Retail stores at airports continue to charge a bomb and we seem to accept?

Railways and roadways are forms of mass transit that are supported by public funding. Therefore, what we eat or books we buy or even medicines are at “street prices”. But when it comes to airport, we pay a significantly large amount for everything we buy there. The logical explanation is that the airport is not built on public funding (in majority of the cases it may be true unless it is a government funding or a public-private funded initiative), and that there is a lot more activity happening at an airport than a railway platform or a bus station.

How much more expensive are retail goods at the airport

Buying at an airport is expensive and could easily cost your wallet 3 to 4 times depending on the product you buy from their retail store. Food items could be in that range, while non-food might be lesser as well. I am not making any distinction here between duty-free and non-duty-free stores to keep the context simple.

I was hungry at the airport and ordered a snack for which I paid a whopping 175 rupees. Similarly for a small cup of tea I forked out 150 Indian rupees. I felt like a captive who has run out of options and has to deal with what the tyrants say. I would have a similar feeling while buying popcorn for my son at a theater. But I know that is not comparable as it is more of an enjoyment and time-together. But this one is a necessity. I could hope to somehow fly out as quickly as possible or overlook my hunger-pang and pretend to sleep. Overall, the feeling of being fleeced left me numb and I set out to look for reasons an airport operator would overprice.

An airport operator earns from aeronautical and non-aeronautical spending and roughly the spread is 60-40. Aeronautical spends include landing fees, terminal fees, user access fees et al while the non-aeronautical fees include the charges for food and beverages and parking fees. It is in the airport operator’s interest to ensure we spend as much time at the airport as possible since the global average is each traveler ends up spending around $5 per hour of his stay. What does it mean for us? Every extra minute we stand in a screening queue or come late and then rush through the checks to somehow reach our gate the operator loses $1 per 10 minutes we are delayed.?Therefore, there is a constant reminder to us that we reach the airport at least 4 hours ahead of time. The more time we spend at the airport the more is the potential to earn. Now consider a busy Delhi or Mumbai airport, they would have made around 36,000 rupees per square meter of their estate. For a downtown store in a mall Delhi or Mumbai the same goes down to 12,000 rupees , massive drop. Electronics or apparel retailers have gone on record saying their airport stores gross the highest sales per square meter compared to their India stores.?The inventory turnover is also significantly better than the downtown stores. Though there are ambitious figures coming out of the books of research analysts saying that an airport in India will gross $3billion in sales from the stores. Airports charge a percentage of the sales typically in the range of 10% of sales, which means it is in mutual interest that these high grosser stores get the best locations, and their sales also increase year on year.

To encourage the airport operator a study was conducted, and it was found that typically 40% of the mid to high income group end up buying food and beverages and 30% buy nonfood items.

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Therefore, it is amply clear that airport stores charge customers 30-40% over and above the downtown stores. However, airports would say that they charge only about 10-15% more than the “street price”. Now who would know the definition of a street price? Have you ever bought a Pepsi or Coca-Cola at the airport? They charge 2x of the “street price”, but if you check the retail price written on the neck of the bottle you will notice that it is already priced higher than the downtown store. What does this mean? It means that these companies have a different pricing model for institutional sales and the airport is an institution, therefore, the prices are significantly higher than the market for the same product and size. If you buy a samosa from the market versus the same at the airport you will find a 4x price variation. I have bought books in the past and have found them 20% more expensive than a downtown market. ?Long and short of it is that there is no template that can define how much more expensive is a non-duty-free item at the airport. All this while I have not even touched upon duty free stores as prices there are also questionable, clearly prices of liquor inside an airport and a government vend outside are comparable, but I cannot say the same about vends that are private. I have done dip stick tests in Mumbai and Gurugram and found a significant difference in price. Perfumes are definitely at a higher pitch than in a normal store outside.

Why are we then over-charged? Isn’t there cap on how much each item can be priced at in India?

The prices of goods are higher because the airports have various checks and balances, and it is a logistical nightmare to get the goods to an airport store.

1.??????Rents are exorbitant – Typically a retailer ends up paying 10% of his yearly sales as rent, though there is a minimum guaranteed rent per year. ?Compared to a downtown retailer or even a mall, on average an airport retail store ends up spending 4x on rent and therefore builds this cost in the products. The airport operator will argue he spent a fortune in an auction bid to buy out the land and then took a commercial loan to construct on top. He definitely needs a return on the capital he employed. And he is right. But then globally “air” is sold to various telecom providers are a throat strangling price, but does it pinch us consumers when we pay the tariffs per minute of call. Not really! Therefore, someone somewhere has worked out the mechanics of return on investment. Why can’t the same hold true for an airport?

