SubscribeWhile it is all to easy to dwell on the tragic events of 9/11, a phrase itself that somehow manages to clinicalise the trauma of that day, one cannot underestimate the global knock-on effect of that time.
In economic terms the loss to the brotherhood of international trade runs into trillions of dollars. From the small antique business in London to the boutique hotels in California the effect has been massive, and all in a negative way. If people do not travel, be they tourists or business executives, then trade and relationships built up over decades is very hard hit.
Travel quite literally keeps the world going round even with the advent of advanced communications technology. By this very logic, commercial entities such as aircraft builders, hauliers like British Airways and its American counterparts and the terminals themselves have been at the forefront of this commercial downturn.
The USA government was very quick to step in and provide much needed financial support for passenger terminals across America but like all government support it is short term and in this case highly focused on the updating of security issues. If, there is as there has been, a rapid downturn in passenger traffic this has a negative impact on the turnover of the airport and places considerable strain on the airport operator whoever that might be.
The airport operator is the key to how airports are managed and perceived by both passengers and visitors alike and it is here where the commercial success of an airport lies. For a long time now the majority of American airports have been run by local authorities or municipally operated. Very few have been run by the private sector through companies such as BAA a UK based operator or Westfield a like Australian company.
Safety and Security of such places is currently a central government issue but everything else is left to be managed at a local level, often with little or no view of the commercial opportunities afforded by a captive audience – the passenger. If there was a commercial stance this was either via a Master concessionaire or a ‘developer’ type company such as Host who were essentially food and beverage operator who run operations themselves or sub-let to local individuals or other operators. This was the perceived way of working for two or three decades.
Unlike in other parts of the globe the USA has seen no privatisation of airports at all but what it has seen and is increasingly the case is the use of the ‘developer’ company. BAA, Marketplace and Westfield being the dominant players. These companies both develop and run all the non-aviation side of the business and it is here that the true potential of any passenger terminal is developed. The master concessionaire route through somebody such as Host is in essence a half way house.
Before one gets to anywhere near this developer stage there are some key fundamentals that are increasingly being understood to excellent commercial benefit in the USA. First and foremost, is the understanding of the importance to an airport’s retailing offer of the downtown ‘brand’ or better still the global brand! Whilst brands in the food & beverage sector have long been present in airports, this has not traditionally been the case for retail. A brand gives credibility to the retail offer in general and acts as a guarantee of both product and level of service.
This in US airports is very much a recent phenomena but one which is assisting in the tremendous commercial success of airports such as Pittsburgh where the spend is $9 per head and Newark $4. While this is tremendous news for airport potential there is also another element that has yet to be added to the brand phenomena and that is a competitive pricing policy. For American airports to expand this concept they need to have a commercial policy that the goods sold in an airport match the prices of items downtown. This scenario is important to counter the passenger’s perception that passenger terminals tend to rip people off.
While this is obviously good news overall it is worth remembering that the whole US travel market is primarily domestic. New York’s JFK airport is 51% domestic travel and that is despite being the gateway to America. There are other differences in the marketplace for US airports compared with the UK and Europe and that is in the ratio of food and beverage offer compared with retail. In the US the provision of food and beverage can range from 50% to as high as 70%. This is primarily a cultural thing of grazing rather than the European style of formal and set eating times.
The changes now taking place in some airports in America have been a long time coming. There has for a long time been a recognition that there is both a need and an opportunity to adapt a more commercial stance but airports are rather like oil tankers they take a long time to turn round. Another factor that has hampered this change is the shareholder structure that makes them almost a “not for profit” enterprise but rather seen and run as a pure service. This primarily goes back to airports being run and managed by the local authority.
