Innovative Revenue Strategies – An Airport Guide (2015)

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3 1 Chapter 3 Customer Focus 3.1 Starng Point – The Indianapolis Concession Program Iniave 3.2 Scope of the Customer Focus Strategy 3.3 Related Strategies 3.4 Overview of Techniques to Implement the Strategy 3.5 Techniques by Element 3.6 Qualitave Evaluaon 3.7 Wrap up 3.8 Addional References As air passengers have begun to spend more me in airport terminals, airport sponsors have stepped up iniaves to improve a customer’s experience and increase spending at the airport. This chapter examines the different customer segments at an airport, ways to smulate customer spending, and what tools are available to track the effecveness of new customer iniaves. 3.1 STARTING POINT – THE INDIANAPOLIS CONCESSION PROGRAM INITIATIVE Indianapolis Internaonal Airport (IND) opened its Midfield Terminal complex in 2008, with an innovave concept design for its passengers. The new terminal includes a spacious central plaza and a concession program that emphasizes contact with passengers from the me they enter the terminal to the me they arrive at the gate. The Airport Authority (Authority) implemented a direct contracng approach to development and management of the concession program to assure a vibrant mix of local and naonal brands. The Authority wanted to opmize the space available, convey a sense of place and identy with Indianapolis, and project a high level of quality and friendly service to customers. Why the special aenon to customers? The Authority recognized that an exceponal concession program would differenate the airport from its competors. By careful selecon of concessionaires, the Authority sought to deliver an innovave, stable, and diverse concession program to its customers. The results were dramac. In 2007, IND had 4.1 million enplanements and $4.3 million in retail and food and beverage concession revenue. Given the Great Recession, by 2013 enplanements had fallen to Increased Customer Satisfaction/Better Market Penetration

INNOVATIVE REVENUE STRATEGIES – AN AIRPORT GUIDE 3 2 3.6 million; even so, concession revenue to the airport grew to $6 million.1 On a per enplanement basis, concession revenue grew by 50% ($1.05 in 2007 versus $1.67 in 2013). IND took the opportunity to redesign its concession program from scratch, but many lessons learned from IND’s experience are applicable to a wide variety of airport concession programs. Highlights of the IND program include: Focus on customers and customer service first, not revenue Ac•ve airport authority par•cipa•on in the design and development of the concession program Emphasis on local businesses at the airport Use of innova•ve approaches to solicit concession business partners Custom concession agreements for each selected partner A lean management and staffing approach to Authority oversight of the program These aspects of the IND concession program are discussed in detail as a case study in Chapter 8. IND is but one airport that has strategically focused on its customers. According to the J.D. Powers and Associates 2010 North America Airport Sa•sfac•on Study, “When passengers reported high levels of sa•sfac•on with an airport, they tended to increase retail spending . . . by a factor of 45% over those passengers that ranked themselves as ‘disappointed’.”2 Source: IIAC Stargarden inside ICN Incheon Interna•onal Airport, Seoul, Korea 1 FAA Compliance Ac•vity Tracking System (CATS), Opera•ng and Financial Summary Report 127, 2007 and 2013 2 LeighFisher, “The Role of the Airport Experience in a Changing Global Economy,” Focus, October 2012

CHAPTER 3 – CUSTOMER FOCUS 3 3 What do these customers want? Suits on the Fly Experience Seekers Sufferers Gate Potatoes Open minded Chillers Employees – Oliver Wyman Many U.S. and interna­onal airports view customer sa­sfac­on as a means to deepen passenger loyalty, increase repeat business, and add to non aeronau­cal revenues. Customer focus has become a strategic priority for many airports and already has led to improved quality of service, more efficient passenger processing, loyalty programs, and a panoply of new or enhanced in terminal customer services. For example, Nashville Interna­onal Airport and Aus­n Bergstrom Interna­onal Airport both offer local live music performances in the terminal; at Munich Airport, depar­ng passengers can relax in Napcab sleeping cabins; and Incheon Airport takes the concept of an airport well beyond an air transporta­on hub by offering theater, shopping, a golf course, and movies within the terminal complex. Improving the customer experience presents an opportunity for low risk experimenta­on in many func­onal areas of an airport. 3.2 SCOPE OF THE CUSTOMER FOCUS STRATEGY The customer focus strategy involves three elements as described in Figure 3 1. Each element is important to implementa­on of the strategy: (1) know the customers; (2) achieve be”er market penetra­on; and (3) measure results with each customer ini­a­ve. The strategy is useful for airports of all sizes and types, although implementa­on of the strategy will differ widely among airports. Figure 3 1: Principal Elements of a Customer Focus Strategy Source: KRAMER aerotek inc., 2014 3.2.1 Customer Segmentation In private industry, businesses go to great lengths to understand exis­ng customer preferences and spending habits in an effort to expand their customer base. For example, the airlines segment their customers by characteris­cs such as: Price – first class, business, economy plus, economy, low cost, ultra low cost Purpose of Travel – leisure, business Demand for Services – road warrior, easy travel, luxury Status – premier, frequent flyer, loyalty Travel Habits – always early, last minute 3 3 Hazel, R. and O. Wyman, “Customer Profitability,” ACI NA Economics and Finance Conference, Nashville, TN, May 2012 Customer Segmentaon •Know the Airport's Customers Beer Market Penetraon •Target Specific Customer Groups •Build Customer Relaonships •Generate New & Incremental Revenue Performance Measurement •Track Customer Sasfacon & Airport Profitability

