How do you transform an airport lounge from a cost centre into a profit centre? That’s the conundrum facing today’s airports and airlines, as they scramble to keep pace with the expectations of modern travellers.
After all, the first airport lounge was little more than an exclusive bar and its aim was to reward the airline’s most loyal and high-spending customers. This was American Airlines’ Admirals Club, which opened at the newly built New York LaGuardia Airport, back in 1939.
In other words, the first airport lounge wasn’t expected to make money for the airline, except indirectly, by building brand loyalty with the premium passengers invited to join the Club at the discretion of the airline’s sales team.
Today, the picture is very different: many travellers are now happy to pay for access to a lounge, even those who are not flying first or business class.
But, in addition to a well-stocked bar, they increasingly expect high quality hot and cold snacks, a wide range of newspapers and magazines, shower facilities with luxury soaps and shampoos, use of IT workstations and free Wi-Fi connectivity.
More sophisticated lounge offerings also offer spa rooms, cigar lounges and children’s areas. Providing all these facilities costs money. For some airlines, the answer to the cost/profit puzzle – at least in part – has been to open up lounges to paying guests, as well as their mainstay of premium passengers whose fare includes lounge access.
These days, American Airlines has over 40 Admirals Club lounges worldwide, but any passenger can access them – for a fee. Individual Admirals Club membership for new members ranges from $350 to $500 annually, depending on their tier status in the AAdvantage air miles programme.
A 30-day pass costs $99 and a one-day pass can be bought for $50.
“As air travel continues to expand and grow, we’re seeing demand for lounge facilities grow, too,” says Nancy Knipp, president and managing director of the Admirals Club and premium services at American Airlines.
Similarly, a one-day pass for Delta’s Sky Club or Continental’s President Club will also set travellers back $50.
For US carriers, paid access to lounges means that “more flyers use lounges, there’s better capacity utilisation and higher revenues, and the business case for running them is less dire,” says Steve Shea, an analyst at Airport Market Research, part of market research company, STS Research Group.
But these airlines are the exception. Most don’t offer paid access to their lounges, continuing to see them as a cost of attracting premium passengers. Either way, for airports, these airline-run lounges represent a healthy, regular revenue stream in the form of payments for leased space.
Whether an airport should run its own lounge, however, is a trickier question. For some, it makes sense. At Munich Airport, for example, Lufthansa, Emirates, BA and Air France all operate their own lounges – but other airlines send their First and Business Class passengers to two lounges operated by the airport itself.
One is the Europe Lounge, which hosts passengers of Iberia, Air Baltic, Estonian Air and Finnair. The other is the Atlantik Lounge, open to First and Business Class passengers of ten different airlines, including Etihad, Delta, Air Lingus and Air Berlin.
“This means that these airlines don’t face the risks in operating their own lounge at our airport or the costs of setting it up,” explains Thomas Penner, president of terminal and passenger services at Munich Airport.
“They just send their passengers to our lounges and they only pay for the passengers who attend. It’s a risk-sharing exercise between the airlines and Munich Airport.”
Since September 2011, Munich Airport has also operated the VIP Wing, with its own check-in, baggage handling, security and passport control facilities, mostly used by passengers such as high-profile entertainers, royalty and heads of state, who require both privacy and luxury.
But the VIP Wing is open to all, Penner stresses, as long as they’re prepared to apply in advance and pay €290 (plus tax) for the first person in their party, and €140 each for others in the party.
Offering its own facilities is vital in Munich Airport’s strategy to attract new airlines and routes, he says. “If a new airline wants to join us, they have lounge facilities immediately available to offer their premium customers. It’s a powerful marketing tool for us,” admits Penner.
That’s a view echoed by Jackie Neville, manager of passenger products at Auckland Airport in New Zealand.
In January 2012, the airport opened its new Emperor Lounge, after tenanted space formerly occupied by an airline was handed back to the airport in early 2011.
The Emperor Lounge is a business development tool to strengthen the airport’s ties with carriers that don’t have their own lounge at the airport to offer premium passengers, such as Malaysia Airlines, she says.
But at the same time, it’s a money making venture for the airport, aimed at a wider passenger base: international passengers, flying in any class, who are happy to pay. For these passengers, Emperor Lounge Access costs NZ $49 when pre-booked online or NZ$55 on the door.
But not every airport will want to run its own lounge. In fact, relatively few do. One of the major reasons is a scarcity of airside real estate, according to Henry Harteveldt, chief research officer at market research company Atmosphere Research Group.
“The big question for the airport financial team, along with its marketing group and its airline alliance team, is the ‘opportunity cost’ of a lounge,” says Harteveldt. “In other words, will the lounge take up space that might otherwise be used by more profitable retail or food and beverage operations?”
In recent years, a third option for airport lounges has started to emerge: facilities offered by a specialist, third-party lounge operators, who lease the space from an airport, offer paid access to all passengers and provide add-on services (a la carte dining, for example, or spa treatments) at an additional charge.
Plaza Premium Lounge, a Hong Kong-based company, now operates 74 outlets in 20 international airports throughout Asia and North America – some in its own name and some on behalf of airlines, including Cathay Pacific, United Airlines and Thai Airways.
“We’re in the service industry – we know how to deliver consistent, high quality service and we train our staff to deliver that,” says Song Hoi See, founder and CEO of Plaza Premium.
He says that’s why airlines trust his company with their lounges – but airports, he admits, are a harder sell. “We are pursuing airline authorities, but to pitch to them can be challenging,” says Song.
“Even though we’ve been in business for 14 years, this is a totally new idea to some airports and they don’t always understand that it’s a value-add proposition. Many are pretty reluctant to give up space as a result.”
Another recent entrant in the third-party lounge operator market is No.1 Traveller, with lounges at three London airports: two each at Gatwick and Stansted and a new lounge at Heathrow terminal 3.
“We may be a common use, pay-on-entry lounge, but we model ourselves on the first and business class lounges and aim to give customers an experience more akin to a boutique hotel,” says Michael Robey, head of experience at the company.
The company is in discussions, he says, to open lounges at two new airports, one in the UK and one in the US.
A third-party lounge could be the answer for airports that are unwilling to operate their own lounges and unable to persuade carriers to do so.
At the same time, many are working hard to improve their public airside concourse to deliver a ‘lounge-like’ experience for all passengers, says Harteveldt, who cites London Heathrow’s Terminal 5, San Francisco’s Terminal 2 and New York JFK’s Terminal 5 as examples.
“Here, we see the lounge-like aesthetic of attractive, spacious seating areas, abundant electrical outlets and Wi-Fi connectivity out in concourses for everyone to use,” he says.
Harteveldt adds: “Some passengers will always want the exclusivity of an airport lounge. Others just want to get on with work in attractive surroundings – and smart airport operators are starting to deliver that, with positive results in times of passenger dwell-times.”
In fact, in the future, the big challenge for all airport lounges – whether they’re intended to make a profit or not – may be in ensuring that what they offer consistently outpaces what’s available in the public area outside.