Airports and airlines eyeing up passengers to increase their retail spend
If the airlines can’t make enough profit from flying their passengers from A to B, then they want to extract every bit of cash they can from them, in the airport shops. An anna-aero article discusses how airports and airlines might work more effectively together, to get passengers to buy more stuff. The airlines have more personal data about the passengers, and the airports want this data in order to maximise the retail earnings in their shops. But the airlines don’t want to share the chance of profit with the airports. The Chief Commercial Officer at Manchester Airports Group said – “airport retail is vital precisely because airport charges paid by airlines are already well below the cost of the infrastructure they use.” The airports and airlines don’t see eye to eye on this. There is a problem for retailers, with the low cost airlines that limit baggage, and the ‘one-bag rule’, which is a disincentive to buy a lot at the airport. An ACI conference next spring will look at actual practical solutions to enhance “Airline-Airport Cooperation to Increase Passenger Spend.”
The next opportunity to attract airlines – collaborating to enhance airport retail revenues
24.4.2013 (anna aero)
Hungry airports are bending over backwards to find (legal) means to attract airlines with minimal charges, shared marketing costs, and PSO deals etc. But airlines on the polar-opposite of the spectrum, including Lufthansa and Ryanair, seem to agree that airports are missing a real possibility: To cooperate with airports to build and share airport retail revenues.
It’s a simple principle: Airlines possess 100% of the data on flyers – email, gender, what credit card they use and, crucially, which two airports they will be visiting on any given trip.
In contrast, airports only know who is flying in far more general terms – unless the traveller has pre-booked parking – a rapidly increasing trend, but still a far less precise method of data capture than the comprehensive detail possessed by airlines.
As the airlines have the data, and the airports have the great shops, it does not take a genius to work out that both parties separately possess all the tools they need to work together to promote offers.
Ken O’Toole, the Chief Commercial Officer of Manchester Airports Group – and therefore responsible for both aviation development and the retail which brings in the remaining 48% of MAG’s revenues – is also the former Ryanair Director of New Route Development, so he knows very well what’s at stake by any notion of cooperation or sharing precious retail income: “If I said I was nervous I would not be understating it – we want to protect these revenue streams, while engaging with the airlines.”
Of course it’s only right for airports to be terrified of airlines like Ryanair finding yet another new way of squeezing money out of them. As O’Toole points out – “airport retail is vital precisely because airport charges paid by airlines are already well below the cost of the infrastructure they use.”
But, clearly it makes sense to at least explore moving beyond the zero cooperation between airports and airlines to see if they can create BRAND NEW retail revenue streams. “We have 180 airports in the network and countless others knocking on the door to get a Ryanair route – yet in two years I have had only three vague approaches to consider commercial cooperation,” said Ryanair’s ancillary revenue boss Walsh, who thinks he has a lot to offer from 80 million real customers and 290 million unique visits to the Ryanair website. “Do we have a plan? No. Do I have an interest? Yes.”
Airports and leading airport retailers assembled in Hamburg had mixed feelings about the idea. When asked for his opinion, World Duty Free’s Fred Creighton was particularly scathing about the idea and could not see a roadmap to progress until one giant roadblock is cleared – the ‘one-bag rule’ which has caused very specific damage to retail, and much resentment among passengers who have been stripped of their liquor and chocolate, or forced to pay for an extra bag at more than face value of the purchase.
Walsh was not in a position to offer any kind of resolution to this profound disagreement, but he felt that: “focusing on the one bag rule as the obstacle to moving forward means focusing on the problem and not the opportunity.”
Filip Soete, Marketing Director Nice Côte D’Azur Aéroport, a former Chairman of the ACI EUROPE Commercial Forum and who, like O’Toole, controls a portfolio spanning both aviation development and retail, also spent some time working on airport-airline retail initiatives. “Sharing is a sensitive and complex challenge –it’s a tripartite issue, not only involving airports, but also the concessionaires with whom we have existing agreements, but I agree that it something that should be explored – everyone is looking at everyone else to see who will make the first step.”
