Presentation Overview

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Dwayne Farmer
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2 Presentation Overview Current Climate Airport Revenue Trends Benefits of Enhancing Non-Aeronautical Revenues Strategies and Examples 2

3 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Crude Oil Price/Barrel Jet Fuel Price/Gallon Current Climate Increased Fuel Costs $160 $140 Average Crude Oil Prices Average Jet Fuel Prices $4.50 $4.00 $120 $100 $80 $60 $40 $3.50 $3.00 $2.50 $2.00 $1.50 $1.00 $20 $0.50 $0 $0.00 Month - Year Source: Airlines for America, September

4 Annual U.S. Domestic Seats (millions) Current Climate Airline Capacity Discipline Rolling Four Quarters Source: US Domestic Seats, Diio LLC, September

5 Millions Current Climate Slower Passenger Growth 800 U.S. Domestic Enplaned Passengers CY Large Hub Medium Hub Small Hub Non-Hub Total Source: U.S. DOT T-100, Diio LLC, CY , September

6 Current Climate Load Factors are Rising 1,000,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, Passengers Available Seats Average Load Factor 50.0 Source: U.S. DOT T-100, Diio LLC, September

7 Current Climate Increased fuel costs have caused airlines to become more disciplined in approach to adding seat capacity Any passenger growth in recent years primarily as a result of increased load factors Increases in traditional non-aeronautical passenger-related airport revenue sources (i.e., parking, terminal concessions, rental car) sought through enhancement as opposed to activity increases At the same time, federal funding for airport capital development is constrained FAA AIP reductions impacting both entitlements and discretionary grants PFCs impacted by slower passenger growth and rate cap Creative approaches such as privatization or third-party development being evaluated Airports are focused more than ever on ways to enhance passengerrelated revenues and leveraging assets to seek non-passenger-related revenue opportunities 7

8 Aeronautical vs. Non-Aeronautical Revenues Aeronautical Revenues Landing Fees Terminal Rentals Apron Fees Fuel Flowage GA / FBO Revenues Cargo Building Rent Hangar Revenues Airport Revenues Non-Aeronautical Revenues Passenger Related Auto Parking Terminal Concessions Rental Car Non-Passenger Related Commercial, Industrial, Retail Development Building / Land Leases Natural Resources Recreational Facilities 8

9 Airport Revenue Trends Aeronautical vs. Non-Aeronautical Large Hub Medium Hub 42% 58% Total 49% 51% 45% 55% Small Hub Non Hub 43% Aeronautical Non-Aeronautical 45% 57% 55% Source: FAA, Form

10 Millions of $ Airport Revenue Trends By Airport Size Millions of Enplaned Passengers $9,000 Total Non-Aeronautical Revenue by Hub Size FY $8,000 $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1, $ Large Hub Medium Hub Small Hub Non-Hub ALL Hubs Enplaned Passengers Source: FAA, Form

11 Airport Revenue Trends By Type Breakdown of Non-Aeronautical Revenue - FY 2012 Other 19% Terminal Concessions 20% Parking 41% Rental Car 20% Other non-aeronautical revenue includes hotels, ground rents, facility leases, and other ancilliary revenue. Source: FAA, Form

12 Millions of $ Millions of O&D Enplaned Passengers Airport Revenue Trends O&D Based $3,500 Parking and Rental Car Non-Aeronautical Revenue FY $3, $2,500 $2,000 $1,500 $1, $ $ Rental Car Parking O&D Enplaned Passengers Source: FAA, Form

13 Millions of $ Airport Revenue Trends Terminal Concessions Millions of O&D Enplaned Passengers $1,800 Terminal Concession Revenue FY $1,600 $1, $1, $1,000 $ $ $400 $ $ Terminal Concessions Enplaned Passengers Source: FAA, Form

14 Airport Revenue Trends Per Pax $14.00 Non-Aeronautical Revenue per Enplanement FY $12.00 $10.00 $8.00 $6.00 $4.00 $2.00 $ Terminal Concessions per EP Rental Car per O&D EP Parking per O&D EP Other per EP Total per EP 5-Year CAGR CPI = 2.1% 3.4% 3.4% 3.6% 2.8% 2.9% Source: FAA, Form

15 Enhancing Non-Aeronautical Revenues Makes Good Business Sense Can be used to lower airline costs and diversify revenue base Long-term residual airport agreements didn t incentivize airports to strive to increase revenues from other sources Compensatory agreements encourage airports to operate more like a business maximize revenues, lower expenses Non-passenger related sources are a steady source of income, not susceptible to passenger fluctuations less related to air service Diversifying revenue base can enhance bond ratings Can provide a source of airport discretionary funds 15

