Tuesday, March 14, 2017
What all airports can learn from Chicago Midway's $250M gamble
By Lewis Lazare
New York (NY) Business Journal
Midway International Airport, Chicago's second airport on the city's southwest side, is playing catchup. The city in February approved the final parts of a multiyear, $248 million modernization plan to expand the airport as well as its retail options, security operations and parking facilities.
The move to make the city-owned airport a more inviting experience for the millions of people who pass through the facility every year is a priority that Chicago officials, like other airport operators throughout the country, recognize can be put off no longer. Noted Chicago alderman Mike Zalewski, chairman of the Chicago City Council's aviation committee: "To be a competitive option, Midway needs to provide the best products, services and resources to its traveling public."
Midway's quarter-billion-dollar gamble comes as many older, larger airports in major U.S. cities find themselves at a financial disadvantage relative to a growing legion of regional upstarts with modern amenities and consumer-specific conveniences that are boosting bottom lines. The trend has sent a clear message to big legacy operators such as Midway; Get with the times, or watch your margins shrivel in an increasingly lean and financially challenging passenger-airline industry.
Midway's upgrades are no doubt intended to improve its financial situation. The airport was only one of two in the nation — the other being Bangor International Airport in Maine — to book an operating loss for 2015, the most recent year for which Federal Aviation Administration statistics are available. Asked about the data, the Chicago Department of Aviation disputed the operating loss, but offered no supporting information to suggest the findings were incorrect.
The reported loss stands in contrast to Midway's standing as one of 25 airports nationwide to report more than 10 million airplane enplanements in 2015. But without the ability to capture a commensurate amount of non-aeronautical revenue — purchases for goods and services including food, hotels and other retail items — Midway remains under heavy financial pressure.
Indeed, U.S. airports on the cutting edge of modernization, restaurant and retail concessions are key to making airports profitable for their operators. At San Jose International Airport — which ranked at the top of American City Business Journal's first-ever airport Power Rankings — non-aeronautical revenue accounts for 56 percent of its total revenue. At second-ranked Los Angeles International Airport, it was 43 percent, while third-ranked San Antonio International Airport generated a whopping 62 percent of its revenue from nonflight related activities.
At Midway, non-aeronautical operations accounted for about a third of its total revenue. Nationally, approximately 46 percent of revenue reported by U.S. airports in 2015 came from non-aeronautical sources.
MIDWAY'S WAY FORWARD
By the time the revamp is complete in 2020, Midway's concession area will have expanded to 70,000 square feet from the current 44,000 square feet. But just as important, the mix of concessions will be more varied when the revamp is done. Midway's makeover also will focus on bringing in more locally based vendors, including Chicago's iconic Billy Goat Tavern and Intelligentsia coffee.
More of the food vendors will be positioned closer to boarding gates to allow passengers to more easily buy fresh, hot food to take on planes, where anything more than a small bag of peanuts or pretzels continues to be in short supply. That's especially true on Southwest Airlines, where peanuts are literally tied to its brand image.
Concessions are only one part of the plan at Midway to make the travel experience less stressful. Security checkpoints are in for a big upgrade, too. Midway and its sibling Chicago airport, O'Hare International, were ground zero a year ago for massive security screening logjams that were creating nightmare scenarios for millions of travelers. The worst of that is over.
But the city of Chicago is moving to ensure Midway is not ever again the poster airport for such problems.
Midway's security checkpoints will increase to 27 lanes from 17 when the upcoming upgrade is complete. That mean's passengers likely will wait less time in lines to get through security and have more time to relax airside, the airport hopes, to shop and dine and generate more revenue for vendors and the cash-strapped city itself. Chicago said Midway contributes about $10 million in annual tax revenue.
The final piece of the Midway upgrade will be an expansion of the close-in parking garage to provide quicker access to the terminal. Several years ago Midway completed an economy parking garage and rental car facility — both at a distance from the main terminal — that can be accessed via bus.
Chicago Mayor Rahm Emanuel, very much a world traveler himself, knows the Midway upgrade, though long overdue, is a key part of a larger plan to ensure Chicago remains a welcoming destination for leisure and business travelers from across the country and around the globe. Emanuel in a statement said the upcoming improvements at Midway will "create jobs, highlight local businesses and improve the airport's overall passenger experience to ensure it remains a viable and competitive option for the future."