Chapter 5

Low cost airports and non-aeronautical revenues

This chapter focuses on the necessity for airports to optimise their non-aeronautical revenue.
The author, airport solutions provider Ian Lowden, explains that while the need for nonaeronautical income generation is understood, its overall importance to the airports
financial performance and the way in which it can be maximised is not.

Overview

Highlights the importance for low cost airports of maximising retail and food-and-beverage
revenues, especially in face of falling aeronautical incomes

Although low cost airports may face lower per-passenger retail spend patterns, their foodand-beverage potential is potentially superior

Constant monitoring and willingness to make changes to retail presentation and outlets, as
well as thinking outside the box, necessary for success

5.1 Introduction
It is not always appreciated to what degree airports dealing with low cost airlines have
experienced significant drops in aeronautical revenues and passenger charges, with most not
having made it back in enhanced retail and food-and-beverage sales. This situation, if not
corrected, can see the loss of shareholder/community value continuing indefinitely. However,
there are possible avenue to overcome the situation.
With security screening considerations bringing passengers to the airside earlier and budget
carrier thrift eliminating onboard meals, food and beverage sales are an especially big
opportunity for smaller airports to make up the short-fall.
On the retail side, the chapter explains how the airport authority must stay vigilant in
monitoring the performance of its on-site outlets, expeditiously making changes where
necessary. Some areas where alteration of the total package can be effected include the
selection of concessionaires for passenger-suitability and the placement of outlets relative to
the gates.
The analysis allows that low cost airports may operate at a handicap to big hub airports,
where the purchasing profile of the average passenger may be higher, but that there are
certain untapped areas where the LCA can undertake a guerrilla retail campaign (e.g., by
offering for-pay washroom facilities of a higher standard or by installing per-pay internet
kiosks).
The low cost airports are leading the way in developing non-aeronautical revenues. This is a
necessity because the aeronautical revenues are being driven down by aggressive airline
customers who see the airlines prime motivation being to increase volume, not create value
in their business.
Passenger traffic is still booming and airports have ever-increasing expectations to generate
profit, often for new, private shareholders. Yet at the same time their revenues are being
driven down by low cost airlines that want zero landing fees and huge discounts on passenger
charges. The solution is for airports to make more money from their non-aeronautical
business streams. However, this is easier said than done.

According to an Airports Council International (ACI) global airport survey, airports now
derive 50% of their income from non-aeronautical services, with some larger airports earning
up to 60%. In the financial year 2005/6, a sample of UK regional airports made an average of
GBP4.30 per passenger in non-aeronautical revenue.

However, some airports greatly

exceeded the average, such as at Cardiff-Wales, which made a creditable GBP5.40 per
passenger.
We have made a quick examination of why airports differ so much and what they could do to
make more money from each passenger. The answers are, in the first instance, intuitive and
immediately apparent.
Airports with new terminals, especially those built or extended in the last five years, have
generally been built with maximising retail revenue in mind. According to data provided by
CRI of the UK, there has been considerable change in the profile of aeronautical and nonaeronautical revenues over the last five years.
The table below, shows the aeronautical revenues of a selection of low cost focused airports
from 2001 to 2006. It can be seen that their average aeronautical revenue has moved from
GBP7.06 in 2000/1 to GBP4.91 in 2005/6, a reduction of some 30% per passenger. There has
been considerable variance between airports in terms of reduction in fees. Predictably, the
airports offering the largest decrease have seen the greatest passenger traffic growth:
Blackpool, Bristol and Liverpool for example. However, there is also Leeds-Bradford and
Belfast airports that have seen their aeronautical revenues per passenger broadly halve but
without the compensatory increase of traffic required to make up the shortfall. For these
airports the need to perform very well in non-aeronautical is greatest.

Aeronautical revenue of a sample of UK airports

Pax

Airport

Pax

Airport

Pa

Re

(000)

Charges

(000

Charges

inc de
%

c
%

2000/ GBP

GB 2005 GB

GB
P
6.7

1.

