If you’ve ever traveled by plane, you know how expensive airports can be. It’s almost like entering another world with different prices on the inside. So, what makes airports so expensive?
Airports are expensive because the overall cost of running a business in one is higher than outside. Expensive rental contracts, intensive employee vetting, construction fees, and high turnover increase the overhead for airport businesses. High demand and low competition also allow for higher prices.
This article will explain why airports are so expensive, providing insights into why businesses charge so much for their products and services. Read on to find out more.
6 Reasons Why Airports Are So Expensive
Here are the reasons why airports are so pricey.
1. Retail Space Costs More in an Airport Than in a Mall
Prices are much higher in an airport due to the operating costs of the individual establishments. Airport retail space typically costs more than that in a mall.
There are three ways a retail establishment or restaurant’s monthly rent can be determined in an airport:
- A set monthly rate
- Commission-based rate
- A combination of the two
For a set monthly rate, the establishment will pay rent like in any average situation. However, these rates are typically higher because of the prime real estate of the airport setting.
For those paying a commission-based rate, the airport will take a certain amount of profits as established in the rental contract. This will be a flat percentage but the total amount paid will vary based on the business’s success.
The more profitable the business is, the more rent it will pay.
The final option can see renters paying commissions on top of a monthly rental fee. This would be the most costly contractual agreement for a business, resulting in the highest-priced rent and services offered out of the three rental options.
2. Demand Is High, Supply Is Low
Anyone who has flown anywhere knows what airport security is like. You will not be getting a bottle of water past them because they find everything.
Food and drinks are premium commodities within an airport setting due to passengers not being allowed to bring in their own from outside. This pushes demand through the roof for things like a simple bottle of water, allowing retailers to charge exorbitant fees because they know people will still pay them.
Additionally, passengers are essentially captives of the airport scene once past security or when stuck on a layover. Furthermore, they cannot go back outside without being rescreened, which could put them at risk of missing their flight.
Anything passengers need at this point must be obtained within the airport. If they’re on a layover, they’ll need to buy dinner at one of the expensive restaurants. They may also want a book or magazine to pass the time, and have to spend the extra money to keep from being bored.
In addition to the high demand for these items, there is a low inventory in most cases.
Storage is limited for each establishment, allowing for only so many days’ worth of stock. It also costs more to get deliveries due to the distance the vendors must travel to the airport and the hassle it takes to clear security.
3. Maintaining Employees Is Expensive
Employees working inside airport security checkpoints are more expensive than those working outside them. The primary reason for this is the vetting process. To be allowed entry through security, each employee must pass a thorough background check. The ones outside the checkpoints are not subject to the same intensive vetting.
These background checks are expensive and increase the cost of food and merchandise sold within the establishments. However, they are necessary for the safety of everyone.
An interesting fact you may be unaware of is that airport employees are not exempt from paying airport parking fees. Some employers will pay to discount the rate or pay the entire fee for all their employees. Doing this can significantly impact the business’s bottom line.
Additionally, because parking is so expensive and it’s challenging to travel to the airport via public transportation, employers must make it worthwhile for their employees to come to work.
4. Turnover Rates Damage a Business’s Bottom Line
It can be challenging for a business to maintain its workforce in an airport. With the airport open 24 hours a day, employees have the choice of working in various shifts. However, even the most steadfast night owl can tire of the graveyard shift.
As previously mentioned, getting to the airport any other way than by driving can be difficult, and parking is expensive. Both issues are incredibly frustrating to employees.
When you add in the hassles of having to go through security at the start of each shift, it’s no wonder that turnover in airport businesses is pretty high.
For business owners, this is detrimental to their profits. Having to repeatedly bring onboard new workers means more and more background checks, depleting any financial progress the business is making. Additionally, they have to factor in the costs of training.
5. Raised Prices Offset Construction Fees
When a business signs a contract to take over a leased area in an airport, they also agree to take on all associated construction fees. The airport does not pay for the setup. Consequently, business owners must have their own capital to invest in the startup of their new businesses.
6. Businesses Have No Real Competition
The final reason airports are so expensive is that individual businesses have no real competition. If you need a charger for your phone and are stuck in an airport, you will buy the one you get because you have no other choice.
While prices inside the airport are often significantly higher than street prices, airport regulations prevent businesses from increasing their prices excessively.
Generally, price wars do not happen within an airport setting, with prices remaining consistently high across the board. This means similar items will have roughly the same price throughout the airport.
While many think they are getting a steal at a duty-free shop, even these have hidden price hikes. Because they have no real competition, duty-free shops can raise their prices. Besides, customers have nothing to compare them to.