22nd Annual Southeast Chapter

American Association of Airport Executives

Airport Finance and Administrative Conference

General Session V: Revenue Trends at Airports

Presented by:

February 28, 2011

Julie A. Mattlin, MAC Consulting

Ken Currie, InterVISTAS

Non-aeronautical revenue sources are among the most important to an Airport, and have the greatest growth potential• Aeronautical revenues

– Airline, Aircraft, and Passenger Handling Fees

• Aviation concessions

– Fueling, Catering, Maintenance, and Cargo Facilities

• Terminal Concessions

– Food & Beverage, Retail, Specialty

• Automobile Parking

• Rental Car

• Advertising

• Landside Real Estate

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Double digit percent increases in revenue per enplanement numbers from 2005 to 2009

2

Source: ARN , FAA, airport data

Average Revenue Per Enplanement

Terminal Concessions Rental Car Parking Airline

Hub Size 2005 2009 2005 2009 2005 2009 2005 2009

Large $1.86 $2.20 $1.58 $1.82 $3.26 $3.84 $8.64 $12.1419% 15% 18% 41%

Medium $1.22 $1.40 $2.05 $2.62 $4.50 $5.42 $7.88 $8.8315% 28% 20% 12%

Small $1.00 $1.23 $2.57 $2.92 $5.93 $7.08 $6.95 $6.7123% 14% 19% -3%

Food and beverage and retail concession revenues grew by 30% over 10 years

3

Source: Federal Aviation Administration

$1.3B

$1.0B

Medium hub airports had the largest percent increase over the 10 year period

4

Source: Federal Aviation Administration

32.9%

29.2%

31.1%

Sales have increased by 36% and concession revenue by 19% over past 5 years with minimal enplanement growth

5

Top 46 performing U.S. Airports for Sales

Source: ARN and FAA

19.4%

35.7%

Top 10 U.S. airports’ sales have increased by 56% and sales per enplanement by 27% over the past 6 years

6

Source: ARN

Top 10 Performing U.S. Airports

2005 2010

Airport Total SalesSales

per enpl Airport Total SalesSales

per enpl

PIT $72,200,000 $10.88 JFK $295,680,194 $12.90JFK $167,442,916 $8.97 PIT $47,800,000 $11.90DCA $66,194,151 $8.32 SFO $207,888,742 $11.17HNL $79,665,943 $8.24 MIA $176,882,510 $10.48EWR $130,912,557 $8.22 EWR $171,468,755 $10.26ANC $19,267,859 $8.17 LAS $205,667,483 $10.15PDX $52,981,585 $8.13 PDX $64,993,559 $10.04SFO $122,166,287 $7.93 BOS $127,462,250 $10.03SAV $7,368,408 $7.60 IND $37,021,108 $9.90PHX $148,512,447 $7.60 RNO $19,504,571 $9.77

Total $866,712,153 $1,354,369,172% Increase 56.3%

Avearge $8.41 $10.66% Increase 26.8%

Maximizing non-aeronautical revenue requires comprehensive business planning, programming and implementation

Plan andprovide

facilities

Operate & maintain

the facilities

Deliver thecustomer

experience

Monitorcustomer

experience

Establishcustomer

relationships

Understandcustomer

expectations

Focus on understanding and planning for customer needs and expectations.

Focus on delivering customer service and pursuing service improvement.

Business Planning

Result: optimal revenue based on market conditions and customer expectations.

Management must embrace the “market model”rather than the “infrastructure model”

Maximizing terminal concessions revenue requires special attention: Retail is Detail

• An airport is not just a ‘processing factory’ of passengers and cargo; it is also a ‘people business’: a concentration of emotions, desires and travel stress.

• Airport retail can underperform if not treated as core business by the airport. Tailor-made retail requires careful and timely planning.

• Airport’s must respond to quickly-changing consumer desires.

8

Basic rules of successful terminal concessions concepts• Departing passengers are brought together (as a critical mass) in a

central area or square.

• Retail shops and restaurants are constructed on at least two sides of the square

– This allows passengers to be exposed to shops all the time.

– “Pinball Effect”: a dialogue of impulses and experiences “bouncing” the passengers from one shop to another.

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There are four preliminary steps to turn vision to implementation

10

Get set Analyse Develop Implement

Financial goals

Conceptual ambitions

Criteria and constraints

Local partnership

Demand analysis: airlines + consumers, passenger research

Supply analysis: current partners, benchmarking, trends & developments.

