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In 2018, I had the unique opportunity (and privilege) to write a research paper on “Innovative Approaches for Maximizing Airport Commercial Revenues” for Airport’s Council International. In the document, I was charged with exploring and identifying new/innovative ideas that airports could implement to help diversify their revenue streams and reduce their dependency on aeronautical revenue. Airports have been focused on this issue for many years however, it has taken on a renewed sense of urgency as a result of the COVID-19 pandemic as airports lost $111.8 billion (USD) dollars in 2020 (as indicated by ACI).
How Do Airport’s Make Money?
Airport’s primarily make their money from two main sources: Aeronautical revenue and non-aeronautical revenue. Aeronautical revenue typically makes up the largest share of revenues from airports and can be tied directly to either passengers or airplanes (and other operational activities at the airport). Examples of typical aeronautical fees include landing fees (the bigger the airplane the more the fee typically as the fee is tied to the maximum takeoff weight of the aircraft), fees included in the passenger’s ticket, fuel royalties and usage fees for the terminals, gates, counters etc. Non-aeronautical fees are fees not associated with passenger/airline/airplane activity and typically include airport parking, retail, rental car concessions, food & beverage, advertising, land rental etc.
For airports, non-aeronautical revenue normally provides higher net profit margins when compared to aeronautical revenue and can help to bolster an airport’s bottom line during periods of reduced passenger demand and flight activity – say during a global pandemic for example. Despite all the benefits of non-aeronautical revenue however, there still remains one small issue – non-aeronautical revenue streams are largely passenger dependent. Typically, once passenger demand or flight activity is reduced, it leads to reduced revenue at airport retail/food & beverage concessionaires and airport parking (which is typically one of the – if not the primary source of non-aeronautical revenue). So how do we fix this issue?
Recall in a previous post where we discussed that creativity and flexibility will be key to managing airport’s of the future and I have full belief that it applies in this case as well. Prior to the pandemic, airport’s had placed a lot of emphasis on increasing the passenger experience and for good reason – happy passengers tend to spend more money. With millennials valuing experiences over possessions (and representing the largest share of travellers until at least 2035), airport’s must continue to look at new and innovative ways to increase their bottom lines by offering new experiences. For example, Munich Airport featured a “Surf and Style” event where the airport created a wave pool and featured a surfing exhibition (which was open to the public) and also allowed persons to be taught at a fee. At Changi Airport in Singapore, the Jewel – which features the largest indoor waterfall in the world, is open to the public and has a host of amenities including shops and restaurants (as well as a supermarket and an IMAX theatre) available to both the public and travellers. If you’re in Hong Kong International or Dallas Fort Worth, why not stop at one of the airport’s golf courses and take a few swings.
While the ideas discussed above are quite elaborate, it doesn’t mean that airports need to invest significant funds into events to enhance the passenger experience. By adding value to existing non-aeronautical revenue streams (such as adding valet services and car washes to airport parking to provide an additional boost) and offering non-traditional offerings (small business pop ups and events for example), airports can help to protect against the cyclical nature of travel demand. If you’d like to read my report, you can download my paper below for some additional reading (and feel free to leave a comment, I’d love to get your feedback on it). What are your thoughts on new ways airports can reduce their reliance on aeronautical revenues?
Terminal Talks 