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

Business Traveler (USA) - - INSIDE - By Ross Atkin­son & Dan Booth

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

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