How IT can strengthen the airport proposition to the benefit of airlines and passengers With global growth in passenger volumes set to continue, as per IATA’s 20 year passenger forecast, the competition amongst airports is likely to intensify. In the past, when faced with competition, we have seen airports compete predominantly on financial terms. However, the reality is that this is no longer enough. Airlines have more complex needs than ever before, and using financial incentives no longer has the impact it once did. It is therefore incumbent upon airport operators to demonstrate the value that they bring in the two areas of operational efficiency and passenger experience.
Both of which are central to airline decision-making when it comes to airport selection and airport relationships. Modern technology now offers airports a significant tool to enhance the value that they offer to airlines. It offers quantifiable advantages in easing the passenger journey, and therefore enhancing the travel experience, and in terms of operational efficiency, both in terms of improved productivity and cost reduction for airlines. Therefore, by incorporating IT into its value proposition an airport can strengthen its positioning and points of differentiation.
By doing so, airports are in a better position to protect aeronautical revenues by justifying fees, as well as in delivering new and innovative services. This paper explores how airports can include IT into their value proposition to airlines and what this means both for airlines, as well as the passenger experience. I would like to thank both Frost & Sullivan for developing this report, and also to the many contributors that provided their time and insights. I hope that this paper provides a source of insight, as well as some practical recommendations, as we work together in supporting the delivery of better journeys for all.
Executive Summary Unlocking the benefits of digital transformation Today, digital transformation is a priority for airports, as well as many other organisations. The challenge is to define what digital transformation means in the airport environment. So often a buzzword, or a catch-all term for everything related to technology, airports must embrace its potential to change how they do things. The proliferation of IT systems, and a lack of data, is endemic in many airport environments today.
However, investment in airport IT offers the potential to sweep away many of the current constraints fragmented systems. The common thread that unites all airport operators regardless of size, geography or model is the need to modernise, attract traffic, improve operational efficiency and enhance the passenger experience. The key component in delivering on each of these is technology, but also management vision. Despite this, airport value propositions regularly neglect the fact that IT can facilitate significant benefit across each of these key areas. Airports also have to deal with a set of stakeholders which often have different interests. Indeed, airport interests are often different to those of their stakeholders too. Costs, revenue streams and growth opportunities are not always aligned. Therefore, airports must balance the different interests of customers, minimising frustration and identifying shared value. Greater competition from other airports and new transport hubs makes it ineffective for airports to incentivise solely on costs.
Instead, they have an opportunity to define more comprehensive value propositions underpinned by IT. By doing so airports can achieve greater value creation for all stakeholders, encourage collaboration and stimulate innovation and differentiation, but it requires a change in focus. By focussing on the passenger as the ultimate customer and by sharing key performance indicators that validate the passenger experience, airports can overcome many tensions with stakeholders. A basic route economics business case remains the key driver of decision-making when airlines select airports for new routes, and route economics will always trump IT considerations.
Nonetheless, route economics are increasingly a “hygiene factor” requiring airports to promote operational efficiency and improved passenger experience if they are to differentiate. Airport IT supports both. After an airline selects a new airport, there are ongoing opportunities to demonstrate value. These range from ease of setting up new applications; improved measurement of performance through shared KPIs; better management of logistics; and an enhanced passengerexperience. Technology, when deployed effectively, is instrumental in breaking down the silos which often frustrate customers.
Airports are realising that the true value of IT lies in enhancing customers’ revenue streams, not just in optimising their own financials and KPIs. It is true that offering agility—allowing airlines to maximise incremental revenue—carries a cost borne by airports. However, that cost tends to be dwarfed by the opportunity cost incurred by airlines that fail to exploit short-term opportunities. This misalignment of IT cost and airline revenue streams is a long-standing problem in the airport environment, and has historically impeded the creation of accurate business cases behind IT investment.
Data analytics allow airports and airlines to better understand how they may increase each other’s business. Because the exploitation of data analytics also leads to greater transparency of IT costs and related benefits, communication with airlines can improve. There is a strong correlation between IT investment, airline ground performance and passenger experience. So much so that in many cases, the acknowledged return on IT investments far exceeds the return on other airport capex projects.
Airports should demonstrate this correlation in their value propositions. Pre-integrated IT solutions in the cloud should be the cornerstone of airport digital transformation, because they decrease complexity and increase agility. Airports should harness the power of the cloud to explore new business models; help customers trigger new revenue streams; and deliver a better experience for passengers. By doing so, airports will be able to turn the promise of digital transformation into real value for all. Frost & Sullivan has engaged with 50 airports through its recent multi-client study and has interviewed 18 airports, airlines and industry experts for this paper specifically. They mostly agree on one thing: the basic value of an airport is its ability to attract traffic because it is convenient to passenger journeys. It is still true that if there is market demand for a particular airport, airlines will compromise on all other drivers, including the IT environment. This paper explores the role of IT as part of the airport value proposition—neither over emphasising its role nor underplaying its significant potential—and it recommends the areas airports should be focussing on
Strengthening the Airport Value Proposition 10 All rights reserved © 2017 Frost & Sullivan processing, security and border control solutions, although Frost & Sullivan expects that more and more airports will also invest in smart planning and mobility. Smart planning can drive cost reductions at the airport, as it will accommodate more traffic without the need for capacity expansion. As such, Frost & Sullivan expects IT budgets to rise most quickly at capacity constrained airports.
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