INNOVATIVE REVENUE STRATEGIES – AN AIRPORT GUIDE 3 4 Each customer reflects a combina
on of these characteris
cs. In prac
ce, the airlines target their most profitable and loyal customers with recogni
on and apprecia
on for business. Recogni
on may come in the form of upgrades or special communica
ons from management, flight aƒendants, or others. Airports also segment their customers. Airport operators know that there is no “general airport customer,” and that customer groups have personal reasons for selec
ng services and concessions for the terminal area. One of the most diverse suites of products offered on an airport is parking. Parking products target weekday travelers, weekend travelers, meeters and greeters, and long term travelers. Some airports strive for a balanced mix of parking products. Some airports analyze revenues by determining the demand for and the revenues from different parking products. Similarly, restaurants, shops, and services aƒract different customers based on price and the variety of products and services offered. Air passengers in the airport terminal are an important group, but not the only airport customers. As airport operators increasingly turn to alterna
ve streams of revenue, recogni
on of different customer groups is growing. As Figure 3 2 suggests, airports today serve a diverse cadre of internal and external customers. Internal customers include airport tenants, employees, and third party contractors or consor
ums. External customers include passengers, meeters and greeters, general avia
on pilots, and other individuals visi
ng the airport. When considering the needs and wants of many different customer groups, a segmented approach makes sense. Figure 3 2: Internal and External Airport Customers Source: ACRP Synthesis 48: How Airports Measure Customer Service Performance, 2014

CHAPTER 3 – CUSTOMER FOCUS 3 5 This element of the strategy focuses on ways that airports can beer understand the needs and wants of all their customers and on ways to analyze the profitability of specific products and services offered. Understanding the profitability of individual products and services offered may result in surprises, but it will also help airports make beer decisions about investments in services, facili…es, and technology. 3.2.2 Better Market Penetration The second element of the strategy focuses on ways to op…mize the mix of products and services offered to customers, thereby increasing net revenues to the airport sponsor. Data on airport concession spending suggests that concessions offer high poten…al for increasing non airline revenues. Table 3 1 shows 2012 average sales per enplanement for different types of concessions. Table 3 1: Concession Sales per Enplaned Passenger (Excluding Duty Free), 2012 U.S. Hubs Number Reporng Enplaned Passengers (EP) Food & Beverage Sales/EP Specialty Retail Sales/EP News & Gis Sales/EP Total Sales/EP Large Hubs 22 447,537,720 $6.14 $1.76 $1.90 $9.79 Medium Hubs 15 89,841,431 $5.74 $1.28 $2.12 $9.14 Small Hubs 13 30,187,067 $5.34 $1.33 $2.65 $9.32 Total Sample 50 567,566,218 $6.07 $1.65 $1.92 $9.64 Source: R. Chinsammy Consul ng, Airport Revenue News Fact Book, 2014 Average expenditures per transac on at U.S. airport concessions are es mated at $14.50 for food and beverage, $22.50 for specialty retail, and $8.50 for news and gi­s.4 These transac on averages suggest there is considerable room for increased sales in the exis ng enplaned passenger base, and reason to look closely at achieving deeper market penetra on for airport concessions. Table 3 2 es mates capture rates (transac ons per enplaned passenger) using average expenditures per transac on. In 2012, U.S. airports had a capture rate of 42% of enplaned passengers for food and beverage, 7% for specialty retail, and 23% for news and gi­s. Even assuming one transac on per enplaned passenger for all three in terminal concession categories, approximately 30% to 40% of passengers are not making any purchases. Table 3 2: Esmated Percent of Enplaned Passengers Using Concessions, 2012 Capture Rate U.S. Hubs Airports Reporng Food & Beverage Specialty Retail News & Gis Large Hubs 22 42% 8% 22% Medium Hubs 15 40% 6% 25% Small Hubs 13 37% 6% 31% Total U.S. Sample 50 42% 7% 23% Sources: Airport Revenue News Fact Book 2012; Transac on & Capture Rate Analysis, R. Chinsammy Consul ng 2014 4 R. Chinsammy Consul ng

INNOVATIVE REVENUE STRATEGIES – AN AIRPORT GUIDE 3-6 Use of survey research and analycs to opmize product and service mix are the foundaon of this element. However, achievement of be†er market penetraon also comes by building relaonships with different customer groups through direct communicaons via the Internet, mail, and social technology. The last and crical component of increasing market penetraon focuses on airport management of commercial acvity. That management includes the details of revenue shares, minimum guarantees established, rents, and charges. These management aspects are discussed separately in Chapter 7, Improvements to Exisng Airport Businesses. 3.2.3 Performance Measurement The third element of the strategy involves on-going measurement of customer sasfacon and profitability of products and services offered at the airport. Survey research, mystery shopper programs, and data collecon are ways to gather informaon and analyze customer experience. Data capture, management, and analysis of sales informaon are effecve ways to idenfy different customer groups, achieve be†er market penetraon, and track profitability of different airport enterprises. 3.3 RELATED STRATEGIES In addion to the three strategy elements already discussed, other strategies in the Airport Guide are important to implementaon of a customer focus strategy. They are: Development of new business opportunies Revenue parcipaon in concessions and third-party projects Improvements in exisng business pracces Figure 3-3 shows the strategies that work together to focus on the customer and to return addional net revenues to the airport. Figure 3-3: Interrelated Strategies Source: KRAMER aerotek inc., 2014 Focus on the Customer Development of New Business Opportunities Improvements to Existing Businesses Revenue Participation

CHAPTER 3 – CUSTOMER FOCUS 3 7 3.4 OVERVIEW OF TECHNIQUES TO IMPLEMENT THE STRATEGY A wide range of techniques may be used to implement this strategy, and new ideas are emerging rapidly. This sec­on highlights some of the more effec­ve techniques and organizes them by func­onal area. Table 3 3 lists the techniques providing an es­mate of the rela­ve cost to implement each technique ($ $$$$) and the perceived effec­veness of each technique to increase customer sa­sfac­on and achieve be†er market penetra­on at commercial or general avia­on airports ( ).If differences of opinion were noted about the perceived effec­veness of a par­cular tool, this is indicated with an “ ”. Techniques considered higher priority are iden­fied with a “ ”. Table 3 3 presents a simplified look at techniques available. The par­cular circumstances of an airport will ul­mately determine if a technique is appropriate and effec­ve, regardless of the overall ra­ng in this Airport Guide. Following Table 3 3 is a brief discussion of each technique. Table 3 3: Techniques to Implement Customer Focus Strategy Strategy Effecveness Code Innovave Techniques and Improvements Higher Priority Cost Commercial Airports General Aviaon Airports Business Development – BD BD 1 Passenger Services $ $$$$ BD 2 Business Services $ BD 3 Leisure Services $ $$$ BD 4 Other Services $ $$ Concessions – CN CN 1 Concession Mix Time, Price, Concept, and Brand $$ $$$$ CN 2 Conversion of Non Revenue Space $ $$$ CN 3 Incubator/Assistance Programs $ $$ CN 4 Point of Sale (POS) Data Collec on $$$ $$$$ Informaon Technology – IT IT 1 Mobile Applica ons $ $$ IT 2 Free Wi Fi to Airport Passengers $ $$ IT 3 Digital Adver sing $ $$ IT 4 Social Technologies $ $$ Parking – PK PK 1 Parking Product Mix $ $$$$ PK 2 Parking Reserva on and Payment Systems $ $$$ PK 3 Parking Guidance Systems $$$$ PK 4 Parking Loyalty Programs $ $$ (connued on next page)

