💧The Economics Behind $4.99 Airport Water Bottles ✈️

At the gas station down the road, the same bottle of water will sell for $0.99 but at the airport its $4.99, why is that?

🗻 Overview

Airports like sporting events have a captive audience, you are unable to leave or bring in outside liquids, but is that really the only reason why water is so expensive at the airport, just because they can?

🕵️ Could it be conspiracy?

There are only a handful of companies that sell water in the airport, and if we draw from Adam Smith circa 1776, “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”. Do the companies that sell in airport meet occasionally and set price of water at the maximum rate they believe the public could handle?

➕ Adding up the costs

While in some alternative universe it could be conspiracy, in my mind the reason you end up with $5 water is due to a few points.

• Airport Rent & Regulations

• Commissions

• Delivery Fees

• Storage Space

• Background Checks

• Staff Turnover

Airport Rents & Regulations

Having a restaurant or shop in a airport comes with a excessively high rent, for example the average commercial space in Houston went for $29.84 in 2021, the average space at IAH in 2021 is not public record but if interested you will need to submit a closed bid for space and pay the required fees. These sealed bids might not be accepted.

Commissions

Its not uncommon to see 10% commissions of sales having to be paid out directly to the airport for the privilege of being able to operate in the space on top of the monthly rent.

Delivery Fees

Think parking issues, security, time, etc.. Depending on the airport this probably isn’t a simple tasks like it is at your vertically integrated coffee shop down the road.

Storage Space

In some airports restaurants storage is outside security and must be moved daily, or the restaurants needs to pay higher rent for more space to store excess inventory to meet sales needs between deliveries.

Background Checks & Turnover

Working at a airport is a hard job that is 24/7 and requires staff who can clear a background check and staff that are able to handle the stress. This stress wears out a person and Im sure turnover is high.

Conclusion

While I don’t have hard numbers for you today, what I do have are some reasons why airport water cost $5!

However with everything said I still have to wonder why Hudson Group boasts almost 50% gross margins, and a 7-11 hovers around 15%?