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CHAPTER 1 Introduction to Airport In-Terminal Concessions ACRP Report 54: Resource Manual for Airport In-Terminal Concessions is the end product of ACRP Project 11-01, “Understanding Airport In-Terminal Concession Programs.” This intro- ductory chapter provides general background information, presents the methodology used to develop this resource manual, discusses its potential benefits, and outlines its organization. Lastly, the use of icons intended to help the reader navigate through the manual is discussed. 1.1 Changes in Airport In-Terminal Concession Programs The evolution of airports from rudimentary airfields to today’s sophisticated centers of commercial transportation is paralleled by the development of in-terminal concession pro- grams at airports. In the opinion of airport concession managers interviewed for this project, in-terminal concession programs have over the years gained a higher profile and become more impor- tant contributors to the financial and operational success of today’s airports. Developing and managing in-terminal concession programs requires the application of sound commercial practices adapted to the unique constraints of airport terminals, an understanding of the needs of passengers, and an understanding of the public procurement requirements under which indi- vidual airports operate. The rapid growth in airline travel following World War II was characterized by a highly reg- ulated airline industry and a growing need for new, modern terminals and airfield capacity. The introduction of jet aircraft in the late 1950s made airline travel faster and more conven- ient, and required further expansion of airfields and terminals. While the need for new invest- ment was great, airports at that time were unproven credit risks. To support the required new investment, airport sponsors turned to long-term lease and use agreements with the airlines and long-term concession agreements, often exclusive, which provided guaranteed revenues over the life of the agreements. Airline deregulation in the late 1970s resulted in new startup airlines, expanded airline service, cheaper airfares, and rapid growth in numbers of passengers, followed by a significant period of terminal expansion. Major new terminals at the airports serving Atlanta, Dallas/Fort Worth, Denver, Phoenix, and Pittsburgh, among others, were planned to accommodate the expansion of airline hub-and-spoke route systems. The terminals at airports in other cities were expanded to meet current and forecast demand. Also, in the 1970s, a few forward-leaning airport sponsors, such as those overseeing Washington National and Miami International airports, introduced branded concessions to supplement the 1

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2 Resource Manual for Airport In-Terminal Concessions large contracts that characterized the airport industry at that time. Operators of other airports, including Portland International Airport, successfully brought local brands to the airport. Federal mandates to expand opportunities for minority businesses were introduced in the 1980s, and airport sponsors restructured concession agreements to provide opportunities for Minority Business Enterprises (MBEs, later changed to Disadvantaged Business Enterprises, or DBEs), adding to the scope of existing concession programs. Over time, airport sponsors became less reliant on revenue guarantees and more concerned with improving the food and beverage, retail, and service concessions offered to passengers. The reduced reliance on exclusive contracts and long-term guaranteed revenues—based on a real- ization that the local market, and not individual airlines, was the driver of passenger demand— brought an end to the belief that passengers were a “captive market” most efficiently and profitably exploited by a few long-term concession agreements. From a contracting perspective, the award of concession agreements evolved from straight bids based solely on guaranteed revenues toward more customer-focused processes emphasizing customer satisfaction and convenience as well as revenue. Passengers showed clear preferences for concessions that more closely resembled their choices outside the airport. In 1992, the new Pittsburgh International Airport terminal opened with a concession program run by a developer, BAA USA, a subsidiary of the U.K. airport operator BAA plc, the privately owned successor to the former British Airports Authority. Allegheny County, operator of the airport, and the hub airline, US Airways, wanted a new, sophisticated concession program that would help attract connecting passengers and make the airport more competitive with other hub airports. The Pittsburgh concession program featured international, national, and local brands and a major commitment to specialty retail. The program was a big success and marked a turn- ing point in the evolution of in-terminal concessions. Soon, traditional concessionaires were embracing branding and offering portfolios of brands. The increased competition and ease of market entry that led to the expansion of airline ser- vice and new airlines also put the older legacy carriers under financial pressure. Increased com- petition and excess capacity left these airlines vulnerable to economic downturns. Airlines pushed airport sponsors to reduce their rates and charges in the short term and to decrease their reliance on airline rates and charges by growing nonairline revenues. As a result, airport man- agers became even more focused on improving their concession programs. Once considered ancillary services that offered basic passenger conveniences, in-terminal con- cessions have increased in importance as airport sponsors seek to increase nonairline revenues while meeting higher passenger expectations. Fortunately, there is a direct connection between the two. 1.2 Purpose of the Resource Manual The purpose of this resource manual is to provide airport concession managers and other stakeholders, such as airport senior management, board members, concessionaires, and airlines, with an easy-to-use reference for understanding, planning, evaluating, managing, and develop- ing airport in-terminal concession programs. 1.3 Methodology and Data Collection Data to support the findings and recommended practices in this resource manual were col- lected through several means including a literature review and surveys.

