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Better Analysis of Sales Data can help airports boost Non-Aeronautical Revenues
November 1, 2013
In the face of ever-increasing pressure from the airlines to keep aviation costs down, a growing number of airports are turning to – and relying upon – non-aeronautical revenue sources to sustain their operations.
Indeed, ACI’s 2012 Airport Economics Report shows that the industry continues to derive an increasing proportion of its revenue from the non-aviation sector, with an estimated $46 billion annually, or 44% of all global airport revenues, earned from these sources.
With some regional disparities and specific airports in each region being more successful in this area, pole position from among the different sources of non-aeronautical revenues tends to be either retail and F&B or car parking.
Of course, like any other business, airports are striving to increase revenue streams – and subsequently their profitability – but some increases have high associated acquisition costs.
This article highlights the low-hanging fruit of the airport industry, where improvements to the bottom line are most tangible for the least effort.
Aviation sector revenues are, of course, principally based on passenger fees and landing charges. In fact, we know that some airports are almost totally dependent upon passenger fees, which means that the only way they can realistically increase their revenues is to increase the fee – not a very sustainable strategy in the current climate – or handle more traffic.
However, accommodating more flights or passengers can be very costly to an airport depending on its capacity. It may, for example, mean that the airport has to increase the number of security lanes, and invest in new ground handling equipment, check-in facilities or aerobridges, and – in extreme cases – even terminals and runways. Increasing passengers would also certainly result in a need to increase staff.
All these factors ensure that accommodating more revenueenhancing passengers can be expensive, with only a relatively small proportion of the increased revenue trickling down to the bottom line.
Turning to the non-aviation sources of revenue, retail/F&B, car parking and sometimes car rentals are the primary revenue streams globally, with foreign exchange and banking services, vending machines, property leasing, hotels and lounges topping these up.
Increased car parking revenues can usually be achieved by an upturn in passengers – and subsequently more visitors using the airport’s facilities – or by becoming more successful at getting passengers to use its car parks. Increasing passengers, however, can be costly. An increase in conversion rates is often tied to special promotional fees and increased interaction with passengers in advance of when they are flying. In either case, capacity increases invariably need to be supported by infrastructure investments and the use of additional land on-site, both of which can come with a high-price tag related to this form of revenue.
Increasing retail/F&B revenues can be achieved by any combination of expanding the concession footprint in a terminal and/or improving the performance of the airport’s outlet-derived revenues.
Expanding the retail footprint is itself costly and capital intensive. In addition, while newer airport terminals may have been designed with retail and F&B in mind, some of the older terminals were just not optimised for these activities and significant changes may be required.
Another issue to consider is the fact that diseconomies of scale operate in the retail and F&B sector. Doubling the supply of retail square metres will not necessarily result in a doubling of sales, for instance. After all, the passenger propensity for purchase is finite, and there are well known guidelines established for square metres of retail space per million passenger throughput.
The low-hanging fruit
So where is the low-hanging fruit in the airport industry? I believe that the greatest bang for the buck can be obtained by focusing on the opportunity to improve the performance of the existing retail and F&B operators.
This can be done usually with modest investment and thus, each percentage increase in performance goes almost entirely to the bottom line profitability of the airport terminal.
There are, of course, many opportunities for improvement, including focusing on upselling greater sales per passenger; optimising the product mix for the profile of passenger to maximise revenue; and targeting both the higher spenders and non-spenders by focusing on conversion.
Others include developing the route mix to generate more revenues (non-EU flights generate higher margins on duty free tobacco and liquor, for example), and monitoring and maximising conversion rates of people who walk past a store compared to those entering and then buying either by design or on impulse.
Leveraging opportunities for more dynamic advertising (with targeted promotions in specific parts of the terminal), and targeting passengers on a specific flight, is another method used by airports to boost retail/F&B revenues. The list goes on.
However, in all cases, to be successful they really require a deep understanding of the retail sales patterns gained through measurement. The old adage of not being able to manage what you do not measure is plainly true in this case.
The norm currently among most airports, both small and large, is that they collect their concessionaire sales data in a manner that reflects how they bill their concession agreements.
Typically, monthly sales by category are usually collected through a rather unstructured series of e-mails and spreadsheets. Indeed, monitoring what concessionaires have reported, and which have not, increases the difficulty of this process.
Clearly, the most efficient and beneficial way to do this for the airport would be the collection of transaction level details, with airside transactions being tagged to the flight of the departing or arriving passenger.
Doing this would enable a rich analysis of sales-per-passenger by flight, destination, terminal zone, terminal, product category, shop category, individual shops and many other key performance indicators (KPIs).
For instance, benchmarking shops in a similar shop category (such as Luxury Retail or Women’s Fashion) against each other for their performance on different destinations enables an airport’s commercial team to identify weaker concessions, and provides an opportunity to work with the concessionaire to identify why they may be under performing on sales to particular destinations.
Perhaps it may be a mismatch in the product mix for the profile passenger, or the language skills of their staff.
Identifying the revenue per passenger (not just the sales per passenger) on a specific carrier or route allows an airport to improve its negotiations with a carrier developing a new route.
Digital advertising is another potential beneficiary of improved data analysis. Whereas old style advertising was fixed for a month or longer, digital advertising opens up the possibility of running very short but highly targeted campaigns.
An example of this might be running a campaign for a specific brand of whisky close to a gate handling flights to a Japanese destination in the four hours prior to departure.
By collecting sales data at a detailed level, you can track the sales-per-passenger of the whisky category – and even possibly the particular advertised whisky – for those hours and monitor any changes to buying patterns of the brand and the category when the advertisement is being run.
The exact impact of the campaign can thus be measured and the return on the advertising investment calculated.
This data can then be used to persuade the brand to co-market other campaigns for the mutual benefit of airport, concessionaire and brand.
The way forward?
While most airports recognise that such a data sharing strategy offers the key to performance success, many think they will not be able to convince their concessionaires to share the data.
However, this is already changing as airports realise that they can no longer afford to ignore the benefits. In fact, it is possible that many of the airports unable to currently impose data sharing (due to the terms of existing concessionaire contracts) will rectify the situation when contracts are up for renewal.
Concessionaires are naturally protective of their data, not because they fear that it will be leaked to competitors, but because they are aware that this level of visibility of their sales will empower the airport to better understand the detailed sales patterns. It will also allow airports to better audit the sales data being reported by the concessionaires.
Of course, while collection of the detailed sales data offers enormous benefits, even collecting daily category totals are significantly better than monthly totals, and offer significant analysis capabilities, setting the stage for more detailed data collection when contracts are renegotiated.
Another consideration is the fact that those airports that implement automated systems to manage their data collection also reduce the touch-costs associated with such a process.
It is not just airports that reap the rewards, as it allows retailers and F&B operators access to non-sensitive business intelligence gained from such analysis, empowering their concessionaires to perform better for the mutual benefit of both parties.
So, get more out of the retail and F&B sector not by squeezing the concessionaires’ margins, but by working together to help them improve their performance by automating the collection of detailed sales data. Implementing a business intelligence platform will allow you to better understand the sales patterns and enable implementation of more effective tactics.
This is the low-hanging fruit of the airport industry. Any percentage improvement in this sector will go straight to your bottom line.
This article was first published in Airport World magazine October 2013.