SWOT Options generation

Choice of options/ scenarios

Concession plan: retail mix, local flavour, conceptual design, performance, identity & branding, organization

Financial modelling

Detailed design, Technical specs

Business Plan, Action programs

Tender & contract

Review

Non-Aeronautical Revenue Trends

• Customer-centric terminal concession programs– A shift from “main street” branding to “local branding”– Ensuring street pricing to avoid monopoly pricing– Creation of the “food to go” concept– The increased use of carts and kiosks– Service concessions becoming a larger percent of overall

concession mix• Leveraging of the “Airport City” concept• Development of consolidated rental car facilities• Increased commitment to “going green”• Expanded parking amenities

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Airports with modern retail management and configuration earn 80% or more of their retail food & beverage income airside.

12

Old Concept New Concept

A shift from “main street” branding to “local branding” is consistent with the airport’s role as the gateway to a market

13

50%25%

25%

Source: 2010 ACI‐NA Benchmarking Study

Airport bars have evolved from places for “those who must” to attractive respites on the concourse

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SEA

JFK

With the elimination of most in-flight catering services, food-to-go is an essential element of meeting the travelers needs and wants

15

BHM

FLL

SYD

In addition, services have become an increasingly important element of the airport experience

16

The 2010 ACI Concession Winner is an excellent example of applying these concepts

Vancouver International Airport

Artwork, water features, aquariums, and unique interior design and architecture all work together to create mini “town squares” around which food & beverage are focused.

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Airport Cities concepts are a natural extension of airports controlling surrounding lands so that they are used in ways accretive to airport activity

Airport City• Integrated development of

airport and real estate• In the heart of the airport

Airport authority driven (planned)

• Infrastructure node

Aerotropolis• Separated real estate

development• Near the airport• Private developmentAirport Corridor• Integrated real estate and

infrastructure development • Between airport and city• Partially government planned

18

Airport Cities Concepts are always unique to the circumstances found in each airport and market

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Airport Cityelements

Vision

Airport Master Plan

Multi-modal infrastructure

Phasing

Business models

Mix

Economy

Land use plan

InvestmentEarly adaptersRevenues

Strategy

Marketing

Partners

Airport Cities concepts allow you to control additional links in the transportation value chain

Implementation

Development of Consolidated Rental Car (CONRAC) Facilities has occurred at over 50 airports nationwide

20Source: Auto Rental News

Consolidated rental car facilities provide numerous benefits

• The concept is “green” because– The number of buses on the

airport curb is reduced– Rental car facilities are not

duplicated by each company– Typically requires less land

• Financed by rental car activity through CFCs

• Gives the airport greater control over rental car company activity

• Reduces the amount of space needed for rental car companies in the terminal

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OAK

FLL

PHX

There are several items to consider when negotiating a Customer Facility Charge (CFC)

• All rental car companies using the airport must collect CFCs• All rental car companies using the airport must pick up and drop off

customers at the facility• Require a security deposit or letter of credit in lieu of a security

deposit• CFCs should be held in trust and submitted monthly• Consider contingent rent

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The amount of the CFC varies depending of the method of assessment

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Over $1.1 billion stand alone CFC debt transactions in past 14 years

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DFW $140 mil

1998       1999       2000         2001         2002        2003         2004       2005       2006         2007       2008   2009       2010        2011

Nashville$66 mil

Orlando$62.8 mil

New Orleans$96.5 mil

Denver$78.6 mil

Houston$151.2 mil

Phoenix$260 mil

Anchorage$62.8 mil

Rhode Island$48.8 mil

Atlanta$211.9 mil

Airports have an increased commitment to “Going Green”

• Sustainability– System that meets current needs

without compromising the resources available for meeting future needs.

• Renewable waste• Recycling• Example Indianapolis

– Tenant Improvement Manual– Materials shall follow LEED– EnRoute Spa

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EnRoute Spa constructed its tenant space using the “green concept” at IND

• Natural cork flooring• Recycled acoustic

ceiling• Bio wheat countertops• Energy efficient lighting• No toxic chemicals

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Expanded Parking Amenities is critical to maximizing revenue in this largest revenue source at the airport

• In order to maximize revenue, airport operators must have an appropriate inventory of parking products

– hourly, daily, long term

• Each product must distinguished by

– Convenience to the terminal

– Amenities such as valet, frequency of shuttle operation and other services

– Prepayment options and reservations via the internet

– Links to frequent flyer programs, etc.

• Dynamic pricing to constantly match with demand

• Management of cross-elasticities of demand between parking products

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