I sponsored 3.75% of a SkyClub in DEN
 

With my last flight for 2011 behind me, I ran a few stats on my flying this year. Here's what I came up with (please, let's not get caught up on the estimates, this is a 'back of the envelope' only):

19 net paid round trips on DL proper (domestic Y cabin, award tickets subtracted) @ $600 avg/rt = $11,400

2 net paid round trips on DL proper (international, paid C cabin, award tickets subtracted) @ $8,212 avg/rt = $16,424

4 net paid round trips on AF/KLM (intra-europe paid full fare Y) @ $800 avg/rt = $3,200 (I feel the need to count this in full since what's good for AF/KLM is good for DL)

Total annual spend: $31,024. Now assume DL yielded a 75% margin on me (my fuel contribution, a few SkyPesos due to IRROPS, cost to service me etc). That means DL made roughly $23,268 net thanks to me (my company).

Now let's say I wanted to run a SkyClub in DEN:

Let's call this a small SC with 2.5 employees on average. Say this club is open roughly 80 hours/week:

2.5 employees x 80 hours x $20/hour x 52 weeks/yr = $208,000/yr
Let's say food/drink costs $1000/day x 365 days/yr = $365,000/yr
Let's say it costs $4,000/month including maintenance/upkeep to rent a suitable space at DIA x 12 months/yr = $48,000/yr

In total, that comes to $621,000 to operate the SkyClub at DEN each year.

Now, let's say all of the profit they made from me went towards this SkyClub in DEN: $23,268 / $621,000 = 3.75% x 365 days/yr = 13.7 days of SkyClub that I've sponsored.

All we need now is another ~27 of you just like me and we'll have paid for the whole club.

DEN services roughly 3 million people, and roughly 7% of the population flies 10+ air trips/ year (22.4/yr avg) [Source: http://www.tia.org/uploads/research/...velSurvey.PDF]. Also, let's assume DL has a 5% market share in DEN of these high fliers.

So, that's 3M x 7% x 5% = 10,500. Since we're only looking for 27, we just need to pool 27/10,500 = 0.26% of Delta loyal, high frequent flyers in the Denver market to pay for this SkyClub. I bet we could find that many here on FT.

Silly airline pricing though... of the 75% margin they make on you, 70% probably goes to subsidize LUT flyers.

Well, I'm just a GM - but maybe I count for at least 1/3 of a person of the remaining 27 needed...? 26.66 to go??? I would be thrilled for a SC (even one along the lines of PHL actually!) in DEN. I think that would be just the right size and model. It would be SO nice!!!

It's true. But in this model, I'm making the assumption that my profit is being reserved for the SC. Profit could of course go anywhere: subsidizing LUT flyers, paying salaries, aircraft upgrades/purchases etc. But I'll let the 10,500 - 27 = 10,473 high yield DEN DL flyers take care of that other stuff. :p

I know nothing about DEN and in general support your cause, but I think this market share assumption might be a bit of a stretch. Just for fun I looked at departing flights from DEN in the morning and of 100 or so, there were only 2 DL flights listed. I'm not sure if it's a fair comparison, but UA probably has far less than 5% of passenger travel out of ATL.

The complicating factor is, what is the incremental business that DL would get out of having a Sky Club there, not only in terms of additional flights but also Sky Club memberships? If you're already flying DL, what is the incentive for them to spend more money to accomodate you, unless you will give them more business as a result?

I really liked the old Crown Room at Denver (and the Horizon Club before that) but a fair amount of the time that I spent there was before boarding flights on other airlines. So I really can't blame DL for gradually restricting the clubs to hubs and major airports (e.g. LGA). At the same time, I have been hoping that the NW/DL merger would motivate DL to re-open clubs in some locations (such as MCI) that now have a number of additional flights.

I always thought DEN was a pretty low yield market. Most of my flights to/from DEN have been purchased at the last minute and were < $400 round-trip.

I think Southwest's presence there really brought the yields down. Which is partially why UA has been shrinking their operation there over the past 3-4 years.

Not to mention WN has their gates directly across from DL.

By 'etc' I'm sure you are accounting for the fact that profits can remain, you know, profits? Why do people expect every dollar to flow back into benefits to them personally?

Wow 75% profit margin is very optimistic.

Firm wide Delta (DAL Inc) operating margin in the third quarter was a measly 8.8%. Of course each marginal customer has a higher margin, but if you're going on average margin, you made Delta $2,730, or only 0.4% of one Skyclub.

I think you are a little low on the lease/rent costs too.

Here is what it costs to lease space at DEN

What is the rent structure?
The rent is equal to a Minimum Annual Guarantee (MAG) which is the rate per square foot or a Percentage Fee, whichever is greater. The Percentage Fee is established in the RFP document according to the concession policy.
Retail $70 per square foot
Food/Beverage $59 per square foot
Services $36 per square foot
Office Space $59 per square foot
Storage Space $12 per square foot

Obviously Denver wouldn't require a huge Skyclub, but let's use the relatively new club at IND as an example. It is 4,800 square feet.

There is probably a deal to be had on a large space, but even just renting storage space would run $57,600.

Like me who makes Diamond for three years now spending less than $5K each year plus Amex credit card.

Net out IDBs, Skyclub, and value of free trips and other benefits..... Thinking I do not even pay the fuel bill for my weight.

You're way low on employees.

San Diego has at least 5 that I know of, and it has to be one of the smallest clubs.

There are at least 2 shifts of employees because of the red-eyes. I am sure there's a minimum requirement of 2 employees per shift, and even if you were only open 8 hrs a day, you'd need 4 employees because of the 7 days in the week.

My guess is a minimum of 6 employees for any club, and probably more like 8-12. And that's if they follow the SAN model where the desk agents double as the bartender and clean-up crew.

2.5 is an average of how many employees would be working at the SC at a given time, not the total number of employees that would work there overall. In other words, you don't pay employees when they're not on their shift.

Inventory in a secure area
 

$1000/day on inventory seems very low. You need to get your inventory into the club. This will involve product security screening, significant employee time in the process, likely limited sources of suppliers with higher margins to compensate for airport deliveries, payoffs (aka - setup costs), Liquor License Fees, maybe required union contracts for say cleaning or restocking. I also agree that the space cost is way too low and the staffing is not high enough.

I'm not against your idea, but the reason so many new businesses fail is (IMHO) due to a complete miss in making accurate financial calculations concerning both revenue and expenses.

Perhaps branding the club as SkyClub Elite with high membership fees or $50/visit (just $5000 a year) extra for normal SC members and a very exclusive atmosphere. A club designed to appeal to the high end traveler with good food, good looking staff, and limited clients.

Dial 1-800-SCS-NOBS :D