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ECONOMICS Last modified on November 27, 2012

Different strokes

Oliver Wyman’s Niko Herrmann and Bob Hazel identify eight possible actions that airports can take to help differentiate themselves from the competition.
As air traffic continues to grow, increasing by 4.9% in 2011 and reaching nearly five billion annual passengers worldwide, more travellers – with higher expectations – are placing tremendous pressure on the aviation industry.

Airlines, of course, have felt the squeeze, but airports themselves must respond to changing conditions if they are to be successful.

Today’s passenger, for instance, demands seamless layovers, a choice of dining outlets, and activities or retail stores to help them pass the time. Airports will have to handle more traffic, with higher service levels than they currently do, and at a lower cost.

To do that, they will need to become more entrepreneurial.

By adopting more of a private-sector perspective and strengthening their facilitation and strategic skills, for example, they’ll be able to react more quickly to aviation trends and set their own course for success, rather than playing a supporting role to the airlines’ lead.

Perhaps for the first time in their history, airports have ample opportunity to contribute to the overall quality of the hub system by leveraging new business models, products, services, and technologies.

Now is the time for airport executives to reflect on their current business and organisational models and governance practices, and modify those that need it to get ready for the challenges and opportunities ahead.

In this article, we identify eight actions that airports can take to position themselves for the greatest success in this new aviation landscape.

We use two real-world examples – Singapore Changi and Doha Airport – to illustrate these points.

Doha airport: designed for the future
Next year Doha will soon open a new airport that will serve as a solid base for its hub carrier, Qatar Airways, branded as the 'World's Five Star Airline'.

While still in the planning stages, executives in Doha realised they had the chance to establish an organisation that would position the new Doha International Airport as the leading transfer hub in the Middle East. To realise their goal, they made a number of strategic decisions on structure, governance, and business processes.

Doha's objective was not only to devise an outstanding, iconic infrastructure but also to design a forward-looking organisation, one capable of coping with the challenges of a significant increase in functional scope and complexity.

Customer orientation, stakeholder management, private sector discipline, and end-to-end responsibility have been the guiding principles of the organisational design.

The result is a lean organisation that controls all strategic functions of the new airport – and is flexible enough to integrate third-party service providers as needed, be it operators of complex systems, such as baggage handling, or simple services like cleaning and low-level maintenance.

Clear accountability and end-to-end responsibility for processes ensure that the airport organisation can fulfill its role as a facilitator and enabler of a smooth transfer process.

The chosen governance model incorporates the interests of all relevant stakeholders in a way that is aligned with the strategic plans of not only the airport and the hub carrier, but also the country's overall ambitions regarding transportation, trade, and tourism. At the same time, it also reflects local cultural and political realities.

The new gateway will provide Qatar Airways with a brand new infrastructure that boasts improvement in both hard and soft areas. It promises to be a major strategic advantage in the intense competition for transfer passengers.

Eight differentiators for successful airports

Last year, we surveyed a select group of leading airports worldwide through a mix of site visits, in-person interviews, and secondary research. Particular focus was paid to each airport’s performance and strategy in the context of the global airport environment and trends (both current and expected) shaping the industry.

Our research revealed that, despite differences in basic parameters like region, size, and business model, successful airport hub organisations shared eight common traits:

1. Adopt a customer orientation
Every manager knows it’s crucial to know your customer. Airport executives have to embrace this knowledge – but it’s more complicated for them. Airports must deal with a large variety of customer groups, and within those groups themselves is a great deal of diversity. Just think of the different requirements a high-value business passenger has compared with a leisure traveller.

To understand and meet the needs of each customer group, airports need dedicated business units to analyse their requirements and act as a direct liaison. Large FMCG (Fast Moving Consumer Goods) and service companies can serve as role models – airports should begin to apply their principles of customer segmentation and customer intelligence.

Singapore Changi (SIN) is considered to be a role model for efficiency, attractiveness, service quality, and performance. Its restructuring process in 2009 led it to make various improvements that have strengthened its leadership position.

In terms of customer awareness, SIN established a dedicated ‘customer experience function’ that owns the overall strategy. As a result, SIN consistently performs in the upper ranks of Skytrax and ACI’s Airport Service Quality (ASQ) ratings.

2. Manage service providers efficiently
In the near future, airports will increase efforts to outsource both core and non-core activities like facility management, ground handling, and/or commercial functions.

In the US and Europe, they’ll do so for cost saving reasons; in fast-growing Middle East hubs, they’ll do so also for knowledge, capability, and capacity reasons.

In either case, the airport must be capable of managing the outsourcing partners and integrating them smoothly in the organisation and the process flow.

Even though airports can and should outsource some execution tasks, they should also ensure that the conceptual knowledge stays within the airport so that it remains in a position to control its own destiny. Therefore, a layer of highly skilled and experienced managers is required who understand the business of managing a service partner.

3. Provide structured and organised management of stakeholders
Performance improvement cannot be accomplished in a vacuum. Modern airport organisations therefore devise a decision-making structure that incorporates the input of major stakeholders – the airport owners, the hub airline, the other airlines, the government and the regulator, and the non-aviation partners.