INNOVATIVE REVENUE STRATEGIES – AN AIRPORT GUIDE 3 8 Strategy Effecveness Code Innovave Techniques and Improvements Higher Priority Cost Commercial Airports General Aviaon Airports Service Quality – SQ SQ 1 Quality Assurance $ $$ SQ 2 Customer Assistance $ $$ SQ 3 Special Assistance $ $$ SQ 4 Loyalty Programs $ $$ Terminal Operaons – TO TO 1 Passenger Processing $ $$$ TO 2 Way finding $ $$$ TO 3 Airport Cleanliness $ $$ Key Higher Priority Costs $ $$$$ Strategy Effecveness Divided Opinion Source: KRAMER aerotek inc., 2014 3.5 TECHNIQUES BY ELEMENT This secon describes techniques that apply to each element of the customer focus strategy. 3.5.1 Element #1: Customer Segmentation To recap, Element #1 concentrates on idenfying the different customer groups, their needs and wants, and analyzing the profitability of products and services offered at the airport. The techniques are largely analycal. Depending on the airport’s size and mission, the focus of this element will vary. However, its primary use is for in terminal acvies at commercial service airports or concession demand in other areas of the airport, such as car parking, cell phone waing areas, or ground transportaon centers. CN 4: POINT OF SALE (POS) DATA COLLECTION Strategy Effecveness Cost Commercial Airports General Aviaon Airports $$$ $$$$ A number of revenue management systems, such as parking transacons and concession purchases, collect POS transacon informaon. These data systems manage concession or third party contracts, automate billing, and conduct audits. The transacon data generated by these systems can also be used to analyze demand for specific products and services. Some systems can combine transacon data with passenger and flight informaon to compare sales by product category, airport locaon, date, and me of day. Transaconal data is then linked with specific flights or routes. This type of analysis makes it

CHAPTER 3 – CUSTOMER FOCUS 3 9 possible to adjust product mix and test the effecveness of certain promoons or adversing based on actual demand and experience. Many POS systems are now web based and include summary dashboards to monitor results connuously.5 Revenue management systems are implemented primarily at medium or large hub airports. Passenger intercept surveys and market research can accomplish similar objecves and are lower in cost to implement; however, sample sizes and frequency of surveys must be controlled carefully for valid results. IT 4: SOCIAL TECHNOLOGIES Strategy Effecveness – Priority Cost Commercial Airports General Aviaon Airports $ $$ Social technologies have emerged as a way to seek and share informaon. Airports can engage their customers in conversaons and develop a be‰er understanding of actual customer experiences at the airport and gain new insight about airport products, services, and markeng. According to McKinsey Global Instute, in 2011, “1.5 billion people around the globe have an account on a social networking site, and almost 1 in 5 online hours is spent on social networks, increasingly on mobile devices” [McKinsey & Company]. Social technologies offer opportunies to create an environment in which informaon sharing enables innovaon and collaboraon, and ulmately drives producvity. For many airports, adopon of social technologies began in the markeng and IT departments as a way to obtain and respond to customer feedback. Its potenal is much greater, however, as it can also transform the culture of airport organizaons, provide a pla˜orm for experimentaon and learning, track impacts, and evolve metrics. One of the earliest successful implementaons of social technology at an airport occurred at O‰awa Internaonal Airport when the Authority iniated a campaign to engage in a two way conversaon with different customer groups to collect ideas about how to improve the airport. The airport used a website to invite airport users to make suggesons, discuss ideas, and rank the ideas in order of priority. Airport staff were surprised about some of the ideas and priories and, ulmately, converted the results of the campaign into a series of acon plans. The crowd sourcing idea campaign was widely adversed through print and social media and on signs posted throughout the terminal. The airport is considering other idea campaigns that will focus on parcular user groups, such as employees, tenants, or meeters and greeters. 5 A dashboard refers to organizing and presenng key informaon in a way that is easy to read and understand. When the MITRE Corporaon “idenfied an urgent need for employees to collaborate more easily with colleagues and external partners, it used open source social networking so›ware to build and customize its own social pla˜orm, called Handshake. The pla˜orm is secure, by invitaon only, and integrated with MITRE’s collaboraon and knowledge management tools, so staff can start using the tool and make it part of their daily work seamlessly.” – McKinsey & Company

INNOVATIVE REVENUE STRATEGIES – AN AIRPORT GUIDE 3 10 Crowd sourcing is a relavely low cost technique to engage customers in a conversaon about different aspects of the airport experience. It is an opon for airports of all sizes to consider as a technique for understanding their customers’ needs and wants. The speed and scale of social technologies’ adopon suggest a very powerful, customer oriented, and democrac approach to airport market research, demand analysis, product development, and performance measurement. Airports today have a real opportunity to benefit from customer and employee insights and to make changes in how the airport operates. SQ 1: QUALITY ASSURANCE Strategy Effecveness – Priority Cost Commercial Airports General Aviaon Airports $ $$ A number of techniques are used to monitor concessions and third party contracts. These include audits, mystery shopping programs, customer and tenant intercept surveys, web based surveys, and customer feedback obtained through focus groups, online and hardcopy comments, phone calls to airport administraon, help desk logs, and airport ambassadors. Each of these tools can be used to track performance and solicit informaon about customer experience and sasfacon. Both commercial airports and general aviaon airports use these techniques to gauge the performance of funconal areas of the airport and the demand level for services and products. Costs vary with the type and scale of implementaon of these techniques. Third party vendors offer quality of service surveys, analysis, and audits. Some airport operators carry out quality assurance in house using volunteers, Internet surveys, and customer feedback. Quality assurance is an important technique to implement a customer focus strategy. Figure 3 4 describes the elements and process of a customer service program. Further discussion is available in ACRP Synthesis 48: How Airports Measure Customer Service Performance.

