Airport Commercial Revenue Development in the Post-COVID 19 Era

Justin Lee

Singapore

December 23, 2020

1024px Duty free de lAeroport

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The year 2020 has been a particularly disastrous for the world economy, as well as the airport sector. Unprecedented year-on-year declines in passenger traffic have created financial losses for virtually every commercial airport in the world due to the significant reliance on passenger traffic for income. To worsen the situation, airport operators have faced problems generating income from the non-aeronautical (non-aero) businesses that engaged in retail, food and beverage, as well as car parking services, to meet the demands of passengers at the airport.

             Source: ICAO

Non-aero revenue contributes 40% of the airport’s income on average and have often been seen as hedges against declines in income from aeronautical sources (mainly in the form of passenger service fees as well aircraft landing fees), as well as a means to of covering the costs of providing aeronautical services. Unfortunately, the decline in passenger traffic due to COVID19 pandemic seems to have been so severe that the commercial businesses located at the airport, which the airport operators have been heavily reliant on for supplementary income, have been unable to meet even the most basic rental payments.  Many airport operators are often left with little choice but to reduce (or even forfeit) the  monthly rental payments from their tenants for a period of time in order to encourage the tenants to keep operating. Such actions are just short-term solutions to long-term problems. It should be quite visible apparent by now that the traditional business model for non-aeronautical services at the airports would need a fundamental rethink in the light of the new era that the COVID19 pandemic would bring for the airport industry as well as its close stakeholders. With the global pandemic having no signs of abating, it is also quite clear that the theme of preventive healthcare will significantly shape the way airports and their commercial businesses operate. For retail and food and beverage businesses at the airport, preventive healthcare (including purchase of necessary material, supplies, services and equipment) may be essential items on the operating cost list, while safe distancing arrangements in the stores would restrict passenger footfall – this also would impact on purchases from impulse shopping. Meanwhile, with passengers having to spend more time in the airport waiting for as well as undergoing various preventive healthcare procedures such as COVID19 tests as well as temperature screening, trying to rekindle the joy of shopping at the airport would be a difficult task. How else will the pandemic shape the future of airport shopping? It is mostly expected that any recovery in passenger traffic will first take place within national borders as countries around the world continue to place tight controls of their international borders in order to curb the spread of the COVID-19 virus. Effectively, this means that international duty-free shopping that targets international leisure passengers will have to take a back-seat compared to domestic duty-paid shopping. With average shop spend per passenger for the domestic passenger traditionally lower than that for the international passenger, domestic duty-paid shopping has always been a less lucrative business than international duty-free shopping. In addition, the rise of e-commerce and m-commerce has been a challenge that every one of business operators at the airport, as well as the airport operator itself, have had to adapt to during this crisis. With people spending more and more time purchasing goods and services online rather than spend it at airports,  a “build it and  they will come” attitude with regards to physical space at airports for retail, food and beverage, as well as car parking services seriously warrants a deep rethink. The rethink could possibly involve a re-assessment of who the airport’s customer should be – while the traditional answer is that the airport has been built to cater to passengers primarily, it could be a time for the airport to turn to other segments of the market and reach out to these segments through the most appropriate channels. In fact, with the traditional push-factors of noise pollution and air pollution from aircraft operations being largely reduced from the decline in passenger aircraft operations, people and subsequently businesses might be more willing than ever to reside at an airport, and airport operators could see this is an opportunity to expand their customer base beyond the passengers.