Sam Folley and Shirin Pishbin of Trowers & Hamlins explore how airports can maximise revenue from non-aeronautical sources.
Non-aeronautical revenues provide an invaluable source of income for the world’s airports and, in many cases, are essential to their bottom line, ensuring that they can survive and remain competitive.
In addition, it could be argued that most revenue generating non-aviation related facilities and services also give rise to a better passenger experience, better sustainability credentials and a more diverse airport environment.
The income can also play a key role in helping fund the modernisation and enhancement of existing terminals or the development of new facilities with revenue generated from activities such as retail/F&B activities (including duty free sales) and car parking.
However, this article considers other novel, new and innovative ways to generate additional non aeronautical revenues, such as enhancing the passenger experience, advertising, the use of real estate, and energy and fuel sales.
The passenger experience
Even at the best airports, post security waiting can be a dull time for passengers, and anything airports can do to provide entertainment or comfort, could persuade passengers to part with cash.
Traditionally, airports have focused departure areas almost entirely on retail and F&B, often overlooking the provision of ‘entertainment’. Entertainment, of course, can take many forms. It could, for example, include providing child play zones, bookable lounges, arcades, gyms or wellbeing spaces.
In a sense, airports need to play catch up with shopping centres here, where in much of the world they have had to diversify into entertainment to attract customers away from online shopping. The difference with airports being that they already have a captive market who may otherwise not spend more than a price of a cup of coffee during a two hour wait.
At this point we should say that there is, of course, a growing number of examples of airports already providing child plays zones, and bookable lounges are becoming more common. Likewise, some airports even offer the ability to work out at a gym and get physically tired before a long flight. These include Chicago O’Hare, Vancouver and Hamad (Doha). But, in our opinion, we believe these services are by no means as widespread or as monetised as they could be globally.
Advertising
In the advent of digital marketing, it might seem like traditional advertising is less effective, but with the amount of passengers passing through airports, there is still huge demand from advertisers wanting space in the most prominent positions.
Naturally, airports will need to check that the proposed advertising does not breach any covenants given to existing retailers and doesn’t conflict with the need for clear signage. But beyond this, there are many options as some of the well-known airport advertising agencies such as JCDecaux and EYE Airports will tell you.
Something slightly different is offering sponsorship of buildings that have visibility to busy roads or to areas of high passenger flow. Sponsorship agreements can be highly lucrative and secure long-term revenue, as well as be an opportunity for an airport to affiliate itself with a particular brand.
A number of companies (think American Express) sponsor airport lounges, for example, while at Amsterdam Schiphol, Made.com has partnered with the airport to create comfortable and relaxing waiting areas.
We believe that it is safe to say that airport waiting areas have not historically been the most comfortable of places. So, why not let the ingenuity of a furniture company create a much more comfortable experience using its own furniture, in the process allowing potential new clients to test their products?
Arguably, the potential economic benefits of advertising and branding areas within the terminal alone should encourage airports find the right advertising partners to work with and be creative in their approach.
Real estate
There are many ways in which an airport’s real estate can be used to generate additional income. Of course, the commercial viability and legal considerations of these will differ dramatically between countries and jurisdictions and must be discussed with local agents and lawyers.
An obvious way that many airports will already count as a significant part of their business will be the leasing of retail, hangar and office space throughout the estate.
Often real estate within the perimeter fence attracts a premium for occupiers who need to be within this area because they are offering services directly to aircraft or to passengers. However, are airports maximising their revenue potential from these tenants?
Commercial landlords will typically grant leases that reserve a rent and separately allow them to recover a service charge and insurance costs. It does, however, feel like these fundamentals are often overlooked by airports, and as result they often cover the cost themselves that should be spread among their tenants. Rent reviews are also often not included.
Similarly, while commercial landlords usually expect an open market upwards only rent review every five years, airports appear reluctant to capitalise on their ability to command more advantageous terms, such as annual rent reviews by reference to their jurisdiction’s main inflation index.
Rent could also be linked to passenger numbers, with future increases based on traffic forecasts. This practice is already widespread in the UK.
Airports often boast surplus land desirable to companies wanting to be close to good road connections, near major cities or beside an airport. These include logistics companies, hotels and firms involved in aviation related activities as well as shopping centres, conference venues and others involved in light industry or the leasing of commercial office space.
It goes without saying that leasing or selling this land can secure significant additional capital or revenue over the long-term, and indeed an ever growing number of airports are realising this and green lighting the development of commercial facilities on land they don’t need for new terminals or runways.
In most cases, airports lacking the expertise needed to develop and administer real estate in this way can partner with or outsource to property companies. Such arrangements can be particularly beneficial to both parties and ultimately lead to an increase in passenger and air traffic numbers at the airport as activity around it increases.
Energy
Airport land can also be utilised in the generation of renewable energy such as solar, either through ground mounted or rooftop PV, depending on if space is an issue.
Clearly there are many benefits to this. Power can be supplied to third party airport occupiers as part of their leasing arrangements. Excess power can be sold off site. Coupled with battery storage, electricity can be sold to EV car fleets, such as hire car fleets as they switch to electric, or to the airport’s own fleet of cars.
At Melbourne Airport in Australia they are currently constructing their second solar farm, that along with its first farm, will provide approximately 40% of the airport’s total energy needs.
Other sources of renewable energy, such as wind, have been hotly contested by the aviation industry as they can disrupt radar. However, partnerships with radar manufacturers have helped to alleviate this and there will be more and more opportunities as the development of radar and wind turbines continues.
Fuel sales
Finally, the production and storage of Sustainable Aviation Fuel (SAF) could be a way to use additional land at airports. For instance, Pittsburgh Airport plans to become a producer of onsite SAF, not only for supply to the airline customers but also to ship it to other highly populated airport communities that lack space for their own production facilities.
This is an excellent source of revenue for the airport, enhances its sustainability and makes more sense than producing SAF offsite.
Summary
Airports need to be innovative to increase non-aeronautical income, but the good news is that there are many opportunities to do this. Ultimately, not all of the options will be suitable for all airports and strategic planning will be required, often with the help of external advisors and partners outside of the airport industry.
About the author
Sam Folley (partner) and Shirin Pishbin (senior associate) both work for international law firm,Trowers & Hamlins LLP.
This post was originally published on here
