The economy of airports

by on August 31, 2007 at 7:30 am in Economics | Permalink

Maria says:

Here are the things most people would happily pay for at an international transit airport: – a shower – clean underwear (for those of us who habitually forget to pack it) – daylight – an exercise facility to help with the jetlag and minimise DVT – nutritious but not too heavy food – a nap, lying flat, somewhere quiet.

And here’s what is generally available: – Gucci – Chanel – l’Occitane – Bodyshop – Lacoste – Nike – a few plastic seats – McDonalds, dougnuts, and the local variety of fried, sugary dross to add a sugar hangover to your jetlag.

Megan says:

…in an airport, foot traffic is very high, and space is at a premium.  So you should expect to see things that go at a very high volume (McDonalds) or things that are very expensive per-inch-of-display-space, such as Gucci.  Showers and napping capsules do not meet either criteria.

Tyler says:

Think of airports as temporary prisons for the wealthy, and the luxury good offerings as reflecting the extreme value of their attention.  Airports will sell goods which are complements to that attention, which is otherwise so hard to get. 

Compare the Brooks Brothers outlet at Reagan National Airport with the Brooks Brothers outlet at Tysons Corner Mall.  I’ll predict the former devotes a greater percentage of floor space to eye-catching, easy-to-buy, easy to try on items, such as ties.

Another prediction is this: in countries (cities) where the wealthy people are not hurried (relative to shop hours), there should be fewer luxury goods in the airports.  What are examples?  Monaco?  Nice?  Spain?  London would seem to be an example of extreme hurry.

And what does Air Genius Gary Leff say?

Addendum: The genius weighs in.

1 Alex Ambroz August 31, 2007 at 8:24 am

I’ve always thought that a gym facility would do very well in an airport. It could charge folks, say, $10 per visit (plus extra for towels, gym shorts and shirts, etc., lots of up selling possible) and have some good cardio equipment as well as showers. Heck, when I get delayed for 4 hours I would love it if I could hit the gym for a bit.

2 Bernard Yomtov August 31, 2007 at 8:35 am

…in an airport, foot traffic is very high, and space is at a premium. So you should expect to see things that go at a very high volume (McDonalds) or things that are very expensive per-inch-of-display-space, such as Gucci. Showers and napping capsules do not meet either criteria.

This is no explanation at all.

McArdle is saying is airport retailers need high sales per square foot and you can get this by selling lots of cheap stuff (McDonald’s) or a little expensive stuff (Gucci). But you can also get it by selling in-between quantities of medium-priced stuff. The question, which McArdle does not even try to answer, is why that is uncommon at airports.

Actually, I think the specific answer to Maria’s complaint is that she is just wrong. “Most people” in these airports don’t actually want to buy most of the things she lists. McDonald’s is a popular place to eat, airport or not. Most people aren’t interested in working out during layovers. Most people remember to put clean underwear in their carry-on bag. Lots of people are not in transit, but are are leaving or arriving and will shower and sleep at home or the hotel. Many of those in transit don’t have time for naps and showers.

I don’t think we need to look far to understand why these things are not provided, though the volume of luxury goods available does surprise me.

3 shawn August 31, 2007 at 8:58 am

theophile…though, competition will push that threshold of what the economy class majority obtains up closer to the premium passenger goods.

I do think the economics are quite so simple.

4 dstevens August 31, 2007 at 9:11 am

Showers, naps, and lying down someplace quiet are all availabe in the international departures terminal of Narita airport. They’re not particularly expensive either: the showers are $12 for 20 minutes, a useful nap costs more, but is within the reach of anyone travelling internationally. (See http://www.narita-airport.jp/en/guide/service/list/svc_37.html for what’s offered). Actually, a quick Google search shows that airport showers are not uncommon at international airports.

So, “Why aren’t there airport showers?” is not really a relevant question. “Why are showers less visible than luxury brands in airport terminals?” is a more relevant question, but I don’t think it’s a very interesting one.

5 Andrew G August 31, 2007 at 9:27 am

The airport in Tokyo (actually Narita) has all of those things except possibly the exercise facility. And I wouldn’t be surprised if it had that too. The beds are quite expensive, but people definitely do use them. It also has complimentary play rooms for younger passengers.

But as previous posters have said, in general, airports have few incentives to make themselves more comfortable to passengers since most passengers have minimal choice of which airport they use. I don’t know if Narita is an exception to that.

6 Steve Roberts August 31, 2007 at 10:01 am

How long of layovers do you people have that you have the time to work out, get all sweaty and then take a shower and a nap? Maybe instead of worrying so much about your lack of exercise opportunities, you should just learn to schedule your travel itinerary a little better? :o)

Plus you can always walk the terminal and staircases for exercise.

