Revenue: car parks and remuneration18 December 2014
With retail outlets continuing to be an important revenue stream for airports outside of aeronautical services, Colm Codd, senior vice-president, car parks at Dublin Airport, discusses why parking should be the next big return on investment.
Non-aeronautical revenue from activities like retail, advertising and rental-car concessions is playing an increasingly vital role in airport finances. Compared with aeronautical activities that lean to barely breaking even, these income streams tend to generate far higher profit margins and often determine the financial viability of modern airports. All the more baffling then that parking's potential is so often ignored.
"Parking is now a massive revenue generator for Dublin Airport," says Colm Codd, senior vice-president, car parks at Dublin Airport Authority (DAA). "Ireland, Australia, the UK and some of Western Europe have all moved to improve their parking income. Yet, many airports in the US, Africa, the Middle East and Asia don't see parking as a real revenue generator; they see it more as an operational service that they have to support."
By ignoring the latent income from properly managed parking, airports are effectively throwing money away. This is something that Dublin learned the hard way. "In the early 2000s, when our passenger numbers were expanding fast, we just parked people on grass verges around the airport site wherever we could," says Codd.
Entrepreneurs were quick to take their chance, buying nearby pieces of land and setting up off-site parking operations. Tempted by extensive advertising, cheaper rates and online sales, passengers quickly began to switch. By 2005, when management belatedly realised they had a problem, Dublin's market share had dropped to approximately 65%.
At this stage, a common error is to raise prices across the board while failing to invest in marketing, but this only serves to boost the competition. Dublin realised it had to treat parking as a commercial, customer-focused function while investing in completely new infrastructure.
A new system
In 2006, the airport moved to pay-on-foot-only machines and cashiers disappeared shortly thereafter, slashing costs and cutting down exit delays. A bank of machines close to the terminal exit ensured high availability and passengers enthusiastically adopted the new regime.
The next step was an automated online pre-booking system at all sites, linked to a number-plate recognition system. When booked customers drive up to the barrier, the system recognises their car's number plate (with close to 100% read accuracy) and opens the gate for them automatically. If they exit within the paid time slot, the system again reads the plate, opens the barrier and off they go. "You don't need to talk to anyone, take a ticket or do anything," says Codd. "That's now the experience for almost everyone that uses our parking and it's an excellent one. Our customer satisfaction figures have improved by 20% since 2006."
Used to choosing and paying for their flights in the same way, this online pre-booking system is an attractive, hassle-free option for passengers. They can book as far as 12 months in advance and a full refund is available up to six hours before the booked time if they change their plans - boosting confidence in the system. Today, 90% of customers use pre-booking, which accounts for 75% of income; those paying on the day are charged a higher rate.
Unlike some airports where passengers pay a small fee to reserve a parking space and then the balance on arrival, customers pay the whole amount in advance. That lets Dublin bank the revenue upfront and means it can manage its yield with pinpoint precision - just like the most successful modern airlines.
Based on current booking trends and predicted demand, the commercial team varies prices and runs discount offers within marketing campaigns. If a Monday holiday creates a long weekend and attracts extra flight bookings then they immediately change their products and pricing to suit.
The price is right
Unique discount codes that can be redeemed on the booking site let Dublin intelligently vary its pricing to specific customer groups - without cannibalising its sales by revealing those offers to all and sundry. That's often used to drive marketing for events like the UK horse races that many Irish people like to fly to attend. Acting as the operational and marketing linchpin, the online system can easily be linked to multiple affiliate partners.
"In 2012, we signed a deal with Ryanair and Aer Lingus to sell parking through their booking forms," says Codd. "If you are flying out of Dublin with either of them, you will be asked if you want to book parking with us. That puts our products in front of about 80% of our outbound passengers."
Convenience is again the draw for customers, who only have to enter their credit-card details once. It's also a positive experience for affiliate partners who gain extra revenue for minimum effort, simply plugging their own web platforms into Dublin's online system.
"Ryanair has now gone to airports around Europe and tried to strike the same kind of parking deal with them," says Codd. "That tells me that the arrangement we have is the right one."
Extensive customer data analysis informs the commercial team's pricing and marketing efforts. They analyse reams of transactional data from the parking systems and web bookings in conjunction with extensive market research to understand the different customer segments, when they park and what they want. Dublin then uses that intelligence to shape new products.
One key lesson learned has been the difference in price sensitivity between business and leisure customers. Business customers will happily pay a premium to park close to the terminal during the week, but at the weekend, special offers draw in leisure customers.
Crossing the channels
Customer intelligence also informs which advertising and social-media channels to invest in. Dublin has built an email database of 400,000 addresses, and currently employs a mix of online display advertising, posters, TV ads, email and radio to promote parking. Which audience best represents its target market?
"We know from research that mums tend to book the family's flights and so also book the parking," says Codd. "We use this type of information to drive our marketing activity, like the website 'takeover' of MummyPages.ie we ran in 2013."
Working with concessionaires and its own internal functions, Dublin has most recently linked parking promotions with other services at the airport like food and beverages. Everything from free coffee vouchers and discounted car washes, to VIP lounges and priority security passes are sold via the online platform in conjunction with parking and, increasingly, on their own.
To get this far has meant investing €4 million in infrastructure since 2008, services and people, but the returns have more than justified it. Market share is back up to around 95% and savvy marketing continues to drive extra performance improvements. As a public sector body, DAA is not allowed to publish exact figures, but according to its 2013 annual report, its parking revenue grew by 7% in the last financial year - 2% ahead of passenger growth.
With its hard-won expertise, Dublin has established a business unit to help other airports understand how to grow parking revenue at their own sites. The US is a particular focus.
With airport parking worth more than $3 billion annually, it contributed a huge 39.0% of US non-aeronautical revenue in 2012 compared with only 14.9% in Europe and 7.0% in Asia-Pacific. However, most airports still pay little attention to it; for example, Phoenix and Pittsburgh are the only ones so far to offer online parking reservations (but not full pre-booking).
"Some US airports are handling tens of millions of dollars of parking revenue and they may have only one operations person in charge," Codd adds.
Many airports are now suffering serious consequences from this laissez-faire approach. "US airports are losing market share with some as low as 32%," says Codd. "Over a ten-year period, they have lost more and more parking to offsite competitors, and now they don't know how to recover from that."
This income drop comes at an awkward time. The government investment that has historically underwritten US airport expansion is starting to dry up and budgets are under pressure. If airports want bigger or faster developments, they have to fund that themselves - usually on the back of bonds issued against future revenue streams, and one of those is parking.
Codd's advice is to manage parking as a business unit within the same commercial team that manages bussing, property and other non-aeronautical revenue. In Dublin, a seven-strong dedicated team that includes two yield analysts drives everything from marketing and customer research, to operations and budget planning, but turning parking around can take a lot of time.
"Airports are notoriously slow at taking action," says Codd. "It takes them two years to figure out they have a problem, two years to realise they should do something about it and then another two years to actually do anything."
To speed up progress, Dublin's experienced team can come in and run parking for other airports, implementing a pre-booking system, devising new products and pricing, planning marketing and running yield analysis to get more business in. Codd predicts that, like retail concessions, parking's commercial management may well be completely outsourced by some airports in the future.
Property is often seen as the answer by airports that want to boost revenue, but that can take years to develop and, once a deal is inked, income is fixed. Parking has the potential to be much higher earning and the impact of passenger growth is immediate. Many more airports could profit by heeding Dublin's lessons and, instead of ignoring parking, develop it to fund their own future.