Future Funding Strategies for Airports
As mentioned in a previous blog, Regional Airports: Challenges, Opportunities, airports continue to struggle to provide a competitive environment for their airline, GA and passenger constituencies. New or increased revenue streams are currently a top priority for most airport executives and their boards. Two sources of revenues most likely to be discussed by them are the PFC and non-aeronautical (commercial) income.
The first is the passenger facility charge (PFC). There is a current debate between the airlines and airports on this as a source of revenue. The PFC is a fee paid by passengers who use the airport and is generally spent on projects that increase airport capacity, safety, and security. The PFC has a maximum, which is a set by federal authorities. Not all airports charge a PFC, and many have a lower-than-allowed charge in place. Many airports see this as an excellent strategy to encourage new airlines or route development.
The second, and the real challenge for airports, is how to focus their funding strategies to increase their non-aeronautical (commercial) income. In many cases, this means increasing their retail and services revenues for ongoing airport operations and/or capital improvements.
Usually, an airport’s second largest source of income is from its share of commercial revenues, which includes sales from the airport’s retail outlets and other ancillary services. These revenues can typically represent 30% of total airport revenues. Many airports have identified customer retail spending as a clear growth area for them. They feel that existing airport facilities are under-exploited. Unfortunately, their efforts are hampered by a lack of customer relationships.
What is needed is to engage the passenger as a ‘customer,’ with the clear objective to increase airport customer retail and services spending. Some airports have started to develop ‘customer relationships’ through social media, focused on enhancing their customers’ experience. This is a good first step in the customer engagement process.
Extending their social media strategy further requires the airport to focus on ‘knowing’ their customers, their specific needs and delivering on them. In essence, “Winning through Customer Knowledge” is the core strategy that provides direct and quantifiable benefits to the airport and to their ‘customers.’ Benefits include increased customer spending at airport retail outlets, new revenue streams from airport assets and an improved customer travel experience (ASQ impact). Quantifiable means measurable, using two key performance indicators (KPI).
Firstly, the KPI for customer increased retail spending is “Retail Revenue ROI.” Secondly, the KPI for measuring customer engagement developed through social media is the “Passenger Experience Index.” This Index measures the revenue impact of customer engagement that social media and dialogue technologies bring to the airport.
More airport executives and their boards are developing strategies to increase their non-aeronautical (commercial) income. Each will have to consider the impact of each strategy, but having must-use KPI’s as a basis for measuring the impact will guide better decisions. By doing so, airports will be able to provide more competitive services and go a long way to solve their funding deficits.