Concessionaires Hurting at San Francisco Airport
Times are so bad at Lori’s Diner in San Francisco International Airport that the restaurant is offering discounts to airport employees just to bring in some business.
CalStar Retail Inc. has not paid the rent for three of its six stores in the sprawling complex and is being sued by the airport. San Francisco Golf fell behind in its rent payments. And the San Francisco Museum of Modern Art store is pushing for a rent decrease.
For many of the hard-hit retailers at the troubled airport--the nation’s fifth-busiest--it’s the economy, but also a lot more. That is especially true for business owners in the airport’s new international terminal, a cavernous architectural gem unveiled at the moment the economy began to skid.
Pricey business travel is way down, and the transportation industry is feeling it. United Airlines President Rono Dutta recently blamed his company’s $292-million, second-quarter loss in part on the drop in business travel and singled out the Bay Area as particularly hard-hit.
San Francisco International Airport is one of United’s five U.S. hubs, and the airline accounts for more than 50% of its flights. Business bookings at the airport are down 34% compared with last year, Dutta said, while similar reservations at Houston Intercontinental Airport are only down 8%.
Nationally, corporations that spend the most on business travel are reducing their spending by 30% to 50%, said Allison Marble, a spokeswoman for the National Business Travel Assn., which represents corporate travel managers. More than 60% of the group’s members are switching to low-cost airlines.
United spokesman Chris Brathwaite said that although the airline has not seen a drop in passengers overall, revenue from business travelers “is what we’ve seen a downturn in because of the economy. . . . Nowhere have we seen it more acutely than in San Francisco.”
From May 2000 to May 2001--the most recent period for which statistics are available--total concession sales dropped 2% at all terminals combined, said Peter Nardoza, deputy airport director for public affairs. Food and beverage sales dropped about 7%. “Everyone across the board [at the airport] is being squeezed,” he said.
Yes, retailers in the international terminal are complaining about the moribund economy, but they’re also pinning a large chunk of the blame for their troubles on airport officials. New terminal rents are too high, they say, and the airport has done little to market their businesses, many of which are hard to find.
When the new terminal opened in December, the airport boasted about its five-star eatery, Restaurant Qi and Waterbar. The Asian-influenced fine-dining establishment closed in March. “I wouldn’t say it was just the economy,” said restaurateur George Chen. “It was the way the international [terminal] was designed and the fact that they put in too many restaurants in odd places where people can’t find them.”
Mark Thornton, managing partner of the golf store, blames the airport for demanding high rents that make it almost impossible to turn a profit. Normally, he said, rent would be about 15% of a retail store’s gross revenues. Right now, he’s paying about 25%. For his current rent to be only 15%, sales would have to jump 58%, Thornton said.
“Obviously, the economy is not down by 58%,” said Thornton, who has worked out a payment schedule to take care of back rent. “The only percentage on the expense side that is completely out of whack is rent.”
For CalStar, a Phoenix-based operator of airport newsstands and small retail stores, rent gobbles up some 61% of gross revenues at its three international terminal locations. The company grossed $1.23 million from December to June. Under the company’s current contract, it owes the airport $750,603.
“The airport wants to blame this all on the economy, but this isn’t right,” said Don Solem, a company spokesman. “If it was just the economy, you would expect retailers in the domestic terminals to be having the most difficult time, not those in the new international terminal. The fact is that the opposite is true.”
Nardoza chalks many of the troubled retailers’ problems up to being novices in the world of airport retail. In addition, timing was bad for the new terminal’s opening.
As for CalStar, which operates businesses in the airport’s more established terminals, the company “has made $26 million here. I don’t know the markup, but I’ve got to believe this has been a profitable operation,” Nardoza said.
The airport has taken steps to improve life for retailers in the international terminal. It has moved Alaska Airlines’ Mexico operations into the new terminal and worked to improve signs so stores are easier to find.
For the San Francisco Museum of Modern Art’s store, that’s a start, but not enough. The way the international terminal was designed, said Katie Koch, the museum’s chief administrative officer, “it’s almost like retail is an afterthought. . . . Fine, but you can’t expect people to pay exorbitant rents and stay in business. We’ve been pressing for a rent reduction. We need some relief.”