CHAPTER 3 – CUSTOMER FOCUS 3-11 Figure 3-4: Elements and Process of Customer Service Improvements Source: ACRP Synthesis 48: How Airports Measure Customer Service Performance, 2013 3.5.2 Element #2: Better Market Penetration The focus of customer segmentaon (Element #1) is greater knowledge about the airport’s customers: who spends money at the airport and for what products and services. Be‹er market penetraon (Element #2) implements this knowledge through a variety of techniques, such as: Introducon of concessions and parking products and services to be‹er match and smulate customer demand Use of mobile technology, digital displays, and social media to achieve direct communicaon with specific customer groups Provision of enhanced customer services and streamlined passenger processing to improve the customer’s experience and sasfacon Be‹er market penetraon is a shared goal of most retail and service businesses. For every airport, season, day, and year, there are different soluons and innovave ideas. This secon provides some examples of ways that airports, concessionaires, and third-party contractors are striving for be‹er market penetraon. Customer Service "The Pracce" Customer Experience "The Outcome" Customer Sasfacon "The Measure" Customer Service Performance "The Analysis" Strategy and Design Feedback Implementaon Response

INNOVATIVE REVENUE STRATEGIES – AN AIRPORT GUIDE 3 12 Concessions (with iPad ordering) at Toronto Pearson Internaonal Airport TECHNIQUES TO BETTERMATCH AND STIMULATE CUSTOMER DEMAND CN 1: CONCESSION MIX Strategy Effecveness – Priority Cost Commercial Airports General Aviaon Airports $$ $$$$ It is rare for an airport to redesign its concession program completely, as done by the Indianapolis Airport Authority. Nevertheless, concession agreements have specific terms and requirements for refresh of establishments, providing regular opportunies to target parcular customer groups. Concept innovaon might include experimentaon with the following: Time sensive food services (e.g., slow food; grab and go; 20 minute turnaround) Price point diversity Local and regional brands added to naonal chains Food delivered to a passenger’s gate Seasonal offerings Many airport operators consider the mix of concession products and services as “low hanging fruit.” With an average capture rate in 2012 of 42% for food and beverage concessions, 7% for specialty retail, and 23% for news and gišs, there is room for be›er market penetraon. Concept innovaon for concessions is relevant to commercial airports of all sizes, but especially so to large and medium hubs. For this reason, concessions innovaon is considered a high priority of the strategy. For small hub, non hub, and general aviaon airports, a focused product mix and lean management structure can produce substanal improvements. CN 2: CONVERSION OF NON REVENUE SPACE Strategy Effecveness Cost Commercial Airports General Aviaon Airports $ $$$ Conversion of non revenue space for food and beverage, retail, or services concessions can add incremental revenue. Airport operators can rent roošop space to concessionaires for antennas or rent corner spaces and common waing areas to retail merchandisers or food and beverage carts. Some airports use these spaces to sell seasonal or special event products.

CHAPTER 3 – CUSTOMER FOCUS 3 13 Many commercial airports have cell phone waing lots. These lots can include vending machines, adversing, gas staons, and/or retail and food and beverage establishments. Denver Internaonal Airport’s Final Approach, which opened in September 2013, offers restaurants, free Wi Fi, restrooms, flight informaon displays, a children’s seang area with built in iPads, 250 free parking spaces (no overnight parking), and a gas staon. The site operator built the facility at no cost to the airport. In its first full year of operaon, total revenue back to the airport was $1.1 million. Because of its locaon, both drivers picking up passengers and employees working in other parts of the airport use the Final Approach facilies. CN 3: INCUBATOR/ASSISTANCE PROGRAMS Strategy Effecveness Cost Commercial Airports General Aviaon Airports $ $$ Even with an exisng concession program operang, it is possible to introduce concept innovaon. Two useful techniques are: Revenue development incubator Concessionaire assistance programs A revenue development incubator is a program that supports new concepts for concessions. Airport staff nominate or solicit ideas on ways to increase concession revenue. They then select one or several ideas to implement and test. A concession assistance program offers self help or advisory services to concessionaires. The assistance program can operate at a specific airport, or a group of interested airports can work together (e.g., small airports or airports in a geographic area). This type of assistance is invaluable, parcularly for small or medium airports that can benefit from other airport experiences and networking. PK 1: PARKING PRODUCT MIX Strategy Effecveness – Priority Cost Commercial Airports General Aviaon Airports $$ $$$$

INNOVATIVE REVENUE STRATEGIES – AN AIRPORT GUIDE 3 14 For commercial airports of all sizes in the United States, parking and ground transporta­on are the largest non aeronau­cal revenue generator, represen­ng 41% of total non aeronau­cal revenues in 2013 for the 467 airports repor­ng.6 Analyzing use of an airport’s parking products is cri­cal to incremental improvements. A parking analysis would include: Exis­ng parking products – capacity, proximity to terminal, ownership (airport or others), service offered, pricing, compe­­on U­liza­on of parking products – ­me of day, day of week, month, frequency of full garages/lots Transac­ons – length of stay by parking product and by revenues Financial performance of each product (including the cost of buses or shu–les) Airport operators are experimen­ng with different parking products and services including “trunk to trunk” services, valet parking, corporate reserved or corporate owned parking places, short term parking op­ons, and electrical hookups for vehicles. Structural changes to parking products, especially those close to terminals, typically require planning, design, and investment. Because of opportuni­es for incremental improvements to net revenue, however, making adjustments to the mix of parking products and pricing of products is a priority technique in this strategy for large and medium commercial airports. PK 2: PARKING RESERVATION AND PAYMENT SYSTEMS Strategy Effecveness Cost Commercial Airports General Aviaon Airports $ $$$ Parking reserva­on systems enable airports to target specific customer groups and offer different types of parking products. They may feature a reserved spot in a premium parking lot, valet services, or addi­onal services, such as newspapers, coffee, remote baggage drop off, or access to expedited TSA security checkpoints. Online reserva­on systems oœen come with small fees to the customer for use of the system. A few airports have parking reserva­on systems in place primarily for premium parking services. Reserva­on systems can work for other parking products as well. Many systems can convert fixed parking fees to variable fees to reflect high demand for parking, such as on the days leading up to Thanksgiving, or lower demand, such as during the shoulder months following summer travel. Weekend rates could vary from weekday rates. Many off airport parking en­­es offer their customers online reserva­ons and payment systems. These reserva­on systems are comparable to advance ­cket purchase systems by which the customer makes a reserva­on, applies available coupons, and pays in advance for parking. 6 FAA Form 127 Report

