Improving Terminal Design to Increase Revenue Generation Related to Customer Satisfaction (2014)

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1 This introduction provides the basic premise behind Transportation Research Board (TRB) Airport Cooperative Research Program (ACRP) Project 07-08, “Improving Terminal Design to Increase Revenue Generation Related to Customer Satisfaction.” It includes (1) the background behind the primary research goal and objectives, (2) the detailed research approach undertaken, and (3) the organizational structure of the final deliverable for the research project, this Handbook. 1.1 Primary Research Goals and Objectives The primary goal of ACRP Project 07-08 was to prepare a handbook for the aviation industry providing airport management and industry professionals with a thorough understanding of key factors to consider when planning and designing terminal facilities in the ever-evolving commercial aviation market. More specifically, the handbook’s primary goal was to tie together industry Guiding Principles for the physical planning and design of airport terminals as they relate to increasing revenue from an airport’s concession program in balance with customer satisfaction. The research approach involved in preparing this Handbook examined quantitative and qualitative data to identify seven airports on which to perform case studies in order to investigate potential Guiding Principles in more detail. The detailed case study information combined with the research team’s investigative efforts and industry experience was used to identify these Guiding Principles. These Guiding Principles promote best practices and innovations in the physical layout of airport passenger terminal facilities that enhance revenue generation and promote overall customer satisfaction. For the purpose of this Handbook, “revenue” is defined as the portion of concession income/sales received by an airport operator, typically paid by concessionaires as their rent or privilege fee for the opportunity to do business at the airport. Revenue has a direct relationship to income/sales in that most concession business agreements set revenue payable to the airport operator as a percentage of the concession income/sales. While the Handbook occasionally refers to concession business agreements, this area is not discussed in detail as prior research projects include it in depth, including ACRP Report 33: Guidebook for Developing and Managing Airport Contracts and ACRP Report 54: Resource Manual for In-Terminal Concessions. 1.1.1 Terminal Design Within the context of this research project, “terminal design” is considered to be the planning and design process for preparing the layout of the concession program within the context of the physical terminal facilities. Typically, airport management and their consultants are presented with one of two situations. The first is the “greenfield” opportunity to begin from scratch and design and build a new terminal facility; the second option is the redevelopment of a terminal to improve and renovate C H A P T E R 1 Introduction

2 Improving Terminal Design to Increase Revenue Generation Related to Customer Satisfaction an existing concession program. Creating a brand new facility provides significantly more options and flexibility to the planner and architects when manipulating concession size and placement with the objective of maximizing revenues and increasing customer satisfaction. Conversely, a retrofit of an existing terminal’s concession program restricts the facility elements that can be changed, such as primary paths of passenger flows and physical shape and size of space available to accommodate concessions. This Handbook identifies Guiding Principles applicable to determining the best strategies and practices in developing terminal plans for both new and renovated terminal facilities. However, due to the aforementioned limitation on existing facilities, not all Guiding Principles can be applied universally to both situations. 1.1.2 Increasing Revenue Generation For the purposes of this research project, “revenue generation” in relation to concessions is defined as revenue generated by airport concessions located inside an airport terminal. Revenue generation opportunities located outside of the physical boundaries of an airport terminal, such as revenue generated from public vehicle parking, hotels, and office complexes situated on airport property, were generally deemed not to be within the focus of this research project. This interpretation does not mean that these potential sources of revenue are any less important than in-terminal concessions, but rather that it was not the primary mission of the research involved in ACRP Project 07-08. Chapter 5 does discuss the merits of collateral commercial development and consideration for the concept of “airport cities” as a component of revenue generation for airports. Other ACRP resources include detailed information about collateral development and other revenue generation opportunities, including ACRP Synthesis 19: Airport Revenue Diversification, ACRP Synthesis 1: Innovative Finance and Alternative Sources of Revenue for Airports, and ACRP Report 47: Guidebook for Developing and Leasing Airport Property. 1.1.3 Increasing Customer Satisfaction The research team’s interpretation of “customer satisfaction” focused primarily on the customers as all airport passengers using the airport’s terminal instead of just those that purchase a commodity or service. This interpretation was particularly valid in the identification of the airport case study targets. The research team used (1) periodicals, such as Travel & Leisure and Conde Nast, that perform annual surveys and rankings of airports and (2) rating data from the Skytrax annual airport survey and limited data from the J.D. Power & Associates’ survey to identify airports with high customer satisfaction ratings. 1.2 Research Approach The underlying ACRP Project 07-08 research approach included the development of a data collection plan for the purpose of identifying between five to eight airports for more detailed investigation and information gathering. The process for selecting the airports focused on identifying a correlation between (1) above-average non-aeronautical revenue generation and (2) customer satisfaction, as potentially driven by innovative airport terminal planning, design, and new technologies. The goal of this strategy was to select airports with above-average revenue generation and a high level of customer satisfaction. This process of airport selection helped to justify the correlations established and subsequent suggestions in this Handbook, known as the Guiding Principles. By selecting only those airports with an overall high performance in customer satisfaction and revenue generation, this Handbook focuses on those factors that were most likely influencing the airports high rankings.

