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MARKETING & COMMUNICATIONS Last modified on April 4, 2013

Time for a re-think?

Exambela Consulting’s David Feldman argues that airport leaders may need to adapt business strategies to concentrate more on the mid-term for their gateways to thrive in an age of uncertainty.

We are entering a new airport age. The rapid evolution of a competitive market is changing the required skill-sets of airport CEOs, especially those managing mid-sized airports of between 5-15 million passengers a year. 

There will be winners and losers. In Europe, for example, unsuccessful airports are going out of business – most recently Coventry and Bristol Filton in the UK, Cuidad Real in Spain, Forli in Italy – and, with ACI Europe figures showing that nearly half of the continent’s airports are losing money, the number of ‘at risk’ airports is growing. 

For the first time in its aviation history, Europe has to contend with the prospect of a prolonged period of zero or declining growth. 

 

Competitive forces drive the market

In this environment, airport CEOs are finding themselves at the mercy of competitive forces over which they have little control. When macro-economic winds are blowing unfavourably, the room for manoeuvre is slight. 

Assets are fixed and costs can only be cut so far. Airlines can be footloose and fickle when deciding their route network, and every year they want to maximise their investment return. 

ACI Europe data reveals that in 2011 approximately 2,500 new airline routes were opened in Europe and 2,000 were closed. In addition, while airport ‘brands’ have become the buzzword of the day, strong brands are built on experiences. 

Customer service often depends on partner organisations – groundhandlers, airline operations, security, Customs – over whom the airport management has relatively little control. 

Airport competition has become a reality. As illustrated on the graph below, nearly two-thirds of European citizens live within a two hours’ drive of two airports and nearly a quarter live within two hours’ drive of four airports.

For many CEOs of medium-sized airports in Europe, it’s a tough, tough market and, apart from applying lean and efficient management processes, there’s not much they can do but batten down the hatches and ride out the storm. 

That is why most airport CEOs spend their time spinning plates – managing fickle airlines, misinformed politicians, angry neighbours and a worried workforce. Understandable, of course, but that leaves little time for innovative strategic thinking. 

At least, that’s the traditional view. But, as some airports are discovering, in this new market environment, there are opportunities for business development if CEOs can define a vision and business model for their airport and then recognise the potential opportunities available.

 

Defining a robust mid-term strategy

If airports are going to succeed they will have to re-examine their business model and strategy. 

Most airports have become reasonably good at managing the short term (next year’s traffic forecast and operating budget) and the very long-term (too often a ‘pie in the sky’ vision statement oozing optimism along with a 2050 master plan). But planning a growth strategy for the next three to five years – while the air transport market is stagnant – is far more complex, especially in an environment of rising costs and static, or very modest, traffic growth. 

A successful mid-term strategy with a clearly defined road map for implementation will enable some airports to thrive while others stagnate or perish. 

There’s no single magic solution to developing such a plan, of course, but there is a process. The airport CEO needs to have a clear picture of where he or she wants to take his/her organisation, be able to communicate the vision and bring his/her senior leadership team onboard. 

The next step is the hard part: it involves communicating this vision and translating it into clear, measurable objectives. 

Working together and filtering down through the organisation department-by-department, year-by-year objectives and key performance indicators (KPIs), which need to be developed and tracked constantly. But here’s the problem: it’s too easy to get lost and slip back into the day-to-day, managing the crisis of the moment and spinning the plates. 

Making matters more complicated, while a financial controller may be good at developing next year’s budget, and a marketing and communications manager may be good a creating a catchy vision statement and a glossy brochure, successfully developing a mid-term strategic plan requires the concerted effort of the entire management team. 

Developing a mid-term strategic plan requires serious original thinking and typically involves blood, tears, toil and sweat. In other words, it requires leadership. 

But a clear, workable five-year strategy – which incorporates new revenue streams and a re-appraisal of the talents and assets within the organisation – is now becoming a key differentiator among competing airports. 

And in this volatile environment, de-risking the business by developing marketing tools and strategies, which can quickly adapt to changing circumstances is a skill many airport CEOs will have to rapidly acquire.

If the airport is to thrive in this new environment, CEOs need answers to a few deceptively simple questions:

  •  Is there a clear long-term vision for the airport? Is it based on robust market analysis or wishful thinking?
  •  How well does the airport senior management team understand this vision? Do they support it?
  •  Is the airport’s business model clearly defined and is there a year-by-year road map with KPIs to achieve this vision? 
  •  How can this vision be best communicated – not only to airport management but also all employee levels and related stakeholders (civil aviation authorities, airlines, ground handlers, concessionaires, for example)?
  •  Do the airport’s senior managers interact with the other key stakeholders in a way that supports the airport’s vision?
  •  How can the management team capitalise on the airport’s unique position, relative to other competing airports and be more responsive, proactive and focused on customer needs and innovation?

 

Innovate or perish

A key element for the future of successful mid-size airport business development is the need for airport CEOs to be much more proactive. 

