Early this spring reports began to emerge from some airports that fewer travelers were choosing to park vehicles at airport lots and garages. At Dallas/Fort Worth airport, parking revenues were forecast to be $10 million short this year, in part due to more people using services like Uber and Lyft to get to the airport. If these initial reports are the beginning of a larger trend, it will pose serious trouble to most modern airport financing models.
Airports have become increasingly reliant on revenues from parking and rental car concessions, often using the funds to support continued operations, new projects and to support bond ratings crucial for the healthy financing of future projects. Yet steadily increasing revenues from sources like these may be under threat from several new transportation technologies that are transforming how consumers get to and from the airport.
Airports in the United States face strict regulations that dictate where and how they can find revenue to support operating expenses or major development projects. Passenger airline landing fees and other aeronautical revenue is generally benchmarked, per regulatory requirements, against operating expenses.
However, revenue from land leases, terminal retail and concessions, parking, and rental cars have all become part of a diversified and profitable income strategy for many airports in the U.S. Today, airports across the nation rely on these revenues to fund capital improvements and operating expenses not covered by agreements with airlines.
Recent history shows these revenue streams have been quite healthy. Non-aeronautical revenue for U.S. airports grew more than 4 percent between 2004 and 2013, according to the Airports International Council, compared to a 1.3 percent growth rate in passenger enplanement. Parking, rental cars and terminal concessions are the three main sources of non-aeronautical revenue for US airports, accounting for 45 percent of total revenue in 2013.
More recent data from the FAA show the rising trend continuing through 2015:
RHONDA PLACE TABLE 1 HERE
The direction of these trends has been good news for airport budgets. The high margins that come with these sources make them attractive places to find funding, and they have become a principal source of financing for capital-intensive infrastructure improvements. According to the Airports Council International-North America, US airports may need almost $100 billion over the next five years to fund capital projects already on the books.
RHONDA PLACE Table 2 HERE
The Unexpected Disruption
Clearly, anything that disrupts the flow of airport funding from parking and rental car revenues puts airports in a financially precarious position. While the ups and downs of the economy may have dictated how those revenues will materialize in the past, today it is trends in new transportation technologies that will be forcing the adoption of new airport revenue models.
Ride-hailing services, also known as Transportation Network Companies (TNCs), like Uber and Lyft are already making impacts. Uber, one of the most successful TNCs, was founded in 2009 and is now valued at more than $70 billion, operating in 70 countries. An estimated $3.36 billion was spent on Uber rides in the first half of 2015, compared to $2.93 billion in all of 2014 — a tremendous rate of growth.
According to Certify, a company that provides business expense reporting software, ground transportation expenses attributed to Uber overtook rental cars in 2015. As of late 2016, Uber accounted for 52 percent of the ground transportation segment, while the share for rental cars dropped to 33 percent.
There are widespread reports of Uber and Lyft disrupting city parking revenues, such as in Chicago and San Francisco. And at Bob Hope Airport in Burbank, California, Uber and Lyft were cited as possible causes of a parking revenue decline more than a year and half ago.
These examples may only be the beginning. The impacts from today’s ride-hailing services may pale in comparison to what’s coming next.
After initial research and development at high-tech giants like Google, big investments are now being made on the assumption that self-driving vehicles will be commercialized in the coming decade. General Motors, Ford, Volvo, Uber, Lyft, Tesla, and Intel are just a few big names in a rapidly growing, and extremely competitive, ecosystem of technology developers that are investing billions of dollars in self-driving technology.
The technology is gaining a real-world foothold. In May of 2016, GM announced it would test self-driving taxis with Lyft. Ford hopes to deploy a fleet of self-driving ride-hailing service in 2021, and Uber has already piloted self-driving transportation services in several states.
Autonomous vehicles will bring enormous changes to current transportation systems around the country, even around the very notion of car ownership. Many auto experts are anticipating that self-driving vehicle fleets will likely be owned and maintained by large corporations that offer transportation as a service, instead of individual owners. Rather than focusing on the profitability of each car manufactured, automakers may find more revenue by offering a variety of services throughout the lifetime of a vehicle.
A service offering self-driving cars on demand would eliminate the need for car owners to maintain vehicles, or sacrifice productivity while they pay attention to the road. Self-driving cars could be in use, earning revenue, almost 24 hours a day. They would also erode the need for parking everywhere, and a major threat to airport revenues will emerge.
