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Last week after 22 years, several altered planning applications, a court case that lasted over four years, and a construction process that included over 20,000 workers, the Queen of England officially opened Terminal 5 at London's Heathrow airport, and the first flights are scheduled to take off on March 27.
Prior to this royal visitation the doors to the terminal have been kept firmly closed and consequently the interior and the space configuration have also been concealed. There has been widespread criticism that a majority of the internal space would be revenue generative, in order to line the pockets of BAA (the operator of Heathrow), and that most of this space would be in the form of high yielding revenues from retail space.
Showcase
As a result, BAA announced that actually only 5 per cent of the internal space will be given over to retail, however this nominal figure belies the truth behind one of the key long term revenue streams for BAA and Terminal 5. This 5 per cent will be comprised of over 22,000 square metre of dedicated retail space and in turn will service the 27 million passengers that are forecast to come through the terminal in its first year of operations, moreover it is planned to increase Heathrow's total retail space by 50 per cent.
The retail product mix will be a showcase for the airport, not only because there will be Richard Rogers designed clusterings of premium retail outlets, the likes of which are normally found in some of the more well known fashion capitals of the world. Additionally there will also be Michelin standard restaurants and 9,000 specially designed seats in waiting areas throughout the terminal.
The problem that exists for BAA over the medium to long term however is that although they're playing down the physical retail space allocation within the airport, the revenue that this space is set to generate is hugely important to the success of the terminal. In fact BAA is much more dependent on this forecast retail revenue than it cares to mention.
In recently published internal documents, retail expenditure (including car park revenues) accounts for 50 per cent of total income for the terminal, furthermore it accounts for a quarter of BAA's total revenues. However the conundrum that BAA and the newly opened Terminal 5 face is that currently a third of all Heathrow passengers don't spend anything during their time at the airport.
Lessons
So what lessons can be taken from the Heathrow model for some of the new and rapidly expanding airports that are cropping up in the region? Primarily it seems that success is not hinged on the amount of retail space, but more importantly about how the retail space pays its way.
The retail allocation should form the single most dominant revenue stream for the airport and as the number of passenger throughput increases then the retail expenditure should do likewise.
The outcome therefore is the age old retail issue, once the customers are through the door then the key is make sure that they spend. When you have the likes of Richard Rogers designing your airport, space is money and consequently it is the job of the retail stores to make sure that the space is profitable in the long term.
- The writer is Head of GRMC Retail Services, Dubai.
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