Travel Is Taking Off Again, But Airport Retail Still Struggles With Staffing And Debt
Airport foot traffic has been ticking up across the U.S. since the beginning of the year, reflecting a growing number of fully vaccinated travelers and public confidence in the decline of Covid-19 cases and deaths across the country.
It’s a welcome change for airport retail and restaurant operators, who took a major hit from the coronavirus pandemic in 2020. But even as sales continue to ramp up, concessionaires are struggling to find enough staff to open all their stores, let alone keep them staffed for the long hours traditionally required by airports.
“Just the callbacks, and staffing at a rapid pace that's quick enough to ramp up to the airports' recent increase in traffic, has been the biggest challenge,” Crews Hospitality President and CEO Nick Crews said.
Passenger volumes through U.S. airports have been rising since the beginning of the year, but received a noticeable bump around mid-March, when people opted to travel for spring break. That upward trend has continued into summer, which is typically the busiest period for travel.
The U.S. Transportation Security Administration screened 2,028,961 people on June 11, marking the first time that more than 2 million individuals were screened in a single day since March 2020. The milestone represented 74% of travel volumes versus the same day in 2019, and 1.5 million more travelers than the same day in 2020.
As more travelers hit the skies, airport concessionaires are likewise opening up more stores to meet the retail demand — but not necessarily as fast as they’d like, according to Airport Retail & Restaurant Association Executive Director Rob Wigington.
“We're having a huge labor issue that's being felt across the country, but particularly in the hospitality industry, and especially in the restaurant environment. They can't get enough workers so that they can reopen as fast as they would like to,” Wigington said.
Reasons for the shortage of labor vary. Crews said that common reasons include a lack of access to childcare, as well as ongoing fears about being exposed to Covid-19. Airport retail also typically presents a challenging commute for potential workers and can involve long operating hours and less desirable work schedules.
Crews’ firm operates 35 stores in four airports, and right now, only 70% are open. The locations are a mixture of quick-service restaurants, which have large staffing requirements, and specialty stores, which sell nonessential products.
“The number of team members that it would take to even just do a shift and a half a day, it's 30 to 40 team members just to do that amount in two of our restaurants,” Crews said. “The timing of calling people back and them actually committing to come back has been a challenge.”
Despite the difficulty, Crews is aiming to have all his stores, apart from specialty retail, open by Aug. 1. However, those stores will be operating on flexible hours, rather than the long hours required by airports pre-pandemic. Crews said he hopes to have all of his specialty retail offerings open by the end of the year.
Corliss Stone-Littles, who runs her own airport concessionaire firm, Corliss Stone-Littles LLC, said her company has been participating in job fairs to try to recruit more workers. The firm oversees 65 retail stores across 14 U.S. airports, including well-known brands like Sunglass Hut, L'Occitane, Johnston & Murphy, Kiehl's and MAC. She doesn’t operate any restaurants.
Many of her stores started reopening around Thanksgiving and Christmas, and at the moment, only five or six remain closed. Those locations are mostly general news and gifts stores, as the staff can be easily transferred to another retail location in the same airport.
Specialty stores require staff with more training and product knowledge, which prompted the firm to try to keep most of its staff members throughout the pandemic. But even so, Stone-Littles said that retaining and recruiting labor has been a serious challenge.
“We had people who said, I don't have childcare. We had people who said, you cut the hours of the store, I'm not making enough money for this. And some people just said, I'm afraid,” Stone-Littles said.
Crews said that issues around labor are even trickling down to vendors that work with airport concessionaire firms.
“It's not just the front-facing retail of food and beverage locations that are having issue staffing. Even our vendors are having issues with rehiring and staffing,” Crews said. “That then leads to less deliveries on a weekly basis, because they don't have the drivers or the teams to pull the items.”
Not only is labor tricky to find, but it’s also more expensive for airport shops than regular street retail, according to Wigington. Airport concessionaires usually pay their workers more because of the challenges of commuting to airports and working long, sometimes undesirable hours.
