November 30, 2016
By Greg Fredrickson, Michael Baker International, National Practice Lead, Aviation
Greg Fredrickson, Michael Baker International, National Practice Lead, Aviation
An airport is an intriguing facility embedded in our communities. It is a source of contention to many, a mystery to others, and a career for some. Just like the community where it resides, an airport is a vital, independent entity that ebbs and flows through seasonal changes, economic challenges, industry trends and technological advances.
For airports to continue to meet the needs of commuters in a world that expects faster and safer transportation options and where technology is changing the way people think and experience travel, airport management must be flexible, agile and responsive. While the large-hub airports have succeeded for the most part, they are challenged on a daily basis to maintain or grow their revenue as the competition for the almighty greenback has increased. How will airports now and in the future obtain alternate sources of revenue to keep them competitive?
The Airlines’ Strategy Playbook
Airlines have seen record profits over the past several years. This is the result of low oil prices, increased load factors and growing fees. Low oil prices have helped us nationally in many regards, including lowering the price of jet fuel, which is an airline’s largest overhead expense. Load factor is another consideration and is a key metric that is under the radar. It refers to the standard the airlines use to show how full their aircraft are on an average basis. The United States Department of Transportation Bureau of Transportation Statistics shows today’s average load factor just shy of 85 percent compared to the 70 percent factor a decade ago. Currently, we are experiencing an industry high that is at the upper end of planning guidelines for airport terminals and concourses as per the Federal Aviation Administration’s Advisory Circular 150/5360-13 Planning and Design Guidelines for Airport Terminal Facilities
. Fees are seen most often in baggage and when changes are made to flight days or times. In 2015, airlines profited $3.8 billion due to baggage fees and $3 billion for change fees. Based on these three factors, can airports take a page out of the airlines’ strategy playbook and apply similar tactics to experience equal results? In a way they have.
Leasing and Advertising
Today, airports operate in a mall environment. Airports evaluate every square foot of terminal and building space to see how they can incorporate more leasable areas. Have you seen the “Best Buy” vending machines selling headphones, memory sticks, and other technology accessories? There are kiosks tucked into every corner of an airport selling clothing, spices, jewelry and other memorabilia. So, in a sense, they have increased their load factor, thereby increasing their revenues.
Advertising within an airport has intensified as well. Almost every vertical wall has become an opportunity to market a product or service. Even temporary construction barrier walls are used. The schedule for a recent construction project I was involved with was dictated by the need to get a wall up to begin collecting advertising fees. The contract was written to include liquidated damages (LDs) imposed on the contractor if the wall was not finished by the deadline. The LD’s were established based on the daily loss of revenue for not being able to advertise.
(both figuratively and literally) advertising opportunity I have seen to date relates to the use of airport parking garages. Here, large five-story banners have been draped over the walls of some garages.
Commuters also take into account which airport they will use and when they will use it. When the conversation centers around ways airports can increase revenue, this option for travelers must be taken into account. Commuters consider existing airport perceptions and their own desires when making this decision. Since some airports are relatively close to each other, airport management understands passengers have options related to which airport to use. The deciding factor could come down to incidental expenses or fees imposed on travelers.
Electric Vehicles and Transportation Network Companies
I’ve had a similar discussion around the use of electric vehicles and an airport’s decision to install charging stations in their garages. There was a conversation about how to use those parking stalls. We wondered, should we charge
a car? Should we have valet positions so that once a car is charged it can be moved to open the charging stall for the next car? Where would we put these positions? Top floor? Bottom floor? By the lobby? The final decision revolved around the environment.
Sustainability and being a responsible steward of the environment have become major national and industry trends. For this reason, it was decided that the parking stalls for electric vehicles would have no additional charge, and it would be advertised as such to attract those who value this enhancement to their travel experience. And besides, what is the major non-airline revenue generator at an airport? The parking garage. These are cash cows that seemingly print money for an airport. Can they remain that way?
At a recent aviation conference, a presentation by Angus Davol, Senior Transportation Planner, Landside Operations at San Francisco International Airport (SFO), addressed Transportation Network Companies (TNC), e.g. Uber & Lyft, and recent findings related to TNCs at his airport. In 2014, SFO and TNC reached an agreement to provide permits for a pilot program. At that time, there were approximately 100,000 trips tracked, accounting for 19 percent of the paid commercial ground transportation trips, and resulting in $385,000 of revenue to the airport in the form of trip fees in one month. In August 2016, more than 520,000 TNC trips were tracked, accounting for 63 percent of paid commercial ground transportation trips, and resulting in $1.98 million in revenue to the airport in the form of trip fees by invoking a $3.80 fee per trip. The TNCs have been a challenge at airports for many reasons (contractual, permits, unions, etc.) but they now are becoming an additional revenue source. This new and upcoming technology is being used more and more. Now, the question to ask is, how will this change the use of parking garages? As TNCs become more prevalent and accepted at airports, they could have an impact on the need for parking. From a planning and design perspective, these new systems and the future driverless vehicles will have to be considered.
As airlines continue to merge and consolidate and as other competing industries seek to use the airport as a means of revenue, airports are going to have to adjust their revenue streams accordingly.
Several years ago, I was involved with a Parking Lot Revenue and Control System Study. There were numerous tactics evaluated in this study to help the airport capture more parking and increase revenue potential through their parking facilities. Suggestions for possible consideration included: flexibility in the parking rates to compete with the offsite parking facilities; the potential for stores within the airport to sponsor parking tickets (e.g. show this ticket to receive 10 percent off next purchase); pay by phone; reserved parking spaces; and valet parking, to name a few.
Offsite parking facilities typically offer lower rates and adjust them quickly based on supply and demand. The airport wanted to be able to monitor and respond to pricing just as quickly as the offsite vendors. This ability was incorporated into the final design.
With more than 100,000 people travelling through each of the top 30 busiest (large hub) airports in the United States on average each day, commuters are more experienced than ever before and expect the best. In the future, airports must continue to look for and create additional revenue sources to meet their business goals and planning metrics to stay competitive. In this article, I referenced just a few.
Moving forward and as travelers expect bigger, better, safer and more-engaged travel experiences, airport management must look beyond what they are doing now. They need to consider all current and future options to generate revenue including:
- -Merging transportation and accommodations with airport hotels with amenities
- -Adding additional amenities that include salons, gyms/workout space, entertainment, movie theaters, and business services
- -Integrating retail and office space
- -Innovating to incorporate technology in the form of virtual reality or online experiences
- -Developing/Incorporating solar energy
- -Drilling for natural gas/oil on property where applicable
- -Providing cell phone towers for better connectivity
- -Charging tolls for use of airport roadway systems
- -Incorporating events (receptions, banquets, conferences, tours, etc.)
- -Providing other services such as car detailing and dog/cat boarding