7 cure August 31, 2007 at 10:07 am

Theophile…there is enormous competition between airports, because connecting flights are quite common. If I’m flying from the East Coast to Asia, I’m likely connecting somewhere – Vancouver, SFO, LAX, etc. Many frequent flyers, for instance, know to avoid the most disastrous airports (Heathrow, JFK, Milan) for connections, and airlines cater to these preferences.

If you look at airport traffic, you can see that it’s not well correlated with the attractiveness of the city itself. Atlanta is the busiest airport in the world, and Denver, Madrid, Newark and London Gatwick are all busier than Tokyo Narita.

8 Theophile Escargot August 31, 2007 at 10:49 am

First, let’s remember that the original post referred specifically to “international transit airports”. Saying you don’t need a nap, a shower or a gym on a short journey is a bit beside the point.

Second, let’s remember that as so often, it’s about the incentives. There may be an incentive to attract frequent economy flyers insofar as they can change their airports. But there are also incentives to attract high-margin retail spending from infrequent flyers.

And if frequent flyers are also more likely to upgrade to premium (for instance because the company is paying) there may be a correspondingly greater pressure to increase the differential between premium and economy comfort.

I think the incentives for the airports and airlines are complex, and do not necessarily lead to maximizing the comfort of economy passengers.

9 josh August 31, 2007 at 11:01 am

You know who would do well? A Vicodin salesman.

10 Floccina August 31, 2007 at 12:21 pm

Maybe I will get rich selling a fold up bed that fits in carry on, like those fold up chairs, to frequent travelers. Just kidding.

11 econ2econ August 31, 2007 at 12:38 pm

I though the luxury goods sold at airports were aimed at hurried businessmen who want to buy their wife or kids a present because they felt guilty for having an affair while on TDY. 😉

12 some dude August 31, 2007 at 12:55 pm

may be i’m not bright enough and too simplistic but i’m surprised nobody mentionned what transit in international airport means for most random people in the random world: Duty Free.

isn’t that why cigarettes and alcohol sales are so important ? and aren’t luxury products typically more subject to tax than services ?

but then again, this view may be largely outdated, and not very relevant to the US (with it’s large, internal traffic and possibily laxer tex policies).

13 Douglas Knight August 31, 2007 at 1:54 pm

Gary Leff mentions massage chairs. I think that’s a helpful example. They are self-advertising, while the privacy involved in showers and naps hides them.

14 The Prudent Investor August 31, 2007 at 3:42 pm

There are cots and showers in the upmarket lounges, as well as dietary choices. But the price difference between bench & business puts you in a nice hotel for a few days anyway at your destination.

15 PHB August 31, 2007 at 4:48 pm

I have been to the Washington National Brook’s
Brothers, oddly enough it does not offer more ties and shirts as you might expect. The bulk of the display is for suits.

I think that the mistake here is in assuming that the primary purpose of the shops is to sell stuff to travellers rather than to advertise stuff to travellers who will then be encouraged to buy from more accessible stores.

From time to time I have actually used Washington National frequently enough that it would have been practical to buy a suit, get it fitted etc. through the Brooks Bros store. But walking through the airport you spot the store and think ‘hey I need a suit’, perhaps browse a few minutes before you catch a plane. But you place the order at the local mall.

I suspect the premise for the bulk of the stores is to buy acceptable obligation presents en-route. Hotels usually have the same collection of crap. Does anyone buy Swarovski for themselves (except collectors)?

16 spencer August 31, 2007 at 6:00 pm

Marginal Revolution said:
Think of airports as temporary prisons for the wealthy, and the luxury good offerings as reflecting the extreme value of their attention.

Assume that the wealthy fly first class, the middle class flies tourist and the inbetween flies business class. If you look at the number of airline passengers as a proxy for the traffic in an airport wouldn’t you find that the wealthy are actually a very, very small share of the customers for a product in airports? Moreover, given the shift among the wealthy to fly in small private aircraft rather than commercial this is probably falling.

I suspect shops selling luxury goods in airports are designed more to suckering middle class passengers into buying items they would not normally buy.

17 John Henry September 1, 2007 at 2:05 am

I wonder what airlines all these folks are flying?

I have been Gold (more than 25,000 mile/year) on American for about 7 years now. That allows me to upgrade to business class for $30/500 mile segment.

Neither that nor paying full freight for a biz class ticket get me into the Admiral’s club. That costs me $350/yr and is worth every nickel.

