Airport World, Issue 3, 2013

AIRPORT WORLD WORLD JUNE–JULY FEBRUARY2013 – MARCH 2011 2013 FEBRUARY-JANUARY AIRPORT

In the spotlight: Economics & Finance Airports: Mumbai & Philadelphia Special report: Social media Plus: Leadership, CDM & airport design

THE MAGAZINE OF THE AIRPORTS COUNCIL INTERNATIONAL

Economics & finance: Money matters June–July 2013 Volume 18 Issue 3 www.aci.aero

OPINION Airport World

Editor Joe Bates +44 (0) 20 8831 7507 joe@airport-world.com Deputy Editor Oliver Clark +44 (0) 20 8831 7514 oliver@airport-world.com Online News Reporter Steven Thompson +44 (0) 20 8831 7560 steven@airport-world.com Design, Layout & Production Andrew Montgomery +44 (0) 20 8831 7564 andy@airport-world.com Mark Draper +44 (0) 20 8831 7504 mark@airport-world.com Erica Cooper erica@aviationmedia.aero Website Design & Production José Cuenca +44 (0) 20 8831 7517 jose@aviationmedia.aero Sales Director Jonathan Lee +44 (0) 20 8831 7563 jonathan@airport-world.com Advertising Manager Kalpesh Vadher +44 (0) 20 8831 7510 kalpesh@airport-world.com Subscriptions Lauren Murtagh +44 (0) 20 8831 7512 subscriptions@airport-world.com

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Money matters Airport World editor, Joe Bates, reflects on airport profitability, changing business models in the US and finding the funds to pay for future airport development.

T

hey may not be quite so loud or as vociferous as they used to be a few years ago, but, in general, airlines don’t need much encouragement to complain about high airport charges.

In fact, hardly a month goes by without some airline bleating about overly high fees or warning that they may have to scale back services or axe routes altogether if an airport doesn’t reduce its charges.

Indeed, airlines in the UK recently criticised the Civil Aviation Authority after it effectively proposed real-term CUTS to the amount Heathrow can charge them for using its facilities.

To put this into context, the CAA has proposed that airline charges at Heathrow for the period 2014 to 2019 should be capped at the Retail Prices Index (RPI) rate of inflation minus 1.3% – down from current charges of RPI plus 7.5% for the period 2009 to 2014.

And there was ‘good’ news of sorts for airlines at Gatwick, too, where the CAA proposed a price cap of RPI plus 1% for the five years to April 2019 from a current average charge of RPI plus 2%. While at Stansted, where passenger numbers have fallen, the CAA chose to monitor charges rather than impose a cap.

Yet the response from the airlines has been somewhat hysterical, IAG’s Willie Walsh claiming that the proposed rise at Heathrow fails to address the hub being “over-priced, over-rewarded and inefficient”.

The fact that airport charges account for just over 5% of airline operating costs somehow seems to have been forgotten.

Maybe they can be forgiven for thinking that airports are a licence to print money because of the headlines airports such as

Incheon, Dubai and Heathrow make for their commercial success – the first two make over $1.6 billion per annum in duty free sales, while the latter is often referred to as a shopping mall with runways.

However, the economic reality is somewhat different for most other airports, with 70% of the world’s gateways actually losing money.

In this ‘economics and finance’ focused issue we crush the myth that airports are money-making machines, and try and find out why so few make a profit.

We also have a special report on US airport ownership and look at airport development in China and the planned privatisation of Greece’s regional airports.

I once made an American airport manager so mad at an ACI-NA lunch for daring to suggest that the US should do more to embrace airport privatisation, that he walked away in disgust before his main course arrived!

I’d be interested to know his thoughts now that San Juan’s Luis Muñoz Marin International Airport has been privatised.

Still on the subject of money, we discover why New Orleans has finally decided to invest in its airport; turn the spotlight on a global airport investor; review the benefits of energy efficient terminals and highlight F&B innovation in Australia.

Making money, after all, is important as it often funds crucial new infrastructure and can help keep airline costs down!

Other issues under the microscope in this bumper issue include social media; airport leadership; rewards & recognition programmes; IT innovation and airport sustainability.

AW I hope you enjoy it!

AIRPORT WORLD/JUNE-JULY 2013

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CONTENTS

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Issue 3 Volume 18

12 Busy times Joe Bates looks back at some of the highlights from the recent ACI Asia-Pacific Regional Assembly, Conference and Exhibition in Phuket.

15 Game on Africa learnt more about the airport city phenomenon at the recent Airport Cities World Conference and Exhibition (ACE) in Ekurhuleni, writes Steven Thompson.

16 ACI news 19 View from the top ACI director general, Angela Gittens, reflects on the importance of putting passengers first and the need to do more to promote a more positive public perception of airports.

20 Passage to India Oliver Clark talks to GVK Power and Infrastructure Limited chairman, Sanjay Reddy, about his company’s plans to modernise its airports in India and further afield.

24 Cautious optimism An airline merger and a $6.5 billion capital improvement programme promise to breathe new life into Philadelphia International Airport, writes Nicole Nelson.

