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1、Building future-ready airport business modelsPhoto by Franz Maybuechen Kearney,DsseldorfWith the pandemic bringing the aviation sector to a standstill,now is the time for service providers to reassess their business models to become more resilient.Transport infrastructurethe backbone of the global e
2、conomyhas undergone phenomenal improvements over the past few decades.Major projects have helped transform the face of the worlds transport infrastruc-ture,including Californias high-speed rail network in the United States,the BeijingShanghai high-speed railway,massive infrastructure programs in Ind
3、ia such as Bharatmala Pariyojana for roads and Sagarmala for ports,Germanys Autobahn-controlled access highway system,and the Beijing Daxing greenfield airport project.The aviation sector in particular has enjoyed tremendous growth.In fact,the number of global city pair connections more than doubled
4、 from 10,000 in 1996 to 23,000 in 2019.During the same period,passenger footfall in airports tripled from 1.5 billion to around 4.5 billion.However,COVID-19 has brought the aviation sector to a grinding halt.External disruptions and catastrophes in the past indicate that the sector is particularly p
5、rone to being severely hit by such events.Demand has taken a significant downturn,which inevitably impacts the supply-side ecosystem and erodes value for service providers,including airlines and airport developers and operators.As a result,there is an urgent need for these service providers to reass
6、ess their business models and explore business diversifica-tion strategies to make themselves more resilient to external shocks.In this paper,we focus on airports,a core element of the aviation value chain.First,we discuss the need to transform the sectors business models,and then,we assess the dive
7、rsification strategies that airport owners and operators can adopt to mitigate the impact of external disruptions and prepare for the future.There is an urgent need for airport service providers to reassess their business models and diversify to make themselves more resilient to external shocks.1Bui
8、lding future-ready airport business modelsNote:GDP is considered as real GDP at 2010 prices.Sources:Economist Intelligence Unit,Airlines for America;Kearney analysisFigure 1The aviation sector is highly prone to risk from external shocksImpact of past crises on the global civil aviation sectorChange
9、Number of passengers(billion)Passengers(billion)GDP change year over yearChange in revenue passenger kilometers year over year4.05%0.501.515%-0.01.02.02.53.03.54.55%10%81999 20002003 2004 2005 2006 2007 2008 2009 2000001 20021997 Asian financial crisis9/11
10、 terrorist attack2008 global financial crisisAviation contributes to economic prosperity by connecting people and businesses around the world and creating employment opportunities.Over the past two decades,the sector has grown in close correlation with global economic growth.From 1996 to 2018,global
11、 revenue passenger kilometers(RPK)an industry metric indicating the demand for air travelgrew at an average of about 6 percent a year,outpacing global GDP,which grew at about 3 percent.1 The correlation between economic prosperity and aviation can also be seen in the strong correlation between year-
12、on-year growth in global GDP and global RPK growth.Revamping the business model for airportsAssessing the need for a new business model begins by answering two fundamental questions.Compared with other sectors,is aviation more susceptible to external disruptions?And if the answer is yes,how prepared
13、 are airport owners and operators to weather such storms?Lets take a closer look at how the sector navigates major disruptions.1 The Economist Intelligence Unit,Airlines for America2Building future-ready airport business modelsThe impact of COVID-19The COVID-19 pandemic is a tremendously disruptive
14、and tragic event that has affected our world in an unprecedented way.In addition to the irreparable loss of life,the pandemic is severely deteriorating the health of businesses across industries and nationsposing a serious threat to the entire aviation ecosys-tem.Even though several areas of the wor
15、ld are cautiously reopening,the aviation sector is expected to remain under considerable stress for the near future.In fact,the number of passengers could drop to 2.25 billion in 2020about half of the passengers in 2019 and equal to what the sector saw in 2006.The sudden evaporation of passenger dem
16、and amid travel restrictions across the globe have severely impacted all players in the aviation ecosystem,including airport operators.An assessment of airport operators top line reveals that very few sources of income,such as aircraft parking charges,have been sustained.A large chunk of both aerona
17、utical and passenger-dependent non-aeronautical revenues,such as retail,duty-free shopping,parking,and food and beverages,have nearly been wiped out because of the lack of passenger footfall.The short-term revenue loss,ambiguity about recovery of demand in the post-COVID world,and a tendency to pres
