from CRP. NOTICE The project that is the subject of this report was a part of the Airport Cooperative Research Program, conducted by the Transportation Research Board with the approval of the Governing Board of the National Research Council. The members of the technical panel selected to monitor this project and to review this report were chosen for their special competencies and with regard for appropriate balance. The report was reviewed by the technical panel and accepted for publication according to procedures established and overseen by the Transportation Research Board and approved by the Governing Board of the National Research Council. The opinions and conclusions expressed or implied in this report are those of the researchers who performed the research and are not necessarily those of the Transportation Research Board, the National Research Council, or the program sponsors. The Transportation Research Board of the National Academies, the National Research Council, and the sponsors of the Airport Cooperative Research Program do not endorse products or manufacturers. Trade or manufacturersâ names appear herein solely because they are considered essential to the object of the report. Published reports of the AIRPORT COOPERATIVE RESEARCH PROGRAM are available from: Transportation Research Board Business Office 500 Fifth Street, NW Washington, DC 20001 and can be ordered through the Internet at http://www.nationalÂacademies.org/trb/bookstore Printed in the United States of America
The National Academy of Sciences is a private, nonprofit, self-perpetuating society of distinguished scholars engaged in scientific and engineering research, dedicated to the furtherance of science and technology and to their use for the general welfare. Upon the authority of the charter granted to it by the Congress in 1863, the Academy has a mandate that requires it to advise the federal government on scientific and technical matters. Dr. Ralph J. Cicerone is president of the National Academy of Sciences. The National Academy of Engineering was established in 1964, under the charter of the National Academy of Sciences, as a parallel organization of outstanding engineers. It is autonomous in its administration and in the selection of its members, sharing with the National Academy of Sciences the responsibility for advising the federal government. The National Academy of Engineering also sponsors engineering programs aimed at meeting national needs, encourages education and research, and recognizes the superior achievements of engineers. Dr. C. D. Mote, Jr., is president of the National Academy of Engineering. The Institute of Medicine was established in 1970 by the National Academy of Sciences to secure the services of eminent members of appropriate professions in the examination of policy matters pertaining to the health of the public. The Institute acts under the responsibility given to the National Academy of Sciences by its congressional charter to be an adviser to the federal government and, upon its own initiative, to identify issues of medical care, research, and education. Dr. Victor J. Dzau is president of the Institute of Medicine. The National Research Council was organized by the National Academy of Sciences in 1916 to associate the broad community of science and technology with the Academyâs purposes of furthering knowledge and advising the federal government. Functioning in accordance with general policies determined by the Academy, the Council has become the principal operating agency of both the National Academy of Sciences and the National Academy of Engineering in providing services to the government, the public, and the scientific and engineering communities. The Council is administered jointly by both Academies and the Institute of Medicine. Dr. Ralph J. Cicerone and Dr. C. D. Mote, Jr., are chair and vice chair, respectively, of the National Research Council. The Transportation Research Board is one of six major divisions of the National Research Council. The mission of the Transporta- tion Research Board is to provide leadership in transportation innovation and progress through research and information exchange, conducted within a setting that is objective, interdisciplinary, and multimodal. The Boardâs varied activities annually engage about 7,000 engineers, scientists, and other transportation researchers and practitioners from the public and private sectors and academia, all of whom contribute their expertise in the public interest. The program is supported by state transportation departments, federal agencies including the component administrations of the U.S. Department of Transportation, and other organizations and individu- als interested in the development of transportation. www.TRB.org www.national-academies.org