The disruptions from this change will be enormous. On one hand, as new transportation technologies take hold, air passengers will be demanding the utility that comes with the new approaches. On the other, airport revenues and existing vendor arrangements or infrastructure plans will have to re-evaluated, and in some cases future planning may have to be scrapped or scaled back unless new revenue sources can be found.
For example, if more passengers arrive via a car service (automated or not), then the curb will most likely become an increasingly important focal point for pick-up and drop-off — making the curb a potential new revenue generator. An increased number of personal autos at the curb might significantly increase congestion at airports — triggering lane access limitations, or a reconfiguration of airport traffic patterns.
Dozens or hundreds of new rules will be needed to adapt to self-driving cars. Labor relations, right-of-way, vendor and concession agreements, real estate management, parking pricing and availability: These will almost certainly experience controversial disruption.
Widespread Impacts Will Require Coordination
Airport authorities, city councils, vendor and labor associations, and other stakeholders will all recognize the gravity of changes required as the nature of driving fundamentally changes.
If parking and car rental revenues decline there will be an inevitable scrutiny from bond rating agencies on airports’ ability to support facility expansions, potentially diminishing capital expenditure capacities for the full range of projects airports may currently have planned. Replacements for these lost revenues will have to be established before financing conditions begin to erode.
Infrastructure will also be impacted. If just 10 percent of air passengers that would normally park in an offsite airport garage begin using curbside drop-offs, the resulting traffic congestion at most major airports would significantly impede normal operations.
At first, existing infrastructure might be effectively re-purposed. For example, dedicated lanes that offer access to airport garages and terminals could be created for low-occupancy vehicles, redirecting some of the access and egress crush. But as self-driving technology continues to be adopted there will be little choice for airports but to embark on large-scale upgrades to their road and curb infrastructure.
These upgrades will have to be coordinated with other changes in the transportation system caused by the rise of the self-driving car. City councils, state departments of transportation and the federal government will likely be wrestling with the impacts of self-driving cars elsewhere in the transportation system.
Recommendations
The rate of adoption of new technologies is notoriously hard to predict, and with so many unknowns about how self-driving cars will evolve, the best course of action for airport planners is to form dedicated task forces and committees now.
Airport entities that must begin developing plans to adjust to new transport technologies include:
- Airport directors and governing bodies
- Airport planners
- Private parking operators
- Municipal and state governing bodies with authority over airport and air traffic operations
- Regulatory agencies at regional, state and federal levels
- Financial institutions
- Service and vendor coordinators
- Labor organizations
- Car rental operators
Measure the problem
Current projections of parking revenues show steady increases, but the trajectory of new transport technologies seems to indicate a disruption is inevitable. If air passenger numbers and terminal concessions rise while parking revenue declines, it could signal that a long-term decoupling of parking and air traffic patterns has begun.
It will be vital for airports to take special care in how they gather and analyze parking and rental car statistics, air passenger demographics, broad economic trends, and the evolving price-competitiveness of all options available for airport ground transportation.
Engage with stakeholders, new and old
Airport authorities are accustomed to working with regional authorities, federal entities and developers, and will necessarily have to open their doors even wider.
Public-private partnerships, successful for many airport projects across the U.S., will be a useful model to plan and coordinate funding for new transportation infrastructure.
Explore new funding sources
Perhaps most important for airports that already depend on parking revenues will be an aggressive analysis of new funding sources:
- Examine new pricing structures for parking and traffic infrastructure
- Make existing parking options more competitive
- Charge for curbside pickup, or dedicated lanes and pickup zones
- Repurpose existing parking structures
- Examine non-transport revenue sources such as property leases, retail, etc.
- Increase expertise in public-private partnerships that can holistically drive revenue
- Raise fees and taxes that are currently established by Federal and local regulations (Passenger Facility Charge, etc.)
Turning a Threat into Opportunity
Airports have a long history of adapting to social and technological shifts, and the arrival of autonomous vehicles will be no different. These latest trends challenge today’s business models, but they also open new possibilities for airports to remain important economic engines and well-functioning transportation hubs. Indeed, it is possible for airports to take the lead in demonstrating how these new technologies can be integrated into some of the nation’s most vital infrastructure. Airports are sites of constant activity, enormous economic potential, and continuous innovation. These characteristics make them a natural place for the self-driving car to meet its potential before many others. We can see the future coming. We must start planning for it.
Tom Kinton is an international aviation consultant with extensive experience including a 35-year career with the Massachusetts Port Authority where he served in various positions including CEO. He is considered a leader and expert throughout the aviation industry, and serves as a senior advisor to leading, global companies in all aspects of the aviation industry.