CHAPTER 3 – CUSTOMER FOCUS 3 15 Airports also are installing automac pay systems that include E Z Pass® electronic collecon systems (first implemented on toll roads), credit card readers, and automac vehicle idenficaon (AVI) and billing systems. PK 3: PARKING GUIDANCE SYSTEMS Strategy Effecveness Cost Commercial Airports General Aviaon Airports $$$$ Guidance and informaon systems dynamically keep track of available spaces in a parking structure. They can direct customers to open parking structures and guide drivers to floor levels, rows, and individual spaces. The guidance systems make it possible to increase ulizaon of a parking structure approaching 100% capacity. Customers avoid the hassle of looking for a space. Reduced driving within the parking structures also reduces emissions. Parking guidance and informaon systems are expensive to install, especially if they are retrofi“ed into exisng garages. Balmore/Washington Internaonal Thurgood Marshall Airport was the first airport on the East Coast to install an automated “Smart Park” guidance system. Philadelphia Internaonal Airport installed a system, as has Portland Internaonal Airport. The Terminal A Parking Garage at Dallas/Fort Worth Internaonal Airport has an has enhanced parking guidance system that can direct drivers to available spots in the 6,600 space facility. PK 4: PARKING LOYALTY PROGRAMS; SQ 4: LOYALTY PROGRAMS Strategy Effecveness Cost Commercial Airports General Aviaon Airports $ $$ Almost all commercial airlines and many hotels collect personal informaon on their customers. American Airlines, United Airlines, JetBlue Airways, Brish Airways, and Qantas® Airways can idenfy their most lucrave customers and reward them with special promoons and personalized services. Hotels offer preferred accommodaons, access to exclusive lounges, and upgrades to frequent guests. The technology now exists to match informaon about customers with publicly available demographic informaon. Companies are exploring be“er ways to serve their customers while remaining sensive to the need for secure customer transacons and protecon of personal privacy. Airport operators also recognize the importance of engaging high value customers. Two approaches in use by some airports are frequent parker programs and reward programs that earn customers airline miles for concession, retail, hotel, and parking purchases.

INNOVATIVE REVENUE STRATEGIES – AN AIRPORT GUIDE 3 16 The frequent parking programs require enrollment (with or without a fee) and can offer reserved parking, automated credit card payments, free parking with earned points and, o…en, fast access in or out of parking lots or garages. Customers can view accounts online, and some programs include online reservaˆons. Frequent parker programs have been implemented at commercial airports of all sizes, such as Nashville Internaˆonal, Oakland Internaˆonal, Jacksonville Internaˆonal, T.F. Green, and Bradley Internaˆonal. Dallas/Fort Worth Internaˆonal Airport introduced a customer reward program in February 2013 that has a•racted many users. Travelers enrolled can earn airline miles or two hotel points for each dollar spent on qualifying purchases made at airport hotels, restaurants, retail outlets, and parking. A company named Thanks Again LLC administers the program. Other parˆcipants in this program include Hartsfield Jackson Atlanta Internaˆonal, Balˆmore/Washington Thurgood Marshall Internaˆonal, George Bush Interconˆnental, JFK Internaˆonal, LaGuardia, Miami Internaˆonal, Newark Liberty Internaˆonal, Portland Internaˆonal, Sea•le Tacoma Internaˆonal, and Tulsa Internaˆonal. DIGITAL TECHNOLOGY TO COMMUNICATE DIRECTLY WITH CUSTOMERS Achievement of be•er market penetraˆon involves communicaˆng with customers through mulˆple channels. Rapidly, digital technology is replacing many on airport funcˆons. Digital technology has taken iniˆal passenger processing off airport. Much of it now occurs on mobile devices, on home computers, and in hotel lobbies. Today, airport operators must provide ways to accommodate passengers who include both early and late adopters of technology. Thus, the ability to communicate in a consistent manner over mulˆple channels is criˆcal. This secˆon of techniques examines some of the ways that airlines, airport operators, tenants, and airport customers will grow to rely more on digital technology for passenger processing and communicaˆons. IT 1: MOBILE APPLICATIONS Strategy Effecveness Cost Commercial Airports General Aviaon Airports $ $$ Already, most airlines have mobile applicaˆons that enable customers to make reservaˆons, check in, download boarding passes, pay for baggage, and access other services. Both airline and airport websites contain informaˆon about specific airports, maps, weather, and parking. These websites feature adverˆsements that are a source of revenue for the website owner. Other mobile applicaˆons developed by third parˆes are available to use for targeted adverˆsing, brand awareness, airport way finding (navigaˆon), passenger idenˆficaˆon, and advance purchase of food and beverages. For example, Google Maps is inviˆng airports to partner so that visitors can access the airport map directly on a mobile device, find baggage claim, or locate a parˆcular shop or restaurant. These maps can also be inserted onto an airport’s webpage.

