THE CUSTOMER RULES:

AIRPORT COMMERCIALIZATION
OBJECTIVE

There are a number of reasons for airport commercialization; one of the main potential
economic gains obtained from private ownership is the introduction of new management
styles and marketing skills, directed to serve users with a more consumer-oriented
approach and better investment decisions where “the customer rules”.
Module 1: Airports as Business Enterprises.

Although my current role is outside the airport industry, I will be presenting information
regarding airport management, using Islip Airport (ISP) as my primary point of
reference. ISP serves approximately two million passengers per year. The airport is
owned and operated by the Town of Islip. The numbers of passengers per year have
not changed over the last 10 years.

MARKET RESEARCH FOR COMMERCIALIZATION.

The assumption is that ISP is looking to commercialize in order to reduce spending

within the Town of Islip. The airport will serve as an economic engine to drive commerce
in the area and improve quality of life for residents, and providing first-class customer
service to aviation users.

Research will focus on commercialized airports around the world that have similar
passenger volumes, environmental factors, and levels of local competition to that of Islip
Airport. Research will also consider alternative modes of transportation. ACI’s Airport
Economics Reports would offer valuable information that can be utilized in efforts to
build a business case for commercialization. This report offers details regarding:

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● Various sources of non-aeronautical revenues.

● Air transport demand and baseline financial indicators for the industry.

● Economical analysis of airport operating expenses and capital costs, in

reference to selected performance indicators and their evolution.

● Unique viewpoints on airport performance through the lens of privatization and

regulatory context.

● Expert viewpoints on the latest developments in airport financing and

investments.

The next step is to assess the concession market, based on an airport’s characteristics.
For example, I have analyzed several features of ISP, which has domestic flights and
caters to both low-cost and flag carriers. It mainly serves incoming and originating
passengers, the majority of whom are tourists and retirees travelling to multiple
locations in Florida. In addition, ISP accommodates business passengers, with
numerous flights to Washington D.C. and Boston. There are two Tier-One airports
located within 50 miles of ISP: LaGuardia (domestic) and JFK (international). However,
ISP is viewed as more convenient and efficient to those living in the Long Island region
because it is easily accessible through multiple modes of transportation. The Long
Island Railroad provides commuters with connections to New York City and JFK. There
are also two major highways that lead directly to ISP. The population of Long Island is
approximately three million. Many communities are affluent, with disposable incomes for
leisurely travel. There is also a concentration of high-tech and pharmaceutical
companies located nearby ISP. There are no large shopping centers in the vicinity of
the airport. The airport is currently planning to support international flights to South
America.

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Additional sources of research include the ACI publication: “​Does passenger

satisfaction increase airport non-aeronautical revenue? A comprehensive
assessment research report”​.

TERMINAL CONCESSION PLAN

Research indicates that the interests of all stakeholders could be best served if users
were sufficiently well-informed through a constructive of airports and users (Airport
Economic Manual Doc9562).

An airport needs to:

● Know who its customers are.

● Understand customer needs and wants.

● Systematically and frequently obtain feedback from customers.

● Take customer feedback into account and be willing to change accordingly.

● Design business plans that gauge and anticipate the customers’ future needs.

Concessions may include specialty shops, restaurants, newsstands, personal services,

and entertainment. Given that the majority of airline passengers are vacationing or
visiting families, the goal should be to have specialty stores that sell gifts and souvenirs.
Brand-name specialty stores, such as Michael Kors and Starbucks, should have
comparable street pricing to enhance impulse buying. A centralized food court and play
area for kids will satisfy family needs and wants. In addition to having greeters at the
entrances of these shops, airport employees need to considered. ISP has various large
businesses that are very close to the airport with easily accessible. The concessions
outside the airport terminal should also be considered in order to attract customers who
work locally and travel often for business. ISP can be branded as an airport mall.

Options for privatization should be considered; these types can include: Public-Private
Partnership (PPP), Private Finance Initiative (PFI), Buy-Build-Operate (BBO),

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Build-Operate-Transfer (BOT), Build-Own-Operate-Transfer (BOOT),

Build-Transfer-Operate (BTO), Lease-Develop-Operate, and full or partial share
flotation.

One of the key parts of an airport planning-framework is the retail plan, which will be
associated with a financial plan, capital investment plan, human resources plan,
marketing plan, and communication plan.