What is strange is that prior to 9/11 privatisation was actually quite high up the agenda. Then events changed this and the focus changed to security and commerce dropped down again. The last six months of 2003 as a period saw the re-birth of the inevitable expansion of US airport commercialism with retail developer bids for Miami, Baltimore, Washington, Minneapolis, Chicago and Boston. Action, such as this means that American airports are starting to get back on the commercial track that had begun to start prior to 9/11. In short it means that there is now a firm trend towards the privatisation of the commercial side of airports. This does not however mean that it is of the standard that is generally found and expected outside of the airport in the Malls of America for either retail or food and beverage, but it is a start.
Passenger traffic in 2002 did go into a decline but the growth that we saw prior to that year has now resumed, but security as a physical planning issue is a big issue in airports and can adversely affect the commercial potential of the airport. Europe has for a long time had to live with the very real threat and all too often consequences of terrorist’s action. As a result airport master planning has always built in whatever was required along with every other terminal activity.
After 9/11 the US terminals found it difficult to cope with either the extra implanting of technological equipment required for the new security regime or the space for it to go. It had to happen but it was reaction rather than properly planned. It is not only the space and equipment, but also the efficiency of the staff manning the area. Hours spent in security lines naturally means less time to shop, eat and drink. This is now a very real issue and the answers are to be found in airports such as Heathrow in England. Contemporary terminal master planning and staff training can organise all these issues and ensure that the future growth potential is not ignored as well.
The commercial advancement and changes to how airports operate have been very slow in coming. Indianapolis and Pittsburgh were enlightened along with Boston Logan, but it has been rather piecemeal rather than any logic applied. It is not necessarily the very large international airports that have gone the commercial privatisation route but it is based on an airport with an enlightened attitude coupled with the power to make a decision. What this is creating is a very real knock-on effect where other airport authorities can see for themselves the huge financial advantage of having developers such as BAA manage the commercial areas of the terminals.
It is fair to say that spend per passenger tend to be more in a privatised venture than it is where there is no developer operator. BAA’s approach to managing this side of an airport's activity is considerably different from that of the traditional Master Concessionaire. BAA does not run either food and beverage outlets or shops, - this is done by the retailers themselves. The retailers and food and beverage operators can therefore be selected from the broadest range available without the pressure to include operations that are in the stable of the master concessionaire. Whether selected by competitive bid, it is incumbent on the individual operators as well as the likes of BAA to make the airport a commercial success; it is of course how both parties make their money.
The old mould has definitely been broken and more change is afoot. There are an increasing number of international conferences covering what commercially an airport should be in the new century. It is a growing international phenomena and one not just limited to the USA. Even China, is embracing commercialism of airport operations and the need for privatisation. Haikou on HunanIsland is now being managed by Copenhagen Airports company. Such is the need for true commercial experience to be applied.
The abilities of these developer companies alongside other specialist design and planning service providers such as the Design Solution is not to be underestimated. They have a long and proved track record in building commercial success for passenger terminals. Scientific airport master planning is the foundation stone that successful commerce is built on. Active management can bring innovative ideas such as money back guarantees, pricing policies that underpin the confidence of the passenger shopper who may still have a perception of high prices compared with that of the Mall. Co-ordinated marketing in respect of national and international brands together with the ‘local’ specialist retail operator is another key component. Experience of all of these issues adds up to a very extensive and broad based body of experience.
The best element in all of this burgeoning commercial success is that the passenger appreciates it first and foremost. Quality operators of goods and service whether it is in the airport shops or the food and beverage offer leads to a much broader range of merchandise available to the passenger consumer. If this is secured by some of the creative ideas previously mentioned such as price promises and a de facto knowledge of quality the passenger is happy. It could easily mean that purchases are suspended by the consumer until the airport, as so often happens in the UK “Lets leave it until we get to the airport, we will have more time then” is quite often the cry! With this happy state of affairs for the traveller, it also means a far greater return for the airport so it is winners all round.
Retailing and the provision of food and beverage is one of the many things that America is truly great at. The puzzle is that it has taken so long for it to have reached the airports. The struggle is not yet over, there are airport authorities that need clear evidence before they take that enlightened step. Well, the evidence is now out there and it is very positive.