CHAPTER 3 – CUSTOMER FOCUS 3 17 Specialty Chef Restaurants at Minneapolis St. Paul Internaonal Airport OTG Management, an airport concession firm, is deploying 7,000 iPads in post security waing areas at Minneapolis St. Paul, Toronto Pearson, New York’s LaGuardia, Philadelphia Internaonal, Ronald Reagan Washington Naonal, Chicago’s O’Hare, Orlando Internaonal, Boston’s Logan Internaonal, and Tucson Internaonal airports. The iPads are equipped with free Wi Fi. An applicaon delivers updates on flight status. Users can search the Internet; play games; or order food, magazines, or beverages that will be delivered to their seats. Just as the use of digital technology has reduced the need for many cket counters, direct delivery of food to gates could well alter the special requirements and look of restaurants. Installaon of mobile devices at airports will also invite partnerships with airlines, travel agencies, online retailers, hotels, and other merchants for direct links, adversing, and brand awareness. IT 2: FREE WI FI TO AIRPORT PASSENGERS Strategy Effecveness – Priority Cost Commercial Airports General Aviaon Airports $ $$ The increasing use of digital technology for passenger processing, adversing, and concession transacons makes free Wi Fi to airport passengers almost essenal. Some airport operators have experimented with ered pricing—free (but slow) Wi Fi access available to all, and faster Wi Fi available for a price. Airports are also leasing shared telecommunicaon resources and a common use Wi Fi backbone to airlines and other tenants who, in turn, can offer Wi Fi to their passengers and employees. IT 3: DIGITAL ADVERTISING Strategy Effecveness Cost Commercial Airports General Aviaon Airports $ $$ Digital adversing makes it possible to target specific customers and build brand awareness. Ge›ng the right message to specific travelers involves the capability to group and idenfy customers. Throughout the terminal, digital adversing can be sold on dedicated displays, video walls, televisions, flight informaon displays, baggage carousels, and displays at cell phone waing lots or other acvity and service areas. Airports can own the display medium and lease adversing rights, or sponsors can fund different digital plaœorms. Digital adversing makes it possible to change messages frequently and offers flexible pricing for me of day, exposure (locaon), and duraon.

INNOVATIVE REVENUE STRATEGIES – AN AIRPORT GUIDE 3 18 Because digital adver
sing is a revenue stream for airports and its partners, this technique is useful for airports of all sizes. SERVICES TO IMPROVE OVERALL CUSTOMER EXPERIENCE AND SATISFACTION Thus far, techniques to achieve be„er market penetra
on involved ways to communicate with airport customers and provide products and services that link demand with specific customer groups that spend money at the airport. There is also a body of research sugges
ng that: Happy customers spend more money [J.D. Power & Associates] States of relaxa
on consistently increase the monetary valua
ons of products, actually infla
ng these valua
ons by about 10% [Pham, Hung, Gorn] Among the most important compe

ve aspects of an airport’s quality of service are: o Speed through the airport o Cleanliness and ambience of the terminal, concourses, and gate areas o Selec
on of concessions/services and value of money o Posi
ve gate experience o Excep
onal customer service and courtesy of staff [ACRP Synthesis 48] The final group of techniques for achieving be„er market penetra
on focuses on improving the customer’s airport experience and indirectly increasing net revenues to the airport sponsor. BD 1: PASSENGER SERVICES Strategy Effecveness – Priority Cost Commercial Airports General Aviaon Airports $ $$$$ Passenger services include a range of ameni
es that affect a customer’s experience, such as fast track security, baggage wraps, in transit hotels and lounges, clubrooms, work areas, and recharge sta
ons. These services tend to expedite moving the passengers through the terminal to the aircraš and/or improve a passenger’s experience at the gate. These services have an indirect but beneficial effect on a passenger’s experience. Improvements to passenger services and ameni
es primarily apply to large and medium hub airports. BD 2: BUSINESS SERVICES Strategy Effecveness Cost Commercial Airports General Aviaon Airports $ Some airports rent offices or mee
ng and conference rooms on the premises with various associated support services available. These facili
es earn incremental revenue to the airport sponsor and primarily provide a service to business travelers.

CHAPTER 3 – CUSTOMER FOCUS 3 19 BD 3: LEISURE SERVICES Strategy Effecveness Cost Commercial Airports General Aviaon Airports $ $$$ In 2011, the average dwell me at 58 reporng U.S. and Canadian airports was 86.5 minutes [Airport Revenue News Fact Book]. However, as Figure 3 5 shows, passengers at many airports spend more than 2 hours of dwell me, suggesng that there is considerable me for leisure acvies. Figure 3 5: Average Dwell Times at 58 U.S. and Canadian Airports, 2011 Source: Airport Revenue News Fact Book 2012 Airports in Europe, the Middle East, and Asia have taken leisure me at the airport seriously. They have developed movie theaters, skang rinks, children’s acvity centers, spaces for live music performance, golf courses, gardens and terraces, spas, and athlec facilies. Medium and large airports in the United States also are experimenng with a variety of leisure services for travelers. ALB ANC ATL AVL AZA BDL BOI BOS BUF BWI CLE CLT CMH DAL DAY DCA DTW EWR FAT FLL FWA GEG GRR IAD IND JAX JFK LFT LGA MCO MDW MSP OAK ORD PDX PHX PVDRDU RIC RNO ROA SAN SAT SDF SEA SJC SMF SNA SRQ SWF TLH TPA TUS YEG YOW YUL YVR YYC 0 20 40 60 80 100 120 140 160 180 200 20 11 Av er ag e Dw el lT im e (m in ut es )

INNOVATIVE REVENUE STRATEGIES – AN AIRPORT GUIDE 3 20 BD 4: OTHER SERVICES Strategy Effecveness Cost Commercial Airports General Aviaon Airports $ $$ Airports are also developing non aeronaucal service enterprises in the terminal or on the airport for travelers and employees. These service enterprises include health clinics, convenience stores, gas staons, auto service centers, banks, day care providers, dry cleaners, and pet boarders. Many of these enterprises involve partnerships with third party developers or concessionaires. SQ 2: CUSTOMER ASSISTANCE Strategy Effecveness Cost Commercial Airports General Aviaon Airports $ $$ Ambassadors, help desks, and concierge services are integral parts of an airport’s customer service program. The volunteers and paid personnel who perform these services are central to the experience that a traveler has in the airport. Customer assistance is also an important channel for customers to offer feedback on their airport experience. SQ 3: SPECIAL ASSISTANCE Strategy Effecveness Cost Commercial Airports General Aviaon Airports $ $$ Many airport customer groups require special assistance, such as persons with reduced mobility, persons who are visually or hearing impaired, travelers who speak foreign languages, wounded military Le‹: Singapore Changi Airport, Terminal 2, Departure Restricted Area. Photo by Terence Ong, June 2006. Right: Incheon Airport, Children’s Center, April 2012.

