As we countdown to the release of the GAD 2014 programme, there’s just time for this second instalment of my Research Report. Today’s edition is based on my conversations with 50+ airport executives and focusses on the priorities and challenges these industry leaders identified for 2014.
10 Big Themes For Airport Executives
 |
| CC image 'Airport' by Samrat Mondal on Flickr |
Developments In Airline Business Models
As ever, much of this attention is focussed on the low cost space. Ryanair’s move to first tier airports is creating winners and losers, while its new second cabin bag allowance makes a considerable different to the airline’s potential revenue. Norwegian and Vueling are both pioneering transfers – although it remains to be seen how they can minimise the cost of this operation – in another development that points to the increasing convergence of low cost and full service short haul models. The potential for further LCC growth within Europe is a point of debate. Cross-border models continue to evolve in Asia, although the exuberant growth of the last few years is biting into yield and even Air Asia, normally the most bullish of LCCs, is now beginning to constrain capacity.
Long haul business models are also coming under focus. Flag carriers have performed surprisingly well over the last couple of years, particularly off the back of consolidation in the US, which is reflected in their current market capitalisation. Constraining capacity is the name of the game at the moment. Could we see US scale consolidation – and the accompanying phenomena of stranded hubs – in Europe? What about over the Pacific, which has not yet undergone the same consolidation as the Atlantic? Low cost long haul is still being talked about as the next revolution: Asian LCCs are leading the way, but no one has cracked how to make this profitable, given the higher comfort that passengers demand on a longer flight.
Meanwhile, airline alliances are losing favour to bilateral agreement and equity relationships – we wait to see how the European Commission rules on Etihad/Alitalia/Air Berlin. The big three Middle Eastern carriers continue to be a market juggernaut, with the full scale of the challenge for European and Asian legacy carriers still becoming apparent. New generation aircraft are also a game changer, offering new potential for point-to-point traffic. At the current time, the winners on the airport side seem to be regional hubs, which continue to grow apace.
A New Era For Airport-Airline Relations?
Both IATA and ACI are now talking about a partnership approach, which is gathering steam in Australia, New Zealand and the UK. This usually involves the airport incentivising an airline to make a longer term commitment but can go as far as joint investment in new
infrastructure. At the heart of this is whether both parties see the other as a strategic partner, or simply a customer/supplier to be squeezed. Advocates of light touch regulation claim that where such long term agreements can be reached, regulators should take a hands-off approach. Given the size of these deals, it will be critical for both parties to get them right. One question which strikes me is to what extent an airport can really consider all of its airlines ‘partners’, or whether a partnership – be it with a flag carrier or a dominant low cost carrier – is implicitly a ‘preferred partner’, which might be perceived to be at the expense of others.
State Aid For Airports
While the last 12 months has seen no real clarification on this issue, it continues to hang over smaller, marginal regional European airports. From the renationalisation of two struggling UK regional airports (Cardiff & Glasgow Prestwick) to the sometimes murky role of regional development and tourism funds in supporting airline routes, the evolving relationships between the public and private sectors continues to be in question.
Who Is In Charge Of Airport Strategy?
While active financial investors are nothing new, airlines are increasingly interested in talking to the equity holder, rather than to airport management. The same goes for consultants and other suppliers and service providers. The power of the airport CEO appears to vary, but in some cases it seems that airport management is being side-lined from strategy development.Putting Strategy Into Practice
Building on point 4, while most airports have a master plan and a mission statement, it is noticeable that the number who are successfully gaining market share in a three to five year timeframe is far fewer. What is the trick to turning strategy into results? We might look to Brussels and Athens Airports, who have both successfully turned themselves as regional hubs over the last few years.
Getting On With The Neighbours
From the west coast of the US to central Europe, airport executives are reporting challenges posed increasingly by local, grass roots campaigns. Labour and environmental issues are both high on the list of concerns. Noise is always a particular difficulty for airports: while aircraft may be getting quieter, jet engines are always going to be noisy and there is only a limited amount that precision takeoff/landing or other solutions can do to mitigate this. The complaint across western geographies is that airports are seen as noise and pollution factories, rather than employers and bringers of economic benefits to the region. While this may be less of a competitive issue locally (most airports are in the same boat), European airports in particular can find themselves at a disadvantage in the global competition between business centres and aviation hubs – Akbar Al Baker’s recent comments about noise around Heathrow illustrate that this simply isn’t considered an issue in some markets. What strikes me is that this is again an issue that airports can do relatively little about (just as they can only watch their home market legacy carriers lose market share to the Middle Eastern challengers). However, one thing is certain – airports need to be thinking about how they engage with their local communities, something that requires quite a different approach to influencing policy makers and regulators.
Environmental Resilience (Or Lack Of It)
Last Christmas Gatwick Airport flooded for the first time. This is an event that should make airport executives far and wide nervous. With changing weather patterns and an increasing number of extreme events, airports who have thus far not faced environmental hazards now need to think about their own vulnerabilities. This includes financial planners thinking about OPEX, as well as operations professionals. While most greenfield projects are being developed with a mind to environmental resilience, retro fitting old infrastructure to cope with these phenomena will be costly and difficult.
Airport To Airport Revenue
While a number of airports with a strong track record in innovation, customer service or a particular skills set have been in this game for a while, it is noticeable that many smaller airports now have a dedicated Innovation programme and are creating a new revenue stream by then selling this technology or knowledge to other airports. Innovating is one skill – creating a business to monetise this effectively is another.
The Future Of Retail
We have been talking about the great potential of airport retail for a number of years now, but it is clear that most of the industry is now waiting for the next big step forwards. Trends mentioned include ‘show rooming’ (where customers can view goods and then buy them online with their smart devices) and airlines increasingly challenging airports with new, technology-based retail offerings, but strikingly no one really knows what is around the corner. While airlines have (increasingly valuable) passenger data, airports understand footfall, so there could be potential for collaboration (with the question then being how the two divide the dividends) – but on the other hand, who says that retail requires physical footfall at all? Given the technological and consumer revolutions emerging around us, it would be very surprising if we don’t see something big in the next few years.
Airport Brand
Finally, brand is increasingly important, as airports see the fruits of being considered a trusted vendor in an online context – a recognisable brand allows them to expand into a wider range of products and services. However, airport executives report building a brand/digital marketing is a field in which they are finding their own way at the moment – many say they feel that this expertise has not widely made its way into the transport sector and guidance is lacking. Expect to see this topic rise up the agenda in the coming years!
On The Agenda At GAD
With all of the above and some great new topics on the agenda for GAD 2014, there’s certainly lots to talk about in Athens in November and I look forward to seeing you there. In the meantime, enjoy the rest of your summer!Best wishes,
Heidi Stancliffe
Conference Director, GAD 2014
