Airports: Money-Making Opportunities For Retailers?

Airports and the stores within them have a variety of methods for generating revenue. Airports themselves make money through aeronautical and non-aeronautical/commercial revenue. Aeronautical revenue is money made directly from airlines and passengers for using the airport space. Commercial revenue is income gained from charging non-aeronautical companies (such as shops, restaurants, and car rentals) for their use of space on the airport premises. Airports also charge airlines landing fees for the use of their facilities, which are typically based on the size and type of aircraft, as well as the length of the landing.

Stores in airports profit from the constant foot traffic of people who are often willing to spend more money because they are on vacation or have a higher disposable income. The captive audience of an airport, made up of people with time to kill before their flight and few other places to go, also contributes to the success of airport stores. Additionally, the ability to offer duty-free goods, such as alcohol, further entices travellers to make purchases.

High footfall and captive audience

Airports are bustling hubs of human activity, with travellers from all walks of life passing through their gates. This constant stream of people presents a unique opportunity for businesses operating within the airport. With a diverse range of individuals, from bored layover passengers to wealthy vacationers and business travellers, the airport offers a captive audience with varying needs and purchasing abilities.

The sheer volume of foot traffic is a critical factor in the success of airport stores. In 2014, London's Heathrow Airport saw 74 million passengers pass through its doors, surpassing the annual visitor count of famous shopping destinations like the Mall of America. While not all these travellers are potential customers, the sheer number of people guarantees a substantial customer base.

The nature of air travel also plays a role in driving sales. Travellers often find themselves with time to kill, waiting for their flights or facing unexpected delays. Boredom and idle time can lead to impulse purchases, and with limited options outside the airport, travellers are more likely to indulge in shopping or dining within the airport premises.

Additionally, the unique dynamics of air travel contribute to the captive audience concept. Unlike a mall or a high street, travellers cannot easily leave the airport premises, especially once they have passed through security. This "captivity" increases the likelihood of travellers making purchases, even for essential items, as they have no alternative options nearby.

The high footfall and captive audience at airports create a prime environment for businesses to thrive, benefiting from the constant stream of potential customers with varying motivations and purchasing abilities. The combination of diverse traveller profiles and limited external options enhances the profitability of airport stores, making them attractive venues for retailers and restaurateurs alike.

Furthermore, the presence of duty-free shops and the availability of unique, locally crafted products can also contribute to the overall attractiveness of airport shopping. The perception of saving money on duty-free items or the desire to purchase native products as souvenirs or gifts can drive additional sales and enhance the overall profitability of airport stores.

Duty-free shopping

The concept of duty-free shopping was first introduced in 1946/7 at Shannon Airport in western Ireland, which at the time was a major stopover for transatlantic flights. The airport negotiated a reduction in Irish tax (Value Added Tax/VAT) of 17-23% on goods purchased airside, and the duty-free concept was born. Today, duty-free shopping is a staple of the airport experience, with travellers able to purchase goods without paying certain local or national taxes and duties. These taxes are then paid in the destination country, depending on its personal exemption limits and tariff regime.

Duty-free shops are commonly found in the international zones of airports, sea ports, and train stations, as well as on board airplanes and passenger ships. The range of products available varies by jurisdiction, but typically includes alcohol, tobacco, perfume, cosmetics, luxury goods, electronics, souvenirs, and confectionery.

The appeal of duty-free shopping is the opportunity to save money on items that may be more expensive in other markets, particularly tobacco and higher-strength alcoholic drinks. However, it's important to compare prices before purchasing, as duty-free items may still be cheaper elsewhere, and impulsive buying decisions are common in the exciting environment of an airport. Additionally, factors such as baggage costs, liquid restrictions for carry-on luggage, and customs rules in the destination country should be considered when making duty-free purchases.

While duty-free shopping is no longer available for intra-EU travellers (with the exception of special member state territories like the Canary Islands), it remains an attractive option for travellers outside the EU. In 2016, South Korea's Incheon Airport had the highest duty-free sales globally, followed closely by Dubai Duty Free.

The success of duty-free shopping in airports can be attributed to a combination of factors, including constant foot traffic, a captive audience with disposable income, and the convenience of last-minute gift purchases.

High-value customers

Airport stores are frequented by a constant flow of people who are willing to splurge on items, especially if they are on vacation. These customers are also more likely to be high-value, as they are well-off enough to afford a plane ticket. This means that they are likely to have more disposable income to spend on high-ticket items.

The high-value customer is often a captive audience, with limited alternative options to purchase from, and they are more likely to be willing to spend money due to the boredom of waiting for a flight or during a layover. The stores in airports also tend to be high-end, with expensive, luxury items, which appeal to the high-value customer.

The high-value customer may also be more inclined to make an impulse purchase, especially if the item is duty-free and seems like a bargain. The customer may also be more inclined to purchase a gift for someone if they have forgotten to buy one before their trip.

Additionally, the high-value customer may be travelling for business and be able to expense their purchases to their company. This makes them more likely to spend money in airport stores.

Impulse purchases

The captive audience of an airport is also more likely to be wealthy, as they can afford a plane ticket, and are a good target market for luxury goods. The high margins on these big-ticket items mean that even selling a few of these expensive items can be very profitable.

The duty-free shopping experience is also a key driver of impulse purchases. Travellers may feel that they are getting a bargain, even if the saving is small, and this can encourage unplanned purchases. The unique products available at airports, such as locally crafted goods, can also encourage impulse purchases as travellers may feel that they are getting something authentic and special.

The convenience of purchasing goods at the airport, such as last-minute gifts for friends and family, or essential items like toiletries, also encourages impulse purchases. The high prices of goods in airport stores are often justified in the minds of travellers as they assume that the goods must be cheap as they are duty-free.

High-margin products

Stores in airports can sell high-margin products to a captive audience of travellers who are often willing to splurge, either because they are on vacation or because they have money to spend.

For example, an airport store might sell a 21-year-old bottle of Glenlivet for £100, only $20 more than the same bottle in Dallas, Texas. The customer may not have planned to buy the bottle, but the perception of saving money and the fact that the product is native to the UK could be enough to convince them to make the purchase.

Another example is a high-end purse. The store might have an antique motorcycle on display to cement its image as a high-dollar store. The customer may not have planned to buy a purse, but the display could convince them that the product is worth the high price.

Stores in airports also sell duty-free goods such as alcohol, which can be cheaper than buying the same product outside of the airport.

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