Showers, comfy chairs I can easily nap in, quiet (no cell phone) sections, free newspapers, free coffee, soft drinks, fruit, cookies. Full bar and deli restaurant at reasonable prices. Also computer terminals at which I can work, surf, check e-mail. Cubicles with good ergonomic chairs and desks to work with my own computer. Help with changing flights or the like.

Some airports, Miami, DFW, Chicago for 3, have rooms for kids. Video games, TVs with cartoons, books, small tables and chairs etc.

I can bring family/friends/business associates (up to 3-4 guests, I think)for free.

And so on.

No charge for any of this except alcohol and meals. They also have conference/meeting rooms, fax, printers and other business services but I think they charge extra for them.

You don’t even have to be flying on American to use them. Just show your card and an ID to get in.

As I said, worth every nickle.

BTW: American, to their great credit, gives complimentary passes to their club to all troops going to or coming from Iraq. Just one more reason I have flown only 1 non-American Airlines trip since 2001.

John

18 G September 1, 2007 at 5:53 am

My first thoughts upon enter airports have always been:
“Wow, look at all the useful stuff capitalism provides us with in airports!”
Then, upon encountering the TSA,
“Wow, look at how much the government-provided services suck!”

What I want to know is, what would flying be like if the safety of flights was left in the hands of the airlines instead of the FAA/TSA? People are so irrationally paranoid of flying, I don’t think you’d see flying actually get more dangerous. You’d have to hold the airlines accountable for the bad things that happen when planes fall out of the sky, but thats so rare on commercial flights in the US its probably not a big deal. In fact, I’d bet flying could stand to be a good bit more dangerous, if it was also made cheaper in the process. That would increase the number of people who fly instead of drive, which would save lives and gasoline.

I’m also imagining a group of Saudis with box-cutters getting put down with a taser shot to the face by an effete male flight attendant… But really I’d be happy not to have to go through a TSA checkpoint ever, ever again.

19 Fingal September 1, 2007 at 10:25 am

Oh, and re: how irrationally paranoid people are about air travel — absolutely.

If I’m not mistaken, there are roughly 40,000 commercial takeoffs and landings per day in the US. On the *worst* day in aviation history, four of them didn’t make it. OK, there may have been six attempted hijackings in all. Still, even on the worst day, a .015% chance of mishap doesn’t sound very sporty to me.

20 G September 1, 2007 at 6:06 pm

They used to handle security? I was under the impression the FAA didn’t allow them to carry any sort of weapons on planes, didn’t allow them to resist hijack attempts, and that only FAA air marshals could really do anything. The whole security checkpoint thing was there before Homeland Security was created, that seemed to be some sort of FAA standard to me.

My first thought on airplane security was that we are already trusting the airline employees with our lives, so it does no harm to let the airlines arm themselves as they see fit.

Although I suppose I agree with you. Its so safe, it might not even make sense to hire people trained to defend the planes. I’d be happy with getting rid of the TSA and those stupid safety speeches before flight.

21 Chris September 3, 2007 at 9:05 pm

Offering services such as napping places, showers, gyms, etc, at airports is asking too much. The airports will surely rake in more money renting space to big name chains rather than constructing large showering areas and rows of tredmills.
And gyms? Seriously? Who is so nutty about their health that they MUST run between flights? And showers are also a bad idea. Are these going to be groups showers? There is enough immoral behavior going on at airports already; adding more places for men/senators to get naked seems to be a big gamble for airports.
It’s about making money, that’s all its ever about. Airports will supply what the travelers demand. Do more people want showers and gyms or do they want Jamba Juice and Starbucks? The answer is clear.
After a 10hr flight from Honolulu to Chicago with a 2hr lay-over, I want something to eat and drink, not a brisk swim in an airport pool followed by a dirty shower stall with cheap shampoo.

22 Jason September 4, 2007 at 11:56 pm

Not so sure about the success of a gym at an airport, at least not without the option of being able to nap for, say, $7 an hour in a quiet room. Otherwise, people would just be that much more aggravated when their 4 minute naps are continuously interrupted by the intercom or someone talking across them to their travel partners. I like Megan’s comment about the importance of volume and expense in relation to display space. I’m not so sure that airports are temporary prisons for the wealthy, Tyler, because the wealthy should be more likely to fly in higher class seats and be members of airline clubs, thus they probably have their creature comforts already. In my opinion, airports should cater somewhat to people who don’t fly too much, maybe 1-5 times a year, because they are more likely to be uncomfortable and jet-lagged in airports.

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25 Alex February 28, 2011 at 9:26 am

The airports themselves have to spend millions of dollars on providing great services for customers too. Luton airport parking is a good example. Of course it costs money but setting up a parking space for an airport is no easy task. Imagine the initial investment only… then people to work there, safety measures and so on.

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