0.8

63

23

01
Birmingh 7,619

62,0

P
8.1

am

90

Intl
Newcastl 3,287

23,2

7.0

5,23

27,7

5.2

1.

0.7

e (4)
Belfast

3,156

02
20,2

6
6.4

3
4,82

00
14,7

9
3.0

59
1.

5
0.4

Intl
Cardiff

1,526

70
14,8

2
9.7

2
1,77

25
12,4

5
7.0

53
1.

8
0.7

6,331

06
29,4

0
4.6

2
9,14

84
31,6

5
3.4

16
1.

3
0.7

Luton
Leeds

1,603

20
12,5

5
7.8

9
2,60

79
10,5

6
4.0

45 5
1.6 0.5

East

2,229

08
21,8

0
9.8

0
4,15

38
29,5

5
7.1

2
1.

2
0.7

36
966

0
12.

5
452

51
1
3086 6.8

86
5.

3
0.5

2,172

19,0

36
8.7

5,15

24,2

3
4.7

79
2.

5
0.5

Liverpoo

2,069

54
8,94

7
4.3

7
4,65

58
13,4

0
2.8

37
2.

4
0.6

l
Teesside

750

3
4,45

2
5.9

3
899

32
6,71

9
7.4

25
1.

7
1.2

Intl
London

Midlands
Blackpoo 78
l
Bristol

Total

/6
P
9386 62,8

0
3
5
7
20 6
30,820 217,545 7.06 48,278237,0314.91 1.57 0.70

Source: CRI

Understanding the way passengers move is essential for non-aeronautical revenue generation.
By focusing on the route taken by airport customers, airports can employ a value chain
approach to explore revenue-earning opportunities at every point. If this is well understood,

airports can maximise income from concessions by ensuring that they are located in areas of
the airport where most people spend their time.
Non-aeronautical revenue of a sample of UK airports
Non-

GBP

Non-

GBP

aeronautical pax

aeronautical pax

Birmingham

(GBP000)
2001
35,061

GBP
4.60

(GBP000)
2006
48,100

GBP
5.12

Intl
Newcastle
Belfast Intl
Cardiff Intl
London

11,439
10,991
7,325
33,571

3.48
3.48
4.80
5.30

23,660
16,481
9,619
45,342

4.52
3.42
5.43
4.96

Luton
Leeds
East

6,079
9,990

3.79
4.48

10,485
21,003

4.03
5.05

2,413
22,209
4,767
3,399
149,245

------2.30
4.53
4.84

5,415
25,361
15,366
4,119
226,957

11.98
4.92
3.30
4.58
4.70

Midlands
Blackpool
Bristol
Liverpool
Teesside
Total
Source: CRI

Most of the sample airports have increased their non-aeronautical revenues but not by the
same degree as they have reduced the aeronautical ones. The message is clear: much needs to
be done to capitalise on the substantial traffic growth brought by the low cost airlines.

5.2 The way forward

Airport management has recognised the threat and the opportunity of the new traffic regime
and is attacking this area vigorously. To some extent international events are playing into
their hands. Tightened security and a faster pace of life mean that airline passengers want to
check in quickly, avoid queues as much as possible and travel through the security process as
fast as they can. This often means they have more time to spend airside and less landside.
If the trend is for airline passengers to spend more time airside then maximising retail
concession income there has to be a core commercial strategy for an airport. The key areas
are food and beverages, and retail.
Catering concessions are a major growth area, especially for the regional airports. Over the
last five years a typical small or low cost airport would have seen total commercial revenue
grow by 66% but food and beverage would have grown by 116%. At large airports and major
hubs, general commercial revenue has remained more or less static but food and beverages
revenue has grown by over 20%.
Lars Crone, VP International Development for SSP, one of the worlds major catering
concessionaires, attributes this largely, but not entirely, to the development of low cost
airlines, Low cost passengers says Crone may pay EUR30 for a ticket but then think
nothing of paying EUR50 at the airport on a meal. Passengers are also coming to the airport
earlier because they are worried about security delays, this often leaves them with time to eat
and drink before they fly.
In a ratchet-up in terms of professionalism, airports are investing heavily in research and
sophisticated analytical processes to understand their customers and tailor their retail product
offering. For example, Aeroporti de Roma conducted passenger research that revealed that
sales potential could be limited by a number of factors including a narrow and unbalanced
offering, negative price perceptions and an inefficient layout, leading to 64% of their
passengers sitting next to a departure gate rather than visiting the shops. The answer was an
improvement programme that altered the airport layout, substituted poor performing
concessions and strengthened the core product shops.

