Why Everything At Airports Is So Expensive

Business Insider

581,120 views • 1 month ago

Video Summary

Airport prices are significantly inflated due to a lack of competition and management not being answerable to the public. Historically, airports sought revenue through amenities and then by embracing a "mall" concept in the 1990s to enhance passenger experience and generate income. While early models aimed for "street pricing," most US airports now utilize "street pricing plus," adding a 10-15% markup, though actual markups often exceed this due to lax enforcement.

The consolidation of the industry among a few large corporations has further reduced competition within terminals, allowing for higher prices. Increased "dwell time" for passengers, a consequence of enhanced security measures post-9/11, also contributes to higher concession revenue. Despite some advocacy for "flexible pricing" by industry associations, passenger satisfaction with food and beverage prices at airports has consistently scored low.

Short Highlights

Airport prices can be as much as 120% higher than street prices, with a burger marked up 46%.
The lack of competition is a major factor, with a single company operating multiple businesses in some food courts.
Historically, airports generated revenue through observation decks, parking, and even restaurants, with the "air mall" concept emerging in the 1990s.
Most US airports now use "street pricing plus," adding 10-15% to street prices, but actual markups can be significantly higher, with one example showing a 69% increase for M&Ms.
The industry is dominated by six large corporations that operate over 13,000 locations worldwide, contributing to a lack of competition within terminals.

Key Details

Airport Pricing Markups [0:00]

Chocolate bars bought at the airport cost 120% more than those purchased elsewhere.
A burger from a specific chain is marked up 46% from its street price.
Airports often lack public accountability, leading to premium pricing.
A lack of competition is a significant factor, exemplified by a food court where all six businesses are run by the same company.

The speaker highlights the substantial price differences for identical items purchased at airports compared to other locations, attributing this to a captive audience and a severe lack of competition.

You probably know you're paying a premium, but have you ever realized just how much more?

Historical Development of Airport Amenities and Revenue [0:56]

Airports in the early 20th century were more like train stations, often perceived as overcrowded and dingy.
To grow, airports needed to improve and find ways to generate revenue from passengers.
Early revenue streams included observation decks, oil wells, swimming pools, tennis courts, and parking.
Pay toilets were also experimented with as a revenue source.
By the mid-20th century, airports began opening restaurants, including upscale establishments, to attract both passengers and the general public for dining and social events.
Some terminals became architectural marvels in the 1960s, offering amenities to attract people and generate revenue.

The evolution of airports from basic transit hubs to destinations with extensive amenities was driven by the need for improvement and significant revenue generation, encompassing everything from parking fees to elaborate dining experiences.

They were making money any way they could. Observation decks, oil wells, swimming pools, tennis courts.

Impact of Airline Deregulation on Air Travel and Airports [2:54]

The deregulation of the airline industry in 1978 allowed airlines to set their own rates and routes, leading to a sharp decrease in ticket prices.
This resulted in "fare wars" and a decline in in-flight services, with gourmet meals replaced by basic snacks.
The number of people flying in the US nearly doubled in the decade following deregulation due to cheaper tickets and larger planes.
In the 1980s, an increase in connecting flights led to passengers spending more time waiting in terminals, creating a need for better airport experiences.

Deregulation fundamentally changed air travel, making it more accessible but reducing in-flight service. This, in turn, increased passenger dwell time at airports, presenting both challenges and opportunities for airport revenue.

For those who had grown up in aviation during the golden age, their world was gone because as they lowered fairs, the service on the airplanes also, as they would put it, deteriorated.

The "Air Mall" Concept and Airport Revenue Growth [4:24]

To address passenger complaints about long waits and poor experiences, airports began incorporating "malls" into their terminals.
The Pittsburgh airport, opening in the early 1990s, was a pioneer in transforming its terminal into a mall with over 100 shops and restaurants.
This model not only improved passenger satisfaction but also became a significant revenue source through rental fees from shops.
Pittsburgh's airport revenue reportedly soared by 75% within six years, achieved without price hikes by adopting a "street pricing" model.
The success of this "air mall" concept led other airports to invest heavily in renovations to emulate its financial gains.

The introduction of the "air mall" concept proved to be a highly successful strategy for airports, transforming terminals into shopping destinations that significantly boosted revenue while aiming to offer prices comparable to those outside the airport.

It not only makes passengers a lot happier, but it's a great revenue source because every one of those shops are going to pay a rental fee to the airport.

"Street Pricing Plus" and Price Discrepancies [5:47]

Most US airports now employ a "street pricing plus" model, which adds an additional 10-15% to the product's street price.
An authority sets a price cap, intended to be a "fair and reasonable adjustment."
Businesses are expected to stay within this cap, and airports typically audit prices a few times a year.
However, the definition and application of "street price" can be confusing, and actual markups frequently exceed the allowed percentage due to lax enforcement.
Examples show significant price disparities, such as a chocolate bar costing more than double its outside price, and M&Ms being 69% more expensive at an airport store compared to a local drugstore.