Clearly defined boards, committees, and working groups ensure that information flows in both directions.

This ensures that stakeholders’ requirements are systematically considered in major decisions and that efforts to optimise the hub system are co-ordinated.

Without a concerted management effort, the airport will find itself pulled in many directions by demands from multiple stakeholders, each with competing views and priorities. Only by actively managing communications and interactions will the airport be able to achieve its own long-term goals.

4. Identify and communicate clear strategic objectives
It doesn’t matter how well conceived your organisational structure is if your individual units do not co-operate. Therefore, it is absolutely necessary to develop a holistic strategy and to break down and consistently share key objectives with each individual business unit.

Only when all the units receive the same message and receive clear execution instructions will the whole be more than the sum of its parts.

For example, Singapore Changi prides itself on “providing excellent service and unrivalled capabilities to create exceptional journeys that deliver the world’s best airport experience. Every journey through Changi Airport is an opportunity to bring people together and help them realize their aspirations.”

This clear and unwavering focus on customer experience, broken down for every operational department into clear and actionable objectives and KPIs, sets the direction that guides all activity.

Airport-wide cross-functional training programmes make sure that customer excellence is top of mind for everyone.

5. Embrace a commercial mindset
There is a certain discipline found in the private sector that airports – even those that continue to be government-owned entities – should adopt. To succeed in an increasingly complex environment, airports must be able to offer higher service at lower costs, and they can’t do so without being entrepreneurial.

Airports should be operated with an approach reflecting a private-sector mentality on both internal and external matters. Functional leaders can be empowered to improve competitiveness within their own business units.

Airports need to keep a firm eye on the bottom line, so any investments they make should be backed with a business case to ensure careful decision-making. Transparency about resource consumption, for instance, is critical to increasing efficiency and quality.

Returning to the Singapore airport example, its 2009 corporatisation exercise was designed with feedback from airlines, ground handlers, and government agencies. Two years later, there’s evidence that the shift in strategy and tactics has been successful.

For instance, traffic at Changi grew by roughly 20% in the last two years, while the traffic of hub and home carrier SIA declined by 10%. Operating cost per passenger is lower than other leading hubs, signalling Changi’s operational efficiency.

And yet, the airport continues to score ‘best in class’ Skytrax and ASQ ratings. In addition, a commercial function oversees all revenue-generating functions including non-aeronautical revenues – reflecting the importance of non-aviation offerings as profit generator, differentiator, and service quality enhancer.

6. Use or invent your own innovations
Dedicated business units that focus on the searching, testing, and implementation of innovative technologies and services will bring a spirit of technology leadership and drive to the organisation.

Whether it is in innovative facilities management solutions or passenger entertainment and shopping, passenger transportation, or individual passenger communication and signage solutions – leading airports do not wait for others to show them how to improve service, increase revenues, or lower costs.

Examples range from the continued spread of advanced retail areas in departure and arrivals areas to the increased outfitting of airport buildings with alternative energy concepts.

7. Co-operate closely with hub partners – especially the home carrier
Successful airports co-operate with their partners at the hub. Co-operation can take several forms – from institutionalised committees over joint operations centres to commercial-oriented joint ventures.

The Greater Toronto Airports Authority (GTAA), for example, has recently tried to improve Air Canada’s situation by offering innovative aeronautical pricing approaches, collecting and sharing data of particular interest to the airline, and using customer relations specialists to better service the airline.

Similarly, an improvement in the relationship between airport and hub carrier was recognised as the basis for Toronto Pearson’s recent IATA Eagle Award.

And at Singapore Changi, close collaboration with taxi operators ensures a sufficient supply of taxis for arriving passengers.

Because the role of the airport has changed to be more of a facilitator, airports that don’t take the lead here will likely be left behind competitors.

8. Improve your governance model
The governance model of most airports has evolved over time. However, it’s worth asking whether the current governance model truly supports the airport today or whether it reflects remnants of times past.

Lengthy decision-making processes at the top as well as outdated regulations and procedures can undermine an airport’s efforts to act as a dynamic market and customer-oriented entity that benefits regional or country development.

In the best case, decision-making power is vested in the airport to the greatest extent, with governance bodies merely executing (strategic) guidance and oversight functions. Of course high-level stakeholder management activities must continue to be executed at that level.

Singapore Changi’s restructuring programme – informed by feedback from partners, ground handlers, and government agencies – led to officially splitting operational and strategic-regulatory functions, with some important functions like master planning to be executed jointly.


Based on these eight principles, airport executives need to review their current organisation and governance structures to determine not only if they are still relevant, but also if they best position the airport to compete on a global level.

It is no longer enough for airports to be solid infrastructure providers. They also must add to the transportation value chain by being world-class facilitators and by catering to their many customer segments. They must become not just service oriented, but also profit oriented, and their organisational and governance structures should reflect this new reality.

About the authors
Niko Herrmann () and Bob Hazel () are partners in the aviation practice of Oliver Wyman and specialise in airport strategy, economics and operations.

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