C O O P E R A T I V E R E S E A R C H P R O G R A M S AUTHOR ACKNOWLEDGMENTS Project Team ACRP Report 121: Innovative Revenue StrategiesâAn Airport Guide was prepared under ACRP Project 01Â15. The Project Research Team was composed of prime contractor KRAMER aerotek inc., with subcontractors Eco nomic Development Research (EDR) Group; Schnader Harrison Segal & Lewis LLP; and Michael G. Moroney & Associates. The Principal Investigator was Lois Kramer, CEO of KRAMER aerotek. Steven Landau, Vice President of EDR Group, served as a key researcher, as did Jeffrey Letwin, formerly a Partner at Schnader Harrison Segal & Lewis LLP, now Special Counsel at Saul Ewing LLP, and Michael Moroney, Principal of Michael G. Moroney & Associates. Julie Ervin of EDR Group helped to edit the document. Deanne Roberto and Melissa Ureksoy provided graphics support. The authors also wish to thank the large number of individuals who provided vital input to the Airport Guide through their participation in discussions and meetings conducted by the Research Team and con tribution of case study information for the project. Special Workshop Participants John Ackerman, Dallas/Fort Worth International Airport; Bruce Carter, Quad City International Airport; Richard Chinsammy, Concessions Solution Group; Janine Gervais, Toronto Pearson International Airport; Stephen Gordon, Port of Oakland, Oakland International Airport; Scott Kilgo, Port of Portland, Portland International Air port; Adeel Lari, University of Minnesota; Wayne Pennell, Baltimore/Washington Thurgood Marshall International Airport; Rick Piccolo, SarasotaÂBradenton International Airport; Lisa Stanton, Sacramento International Airport. Case Study Contributors James Kennedy, City of Boston Office of Finance and Administration; Johanna Storella, Finance Director, Boston Convention Center Authority; Susan Moses, EDR Group; Paula Jordan, John Brookby, Lauren Coleman, Marlene Harmer, Bill Methenitis, Melissa Parry, John Terrell, and Christina Wood, Dallas/Fort Worth Inter national Airport; Jeremiah Wise, Indianapolis International Airport Authority; Scott Kichline, McCarran Inter national Airport (Las Vegas); William Randell Forister, Pittsburgh International Airport; and Shawn Schroeder, SpringfieldÂBranson National Airport. CRP STAFF FOR ACRP REPORT 121 Christopher W. Jenks, Director, Cooperative Research Programs Michael R. Salamone, ACRP Manager Lawrence D. Goldstein, Senior Program Officer Anthony Avery, Senior Program Assistant Eileen P. Delaney, Director of Publications Sharon Lamberton, Editor ACRP PROJECT 01-15 PANEL Field of Administration Helen E. Berkman, Denver, CO (Chair) John W. Fuller, University of Iowa, Iowa City, IA Bryan E. Johnson, Rocky Mountain Metropolitan Airport, Broomfield, CO Paula Jordan, Dallas/Fort Worth International Airport, DFW Airport, TX A. Bradley Mims, PB Inc., Washington, DC Paul J. Wiedefeld, Maryland Aviation Administration, BWI Airport, MD Gavin Fahnestock, FAA Liaison Brett McAllister, Airports Council International - North America Liaison
ACRP Report 121: Innovative Revenue Strategies for AirportsâAn Airport Guide is a resource that describes a broad range of tools and techniques for airport operators to improve revenue streams, recover costs, or achieve operational efficiencies. The Airport Guide presents ways for airport operators to (1) develop new sources of revenue; (2) increase airport sponsor participation in tenant revenues; and (3) improve the planning, administrative process, and management of existing airport businesses. The Airport Guide is built on the premise that not only are changes in funding and financ ing demands and opportunities inevitable, but these changes are happening at an accelerated pace, requiring airport operators to be creative innovators at all times. The document offers a range of ideas for enhanced revenue generation, coupled with a framework that relates described strategies and techniques to functional areas of airport operation. The Guide addresses in detail opportunities that are grouped into five functional areas: (1) customer needs and wants; (2) airportÂprovided services/shared services, facilities, and equipment; (3) revenue participa tion in real estate and natural resource development; (4) value capture and other innovative financing opportunities; and (5) improvements to existing airport businesses. Each of these strategic areas is examined in detail. The Guide also presents comprehensive summaries of sev eral case studies, indicating how and where innovative approaches to revenue generation might apply to the airport environment. Under ACRP Project 01Â15, the KRAMER aerotek team was tasked to identify alternative methods for funding and financing airport activities at all levels. The analysis was driven by an understanding that changing domestic and world economic conditions are exerting stress on the financial health of the aviation industry as a whole and the airport environment in particular. In response to these changing and sometimes volatile conditions, some airports have looked to new and innovative revenue generating techniques to supplement more traditional methods. The identification and development of innovative revenue strategies emerged through a com prehensive research approach that combined stakeholder outreach coupled with detailed evalu ation of experience drawn from several inÂdepth case studies. The case studies helped illustrate how airport operators and others have implemented a range of potential strategies for generating additional revenue. Overall, the process drew not only from the airport environment but also from experience in other transportation modes and related development experience. The Airport Guide collects information about and analyzes effectiveness of new and inno vative techniques for generating airport revenue in a manner that builds on and extends current practice. Given the classification system incorporated in the presentation, airport operators and other stakeholders can use this Guide to identify tools and techniques appli cable to their particular circumstances while also exploring opportunities for innovation. F O R E W O R D By Lawrence D. Goldstein Staff Officer Transportation Research Board