16 Know your Customers and their Needs 16

17 Thinking Outside the Box 17

18 Strategy: Update Current Tenant Leases / Rates Update rates to reflect current market conditions Examine actual costs vs. market rates Recover costs where ever possible Compare to other airports and off-airport competition Set pricing to influence demand as desired Review definitions of gross revenues Use all-inclusive definitions (rental car) (everything above the tax line) Perform audits IT / Software Solutions Improve financial reporting, invoicing, and receivables Reminders for rent escalations and renewals 18

agreements 12%-22% of gross sales 7-year agreements 12%-25% of gross sales AFTER Better space utilization example Bank of

19 Salt Lake City International Airport - Optimizing Terminal Concessions SLC recently redeveloped its terminal concession program BEFORE Concession space was previously builtout minimal new incremental space Food & Beverage: Retail 10-year agreements 12%-22% of gross sales 7-year agreements 12%-25% of gross sales AFTER Better space utilization example Bank of pay phones replaced ($1,000 per mo.) New small coffee concept ($85,000 per mo.) Source: Salt Lake City International Airport 19

diversification Local concepts Examples: Market Street

Examples: Gordon Biersch, Smashburger, Starbucks

Jamba Juice Unique SLC concepts Vino Volo Ale House

Regionally-themed stores Examples: Utah!

20 Salt Lake City International Airport - Optimizing Terminal Concessions New key stores added with diversification Local concepts Examples: Market Street Grill, Weller Books, Café Rio Strong national brands Examples: Gordon Biersch, Smashburger, Starbucks Healthy Concepts Examples: Cat Cora s, Ufood Grill, Jamba Juice Unique SLC concepts Vino Volo Ale House (Vino Volo partnered with Salt Lake Brewing Company Regionally-themed stores Examples: Utah!, No Boundaries, Kidzoo Services Two XpressSpa Locations Source: Salt Lake City International Airport 20

21 Salt Lake City International Airport - Optimizing Terminal Concessions Recent Financial Results: Over 27% increase in revenue from FY12 to FY13 Source: Salt Lake City International Airport 21

22 Strategy: Customer Service and Convenience Improvements Offering conveniences and improving customer service can capture more customers Time needed to run errands is a decreasing commodity Auto parking enhancements valet, oil changes, car wash, dry cleaning, groceries Airport kennels Gas stations / convenience store Full-service banking Health clinics / drug stores Pay attention to what off-airport competitors are doing Advertise your strengths location and convenience 22

Dublin Airport Authority Public Parking Reservations Program Highlights: 80% spaces sold in advance Spaces can be sold 15 months in advance DAA has held as much as $2m Euros from advance sales

23 Dublin Airport Authority Public Parking Reservations Program Highlights: 80% spaces sold in advance Spaces can be sold 15 months in advance DAA has held as much as $2m Euros from advance sales Airline partners (Aer Lingus and Ryan Air) Parking sold at same time passengers book flights Partner airline websites direct to pre-booking DAA is marketing this approach to US airports Airline participation appears critical Source: Dublin Airport Authority, (accessed 9/27/13) 23

Denver International Airport Gas Station/Cell Phone Lot Concessions New 253-parking space cell phone waiting area at Denver

built-in ipads, and FIDs Developed and funding by a thirdparty operator, which pays rent to airport Source: Denver

URI=tcm:8-4881 (accessed 9/27/13) Facility expected to generate about $2 million annually (or $400K to airport) Source: The

24 Denver International Airport Gas Station/Cell Phone Lot Concessions New 253-parking space cell phone waiting area at Denver International Airport Final Approach Offers several food options, gas station, free Wi-Fi, children seating area with built-in ipads, and FIDs Developed and funding by a thirdparty operator, which pays rent to airport Source: Denver International Airport, Detail.aspx?URI=tcm: (accessed 9/27/13) Facility expected to generate about $2 million annually (or $400K to airport) Source: The Denver Post, DIA opens new cellphone waiting area, with Wi- Fi and Food, September 24, Source: DIA-unveils-new-waiting-area (accessed 9/27/13) 24

Cell Phone Lots Food Trucks Low investment opportunity to potentially capture incremental revenue An additional amenity to meeters/greeters Some airports obtain incremental revenue through revenue

25 Cell Phone Lots Food Trucks Low investment opportunity to potentially capture incremental revenue An additional amenity to meeters/greeters Some airports obtain incremental revenue through revenue agreements Certain Airport examples AUS CVG LGB SMF (RFB phase) TPA TUS Source: AviationPros.com, (accessed 9/27/13) 25

Chicago O Hare International Airport Multi-Modal Joint Use Facility Serves as a major access point for ORD Consolidates rental car, public parking, and bus services Five-level main facility

