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Overview of Airport Concession Programs 7 Sources: Air Transport Association of America 2011. FAA Forecast and Performance Analysis Division 2010, Table S-10, p. 22. Figure 2-1. Enplaned passengers per year since 1970. rights, or other revenue-producing activities. Figure 2-2 shows the split between aeronautical and nonaeronautical revenues for all U.S. commercial service airports (i.e., airports with at least one scheduled airline aircraft operation per day). The data are for 2009, as extracted from the FAA Compliance Activity Tracking System (CATS) reports filed by each airport operator (FAA n.d.). Airport operating revenues totaled nearly $15.7 billion in 2009. Of this amount, nearly $6.7 billion, or 43%, came from nonaeronautical sources. Figure 2-2 also shows revenue from in-terminal concessions, which account for, on average, about 21% of total nonaeronautical revenues. In-terminal concession revenue, as reported to the FAA, total $1,408 million and include revenues from food and beverage ($465 million); retail, including duty free ($570 million); and services ($373 million). These amounts represent pay- ments to the airport sponsors from concessionaires and other service providers. The FAA does not provide a separate breakout for retail excluding duty free. The contribution from nonaeronautical revenues varies widely among airports and depends on a number of factors, including the following: • Availability of land for commercial or other nonaeronautical uses • Distance from the major population centers and availability of alternate forms of ground transportation, which can affect demand for automobile parking and rental cars • Passenger demographics, which can affect spending • Numbers of international passengers, which can produce duty free and higher overall retail spending • Time spent in the terminals by passengers (also referred to as dwell time), which can also affect spending

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Overview of Airport Concession Programs 9 Source: Jacobs Consultancy, Inc., 2008, Table 8, p. 51. Data are for 2008 as reported by individual airports on FAA CATS Report 127 (FAA n.d.). Figure 2-3. Nonaeronautical revenues as a percentage of total revenues for selected airports and airport systems—FY2008.

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16 Resource Manual for Airport In-Terminal Concessions Source: San Francisco Airport Commission. Figure 2-9. Spa concession at San Francisco International Airport. flight physical examinations, treat work-related injuries on behalf of airport employers, admin- ister drug screening tests, administer flu shots and vaccinations, and provide other services. • Pay telephones. Demand for pay telephone services has declined dramatically with the popu- larity of cell phones, but are still a necessary service for many passengers. • Postal services, including the sale of postage, express mail, mailboxes, mail drops, and other postal services. At larger airports, a service center may be staffed by the U.S. Postal Service. • Shoeshine stands. • Wi-Fi, which was first offered on a pay basis, but is now offered by many airport operators through sponsorships or as a free service. The availability of these services will depend upon such factors as the layout of the terminal building, numbers of passengers, and availability of suitable locations. Airports with efficient layouts and concentrated passenger flows are best able to offer a broad range of services. Clus- tering services together can make them easier for passengers to find. 2.3 Attributes of Successful Concession Programs The profile of airport concessions has increased steadily over the years. Passenger surveys show that concessions, which are used by more than half of all passengers, are an important factor in evaluating the overall passenger experience of the airport. The highest-rated airports in the United States and around the world all have highly regarded concession programs. The 2009 ACI World Airport Service Quality passenger survey, a voluntary, fee-based pro- gram administered by ACI, which involves surveys of passengers around the world, ranked Seoul Incheon International, Singapore Changi, Hong Kong International, Beijing Capital Interna- tional, and Ghandi Hyderabad International airports as the best airports worldwide (Airports Council International 2010). All of these airports have well-regarded concession programs. In North America, the airports serving Austin, Halifax, Ottawa, Jacksonville, and Portland, Maine were ranked as the best airports in terms of their well-regarded concession programs. The ACI-World 2009 Airport Service Quality Index award winners are shown on Table 2-1 (Airports Council International 2010).

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Overview of Airport Concession Programs 17 Table 2-1. ACI World 2009 airport service quality index award winners. BEST AIRPORTS WORLDWIDE 1. Incheon (ICN) 2. Singapore (SIN) 3. Hong Kong (HKG) 4. Beijing (PEK) 5. Hyderabad (HYD) BEST AIRPORT BY SIZE OF AIRPORT Fewer than 5 million passengers 5 – 15 million passengers 1. Halifax (YHZ) 1. Hyderabad (HYD) 2. Ottawa (YOW) 2. Austin (AUS) 3. Portland (PWM) 3. Cancun (CUN) 4. Guayaquil (GYE) 4. Nagoya (NGO) 5. Jackson (JAN) 5. Jacksonville (JAX) 15 – 25 million passengers 25 – 40 million passengers 1. Baltimore/Washington (BWI) 1. Incheon (ICN) 2. Taipei (TPE) 2. Singapore (SIN) 3. Shenzhen (SZX) 3. Tokyo Narita (NRT) 4. New Delhi (DEL) 4. Kuala Lumpur (KUL) . 5. Salt Lake City (SLC) 5. Shanghai Pudong (PVG) Over 40 million passengers 1. Hong Kong (HKG) 2. Beijing (PEK) 3. Denver (DEN) 4. Dallas Fort Worth (DFW) 5. Houston George Bush (IAH) Source: Airports Council International 2010. Successful concession programs share a number of key attributes. • Aesthetics. Successful concession programs are characterized by concession units that are con- temporary in design, visually interesting, built with durable high-quality materials, and invit- ing to potential customers, and that complement the terminal building and surroundings. • Capacity. The ability to meet customer demand during seasonal and daily peaks affects customer service and revenues. The peak demand characteristics of airports vary and must be taken into account in planning the concession program. • Customer service. Most purchases are discretionary. Passengers do not travel to the airport to shop or eat. Providing helpful customer service is important to maximizing sales and encouraging multiple purchases. • Revenue production. Revenue production is a principal objective of any concession program. However, airports with successful concession programs have demonstrated that revenue pro- duction is not an end in itself; rather, it is the result of successfully incorporating multiple attributes into the concession program and providing passengers with an array of concession choices that meets their needs. • Sense of place. Successful concession programs often reflect the unique attributes of their city and region, offering passengers from other places a brief look into the local community and culture. Whether it is barbecue in Memphis, Cuban food in Miami, seafood in Seattle, or beignets in New Orleans, concession programs benefit by offering local favorites. Bringing in successful local food and retail concepts and incorporating local materials and design aesthet- ics can also help create a sense of place that differentiates the airport from others.

