Non-aviation revenue: How do airports promote passenger spending through various means?

Two years after the outbreak of the COVID-19 pandemic, civil aviation passenger traffic has rebounded thanks to airports' continued efforts to attract passengers back.

Taking Europe as an example, a report released by the European branch of the Airports Council International in February showed that European civil aviation passenger traffic increased by 98% from 2021 to 2022, but there was still a 21% gap compared to 2019.

The decline in passenger traffic means that airports must invest more resources to increase non-aeronautical revenue.

A recent report titled "Foundations of the Future of Airport Commerce" released by Kinetic Consulting shows that 79% of airport operators believe that they will be more dependent on non-aeronautical revenue in the future than ever before.

High-quality experience and passenger satisfaction, as the inherent driving force of consumption growth, have become the key to airport resource investment.

The general manager of EMEA (Europe, Middle East, Africa) and APAC (Asia Pacific) at Airport Dimensions, a specialist operator of airport lounges and experiences, said:

"The link between traveler satisfaction and spending growth is clear."

Data from the Airport Service Quality Survey (ASQ) by the Airports Council International shows that for every 1% increase in global passenger satisfaction, non-aviation revenue will increase by 1.5%.

But passenger satisfaction is about much more than that. Luis Felipe de Oliveira, Director General of Airports Council International, explains:

"The improvement of passenger satisfaction will drive the growth of brand stickiness and word-of-mouth, thereby increasing revenue. Therefore, optimizing the passenger experience is the best way to increase non-aviation revenue."

However, "high-quality experience" is a complex concept and is not limited to basic services such as efficient security checks, check-in, and baggage consignment.

A study by Airport Dimensions titled "Airport Experience Study - The Transforming Airport Revenue Landscape" shows that in 2021/2022, 71% of passengers enjoyed their time at the airport. There are differences between different regions. China has the highest proportion of passengers who enjoyed it, reaching 92%, while the UK has the lowest proportion, at 50%.

But when asked about their experience with products and services offered near the gate, the area where passengers are most likely to spend money, satisfaction fell to 67%.

McGlothan commented:

“Airports are missing out by failing to provide passengers with the experience they want at a critical revenue-generating moment.”

01. Evolving duty free and travel retail

Evolving duty-free and travel retail

Understanding the spending structure of travelers is the key.

The Annual Airport Operations Report released by the Airports Council International in March showed that in fiscal 2021, non-aviation revenue accounted for 34%, with retail discounts halved compared to 2019.

Given that retail accounts for the majority of non-aviation revenue (about half), retail research is a good entry point.

Duty-free shops used to be one of the important factors affecting the terminal experience. Consumers arrived at the airport with the expectation of getting discounts and were eager to buy duty-free goods.

However, with the development of e-commerce, online shopping has become an important way for consumers to purchase discounted goods, and the price attractiveness of duty-free goods has declined.

This means that operators must seek other ways to enhance the duty free and travel retail shopping experience.

Creating product uniqueness is one way.

Bosco Rodrigues, WSP Global Director of Airport Planning and Consulting, said:

“Duty free shops need to offer products that are not available on the high street.”

Integrating data from retailers, airlines and airports to gain a comprehensive understanding of passengers’ spending patterns is crucial to creating more unique and higher-premium product lines.

Stimulating the consumption of duty-free goods by arriving passengers is another way to expand the sales scope and increase sales.

Oliveira pointed out,

“Duty free shopping at the airport has become a habit for arriving passengers in most regions, especially in Asia Pacific, Latin America and the Caribbean and the Middle East. Considering the strict hand luggage policies and the recent discussion on the environmental issues that may arise from flying with heavier loads, this service is very popular among passengers.”

In addition, the service experience also needs to be unique.

Rodrigues noted:

“Providing different services at different airports, including localization, and working with small start-ups and specialized boutiques will make the shopping experience more advanced and innovative.”

While localization helps achieve differentiation, it can also meet passengers' expectations for more locally-focused services, thus contributing to the sustainable development of airports.

WSP assistant vice-president Tracey Beach said attention to local culture was crucial.

“Because travelers want to identify with the place they are in, there is a clear trend of local operators partnering with national operators, such as in Texas, where you see local barbecue restaurants partnering with Starbucks.”

