Non-aeronautical Revenue: Where The Real Growth Potential Lies
By Perry Graham
Airport revenues continue to trend upwards as global passenger traffic reaches record levels, according to the 2018 ACI Airport Economics Report.
Industry revenue grows, but revenue-per-passenger flattens
Recently, a report by the Airports Council International (ACI) found that industry revenues rose by 5.8% to $1.61 billion in the financial year 2016. Increased competition, growing passenger numbers and an upsurge in business confidence have continued to drive investments and growth in airport infrastructure and services, as operators try to keep pace with demand.
This encouraging growth, however, masks a trend that is somewhat unsettling – overall revenue per passenger is flattening out and, in some cases, shrinking. With low-cost carriers driving much of the traffic growth, airports are increasingly competing to attract these carriers with aggressive incentives, making it difficult to grow aeronautical revenue. As a result, a growing number of airports are turning towards the next-largest airport revenue stream to fund growth – non-aeronautical opportunities.
Non-aeronautical revenue – an under-valued potential
With several years of stellar growth under its belt, commercial revenue has always been the bright star for airport income. While growth has tapered recently, opportunities are still plentiful – and many airports are bucking the trend by investing in innovative facilities and services in airport parking, retail, and food & beverage.
Car is king – but new revenue models are needed
Vehicle parking and rental income is currently the primary source of non-aeronautical income for many airports, particularly in North America, where it represents over 58% of income.
However, the trend towards off-airport hire, ride-sharing and alternative transport is threatening this vital income source. As a result, many airports are looking to create new multimodal transportation centres, and are exploring new transport-related revenue-generating models.
- San Diego innovation labs is testing five new parking concepts, including new booking systems, valet parking and a peer-to-peer car-sharing platform.
- Other airports are investing in EV chargers, assisted parking and dynamic parking fees.
Revamping retail
Globally, retail is the strongest performer in non-aeronautical revenue, contributing 28% of all non-aeronautical income; notably, in the Middle East, it accounts for 56%.
However, retail is not immune to disruption. Global airport retail income declined 3% between 2013 and 2017[1]; meanwhile, in Europe, the shift to online retail caused airport retail incomes to drop by 6% in 2016, compared to 2010[2]. Other airport retail challenges include a lack of perceived value or differentiation of airport-based stores, as well as longer security and immigration queues cutting into shopping time.
To tackle these issues and to boost retail spending, many airports are turning to data analysis to understand passenger flow and behaviour.
Making every minute count
- For airports, ensuring passengers enjoy a smooth transit through the airport is vital: Spend increases by 2.5% for every minute a customer is in a retail area and not stuck in a queue[3].
- After investing in sensor-based queue management and forecasting analytics, Helsinki Airport (Finavia) successfully reduced average queue times to under 15 minutes, contributing to a non-aeronautical spend growth of 12.3%.
Investing in the right concessions
- A better understanding of passenger profiles allows airports to tailor store experiences and offers.
- By reducing its reliance on duty-free sales, and instead investing in speciality and luxury stores targeting the growing visitor base from Asia, Sydney Airport increased its retail revenue by 12.7% in 2017.
Launching web-based services
- As passengers increasingly transact online, progressive airport operations are following suit, offering passengers the opportunity to plan their airport shopping and eating experiences.
- For every 100,000 visitors to Heathrow Airport’s e-commerce platform, physical retail sales increase €750,000.
[1] [3]Boston Consulting Group – Why travel retail needs an upgrade https://www.bcg.com/publications/2018/travel-retail-needs-upgrade.aspx
[2] Financial Times, 25 May 2018 ‘Airports fight back against online turbulence’ https://www.ft.com/content/75f77c1c-27a7-11e8-b27e-cc62a39d57a0
Tapping into food & beverage
For Dublin Airport, home of the world’s largest low-cost airline, Ryanair, food & beverage is its leading category, generating €87 million in revenue in 2016 – 20% higher than the airport’s retail income.
With only 59% of passengers buying food and drink in the airport, it is increasingly important for airports to offer maximum choice and convenience. In February 2018, Schiphol Airport launched gate-based food deliveries, with Deliveroo delivering food to airport gates within 15 minutes of the order being placed. Similarly, Newark Liberty International Airport has launched a service called ‘AtYourGate’, allowing passengers to order refreshments for delivery to their gate before departure.
Data-driven insight will drive commercial innovation
Airport retailers and service operators offer the greatest opportunity for airports to boost profit. However, the challenge is not only capturing non-aeronautical data but also being able to understand and act upon it. What airports therefore need is a deeper understanding of how passengers spend money, and where the greatest returns on investment lie.
Automation and predictive analytics help airports gain insight into sales, trends and property data to make better commercial planning and operational decisions, as well as streamline concession management. Airports that can analyse spend along with demographic profiling, flight schedules and passenger flow can go further still – refining products, services, resourcing and advertising to match the time of day, passenger type and overall propensity to purchase.
With innovation in airport commercial revenue growth firmly rooted in data, it’s time to kick-start the revenue revival.
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