18、erve cash has also hurt airport development and renovation plans around the world.The construction of new terminals,runways,and hotel chains has been postponed indefinitely,and development plans have been scaled back.For example,the San Francisco International Airport postponed its$1 billion Termina
19、l 3 West project for at least six months,and New Zealands Auckland Airport has suspended plans for a new terminal and a second runway.While COVID-19 has left airport operators reeling on the revenue side,the fixed nature of costs such as manpower and administration is making matters worse.The sector
20、 has also faced additional expenses as a result of new measures to ensure that airport operations follow the operating procedures needed to keep staff and passengers safe.For instance,Los Angeles International Airport is setting up sanitation booths,testing autonomous cleaning robots,and considering
21、 using thermal cameras to screen passen-gers.The increase in operating costs to ensure safe travel amid declining revenues is adding pressure on already-stressed cashflows.Constraints in available working capital could lead to higher debt funding,potentially increasing interest payments.The COVID-19
22、 pandemic is just one example of how an external crisis can impact the aviation sector.The global pandemic is exposing existing vulnerabilities in the sectors business models and revealing the dire need for a transformation.Although GDP and RPK growth are correlated,the impact of economic downturns
23、on the aviation sector is particularly magnified.An assessment of three past economic crises show that year-on-year change in RPK is much more volatile than year-on-year GDP growth or contraction(see figure 1).During disruptive events,the demand for air travel is one of the first areas to be impacte
24、d because of a general avoidance of travel,consumers reduced capacity for discretion-ary spending,and policy interventions designed to mitigate negative external events,such as travel bans amid a heightened focus on security and safety.Although the effects of a major crisis tend to be short term,the
25、y can be extremely intense,and this volatility creates acute financial pressures on airlines and airports,necessitating a slew of measures from scaling down operations to liquidating businesses.Airlines across the world are expected to lose more than$300 billion as a result of the pandemic,and many
26、will go bankrupt.2 For instance,Virgin Australia,Flybe(United Kingdom),and Trans States Airlines(United States)declared bankruptcy over the past few months.A few governments have announced stimulus packages for airlines,including the$59 billion stimulus from the US government to help airlines weathe
27、r the headwinds from the pandemic in the short term.2 International Air Transport Association 3Building future-ready airport business modelsMilan International Airport in Italy.One of the most important air transportation hubs in Europe,this airport has been focusing on developing its non-avia-tion
28、business over the past few years,covering a wide range of commercial services catering to passengers,visitors,and operators as well as the real estate business.Our assessment of the revenue streams reveals that the airport derives 80 to 90 percent of its revenues from passenger-dependent sources.Ind
29、ira Gandhi International Airport in India.In this airport,the share of non-aeronautical revenues has grown significantly over the past few years.Growing contribution of non-aeronautical revenues(47 percent)is indeed a step in the right direction,A deeper assessment reveals that airport derives only
30、15 20%of the total revenues from passenger independent sources while 80 85%of the revenues are still passenger dependent.For other airports managed by the Airport Authority of India,the share of passenger-dependent revenue streams is even higher,in the range of 90 to 95 percent.Dallas/Fort Worth Int
31、ernational Airport in the United States.The largest hub of American Airlines,this airport has been working on diversifying its revenue streams by focusing on non-aeronautical sources over the past 15 years.Outside the terminal,the airport operator has expanded into a variety of business segments,inc
32、luding hotels,golf courses,and even natural gas wells.The revenues from non-aeronautical sources at 53 percent of total revenues surpassed the revenues from aeronautical sources in 2019.However,deeper assessment reveals that only 19 percent of overall revenues are passenger independent.Dependence on
33、 passenger-driven revenue streamsGiven their susceptibility to external shocks,forward-thinking airports are identifying and assessing their preparedness for navigating disruptions.The revenue streams that are not dependent on passengers are a good indicator of an airports preparedness to handle sud