So what should be this “first step?”
In listening to the debate, anna.aero agrees with O’Toole that airports would be foolish to offer airlines the chance to slice and cannibalise their cherished retail revenues. Instead efforts should definitely be focused on the unanimous agreement that the average retail spend per passenger is still vastly below potential – less than $9, even at Rolex-selling London Heathrow – and therefore the “first steps” should be trials and pilot schemes for specific products and services, or promotions which can clearly be identified as “new spending.”
As a big fan of chocolate gifts (and cakes), anna.aero thinks that one idea would be create a special box of chocolates which is only promoted on the airline confirmation emails and boarding passes. If it sells, then the airline-airport cooperation plan to increase passenger spend would be shown to make some sense. Ken O’Toole says it is “blue skies thinking”. But if this initiative amounts to an increase of just 10 cents per passenger that would be worth $8m specifically from Ryanair’s contribution – or $80 million from traffic across Europe.
While there was not clear agreement on how this collaboration should work in Hamburg, there was willing from both sides. So it was announced that the 2014 ACI EUROPE Airport Trading Conference, being hosted by Zurich Airport next spring, would focus on reaching actual practical solutions and would undoubtedly become the event where airports and airlines meet and advance real means to enhance “Airline-Airport Cooperation to Increase Passenger Spend.”
Heathrow award for top airport for shopping for 3rd year. Net Retail Income per passenger £6.21 in 2012 (£5.64 in 2010)
Date added: April 18, 2013
For the third year, Heathrow got the award (within the airports industry) for the top airport for shopping. Heathrow has over 52,000 square metres of retail space and more than 340 retail and catering outlets. Heathrow overtook Dubai International to win the title of “World’s Best Airport for Shopping” for 2012. Heathrow has the highest retail sales of any airport in the world ahead of Incheon airport in South Korea. Figures from the Moodie Report in February 2013 said that Net Retail Income per passenger at Heathrow was £6.21 (up 4.4% on 2011, partly due to the Olympics) in 2012 and £5.95 in 2011, while it was £5.64 in 2010. (By comparison the Net Retail Income at Stansted in 2012 was £4.27 per passenger). At Heathrow in 2012 the gross retail income increased +5.7% to £460.1 million
Airport retail: rise and rise of the shopping centre, with an airport attached
Date added: April 15, 2012
A huge, and growing, proportion of the money made by airports is from retail. It seems that the industry expects significant increases in this spending over the coming years, and airports do all they can to get passengers to spend as much time as possible in retail, put retail outlets in arrivals, etc etc and devise means for them to buy goods for collection on their return, to avoid baggage problems. The industry expects most growth in the Far East, where women tend to spend a lot of designer brands. The airport retail industry finds passengers buy less when they are stressed by airport security waits and queues, and they buy more when calm and happy. Airports need a ticket as proof of identity, so they can monitor the types of travellers, and the routes, which generate the most cash. Seems the Chinese, the Russians and the Nigerians tend to spend the most. At Heathrow, the average passenger spends £4.35. But for fashion, the average BRIC passenger spends £45.50. No wonder BAA wants more.
How much profit do airports make from their retail activities, rather than flying?
Date added: February 13, 2012
Heathrow got 21.3% of its income from retail in 2010, compared to 53% from aeronautical. On average each Heathrow passenger spent about £5.70 (maybe £5.90) at the airport, with women spending more than men (!). BAA data say frequent fliers spend more than infrequent fliers. In the year 2010/2011 Gatwick airport made £115.6m from retail, and another £51.7m from car parking, with an average of £5.80 spent on retail per passenger. Stansted retail spending per passenger is about £4.00 to £4.20. In the year 2010/2011 Heathrow made about £380 million per year on retail, Gatwick about £115, and Stansted net retail income fell from £79.8m in 2010 to £73.9m. Manchester made about £70 million on retail, with about £3 per passenger.