Detroit Metro's non-airline revenue may boost cheaper flights

Detroit Metropolitan Airport is experiencing an increase in revenues aside from its airline fees, a change that Metro officials hope will result in lower fares for travelers on more competitive flights.

In growth areas, such as parking, car rentals, concessions and ground transportation, the airport has projected making $145.6 million for this fiscal year, a .6 percent uptick from $144.8 million in fiscal year 2015.

And airport officials project revenues will continue to grow next year another 6 percent as non-airline revenues are expected to surpass airline revenues both this year and next for the first time in the airport’s history. The fiscal year for 2017 starts Oct. 1.

The increases in revenue from parking and concessions dovetail with Metro’s near-peak levels of passenger traffic this year, which jumped 4 percent to 33.4 million from 32 million in 2015.

Among the many benefits the airport reaps from the additional non-airline revenue is expanded and competitive flights to markets — including Orlando, Florida, Phoenix and San Francisco, said Thomas Naughton, the CEO of the Metro Airport.

“Ultimately, our community and economy benefits from the increased demand and air service opportunities that have resulted in part by keeping our airline rates competitive,” Naughton said.

“Our team is committed to creating opportunities for growth — not just here at our airport, but throughout our community and across the region.”

The increase in non-airline revenues has changed the financial picture. Non-airline services generated 44.4 percent of all revenues in 2012 but are now expected to comprise 52.2 percent of the airport’s revenues in 2017.

Going forward, airport officials are including revenue from McNamara Terminal’s Westin hotel as part of Metro’s general fund budget, accounting for an additional $31.1 million in non-airline revenue this fiscal year.

Announcements of new routes are increasing at Metro.

Last year, Virgin Atlantic started flights from Metro to London's Heathrow Airport, JetBlue to Ft. Lauderdale and Spirit to Boston. Southwest will began flying to Dallas Love Field last fall as well as Orlando. Last month, United Airlines said next year it will offer direct flights to San Francisco.

The fees that airlines pay to fly in and out of the airport are offset by other revenue streams such as concessions and parking, said Dina Reed, vice president of financial planning and analysis for Metro Airport.

The more money the airport makes outside airline revenue, the better chance it has to reduce costs for airlines and get them to provide more affordable flights, Reed said.

Parking, concessions grow

“Passengers are traveling and all of our parking, car rental and actual concessions benefit from that increased activity at the airport,” she said. “To the extent we can maximize those revenues on a per-passenger basis, it actually lowers the cost for our airlines, which gives us the ability to be competitive in the industry.”

Seth Kaplan, managing partner of Airline Weekly, a publication that studies the airlines industry, said there is some truth to the theory that additional revenue at airports can lead to lower air fares for travelers.

“When an airport is able to lower the costs to airlines with something like a growth in non-airlines revenue, well then airlines airlines can say, you know what, we can tolerate lower fares because our costs are lower,” Kaplan said. “And that’s when you start growing more rapidly. There’s no question that airlines are always asking airports to do what they can to get their revenue from some other way.”

Atlanta-based Delta Air Lines, Metro’s biggest carrier, declined to comment for this story.

Reed said that the trend over time is that although the airlines are still paying the airport a sizable portion of revenue, other non-traditional streams are beginning to overtake airline revenues.

The airport’s parking revenues have experienced the biggest increase among non-airline services, an 18 percent increase from $57.8 million in 2013 to $68 million in 2015. Airport officials project parking will continue growing to $76 million in 2017.

The parking spike is the result of “the economy doing better” and more passengers are parking at the airport instead of choosing off-site lots, Reed said.

This happened, she said, despite the airport’s raising of rates in the past year. The airport raised parking rates in part to ensure there were enough spaces to accommodate passenger growth, Reed said.

“So we know we’re not outpricing our passengers for the amenities that we’re offering,” she said.

Concessions also experienced a revenue boost after a two-year makeover in the McNamara Terminal produced an assortment of fancy retail, food and beverage selections.

Airport officials are projecting that concessions will reap $37.2 million in 2017, up from $31.2 million in 2013. Last year, concessions raised $34.8 million.

Travelers boosted sales by taking advantage of the new diverse options in dining and shopping, said Greg Hatcher, director of concessions and quality assurance at the airport.

“I think what makes our airport here in Detroit so unique is the mix of all the services, and amenities, and different tastes and flavors we have added to our program,” Hatcher said. “Certainly, the technology and convenience enhancements we have added, like tablet-based ordering in our gate-hold dining areas, helps us stand out.

“However, our travelers really seem to enjoy the new variety of shops and restaurants we have added to the McNamara Terminal.”

Westin hotel factor

The Westin hotel is now included in the Wayne County Airport Authority’s budget because airport officials refunded the bonds backed by the county. Metro and Westin officials say the hotel has never lost money and is expected to generate $3.5 million for airport coffers in 2017.

“Since the recession in ’08, this hotel has been arguably busier than — pick a hotel from Detroit to Dearborn, Southfield to the airport,” said John Reed, general manager of the Westin. “We’ve done extremely well, and we do extremely well.”

The Westin is one of the few hotels at any airport in the country, allowing travelers who stay there to enter the McNamara Terminal through security just outside the hotel lobby. The occupancy rate at the Westin, Reed said, averages about 75 percent or higher, and the hotel is usually sold out midweek.

The revenue rebound has occurred because airport officials studied what passengers want from an airport, said Wayne Sieloff, vice president of planning and strategy management at Metro Airport.

Now, airport officials are finally seeing the growth they expected before the 2008 recession, Reed said, a boost in non-airline revenue she believes will continue.

“We do feel confident about the growth that we’re seeing,” Reed said. “The growth is consistent, steady and stable.”

lfleming@detroitnews.com

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Twitter:@leonardnfleming