As NAR is in decline, we ask the experts’ take on the best tactics to restore NAR streams
Digital disruption is impacting non-aeronautical revenue streams negatively, so airports need to adapt their strategies to reflect this change. The new strategies must take into account emerging trends and markets and the airport’s physical and business position, but there are many things that you can do to entice customers to spend more.
Traditional non-aeronautical revenue (NAR) sources are being disrupted on multiple fronts. Car parking revenues are being diminished by the rise of passenger transport companies such as Uber and Lyft and the expansion of public transport connections. Advertisers have moved on from the static displays airports can offer, shifting towards a more data driven strategy, while wage and labour factors forced food and retail concessions to consolidate, which takes away the variety of amenities available to passengers.
There are many things to consider before settling on a strategy, one of which is the understanding of the strategic position of the airport.
“Are new routes being added? Is the passenger base growing? If so, how much and how many? How competitive a business environment is the airport able to create for the concessionaire? Are lease rates reasonable? Is space adequate for the concepts and services needed? Is the labor pool readily available? Is the ability to operate at the airport reasonable, given the added pressures of security, flights and sheer number of people?”, Glen Ryniewski, Assistant Commissioner of Concessions at O'Hare and Midway International Airports, Chicago Department for Aviation, asked.
But NAR is all about the customer, hence, understanding changing demographics and the socioeconomical status of the customer are still key.
To maximise NAR, Daniel Solomon, Co-founder and Director at Minute Suites, LLC, proposed to survey the passenger demographic in order to understand what concessions, amenities, or services they seek and base the NAR strategy on their feedback.
“Investing in customer service training across the airport ecosystem, leveraging technology to enhance NAR, setting NAR performance objectives, and adjusting NAR strategies based on results, trends, feedback and opportunities are also key”, Solomon told us.
“We start with a comprehensive study to determine passenger demographics, spending behaviors, conversion rates, perceptions and ratings of the current offering. It’s important to keep an understanding of your passengers' needs and wants up to date as airlines and route mixes change. This helps ensure continuous improvement on the program and to keep our focus passenger-centric”, Sammy Patel, CEO Midway Partnership, Vantage Airport Group (Chicago), shared. “We go to great lengths to understand our passengers’ needs, expectations and overall characteristics so we can best serve them in ways they want and needs they didn't even know they had.”
“The correlation between high Airport Service Quality (ASQ) scores and NAR is established”, Solomon explained. “The perennial leaders in ASQ worldwide are Incheon and Changi airports whose combined NAR in 2018 of over $4.5B exceeded the top 100 airports in the US combined! Enterprise level customer service training and a commitment by senior leadership are required to maximise NAR.”
Patel places a huge significance on partnerships that can provide information about passengers’ experiences and priorities.
“Putting the passenger at the forefront and the relationship we build with them is essential”, Patel told us. “Our airport and airline partners have vital information to contribute to the success of our concessions business strategy. Our airline partners know the passenger better than anyone.”
Midway Partnership's collaborative efforts with the Chicago Department of Aviation and Southwest Airlines at Midway International Airport allowed information and insight to be shared in order to build a better service.
“In only two years at Midway Partnership together with our concession partners, we have embarked on setting an excellent basis to improve further the guest experience which targets improvements in meeting and greeting, employee recognition, passenger personalisation, the anticipation of needs and wants, and listening.”
Solomon also reported other partnerships that were proven lucrative: “DFW is in discussions with American Airlines on access to passenger travel data which could transform NAR through pre-departure marketing and profile creation. Minute Suites has forged active referral relationships with airlines and their lounges that have increased NAR. The airport food ordering app Grab partnered with American Airlines in 2016 to integrate with the airline’s app. Their revenues have increased significantly as a result.”
“Firstly, we need to know our customers; which products meet their needs and how can we develop our relationships with them. Next, we need to maximise our assets by taking advantage of products, land and technologies that are available to help us promote our products. We need to ensure that we have a good product mix”, Tom Ruth, President & CEO of Edmonton Airports told us.
