Complex Made Simple

Why airports and airlines need to work together?

Airports and airlines need to work together and exploit synergies wherever possible, according to a recent study by global management consulting firm Strategy& (formerly Booz & Company), part of the PwC network. These partners need to join forces in order to boost revenues, lower costs, improve efficiencies, and enhance the customer experience.

Commenting on the need for airports and airlines to make unlocking synergies a priority, Alessandro Borgogna, Partner with Strategy& who leads the aviation practice in the Middle East, said: “Airports and airlines have a long and successful history of collaborating to transport millions of customers safely from place to place. However, this is no longer sufficient for business success. With a far more dynamic geopolitical and economic environment, increasing global competition and need for lower costs, these two natural partners need to make every effort to unlock synergies.”

According to the study by Strategy&, there are four areas where airports and airlines could work jointly to unlock value:

1) Integrate sales channels to boost customer purchases – Airports and airlines should solve the basic problem that prevents them from selling more products to their millions of passengers. To give passengers more time to shop, and make it more convenient, airports and airlines could integrate their sales channels for retail goods. These following options could be put to use at the same time: airplane to gate, airplane to airplane and home to gate.

Hong Kong International Airport for example has introduced the i-Gate facility, which allows travelers to order goods directly on tablets at the departure gates and have the goods delivered to them within 10 minutes.

London Heathrow Airport also offers an online travel store, Heathrow Boutique, which provides a ‘Reserve & Collect’ service where passengers can reserve products online, then pay and collect the goods as the shop.

2) Drive sales with joint loyalty programmes – Although most airlines offer loyalty programs, these programs are much less common among airports. In a recent study of international airports, Strategy& found that only a quarter offered loyalty programs which were predominately large airports with over 40 million passengers per year. With a joint sales channel, a joint loyalty program can generate incremental revenues and profits for both airports and airlines at relatively low costs.

Airports and airlines also stand to gain in the following ways: 1. More passenger spend as loyalty-program members increase their purchases to obtain loyalty points, enter higher reward tiers, and earn vouchers. 2. Lower costs thanks to shared costs, such as a joint technology platform and call centers. 3. Economies of scale as the joint program grows and increases its negotiating power with suppliers. 4. Better customer knowledge that digital analytics can exploit to tailor offerings and improve customer relationships. However, designing a business model with the right profit-sharing mechanism and the right technology will be critical.

3) Improve customer experience and efficiencies with joint digitisation – Digitisation is shaping the travellers’ entire experience, which Strategy& identified in five stages: pre-journey, pre-flight, in-flight, post-flight, and post-journey. Today, airline-related digitization focuses on the pre-journey, in-flight, and post-journey stages, while airport digitisation focuses on pre-flight and post-flight.

By integrating their digitization efforts, hub airlines and airports could offer a single application for an integrated, seamless travel experience across all five travel stages with all manner of services, information, and guidance. The hub airlines and airports could also realize additional revenue and/or reduce costs in three key ways: 1. Optimized operations 2. Targeted marketing and cross-selling 3. Improved decision making. The key challenge with this will be to define the right technology architecture and operating model for the joint digital platform.

Emirates airlines for example has started a “Together” program in collaboration with Dubai customs, police, immigration and airport authorities to use technology and improve travelers experience and make processes such as checking in or baggage drop-off and collection simpler.

4) Joint real estate development and hub operations – There are many opportunities to better coordinate real estate development and operational activities to save money and maximize the use of property. On the development front, airports and hub airlines could develop terminals and airport facilities through joint ventures or concessions to ensure optimal use. They could also coordinate the development of real estate around the airport.

For example, the Al Maktoum International Airport has already put this strategy into action. It helped created Dubai World Central, which has dedication aviation logistics and staff accommodation clusters.

On the operations front, airports and hub airlines could set up a joint slot-coordination team to maximize the use of airport infrastructure and improve airlines’ operational efficiency. They could also set up joint airport operations centers that serve both airports and airlines, lowering costs by eliminating redundancies and repetition of functions such as gate control, ground coordination, emergency centers, and call centers.

“These four key areas could play a significant role in boosting revenues, lowering costs and enhancing customer experience. The first three areas can help airports and airlines work together more smoothly to improve the customer experience and boost airport commercial sales by 10 to 20 percent and airline commercial sales by more than 50 per cent, with relatively little incremental investment,” said Marwan Bejjani, Principal with Startegy& and a member of the engineered products and services practice.

Whereas, Bejjani continues the fourth area “concentrates on how hub airlines and airports can coordinate to improve efficiencies, lower costs, and foster economically dynamic aviation clusters — populated with their ecosystem stakeholders — to compete better in the global travel market of the future. In all of these joint activities, the challenge will be designing a business model with the right profit- and cost-sharing mechanisms and with the right technologies.”

Tarek Khalifa, Manager at Strategy& and member of engineered products and services practice in the Middle East, concluded: “We believe that priority synergies are in sales-channel integration, joint loyalty programs, joint digitization, and collaboration in real estate development and hub operations. By taking their partnership to the next level, airports and airlines can thrive and grow together in the global travel market of the future.”