By Guest Columnist BRUCE SEAMAN, an associate professor of economics at Georgia State University’s Andrew Young School of Policy Studies
American airports have generally lagged behind many of their prominent international counterparts in the generation of concession revenues and hence overall earnings per total passenger.
Hartsfield-Jackson International Airport (ATL) has historically lagged behind other American airports.
This has prompted the global business strategy consulting firm L.E.K. to call for U.S. airports to increase their performance “through a radical reconsideration” of non- aeronautical revenues (Executive Insights, XL (12), 2009, which provides data for fiscal year 2007 showing Atlanta with the lowest concession revenues per passenger among 12 major U.S. airports).
While the Atlanta situation has been complicated by past accusations of favoritism, insider deals and back-room payments in the awarding of concession contracts, there is no doubt that major improvements have been made.
In fact, in March of this year Airport Revenue News awarded ATL the “Best Airport and Concessionaire Award” for 2011, as well as the “Best Concessions Customer Service Award.”
Atlanta has also been tapped for the “Best Concessions Program Design Award” in the “large” airport category for the last two years.
Yet all airports face ongoing challenges in deciding upon the best concession management models, the most effective mix of local and national brands in restaurants and retail (and the most promising types of specialty retail), how to stay ahead of the curve in exploiting technology and social media, and the best way to assure customers that airport pricing is not extortion.
Hartsfield-Jackson is in the process of soliciting and evaluating proposals from prospective food and beverage concessionaires throughout the airport, and for both restaurant and retail concessions for the new international terminal.
If overall airport trends are any indication, we can expect to see the further development of wine bars, specialty retail and services ranging from massages and spas to immunizations, banks and post offices.
Some airports have revolutionized their look and appeal with the AIRMALL concept (e.g., Pittsburgh, Baltimore-Washington, Boston and Cleveland), some with a dramatic shift to localization (San Francisco), and others with an upgrading of national brands and innovative high tech retail (Denver in process, and Atlanta).
According to Jacobs Consultancy, while pricing policies are inconsistently enforced, 10 of 23 surveyed airports in 2008 claimed to have a policy of “street pricing plus 10 percent,” nine claimed to enforce street pricing with no markup (called Regular Mall Prices – Guaranteed” by AirMall, USA), and only four claimed to have no explicit pricing policy.
As a result largely of enhanced security at worldwide airports, the average time spent by air travelers within the confines of airport terminals has more than doubled, to 108 minutes in 10 years, and “dwell times” for connecting passengers can often exceed three hours.
The average frequent flyer airline traveler is highly educated (72 percent with college degrees; 31 percent with graduate degrees) with high income (66 percent with household income above $50,000, and 32 percent exceeding $100,000).
Surveys confirm that the tolerance of airport visitors for shoddy service, mediocre shopping options, and excessively high prices has dramatically declined, and as airports face the vicissitudes of fluctuating airline fuel prices and macroeconomic turmoil, the necessity of better serving this lucrative consumer market has become ever more compelling.
The optimal mix of national and local brands varies with airport size and unique regional characteristics. And modern airports must inject more competition and reasonable pricing into airport concessions while still being able to attract ever higher quality operators in an environment of rapid technological change and labor relations challenges.
Therefore, no airport operator can afford to rely on the failed practices of the past, when concessions were often viewed at best as stable, but uninspiring revenue sources for airport expansion revenue bonds, and at worst as political plums to be allocated to cronies and political supporters.
One area where Atlanta Hartsfield-Jackson can easily improve is in the transparency of the information it provides about its concessions, especially since attracting smaller and more localized entrepreneurs would seemingly be enhanced by providing more detailed publicly available information.
For example, the other four top five busiest airports (Chicago O’Hare, Los-Angeles, Dallas-Fort Worth, and Denver) provide accessible data on at least several of the following types of important data:
- Sales per enplanement and/or per square foot of concession space, often varying by terminal, concession category (food and beverage, retail, services, news/gifts, and duty-free);
- Historical sales growth by location and concession type;
- In the case of Los Angeles, gross concession revenues for every individual concession facility.
Some of this information is explicitly included in their “Concessions Brochures” provided as part of presentations to prospective concessionaires.
By contrast, ATL provided no such detail in its own public presentation in early 2011, although one assumes that such data are provided privately later in the process.
Atlanta Hartsfield-Jackson has been an innovator in expanding runway capacity and is on the cusp of a major expansion with the new international terminal. It has clearly attracted attention as it has joined its other airport competitors in re-evaluating and improving its concession programs.
The current process of awarding new concession contracts marks yet another milestone in the history of ATL, and its ability to stay in the forefront of North American airports will depend in part on the success of that effort.
Bruce A. Seaman, Ph.D. is Associate Professor of Economics, the Andrew Young School of Policy Studies, Georgia State University, and member of the Adjunct Faculty of the School of Public Policy at Georgia Tech. The opinions expressed and the data cited are based on the recently completed study: “The Airport Concession Industry: Important Issues and Trends;” Bruce A. Seaman, July 2011.