While a policy of "street pricing plus" is in place, the reality at many airports involves significant markups that far exceed the intended cap, often due to inconsistent enforcement and ambiguous pricing standards.

Because enforcement and repercussions are lax, examples abound of companies charging more than 10 to 15% above street price.

Operational Costs and Factors Affecting Airport Pricing [8:19]

Some industry insiders argue that charging strict street prices is unsustainable due to higher operating costs within airports.
These costs include security screening for all employees, products, and equipment, as well as increased construction and labor expenses, reportedly 30-40% higher than outside.
Some cities mandate higher minimum wages for airport workers.
Businesses are expected to operate extended hours (e.g., 4:00 a.m. to midnight), requiring flexibility in product offerings for different times of day.
Airport businesses also pay a percentage of their sales to the airport as part of their rent, typically ranging from 6% to 20%, with the majority paying between 10% and 16%.

The higher operational costs associated with running businesses within airport security perimeters, coupled with rental fees based on sales volume, are cited as reasons why some businesses argue against strict street pricing.

All employees, products, and equipment need to go through security, which increases construction and labor costs.

Industry Consolidation and Lack of Competition [9:17]

A significant factor driving high airport prices is the lack of competition, with the vast majority of airport food and retail managed by just six large corporations.
These companies operate thousands of locations worldwide and have a widespread presence in US airports.
Examples show how a single parent company can own multiple seemingly different brands within a single terminal, creating an illusion of choice.
Mergers and acquisitions are further consolidating the industry, reducing competition even more.
These large concessionaires often lobby airports to increase their street pricing caps, leading to situations where caps are abandoned entirely, theoretically removing any limit on prices.

The dominance of a few major corporations in managing airport concessions creates a significant lack of competition, enabling these companies to exert influence on pricing policies and pursue higher profitability.

And because a few big companies have a hand in most of the airports in the country, there's hardly any competition within a terminal.

The Role of Dwell Time and Passenger Spending [11:39]

Increased security measures post-9/11 significantly lengthened "dwell time," the time passengers spend waiting in terminals.
Studies indicate that longer dwell times correlate with increased food and retail revenue for airports.
Approximately 63% of passengers make some form of purchase, partly due to boredom during their extended stays.
The average time spent at an airport is around two hours.
Airport design and layout often ensure that passengers must pass by food and retail outlets to reach their gates.
The business model relies on stimulating passenger desire to buy more, with saliva glands being a physiological indicator of potential purchases.

The extended time passengers spend in airport terminals, largely due to heightened security, is actively leveraged by airports and concessionaires to maximize revenue, as passengers are more likely to make purchases when they have ample time and are presented with constant retail opportunities.

The whole goal of moving them through quickly is one to reduce the stress time that they have, but two provide them with the opportunity to spend more time postsecurity, hopefully supporting the concessions program.

A Successful Alternative: Street Pricing in Portland [13:27]

One of the few US airports that does not use "street pricing plus" is in Portland, Oregon (PDX).
PDX employs "clean street pricing," meaning businesses charge the same prices as they do downtown or on their street locations.
There are no additional airport fees or charges.
The airport's revenue is derived from a percentage of a business's sales volume, structured to support their success.
This model has resulted in higher passenger spend per passenger at PDX ($15.3) compared to the national average ($12.50).

Portland's airport offers a stark contrast to the prevailing airport pricing models by adhering strictly to street pricing, demonstrating that higher passenger spending can be achieved through a more equitable and transparent pricing strategy.

If you're working with them to make them successful and have a financial structure that allows them to flourish, then I don't think they're so against the street pricing cap.

Industry Resistance to Street Pricing and Future Trends [14:23]

Despite the success of street pricing, it is unlikely that the industry will widely adopt it, as turning back from current models is difficult.
Some airports, like LAX, have moved away from strict caps, opting for more flexible pricing in response to rising minimum wages and industry pressure.
The airport restaurant and retail association advocates for "flexible pricing," effectively meaning no price limits.
They argue that overall passenger satisfaction is more important than price.
Large airport operators are heavily focused on increasing profitability, with strategies aimed at continuously driving spend per passenger and optimizing commercial space profitability.

The entrenched interests of major airport operators, driven by profitability, alongside the perceived difficulty of reversing existing pricing structures, suggest that a widespread return to strict street pricing is improbable, despite evidence of passenger dissatisfaction.

Part of Aulta's long-term strategy is to continuously drive spend per passenger and optimize the profitability of our commercial spaces.

Passenger Dissatisfaction and Regulatory Scrutiny [15:33]

Passengers are experiencing price fatigue, with a 2024 survey indicating they spent less in terminals than the previous year.
Food and beverage prices have consistently been the lowest-scoring attribute in airport surveys for years.
In May 2025, members of Congress urged the FTC to investigate concession prices at airports and stadiums due to extreme markups and limited options.
Personal anecdotes highlight the frustration of paying significantly high prices for items like beer.

Growing passenger frustration with high airport prices is becoming more pronounced, leading to reduced spending and attracting the attention of lawmakers who are calling for investigations into these markups.