Airports will need to adapt economic models to face potential headwinds, says Aleksandra Bozic, partner and associate director of Boston Consulting Group
The airport industry has faced an unprecedented crisis in the pandemic, and recovery will not be easy.
As passenger traffic dropped by 60% and revenues by 65% in 2020, airports quickly responded by cutting costs—temporarily closing terminals; reducing capital expenditures, staff, and wages; and suppressing dividends—but it was not enough. Many large airports were forced to issue new debt to stay afloat.
Today, airport foot traffic remains low and the short-term outlook is highly uncertain. There are wide variations in the evolution of the pandemic across the globe, including continually changing travel restrictions, consumer sentiment, economic recoveries, and vaccination programmes.
Compressed booking timelines—as travellers wait far longer to book their air travel than in the past—are making demand forecasting more difficult.
Adding to these difficulties, collapses and bankruptcies among airlines may open airport capacity that will take time to fill.
In the medium term, business traffic may never return to the same levels due to large investments in teleworking by firms, along with a newfound employee determination to pursue better work-life balances. Airlines are therefore expected to lose 20% of business traffic permanently.
Given that business traffic is typically required to make airline economics viable, legacy airlines will need to adapt by cutting routes or raising prices, and hub airports will be further hurt by a reduction in connecting flights, hitting transfer traffic.
As if that were not enough bad news, the crisis has also hurt the perception of airports by investors, financial institutions, stockholders, and the regulators.
While airports have historically shown resilience in crisis after crisis, many of these stakeholders now have less confidence in the resilience of air travel and see airports as riskier assets.
In consequence, airports may now face increased financing costs, changes in the shareholder mix, and a less favourable regulatory framework.
Finally, sustainability looms over the industry in the longer term, as the impact of air travel on the climate is expected to stop many people from flying. Carbon offsets may ease travellers’ consciences, but they will also increase the cost of aviation.
While every airport will find itself in a different situation, if they are to survive — and emerge stronger than before the crisis — all airports will need to adapt their economic models to face potential headwinds from external stakeholders, such as less-favourable regulation or more pressure on airport fees.
For one, they will need to further reduce costs — streamlining support functions, improving procurement, planning the workforce more strategically, and exploiting potential synergies within airport groups.
For another, they will need to fully-realise their digital potential, boosting operational efficiency, increasing asset utilisation, and improving the customer experience.
One way to do this is by digitising much more of the customer’s airport journey, from parking payments to food orders to biometric controls.
Another will be by developing better and more frequent forecasting, using improved analytics to support resource allocation, workforce planning, the allocation of airline terminal space, capex and financial planning, and the operations of each participant in the airport value chain—from ground-handling providers to retailers to caterers—and provide airports with the flexibility to adapt to any sudden changes.
Airports should also update their non-aero revenue streams, adapting their retail, food, beverage, and other offerings by considering unique new partnerships; engaging with travellers before they arrive via digital apps; and taking advantage of online opportunities and even loyalty programs for travellers.
Looking to the long run, although airports contribute only 5% of total air transportation industry revenues, they need to promote sustainability actively and across the entire industry to ensure the industry’s growth. To do so, they can rationalise energy consumption, introduce renewable energy resources and technologies, promote biofuels, and optimise and electrify ground-handling equipment and taxiing.
These changes imply a closer collaboration in term of strategy, operations, and data management between the airport and stakeholders across the entire air transportation ecosystem, and particularly airlines.