As we turn the page on COVID-19
There is no doubt that the aviation industry has endured many challenges over the last two years, as it grappled with the rapidly evolving pandemic environment. It was no surprise that many airport operators were staring at losses, and are even predicted to remain in the red as we are still some distance away from full recovery. During the pandemic, passenger traffic was down over 90% in many markets. A decline in revenue of this scale was not surprising since airport operators' revenues depend heavily on passenger traffic.
On the other hand, the airport cost structure is characterized by predominantly high fixed costs, particularly in the regular operations and maintenance of major infrastructure components, such as runways and terminal buildings. With supply side constraints on travel and the collapse in demand for air travel, airport operators did not have sufficient traffic to drive down operational costs and achieve economies of scale. As a result, many operators were burning cash at every passing day.
Though some governments provided relief measures and financial support to help airport operators stay marginally afloat, the support was nowhere near the losses that airport operators were suffering. As such, this phenomenon raises questions about how best airports can be managed and operated effectively and efficiently.
This is where the Airport Groups have distinguished themselves, demonstrating their resilience while managing the crisis so efficiently. The key advantage for smaller airports within an Airport Group is that they have access to resources that they would not have otherwise if they operated and managed separately as individual entities. While it is common for larger airports to enjoy a broad range of resources and expertise, it would be more efficient and sustainable for smaller airports to tap into the support of a large network. Emergence of Airport Groups?
Over the last three decades, the airport industry landscape has witnessed the rise of specialized airport operators. Fundamentally, Airport Groups are multi-airport operators, leveraging their expertise and experience to expand their operations both internationally and domestically, many of which, are private companies.
Before the pandemic, these Airport Groups accounted for almost one-third of global airport passenger traffic and about a quarter of global air cargo volumes. Their significant contribution to the global economy included US$74 billion Gross Value-Added (GVA) to global GDP, 2.7 million jobs, and US$12.8 billion in payments to governments.
Airport Groups generated tangible value for a wide array of stakeholders, measured by conventional financial and economic indicators, sector-specific dimensions and the broader socio-economic impacts. What's so good about Airport Groups?
Being part of an Airport Group facilitates knowledge exchange with other airports within the Group, including the sharing of best practices, application of new technologies and developments of innovative concepts. It also enables the operators to diversify risks, enhance resilience against shocks and achieve economies of scale and scope. Size matters
Just like any other multinational company, economies of scale and scope is another major benefit. Airport Groups benefit from the efficiency of centralized processes and functions, as well as the ability to buy materials in bulk to reduce costs.
Having a more centralized management function enables less competitive airports within the group portfolio to reap the benefits of strategic planning, business development, service sourcing, and capital investments that are otherwise difficult to achieve individually.
Airport Groups often operate and manage airports of different sizes globally. As such, they generate resilience against geographic or market-specific shocks. In addition, some Airport Groups belong to wider commercial conglomerates, where business interests may spread to multiple sectors and industries. The diversity of a group creates an additional safety net against negative sector specific exogenous factors and events.
Similarly, operating as part of a group enables airports to benchmark themselves against other airports within the group. Policies, procedures, and standards at group level allow airports to share practices and measures for achieving those common goals. Operation and management standardizations are often achieved by knowledge exchange through different channels, such as meetings of leaders and experts of different airports, or the rotation of staff across airports. Gearing up for the future
As we come out of the pandemic, the term "normal" may carry a total different meaning. The expedited implementation and use of innovative technologies perhaps is one positivity and silver lining over the past two years. The process of digitalization and technological advancement have certainly enhanced the operational efficiency and improved passengers' experience at airports, while ensuring hygiene, health and safety.
Airport Groups enjoy the privilege in utilizing group resources for research and development. With multiple airports in their portfolios, Airport Groups can deploy their technologies in a diverse range of airports to ensure their latest services and products remain human centric in different operating environments. The upshot ACI predicts global passenger traffic will recover in 2024
. The above-mentioned benefits have the common attribute of sharing and leveraging the knowledge, expertise, and experiences of a resource pool far larger and more diverse than any individual airport would possess. The benefits of the Airport Group business model are considered critical and would certainly facilitate the pace of recovery, and growth, going forward.
ACI - by Guest Author
| Oct 28, 2022