34、den external shocks.Airport revenues typically come from two sources.Aeronautical sources such as navigation and surveillance to manage air traffic,fuel supply for aircraft,landinghousingparking charges,ground safety services,and ground handling services for passengers and aircraft are almost entire
35、ly passenger dependent.Non-aeronautical sources include both passenger-dependent revenue streams,which are entirely dependent on air travel,such as retail,food and beverage,and duty-free sales at airport terminals,as well as passenger-independent revenue streams,such as rent from commercial spaces a
36、nd service offerings.While most airports have focused on improving their non-aeronautical revenue streams,a significant amount of these revenues are still passenger-depen-dent,including retail,food and beverage,and duty-free sales.A few airports,such as Frankfurt,have diversified their operations to
37、 generate considerable revenue from passenger-independent avenues,such as real estate.An assessment of the passenger-independent revenue streams of a few airports across the world indicates various levels of revenue diversification:4Building future-ready airport business modelsFigure 2Many major air
38、ports gain most of their revenue from passenger-dependent sourcesMilanPassengers:30 MnShare of non-passenger-dependent revenue12%Notes:Passenger-dependent revenue sources include aeronautical revenue,non-aeronautical revenue,such as retail sales,food and beverages,duty-free sales,advertising and pro
39、motions,lounges,and parking zones for passengers and aviation personnel.Non-passenger-dependent revenue sources include rent from commercial outlets and spaces accessible to users other than passengers,such as offices,warehouses,training academies,golf parks,hotels,and commercial parking zones,as we
40、ll as service line offerings(consulting),international activities(investment in other airports and operations and maintenance services for other airports),and cargo revenue.Passenger numbers are for 2019.Sources:company annual reports,Airports Economic Regulatory Authority,Comptroller and Auditor Ge
41、neral reports;Kearney analysis64%10%2%24%DelhiPassengers:68 MnShare of non-passenger-dependent revenue16%For other Indian airports,this is as low as 5 to 8 percent.53%10%6%31%DallasPassengers:75 MnShare of non-passenger-dependent revenue19%47%17%2%34%FrankfurtPassengers:70 MnShare of non-passenger-d
42、ependent revenue35%40%29%6%24%Aeronautical(passenger-dependent)Non-aeronautical(passenger-dependendent)Non-aeronautical(non-passenger-dependendent)Cargo(non-passenger-dependent)Frankfurt am Main Airport in Germany.Widely considered to be one of the most modern airports in the world,this airport had
43、revenues of$4.08 billion and 70.6 million passengers in 2019.3 The airports operator,Fraport Group,derived 35 percent of its revenue from passenger-independent sources with the biggest chunk coming from real estate.External disruptions have a smaller impact on passenger-independent revenue streams t
44、han they do on passenger-dependent revenue streams such as aeronautical revenues and revenues from airport retail,food and beverage,and duty-free sales.The differences in airport maturity in revenue diversifica-tion strategies reveals a need for airport operators to have a concerted strategy for div
45、ersifying their revenue streams to mitigate the impact of external shocks(see figure 2).External disruptions have a smaller impact on passenger-independent revenue streams than they do on passenger-dependent revenue streams.3 3.71 billion revenue;conversion rate:1=$1.10;Fraport Group annual report f
46、or fiscal year 20195Building future-ready airport business modelsSource:Kearney analysisFigure 3Three strategies can help airport operators become more resilient 123Sweating real estate assets to extract the most valueGeographically diversifying core businessesDiversification strategiesfor airportsI
47、nitiating“capex light”service oferingsDiversification strategies to be future-ready and resilientThe worlds leading airports,including Frankfurt am Main Airport in Germany,Changi Airport in Singapore,Hong Kong International Airport,Charles de Gaulle Airport in Paris,and Schiphol Airport in Amsterdam
48、,have adopted different strategies and business models to diversify their revenue streams.Next,we look at three types of strategies in greater detail(see figure 3).Sweating real estate assets to extract the most valueMany airport owners and operators have large parcels of land for development,especi
49、ally around their terminals.Although some parcels,such as those earmarked for airport expansion,are reserved,there is no doubt the real estate is an asset that,if used efficiently and intelligently,can generate significant value.Airport developers and operators will need to identify the optimal real
50、 estate product mix,which depends on the following factors:Traffic profile.The profile of passenger and freight traffic,both at the airport and in the catchment driven by an assessment of demand,such as quantity,mix,and demographics Real estate environment.Scale,type,and quality of real estate devel
