NOTEBOOK: Airport’s new concessions contracts land in the money
PERRY BEEMAN Dec 18, 2019 | 10:42 pm
2 min read time555 wordsBusiness Record Insider, The Insider Notebook, Transportation
Des Moines International Airport decided to shake things up with its concessions arrangements the past few years, taking on more of the risk in the retail and food operations on a bet it would pay off with more revenue.
It did. And, in fact, the airport’s concessions in general have been doing well, reports Finance Director Brian Mulcahy. The results below compare July 2016-June 2017 (a year before the retail shop and restaurants shifted to the new plan) with July 2018-June 2019. We’ve also included a look at the other concessions.
Food and beverage
The contract with SSP America ended on June 30, 2016, with final-year revenue of $4,672,862. The airport’s share was $780,410 based on a percentage of revenue serving as rent. The industry likes to look at revenue per enplanement (passenger getting on a flight). That was $3.69 at the time.
In July 2017 the airport signed a management agreement with Aero Service Group and remodeled the restaurants.
For the 12 months ending in June 2019, food and beverage revenue was $6,041,353 and the Des Moines Airport Authority’s income on that revenue was $1,981,194. The revenue per enplanement of $4.19 was up 13.5% over two years prior. Mulcahy said that showed the growth was beyond the rise in passengers, most likely meaning airport workers and others were using the restaurants, too.
The airport got its remodeling money back inside of 18 months, Mulcahy said.
He said the airport’s model for the agreement is seen in professional sports stadiums and some street vendor locations, but is rare at airports this large. The arrangement allowed airport officials to see the inner workings of the businesses, something that was harder under the take-a-percentage approach that left the vendors largely in charge.
News and gift retail
Hudson Group took this over in July 2017, remodeled the two stores and added more local items, Mulcahy said.
The 12 months ending in June 2017 saw total revenue of $3,201,383. That jumped 27% to $4,079,217 for the 12 months ended June 2019. The authority’s income rose from $465,020 in 2017 to $822,359 in 2019. And the revenue per enplanement was up almost 12%, from $2.53 to $2.83.
The airport’s contract with the companies goes back to 2015 and runs through 2021, Mulcahy said.
In the year ending June 2017, gross car rental revenue was $29,948,850 and the revenue per enplanement was $23.64. For the 12 months ending June 2019, gross revenue rose to $34,788,230 and revenue per enplanement was $24.13. Mulcahy said competition among the rental companies and the growth of Uber and Lyft traffic affects those numbers. The airport gets a 10% concession fee on gross revenue from the rental car companies.
“The growth rate of rental car revenue on a per enplanement basis has been just 2% from 2017 to 2019, and that is consistent with the trend we have seen since about 2015 when the [ride hailing] companies started operating at the airport,” Mulcahy said. “We believe the rental car business will continue to do well for the foreseeable future due to the size of [the airport’s] service area. While it may be practical for someone staying in the metro to catch [an Uber or Lyft], most travelers making multiple stops or going outside the metro are still likely to rent a car.”