CHAPTER 3 – CUSTOMER FOCUS 3 21 service members, and elderly persons. Somemes airports experience extraordinary events and irregular operaons such as accidents, disasters, power outages, weather delays, diverted emergency flights, and construcon projects. An airport’s rapid and helpful response to the needs of these individuals or in response to extraordinary events will shape customers’ percepons of service quality and greatly affects their airport experience. Certain aspects of terminal operaons contribute heavily to a customer’s experience at the airport. The most important are processing me, way finding, and airport cleanliness. TO 1: PASSENGER PROCESSING Strategy Effecveness – Priority Cost Commercial Airports General Aviaon Airports $ $$$ Customer sasfacon surveys suggest that the me it takes to check in, check or retrieve baggage, pass through security screening, board or deplane an aircraŠ, and clear U.S. Customs and Border Protecon (CBP) staons are among the most important factors that contribute to an air passenger’s experience. TO 2: WAY FINDING Strategy Effecveness Cost Commercial Airports General Aviaon Airports $ $$$ For regular travelers at a parcular airport, way finding is not an issue. However, for visitors, good signage to security, concourses, gates, and restrooms is extremely important. TO 3: AIRPORT CLEANLINESS Strategy Effecveness – Priority Cost Commercial Airports General Aviaon Airports $ $$ Many larger airports in the United States and abroad parcipate in customer sasfacon surveys. While there are differences in priories, cleanliness of the airport and restrooms consistently rank high (Figure 3-6). As a factor in improving customer sasfacon, airport cleanliness is on the list of priority techniques that airport operators can employ to create a pleasing commercial environment.7 7 Some airports offer janitorial services to airport tenants (at private sector mark up) to ensure airport cleanliness throughout the terminal and earn incremental revenue for the airport sponsor. In the Airport Guide, this technique is described as TO 7 Janitorial in Chapter 4, Airport Entrepreneurial Acvity, Part I.

INNOVATIVE REVENUE STRATEGIES – AN AIRPORT GUIDE 3-22 Figure 3-6: Example of Customer Sasfacon Priority Analysis Source: ACI, 2012 via ACRP Synthesis 48 3.5.3 Element #3: Performance Measurement Performance measurement (Element #3) tracks customer saƒsfacƒon and improvements. Airport managers will have different views about how to track progress related directly to the parƒcular techniques applied. A few examples are listed below by funcƒonal area; however, each airport manager is likely to cra“ a custom list of performance measures.8 Concessions o Food and beverage sales per enplanement o Specialty retail sales per enplanement o News and gi“ sales per enplanement o Total concession sales per enplanement o Total concession airport revenues per enplanement o Capture rates of enplaned passengers for each concession category Parking o Parking revenue per originaƒng passenger o Parking revenue per transacƒon o Parking revenue per parking product o Periods of maxed out capacity by parking product 8 For addiƒonal discussion of performance indicators, refer to ACRP Report 19A: Resource Guide to Airport Performance Indicators.

CHAPTER 3 – CUSTOMER FOCUS 3 23 Service Quality o Percepon measures of customer sasfacon o Percepon surveys for airport cleanliness, staff courtesy, baggage retrieval, way finding o Wait mes at cket counters, security, and CBP staons o Percent of arriving flights delayed o Percent of deparng flights delayed Social Technologies o Website adversing views o POS revenues near adversed promoons o Customer comments by subject area per month o Key word analyses of comments o Number of parcipants in idea collaboraons 3.6 QUALITATIVE EVALUATION The customer focus strategy involves an applicaon of techniques throughout the airport enterprise. Some techniques will directly influence customer sasfacon and market penetraon; others will have an indirect but contribung effect on net revenues to the airport sponsor. To summarize the techniques presented by funconal area, Table 3 4 presents a matrix of all the techniques discussed, with examples and a qualitave evaluaon that describe: Applicability of the technique to different types of airports Degree of revenue impact that might be expected Degree of financial risk to the airport sponsor undertaking the parcular technique Relave cost to implement Whether results are measurable

Table 3 4: Evaluaon Matrix of Techniques to Implement Customer Focus Strategy Code Innovave Techniques and Improvements Strategy Elements Examples Applicability Revenue Impact Airport Sponsor Financial Risk Airport Cost to Implement Results Measurable Business Development – BD BD 1 Passenger Services Target Customer Groups & Build Customer Relaonships Fast Track Security, Baggage Wrap, In transit Hotel, Lounges, Clubrooms, Workstaons, & Device Charging Staons Medium & Large Low/Indirect Low Variable Yes BD 2 Business Services Generate New Revenue Conference & Meeng Rooms All Airports Low Low Low Yes BD 3 Leisure Services Build Customer Relaonships & Generate New Revenue Airport Tours, Athlec Facilies, Visitor Terraces, Spas, Movie Theaters, Golf Courses, Performances, Children’s Acvity Centers, Skang Rinks All Airports, especially Internaonal Gateways & Connecng Hubs Low/Indirect Low Variable Yes BD 4 Other Services Generate New Revenue Health Clinic, Convenience Store, Gas Staon, Banks, Day Care, Dry Cleaners, Auto Services, Pet Boarding Medium & Large Low/Moderate Moderate Primarily Third Pares Yes Concessions – CN CN 1 Concession Mix Time, Price, Concept, and Brand Target Customer Groups & Generate New Revenue Time Sensive Food, Food Delivered to Gate, Seasonal Offerings, Price Points, Naonal/Local mix All Commercial Service Airports Moderate/High Low Concession Program Refresh Yes CN 2 Conversion of Non Revenue Space Generate New Revenue Roof top antennas, carts & kiosks, concessions in cell phone lots, terminal corners All Commercial Service Airports Moderate/Low Low Low/Moderate Yes CN 3 Incubator/Assistance Programs Generate New Revenue New concepts proposed and implemented to increase revenue, concession advisory services offered, in airport adversing offered to concessionaires All Commercial Service Airports Moderate Low Low Yes CN 4 Point of Sale (POS) Data Collecon Know the Airport's Customers, Target Specific Customers, & Increase Revenues Integrated concession or parking management, billing and customer informaon systems Medium & Large Moderate/High Low Moderate to High/IT Integraon Yes (connued on next page)

