Catrin Drawer and Sascha Vogel, Lufthansa Consulting
The global pandemic forces airports to evolve survival strategies and new efforts to the airport business model to be attractive as profitable assets and investment objects. >
As passenger volumes decreased dramatically, with facilities and resources made redundant and the uncertainty of traffic forecasts, airport operators across the globe warn of worsening financial impact from the pandemic. The balance between revenues and incurred costs has gotten out of scale. The market and financial situation call on airports and investors to reassess airport assets and manage infrastructures and resources to ensure the financial stability of aerodromes.
State-owned, privatised, and concessionary airports have three options to meet the current financial challenges to stay in business:
While many airports ask for financial support, cash injections are just a temporary instrument and do not solve the underlying cost issue airports are facing. The option to sell a single airport or an airport portfolio by the state or private investor is affiliated with high capital losses and no chance of recovery. Therefore, the only viable option is to optimise the airport organisation, its strategy, infrastructure and operations to achieve a rightsizing. This will lead to initiating a transformation process and preparing for the future of the aviation industry.
Historically, the majority of airports have been state-owned infrastructure providers. By solely providing infrastructure and facilities of aerodromes, business complexity was kept low and most services outsourced. What seemed to be of low risk for airport operators, turns into a great dependency on external partners and their continued existence. Whenever concessionaries, retailers, ground handlers and other relevant actors of the airport system fail, the responsibility to keep the airport operational, will ultimately return to the infrastructure provider.
The years of continuous growth prospected full-service airports to be among the most successful operators in the industry. In addition to the provision of infrastructure and facilities, these airports actively manage commercial activities by offering a full range of diverse aero and non-aero related services. By focusing on both quality and revenues, airports with their own service portfolios are more independent and able to steer the airport eco-system in a centralized manner. Critics claim the high business complexity to be unfavorable, yet these airports are more robust in coping with new realities. Simply, because they have the control. This service portfolio strategy enables an integrated rightsizing approach on the cost and revenue side. And in line with the strategy and adjusted business model, in- and outsourcing of services sharpen the core competencies of airports or widen them.
From the investor’s perspective, all commercial airport strategies are of interest. Airport groups are constantly examining their portfolios for attractive investment opportunities in the market. The current downfall in the industry seems to retract investors from funding aviation infrastructures, yet analysts consider assets by their long-term development. Thus, airports dedicated to rightsizing can play a vital role in biddings and acquisitions.
The coronavirus pandemic will not end in a recovery phase, but in a transformation - also for airports. In order to realise their full traffic potential, they must recognise the altered demands of stakeholders. Top priority for passengers is hygiene concepts, social distancing measures at airport facilities, reduced waiting times and a touchless travel journey. These needs will not only affect dwell times, retail and dining, but also the utilisation of facilities. Airlines expect airports to discount or exempt charges and contribute to generating passenger volumes. An organisational setup with efficiency at its core will enable airports to reach sustainable structural changes and implement effective levers to optimise costs and revenues.
The “new normal” situation must be defined by each airport individually to assess the consistency of its business model and to adjust to the future state of the industry. A major role will be the adaption of traffic forecasts and the flexibilisation to react to changes. By optimizing resources and facilities, operations will reach higher efficiency. An analysis of the service portfolio will enable a boost in aero and non-aero revenues, while becoming more customer focused leading to stronger partnerships and greater loyalty.
The formation of airport transformation teams with a cross-functional approach, driving fast and flexible business adaption and continuous analysis of current and forecasted challenges will lead to an airport organization of the future with agile teams working in a speedy, customer focused and cost centric manner. Airport managers must pro-actively determine their adaption needs and define focus areas from turnaround, to cash management, to continuous improvements and restructuring organizations to be well positioned for future challenges in the aviation industry.
Associate Partner, Head of Regions; Africa, Indian Ocean, Iraq & Jordan, Lufthansa Consulting
Consultant, Expert Airport Management, Lufthansa Consulting
