Airports are facing very thin margins and revenue from airlines is not sufficient to cover the entire operating cost. Therefore, focus on generating non-aeronautical revenue is gaining momentum. Strategies delivering best-in-class passenger experience and segmentation remain vital.
With construction costs increasing, available funding decreasing and periodic downturns affecting the industry, airport operators find themselves continually looking for additional revenue sources to fund projects and sustain operations. Airports foresee a constant upsurge in the number of passengers as well as revenue and are faced with increasing levels of passenger expectations. Before diving into passenger expectations management and improvements, let us take a step back and understand the airport revenue model in brief.
Airport revenue model
An airport body typically owns all of their facilities and makes money by leasing them to airlines, air-freight companies and retail shops and services, in addition to charging for services such as fuel and parking and through fees and taxes on airline tickets. The chart, below, illustrates the various aeronautical and non-aeronautical (retailers, concessions) sources for an airport.
As an example, the chart shows the consolidated full-year revenue results for Airport Authority Hong Kong’s (AAHK) to 31 March 2013. It shows that revenue from retail licences and advertising grew by +11.1% year-on-year representing a huge, 38% of the year’s turnover.
Determinants of non-aviation revenue
In a nutshell, there are three major factors that influence non-aviation revenue:
- Airport size. Large airports are able to support a wider range of facilities, such as specialty retail shops and restaurants, than small airports and as a result, often generate higher levels of non-aviation revenue, especially from airport retail shops
- Types of passengers the airport serves. International passengers spend more than other types of passengers (The Airport Business). Vacation travellers spend more than business travellers when the boarding time is more than 45 minutes. However, if the boarding time is less than 45 minutes, the opposite is true. This means that the amount of time spent in the airport is an important part of the relationship between passenger types and their effect on non-aviation revenue. (Journal of Air Transport Management)
- Location of the retail shops and restaurants inside the airport. Most passengers prefer to shop after completing the check-in and security screening processes because they are more relaxed so location represents a source of competitive advantage for operators of airport shops and restaurants.
Now that we have shed some light on the airport revenue model and some of its determinants, let us focus on why improving passenger experience is vital.
Happy airports make more money
It is basic economics that happy airport customers spend more money in the airport’s retail shops than do unhappy ones. In fact, a study shows happy passengers spend an average of $20.55 on airport retail purchases, or 45 percent more than the grumpy ones, who spend only $14.12 on airport retail shops and eateries.
Potential strategies for better customer engagement
Some of the world's top airports are turning to mobile apps, social media and intelligent technologies including geolocation services to make the passenger experience better.
Customer Relationship and Loyalty: Airlines’ customer relationship management (CRM) initiatives typically focus on frequent-flyer programs and narrow up-sell and cross-sell features in various flight classes. There is often little attempt to manage and enhance the overall, end-to-end journey relative to passenger touch points. Airports have a significant opportunity to build an integrated, high-value experience for travellers— from booking the reservation, to travelling to and through the airport, on to journey’s end. As airport/airline roles and service models evolve, passengers have an increased expectation for personalised services. These should be tied to a reward system built on combined airport and airline spends, not just airline spend. A superior, integrated passenger experience will become the key differentiator for both airlines and airports, raising appeal and—where there is choice—improving passenger loyalty.
Customer engagement via geolocation services: Airports can effectively target passengers standing right in front their business arena thus driving customers right into the eCommerce funnel. A mapping app is also useful as customers can directly locate desired shops without wasting time. By adding click-and-collect to the mapping app simple navigation can be transformed into a powerful shopping experience for passengers (for example Heathrow maps).
Value added services: For example, we know that travelling with children can be stressful but from dedicated family security lanes to kids-zones and porters to help with luggage, airports can make passengers’ holiday get the best possible start. Other value add services could include free wireless internet access service, free car parking, personal assistance etc.
Reusability for operational excellence
Operational excellence is a competitive advantage and it translates to cost reduction, increased flexibility, and improved customer responsiveness. Technology enablers can be reused if strategically planed and positioned. For example consider a customer facing mapping app for navigation and click-and-collect. The service platform can be used for more than one purpose at airport i.e. for monitoring assets, for example monitoring status of internet access points at terminals. Alternatively it can also be used as one unified system to manage and track retail property rentals and merchandise mix. Finally, the same platform can also be distributed via a software-as-a-service model to airlines.
Conclusion: Connecting for conversations
Airports should continue to invest in connecting technologies to reduce cost or improve efficiency, generate new revenue streams, solidify relationships with existing customers, extend access to new customers, and create an entirely new “informationalised” business.
In creating this unified customer experience, the airport’s role must evolve from passive landlord to active participant, enriching the passenger journey as a key ecosystem partner.