It’s OK if the Operator Wins from Time to Time

It’s OK if the Operator Wins from Time to Time

By: Keith hunter   •   email: keith@hunterpalmer.net

Having attended a couple of conferences recently, and thinking back to themes in previous years, it would seem that some of our industry colleagues still have a problem with the traditional airport concession model. Is it me, or do the issues of ‘over bidding’ and ‘greedy landlords’ keep rearing their dastardly heads?

If it is such a hot topic, why has nothing been done to address such problems? Who is to blame?

The truth is, everybody should share the blame, but all parties need to start singing from the same hymn sheet!

It all goes back to the point made so many times; airports and operators actually need to start working together more closely if they want to unlock the true commercial potential of the airport. Surely it is in the airports’ interest to facilitate greater sales for their Duty Free operators? If the operator is struggling, it is likely that the offer and the service will decline, adversely affecting the customer experience, then nobody wins. Without providing any assistance, the airport may still achieve its MAG, but why would anyone want to settle for a minimum income? The more the operator sells, the more rent will be achieved by the airport, as most concession deals are framed around a percentage rent. So by focussing on the problems faced by operators, whether it be passenger flow, exposure, marketing, profile decline, storage and replenishment issues or unfair competition, the airport should be able to find a compromise that will ease the situation. I’m not saying that some airports do not already attempt to help, but a great deal just sit back and rely on the MAG to do its work.

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Is the MAG right in the first place? Ask most operators and they will tell you that it was either set too high, or they were resigned to agreeing a high MAG on the basis that they would not win the tender without doing so.

On the flip side, there are many examples of operators who have quite clearly ‘over bid’ in their tender to compete for new or continuing business. They deal with the fallout later, either by trying to get the landlord to concede, or by going after their brand partners, trying to renegotiate pre-agreed margins after the event. According to some high-profile brands, this is commonplace and a huge bone of contention on their part. We have seen examples of operators with winning bids suddenly pull out of a location, or negotiate their exit mid contract. Sometimes this happens before they even set up – embarrassing for the operator and financially detrimental to the airport now left with vacant commercial real estate.

So what is the answer?

It is a complicated knot to untie, but a start could be made by the airports as they are the control here. Airports need to make a choice. Either they go it alone and operate their commercial services themselves, or they do what they should have done all along and go into partnership with their operators. Have a vested interest in the business. Share the issues and the pain as well as the rewards. The agreements they make need to be designed to eliminate the fear of the operator actually winning once in a while. After all, if the operator wins, the business receives focus, investment and commitment – all the elements required to make it a success for them and the airport.

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