Airports used to benefit from an overall growth path in aviation since decades.
But with COVID it seems the model shows the disadvantage of solely being aligned with natural growth patterns.
Airlines have always faced competition and once Alliances showed their limitations, new business models appeared and challenged established airlines to adapt and accept the changing market forces.
What about airports?
Airports always have been on the “winners” side, automatically gaining new business, as air traffic seemed an infinite growth industry. Only once airline groups such as Lufthansa and its affiliated airlines were able to shift traffic flows between the various Hubs (Zurich, Munich, Frankfurt etc.) the airports faced a more balanced market power and started reconsidering their “take it or leave it” mentality.
But, honestly, these “minor” moves never really changed the hub airport’s economic fortress and its sustainable business model. Until now.
Looking into the dramatic drop of traffic volumes and it`s impacts to profits, the model shows the disadvantage of being very static and not really adapted to “breathing” with the volatility of market forces.
A lot of airports see themselves at the mercy of these forces, which will accelerate changes to their well-established business model and their overall services profile for the future.
The diagnosis for many airports reveals the painful truth: They relied basically on continuous traffic growth, effortlessly arriving at their doorsteps. Managing incremental costs and contribution margins was sufficient.
There is no way back to the “roots”, no alternative, but to re-invent the wheel and challenge all processes fundamentally.
This starts with illuminating the basics:
- Overarching cost structure and performance analysis of the entire company touching all services including the administration processes.
- In-depth analysis and development of measures to allow the enterprise to “breath” both ways (shrink & grow) within short time spans and must comprise the full portfolio of:
- Central airport infrastructure
- Terminal & passenger services
- Space requirements and infrastructure management
- Facility management and construction
- Overhead services
- The standard re-engineering approach mainly focuses on classic cost reduction levers which tend to be organic and lead to incremental changes (solidarity community – everybody contributes a “penny”).
Slow processing time as change management with stakeholders (e.g. unions & workforce) is never speedy and usually achieves a sub-optimal outcome.
- On the other hand, the “Greenfield” thinktank allows to step out of the box and boosts an intellectual reconstruction of the performance profile in the organization.
It takes an ambitious disruptive way, and, by nature, partly exposes “unrealistic” results but at the same time potentials are justified by borders of economic models and the defined approach to solutions.
The combination of both approaches, re-engineering and greenfield, moving in from two extreme paths of thinking, allows us to develop an ambitious but also realistic cost-optimal performance picture.
The overall objective is to achieve a sustainable reduction and variable design of cost based on a critically objective evaluation.
The scope will cover such elements as:
- Identification and evaluation (quantitative & qualitative) of cost reduction potentials in the current “intensive care” economic situation.
- Recommendations for cost-optimizing adjustments to the full-service portfolio (land- & airside) and the depth of value-added features (make or buy) combined with the impulses to achieve a “breathing factory” (= adaptability speed).
- Increasing variability in costs while reducing fixed cost structures (e.g. overhead, assets etc.)
- Examination of the organizational structure with a strong focus on adapting to downturns and growth of traffic.
So finally, to conclude our observations:
Most airports are just holding their breath and asking for additional “oxygen bottles” (state aid) waiting for the moment to pass as to continue the pattern it always has been.
Nevertheless, our conversations show that several small & medium sized airports recognize their “breathing” limitations and are questioning the recipes of the past. They realize this may be a once in a lifetime chance to re-shape their “bodies” (organizations).
UNEX would be happy to support airports in this endeavor.