51、opment(existing and forecasted)around the airport to identify gaps and opportunities Available land area.Size and shape of land parcels available for development Location and connectivity.Location of available land and status of connectivity by intra-city transport modes,such as metro 6Building futu
52、re-ready airport business modelsSource:Kearney analysisFigure 4The real estate product mix must match each airports unique profileTraffic profile Analyze the quantity and mix of passenger and freight traffic.Consider the airport and the surrounding catchment to assess existing and projected demandAv
53、ailable land area Analyze land availability and earnings potential to prioritize options:Real estate products linked to aviation Completely diversified real estate not linked to aviationReal estate environment Analyze existing and projected establishments around the airport to identify a target prod
54、uct mix.Location and connectivity Assess the closeness to large cities and the ease of access for developing diversified products.Completely diversified real estate not linked to aviationReal estate linked to aviation Core airport real estate,excluding terminalsOfficesOfficesfor airlinecompaniesAvia
55、tiontrainingacademiesIndustrialpremisesHotelsHangarsFreightShoppingcentersIndustrialEntertainmentIndias publicprivate partnership airports have almost exhausted their core real estate.Real estate linked to aviation.This includes offices for airline companies,aviation training academies,and hotels.Ca
56、se study:Hong Kong International Airport has established an aviation academy in collaboration with the National School of Civil Aviation of France and Hong Kongs Vocation Training Council.The academy focuses on strengthening local manpower for the aviation sector.Case study:Delhi International Airpo
57、rt Limited has leased 1.11 acres at the Terminal District of Indira Gandhi International Airport to Airbus so the aerospace corporation can launch Indias first full-flight simulator.This is expected to address the growing demand locally for trained pilots and aircraft maintenance engineers.Three str
58、ategies can help extract the most value from real estate(see figure 4):Core airport real estate,excluding terminals.In addition to terminals,core airport real estate includes hangars and freight infrastructure to service airlines and logistics providers.Case study:Frankfurt Airport is a prime exampl
59、e of developing core airport real estate,having developed a cargo city at the airport with an overall area of 1.49 million square meters,providing ideal facilities for airlines and major logistics companies,enabling it to handle 2.1 million tons of cargo in 2019.4 Airport operators can enhance their
60、 value proposition with a higher throughput by establishing an efficient cargo ecosystem.This would also create access to information and management of services in a secure and transparent way for all stakeholdersfrom airport operators,cargo handlers,and logistics operators to customs agents,airline
61、s,and shipping agents.The platform could also support tracking and tracing,such as for the status of goods at customs as well as the sale,acquisition,or reservation of services.4 CargoCity Guide 2017,Frankfurt Airport7Building future-ready airport business modelsInitiating“capex light”service offeri
62、ngs Although developing and sweating real-estate assets can unlock a wealth of value,it is capital-intensive and has a long gestation period.During events such as a pandemic,when capital is scarce and such projects might be difficult to undertake,initiating service offerings can be an excellent way
63、to diversify the business.Service offerings have the advantage of both being“capex light”and creating quick speed to market.Completely diversified real estate not linked to aviation.This includes offices,shopping centers,and industrial premises.Case study:Changi International Airport has developed J
64、ewel,a nature-themed entertainment and retail complex at the heart of the airport.Spread over an area of more than 135,000 square meters,it houses 280 retail and food and beverage outlets,play attractions,accommodation facilities,and Singapores largest indoor garden with 2,000 trees.Case study:The S
65、quaire,developed near the Frankfurt Airport and connected to Terminal 1,is a commercial hub spread over 140,000 square meters.The building houses offices,retail shops,and services such as daycare centers,restaurants,and salons.It is important to note that these complexes,while connected to airport t
66、erminals to boost footfall,are not completely dependent on them and can be accessed without visiting the airport,thus boosting the airports passenger-independent non-aeronauti-cal revenue.Because real estate assets require a large amount of capital and typically have long payback periods,selecting t
