Matt Lovering, a director of Maddox Consulting, a strategic management consultancy for the transport industry, examines the practical realities of airports and airlines cooperating to improve the passenger experience.
Airports are facing a challenging market and are struggling as economic conditions lead to falling passenger numbers. Airlines can respond to this downturn by reducing the number of flights but airports with a high fixed cost base have no such option. Indeed, in such cases, reducing the number of flights is the worst thing that can happen.
At the same time, more and more airports are transferring to private ownership. As a result, they are increasingly competing among themselves for a limited number of passengers, whether ‘super hubs’ – Heathrow vs Amsterdam vs Frankfurt – or in regions where passengers have a choice of airports.
So how do airports respond to this situation? By charging airlines more and looking to increase revenue per passenger? It is one approach but it may be short-sighted and will not grow the market. A more profitable way for the whole industry is for airports and airlines to move away from this confrontational relationship, establish partnerships and work together.
In Europe, 2010 was something of an annus horribilis for the airport industry because of the ash cloud and awful weather. From customer service and operational perspectives, these challenges have highlighted the need for airlines and airports to collaborate effectively.
Fundamentally, airports and airlines have to deliver an excellent passenger experience – a smooth, efficient and comfortable door-to-door service that includes the flight, departures and arrivals terminals, and getting to and from the airports. A problem or delay at any stage of the process is likely to tarnish the whole experience, leaving the passenger likely to criticise the carrier and seek an alternative travel solution next time. Both the airline and the airport are in danger of losing another customer.
An excellent experience can lead people to use an airport more and recommend the facility to other travellers. But how can airports go further to generate new passengers in this challenging market?
With the single duty-free shop now replaced by a high street in miniature, airport retail provides valuable pre-flight activity for travellers, helping to fill the lengthy gap between check-in and departure. Many airports use this non-aeronautical offering as a central part of their advertising strategies. However, while this promotional work might generate additional spend per customer, very few passengers are likely to choose an airline/airport combination simply for the shopping.
Likewise, airports could advertise their service levels. However, the competitive benefits of doing so are questionable and the scope offered to grow the market is small. How many people choose not to fly because they fear a queue at check-in or a long wait for bags on landing?
So what can airports do to develop their business?
The answer is collaborate with the airlines – an approach that is often talked about but in many cases is still far from reality. With margins tight all round, and plenty of choices available on key routes, airports and airlines must work together to create an irresistible package of convenience, comfort and price.
Some airports have already experienced the power that airlines have to generate – or impede – traffic. This influence has been seen most clearly in the low-cost sector. For example, Ryanair wanted to fly into Frankfurt and set up a new base: the airline chose the more remote Frankfurt Hahn, which has grown into a second major airport, where Ryanair shares the runway with Wizz Air and Iceland Express. Similarly, Ryanair led the emergence of Treviso as a popular second airport for Venice.
However, this strategy can be risky, leaving airports vulnerable to airlines which secure a dominant position. If airports try to exert influence, then the airline could withdraw its patronage. A classic example of this situation was Stansted Airport’s decision to raise its landing fees. The airport had effectively signed a Faustian pact with Ryanair, a major operator at Stansted, and when the fees went up, the airline retaliated by reducing its services from the airport. This is one of the key reasons why Stansted’s passenger numbers are back around 20 million a year, after peaking at 23.75 million in 2007.
So how can airports and airlines establish a firmer, more robust partnership with benefits for both sides? Three clear strategies present themselves:
Ensure airlines and airports work together to provide appropriate facilities and minimise end-to-end journey times.
Develop joint marketing campaigns that promote both airport and airline, and where possible reduce the cost of the door-to-door journey.
Review the commercial relationship between airport and airline and, potentially, reflect the change in the balance of power between airline and airport.
By combining forces, airport and airline can make the passenger feel special. One of the difficulties of most airports is that apart from dedicated check-in desks for premium travellers and, perhaps, a business class lounge, security and other facilities right through to boarding are often classless. As a result, frequent business fliers find themselves jostled by tourists. This situation is not the way to provide a ‘wow’ service, nor will it help to address falling passenger numbers.
The opportunities can be seen at Heathrow Terminal 3, where Virgin has taken space and invested heavily to fast-track its passengers from landside to airside, and has developed superb ‘clubhouse’ facilities for its Upper Class passengers, which means they do not even have to see other passengers on their way to the departure gate.
But what options are there to extend this experience to all passengers using a particular airline? Airports could consider supporting their biggest airline customers with dedicated facilities including, perhaps, security and waiting areas. Obviously, this option is not necessarily practical in terminals used by a large number of airlines, none of which is particularly dominant, but it could provide an incentive for any significantly larger carriers to channel more routes into a particular airport.
In the same vein, airlines and airports need to work together to offer a consistent passenger experience. For example, it is incongruous to offer a ‘business’ service if the car parks nearest the terminal are regularly full, and business passengers are forced to wait for shuttle buses to outlying sites. It makes more sense to provide dedicated parking for business travellers as close to the terminal as possible, and move economy passengers to the more distant facilities.
