The Need for Airport Innovation

IATA has suggested air traffic growth seems to be resuming after the economic decline of 2008-9. Future growth trends will be driven by the low-cost airlines (LCC), as they continue to increase their passenger loads. LCC’s have revitalized many regional airports, leading to competition between airports and the need for airports to be competitive in their fees.

This presents a challenge to airports to find new sources of revenue, with the clear understanding that they cannot continue to operate with a “more of the same” attitude.

Airports recognize that they must adopt new approaches in order to actively support this growth of air travel and be competitive. Those airports that successfully rise to the challenge will become “Airports of the Future” and will exhibit three key characteristics that distinguish the successful from all others:

* Lower-cost operating costs
* Faster and more efficient passenger flows
* New revenue streams, driven by increased retail and services opportunities

Compounding the airport’s struggle to compete in today’s global markets are several conflicting resource demands. The airports’ global association, the Airports Council International (ACI), highlights some of their members’ priorities:

* “Sweat the Assets”: the effective and efficient use of facilities
* Growth driven by low-cost airlines
* Airport to airport competitiveness
* Airports as regional economic engines

The challenge of new revenue streams has been taken up by some airports, according to David Wilkening. He opined in a recent article that U.S airports may be re-positioning themselves as transportation hubs. He reasoned that their inter-modal capabilities, buses, airplanes, etc. as well as lots of unused land, positions them for future growth. Examples that were cited as moving in this direction were San Diego, Phoenix and Los Angeles and Cleveland airports.

Airports also recognize that new sources of revenue are needed, as the growth of air travel resumes. In many cases, government ‘capping’ has constrained the use of the Passenger Facility Charge (PFC) as a source of additional revenue. Airlines certainly oppose any new fees on top of existing charges from airports. This has become the key driver for improved airport resource utilization and growth of non-aeronautical (retail or commercial) income.

The easy part has been done with concourse shopping malls, parking lots, etc. But, in order to remain competitive in the market through lower airside costs, there exists an opportunity for revenue growth in an area that the airport has not pursued aggressively to date. This area is the development of a relationship with their customers, the traveling passenger. The airlines use their data as an effective tool to track and monitor their customers, the very same customers the airport needs to derive new streams of revenue.

The challenge to derive new revenues is greater now than ever. The good news is that more airports have started to implement new commercial strategies, not “more of the same,” such as:

* Focusing on the customers’ (passengers) needs – they’re your core non-aeronautical revenue driver
* Executing more focused segmentation studies, not macro but micro-level – starting with your parking lot data
* Differentiating between airport and airline marketing –  implement customer social media marketing
* Delivering quality service – we call it Passenger Experience Index, not those in ASQ surveys.

Where the low-cost airlines revitalized many regional airports, this has lead to more competition between airports. In lock-step, airports must adopt new approaches in order to actively support this growth of air travel, be competitive and in the long term, be successful. Future airport sustainability will be driven by innovation and creativity.

Note: this was cross-posted of Forbes’ Wheels_Up blog on 29 July 2010