67、he right class of assets to cater to the demand of the catchment near the airport is essen-tial.In addition,unlike airports,which by virtue of being regulated tend to be natural monopolies,real estate development involves setting foot in a fiercely competitive market.Therefore,setting up an inde-pen
68、dent and focused business unit to strategize and execute projects such as a real estate firm is crucial for success.Selecting the right class of assets to cater to the demand of the catchment near the airport is essential.8Building future-ready airport business modelsCase study:The Zurich Airport Gr
69、oup has a 100 percent stake in Brazils Floripa Airport,which the group is developing and operating as part of a concession that runs until 2047.6 Outside Switzerland,the Flughafen Zrich AG operates eight airports in Latin America.Along with four airports in Brazil and two in Chile,the company is ope
70、rating airports in Bogot and Curaao.Flughafen Zrich AG has also had a base in Kuala Lumpur since April 2018 to develop markets in Asia.Case study:The Fraport Group earns 48 percent of its revenue from international activities,including airport management and operational services.The operator has 100
71、 percent ownership in retail conces-sions at six US airports.The scope of Fraport activities includes planning,designing,and leasing commercial areas.Based on concession agreements,Fraport USA subleases terminal concession areas to retail and food and beverage operators at airports in Baltimore,Clev
72、eland,Nashville,New York(JFK Terminal 5),Pittsburgh,and Newark Terminal B.Transforming airports to be experience centers for the community.Airports across the globe are creating homogeneous spaces for consumption and adventure,aligned with their positioning and brand.Top airports achieve this with c
73、ultural and art exhibi-tions,movie theaters,wellness and fitness facilities,and family-friendly activities to strengthen their integration with society.Case study:Flughafen Zrich AG,operator of the Zurich Airport,organizes gatherings and children parties at the airport.The operator is involved in en
74、d-to-end event management,including arranging food and beverages,organizing interactive games,and offering a bus tour to give children an airport experience.Airport operators can develop new service lines across four primary themes:Techno-commercial consulting services.Based on their areas of expert
75、ise,airport operators can offer techno-commercial consulting services in a range of areas,including the following:Airport planning,engineering,and design Hub and route development Operational efficiency enhancement Commercial and retail development Service quality improvement Human capital developme
76、nt Case study:Group AED,the operator of Paris Charles de Gaulle Airport,has an arm named ADP Ingnierie,which is a global leader in airport design and consulting.ADP Ingnieries primary function is advising and supporting airport operators throughout the airports life cycle and can support a project f
77、rom the initial design to the operational phases,with a 360 approach to the airports life cycle.Some key projects managed by ADP Ingnierie include the following:5 Suvarnabhumi Airport in Bangkok.Design of the third runway and taxiways and related equipment Gimhae International Airport in South Korea
78、.Operating procedure definition for a new runway as part of capacity expansion King Hussein International Airport in Jordan.Design of a baggage handling systemAirport operations management.Operators can also act as concessionaires to provide services related to end-to-end airport operations manageme
79、nt.They can also explore providing management services in niche areas that are more suitable to their expertise,such as retail concessions.5 ADP Ingnierie website6 Zurich Airport website9Building future-ready airport business modelsCase study:Flughafen Mnchen GmbH,operator of the Munich Airport,orga
80、nizes airport tours for individuals and groups,charging 14 for a 90-minute tour of the interior of an Airbus 380.Launching an airport e-commerce platform.Airport operators across the globe have access to various luxury and bridge-to-luxury product segments,which tend to be exclusively retailed at ai
81、rports,for example,in duty-free shops.Operators can develop an e-commerce business as an alternative channel to sell these exclusive products.Several airports around the world,including in Delhi and Frankfurt,have experimented with an online offering.Consumers use an e-commerce platform to order onl
82、ine and then collect their items when they visit the airport.Operators can extend the value proposition by going deeper into the value chain and collaborat-ing with logistics players to provide delivery services to cater to non-passengers as well.Case study:The Fraport Group,operator of the Frankfur
83、t Airport,has launched an omnichannel e-commerce platform to give travelers access to a wide range of products.The platform expands the time for duty-free shopping,leading to more sales.Using this online platform,travelers can purchase a variety of products,which they can collect from the designated
