Are airline lounges generally profitable?
Mar 17, 2019, 6:31 pm
#1
Original Poster
Join Date: Jan 2003
Programs: American Airlines Platinum, National Executive
Posts: 3,790
Are airline lounges generally profitable?
Are airline lounges generally profitable?
I see that AmEx is opening a Centurion lounge in the Charlotte airport. 13,000 square feet for 10 years, at a cost of (1) a $5 million initial payment, (2) around $550,000 in rent per year for 10 years plus (3) a mandatory advertising expense at the airport of around $3 million. So $13,500,000 in spending at the airport over 10 years.
I don't see how in the world that Centurion lounge can be individually profitable, but do airlines (and other lounge operators) treat all lounges as loss-making, but keep high-volume ones where the benefits to their business generally outweigh the losses?
For AmEx, having a large number of affluent travelers see ads, and having some get the $550/year credit card for the lounge, must be enough. For airlines, figuring that lounges keep high-margin customers must be enough? Or do the lounges actually make money?
Thanks.
I see that AmEx is opening a Centurion lounge in the Charlotte airport. 13,000 square feet for 10 years, at a cost of (1) a $5 million initial payment, (2) around $550,000 in rent per year for 10 years plus (3) a mandatory advertising expense at the airport of around $3 million. So $13,500,000 in spending at the airport over 10 years.
I don't see how in the world that Centurion lounge can be individually profitable, but do airlines (and other lounge operators) treat all lounges as loss-making, but keep high-volume ones where the benefits to their business generally outweigh the losses?
For AmEx, having a large number of affluent travelers see ads, and having some get the $550/year credit card for the lounge, must be enough. For airlines, figuring that lounges keep high-margin customers must be enough? Or do the lounges actually make money?
Thanks.
Mar 17, 2019, 6:49 pm
#2
Join Date: Oct 2015
Location: Economy, mostly :(
Programs: Skywards Gold
Posts: 7,801
That's $3700 per day in fixed overheads, not considering any other expenses such as catering, furnishing, maintenance, internet, cleaning, staffing, etc. If they get 500 visitors a day that's $7 a day.
The above is just for context, I have no idea if that is high or low, or what the answer to your question is
The above is just for context, I have no idea if that is high or low, or what the answer to your question is
Mar 17, 2019, 7:47 pm
#3
FlyerTalk Evangelist
Join Date: Mar 2013
Programs: DL PM, MR Titanium/LTP, Hilton Diamond
Posts: 10,130
Hard to really answer -- I'm sure it depends how AMEX does the accounting on the lounge -- depending on how they do the accounting they could probably make it look profitable if they assign customer retention to it.
That said it's probably a cost center, but a very important one because they help with both getting folks to sign up (so AMEX can pocket the $550 fee) but more importantly they help with retention which likely drives card usage and swipe fees which is where AMEX is really making their money on Plat (demographics for Plat have historically shown higher income and higher spend levels -- and so key to maintaining the higher swipe fees they demand).
Plus in CLT it's a play against Citi/Barclays who likely dominate the local travel card market because it's an AA hub
That said it's probably a cost center, but a very important one because they help with both getting folks to sign up (so AMEX can pocket the $550 fee) but more importantly they help with retention which likely drives card usage and swipe fees which is where AMEX is really making their money on Plat (demographics for Plat have historically shown higher income and higher spend levels -- and so key to maintaining the higher swipe fees they demand).
Plus in CLT it's a play against Citi/Barclays who likely dominate the local travel card market because it's an AA hub
Mar 20, 2019, 10:02 am
#5
Join Date: Oct 2015
Location: Economy, mostly :(
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Mar 20, 2019, 11:26 am
#6
Suspended
Join Date: Mar 2019
Programs: BA
Posts: 44
Are lounges supposed to make a profit?
Note that some airlines/alliances may consider certain lounges cost centers. They are needed to attract/retain premium cabin pax as well as frequent flyers but the money is made elsewhere. (An analogous argument can be made for credit card companies, their lounges, and their customers.)
But lounges not operated by airlines/alliances are certainly profitable for the most part. Private enterprises which do not make a profit do shut down sooner or later. So the fact that there are hundreds of third-party lounges strongly suggests lounges make profit. Otherwise, operators such as Menzies, Swissport, Dnata, Plaza Premium Group etc. would shut them down. @:-)
Note that some airlines/alliances may consider certain lounges cost centers. They are needed to attract/retain premium cabin pax as well as frequent flyers but the money is made elsewhere. (An analogous argument can be made for credit card companies, their lounges, and their customers.)
But lounges not operated by airlines/alliances are certainly profitable for the most part. Private enterprises which do not make a profit do shut down sooner or later. So the fact that there are hundreds of third-party lounges strongly suggests lounges make profit. Otherwise, operators such as Menzies, Swissport, Dnata, Plaza Premium Group etc. would shut them down. @:-)