Introduction 3 Data collection encompassed a sample of large, medium, and small hub airports, both in the United States and abroad, for five primary categories of information: including airport characteristics and design features, non-aeronautical revenues, passenger satisfaction levels, terminal design features, and future trends in concession planning and design. A three-tier approach was followed to plan and arrive at the final airports to study in detail. The tiers and the efforts undertaken for each tier are illustrated below in Figure 1.1. 1.2.1 Tier 1 For 25 percent of the top small, 50 percent of the medium, and all of the large hub U.S. airports (as defined by the Federal Aviation Administration [FAA]), the FAA’s airport financial report database and airport enplanement reports were examined to rank these airports based on con- cession revenue per enplanement (CRPE) and the more aggregate non-aeronautical revenue per enplanement (NARPE). The top 15 highest-performing CRPE/NARPE airports in the small, medium, and large hub categories were identified for further analysis. Additionally, Airport Revenue News’ annual airport survey of commercial airports and the J.D. Power & Associates survey were consulted in evaluating those that are top performing. The Tier 1 process also identified innovative concession approaches and terminal design features based on industry experience, combined with a research effort to identify such information in industry-related publications such as Passenger Terminal World, American Association of Airport Executive’s Airport Magazine, Airports Council International–North America’s Centerlines Figure 1.1. Data collection plan, tiered approach.

4 Improving Terminal Design to Increase Revenue Generation Related to Customer Satisfaction Magazine, Architectural Record, and other similar publications. Some airports did not rank in the top 15 in their hub category but, based on industry experience, such airports deserved to be in the top 15 CRPE, particularly if research and knowledge of these airports revealed innovative and creative approaches to terminal design and concession development. A few small hub airports were further studied because their scale in terms of facility size, design, and enplanement levels did not generally produce high-performing concession programs. With respect to non-U.S. airports, several data sources were consulted to obtain non-aeronautical and concession revenue information for the 38 non-U.S. airports candidates for further study. The main revenue data source was Airport Benchmarking Report 2011, Global Standards for Airport Excellence (produced by the Air Transport Research Society). The Moodie Report, an international airport journal, assisted in identifying high-performing airport concession programs. Other periodicals that perform annual surveys and rank international airports, including Travel & Leisure and Conde Naste, were also consulted. Additionally, rating data from Skytrax annual airport survey and limited data from the J.D. Power survey were used to identify airports with high customer satisfaction ratings. 1.2.2 Tier 2 In the second tier of data collection and analysis, data collection and research efforts were intensified by examining a large set of airport-specific data, including websites, demographic databases, passenger profiles, airline schedule data, terminal and concession area plans, as well as select airport concessionaire interviews and architect surveys. To filter the 45 U.S. airports and 38 non-U.S. airports down to between five and eight airports in Tier 3, significant analysis of all available and accessible data was required. Many factors and drivers were compared and contrasted in this 83-airport subset, including passenger traffic levels, general demographics (e.g., income, age), airport and passenger profiles (e.g., length of haul, number of destinations, origin/destination versus connecting, business/leisure split), and concession management model (e.g., master concessionaire, developer for U.S. airports only). Additionally, terminal configura- tions, age of the facilities, concession locations/sizes, and innovative practices were examined. To allow the widest range of airports to be included in the final handbook, 11 U.S. airports and 8 non-U.S. airports were derived from the set of airports considered in Tier 2 and passed into Tier 3 for consideration as potential case study airports. 1.2.3 Tier 3 As a result of the Tier 2 research analysis, 19 airports were selected representing a broad spectrum of airport types as potential case studies. Among these airports were the following “types”: U.S. small, medium, and large hubs (as defined by the FAA); a large legacy carrier hub; a low-cost carrier (LCC) focus city; a U.S. international gateway; and medium and large non-U.S. airports— two Canadian, two Asian, two Middle Eastern, and two European. Terminal design features (e.g., terminal configuration, locations of concessions, location of security checkpoints, airport hotels) were researched. Additionally, terminal operational features such as call-to-gate procedures and general product screening and delivery practices were reviewed. Based on the Tier 3 data collection effort that used 2011 statistics, seven airports were identified for case study: • U.S. large hub – John F. Kennedy International Airport (JFK), Terminal 5—10.5 million annual passengers (MAP) – Minneapolis–St. Paul International Airport (MSP), Terminal 1—30.0 MAP