84、 outlets on the day of travel.Geographically diversifying core businessesAlthough the COVID-19 pandemic has affected airports across the globe in unprecedented ways,some external disruptions are limited to certain nations and regions.With this in mind,another potential strategy is for operators to c
85、apitalize on their expertise in airport development and geographically diversify their portfolios across international boundaries.This strategy can be executed in two ways:Develop and operate airports in other geographies.Airport operators can diversify geographically by establishing airport develop
86、ment operations for other global airports.The projected economics and short-and long-term policy objectives are among the main considerations for operators to explore.Case study:Royal Schiphol Group,operator of the Amsterdam Airport,has invested in and collaborated with various international airport
87、s.For instance,it has been involved in the development,expansion,and operational activities in JFK International Airports Terminal 4.Invest in airports in other geographies.Operators can also act as financial investors in other airports.They can anchor their investment strategies around identifying
88、opportunities in markets that have strong growth prospects,the potential for added value,room for a strategic business transformation,and availability of strong local partnerships.Case study:The Fraport Group has also diversified geographically through significant international activities,with inves
89、tments across 25 airports across the globe.Some of its investments include a 10 percent stake in Delhi International Airport Private Limited,a 73 percent stake across 14 airports in Greece,an 80 percent stake in Lima Airport Partners S.R.L.,and a 60 percent stake in two airports in Bulgaria.10Buildi
90、ng future-ready airport business modelsGeographically diversifying core businesses.Diversifying their businesses in other geographies will require four moves.First,evaluate the global aviation assets to identify opportunities.Then,assess internal capabilities and financials to identify the best oppo
91、rtunities.Identify the right partnership model with local entities,and finally,develop an implementation road map and kick-start the execution.Based on the diversification strategy and business model that an operator selects,it is imperative to set up the right organizational structure,institutional
92、ize processes,and develop relevant capabilities to truly taste success.Building future-ready airport businessesThe COVID pandemic has put a spotlight on the need for airport operators to recalibrate their business strategies to be better prepared for uncertainties and external disruptions.Success wi
93、ll hinge on diversifying their businesses and increasing the share of revenues that are not dependent on passenger traffic.For each diversification strategy,forward-thinking operators will adopt an action plan that identifies the goal within the context of their existing capabilities:Sweating real e
94、state assets to extract the most value.To extract maximum value from their real estate assets,operators will need to follow three steps:undertake an objective assessment of the citys needs,analyze their ability to meet those needs,and identify market segments to venture into with the right mix of pa
95、rtners.Initiating“capex light”service offerings.Identifying the right mix of services will require two moves.First,assess core competencies,and develop a comprehensive plan to design service offerings that are rooted in those competencies.Then,devise a go-to-market strategy that addresses strategic
96、points such as consumer segments,value proposition,pricing,channels,and an implementation road map.Success will hinge on diversifying the businesses and increasing the share of revenues that are not dependent on passenger traffic.11Building future-ready airport business modelsManish MathurPartner,Ne
97、w Delhi Anshuman SinhaPartner,Mumbai Pablo EscutiaPartner,Madrid Sriram AnanthapadmanabhanPrincipal,New Delhi The authors wish to thank Ashish Jain,Soumyadeep Ghosh,and Priya Kumari for their valuable contributions to this paper.Authors12Building future-ready airport business modelsFor more informat
98、ion,permission to reprint or translate this work,and all other correspondence,please email .A.T.Kearney Korea LLC is a separate and independent legal entity operating under the Kearney name in Korea.A.T.Kearney operates in India as A.T.Kearney Limited(Branch Office),a branch office of A.T.Kearney Li
99、mited,a company organized under the laws of England and Wales.2020,A.T.Kearney,Inc.All rights reserved.As a global consulting partnership in more than 40 countries,our people make us who we are.Were individuals who take as much joy from those we work with as the work itself.Driven to be the difference between a big idea and making it happen,we help our clients break