26 Chicago O Hare International Airport Multi-Modal Joint Use Facility Serves as a major access point for ORD Consolidates rental car, public parking, and bus services Five-level main facility constructed with the ability to expand to nine levels Direct connection to terminals via an extension of the existing Airport Transit System (ATS) Funded in part by USDOT TIFIA Loan Site includes 4.5 acres available for future commercial development Expected opening at the end of 2016 Source: City of Chicago Department of Aviation 26

Strategy: Maximizing Airport Real Estate Non-Passenger Related Revenue Identify excess property that may not be needed for aeronautical purposes Typically a longer-term strategy can take time for

27 Strategy: Maximizing Airport Real Estate Non-Passenger Related Revenue Identify excess property that may not be needed for aeronautical purposes Typically a longer-term strategy can take time for growth to occur Airport development needs differ: Land use compatibility Demand, growth, and needs in vicinity of airport Timing FAA requirements Fair market value, grant assurances, revenue diversion, through the fence operations Capitalize on an airport s core services passengers and cargo Hotels, meeting and conference space, warehousing Look beyond the typical: Commercial, industrial, retail development Natural Resources Oil, natural gas, farming, timber Recreational / Sports Complexes - Golf courses, soccer fields, parks, bike/running trails, etc. 27

Pittsburgh International Airport Oil and Gas Development Allegheny County Airport Authority (ACAA) signed an airport shale development lease with Consol Energy in February 2013 Consol paid an upfront

28 Pittsburgh International Airport Oil and Gas Development Allegheny County Airport Authority (ACAA) signed an airport shale development lease with Consol Energy in February 2013 Consol paid an upfront signing fee of $50 million to ACAA ACAA projects lease will yield $500 million over 20 years Construction of the well sites, centralized impoundments and pipelines projected to begin in second quarter 2014 Approximately 17 miles of gas line (11 on ACAA property) and 12 miles of water line will be utilized to deliver gas to market and provide water for well completions CONSOL Energy and the ACAA are currently conducting the Environmental Assessment (EA) for the FAA, which is scheduled to be submitted to the FAA for approval in December Source: Pittsburgh International Airport, (accessed 9/27/13). 28

29 Pittsburgh International Airport North Field Dick s Sporting Goods Headquarters $150 million / 670,000 sf building 60,000 sf aviation center $7.25 million state infrastructure grant 50 percent tax abatement for 10 years PIT International Logistics Center Planned $88 million development 160 acres Freight forwarders and other logistics Located in FTZ Expandable to 2 million sf and future aircraft / taxiway access Land lease from airport 29

Portland International Airport PDX Logistics Center The Port of Portland is leasing a 26-acre property adjacent to PDX to Capstone Partners LLC for development of the PDX Logistics Center PDX

30 Portland International Airport PDX Logistics Center The Port of Portland is leasing a 26-acre property adjacent to PDX to Capstone Partners LLC for development of the PDX Logistics Center PDX Logistics Center Phase I is a two-building, 490K s.f. project that broke ground in September 2013 and is expected to be completed in October 2014 Capitalizes on proximity to PDX, I- 205, and shortage of large Class A logistics space in Portland Metro market Source: Oregon Live, (accessed 9/27/13) The first industrial center of its size to be built without a signed lease since the Great Recession Source: Port of Portland, (accessed 9/27/13). 30

31 El Paso International Airport Two industrial parks 900+ acres Over 200 businesses and industries A third 150-acre industrial park is under development Foreign Trade Zone (FTZ) Two on-airport golf courses 8,800 sf club house One course designed by Tom Fazio 25% of Total Revenue from Industrial Parks, FTZ, Hotels, Golf Courses, and Cargo Facilities Aeronautical Revenue 38% Seven on-airport hotels Chase Suite Hotel, Guesthouse, Hawthorn, Microtel, Marriott, Radisson, Wyndham Air cargo complex $60 million facility 34 acres 144,000 sf cargo building Nearly 70% occupancy Non- Aeronautical Revenue 62% Source: El Paso International Airport. 31

32 Victoria International Airport Farming 495 Acres Farmed Inside Security Fence 300 Acres of Land Reserves Farmed Hay and Corn Helps Control Wildlife 25-Year Lease Source: On Approach, Newsletter of the Victoria Airport Authority, Volume 1, No. 1, Spring

33 THANK YOU!

Annual Airport Finance and Administration Conference Innovative Funding Strategies. March 4, 2013 Destin, Florida Bonnie Deger Ossege

Annual Airport Finance and Administration Conference Innovative Funding Strategies March 4, 2013 Destin, Florida Bonnie Deger Ossege OVERVIEW Trends- Capital Improvement Programs Determine Your Airport