Total Revenue Management Passenger Terminal Expo USA 2006 www'schintlmeister'com

1

• TOTAL REVENUE MANAGEMENT
• A financial approach towards profitable terminal
  development and management

2
First ... ... 2 Examples
The Retail Story
The Low Cost Terminal Story
3
THE RETAIL CASE

• Assume that an airport earns 2 per
  passenger from the Non Aviation Business and 6
  per passenger from passenger fees
• 20 million passengers result in 120 million
  Euros revenues in fees and only 40 million in
  retail revenues (25 )
• Is the Aviation business therefore more
  important?

4
THE RETAIL CASE

• What are the production costs?
• For the aviation business we would need a
  180,000 square meter building
• For an optimal retail design we need 20,000
  square meters

5
COSTS - EXAMPLE
6
THE RETAIL CASE

• What are the production costs?
• For the aviation business we need 180,000
  square meters
• For an optimal retail design we need 20,000
  square meters
• Annual costs of terminal without retail 90
  million Euros
• Annual costs of terminal with retail 100
  million Euro
• Marginal costs of retail 10 million Euros
• Additional revenues 40 million Euros
• Additional profit 30 million Euros
• Profit aviation unit 30 million Euros
• DOUBLE PROFITS WITH ONLY 11 HIGHER COSTS!

7
THE RETAIL CASE
DOUBLE PROFITS WITH ONLY 11 HIGHER COSTS!
8
THE RETAIL CASE
Aviation Business will still be the most
important because there will be no retail without
passengers
BUT
If you have to reduce Capital Expenditure....
... will you really downsize retail space?
9
THE LOW COST TERMINAL CASE
10
THE LOW COST TERMINAL CASE
Free additional traffic!
11
Relationship between Revenues and Costs
x

Requirements
Space volume
Quality of Space
x
- interest - depreciation
12
A TRADITIONAL APPROACH

• Domestic
• International
• per year
• Peaks

• REQUIREMENTS
• AVIATION
• NON AVIATION

CAPEX Adjustment
13
A TRADITIONAL APPROACH

• The traditional approach is driven by
  operational requirements defining total
  costs
• Traffic projections are the only driver for
  size and quality standards
• Necessary cost reduction lead to endless
  discussions
• Revenues are a result but not a driver
• But what drives revenues?
• We need a closer look on the revenue
  structure

14
FINANCIAL BALANCING

• REQUIREMENTS
• AVIATION
• NON AVIATION
• SOLUTIONS

15
REVENUES - EXAMPLES
16
REVENUES
PRICE
REVENUES
17
REVENUE SEGMENTS
By airline business model
By Origin or Destination
By Spending Rate
18
REVENUE PROJECTIONS
PRICE
REVENUES
Scenarios
19
COSTS

• Different Market Segments have different
  requirements
• Requirements are the driver for costs
• Capital Expenditures result in depreciation
  and interest
• Operating Costs material and personnel costs

We need to know first what are the critical
success factors for the revenues of one segment
and how they influence the revenues. Then we need
to know how these critical success factors can be
achieved by defining requirements. Finally we
develop solutions that make sure that
requirements will be met.
20
FINANCIAL BALANCING
21
COSTS

• Costs that increase revenues directly
• Costs that add value to the users
• Costs that reduce risks
• Costs that increase the reputation of the
  airport
• Perception by the public
• Perception by shareholders
• Perception by potential clients

Costs that influence Critical Success Factors
22
BALANCE REVENUE AND COSTS
23
TOTAL SOLUTIONS

• Once the possible solutions for every segment
  is found we have to balance them in order to
  find the best total solution for the airport
• And finally the solutions have to be tested
  with respect to the various market scenarios

24
Forecast Passenger Volume and Peaks
Forecast Volume, Peaks and Risks
Forecast Volume, Peaks and Risks
Aviation Revenues per Pax
Passenger Fee
Passenger Fee
Retail Revenue
Retail Revenue
Retail Revenue
Requirements
Requirements
SOLUTION
SOLUTION
Capital Expenditures
Capital Expenditures
Capital Expenditures
Total Costs
Total Costs
Total Costs
25
Forecast Passenger Volume and Peaks
Forecast Volume, Peaks and Risks
Forecast Volume, Peaks and Risks
Aviation Revenues per Pax
Passenger Fee
Passenger Fee
Retail Revenue
IS THE COMMON SOLUTION BETTER ???
Retail Revenue
Retail Revenue
Requirements
Requirements
Requirements
SOLUTION
SOLUTION
SOLUTION
Capital Expenditures
Capital Expenditures
Capital Expenditures
Total Costs
Total Costs
Total Costs
26
THE TRM APPROACH

• This Total Revenue Management Approach follows
  the concept of marginal revenues and costs
• First the production costs of the market
  segment with the highest (risk adjusted) revenue
  potential will be identified
• From this starting point we analyze the
  additional revenue potential of the other
  segments by analyzing the marginal (additional)
  costs of implementation and operation
• The additional costs can either be direct
  production costs for the new segment but also
  costs of lost revenues in another segment as
  well as opportunity costs

27
REVENUE COST RELATION
Profit
Break Even Line
28
SUMMARY

• The Total Revenue Management Approach
• Every requirement has a certain value for
  various levels of fulfilment
• therefore the calculation of trade offs will
  be possible
• How much flexibility, quality, retail, etc.
• So the right terminal building can be found
  by minimizing unnecessary costs
• It is more complicated at the beginning
• But it saves a lot of time and nerves
  during and after the development process
• And we will understand our business better

29
THINGS I DID NOT COVER

• not everything can be forecasted, we still
  have to believe
• but believes have to be based on arguments
  instead of pure guessing
• How to motivate business unit managers to
  think in the Total Revenue Management context
• There are financial issues about the timing
  of investments, the discounting of Cash Flows,
  taxes, etc.
• There are other requirements caused by
  public relations, legislation, marketing, etc...
• You can download case studies and a complete
  description of the approach from my website
  www.schintlmeister.com

30
TOTAL REVENUE MANAGEMENT
31
AN EXAMPLE

• For demonstration purposes the following is
  assumed
• Passenger Fees
• Local departing 14
• Transfer 7
• Retail Revenues
• Per local departing pax 3
• Per transfer departing pax 6

32
REVENUE PROJECTION
33
REVENUE PROJECTION
Aviation Revenues
Revenues from Transfer depend on O D
traffic Are there individual market segments?
34
REVENUE SEGMENTS

• Hub Airline and Other Airlines are two
  different main segments with different
  requirements
• Both segments have two revenue streams
• Aviation Revenues (Passenger Fee)
• Retail Revenues (Spending Rate)

35
REVENUE PROJECTION
REVENUES BY SEGMENT SZENARIO 1
36
Revenue Structure - Example
REVENUES BY SEGMENT SZENARIO 2 no Hub
37
ABOUT ME
Max Schintlmeister is an independent airport
consultant based in Berlin and Barcelona. He
participated in various airport analysis and
development projects like Berlin
Brandenburg International New Delhi and Mumbai
airports Vienna International
airport Ciudad Real Don Quijote
Airport Malta International Airport Belgrade
Airport After several years with Vienna
International Airport, in 2003 Max Schintlmeister
became an Independent Airport Consultant focusing
on the management of airport development
projects. Additional to that he works as an
aviation market analyst and research
development expert. Contact Information Email
max_at_schintlmeister.com Phone [phone]
139 Website www.schintlmeister.com