In some instances, the airport can offer airline-unique facilities, and doing so could bring fantastic competitive opportunities. For example, the new Terminal 2 at Dublin Airport will offer Aer Lingus use of the new US Customs and Border Protection (CBP) facility which enables all customs and immigration checks for the US to be completed in Dublin, so passengers will be classed as domestic when they arrive in the US. Significantly, too, Aer Lingus and the Dublin Airport Authority are working together to improve the travel experience for passengers transferring through Dublin Airport.
Airports and airlines need to develop fully-integrated joint marketing strategies, so they can promote themselves as a single entity. Airlines have considerable experience of consumer marketing to promote routes, services and destinations. Airports, by contrast, have traditionally executed little marketing, and that which they have carried out has tended to focus on retail facilities rather than customer service.
So how can airlines and airports work together to promote new services? An example was seen at the opening of Terminal 5 at Heathrow. After initial operating difficulties, BA was marketing the new terminal as an attractive place for the airline’s customers to fly from. The campaign was very effective, but started from a defensive position.
The opportunities for proactive marketing are significant. Consider, for example, the opportunities for:
A full-service airline looking to establish clear differentiators from low-cost carriers by promoting the service that could be expected at the airport, as well as on-board (as some carriers have done with London City Airport, for example).
A regional airline working with a local airport and linking in with a major hub to promote services to the world (via, for example, Schiphol, Frankfurt or Dubai).
An airline and an airport to compare their customer databases, and develop an integrated customer relationship management (CRM) strategy based on this wider customer understanding.
But this joint marketing can extend beyond advertising campaigns into other areas of the passenger experience. One such example is access to the airport – an area where airline, airport and other stakeholders could work together to make a real difference.
Getting to the airport is a universal issue, which some operators have managed to solve better than others. Seldom does the airport have control over modes of transport, but airports are in a strong position to influence the choice of new services – even the fares charged on existing services. In general, airports need to review the costs faced by travellers before they leave the ground. High rail fares, excessive parking charges and taxes all add considerably to the cost of flying. If airports can reduce tariffs, they will have a brilliant message – and it will immediately deliver results for their investment in marketing and communication.
One example to consider is Birmingham Airport (BHX). Emirates has added Birmingham to its UK destinations, offering both a gateway to the Midlands and North and also an alternative to Heathrow for passengers in the South and South West. This situation benefits the airline – which could win additional long-haul passengers to Asia and the Pacific – and the airport – which could take passengers from Heathrow.
So how to promote this opportunity? Subsidised train fares could be one answer. With easy rail access (through Birmingham International), the BHX option could be promoted very effectively by negotiating favourable rail fares for passengers from certain southern rail stations, or ‘free’ upgrades to first-class seating on these BHX-bound trains.
Another example could be to highlight airport retail opportunities. Potentially an airline could offer a discount voucher to passengers for choosing a particular airport, to be used in the airport facilities. Suddenly, the airline has a differentiator against its competitors, and the airport has a chance to promote its retail and catering facilities to customers.
Taken further, this collaboration leads to airports and airlines working together to plan (and fund) routes, and reaping the benefits. A recent example of this cooperation can be seen at Southend, with airport owner Stobart Group investing €2.5m (US$3.2m) to incentivise and market Irish regional carrier Aer Arann’s planned operations from the airport from March 2011 – in which it sees potentially 300,000 passengers a year. Stobart’s association with Aer Arann is also aimed to enhance the transport group’s position in Ireland and provide future opportunities in airfreight.
As passenger numbers decline, reducing income-generating opportunities for airports, the commercial relationships between airports and airlines may change. Extending the concept of joint working, airlines and airports may wish to rethink the traditional charging model, whereby airports charge airlines service and handling fees for each plane and passenger.
Smaller, visionary airports, particularly when seeking to expand passenger throughput, could consider paying, not charging, airlines for each passenger handled – an incentive designed to encourage better utilisation of all facilities and potentially greater income from the airport’s retail component.
Such initiatives, certainly as short-term marketing tactics, could help airports reposition themselves and gain much higher market awareness – transitioning, for example, from a charter service airport to a full-service airport, or promoting the idea of regional services to international hubs.
And perhaps the ultimate transformation in the relationship will be if low-cost carriers start seeing airports as an ancillary revenue stream. These airlines currently promote car hire firms, hotels and a myriad of other services in return for a sizeable commission. What is to stop an airport making a similar arrangement?
Consider, for example, a new owner of Stansted Airport looking for ways to promote its services to easyJet passengers, instead of Gatwick. What better than to incentivise the airline to promote its airport over its competitors during the marketing and booking process?
Aviation is a dynamic sector in which demand can suddenly decline in the face of economic or security concerns. Unless airports and airlines genuinely drop their traditional confrontational approach to each other, they risk missing the opportunities of the good times and potential failure when the going gets tough. And the airports that are first to recognise these changes, most willing to consider innovative responses, and prepared to take some risks in the process, are the ones most likely to prosper in these challenging times.