  • Instead of waiting for others to decide their fate, they will have to go out and seize the initiative themselves. There are emerging opportunities for new revenue streams:
  • Exploiting new information technology opportunities – like sponsored airport apps, web advertising, smartphones for automated check-in – to increase income or cut costs
  • Launching innovative, customised products and services focused on specific market segments
  • Developing new income from commercialising in-house developed areas of specialisation and expertise
  • Building new commercial relationships with external partners to extend the value perimeter of the airport
  • ‘Brand’ building experiences that create enduring emotional links to customers

 

Most airport CEOs will be aware of the potential revenue opportunities available in ‘smart airport operations’ via new technologies – but they will probably need help to clearly understand the cost-benefit analysis of some of the more radical, emerging technologies. 

Now, more than ever, it is critical that the management team clearly understand the opportunities and threats posed by new electronic communications. The value and limitations of social media, the app world and the emergence of virtual global communities, for example.

Airport managers need to reach across the generation gap and access this developing resource in a systematic, understandable and profitable way. 

At the same time, any demographic analysis of a post-industrial society will point to a growth in affluence of more senior citizens, with entirely different travel needs. 

With the United Nations predicting that nearly a third of Europeans are expected to be over the age of 60 by 2050, providing passenger-friendly facilities to this increasingly important class of travellers makes plain business sense, especially if it re-affirms links with the community within the critical catchment area. 

And, the more richly diverse the local community, the more opportunities there are to market the airport to specific customer segments. 

Indeed, airport catchment areas often contain large clusters of families who have recently emigrated from other countries and who retain strong links with their ‘home’ communities. So, if airports can work with the airlines to keep in touch with these communities, an increase in passenger numbers is a distinct possibility.

Reaching out to specific market segments (based on the unique demographic, ethnic, lifestyle variations within the local population) helps build the bridges to local communities and businesses.

However, unlike airlines, most airports still remain strangely cautious about developing targeted new revenue opportunities for passengers. For while airlines have long embraced paid for ‘a la carte’ service options such as booking seating in advance – and some carriers today charge fees for ‘extras’ like exit row seating, premium meals and home-delivery of baggage – airports have been slow to follow suit.

 

But airports are well positioned to offer similar revenue-generating services and products, in partnership with airlines or alone, such as:

  • Branded pre-booked taxis
  • Value-added partnerships with offsite parking
  • Pre-shopping and home delivery
  • Fast track 
  • Lounge access 
  • Meet and assist 
  • Language assistance
  • Honeymoon send-offs

Although every airport is unique, it has within it a complex web of untapped potential revenue streams, and many can be found not in the terminal, but out on the ramp. 

Airports have very different levels of performance when it comes to providing essential services such as border security, winter operations, turnaround times and maximising business aviation revenues, but only a few have capitalised on the investment they have made in developing excellent processes by exporting these to the global airport marketplace. 

If one airport, for example, has developed a unique procedure for minimising the amount of harmful chemicals it uses in de-icing procedures, then other airports would benefit greatly from its wider use and be willing to pay for this expertise.

In the area of building new commercial relationships with external partners, this involves thinking holistically about the airport’s role in the broader community – redefining the economic footprint of the airport. 

Airports have traditionally sought to attract new aviation-related businesses such as airfreight, flying schools and aircraft overhaul operations, but they also have a pivotal role to play in attracting business partnerships from other growth areas in the global economy.

These could include just-in-time production techniques – which require increasingly seamless intermodal transport operations – as well as financial services, recycling technologies, sports and tourism. Here airports can take the lead in providing niche services to local industries.

Finally, an airport is more than just a transport node; it is often the region’s most significant and powerful global ambassador. This makes it a fertile environment for growing emotional ties to local communities and visitors alike.

And, while an airport’s so called ‘brand’ is created by customer experiences, and airports admittedly have little direct contact with passengers using their facilities, they can create distinctive, positive experiences or memorable moments that reflect local culture, in its widest sense. 

For example, a commercial link between the airport and the local football club, which may have a regional or global supporter base, can produce new revenue streams for both organisations, especially during time of international competition.  

Some of Europe’s larger airports have certainly embraced these opportunities, but many regional airports have been too cautious. 

Innovative customer experiences may not necessarily produce quantifiable revenue in the short-term, but it does produce an emotional response – and emotions, usually, produce action. 

At the very least, they help distinguish the airport from its competitors and create an enduring, emotional link with end-user customers. 

 

More than just surviving

Competition, uncertainty and, to a certain degree, stagnation, have become the norm. To survive, and potentially thrive in this new environment, airport CEOs must make sure that, internally, their own mid-term strategic priorities are properly in place and that management is given clear objectives, resources and rewards. 

The plan should also reflect the external dimension by innovatively reconnecting to local businesses and communities, so their value to the cities and regions they serve is properly reflected.

For many European airports the next few years will be the most critical in their history. An innovative five-year plan, which re-engages customers, local communities and staff in the future success of their airport, will be the key determinant to a profitable business in the years ahead. 

It will be a clear sign that airport CEOs with real leadership qualities can determine the future of their airports no matter what prevailing economic winds might be blowing, that they are in the driving seat and are masters of events rather than interested bystanders.

 

Creating airport memories

Examples of airports going out of their way to do something different for passengers include Paris CDG, which holds its own salsa and hip hop classes in departure lounges.

Others with unique passenger-friendly offerings or facilities include Zurich (chocolate tastings); Munich (beach volleyball matches); Amsterdam Schiphol (Rijksmuseum); Singapore Changi (butterfly garden and passenger slide); and Incheon (traditional Korean cultural procession in terminal), pictured right.

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