The Evolving Airport
The exciting news about the airport concessions business is that it is evolving! Airport management groups across the country and globally are adapting to a different model for the benefit of passengers everywhere. The days of every airport looking exactly the same with identical coffee shops and fast food outlets are numbered, (happily), and the trend is toward a different management model — one in which each airport offers the unique gifts of their local markets. Here in Los Angeles, we’ve already started to see the benefit of this trend with the opening of the celebrated and locally owned,
The Coffee Bean & Tea Leaf in Terminal 6 (“soon to” open in Terminals 5, 7 & 8). The Coffee Bean & Tea Leaf is operated by another local business, airport concessionaire CMS Hospitality. Now, instead of sending our coffee money to Seattle, we are supporting our own community.
The concept of airport terminal concessions featuring quality local branding started in the 1990s with cutting edge airports such as Amsterdam, Pittsburgh and Portland leading the way. Their early success with exciting local retail brands and local community favorite food and beverage offerings significantly increased passenger retail spending and led to many other airports following in this trend.
This movement that started in the 1990s slowed down and changed during the post 9/11 terminal reorientation period of dramatically altered security considerations and passenger flow. Airport concessions shifted from landside to secured airside and gate holding areas. During the last few recessionary years this movement stalled to some degree. But is now gaining steam as airports are renovating terminal concessions and repositioning themselves by an enhanced environment. LAX’s terminal renovation is at the leading edge of this movement.
The model of concessions management at LAX is also changing with the introduction of large development groups to manage retail and restaurant tenants. The previous model used by airports was to have retail and food and beverage operators rent space directly from the airport. This meant that businesses signed a lease with the airport and thus, the airport managed a large number of individual tenants. This model is costly in time as well as in money. The new model, called Terminal Concession Manager (TCM), awards the tenant management of the retail and food and beverage space in the terminals to a large development group such as Westfield Concession Management (WCM). Westfield is an offshoot of the big Westfield Group, the global retail real estate company that owns notable properties here in Los Angeles such as the Westfield Century City and Westfield Culver City. This model puts the onus of filling the real estate and tenant management on Westfield and frees the airport management to work on other aspects of airport management like security, airline schedules and operations.
Recently, the City of Los Angeles Board of Airport Commissioners awarded a 17-year Terminal Commercial Manager Concessions Agreement to Westfield Concessions Management for “concession development” in Tom Bradley International Terminal, Terminal 2 and the Theme Building. This will have several effects on our airport. First, Westfield and their tenants will be investing $120M into terminal improvements. This means that the Westfield group will spruce up the terminals from the bathrooms, floors and ceilings to the skylights.
As part of the transformation, Westfield will promote opportunities for local businesses to become part of the rejuvenated programs. It is now up to Westfield to determine who will do business in the airport, as well as up to Westfield to determine when to pull the plug on businesses that are not reaching revenue expectations. Businesses previously negotiated and secured leases directly with the airport.
The advantages of this new model for the airport include private investment in terminal improvements to the tune of $120M ($35.7M from Westfield and $84M from Concessionaires). Furthermore, leasing out retail real estate is the specific skill set of companies like Westfield. They have devoted resources and have conducted studies to determine which colors and shapes increase retail spending. They are experts at working with retail tenants, negotiating rents and constructing improvements. What we should end up with is a better-looking, highly functional experience for the traveler that generates enhanced revenue for the airport.
Westfield expects the redevelopment to create more opportunities for local businesses and investment in TBIT and T2. Airport tenants will continue to pay “percent rent” of their sales based on their business category. Though some category rents will change, Westfield’s comprehensive design, merchandise mix management and marketing programs will help increase sales to the benefit of all airport stakeholders, including local tenants.
To help ensure the success of the entire program, each business will need to achieve specific revenue targets to maintain their position in the airport retail environment. Local tenants will benefit from Westfield’s comprehensive assistance program which provides training, merchandising assistance and marketing support opportunities to maximize sales. It will still be up to each consumer to demonstrate their regard for a local business with their dollars.
While the new TCM model of airport tenant management has been adopted at LAX for traditional retail and food and beverage operations, the airport will continue to manage direct relationships with duty free purveyors. This side of business is easier to manage, as there is only one duty free operator that will be awarded the rights to the entire airport.
As LAX is transforming itself into a world class airport — with the $1.55 billion Bradley West Terminal project — they are looking to other world class airports such as London Heathrow Airport, Vancouver International Airport or Hong Kong International Airport as examples of excellence. These airports completed $1B+ renovations, completely transforming into modern, and welcoming shopping and dining-centric facilities that change the airport experience from a drag to a joy.
Every airport represents the vital gateway to the local city and community and LAX and Westfield Concession Management are now following suit with a commitment of selecting quality local brands, concepts and businesses for the terminal concessions renovation. Once completed, LAX’s 60M+ annual airport travelers will be able to experience a deeper breadth of exciting and varied retail shops and restaurants/cafes/quick-serve concepts that are unique to the Southern California character, cache and Los Angeles landscape.