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Introduction to Airport In-Terminal Concessions 3 1.3.1 Literature Review An extensive survey of recent literature was conducted to determine the overall depth and breadth of available information. While numerous industry presentations and association pub- lications are available in the literature, few scholarly works or in-depth articles on the subject of airport concessions exist. Events and trends in the industry press have received considerable cov- erage, albeit at a general level. Much of the material is, at its core, promotional material, providing information on recent improvements, successes, or innovations. While considerable informa- tion is available on the broader categories of food and beverage, retail, and advertising, a good portion of the literature does not take into account the unique nature of airports. The scale of airport concession programs has grown steadily; however, airport concessions represent a tiny fraction of the broader categories of, say, food and beverage or retail. Information was also obtained from Airports Council International-North America (ACI-NA) and the American Association of Airport Executives (AAAE). 1.3.2 Survey of Concession Managers and Other Practitioners To support the development of this resource manual, a two-tiered interview program was developed to gather detailed information from concession managers and other practitioners on the state of the industry and current management and business practices. First, a web-based survey was conducted targeting commercial managers at large, medium, and small hub U.S. airports, as well as at nonhub U.S. airports. This survey included questions related to the char- acteristics of current concession programs, the types of concessions currently offered, busi- ness terms, and contracting practices. Questions were also structured to identify what airport concession managers thought were the airport sponsors’ goals for the concession programs, and the priorities used in planning and contracting. A total of 49 concession managers responded to the web survey. A similar, although less extensive, web survey was forwarded to a group of concessionaires, ranging from large national companies to regional and local concession operators. The focus of this survey was capture this group’s views on current concession practices at airports and the issues that they believe are important going forward. A total of nine concessionaires participated in this web survey. Other survey groups included airline representatives responsible for concession programs in airline terminals, a concession-planning consultant, and several concession managers at over- seas airports. Follow-up oral interviews were also conducted with most of the participants in the web surveys. For a variety of reasons, airports outside the United States have long had larger and more sophisticated concession programs. To identify differences between U.S. and non-U.S. airports, particularly those with well-developed concession programs, the research team supplemented the literature search with oral interviews of concession mangers at five non-U.S. airports. The research team also interviewed executives from companies that operate concessions in sports venues and on university campuses to compare and contrast business practices. References to “the survey” in this resource manual pertain to the web surveys and interviews conducted for this research project, unless otherwise specified in the text. 1.3.3 Use of Financial and Other Data in the Resource Manual Financial data, the basis for commonly used metrics such as sales per enplaned passenger and revenue per enplaned passenger, change each year. Over the long term, concession sales at most

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4 Resource Manual for Airport In-Terminal Concessions airports generally grow at a rate at or above the rate of inflation. During most of the first decade of this century, sales and revenue per enplanement grew at a pace well above the rate of inflation save for the recession and other changes following the attacks of September 11, 2001, and, in particular, the world financial crisis and economic downturn that began in late 2008. These economic downturns affected each airport differently, but in most cases, materially. Airports that are expanding terminals, implementing new concession programs, or making changes to their existing programs can show significant improvement from one year to the next. Changes in airline service can also have a dramatic effect on concession performance, on the air- port as a whole, at a terminal, or within a terminal. For these reasons, the user is encouraged to use the most current data when benchmarking against comparable airports or considering changes to concession programs. The user is encouraged to use the financial data, and to a lesser extent, space-related data included in this resource manual as relative indicators. This resource manual is not intended to serve as a repository of current sales and revenue data. Financial reports, often available on air- port websites or the Airport Revenue News Annual Fact Books, can provide current data that are useful for benchmarking and other analyses. It is hoped that this resource manual will be updated from time to time to reflect the current state of the industry. However, the data included in any update will lose their currency shortly after publication, and the user will be encouraged to obtain current data. 1.4 Potential Benefits of the Resource Manual This resource manual reflects current practices in the industry. The underlying purpose of this research project is to create a document that has practical value for practitioners in the field of airport concessions. It is intended that this resource manual will offer a number of potential benefits, including the following: • Helping airport concession managers and others in the field understand the differences among airports and how these differences affect concession programs. • Helping airport concession managers and their staffs understand the rationale for many of the industry practices currently in use. • Helping those involved in airport concession programs recognize opportunities for improve- ment and potential solutions to problems by applying the techniques and practices included in this resource manual. • Providing a primer for small businesses looking to adapt their food and beverage, retail, or service business to meet the demands of the airport operating environment, thereby improv- ing and increasing the range of potential concession offerings available at airports. It has been said, “If you’ve seen one airport, you’ve seen one airport.” Each airport can be char- acterized according to multiple variables, all of which affect the development and management of concession programs. Passenger numbers, the airline mix, terminal configuration, passenger demographics, and many other factors have shaped the long-term decisions of concession man- agers, airport executives, and airport board members. With the exception of a few large cities with multiple airports, each commercial airport in the United States operates under a different set of state and local legal requirements that apply to air- port contracting practices and concession agreements. Therefore, generalizing about best prac- tices or preferred approaches must be done with caution, as some practices may not be feasible, appropriate, or even legal in all situations.

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