Why airport lounges are big business: A closer look at costs and profits, from $100 million construction to credit card transactions

IdeaWorks has released a new report that breaks down the economics of airport lounges—how people access them, how much it costs to build them, and whether it's profitable for airlines to offer them.

  • Currently, about 40% of American Airlines lounge visits come from credit cards; 35% from memberships; 20% from status and premium class tickets; and 5% from day passes.

    Image source: IdeaWorks

  • If built correctly, a lounge can now cost up to $100 million to build.

    Delta Air Lines and Atlanta International Airport announced a $33 million lounge project in 2021. The 20,000-square-foot lounge won't open for several years, as of 2024, and is part of a larger project to improve Concourse D in Atlanta.

    Delta also plans to open a second 21,000-square-foot Sky Club in Seattle. The airport-sponsored “SEA” lounge is currently estimated to cost $126 million.

  • The cost to build a typical lounge in the United States is “$1,400 to $1,800,” which means 15,000 square feet can cost up to $27 million. Renovating an existing break room can easily cost $20 million.
  • There are more than 3,500 airport lounges, about two-thirds of which are part of airline alliances (although there is some overlap):
    • oneworld 600+
    • SkyTeam 750+
    • Star Alliance1,000+
  • IdeaWorks estimates Delta gets $772 million a year from American Express for lounge access. I would point out, though, that the accounting allocations here are very flexible.

Delta Sky Club Los Angeles International Airport

Lounge demographics show that passengers over the age of 44 are more likely to visit a lounge than passengers aged 28-43, who themselves are more likely to visit a lounge than younger passengers. While IdeaWorks believes demand for lounges may decline in the future, I think this is more related to revenue than interest (although lounge offerings may have to change with generational shifts), and the report acknowledges this.

The study also provides insight into Delta Sky Club economics, showing Sky Club generates operating profit but does not cover its capital costs. Instead, it is necessary for the club to attract premium air travel business (and these assumptions exclude a portion of the cost of those tickets) as well as premium cardmember spending. Note that they appear to generate operating profits Even investing more in food and beverage projects than competitors.

Image source: IdeaWorks

At the same time, the lack of lounges has been a competitive disadvantage for low-cost carriers and Southwest Airlines, which are unable to cater to customers increasingly looking for differentiated experiences. That's why Southwest Airlines actually launched Priority Pass for some credit card customers. They don't want to lose that business. This is why several low-cost airlines around the world operate lounge networks.

It is interesting to observe the interaction between airlines and banks on the lounge network. American Express began building Centurion lounges as it lost lounge partners due to mergers and exclusive card deals (for example, American Express lost Continental, American Airlines, and US Airways). They built lounges (i.e. Delta lounges) in terminals where they didn’t have a partner. Then, as Delta's lounges became crowded, Delta pressured American Express to build expansions in its terminals.

Crowding is a big problem. The more you enter, the more you earn, but the less attractive your lounge becomes. Waiting in long lines to get into the break room is generally stupid. Delta has done its best to limit access and prioritize certain passengers in the lounges, but there are still queue issues. They are building more lounges, but this is a long-term effort.

The queue for JFK Sky Club is about 40 people
byu/1Wubbalubbadubdub1 indelta

Meanwhile, American Airlines announced improved food and an increase in the annual fee for its Citibank Preferred Card. Food improvements – in typical “don't spend a dollar more” fashion – have been modest. Early products, such as guacamole and avocado toast, were sponsored by Mastercard, the payment network used by premium Citi co-brands.

American Airlines Avocado Toast Bar

Centurion Lounges, Sapphire Lounges and Capital One Lounges are generally more expensive than airline lounges. They have high-end decor and an extensive food and beverage program. Banks are trying to directly attract spending from prime customers. These lounges drive credit card adoption, and the experience drives loyalty.

Capital One Lounge, Washington Dulles International Airport

Capital One Lounge, Washington Dulles International Airport

Generally speaking, airline lounges are more expensive than contract lounges, and the costs are increasing. Even American Airlines has increased its lounge food offerings, and their new lounges in Denver, Newark and Washington DC are much higher-end than their previous offerings.

American Aviation Admirals Club, National Hall E, Washington

American Aviation Admirals Club, National Hall E, Washington

Of course, a better food supply would boost consumption. People eat more, partly because eating is more attractive and partly because they want to get value from their investment in lounge access.

@meat.slut Delta executives hate this money-saving ploy #meat #traveltiktok #travel #foryoupage #fyp #meatslut @delta ♬ Little Bitty Pretty One – Thurston Harris

Contract lounges are much cheaper to build and sometimes offer less food. They don't generate as much revenue per visit as Delta lounges, but may earn $20 to $25 per visit through Priority Pass and have lower capital expenditures and variable costs per guest , these can become profitable stand-alone products.

While airport space is at a premium, travelers will travel further into the airport to visit lounges. This allows airports to monetize space that would otherwise not be available for retail or restaurants based on normal passenger traffic. So while nicer lounges tend to lead to lower in-terminal spending (people eat in lounges instead of restaurants, and spend time in lounges instead of shopping), this is still good for the airport.

Washington Dulles Chase Sapphire Lounge

The Capital One app waitlist system for managing lines also benefits airports because customers stay closer to lounges while waiting to kill shopping time.

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