Many prominent airport retailers are negotiating new lease terms or pivoting their business models dramatically, in order to survive.
The COVID-19 pandemic and resulting shelter-in-place protocols have devastated the airline industry. Along with it, airports across the country, rife with retail, have suffered significant losses.
As cancellations of business trips and vacations mounted beginning with the onset of the outbreak in mid-March, traffic from travelers plummeted. The Transportation Safety Administration reported that throughput fell to approximately 100,000 people per day by the first week of April, down from almost 2.2 million daily a month earlier. The unprecedented drop sent airports into a tailspin, resulting in nationwide furloughs and lay-offs of personnel of both airport staff and the employees who work in airport restaurants and shops. Hudson News, whose shops are a staple in airports across the country, reported that through the second week of June its sales were approximately 85% below last year.
In recent weeks, as home-shelter edicts are lifting and people start to venture out, activity related to air travel shows a slight uptick. TSA traffic is gradually rebounding, with over 440,000 passengers traveling on June 17; that is still down 80% compared to a year earlier. Data on Google searches for flight-related terms indicates that we may have finally found the bottom: relevancy scores rose to 36 at the start of June, off a floor of 28 throughout much of April (a value of 100 represents peak popularity for a term, according to Google.) While these numbers are encouraging, we are miles away from pre-COVID-19 activity in airports, and even if people are willing to fly, total domestic airline flights have been cut by 60% year over year through June 13.
U.S. domestic air travel has historically had a strong inverse relationship with the U.S. unemployment rate. When companies start to reduce headcount, they often look for other low-hanging cost reductions, and travel is at the top of the list. During downturns, this has a ripple effect: headlines about layoffs result in additional reluctance by consumers worried about their own job stability to spend money on travel.
In 2009 during the Great Recession, unemployment peaked at 9.9% and domestic air travel declined by 5.2%. Also during this time, air traffic fell to 618 million passengers from a peak of 679 million in 2007, according to the U.S. Bureau of Transportation Statistics. It wasn’t until 2015 that domestic travel rebounded to pre-recessionary highs, with 696 million passengers; correspondingly unemployment ebbed back to 5% that year, matching 2007.
The seven-year recovery period from 2008 to 2015 came in the wake of a market-driven financial shock—the collapse of the housing bubble—that is very different from the existential threat the coronavirus pandemic crisis presents. The health risks associated with COVID-19, combined with the virus’s far-reaching financial impacts, are causing people to reevaluate how they live and work. That includes vacationing closer to home in places where they can drive. At the same time, business are harnessing the power of virtual conferencing and will continue to leverage technology to reduce costs and maintain productivity.
For these reasons, we expect at least a 10-year recovery for the travel industry overall, presenting tough challenges for airports and the retailers they support. Unlike other retailers, those in airports can’t simple shift to an online delivery model to stay afloat: they are dependent on the captive audiences typically interested in one-time purchases. As such, many prominent airport retailers are negotiating new lease terms or pivoting their business models dramatically, in order to survive.
Hudson, for instance, closed some 700 of its 1,000 nationwide stores in April when air travel was at its worst. Hudson’s rent obligations were eased through its successful negotiation of abatements, deferrals and waivers in excess of $30 million in the second quarter. In a sign of hope for the airport sector, the retailer is speeding up the re-opening of its shuttered stores amid increasing passenger volume.
Other airport retailers are changing their business models to stay in the game. XpresSpa Group, the largest operator of wellness boutiques offering massage, manicures and related services in airports, closed all of its locations by March 24 due to Covid-19 related lockdowns. It quickly pivoted, converting its spaces to testing facilities. The first one is opening in JFK International Airport.
COVID-19 hit airports at a time when they were fast becoming destinations in their own right, complete with sophisticated dining, spas, movie theaters and other attractions designed to entertain captive consumers—that steady throng of travelers who passed through them every day. In the face of sustained economic uncertainty, it may be years, if ever, before airports return to that golden age.