Introduction 5 • U.S. medium hub – Portland International Airport (PDX)—13.6 MAP – Pittsburgh International Airport (PIT)—8.3 MAP • U.S. small hub – Savannah/Hilton Head Island International Airport (SAV)—1.6 MAP • Non-U.S. large airport – London Heathrow Airport (LHR), Terminal 5—26.6 MAP • Non-U.S. medium airport – Budapest Ferenc Liszt International Airport (BUD)—8.9 MAP These seven airports ranked above average in both customer satisfaction and revenue generation. This allowed the research team to understand and identify the planning, design, and management factors—known as the “Guiding Principles”—that were responsible for the relative success of these facilities. Where possible, site visits and interviews were conducted with key airport staff, concessionaires, and industry professionals associated directly with the concession programs at these seven airports. All available quantitative and qualitative information was collected, comparatively assessed and cross-referenced to identify key drivers and common attributes among the case study airports. This comparative performance data combined with the research team’s insights about each case study airport was used to establish a list of primary Guiding Principles for terminal planning and design projects targeted at increasing revenues and passenger satisfaction. These guidelines are supplemented by more detailed planning and design considerations to assist the user in incorporating these principles into the development of a successful concessions program for airport terminals. 1.3 Organization of the Handbook Following this introduction, this Handbook is subdivided into four chapters. Chapter 2, Guiding Principles, provides an overview of the primary guidelines for increasing revenues and customer satisfaction when developing a concession program for airport terminal facilities. Chapter 3, Terminal and Concession Planning and Design Considerations, describes in more detail the relevant factors for concession-related decisions pertinent to achieving the objectives set forth in the principal guidelines during the planning and design of new or the reconfiguration of existing airport terminal facilities. Chapter 4, Human Engineering Considerations, examines airport customer behaviors and the emotional processes behind them that provide insights to improving concession sales, related revenue production, and customer satisfaction. Chapter 5, Ancillary Land Development Considerations, provides an overview of innovative approaches being employed to generate additional revenue while improving customer satisfaction by developing commercial complexes on airport land adjacent to, or near, terminals. In the PDF of the Handbook available on the TRB website (www.trb.org), the discussion of Guiding Principles described in Chapter 2 contains hypertext-linked references to the more detailed factors to consider during the planning and design of concession programs and cited examples in other chapters of the Handbook that support each Guiding Principle. As previously described, the overall goal of the Handbook is to assist the user in fostering innovations in the physical layout and design of airport passenger terminals aimed specifically at increasing concession revenues and overall customer satisfaction by following the tenets of these key Guiding Principles.