Preface S-1 Summary 1-1 Chapter 1 Introduction 1Â1 1.1 Decade of Amazing Change and Disruptions 1Â6 1.2 Shifts in the Airport Operating Environment 1Â6 1.3 Funding and Financing Airport Projects and Services 1Â8 1.4 Evolving Airport Business Model 1Â9 1.5 Purpose of the Airport Guide 1Â9 1.6 Airport Guide Organization 1Â10 1.7 Additional References 2-1 Chapter 2 Overview of Revenue Strategies 2Â1 2.1 Agility in Changing Times 2Â2 2.2 What Is Innovative for Airports? 2Â3 2.3 Strategies Selected 2Â5 2.4 Strategy Evaluations 2Â5 2.5 Key Functional Areas Involved with Strategies 2Â7 2.6 WrapÂup 2Â7 2.7 Additional References 3-1 Chapter 3 Customer Focus 3Â1 3.1 Starting Point â The Indianapolis Concession Program Initiative 3Â3 3.2 Scope of the Customer Focus Strategy 3Â6 3.3 Related Strategies 3Â7 3.4 Overview of Techniques to Implement the Strategy 3Â8 3.5 Techniques by Element 3Â23 3.6 Qualitative Evaluation 3Â27 3.7 WrapÂup 3Â27 3.8 Additional References 4-1 Chapter 4 Airport Entrepreneurial Activity â Part I 4Â1 4.1 A Revenue Strategy of Ingenuity and Necessity 4Â2 4.2 Scope of the Strategy 4Â5 4.3 Techniques to Implement the Strategy 4Â6 4.4 Techniques by Functional Area 4Â17 4.5 Implementation Issues 4Â19 4.6 WrapÂup 4Â23 4.7 Additional References C O N T E N T S
5-1 Chapter 5 Airport Entrepreneurial Activity â Part II 5Â1 5.1 Introduction 5Â4 5.2 Revenue Participation in Real Estate Development 5Â10 5.3 Revenue Participation in Mineral Estate Development 5Â14 5.4 WrapÂup 5Â16 5.5 Additional References 6-1 Chapter 6 Value Capture and Other Innovative Financing 6Â2 6.1 Massachusettsâ Value Capture Experience 6Â3 6.2 Historical Context for Value Capture 6Â4 6.3 Scope of Value Capture Strategy 6Â6 6.4 Value Capture Techniques 6Â24 6.5 Value Capture and Airport Cities 6Â27 6.6 Marine Port Districts and Foreign Trade Zones 6Â33 6.7 Other Sources of Public Financing 6Â35 6.8 Key Points and Conclusions 6Â36 6.9 WrapÂup 6Â38 6.10 Additional References 7-1 Chapter 7 Improvements to Existing Airport Businesses 7Â1 7.1 Parking, Rental Cars, and Concessions Are Key Revenue Generators 7Â3 7.2 Major Elements of the Strategy 7Â10 7.3 Application of the Strategy to Airport Parking 7Â18 7.4 Application of the Strategy to Rental Cars 7Â29 7.5 Application of the Strategy to InÂTerminal Concessions 7Â50 7.6 WrapÂup 7Â50 7.7 Additional References 8-1 Chapter 8 Case Studies 8Â1 8.1 Overview of the Case Studies 8Â3 8.2 Boston Convention and Exhibition Center â Value Capture 8Â18 8.3 Dallas/Fort Worth International Airport â FTZs and Value Capture 8Â27 8.4 Indianapolis International Airport â Optimizing Concession Programs 8Â43 8.5 McCarran International Airport â Innovative Leasing Program 8Â52 8.6 Pittsburgh International Airport â TIF/Participatory Lease 8Â57 8.7 SpringfieldÂBranson National Airport â AirportÂOperated Ground Handling A-1 Appendix A Annotated Bibliography B-1 Appendix B Definitions and Abbreviations C-1 Appendix C Index to Implementation Techniques
ACRP Report 121 Innovative Revenue Strategiesâ An Airport Guide
Preface It seems the aviaon industry is constantly at a crossroads. Decision points for airports and airlines connually arise at a faster pace. This ânew normalâ has several aributes parcularly relevant for airports: Innovave technology and its adopon is occurring at an accelerang pace Demand for change is coming from mulple direcons, including management, customers, the airlines and other airport tenants, airport sponsors, and regulatory groups A steady stream of unexpected events caused by weather, disease, terrorism, and government gridlock contributes to an atmosphere of uncertainty and of aversion to risk The dialecc of the new normal on the one hand requires change and on the other hand argues for cauon. These are interesng mes. This Airport Guide embraces the idea that change is not only inevitable, but happening at an accelerated pace, requiring airport operators to be nimble innovators at all mes. Change is taking place so fast that, in the course of this research, examples of innovaon selected at the beginning of the project exist as regular pracce at the conclusion of the project. To stay relevant to readers, the approach taken here is to introduce five basic strategies to smulate an innovave environment within an airport organizaon that connually strives to deliver an excellent airport product to customers and to increase net revenues to the airport sponsor. The original scope of work for the project offered the following guidance: Innovave revenue sources and techniques can include pracces that are: o Currently in use or being considered for use by airports, but not yet widely known o Used by other transportaon modes or other industries, but not at airports Revenue generaon opportunies can come from: o Airport users and tenants o The entrepreneurial use of airport assets o The regional economy that benefits from airport acvies Both the subject maer and the audience are very broad. The Research Team recognized the importance of a conceptual framework to communicate on such a wide range of topics. The framework of the five strategies grew out of the collecve effort of many individuals. For all of the review and excellent suggesons, the Research Team is most grateful. One goal of this Airport Guide is to smulate discussion and innovaon among airport praconers. It is our hope that the Guide will inspire a few good ideas and new approaches to revenue development at your airport. Lois Kramer, Principal Investigator