🦄 vol. 55
karl chats about the business of airports 🛩
the airport business 🛩
The prophetic mantra, ‘catch flights not feelings’, seems to have held true in the post-COVID world of aviation. The global industry totalled revenues of $180.9 billion in 2021, up 5% from 2019. That equates to 2.3 billion travelling passengers throughout the year. If we work that backwards, that's 115,000 flights daily and ± 360,000 people up in the air at any given time!
So why the relevance? 🤔
Prior to the pandemic, around 4.5 billion passengers flew annually on 42 million flights - that’s a whole lot of people passing through different airports. If you think about the concept of an airport, it’s brilliant from a business perspective. Meta, with its 2.9 billion MAUs, has been obsessed with increasing their users’ screen time, celebrating the advent of continuous scroll. Airports, on the other hand, have a business model that has its users enclosed and attentive for 2-3 hours (assuming no delays) and surrounded by different places for them to spend money and see exactly what advertisers want them to see.
The Blueprint 🗺
When looking at airports, we can break their revenue streams into two primary drivers: Aeronautical and non-aeronautical revenue. Unsurprisingly, the latter has been growing consistently over the past decade.
In 2021 this made up 55% of the aforementioned $180 billion of global aviation revenue.
Aeronautical revenue per passenger stood at $9.99.
This comprises revenues that airports receive from airlines paying terminal parking rentals, airline’s landing and usage fees and most significantly passenger service charges - which are added indirectly to the price of your ticket and generally comprise ±65% of the aeronautical revenue earned by airports.
Non-aeronautical Revenue 🛍
In 2021 this sat at 40% of the global aviation revenue.
Per passenger non-aeronautical revenue stood at $7.44.
This comprises revenues from retail concessions, car parking, property and real estate, car rentals and advertising.
The latter intrigues me the most. Just as your local PnP or Woolies have designed their stores and strategically placed their products to attract greater foot traffic… so have airports. Firstly, airports need to get you checked-in as quickly as possible. From your rushed airport drop-off, to the check-in with dogs snooping around your luggage, and of course, the intrusive airport security forcing you to remove items of clothing only to still pat you down… all adds to the stress build up. 🚨
But following that comes relaxation, the start of holiday mode, the dopamine loading phase or as it’s known in the industry; ‘dwelling time’. The 60 minutes from your check-in to your boarding time where all of the airport admin is done and you’re immediately thrown into the ‘Duty Free’ paradise. Just as the architects designed it, you walk through endless sales and shops. You’re unable to ignore adverts because your attention is peaked, you’re looking at signs to guide you to your gate or update you on the status of your flight. In this state, the colourful adverts catch your attention a lot easier than in the ‘normal’ world. Signs reminding you that your gate is only a ‘5 minute walk away’ encourage you to keep shopping.
A Nielsen study showed that frequent flyers are highly responsive to airport advertising, with 80% noticing the media and 42% taking action. Now imagine what more with looming technological advancements! Adverts in virtual reality and shopping experiences supported by augmented reality. All of this alongside the detailed customer analyses and foot traffic heat maps, courtesy of the data given up when signing into the airport wifi. 🤯
Different strokes 🏊🏽♀️
Not all airports have the same mandate. Some are privately owned, with a mandate to be as revenue generative and profitable as possible. Others are government owned and are expected to increase the economic inflows into the country as well as its public stature as a whole.
As an example, London’s Heathrow airport. Their focus is on larger aircrafts, typically international long-haul flights carrying more and generally wealthier passengers, bringing in higher aeronautical revenue.
This focus is also showcased in the fact that the airport only has 8 connecting flights to airports within the UK because they bring in so much less revenue than that of their long-haul counterparts.
Government owned 🏛
The purpose of the airport is to centralise the destination. To attract people to the country, build their tourism and support their economy.
As an example, Dubai’s state owned airport and Emirates airline. It popularised the Hub and Spoke model and Ethiopian airlines has done the same in Africa.
The strategy is actually quite simple: an airline chooses its main “hub” city, and then runs all flights to or from that city, like spokes on a bicycle wheel.
What next? 🔮
Time will tell, but as technology becomes more efficient, the need for the archaic check-ins and security start to diminish. Without those and with an increased focus on passenger experience, the journey to your travelling destination will become even more of an experience - funded by the money making machines we call airports.
“airports need to get you checked-in as quickly as possible” - karl learnt that schipol’s 🇳🇱 ceo felt the pressures of failing to do just that and resigned
remember photoshop? sash was shook by the news that adobe acquired figma for a cool $20 billion