« Mobility | Main | The best sentence I read this morning »
The economy of airports
Here are the things most people would happily pay for at an international transit airport: – a shower – clean underwear (for those of us who habitually forget to pack it) – daylight – an exercise facility to help with the jetlag and minimise DVT – nutritious but not too heavy food – a nap, lying flat, somewhere quiet.
And here’s what is generally available: – Gucci – Chanel – l’Occitane – Bodyshop – Lacoste – Nike – a few plastic seats – McDonalds, dougnuts, and the local variety of fried, sugary dross to add a sugar hangover to your jetlag.
...in an airport, foot traffic is very high, and space is at a premium. So you should expect to see things that go at a very high volume (McDonalds) or things that are very expensive per-inch-of-display-space, such as Gucci. Showers and napping capsules do not meet either criteria.
Think of airports as temporary prisons for the wealthy, and the luxury good offerings as reflecting the extreme value of their attention. Airports will sell goods which are complements to that attention, which is otherwise so hard to get.
Compare the Brooks Brothers outlet at Reagan National Airport with the Brooks Brothers outlet at Tysons Corner Mall. I'll predict the former devotes a greater percentage of floor space to eye-catching, easy-to-buy, easy to try on items, such as ties.
Another prediction is this: in countries (cities) where the wealthy people are not hurried (relative to shop hours), there should be fewer luxury goods in the airports. What are examples? Monaco? Nice? Spain? London would seem to be an example of extreme hurry.
And what does Air Genius Gary Leff say?
Addendum: The genius weighs in.
Posted by Tyler Cowen on August 31, 2007 at 07:30 AM in Economics | Permalink
Comments
I've always thought that a gym facility would do very well in an airport. It could charge folks, say, $10 per visit (plus extra for towels, gym shorts and shirts, etc., lots of up selling possible) and have some good cardio equipment as well as showers. Heck, when I get delayed for 4 hours I would love it if I could hit the gym for a bit.
Posted by: Alex Ambroz at Aug 31, 2007 8:24:25 AM
It's interesting, all these are available to the wealthy travelers at international transit airports, and to those of us flying on someone else's dime. Flew business class overnight last week from the US to Frankfurt, Germany. Within steps of my arrival gate, I went into a lounge with showers, beds, quiet areas, and a variety of food, including plenty of fruit and juices.
On the way back, got to fly First Class at Frankfurt, I won't begin to describe that lounge, lest those of you flying coach start to cry, let's just summarize by saying the bring you directly to the plane by Mercedes S-Class moments before departure, and someone carries and loads your hand luggage into the overhead bin for you.
What's amazing is that these luxury goods shops survive, when the richest passengers avoid being stuck in the main areas of international airports.
And for Maria, wouldn't forgetting underwear once be a strong enough reminder never to let it happen again?
Posted by: Dave at Aug 31, 2007 8:29:58 AM
...in an airport, foot traffic is very high, and space is at a premium. So you should expect to see things that go at a very high volume (McDonalds) or things that are very expensive per-inch-of-display-space, such as Gucci. Showers and napping capsules do not meet either criteria.
This is no explanation at all.
McArdle is saying is airport retailers need high sales per square foot and you can get this by selling lots of cheap stuff (McDonald's) or a little expensive stuff (Gucci). But you can also get it by selling in-between quantities of medium-priced stuff. The question, which McArdle does not even try to answer, is why that is uncommon at airports.
Actually, I think the specific answer to Maria's complaint is that she is just wrong. "Most people" in these airports don't actually want to buy most of the things she lists. McDonald's is a popular place to eat, airport or not. Most people aren't interested in working out during layovers. Most people remember to put clean underwear in their carry-on bag. Lots of people are not in transit, but are are leaving or arriving and will shower and sleep at home or the hotel. Many of those in transit don't have time for naps and showers.
I don't think we need to look far to understand why these things are not provided, though the volume of luxury goods available does surprise me.
Posted by: Bernard Yomtov at Aug 31, 2007 8:35:56 AM
I don't think the economics is quite so simple.
Premium departure lounges do offer such facilities as showers and gyms. The airlines want people to upgrade to higher classes.
In those circumstances, it can help maximize profit to intentionally make the standard facilities unpleasant. (As long as the profit made from the increased upgradees exceeds the profit lost by the economy passengers who go elsewhere).
Since each premium passenger presumably generates a vastly higher profit than an economy passenger, it seems quite likely to me that the maximum-profit arrangement does not maximize human happiness in the airport. More profitable to keep the economy-class majority in as much discomfort as they will bear without ceasing to travel.
Posted by: Theophile Escargot at Aug 31, 2007 8:44:46 AM
theophile...though, competition will push that threshold of what the economy class majority obtains up closer to the premium passenger goods.
I do think the economics are quite so simple.
Posted by: shawn at Aug 31, 2007 8:58:35 AM
In Heathrow, I ran across a gentleman selling bananas from a cart in astonishing quantity at extortionate prices. I bought one without a second thought or a moment's regret. Is there some reason that that wouldn't work in an American airport?
