Problem: The COVID-19 pandemic has changed airports: they’re more empty, restaurants that relied on income from tourists are closing down, and airline flights have declined dramatically too. The phenomenon can be summarized by the screenshots below from the Air Transport Bureau report published on October 8, 2020.
Solution: A business that generates revenue on a subscription basis rather than a per-flight basis in order to hedge against large black swan events and also provide an entirely new business model for flying. This business would democratize the idea of “having a private jet on retainer” (of course, owning a private jet comes with a whole host of other concerns and paperwork considerations). The true innovation in this business wouldn’t be in the idea, but would be in the financial innovations. How could a system be designed to avoid losing money per flight while also providing enough of an up-side for customers to want to pay?
First, let’s understand how airports make money. I recommend watching the video linked before to understand the business. Below is a summary using Heathrow Airport as a case study as of July 2018:
A fully privately owned airport near London that hosts 657 flights per day.
$1,485,650,000 in annual costs ($494M to employ 6.5k employees; $232M in maintenance; and $113M in utilities)
Costs $19 per passenger to run Heathrow airport, supposing that they just want to break even.
Heathrow makes money through tangential services and offerings: a cut of sales made through restaurants ($0.90 on average per passenger), retail ($5.15 on average per passenger), parking lots ($2.03 on average per passenger), other retail such as rental/VIP lounges ($3.04 on average per passenger), and the express train ($2.15 on average per passenger). Heathrow usually makes $13.32 per passenger on purchases in addition to what they make from airports. Though Heathrow has one of the highest RRPP (Retail Revenue Per Passenger) globally.
Planes landing pay $9,500 on average to the airport (though it differs for specific planes). This is a flat-rate per-plane. Planes taking off pay fees per passenger (anywhere from $30-$60 per passenger). Heathrow generally makes on average $29 of every plane ticket sold.
As you can see the pricing streams are various and complicated: however, at scale it’s significantly cheaper to run an airport than I expected. The subscription airport pricing could be about $100 per visit to allow passengers to fly as much as they want (perhaps with a few restrictions on miles).
Given the rise of remote work, a business like this might actually be highly profitable. There are also some very interesting statistics on airports that I think support the case for this sort of business:
According to research from Airports Council International (ACI), after surveying 919 airports around the world, global airport industry revenues for 2017 totaled $161.3 billion. In 2013, about 70 percent of airports were operating on a loss, with that trend reversing slowly since then.
On average, the cost to operate an airport is $13.55 per passenger. This figure varies greatly based on size and location. For example, London Heathrow Airport, among the busiest in the world, needs to generate around $19 per passenger in order to break even.
Global aeronautical revenue per passenger is $10.15, while airport revenue from non-aeronautical activities is $7.12, on average, to total just over $17 per passenger. Surveys have shown that an increase of 1 percent in global passenger satisfaction, on average, generates growth of 1.5 percent in non-aeronautical revenue.
The goal of this business would be to increase customer satisfaction at airlines to offer a service that is significantly cheaper to fly than what is currently offered.
Monetization: Subscription revenue.
Contributed by: Michael Bervell (Billion Dollar Startup Ideas)