Stephen Vaughan finds out more about the business plans behind the planning, development and operation of airport hotels.To an ever-increasing number of passengers, the on-site hotel has become part of the ‘airport experience'.
Particularly popular with transfer passengers facing long layovers and those wishing to avoid getting up at the crack of dawn for an early morning flight, the airport hotel is now so commonplace across the globe that it is almost impossible to find a major gateway without one.
They come in all shapes and sizes and often enjoy some of the highest hotel occupany rates in the world.
Indeed, they have been around a long time — the world's first airport hotel is believed to have opened at London Croydon Airport in 1928 (where one of its first visitors was Charlie Chaplin) — and global chain operator, the Hilton Group, opened its first hotel at San Francisco International Airport in 1959.
There is simply no doubt that the humble airport hotel provides a vital service to the traveller and adds value to the airport product, yet the building and operation of hotels often has little to do with the airport itself.
Development partnerships
In 2006, MAG Developments — the commercial property and development arm of the Manchester Airport Group (MAG) — identified an opportunity to extend the quality and range of hotel accommodation at East Midlands Airport in the UK.
A suitable site close to the airport was identified and hotel management consultancies and letting advisors were engaged to assess demand and the scale of the hotel and the facilities required.
"The demand study identified an immediate need for the development of a high-quality full service hotel of 200-230 beds with conference and leisure facilities," says David Roberts, MAG's property development director.
"The vision was to create not only an outstanding quality and eye-catching hotel offering first class service, but also a highly carbon-efficient operation which would build on the environmental successes of East Midlands Airport."
The end result was the opening of a new €27.2 million hotel in November 2011, which was 100% funded by MAG and leased to the Azure Property Group to operate the hotel under the Rezidor Hotel Group's premium Radisson Blu brand.
"As an airport property developer, it is critical to attract the right operator to ensure the hotel is successful in the long-term," says Roberts. "At the same time, we want to maximise our return on investment through the best lease terms attainable in the market."
As with most airports, Heathrow is responsible for the master plan of its entire site. Whenever an opportunity arises the airport property team prepares an outline brief and tenders a ground lease to hotel operators.
"The operator awarded the contract through this process is then responsible for the development, funding and operation of the hotel," says Heathrow's property director, Stephen Wilkinson.
"Heathrow awards a brand following a tender based on the response provided to a wide range of criteria including design, synergy with the passenger profile at Heathrow, operating ability and financials."
Swedavia, the state-owned airport group that operates Stockholm Arlanda Airport, recently completed a thorough analysis of the market, both nationally and through an international benchmarking of other airports before procuring the construction following a rental agreement.
"The hotel was built by a contractor commissioned by us," says Jan Egenäs, CEO of Swedavia Real Estate. "The hotel facilities are operated by Clarion, which is a part of one of the largest hotel chains in Scandinavia and part of the Nordic Choice Hotel group. We will remain as the owner of the building.
"Swedavia had a strong sense of the standard they were looking for based on their market analysis. We asked all operators to furnish us with their idea of concept along with their estimates of revenue if they were to be awarded the rental contract.
"Based on this and a few other parameters we then made a shortlist – with whom we then negotiated final rental contract."
Bucking the trend
Nearly all airport hotels operate under a land lease agreement. An exception is the luxury Westin, which can found at Detroit Metropolitan Airport.
Not only is it Westin's top ranked airport hotel, it often appears in their top five Westins across the whole of North America. Considering its competition — from beach resorts to Times Square — that gives a flavour of its quality.
"In 2009 we were voted JD Power Airport for North America," says Detroit Metropolitan Wayne County Airport Authority CFO, Terry Teifer. "A large part of the success of this hotel has been the brand. It stacks up against the best in the region."
The hotel, which opened in 2002 as part of the new McNamara Terminal complex, is owned by the hotel itself and financed with tax-exempt bonds, which require Detroit to have a fixed management fee arrangement.
All the risk lies with the airport, none with Starwood, the owner of the Westin brand, which pays no concession fee. Instead, Westin simply manages the hotel and the revenues go "into the bucket".
"It would have been difficult to get someone to take on the risk to do something of the quality of Westin," says Teifer.
"As a high-end offering it is clearly not for all, but because we are a hub airport with 160 destinations we receive a lot of business people who use the hotel for meetings."
There's more… read the rest of the article "The On-Site Hotel has Become Part of the 'Airport Experience'" on the Airport World website.