02. Embrace e-commerce

Embracing e-commerce

In addition to changing the retail mix, airports can also use e-commerce to help drive consumption, such as allowing customers to pre-order duty-free goods through the airport’s e-commerce website.

London Heathrow Airport in the UK launched an extensive "click and collect" service at Terminal 5 in 2021, allowing customers to purchase branded products within the terminal.

The airport also offers products that are only available through its online shopping platform.

However, Mickael Tauvel, head of transport and transit at Arthur D Little, believes that even with the raft of digital programmes being rolled out by airports and duty-free operators, many passengers still overlook the ability to pre-order and collect.

But he also believes that this situation will change as the advantages of the system are more vigorously promoted.

Tauvel explained:

“Digital travel retail is a difficult venture and now that the tools are in place, we should see the project become a bigger part of the customer relationship management strategy to drive adoption.”

However, it’s not just retail that’s going digital.

A report by Kinetic Consultancy shows that most people (93%) believe that digital enhancement of the customer journey is a trend that will develop further in the future, which will save 70% of costs and this will have a great impact on non-aeronautical revenue.

For airports and operators that have yet to embrace digitalization, the many digital initiatives introduced during the pandemic, such as menus and QR codes for ordering food and drinks, can quickly become a success, said Martijn Steur, business architect and managing director at Kinetic Consultancy.

But in the long term, more fundamental changes will be needed in digital strategy.

McGlothan suggested that airports should emulate the digital experiences passengers already have in their daily lives.

“Travelers are more digitally empowered than ever before. They order food and beverage service at their desks, work wherever they like and shop from the comfort of their couches. They expect the same convenience, choice and speed at the airport as they do at home. And they want these benefits to be available through a single touchpoint. In our research, 71% said they want to be able to explore the airport experience from a single digital platform, making their journey as stress-free as possible.”

The key is to drive awareness of what passengers can do in the airport environment.

McGlothan believes airports must actively promote the digital options available and encourage passengers to participate. If airports really wanted to take advantage of the revenue generation, they could apply it to advance booking, but he said this was not being implemented.

“For example, only 26% of travelers booked gaming services in advance, while 35% purchased them on the day. Similarly, only 32% of travelers booked wellness facilities in advance, while 41% purchased them on the day. Even more traditional non-airline revenue sources were overly reliant on impulse purchases, with 43% of travelers booking airport parking in advance and 42% booking it on the day.”

The changing customer mix will also drive adoption of this trend, with Stull citing the influence of younger shoppers as helping. He explains:

“There’s a whole generation that sees the world differently. For them, there’s almost no difference between virtual and physical, so you can create a virtual lounge for them (instead of a traditional one). It doesn’t require extra space, and the amount of investment required is steadily decreasing.”

03. New experience roles

The role of new experiences

The ability to deliver new experiences within the airport environment, such as gaming and wellness elements, is key to driving revenue.

McGlothan of Airport Dimensions commented,

“According to our research, 21% of non-airline spending is now being spent on new experiences such as sleep pods, gaming and wellness offered at locations such as Dubai International Airport and Hamad International Airport in Doha. As many as 64% of passengers said they would be interested in visiting health and wellness facilities for some extra comfort during their stay at the airport.”

According to a report by Airport Dimensions, Gen Z and Millennials spend an average of 14% of their time in airport departure areas surfing the internet and gaming, so being able to drive this is key.

A good example is in the field of gaming. In 2022, some airports opened dedicated gaming lounges.

According to Stull, the embrace of gaming is a gradual and expanding phenomenon. He explains:

"In the shift from 'saving time' to 'using time properly', consumers see more value in it and will be willing to pay for it."

Arthur D Little’s Tauvel agrees, adding:

“Airports need to ensure that the time passengers spend is ‘productive’ as the airport experience should not be limited to the realm of shopping, rather, it should extend to entertainment and culture, just as it does in other retail infrastructure such as shopping malls.”

Like shopping malls, this means a growing focus on leisure.

In the Kinetic Consultancy report, leisure and entertainment was the initiative that the majority of respondents (79%) expected to grow in the future.

But leisure can be a difficult thing to do well because it requires quick feedback in a limited time.

“Within the terminal, there is a trade-off between the airport’s fundamental need to facilitate customer flow and the customer experience.”

