Consumer behaviors and new airport technological improvements accelerated by the pandemic have created an opportunity to reimagine the future of non-aeronautical revenues: one that leverages the advent of digital technologies and is less dependent on traffic growth to drive revenues. Airports in the U.S. have traditionally derived about 60% of their revenue from aeronautical charges (i.e., fees levied on airlines and passengers). With passenger spend characteristics having evolved greatly since the onset of COVID-19, so too should an airport’s ability to capture the remaining 40% of non-aeronautical revenue.
Passenger spending patterns are driving a need to create flexible revenue strategies
The mindset of airports being passive observers of passengers transiting through their facilities needs to be drastically rethought, with a shift towards a customer-centric mindset that puts the passenger first in every way. Passenger expectations of how to curate their personal airport experience have rapidly changed over the past two decades and has pivoted even more significantly as of late with the onset of the COVID-19 pandemic.
Airports and their operators need to actively rethink what the holistic experience looks and feels like by understanding passenger psychographics, expectations, wants, and desires rather than making wholesale assumptions. This is especially true during an airport expansion and planning process. The passenger’s buying behaviors have assuredly changed even since just last February. And don’t make the mistake of looking too hard at other airports as to how they have changed. Examine your airport fully.
Rather than always making traditional food and beverage (F&B) and retail choices, we believe it’s important to look closely at the entire passenger journey. Passenger personas can help you uncover insights into passenger preferences. This can ultimately lead not only to improved passenger satisfaction scores, but also increased non-aeronautical revenues. By understanding better who they are as individuals and consumers, you can give the passenger what they want, how they want it. Further, exploring the airport passenger’s optimal customer experience can help target capital expenditures in terms of restroom requirements, seating configurations, and other terminal amenities before expenses are committed.
Driving revenue without the benefit of passenger growth
The traditional passenger spend characteristics may never be the same. So, how might airports make up the potential diminution of per passenger spend? The answer may lie outside of a terminal’s confines.
According to Wikipedia, “An airport city is the ‘inside the fence’ airport area of a large airport, including the airport (terminals, apron, and runways) and on-airport businesses such as air cargo, logistics, offices, retail, and hotels. The airport city is at the core of the aerotropolis, a new urban form evolving around many major airports.”
The industry has, for decades now, talked about airport cities. Since the 1990s, Amsterdam Schiphol Airport has progressed its aerotropolis to include a central business district that offers office buildings, retail and restaurants, hotels, and a casino all within a 10-minute walk from the terminal.
At Dallas/Fort Worth International Airport, approximately half of the 6,000-acre airport property designated as commercial and industrial has been developed, most recently into the 598-acre Passport Business Park and Amazon’s 2.4-million-square-foot fulfillment center, according to Airport World Magazine.
Edmonton Airports continues to drive non aeronautical revenues beyond traditional sources which allows us to offer some of the lowest aeronautical fees of major airports in Canada while driving the regional economic in a sustainable way.
But a new model can be seen at Edmonton International Airport (EIA), where the airport employs a strategy to grow non-aeronautical revenues through revenue diversification. The airport offers conventional development opportunities on its leased lands, but its strategy extends beyond that as well. It actively enters into partnerships with emerging businesses and provides growth support through its incubation and acceleration consortium, the Alberta Aerospace and Technology Centre.
EIA supports local companies and also positions the airport as a testing ground for new technology advances and innovations, such as wildlife management and autonomous airport security.
Airports are struggling to make ends meet
Significant change is occurring throughout the world given the impact of COVID-19, and the aviation industry is no exception. Airports have seen profitability plummet with decreased traffic. Even if air travel returns to 2019 levels in the next year or so, it is uncertain if spend characteristics of passengers will be what they once were. In the terminal, airports should look towards the future of how technology can assist passengers in doing what they want, how they want it, and when they want it. This means employing digital strategies to make it easier to buy.
It is critical that airports rethink their strategies for future-proofing non-aeronautical revenue reliance and find ways to de-risk their vulnerability to traffic downturns.
Airports should also look towards other business lines to create pandemic-proof revenue streams. Outside the terminal, airports can study the means by which other ancillary revenues can be turbo-charged without the reliance on passengers. Out lots and terminal adjacent property may be the solution. Studying your full range of options and examining new industry best practices is critical to stabilizing revenue streams post-COVID.