Code Innovave Techniques and Improvements Strategy Elements Examples Applicability Revenue Impact Airport Sponsor Financial Risk Airport Cost to Implement Results Measurable Informaon Technology – IT IT 1 Mobile Applicaons Target Customer Groups Brand Awareness, Airport Informaon, Pre purchase F&B, Targeted Adversing All Commercial Service Airports Indirect Low Low Yes IT 2 Free Wi Fi Target Customer Groups & Build Customer Relaonships Access, commerce, services All Airports Indirect Low Low/Moderate Yes IT 3 Digital Adversing Target Customer Groups & Generate Incremental Revenue Signage/FIDS/Video Walls and Displays, Recharge Centers, Mobile Devices Small, Medium, & Large Moderate on Ad Revenue Low Low Yes IT 4 Social Technologies Target Customer Groups & Build Customer Relaonships Web Page, Facebook, Twier, Pinterest, Idea Collaboraon Plaorms All Airports Indirect Low Low Yes Parking – PK PK 1 Parking Product Mix Target Customer Groups & Generate Incremental Revenue Premium, Short Term, Economy, Trunk to Trunk, Electrical Hookups Small, Medium, & Large High Low Variable Yes PK 2 Parking Reservaon and Payment Systems Target Customer Groups & Generate Incremental Revenue Online Reservaons, EZ Pass Pay, Automac Vehicle Idenficaon (AVI) Small, Medium, & Large High Moderate/Low Moderate Yes PK 3 Parking Guidance Systems Target Customer Groups & Generate Incremental Revenue Garages Large & Medium High Moderate High Yes PK 4 Loyalty Programs Target Customer Groups & Build Customer Relaonships Earned free parking or spending at the airport, discounts, reserved spaces Medium & Large Low/Indirect Low Moderate/Low Yes Service Quality – SQ SQ 1 Quality Assurance Know the Airport's Customers & Track Customer Sasfacon Audits, Mystery Shoppers, Intercept and Web based Surveys, Feedback Small, Medium, & Large Moderate Low Moderate/Low Yes SQ 2 Customer Assistance Build Customer Relaonships Concierge Services, Ambassadors, Help Desks Medium & Large Indirect Low Low Yes SQ 3 Special Assistance Build Customer Relaonships Carts, wheel chairs, porters, translators, emergency responders Small, Medium, & Large Indirect Low Low No (connued on next page)

Table 3 4 (Connued). Code Innovave Techniques and Improvements Strategy Elements Examples Applicability Revenue Impact Airport Sponsor Financial Risk Airport Cost to Implement Results Measurable Terminal Operaons – TO TO 1 Passenger Processing Build Customer Relaonships Check in, Bag Check & Retrieval, Security Wait Times, Customs & Immigraon, Aircra Boarding Small, Medium, & Large Indirect Low Variable Yes TO 2 Way finding Build Customer Relaonships Gates, Concourses Medium & Large Indirect Low Low Yes TO 3 Airport Cleanliness Build Customer Relaonships Terminal, Concourses, Restrooms, Concessions, and Parking Facilies All Airports Indirect Low Low Yes Source: KRAMER aerotek inc., 2014

CHAPTER 3 – CUSTOMER FOCUS 3 27 3.7 WRAP UP The customer’s experience of an airport begins upon arrival at the airport and con nues across many func onal areas of the airport. This chapter highlighted ways that airport operators can beƒer serve different customer segments, con nuously capture informa on about customers and track performance, engage in dialogue with airport users, create an environment of innova on, and deploy changes that meet customer demands and result in new net revenues to the airport sponsor. 3.8 ADDITIONAL REFERENCES ACI World, “Guide to Airport Performance Measures,” February 2012 hƒp://www.oliverwyman.com/media/ACI_APM_Guidebook_2_2012.pdf ACRP Report 24: Guidebook for Evalua
ng Airport Parking Strategies and Suppor
ng Technologies (Jacobs Consultancy), Transporta on Research Board of the Na onal Academies, Washington, DC, 2009 ACRP Synthesis 48: How Airports Measure Customer Service Performance (Kramer, Bothner, and Spiro), Transporta on Research Board, Washington, DC, 2013 Airport Revenue News, 2012 Fact Book, Ra os Reports Avia on Pros, hƒp://www.avia onpros.com/news/11178125/denver interna onal airport final approach facility includes 24 hour dunkin donuts many more ameni es, September 26, 2013 Hazel, R. A., J. D. Blais, T. J. Browne and D. M. Benzon, ACRP Report 19A: Resource Guide to Airport Performance Indicators, Transporta on Research Board of the Na onal Academies, Washington DC, 2011 Hazel, R. and O. Wyman, Customer Profitability, presented at ACI NA Economics and Finance Conference, Nashville, TN, May, 2012 IT Supplement: Increasing Efficiency with Integra on, Interna
onal Airport Review, Vol. 17, No. 5, 2013 J. D. Power and Associates, North America Airport Sa sfac on Survey Press Release, February 18, 2010, The McGraw Hill Companies, Retrieved April 11, 2012, from hƒp://www.jdpower.com/content/press release/4A0liSK/north america airport sa sfac on study.htm LeighFisher, “The Role of the Airport Experience in a Changing Global Economy,” Focus, October 2012 McKinsey Global Ins tute, The Social Economy: Unlocking Value and Produc vity through Social Technologies, July 2012 Nicas, J., “When is Your Birthday? The Flight Aƒendant Knows,” The Wall Street Journal, November 7, 2013 Pham, M. T., I. W. Hung, and G. J. Gorn, “Relaxa on Increases Monetary Valua ons,” Journal of Marke
ng Research, October 1, 2011

INNOVATIVE REVENUE STRATEGIES – AN AIRPORT GUIDE 3 28 Thompson, B., The Loyalty Connecon: Secrets to Customer Retenon and Increased Profits, Right Now Technologies, 2005. Retrieved April 16, 2012, from hƒp://www.rightnow.com/briefcase files/PDFs/The_Loyalty_Connec‘on__Secrets_to_Customer_Reten‘on_and_Increased_Profits.pdf