Addressing the challenges of airport profits after COVID-19

Addressing the challenges of airport profits after COVID-19
Aug 25, 2020

As the aviation industry begins to navigate a possible COVID-19 recovery plan, airports face a new health safety reality that could challenge the revenues they need to survive.

As the aviation industry begins to navigate a possible COVID-19 recovery plan, airports find themselves facing a new delicate equilibrium: ensuring customer health and safety while still making enough money to cover substantial operating costs. What challenges will passengers at a typical airport face with this new normal? And what can airports do to sustain the revenues they need to survive?

Challenge: Getting to the airport

Passengers can reach any major hub airport through a network of fast, efficient public transport connections. Will they be comfortable going back to trains and buses? Or will they consider these forms of transportation too risky and choose to travel on their own, either using taxis or—safest of all—their car?

Of course, public transportation options are limited at many airports, making personal transportation the only option. But other city-based hubs in the United States, Europe, and Asia lack the capacity for a significant swing to car parking and curbside drop-off.

It is worth considering that U.S. airports rely heavily on the revenue from car parking and car rental, which generates between 40% and 70% of total non-aeronautical revenues. Non-U.S. airports, on the other hand, have a greater dependency on in-terminal commercial revenues, with car parking and car rental only representing between 10% and 25% of non-aeronautical revenues.

On the whole, airports often make little money from public transportation. A move toward increased car parking options could lead to increased revenues in this area, especially if airports use consumer-demand-based pricing.

However, mitigated revenues could still occur if flight schedules do not return to pre-COVID-19 frequencies and if passenger levels stay comparatively low.

Challenge: Crowded shuttle buses

Due to problems providing adequate separation between passengers and ensuring hygiene standards, some airports have stopped using remote car parks. This halt is temporary, but it could put significant pressure on non-remote, airport-owned parking. Why travel by car to avoid the infection dangers of public transportation, only to be put into a crowded (and questionably clean) shuttle bus that takes you to your terminal?

Airports will need to work with all third-party ground transportation stakeholders (e.g., city transportation owners, transportation network companies such as Uber, taxi companies, remote parking managers, and bus companies) to ensure they adhere to consistent rules. Safety and sanitation protocols will be required to regain passenger trust. There is little point forcing social distancing at the terminal when passengers have just spent 30 minutes on a crowded train.

All these challenges make predicting ground transportation revenues rather tricky. However, it is likely there will be a shift to personal vehicle travel for those passengers who travel, which could increase the spend per passenger for airports with traditionally lower parking level usage. In terms of total revenue, this will depend on passenger traffic. For airports that already have a higher level of car park usage, this is unlikely to change.

Challenge: In-terminal experiences

Throughput is the most critical operational function of the in-terminal checkpoint experience. It is in the airport’s financial interest to expedite passengers through security to the commercial zones. The more efficiently passengers proceed to a post-security environment, the greater their discretionary time for shopping and dining in spaces where restaurants and retail shops are most prevalent.

In a post-COVID-19 restart or recovery period, passengers may now face a variety of operational issues that could impact spending and, therefore, airport revenues.

There are three major operational issues:

  1. Long retail lines. Lines are the enemy of retail. We expect retailers will have occupancy limits in their stores, which may cause lines outside. Passersby will find such lines off-putting and avoid that retailer, and shoppers will stop browsing for fear the line will be even longer by the time they wish to check out. Without the use of new contactless check-out technologies, this line anxiety will lead to lost sales and airport revenues. A mobile app to indicate alternative shopping locations (and shopper density within locations) could alleviate this issue.
  2. Crowded restaurants. Crowded fine/casual dining restaurants—which may become the norm given the closing of other food service options—could also negatively impact airport revenues. Not only will occupancy limits impact restaurants, so will lines to wait for tables. If diners who would otherwise buy a $20 meal at a restaurant convert instead to a quick $10 meal, revenues will be lost. Variety and choice are an issue as well. Fewer options will lead to reduced sales. Options targeting specific passenger profiles (e.g., vegetarians) impact the success of food service programs; with limited variety, some passengers may be unhappy.
  3. Safety concerns. Health concerns in airports may cause behavior similar to gate hugging, where passengers find a secure corner to hunker down in away from crowds. Unless such locations are in a lounge where passengers have paid an entry fee, this behavior will curtail shopping and dining. Airports must create a communication strategy to convey sanitation procedures to the public. Passenger journey videos, social media, and visual cues (e.g., floor stickers) can message such things as the availability of PPE, the location of contactless technologies, and sanitation procedures.

Challenge: Inconsistent rules

Different rules will breed confusion and concern.

To further instill passenger confidence and give shoppers and diners a sense of security, sanitation procedures must be consistent between operators. For example, McDonald’s corporate cannot have one set of sanitation procedures for its airport units, while KFC operates under another set.

Airports must establish their own sanitation rules and regulations. These rules and regulations must rest on the highest common denominators between all food service facilities. For example, if McDonald’s takes the strictest measures, all other units must improve their sanitation procedures to equal McDonald’s. This unity breeds confidence, trust—and customer spends. But remember that consumer confidence is something that is earned.

Ultimately, local, regional, or national governmental policies will have to dictate the sanitation procedures to which all airport concessions need to adhere.

Passenger experience equals profits

Addressing these operational challenges with key airport partners and stakeholders can have a fundamental impact on an airport’s bottom line. It is one thing to lose revenues due to fewer passengers; it is another thing to lose revenues on a per-passenger basis.

Now is the time for airports to worry about profitability, of course. But doing so at the expense of the passenger experience, both en route to and inside an airport, will only negatively impact sales and, ultimately, revenues.

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Meet the authors
  1. Stephen Freibrun, Principal, Airports and Americas Sector Lead, Aviation

    Stephen advises airports on commercial strategies, with more than three decades of management and real estate experience in the public and private sectors. View bio

  2. Nigel Womersley De Zaldua, Principal, Aviation

    Nigel has nearly two decades of experience in strategy development, with a background in strategic and financial planning, transformation, customer engagement, digital solutions, analysis, business improvement, and innovation for airports. View bio

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