Parsons Brinckerhoff’s (WSP) Rodrigues explains,

“So the essence of the thing is to make sure the experience is done quickly or through communication to entice customers to come early enough to enjoy some of the experiences within the terminal.”

One way to do this is through the use of immersive experiences, whether through exhibition-type spaces or through pop-up areas that collaborate with brands for short periods of time.

Heathrow Airport offers a range of flexible immersive experiences, including a Chanel No.5 scavenger hunt and augmented reality digital screens, a Paco Rabanne experiential concept and a Samsung tech experience at the InMotion flagship store in Terminal 5.

“These partnerships provide significant advertising revenue, while the ephemeral, sharp, ever-changing experiences help keep the airport environment fresh, so we’re likely to see more of them.”

Stull believes that such experiences can provide valuable engagement time for brands while generating returns for airports. He concludes:

“It’s great to have a new experience, but if you don’t have a business model associated with it, it means nothing.”

Case 1: Game time

Passengers can now enjoy a variety of innovative gaming experiences while waiting to board their flights in interactive lounges in Dubai, the United States and Australia.

Dubai’s Game Space lounge is open 24 hours a day, 7 days a week and features 40 gaming stations, each with a 50-inch screen and adjacent seating for single or multiplayer gaming.

With both PC and console available, the array of gaming options is designed to offer something for all guests.

Gameway lounges at LAX, Houston Hobby and Charlotte Douglas offer individual gaming stations - PlayStation or Xbox consoles and top-of-the-line Razer Gaming PC games, high-end Razer gaming accessories, comfortable reclining chairs and Razer gaming chairs, and a variety of beverages and snacks.

The Gameway lounge at Charlotte Douglas International Airport has partnered with Airport Dimensions.

Case 2

Another exciting digital experience launching in January 2023 at Orlando International Airport, customers can enjoy interactive games in the Plaza Premium Lounge in Terminal C.

Located in a dedicated family-friendly area of ​​the lounge, Tasty Turtle Treats is a single-player interactive game that uses an advanced camera to let the player act as the controller to control the turtle.

The turtle's food falls from the top of the screen, and the player moves from left to right and controls the turtle to swallow as much food as possible within the limited time.

Digital media production company EdgeFactory has teamed up with creative technology company X Studios to bring the gaming experience to the lounge.

Perth Airport is also offering technological innovations for its passengers and will be offering a virtual reality (VR) experience from May 2023.

Hosted by Travel Point Group, the GamingPoint VR Lounge will be located on Level 1 of International Terminal 1 and will include an immersive VR escape room that can accommodate up to five players at a time, with each session lasting 30-45 minutes.

There are 8 games to choose from on site, and a game master from the GamingPoint team will guide their gaming journey.

The lounge will also house a series of personal high-speed Internet gaming stations connected to the Steam platform.

This will allow existing players on the platform to continue playing the game on their accounts and provide single-player options for newcomers.

Case 3: Customer Experience Management Certification

Last September, Seoul's Incheon International Airport became the first airport in the world to achieve the new Level 5 status in the ACI Customer Experience Certification program after completing it in July.

The project initially launched in 2019 and currently has around 60 airports participating to improve the experience they provide to customers.

In its definition and requirements for Level 5 certification, which it introduced last year, ACI said it must demonstrate that customer experience is a primary consideration in all decisions.

Leaders in this field should demonstrate advanced practices in eight customer experience management areas, including customer understanding, strategy, measurement, operational improvement, governance, airport culture, service design/innovation, and airport community collaboration.

ACI World Director General Luis Felipe de Oliveira said:

“The new levels are linked to the airport corporate strategy and key metrics, both strategically and operationally, and are based on the day-to-day experience of customers.”

As part of the certification process, airports complete an evaluation form in which they provide evidence — in the form of screenshots, internal documents and website links — that they have responded to each required practice rule.

This is then validated by ACI and field validation provides further assessment of the practice.

“Incheon Airport is the first airport to achieve this level of standard,” he said. “Through remote and on-site verification, Incheon Airport has successfully demonstrated its strong customer-centric culture, engaging the airport community in a human and collaborative way.”

By LIZ MORRELL

Source | Passenger Terminal Today, APRIL 2023

Original title | NON-AERONAUTICAL REVENUE

Translation | Zhang Yankun, Zhang Shan

Title image | From pixabay.com

Original translation by Shaohai Public Account