There’s a nicely balanced (gasp) piece in the KC Star today discussion the question of retail amenities at KCI. This has become a larger part of the conversation lately and this makes for a good opportunity to clarify some things.
A lot of attention has been given lately to the fact that KCI ranks last on a list of “peer airports” for concession revenue. Actually, we’re told that we are “dead last” not simply last. KCI earns an average of 66-cents per departing passenger. The average for the peer group is $1.58. Thus, we are told, if everyone simply spent a dollar more, we would earn an extra $5,000,000 a year. (chump change still compared to a new $70 million dollar annual debt service on a new terminal but I digress.)
There is a major math flaw in that argument though. The above numbers represent only KCI’s share, not gross sales. KCI employs a third party operator to manage retail and restaurant concessions and then takes a cut of the proceeds. I have asked for a copy of the agreement to see how large the cut is but have not received it yet. I did review one that I found online from another airport and the airport cut averaged around 15% with the same operator used at KCI.
Assuming that KCI being “dead last” is not simply the result of us having a lousy deal with the operator compared to others, the only way we would get to that average figure is for passengers to spend $10.53 each instead of the $4.40 they spend now ($4.40 x 15% = 66-cents). Clearly that is more than “simply spending a dollar more.”
Thus the calls come for more retail and dining options (aka build it and they will eat). But those calls fail to consider the bigger picture.
- We already have more restaurants past security and they are far from operating at capacity so where is the demand?
- TSA told us that KCI passengers arrive at the last minute because they know they can. Thus they don’t have time to shop and eat meaning the only way to give them that time is to make the airport less convenient for everyone.
- We have not heard from the concession operator, HMSHost, during our hearings and we need to. They will be the ones on the hook for making a profit and will approach it from a realistic business perspective. Do they think there is demand in this market?
- Again, even if wildly successful, we’re talking about a small fraction of the annual revenue needed to cover the payments on a new terminal.
Retail can’t wag the KCI dog.