Geneva Airport has, like the other Swiss airports, already seen the benefits of a high standard
of commercial marketing activities and commercial revenue have outstripped passenger
traffic growth. Unique Zurichs Head of Marketing Retail, Patrick Graf, attributes this to a
trendy and customer focused assortment in retail and food and beverages with competitive
prices as well as a pleasurable and inviting atmosphere due to the amplified atmosphere.
Because low cost passengers have, in the case of Switzerland, broadly the same demographic
as full service they are attracted by the same attributes.
However, there are still differences between the major hubs and the low cost airports. For
example, the atmosphere that is reflected in the massive terminal developments at Heathrow
and Paris, amongst others. Paris has designed CDG S3 with long narrow stores to ensure
product exposure and allow quick and easy shopping. The clearly defined product zones ease
circulation and create a commercial ambiance.
The smaller airports, especially those without major terminal developments underway, will
have to be more guerrilla-like in their revenue enhancement and use a large number of
smaller initiatives. These could include:

Paid entry executive lounges;

Floating concessions i.e. Barrow Boy Retailers;

Internet kiosks, WIFI log in fees;

Retail promotion and product placement;

Static exhibition sites;

Public viewing gallery with turnstile paid access;

Television advertising screen concessions;

Radio station concession;

Toilet and washroom advertising;

Toilet and washroom paid entry deluxe product.

There are also other major considerations that are reflected in the low cost product. By far
the most important is the lack of very high income level passengers. There are far fewer
examples of high-end products such as watches and jewellery and high fashion. This is
exacerbated by the lack of connecting passengers who make serious impulse purchases of
high-end items when routing through the major hubs such as Dubai or Singapore.

Whether it is through design, choice of concessions, or best understanding passenger

segmentation, the trend is clear. Revenue generation is becoming a key driver of airport
development and the professional stakes have been raised.

5.3 Assessment of the key revenue streams

Non-aeronautical income streams comprise retail concessions, duty free, auto parking, rental
car concessions, property income from leasing of airport land and offices, advertising
concession income and transport concessions. There are also smaller, disparate revenue
streams including security services, data, trademark licensing, merchandising and naming
rights, conferences, meetings, transport concessions and drop-off charges.
Our analysis of the low cost airports concession offerings, shown here as Appendices 1 and
2, shows the massive extent and range of consumer choice. Whereas even ten years ago an
airport such as Marseille would have had a relatively limited range of concessions, now they
typically offer 5-10 different retail outlets and a similar number of food and beverage outlets.
What is also apparent is the extent of the lead Europe has over the nonEuropean airports in
this field. The European have adapted many very attractive practices such as the use of
promotional offers and luxury catering outlets. However, there are still opportunities to
improve and offer greater diversity; many offer single source coffee outlets, for example.
Data provided by the UK allows the analysis of the non-aeronautical streams at the key low
cost airports of Liverpool, Prestwick, Blackpool, Durham Tees Valley, and London Luton.
What comes out of the analysis is that there have been significant strides in the development
of all the key areas.
There is considerable variance in the growth of the revenues and the comparable levels
between airports. Some airports such as Liverpool tend to under perform to an extent,
creating only just over GBP3 per passenger whereas airports such as Blackpool achieve
closer to GBP5. What is clear is the performance of the airports is not pre-determined by
traffic levels or even the size of the terminal, although clearly this is very important.
Concessionaires are also tailoring their product to meet the demands of the low cost airport.
In Latin America, especially in cities such as Lima, the grab and go bag is very popular.