I think the missing variable here is that the airport has to agree to any particular venture, and the airports have an image to protect. They have decided that someone pushing a cart full of bananas down the halls is not contributing positively to that image. Result: We have no bananas today.
Posted by: Grant Gould at Aug 31, 2007 9:06:30 AM
Showers, naps, and lying down someplace quiet are all availabe in the international departures terminal of Narita airport. They're not particularly expensive either: the showers are $12 for 20 minutes, a useful nap costs more, but is within the reach of anyone travelling internationally. (See http://www.narita-airport.jp/en/guide/service/list/svc_37.html for what's offered). Actually, a quick Google search shows that airport showers are not uncommon at international airports.
So, "Why aren't there airport showers?" is not really a relevant question. "Why are showers less visible than luxury brands in airport terminals?" is a more relevant question, but I don't think it's a very interesting one.
Posted by: dstevens at Aug 31, 2007 9:11:41 AM
How much competition is there between airports for economy-class passengers? Much of the time, you have to choose an airport based on its location.
There is doubtless some competitive pressure to keep economy facilities somewhat pleasant. But that's a pretty weak pressure compared with the twin pressures of encouraging them to upgrade, and to extract revenue from them with shops rather than comfortable facilities.
Posted by: Theophile Escargot at Aug 31, 2007 9:17:57 AM
The airport in Tokyo (actually Narita) has all of those things except possibly the exercise facility. And I wouldn't be surprised if it had that too. The beds are quite expensive, but people definitely do use them. It also has complimentary play rooms for younger passengers.
But as previous posters have said, in general, airports have few incentives to make themselves more comfortable to passengers since most passengers have minimal choice of which airport they use. I don't know if Narita is an exception to that.
Posted by: Andrew G at Aug 31, 2007 9:27:23 AM
Think of airports as temporary prisons for the wealthy...
Just remember not to drop your soap when in an airport bathroom.
Posted by: triticale at Aug 31, 2007 9:50:20 AM
How long of layovers do you people have that you have the time to work out, get all sweaty and then take a shower and a nap? Maybe instead of worrying so much about your lack of exercise opportunities, you should just learn to schedule your travel itinerary a little better? :o)
Plus you can always walk the terminal and staircases for exercise.
Posted by: Steve Roberts at Aug 31, 2007 10:01:22 AM
"Showers, naps, and lying down someplace quiet are all availabe in the international departures terminal of Narita airport. ...Actually, a quick Google search shows that airport showers are not uncommon at international airports."
Large international gateway airports have a different mix of travelers than most airports. Narita has been a gateway to Asia for North American travelers. Not all U.S. carriers have fifth freedom rights at Narita. So passengers often change carriers at Narita to fly on to Seoul, for example. Changing carriers sometimes requires a lengthy delay at such airports, and the provision of showers makes sense.
I think codesharing with U.S. carriers allows some foreign carriers to better coordinate the timing of tranocean and U.S. domestic flights. The higher volume of air travel within the U.S. provides more connecting possibilities for international travelers.
The demand for showers may just be less in the U.S. because connection times are shorter.
Posted by: John Dewey at Aug 31, 2007 10:04:00 AM
Theophile...there is enormous competition between airports, because connecting flights are quite common. If I'm flying from the East Coast to Asia, I'm likely connecting somewhere - Vancouver, SFO, LAX, etc. Many frequent flyers, for instance, know to avoid the most disastrous airports (Heathrow, JFK, Milan) for connections, and airlines cater to these preferences.
If you look at airport traffic, you can see that it's not well correlated with the attractiveness of the city itself. Atlanta is the busiest airport in the world, and Denver, Madrid, Newark and London Gatwick are all busier than Tokyo Narita.
Posted by: cure at Aug 31, 2007 10:07:39 AM
airports want people to upgrade? airports are indifferent as to which class the traveller is in, it's airLINES that want people to upgrade to premium classes (except perhaps in singapore or other airports which are part owned by the main carrier flying through that hub)
Posted by: josh at Aug 31, 2007 10:43:33 AM
First, let's remember that the original post referred specifically to "international transit airports". Saying you don't need a nap, a shower or a gym on a short journey is a bit beside the point.
Second, let's remember that as so often, it's about the incentives. There may be an incentive to attract frequent economy flyers insofar as they can change their airports. But there are also incentives to attract high-margin retail spending from infrequent flyers.
And if frequent flyers are also more likely to upgrade to premium (for instance because the company is paying) there may be a correspondingly greater pressure to increase the differential between premium and economy comfort.
I think the incentives for the airports and airlines are complex, and do not necessarily lead to maximizing the comfort of economy passengers.
