Paul Griffiths, CEO, Dubai Airports says there has been a lack of trust in the relationship between airline and airport
The suggestion of airlines landing, parking and taking off from airports free of charge is considered heresy in many circles. After all, it challenges the fundamentals of a business model that has been in existence since the dawn of civil aviation.
However, the greater heresy is to ignore the fact that the current model is broken. Too many airports continue to rely on airline revenues to fund operations and development. It is only in recent years that commercial enterprise has come to the fore in the airport sector. Previously, airports have been sheltered from the harsh economics of the aviation industry by the cocoon of government bureaucracy, simply increasing charges to cover burgeoning expenditure.
There has also been a lack of trust and recognition of the interdependent relationship between airline and airport that has been fuelled by the fundamental misalignment between cost and benefit. Since 2000, global airline losses have reached some $50 billion. By contrast, many airports have recorded impressive profits. Further, a recent Airports Council International survey pegs airport capital expenditure in 2010 at $46 billion.
Piling costs on the back of the most economically fragile component in the value chain is unsustainable. It is high time for airports and airlines to acknowledge their inter-dependence and involve a crucial third entity—the service and retail travel industry.
The global travel retail market in 2009 was worth $34.5 billion. This figure only scratches the surface of what is possible. Airlines invest significant amounts in attracting customers. They hand a captive, mobile, often affluent audience with time on their hands over to the confined environment of the airports and travel retailers.
However, due to a chronic lack of trust, this golden opportunity is often squandered. Information is not shared, and airport service and retail portfolios are not optimized around the customer.
In fact, almost 50% of the time a customer spends at an airport is absorbed by cumbersome and non-commercial processes—at an opportunity cost as high as $35 billion per annum. It doesn’t have to be this way. Airlines, airports and travel retailers need to turn every second from irksome bureaucracy to customer delight.
Airports could be the showcases and test-beds of the latest retail trends, where customers are surprised and delighted at the experience that airlines, airports and retailers have conspired to create. To achieve that, airlines need to be willing to share information on customer travel patterns and demographics that would create breakthrough service experiences by facilitating better decisions about retail environment, infrastructure and product management. In turn, retail information could help airlines in their efforts to attract a broader passenger base in the most cost-effective way.
Airports should invest heavily in innovative, efficient and customer-oriented technology and processes to increase retail opportunities by optimizing dwell time. Revenue sharing and ground-based fulfillment upon arrival could eliminate the inefficient and expensive carriage of speculative stock on board aircraft.
The number of passengers traveling through airports is expected to more than double from less than 2.5 billion now to more than five billion by 2027. If we are able to break the cycle of mistrust and respond to rapidly changing trends with speed and agility, revenues from airport retail and services will soar.
This could lead to an environment where the retail travel industry records greater profits, airports fund their operating costs and capital investment entirely from non-aeronautical income, and airlines are relieved of airport charges, directly or through a revenue-based rebate structure, whereby airlines participate in the sales revenue generated by their customers.
Sound radical? For the aviation industry, maybe. But this sort of risk sharing is common in other industries. The big question is: can we build the right relationships to make it happen?