Not Just Out of Thin Air – Airport business models are flourishing
Travelers and locals alike are contributing more to the business success of airports worldwide
For most of the 100 year history of commercial aviation, airports have relied on passenger traffic and airlines for income. Landing fees and other airside-related operations have traditionally formed the bulk of airport revenues. However, maintaining safe operations and complying with often stringent government regulations means airports need to manage critical resources, such as air space and runways, while meeting all the demands of regulators, local interests, airlines and their passengers, and simultaneously increasing profits.
As a consequence, the airport revenue picture is rapidly changing. Airports are going farther afield, diversifying their sources of income to include nonaeronautical avenues, such as food and beverage, news, gift and specialty retail, as well as the frequent traveler’s mainstay of any journey, airport lounges. Airport revenue is not just out of thin air anymore.
In the US alone, a report from Frost & Sullivan entitled Analysis of the Global Airport Industry shows the proportion of income from non-aeronautical sources in 2012 made up almost half (44.8 percent) of total airport revenues. And it’s a trend that is gaining traction worldwide.
For example, at China’s Guangzhou Baiyun International Airport – the world’s 16th busiest airport by passenger traffic according to ACI’s 2015 numbers – aeronautical revenues grew 8.7 percent while non-aeronautical revenue grew 28.2 percent in 2012. With constant modernization and plans to grow passenger traffic to over 80 million by 2018, it’s easy to see how quickly this one airport alone will need to shift revenue to support the modern conveniences and enhancements to the travelers’ experience.
“To achieve this balance, airports are investing heavily in optimizing revenue per visitor,” says Frost & Sullivan industry analyst Renganathan Krishna murthy.“Providing parking facilities, conference rooms, and boarding and lodging facilities opens up new opportunities for income generation.”
Centerpieces of Business
Airports are about more than air. In fact, entire cities are being developed with airports as centerpieces to boost overall business regionally. The concept, which has been dubbed the aerotropolis, is an urban plan in which the entire city’s economy revolves around an airport and its related activities.
Projects such as Singapore’s Changi Airport Terminal 5 will host 50 million passengers per year. That is the equivalent of all traffic in Terminal 1, 2, and 3 combined. Adding more passengers in an efficient manner, also adds to revenue of non-aeronautical income.
Even today, Singaporeans already crowd into Changi, not to fly somewhere, but just to go shopping, dining and looking for entertainment. At an airport that already boasts some of the finest options for passengers and locals alike, Changi Airport exemplifies the way non-aeronautical services result in higher revenues outside the traditional airport business model.
To illustrate the magnitude of airport developments for both aeronautical and non-aeronautical purposes, in January 2015 the CAPA Center for Aviation reported airport construction projects to the tune of $543 billion globally. At the end of 2014, over 180 airport projects reached their completion dates with a net increase of yet another 95 projects to start in the new year.
These airport cities are not limited to any one region of the world. Mega aerotropolis projects are under way from Mexico City to Hong Kong, Sydney to Istanbul, connecting travelers to airport cities that are destinations in themselves.
“This centerpiece approach is expected to significantly drive revenues for airports, ”observes Krishna murthy.“However, airport cities are long-term strategies. It will require the consensus of a host of stakeholders along with effective planning and execution to make the concept commercially viable on a global scale.” BT