Aeronautical fees are generally governed by various regulations; the pricing regulations,
or policies, are set out in documents created by ICAO. Airports have much more
freedom when it comes to non-aeronautical revenue; however, pricing must be
market-based and reflect customer expectations that create a positive image for the
airport.

An airport has a range of operational management options available: utilization of a

developer, use of a master concessionaire, retention of a retail management contractor,
self-management, or some combination of these options. Self-management will provide
the most control and highest revenue, but it requires in-house expertise.

MEETING CUSTOMER NEEDS

Research shows that up to 80% of airport users can be induced to make impulse
purchases. The airport operator must be creative enough to exploit this tendency, by
offering the right product, or service, in the right place, at the right time and price.

An analysis of customer dispersion needs to be performed in order to understand how

the customers use the terminal building. A passenger’s trip through the terminal is, and
continues to be, increasingly more complex for multiple reasons. This will dictate the
decision for concentration of concessions at landside and airside.

Airports use “dwell time” as the indicator of how likely a passenger is to have time to
use commercial facilities. Dwell time is typically calculated from the moment a
passenger checks-in, up until the time of boarding. Dwell time can also start after a

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passenger clears the security screening, as travelers in large airports are often most
concerned about waiting on long lines during this procedure. There are various
solutions available to monitor the passenger flow through an airport. Video analytics
and/or tracking smart devices, using Bluetooth or Wi-Fi, can provide relatively accurate
data as to where each passenger spends time and what path was taken to the boarding
gate. This can be further linked to the flights, in order to identify passenger destination;
this information can be used to offer commercial services specific to each individual.

From a terminal concession planning viewpoint, the dwell time analysis should help to
identify the locations where a passenger can pause and feel free to shop, eat, or use
other commercial services. These areas can become prime development zones.

Quality and performance measurements are essential to meeting customer needs and
expectations. Whether an airport is self-managed or operated through concessionaire
the following five measurements are required:

● Staff friendliness

● Service in a timely manner

● High quality products/merchandise

● Prices and value for money

● Rating of overall service experience

One effective customer-service monitoring tool that is often used in airports is the
mystery shopper program, in which independent contractors are hired to pose as
shoppers in order to assess all aspects of business operation that a customer may face.

Airports conduct regular customer surveys to evaluate customer satisfaction and

determine additional needs for the customers.

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The overall objective is to provide concessions and services that maximize revenue by
exceeding customer expectations. A benchmarking program is generally used to
achieve this goal.

Some airports place survey devices outside each facility to allow customers to provide
immediate feedback on their way out.

Marketing strategy must consider customer satisfaction; the results of these surveys
should be part of marketing artifacts.

APPLICATION OF THE CUSTOMER RULES STRATEGY

Following a business mentality is crucial for any business to succeed, including airports.
The notion that the “customer rules” must be practiced by all those involved, including
subcontractors, and applied in every decision made and action taken.

This paper demonstrates that the decision to commercialize airports is based on how
best to serve the aviation users, while maximizing revenue. There are several examples
of airports that have achieved more than 50% of their entire revenue from
non-aeronautical services, by providing customers with what they need and want. In
order to achieve a goal of having 80% of all passengers utilize products and services on
impulse, concessionaires should be meticulous in planning terminal space in order to
entice customers to impulse buy. It is highly recommended that concessions are
strategically placed to take advantage of passenger dispersion. Regardless of the
option for airport operation that is utilized, the airport management team must remain
fully engaged in daily processes to ensure that the motto of “the customer rules” is
widely practiced. Customer satisfaction is essential, and this paper cites a multitude of
options for quality-control and the usage of customer surveys to understand business
operations. Airports must be willing to make changes, based on customer feedback.
Adaptability can be achieved by having short-term contracts with concessionaires and
plans to refurbish products and services to align with the customers’ current and future

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needs. Like any large business, the airport should build a strong brand name, and strive
to both enhance and protect its image.

References

Module 1: Airports as Business Enterprises; Module 2: Airport Commercial

Management; ​https://www.macarthurairport.com/about-macarthur-airport​; 2014
Airport_Economics_Report_V2; Airport Economics Manual Doc 9562

ACI Statistics Manual

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