2.??????Logistics is a challenge as the products and carriers are subjected to security scrutiny at various stages. An airport being slightly outside the city limits also invites extra transport cost, which again is baked into the products we buy.

3.??????Demand-Supply curve – Being a high security zone there are many food or non-food items that are not allowed inside the airport. This limits the choices, therefore consumers have to settle to pay more for whatever is available. But is this really the truth? Council data shows that there have been 7 billion travelers through airports globally by the end of 2022. ?Given that we would have 7 billion population date that seems a very high number of travelers.

4.??????Constant chops and changes in the airport design – It is not in the airport’s interest to leave a lot of vacant spots at the airport. A higher utilization allows higher revenue. Therefore, there is a constant modeling and remodeling of the airport to accommodate open or closed stores. Construction cost is expensive as the security has to be screened, logistics is costly, per day parking fees are high for employees. Therefore, the airport stores have to cover all these costs which means the only way they can do it is by overpricing their products. ?On average cost of these chops and changes is around $500 per square meter in an airport and who foots the bill? You and me!

5.??????Handling charges – Food outlets go through a nightmare with extra security measures. ?Multiple counting of heads or knives or forks, logistical hassles of checking labor, getting elements go through the scanner all of this adds to the cost of the final product.

But honestly it doesn’t seem to hurt anyone yet. ?Consumers like you and me end up contributing $50billion to airport sales per annum.

Do the railway retailers over-charge?

Yes, they do overprice the products they sell too. Challenges may not be entirely as mentioned above but they have logistical and security challenges too. But the cost of products probably is overpriced by 5%. Then there are strict railway regulators that monitor the retail prices and do not allow overpricing. Does that mean that an airport does not have any regulations? No, they too go through a regulation which states that airport vends cannot over charge beyond 10% of a dubious “street price”. So what does it tell me? Airports are for mid to high income groups who are probably willing to shell out more, while railways is meant for lower income to mid income group who are price conscious. It also tells me railways are perhaps public funded and therefore more citizen friendly while airports are mostly privately funded and are maximizing profits.

“Airline passengers are a good market.”

“That’s why people are willing to go to the airport, do business at the airport, advertise at the airport — because you’re getting a good middle- to upscale-class clientele.” Said a prominent analys.

Is it fair on citizens to pay a lot more than the market just because some private investors have to make more money?

My question above is rhetorical. And all of you would obviously say NO. But we are all so silent about it for so many years. It is as if someone has taught us that the airports are a different breed and that it is ok to pay a lot more there than a downtown restaurant with the same name and brand.

Think about it, the location where the airport is built belongs to all of us. The investors who buy off the land to build and operate an airport probably are also funded by banks where we have deposits. The labor that would build the airport is nothing but us. The power, road infrastructure, the transport and the ancillary industry around the new airport all come from us. To top it all, the airport was built to carry us from one place to another. Therefore, it is all the more reason that we, the billion travelers’, get the right price and quantity than feeling fleeced.

A lot of the price hike blame is squarely put on security measures and the accompanying hassle of logistics and background checks. I am sure there is a hidden cost to this but fail to understand if that cost is 5times!

Should I then assume, only high- and mid-income groups get security cover and the lower income groups who may choose to travel by train or maybe a roadways bus be subjected to literally no security?

I always thought it is the government’s and therefore our collective responsibility, to provide us military and police cover against crimes or threats. Should I use the same logic that is being used at airport stores, of transferring security cost to products that are displayed on a grocery store at a downtown location?

We may argue that we pay taxes which helps governments buttress all the security measures, helps run the defense and police systems well. But by paying 4 or 5 times more than a normal retail price (including taxes) we are being subjected to tax on tax on tax. I doubt it is for the citizens’ benefit, but we have our government agencies blindfolded to this fact that airport operators will still make a lot of money if they were to inflate the prices to a reasonable proportion.

As a start, what should be a fair way of addressing this conundrum?

I would suggest for essential elements like water, medicines and basic food items, the prices should be inflated by 10% over and above the market price. However, for exotic food items which is a rich can afford to spend on they can cap it higher.

I am sure there is a government regulation worldwide against unfair pricing practices but is there a clear measure to implement and monitor it, thereby penalizing stores? I do not know yet.

Security covers and procedures which are excellent in all the airports globally, should be a bare minimum delivery by the government. Be it a railway station, roads, country borders or airport. While it may add logistical challenges retailers should not be allowed to increase by more than 10-15%. After-all the retailers clearly get captive buyers, 7 billion globally who transit via airports every year. ?Statistics say 50% of them end up buying food or non-food item. These buyers probably are choice-strapped too therefore the chances that they will buy from these retail stores is far higher than a downtown store or even a mall.