What’s driving airport change?
A main driver for Europe’s airports, which have been at the forefront of change, has been the business transformation prompted by corporatization and privatization. This started at the end of the 80s and has since accelerated. Between 2010 and 2016, the share of airports with private owners in Europe rose from 21% to 42%.
But even with airports with public shareholders, we've seen a change of mindset. Shareholders now want airports to stand on their own two feet.
Then there’s the creation of the EU’s single aviation market, which has evolved into the wider European common aviation area. The restrictions on public funding and tight rules over state aid are pushing airport business transformation forward.
In what sense?
More competition for one thing. Most airports are now marketing themselves to airlines to attract and retain new services. Airport competition is no longer playing out at a local level, between airports serving the same catchment area. Airports now compete on a Pan-European level to attract flexible airlines which are increasingly route agnostic. But you can't rely just on revenues from the airlines. You need to look through all revenue sources.
As a result, airports have transformed from being mainly B2B businesses to also being B2C. That’s placed a sharp focus on service quality and operational efficiency.
Where does IT come in?
Our airports are giving a lot of thought to digitization. They’re re-strategizing commercial activities by embracing fully digital environments; by building a narrative for the airport experience; and by looking for opportunities beyond the terminal.
Olivier Jankovec, Director General of Airports Council International (ACI) Europe
It allows us to work on improving the passenger experience, which is something ACI’s airports are giving a lot of thought to.
They’re re-strategizing commercial activities by embracing fully digital environments; by building a narrative for the airport experience; and by looking for opportunities beyond the terminal.
They’re also trying to establish a proper brand equity for the airport. Because with the brand equity, you can leverage commercial activities. In all of this, technology is very important.
As a result we’re seeing airports becoming more directly involved with stakeholders in commercial and service activities, such as joint ventures with concessionaires. In the past, airports were happy to give commercial activities to external concessionaires. But now they want to co-manage them.
So what we're seeing is a holistic approach in evolving airports, in which operational efficiency, and the technology to enable that, are key.
What’s a good example?
There are many, but one is Airport Collaborative Decision-Making (A-CDM). This connects different operational partners and offers common situational awareness in terms of operations, enabling efficiency gains.
A-CDM gives airports more control over how facilities are used by various stakeholders on the ground. If we have better control – and if we can drive coordination and cooperation between all stakeholders – then we’ll achieve more efficient operations.
So technology is enhancing the passenger experience and operational efficiency, while allowing our airports to maximize revenues, cut cost and squeeze assets.
Added to that is communication. Increasingly, we see airports embracing social media and Wi-Fi related services, to give passengers more customized updates on airport services, for example.
We’ve seen a lot of take up here; indeed ACI’s digital reports are tracking this for the industry and I'd like to thank SITA for partnering with us on these reports.
What about IT challenges?
I see four. First, there are new and increasing competitive pressures. Why? Because ‘digitization’ is changing consumer behavior and potentially that affects our revenue stream.
If we think about shopping, why would you buy something at the airport when you can buy it online and get it delivered to your home? You don't have to carry it with you or consider security restrictions.
We also see more advertising platforms competing with our airports’ traditional hard advertising. Self-driving cars, which are just around the corner, will significantly impact our parking revenues.
Drones will need to be integrated within airports. And there are many questions about the impact of virtual reality on future demand for air transport.
Of course, technology is a great enabler but it's also a threat to established business models. It used to be a given that our non-aeronautical commercial revenues out-performed our aeronautical revenues. That’s not been the case since 2013.
This is a wake-up call, because our business model is predicated on our ability to continue to grow commercial revenues. While we always thought that would not necessarily be easy, we did believe that the sky was the limit.
We see a lot of pressure on us from airlines, and we know there's only so much airports can charge them; so if we’re to earn commercial revenues through the passenger then there’s an issue in terms of our future business model.
We've seen increasing airport competition driven by the rise of digitally-enabled low cost carriers. That’s the second challenge. The LCCs have shifted up-market, and are moving into long haul; and they’re now also feeding and aligning themselves.
We see airports reacting to that, trying to build self-connecting platforms. With this new way of thinking, IT and digital can be the enabler.
The third challenge is security, which is in constant flux, as security threats become more unstable, diverse and unpredictable. How we can change the philosophy of aviation security system to make it more risk-based? Security needs to become truly data-driven and intelligence-based.
Finally, I think there’s a challenge for which we need more help from technology. It's how to better demonstrate the societal value of aviation and drive community engagement.
That's linked to environmental and sustainability challenges. I believe we’ve not necessarily leveraged all the possibilities that technology is offering today in this regard.
So moving forward?
Technology needs to be at the core of airport business strategy. This is happening now in our industry, through new leadership. Increasingly, we see airport CEOs coming from other sectors, bringing different perspectives and experience.
With that we’re seeing a new look at culture, corporate structures and airport governance. The question our leaders face now is how to make the organization not only ready and receptive for change, but proactive.
That starts with the innovation strategy being fully part of the wider business strategy of airports. Many airports are amending organizational structures and creating new digital roles. For example, this is what Aéroports de Paris, Schiphol, Heathrow, Munich, Fraport and Copenhagen, are doing, to name a few.
We’re seeing a new position called Chief Digital Officer, along with digital transformation teams, digital representation on aviation boards, the rise of data labs and so on.
I have to mention, of course, the first multi-airport hackathon that took place last year among several European airports, with ACI and SITA involvement. (See ‘Multi-airport hackathon marks a first.’)
Moving forward also requires collaboration. No just within your own organization, blending bottom up and top down approaches. But also in terms of how do you further incentivize collaboration between the different actors within our industry, between airports and airlines?
Are you optimistic?
Yes. I think there's one thing, however, that will potentially hamper progress and that’s regulation of airport charges which brings about conflict between airports and airlines. We need regulation to incentivize them to work together more.
That’s going to be very important to moving forward and achieving the step change we need.