The combination of suppressed sales and minimum staffing requirements now directs 35 cents to 45 cents of every dollar earned by an airport restaurant or retail store to labor, according to an ARRA report. That’s considerably more than before the pandemic, and also exceeds non-airport stores, where labor accounts for 25% to 35% of income in food service, and 15% in retail.
Elevated labor costs are only a small part of the financial headache that airport concessionaires must now contend with, as airports begin the slow journey back to normal.
“A lot of us have suffered a lot of losses. So it's not as if we can say, we've turned a new leaf, we're starting over, our debts have gone,” Stone-Littles said. “We're pulling ourselves up and saying, how much debt have we incurred? How much damage has happened to the infrastructure? How much term do I have left on my lease? And what kinds of access to new employees do I have?”
Crews said that most of the large, top-tier airports in the U.S. have continued to waive store rent and the minimum annual guarantee, which is a sum paid to the airport, regardless of how well the business is doing. But for airports with smaller cash reserves, concessionaires were only given the option to defer.
That’s the case for Stone-Littles and her operations in Detroit, an airport where she will still be expected to pay back rent from during the pandemic.
“Airports are willing to wait on the money. But most of them are not willing to eliminate the debt, because they have debt to pay as well,” Stone-Littles said.
Across most airports, other things like office and storage space fees have typically been deferred, not waived. Those debts will need to be repaid, along with outstanding funds still owed to vendors. As a result, much of the profit being earned by concessionaires in the coming months and years will be flowing into debt repayments.
“Our focus is to make sure the operations that are open are profitable on a four wall location level, but that profitability is still going to be utilized for other aspects of the business that need to be caught up on, or prepared for when things get fully going again,” Crews said.
There’s also the question of future expansions. Stone-Littles was planning to open three new stores prior to the pandemic, but those were placed on hold. Now, the firm is trying to replan how and when those stores could open, especially given that retail build-outs in airports are typically more expensive than regular street retail.
Adding to the uncertainty is the fact that several of Stone-Little’s airport landlords are now discussing whether they are over-merchandised, and are re-examining whether they want to cut back on the number of retail stores they have to give the remaining concessionaires a greater chance of success.
“For example, Atlanta had done a really big bid process. And we had won, I think, five stores, and that's going to go away. So there's just a number of unknowns,” Stone-Littles said.
Under the Coronavirus Aid, Relief, and Economic Security Act, U.S. commercial and general aviation airports received $10B in federal economic relief to support continuing operations and replace lost revenue. Though there wasn’t money specifically earmarked for airport concessionaires, some of that money was ultimately used to waive debt.
Additional financial aid came in the form of the second stimulus package signed in December, as well as the American Rescue Plan Act of 2021, which included $8B in funds for U.S. airports. Of that money, $800M was for providing relief from rent and minimum annual guarantees for airport concessionaires.
This funding has ultimately helped most airport concessionaires survive the past year, though Wigington said he had heard of some firms being forced out of business. The industry is still fighting for additional financial aid, specifically through the Restaurant Revitalization Fund.
“Those programs have been very difficult for our companies to get access to, particularly given the nature of the business deals and the way they operate at airports,” Wigington said.
Wigington said that airport concessionaires were specifically identified as eligible within the program, but most companies are set up as joint ventures in airports, creating a unique business structure that the Small Business Administration has struggled to deal with. In addition, the fund didn’t enough money to meet the scale of the need, although Congress has introduced legislation to replenish the fund with $60B.
Crews noted that the vast majority of airport concessionaires didn’t qualify for the Main Street Lending Program, which supported lending to small businesses that were performing well before the pandemic.
However, he is hopeful that the industry will be able to eventually access the Restaurant Revitalization Fund, as it would give concessionaires the ability to address a wide variety of financial pressures.
“The good thing with those dollars that people are able to receive, is [that] there is a broader use of those funds for their business, as far as what they can use it for. Employees, capex, debt payments, vendor payments. So we're hoping for that,” Crews said.