Posted by: Theophile Escargot at Aug 31, 2007 10:49:48 AM
Re the first quote from "Maria" --
Almost every major airport in the world (not just the U.S.) has VIP lounges (with, inter alia, showers) that, contrary to popular belief, are "pay-for-play" and can be accessed by anyone (not just First & Business class travelers) for a nominal (IMHO) fee.
American and Continental, for example, sell unrestricted day passes to their clubs, and there is a company, "PriorityPass," that sells a card that allows access to almost every lounge in almost every airport in the world for $99/year + $24 per visit.
I know at least one airport -- Las Vegas McCarran -- has a gym.
Bottom line: Demand creates its own supply, if the (non-market-based) airport authorities will just get out of the way and allow (market-based) airlines and service franchises to function.
Posted by: KipEsquire at Aug 31, 2007 10:57:26 AM
You know who would do well? A Vicodin salesman.
Posted by: josh at Aug 31, 2007 11:01:25 AM
1) I agree for the most part with John Dewey, with the exception that premium class passengers, regardless of which carrier is used for, say one leg of a two-leg trip, would almost certainly have access to the carrier's lounge of which he is a premium member.
2) Tyler, why are you "predicting" something that is easily confirmable by anyone who has spent more than 5 minutes in an international airport?
3) Currently, airports/merchants are using space to compete with airlines' on-board duty free services (now *there* is a truly captive audience) whereas what they should be providing are more pay-to-use lounges for economy class passengers (styled after airline-sponsored premium class lounges), more internet services for those who travel without a laptop, and better food options.
Posted by: fustercluck at Aug 31, 2007 11:30:31 AM
Maybe I will get rich selling a fold up bed that fits in carry on, like those fold up chairs, to frequent travelers. Just kidding.
Posted by: Floccina at Aug 31, 2007 12:21:36 PM
One time, while transfering in Tokyo, I discovered the by-the-hour showers there (basicly, a nice hotel bathroom rentable by the half-hour) and ever since, have wondered why they're not more common. Beleive me, the difference between starting a trans-Pacific flight fresh from a Japanese hotel room compared with starting one after dragging luggage off a hot Chinese bus is immense!
I don't see gyms as attractive, mostly because they'd require the customers to have planned ahead. I could see buying cheap socks/shorts/underwear/t-shirt, but shoes seem like a deal breaker.
It doesn't seem to me that space is at a real premium at airports. Most airports are big sprawling things that suffer from an excess of space--as evidence, consider that they're the only place you commonly see people-moving conveyor belts.
The question seems to be why airport operators restrict the amount of rentable space and charge premium rents. Why don't they keep building rental space until the rents match the capital cost of building the space? Is the answer just the micro-101 result that a monoplyist will restrict production to lower than market-clearing levels?
Posted by: TomR at Aug 31, 2007 12:32:52 PM
I though the luxury goods sold at airports were aimed at hurried businessmen who want to buy their wife or kids a present because they felt guilty for having an affair while on TDY. ;)
Posted by: econ2econ at Aug 31, 2007 12:38:49 PM
Most airports that have a hotel within the security boundaries offer those services. Some that I have seen recently include Schiphol/Amsterdam, Singapore, Kuala Lumpur, Miami (OK, the miami one is outside the security area, but still in the airport), Bangkok. The airport at Singapore even has a full size gym to while away the hours. As for dealing with the shoes/clothing for gyms, most hotels (and thus hotels in airports) will happily hold on to your stuff until the next time you visit. They'll even wash it for you so its clean when you get there.
Posted by: Matt at Aug 31, 2007 12:42:31 PM
may be i'm not bright enough and too simplistic but i'm surprised nobody mentionned what transit in international airport means for most random people in the random world: Duty Free.
isn't that why cigarettes and alcohol sales are so important ? and aren't luxury products typically more subject to tax than services ?
but then again, this view may be largely outdated, and not very relevant to the US (with it's large, internal traffic and possibily laxer tex policies).
Posted by: some dude at Aug 31, 2007 12:55:02 PM
"Most airports are big sprawling things that suffer from an excess of space--as evidence, consider that they're the only place you commonly see people-moving conveyor belts."
Of course, airports are big sprawling things because aircraft are big things. Hub airports need to accomodate the loading and unloading of dozens of aircraft at once.
"The question seems to be why airport operators restrict the amount of rentable space and charge premium rents. Why don't they keep building rental space until the rents match the capital cost of building the space?"
Secured areas at airports are a relatively new phenomenon. The amount of rentable space within a secured area is limited, and likely already rented out. I cannot see why retailers would any longer value highly the space outside the secured areas. I know some are already established in the non-secured areas. But I doubt many passengers will want to go through the TSA screening lines more than once.
Do you think connecting passengers venture far from their departure gates? That would seem to limit the amount of desirable retail space.
Posted by: John Dewey at Aug 31, 2007 1:02:49 PM
Gary Leff mentions massage chairs. I think that's a helpful example. They are self-advertising, while the privacy involved in showers and naps hides them.
Posted by: Douglas Knight at Aug 31, 2007 1:54:07 PM
