Which way is up?


What do airports need to consider to capitalise on the growth of passenger numbers? Following a period of rapid growth, the International Air Transport Association (IATA) is forecasting that global passenger demand will nearly double over the next decade, from 3.8 billion in 2016 to 7.2 billion in 2035.

In order not to choke this growth, governments and the airport industry will need to work together to ensure sufficient infrastructure is provided.

Infrastructure, however, needs to be paid for, and simply passing the cost onto passengers through increased taxes or airfares risks stifling growth. This is not a new phenomenon, and is one of the key drivers in the rise of the importance of commercial revenues to airports, with many looking to non-aeronautical sources to account for over 50% of their revenues.

To achieve these targets, airports must fully capitalise on the commercial potential of these additional passengers. However, as with the high street, this is no easy feat, with flat or downward per passenger sales in many markets. Through our work with airports around the world, we have seen that there is no single driver of this trend.

Whilst airports continue to benefit from their ‘captive audience’, passengers now have much more access to information, and are not averse to utilising this to check on savings claims. Airports must therefore regularly do the same, to ensure that their retail and F&B partners are offering true value for money and upholding pricing agreements. It only takes one unit to be particularly overpriced for the whole airport and offer to be perceived as overpriced.

This is particularly relevant in developing markets. Whilst coaches are still the main mode of transport across the country, Mexico is seeing staggering passenger growth as flights become more affordable to a wider section of society.

This presents two main challenges:

  1. Infrequent or first time fliers are not going to be as comfortable with airport processes and much more likely to head directly to their gate and wait to board, rather than exploring the retail offer
  2. Less affluent passengers are less likely to be able to afford the luxury items that have driven airport retail historically, while more affordable high street offers can struggle to drive the level of sales needed from the smaller units available

Reducing luxury sales are not just being driven by an increased number of lower income passengers. Commercial teams globally have had a strong focus on targeting the ‘big spender’ sales from Chinese, Russian and Brazilian passengers. However, this results in a relatively small proportion of passengers accounting for a significant proportion of the retail spend. With the collapse of the Russian and Brazilian markets, and the Chinese government trying to bring the speed of its citizens home, airports are searching for the next golden goose to replace this spend.

The main drivers and challenges within airports’ commercial offers vary significantly by different geography and even airports within the same city. Commercial teams, therefore, need to concentrate on understanding the key aspects influencing their airport, and derive bespoke strategies to provide the most relevant offer for their future passengers, and thus maximise spend.

Historically, one only needed to look at the different offers at Heathrow, with its luxury and premium offer focused on affluent long haul travellers, and Gatwick, with brands such as Snow+Rock and Havaianas to target UK holidaymakers. Although to stand still is to go backwards and as the passenger mix evolves at these airports, so will their commercial offer.

Ed Newton Senior Consultant, Airports, Travel & Commercial Spaces