Solomon explained why this is important: “Every US airport looks and feels the same from a NAR perspective. Duplication of nearly identical amenities has left passengers unexcited. Airport travel retail contracted in 2015 with a flat growth in 2016, which is contrasted with +13% growth in revenue passenger miles. More travel, less spending. The millennial traveller (and emerging Gen Z traveller) are not buying into this offering and the resulting experience.”
Millennials are reported to become the most travelled generation in history, so their needs must be addressed by airports.
“Though it sounds simple, it takes hours of research to determine the passengers’ wants, needs and desires and then more analysis to decide where to place these items”, Patel admitted. “At Chicago Midway International Airport, close collaboration and insight from F&B experts, SSP America, and global travel retail specialists Hudson Group ensured that the temporary program addressed pitfalls of the previous program and introduced well known and loved Chicago brands and global brand favourites.”
“For EIA’s passengers, this includes strong parking/ground transportation products, a tailored approach to terminal concessions providing a unique mix of food, retail and services, along with a strong offering from our land developments with a focus on entertainment, retail, hotel and food service”, Ruth told us. “This well-balanced product mix also provides amenities to employees of organisations located in the airport city, providing an additional source of demand and driving growth.”
From a business management standpoint, a lack of variety is detrimental. Ryniewski noted: “Eventually, airports will be left with only a few operators to negotiate with on concession packages, which will reduce the airports bargaining position.”
This is especially important when considering price competitiveness.
“There can be additional costs of operating at an airport: for example, bringing food or products through security, and our partner businesses have to recover this additional cost through their pricing. This is offset for the customer by the greater convenience of being able to park, eat or shop during their journey, without having to make an additional stop”, Ruth explained. “However, there is a price balance, beyond which the customer will simply spend elsewhere.”
One way to keep prices low is to diversify. Ruth told us that “on the land development side, our rapid permitting process significantly improves construction timelines resulting in substantial cost savings for partner developers and tenants, without requiring EIA to reduce lease rates”.
Ryniewski also encourages to leverage airport land to maximise NAR.
“Allow unused, non-aviation purposed land to attract private or public/private partnership developments for hotels, offices, business warehouses, fueling stations, etc. This adds new revenue streams to be realised for both the development and for rental payments over long periods of time. These new cash flow streams can enhance the airports’ cash flow positions”, Ryniewski explained.
Real estate development, however, is unique to those airports that can spare the land. Ruth told us that EIA boasts with a 7,000 acres land mass, half of which is available for development. Supported by local municipalities, “EIA has attracted over $750 million in private investment in the last five years”!
EIA is building an “Airport City” of mutually supporting businesses, on the airport. These include an 800,000 sq. ft. cannabis growing facility with attached 300,000 sq. ft. processing and distribution centre, a Casino and mile-long horse racing track, an auto racing track, a golf course, a Costco, an outlet mall and ancillary hotel, restaurant and retail developments.
Each of these businesses provide rent to EIA, which helps to defray our operating cost, which in turn allows us to charge lower landing fees to airlines, thus improving our competitiveness in attracting air service. When these are combined with the recently constructed trucking warehouse and distribution centre as well as several new freight warehouses, EIA has attracted over $750 million in private investment in the last five years.
Car parking revenues traditionally make up half of NAR, but ride sharing technologies, more available public transportation, and traffic and emission reduction schemes reduce the usefulness of this service.
“Airports are attempting to respond by offering better services including valet, pre-booking, guaranteed parking space and reservations”, Ryniewski noted. “Many are beginning to offer dynamic pricing strategies, online reservations, additional partnerships and discounting strategies.”
EIA follows these approaches; Ruth demonstrated: “Parking includes different products to provide something for everyone. Our Priority Valet brand is where the traveller drives directly to the terminal building curb and leaves their car with our attendants, provided by our partner business, jetSet Parking. The traveller can then catch a shuttle to the terminal or even check in and check luggage. Furthermore, we also vary our sales channels such as walk in parking, online parking reservations, or B2B parking reservations (direct connections for businesses to book parking).”
These are only several ways airports around the globe are fighting to protect and diversify non-aeronautical revenue. But the keys to making all of this happen are partnership, listening, and innovation.