Over the past 20 years we have seen our industry transform. Airport marketing, business development, air service development, route development, whatever the function has been called, each has moved from being a fringe discipline, practiced by a handful of airports, to a role that is fundamental to the business and, where those airports that do not yet have a route development team are very much in the minority.
If the long-term forecasts from ICAO, which shows 6.3 billion passengers being carried by 2030, are correct, the future of route development for airports would be straight forward.
I believe, these figures are far from the truth and that the challenge for airports in the new era is going to be much more complex. This will see airports grappling with seemingly impossible financial demands from airlines, and navigating a world where the delivery of actual traffic will become the most important route development skill there is. Through airport city and aerotropolis developments, airport managers will also become market creators for their air routes.
Financing air routes
I recently took up the role of leading ASM into this new era, and the first thing we did was to talk to airlines to get a better understanding of what currently is, and what is going to be, important to them when it comes to airport route development. This survey of 25 senior network planning managers across leading global carriers provided a fascinating insight into what really matters to airlines.
Perhaps unsurprisingly, feedback about costs and financial agreements came out most strongly. This was not unexpected; but it indicated that airports cannot ignore the financial pressures on airlines and the need for sustainable route viability going forward. For many airports this is already a tough challenge, and it will not become any easier in the next era.
According to the research, airline network planners said airports “need to understand the small profit margins airlines obtain and how these margins are placed under severe pressure with a slight increase in costs”; they need to “identify opportunities to reduce airport costs for airlines and customers”; show an “increased willingness to participate in the financial risk of launching and successfully maintaining a new route”; and perhaps more radically, “tourism would fund 50% of route marketing, airport charges are abolished and instead airport drives revenues from non-aeronautical revenues”.
Many airports will have heard these opinions before, however the age we are entering is one where instant route profitability will be a pre-requisite demanded by airlines. The days of generous maturity profiles of new routes are over, as are route start-up incentives and discounts. Long-term, probably lifetime, support partnership agreements will become the norm.
In Europe, newly drafted EU State aid guidelines for airports and airlines will, if adopted, severely limit state funding of airport infrastructure. This could well leave a gap between airports and airlines that cannot be bridged. Airport operators will need to look again at their operating models,look at driving down aeronautical charges,finding new revenue streams to replace and support these reductions; and evolve new solutions for risk sharing and route joint ventures.
While financing will be a constant feature of the new era of route development, there will be other factors, such as market creation and delivery of traffic, which means the role of the airport as a consumer marketer is returning fast.
Marketing to deliver traffic
One of the many advances airports have made is the ability to process market data, undertake analytics, and produce route traffic forecasts using methodologies that reflect how airlines undertake this evaluation. While this will remain an important skill, it will become a standard that all airports offer. There is a shift of emphasis coming. In the world of securing profitable, sustainable routes, those who can deliver traffic will be more powerful and more successful than those who are good at analysis. What good is strong technical forecasting if passengers don’t actually support a route?
Our airline research revealed the importance for airports of not only having an in-depth understanding of their catchment but also the importance of effective marketing at both origin and destination of the service. The days of trying to impress an airline with an appreciation of route profit and loss are over.
The new era for airports in this marketing field will be driven by skills across two areas. Firstly, there is the harnessing of passenger “big data”, primarily through the focused use of social media, and secondly, by engaging key stakeholders, particularly tourism authorities, to drive the attraction of the catchment.
For years, airports did not truly have a customer-based relationship with passengers, because they had limited opportunities to enter into a meaningful direct dialogue with travellers. But more and more airports are now setting up Facebook and Twitter accounts and slowly starting to use these for route and traffic development. In the new era, the skilled use of these channels will be essential for developing air services.
Many of you would have seen the recent postings of the #ASMTwitterTracker and #ASMFacebookTracker. What started for us as a curious look into how airports were using these channels for route and traffic development has become a fascinating exercise in understanding the diversity of airport social media activity.
While there is a long way to go before tried and tested formulas for promoting routes, the creativity already on display shows the potential of what airports can achieve. Our trackers are showing audience reach of approaching five million currently, with China’s Weibo showing 750,000 followers across 28 airports. These numbers are growing fast, and these are just official airport sites. The scale of audience reach going forward will be huge – much larger than any other channel. And reaching this audience is instantaneous and route campaigns are inexpensive to produce.
Already airports are starting to use Twitter, Facebook and other channels to research route opportunities, for instance London City(@LondonCityAir) is very active in this area. Social media allows airports to learn more about the scale of market sizes, but also allows users to actually make contact with those individuals, understand their family connections, and discuss and promote air services. Social media offers a real potential to penetrate global markets and deliver passengers.
This leads us to the other buzzword, and the area where we believe airports will be increasing their levels of investment – “big data”. Through social media channels we are learning more about our catchment and the people who are currently using our airport. When we consider our other sources of data collection, such as car park transactions and retail spend, there is an opportunity to build powerful passenger marketing databases that airports can use to ensure new and existing air services are well supported.At ASM, one of the key services we are providing is this “big data” processing and social media management to ensure air services are most effectively marketed.
Airports, though, cannot and should not drive forward on this alone. At Routes events, we are rightly seeing more collaboration between airports and tourism authority partners. This is proving powerful in attracting new routes, and offers more strength in the marketing of these air services. When airports consider their “big data” alongside that held by tourism authorities, strong marketing databases can be developed and put to work. One of the key statements made by airlines in our research was that airports and their stakeholders should “work together as a destination rather than individual entities in a location”.
Airport cities and market creation
The final piece of the jigsaw is the strategic role airports will play in market creation, and specifically the relationship between airport city and aerotropolis development. For those that have read book, Aerotropolis: The way we’ll live next, you will be familiar with the airport city and aerotropolis development concept.
Many airports and cities are now following this thinking, shaping their urban environment around successful airports. It is a virtuous circle that is being created – a successful airport city depends on strong air route connectivity. In turn, a successful airport city and aerotropolis provides the markets that airlines need for successful and sustainable routes.
What is also fascinating is the scale of development funding that is going into Airport City projects. In the UK, the budget for Manchester Airports Airport City is €750m – much more than the cost of its Runway 2.
In the new era, airports will join their teams much more closely together. Airport cities need air services, and airport cities will support air services and strengthen the property portfolio till, which may provide solutions to the financial challenges that route development is facing.
Going forward, airports’ route development teams will be many things: they will be experts at articulating the market strength of their catchment, but more importantly, they will be powerful marketers, securing the traffic needed to ensure instant route profitability. These teams will also become key influencers in the strategic task of market creation, shaping airport cities, the wider aerotropolis and the tourism infrastructure of the destination.
These new skills will ensure traffic is always delivered for new routes, and that is the surest way to ensure the financial support discussion with the airline is painless.