The airport provides a snack meal and a drink for passengers on flights without catering;
some airlines even remind their passengers to buy them before boarding. This idea has yet to
catch on in Europe, indeed it is easy to imagine the low cost airlines being horrified at the
prospect because so much of their revenue comes from on-board sales.
However, the European airports have taken High Street methods to drive up their revenues.
Best practice concessions are characterised by attractive sight lines, friendly and salesfocused staff, numerous mobile displays and promotional staff and liquor agents. Their
airports have become a High Street. The target market is, by and large, very receptive to this,
particularly because the security arrangements make it necessary to arrive at the airport
earlier.
Even very small low cost airports such as Durham Tees Valley have made clear and attractive
changes to their departures hall to reflect the demand for shopping from their passengers.
One of the main growth areas is car parking. Even if they optimise retail concession revenue,
airports still have to work hard to develop income from car parking. This represents one of
the most important commercial income streams available to any airport. How that car parking
income is managed is critical. Our analysis of the offering of the individual airports shows
that they have begun to capitalise on their car park offering.
Whilst it is not a low cost airport group as such, apart from Stansted, it is indicative that some
25% of BAAs non-aeronautical revenue comes from car parking. A recent UK Airport
Operators Association report quoted the MD of BCP, Britains largest private car park
operator. Stephen Moss, MD of BCP and also chairman of the Independent Airport Park &
Ride Association, representing off-airport operators as a group, confirmed the vital role
played by parking revenues: Airport parking is hugely important to airport authorities,
especially in the post-duty free era and with the advent of low cost carriers that are able to
negotiate very low landing fees. Parking can represent 50% of non-aeronautical revenue for
regional airports.

It can be seen that this is now a key revenue source, and for some

airports, such as George Best Belfast City Airport that make a loss on aircraft business', the
profit of GBP2.4m profit on car parking and other trading income is absolutely vital. The
techniques that can be used to optimise income include web sales, pre-booking, valet parking
and block sales.

Managing and collecting income directly is a preferred option of many airports, often handin-hand with a technology partner. Frankfurt Hahn (Fraport) use Ski Data technology, LeedsBradford has just installed Chauntry Systems management software. This type of technology
provides smaller airports with the ability to manage their own facility and generate muchneeded revenues. Key factors affecting growth include the annual number of cars parked,
length of stay, use of premium parking, advance booking, percentage occupation, and
seasonality. This information can be used to segment the market, differentiate the product and
offer a better service to passengers whilst increasing revenue.

5.4 The relationship with concessionaires

Low cost airport management now has to make several key decisions:

Make or Buy. Is it cost effective to keep activity in-house or to bring in a specialist third
party supplier?

This complex decision is informed by the likely turnover, investment

required and whether the concessionaire will stretch its commission far enough

Terminal extensions? Many airports are now considering extending their terminal area just to
accommodate concessions. Clearly there is a major capital expenditure requirement that has
to be supported by the managements belief in their market

Profile of the business. Management may have competing claims on floor space and have to
make the call between, for example, food and beverages or retail, or between high-end or
value goods.
The analysis of all the above factors requires excellent understanding of the existing and
future traffic profiles and growth. It also requires increasingly detailed knowledge of
passenger demographics and spending patterns. To answer these questions management are
now, as with the High Street shops, starting to use consumer data.
Managing Change
The requirement to increase revenues has created new pressure on airport management. From
being principally an operational task, managing an airport has now become a marketing one,
almost akin to running a hypermarket. Whilst there used to be two main customers, the
airlines and the passengers, there are now these plus a host of business partners. The

airports management must know a bit about each of these businesses in order to maximise
the returns for his increasingly uncompromising shareholders.
The new generation of airport managers have to be equally comfortable with charts of sales
statistics and demographic profiles as they are with operational data. As discussed, the
attached data shows the extent of the non-aeronautical activity across a range of low cost
airports. In order to optimise the value from this highly complex range of businesses airports
the new generation airport director has to be a retailer, an ad agency, and estate agent, a car
park expert and, in addition, must know a thing or two about airports.