The Airport Restaurant and Retail Association (ARRA) has been taking a hard look at the impact of the pandemic on the aviation business, most recently hosting member forums entitled “Two Years In.”
In April, ARRA examined the Airport Perspective, and this week, it approached the topic from the Concessionaire experience. The sessions were hosted and moderated by ARRA Executive Director Andrew Weddig, who also kicked off the concessionaire session at the recent Summit of the Americas.
At its April 2022 Forum, ARRA welcomed Matt Cornelius and Annie Russo of Airports Council International – North America to discuss how airports are faring in their recovery at the two-year mark of the pandemic. They discussed financial recovery, labor shortages, restoring full operations, and federal legislative priorities.
As traffic has recovered, airports are in a better position, but they won’t be back to normal without the full return of international and business traffic.
The robust increase in domestic leisure travel has certainly helped but long-term impacts are going to continue to affect the industry. Two years of low traffic numbers put a lot of airports at a disadvantage and impacts everything from bonding to infrastructure projects. It’s going to take a while to catch up, but it’s a lot better than it was.
Governments acted very quickly to respond to the pandemic, to put in place protections for travelers, for workers, but they’ve been slow to take them back.
Consumer behavior has also changed and this will change airport business models as well.
Airports incurred a lot of cost for increasing cleaning, providing hand sanitizer, and all of the other COVID health measures needed. Those are now normal passenger expectations, said the speakers.
Concessionaires speak out
For its May 2022 Forum ARRA welcomed Gregg Paradies, CEO of Paradies Lagardère and Michael Svagdis, CEO of SSP America. The two CEOs discussed the industry recovery from the pandemic in the face of the new operating challenges of labor shortages, supply chains, and inflation.
Weddig began the session observing that passenger traffic is approaching 2019 pre-COVID levels and the airport restaurateurs and retailers are seeing a recovery in progress. The key words are “in progress” for the concessions industry is definitely not recovered: there is still a long way to go to full recovery.
One of the key themes of the forum was debt. As traffic comes back, concessionaires are generating some cash, but they are still covering losses incurred during the pandemic. All took on “a ton of debt.” Many airports granted MAG relief – for which concessionaires are appreciative – but that didn’t pay the debt.
Paradies Lagardère took on more than $100 million in debt, a huge burden that will take a long time to pay back.
Svagdis noted that growth projections made prior to 2020 did not “materialize,” and the growth expected in ‘20, ‘21 and ’22 is “just gone.” Instead of two-three percent growth a year, they are starting from three years back.
So now these companies have to repay and service the debt, cover current expenses, and in many cases begin paying MAGS, as well as rents that were deferred during the lockdown.
Because of debt burdens, concessionaires must be more cautious and strategic about investments they’re making and investments they’re passing on. It’s a balancing act, they said: balancing limited cash flow among paying COVID debt, meeting commitments, and taking advantage of new opportunities.
Recovery also has a labor perspective: full recovery requires a stable labor market. Capacity to deliver a great guest experience will be a mark of recovery, said Syagdis. And the current labor market is anything but stable.
The entire economy faces too few available workers, rising costs, and intense competition to recruit and retain good employees. Wages are up 20% to 40% from last year in some markets, and last year they were up as well. Even so, the concessionaires said they are short 10% to 15% of desired employment levels.
Both CEOs stressed that the industry cannot overlook the longer-term impacts of the pandemic. Higher construction costs, employee wages, and benefits costs are not going away. They are permanent changes in the business.
Paradies and Svagdis also noted that some long-term positive impacts came out of the pandemic, such as a greater degree of collaboration between airports and concessionaires, as well as a greater focus on the customer experience.