As an investment banker at the now-defunct Lehman Brothers, Song Hoi-See, founder and chief executive officer of Plaza Premium Group, which claims to be the largest independent airport lounge operator globally, used to typically travel in the business class. Back in 1990s, travelling in business class gave passengers access to the airport lounges of the airlines where they could recharge laptops and send fax. A few years later when he started his own business, he began travelling in the economy class, and realised there was no much inconvenience for economy passengers.
Song says that 85 per cent of the air travellers travel economy class, and just 15 per cent travel business or first class. "The airlines were taking care of only 15 per cent, and nobody was looking after the needs of the remaining 85 per cent. Out of my frustration, I came up with the idea of building airport lounges," he says.
Hong Kong-based Song approached the airport authorities in his home country just at a time when they were starting a new airport. He pitched the idea and got a go ahead. The first six months were tough, and he had to go back to airport authority to give him some relief with rentals. "I nearly exhausted all my money. All my investments had come from my savings. But I was convinced that it will work," he says. Soon, the business took off and Song is currently operating 171 lounges across 26 international airports.
Song says that it's just tip of the iceberg. "There are 2,000-odd international airports globally. We need airport to have about 6-7 million passengers every year to open a lounge. There are an estimated 1,100 airports that are worthwhile to go in, and I am covering a small fraction of the market. I am not saying that I am going to take care of 85 per cent [economy passengers], just one per cent [of the 85 per cent] is more than enough for the economies to work," he says.
In India, Plaza Premium has opened its 15th lounge recently in Ahmedabad after Hyderabad, Bangalore and New Delhi. It employs close to 1,000 people in the country and serves over 9,000 passengers every day. Song says that there's an evolution of the airports over the years. Going to airports is no longer just about catching flights. "Airports are spending a lot of money in enhancing the passengers' experience and technology upgrades. It's not easy for the airport authorities to run airports now because they have to continuously upgrade the quality expectations," he says.
In the recent years, the company has moved into related verticals - airport transit hotels, meet-and-greet services and airport dining. The idea to start airport hotels is targeted towards passengers who arrive early in the morning and passengers who have an early morning flight to catch. For instance, typical hotels don't allow check-in before 2pm. After an overnight flight, passengers want a quick nap before they head to their meeting or other work. Airport hotels, which sell rooms for a minimum of just six hours, offer amenities like a regular hotel - private toilets, shower, beds, pillows, sound-proof rooms - except that the rooms are not as big.
While there are no official figures on the size and structure of the airport lounge market globally, Song says that the market has several small operators - with 10-20 lounges - across different regions.
But the rise in costs - rentals, labour and food & beverages - is posing a big challenge for independent lounge operators. It's a low-margin business where operators have to rely on high volume. Having a big global network helps because the operator can do large-scale procurement. "When we buy Coca-Cola, we don't sign deal with local vendors, we sign with Atlanta. Plaza Premium is serving over 40 million people a year. We are in a position to do bulk procurement," says Song.
Besides opening up its own lounges, Plaza Premium is managing lounges for airlines and alliances such as Sky Team, American Express, Star Alliance, Cathay Pacific and Singapore Airlines. "Lounges are not their forte. They are trying to find somebody to manage their lounges," he says.
Last year, Plaza Premium earmarked investments of $100 million in markets like India, US and China. India, Song believes, has a huge potential due to the high double-digit growth in the aviation sector.