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Overview of Airport Concession Programs 19 and attract a broader range of concession concepts to their airports. To effect this change, the operators of larger airports are awarding multiple concession agreements and using more direct leasing to improve their concession mixes and attract high-quality specialist tenants. • Branding. For passengers, travel involves a series of decisions and risks, and brands are a way of minimizing the risk of a poor decision while in the airport. Passengers have indicated a strong preference for the proven and familiar. Brands can also provide a proven, built-in quality con- trol system with external monitoring that reduces the airport operator’s risk of substandard operations. For example, brands with off-airport locations can be used as a benchmark for ensuring that prices are consistent with the pricing policy at the airport. • Kiosks, retail merchandise units (RMUs), and wall-huggers. With airport concession space often constrained by the needs of airlines, many airport operators are incorporating RMUs or kiosks in their concession programs as a means to increase revenues, expand the concession offering, and provide services in underserved areas of the terminal. For example, at Hartsfield- Jackson Atlanta International Airport, retail and food and beverage RMUs have been installed on concourses where passenger demand exceeds the supply of concession space. Wall hug- gers, a form of RMU that takes minimal floor space and stands against an available wall, are also effective in space-constrained airports. • Less time pre-security. Online check-in and self-service check-in terminals have decreased the time passengers spend in pre-security areas, allowing them to proceed directly to the secu- rity checkpoint. • Increased security checkpoint processing times. Although automation is reducing the time passengers spend at ticket counters, they are spending more time in security queues undergo- ing more stringent security inspections. TSA security checkpoint procedures have increased passenger processing times and lengthened queues, which has, in turn, reduced demand for pre-security concessions and increased demand for post-security concessions. Stress and anxiety related to security inspection also reduces spending, as illustrated conceptually in Figure 2-10. Source: LeighFisher. Figure 2-10. Passenger stress and willingness to spend.

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20 Resource Manual for Airport In-Terminal Concessions • Volatility in passenger demand. Until the attacks of September 11, 2001, there were few exam- ples of “systemic shocks” that could broadly affect airline passenger demand. Previous events, including air traffic controller strikes and airline bankruptcy filings, did not compare to the sudden downturns caused by security concerns following the attacks of September 11, 2001, or the decrease in demand resulting from the “great recession” of 2008–2010. (The 2002–2003 severe acute respiratory syndrome [SARS] epidemic also caused sharp declines in passenger travel, mostly to or within Asia.) The heightened sensitivity to systemic declines in passenger demand has caused concessionaires and airport operators to consider the financial effects of a decline in traffic and the effect of such a decline on the obligation to pay minimum guarantees. While long-term passenger demand is expected to grow, the concern over a sudden traffic decline is being factored into decisions by concessionaires, particularly where the length of term is short and there is less time for a recovery. • Changes in the airline industry. LCCs claimed a 27% share of domestic passenger traffic in 2009 and in 2010 provided more than 29% of available domestic seats. Much of this share is taken from the established network, or legacy, carriers, and the remainder is new traffic stim- ulated by new service and lower fares. Other changes in the airline industry include the rapid growth in LCC traffic at secondary airports serving major cities, a decrease in the share of connecting traffic flowing through major hubs, and a shift to LCCs in price-sensitive leisure markets. Airline bankruptcies and consolidations through mergers (AirTran Airways and Southwest Airlines, Delta Air Lines and Northwest Airlines, US Airways and America West Airlines, Continental and United Airlines) have resulted in some significant shifts in traffic, particularly at connecting hub airports. • Integration of concession areas with holdrooms. Some new airport terminals are blurring the line between airline-leased holdrooms and concession areas with good effect, making it easier for passengers to use concessions without losing sight of their departure gates. The JetBlue Airways terminal at John F. Kennedy International Airport in New York includes devices for remote ordering of food and beverages along with holdrooms with tables and counters so that passengers can eat close to their departure gates. At San Francisco Interna- tional Airport (see Figure 2-11), in its redevelopment of Terminal 2, food and beverage con- cessions are located closer to departure gates, and alternative types of seating (including benches, tables, and chairs) and traditional airport seating are mixed to allow passengers to enjoy their food and beverage purchases closer to their departure gates.

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Overview of Airport Concession Programs 21 Source: San Francisco Airport Commission 2009, p. 20. Figure 2-11. Example of concessions integrated with holdrooms.