28 Airport profitability Despite the sizeable commercial profits of some of the world’s biggest gateways, the majority of airports lose money. Graham Newton asks why and if anything can be done to reverse the trend.

34 New money Is the airport industry going to be the next big beneficiary of Islamic financing? Umar Moghul considers its merits and appeal for gateways looking to fund key construction projects.

36 China’s mission Peter Morris and Joanna Lu report on the financial challenges facing China’s airports as the country bids to upgrade its infrastructure to cope with future growth.

AIRPORT WORLD/JUNE-JULY 2013

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CONTENTS

Director General Angela Gittens Chair Yiannis Paraschis (Athens, Greece) Vice Chair Fredrick J Piccolo (Sarasota, USA) Immediate Past Chair Max Moore-Wilton (Sydney, Australia) Treasurer Louis E Miller (Atlanta, USA) ACI WORLD GOVERNING BOARD DIRECTORS Africa (3) Dalil Guendouz (Casablanca, Morocco) Pascal Komla (Lomé, Togo) Robinson Misitala (Livingstone, Zambia) Asia-Pacific (8) Tan Sri Bashir Ahmad (Kuala Lumpur, Malaysia) VP Agrawal (Delhi, India) Ghanem Al-Hajri (Sharjah, UAE) Dennis Chant (Gold Coast, Australia) Zhiyi Dong (Beijing, China) Seow Hiang Lee (Singapore) Kerrie Mather (Sydney, Australia) Kosaburo Morinaka (Tokyo, Japan) Europe (7) Declan Collier (London, UK) Michael Kerkloh (Munich, Germany) Yiannis Paraschis (Athens, Greece) Tonci Peovic (Zagreb, Croatia) Ad Rutten (Amsterdam, Holland) Stefan Schulte (Frankfurt, Germany) José-Manuel Vargas (Madrid, Spain) Latin America & Caribbean (3) Philippe Baril (Quito, Ecuador) Fernando Bosque (Guadalajara, Mexico) Héctor Navarrete Muñoz (Merida, Mexico) North America (7) Thella Bowens (San Diego, USA) David Edwards (Greenville, USA) Frank Miller (San Antonio, USA) Reg K Milley (Edmonton, Canada) Fredrick J Piccolo (Sarasota, USA) Mark Reis (Seattle, USA) Maureen Riley (Salt Lake City, USA) Regional Advisers to the World Governing Board (7) Larry Cox (Memphis, USA) Stephen Gichuki (Nairobi, Kenya) Seow Hiang Lee (Singapore) Bongani Maseko (Johannesburg, South Africa) Barry Rempel (Winnipeg, Canada) Earl Richards (Jamaica) Miguel Southwell (Miami, USA) Observer World Business Partner Board Chairperson Randy Pope (Burns & McDonnell)

40 American revolution With Puerto Rico’s main gateway successfully privatised and an increasing number of airports adopting new business models, are times finally changing in the US for airport ownership? Joe Bates investigates.

46 Smooth operator LeighFisher’s Annie Lindseth and Zoe Haseman and Albuquerque’s Felix Vivian reflect on several projects that reduce Albuquerque International Sunport’s costs by making it more energy efficient.

49 Everybody wins Susan Gray takes a closer look at F&B innovation in Australia as airports bid to boost revenues and raise customer satisfaction levels.

52 The time is now Joe Bates reports on Louis Armstrong New Orleans International Airport’s plans to transform its image, facilities and operational capabilities with a new state-of-theart terminal.

56 Greek odyssey Hans-Dieter Janecke talks us through the latest developments regarding the government’s plans to privatise Greece’s regional airports.

58 Investor spotlight Samsung C&T Corporation’s vice president, head of strategic development, Kwan Young Chung, talks to Airport World about Incheon International Airport and his company’s aviation investment strategy.

62 More than just results Dr Richard Plenty and Terri Morrissey reflect on key skills and competencies required by today’s airport leaders.

66 Making the right connections Using social media to communicate with today’s new breed of connected traveller can enhance an airport’s image, performance and boost revenues, write David McMullen and Shubhodeep Pal.

70 The people business Recognising and rewarding good work and holding an annual Awards of Excellence programme is part and parcel of enhancing engagement and being an employer of choice, writes Christiane Beaulieu.

Correct as of May 17, 2013

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RUNNING HEAD CONTENTS

72 The way forward The evolution of airport IT systems and collaborative decision making will transform operations at the world’s gateways in the years ahead, writes John Jarrell.

75 Health monitor Francis Stone reports on the challenges, opportunities and benefits to airports of adopting a globally accepted framework for reporting their sustainability performance.

78 Staff watch Airport World online Visit our website at www.airport-world.com for daily news, views and developments from airports, ACI World Business Partners and industry suppliers across the globe.

Want even more?

Sign up online to receive our bi-weekly newsletter, which will bring the latest articles, videos and news to your inbox.

Ajay Jain takes a closer look at the latest identity management solutions airports are using to monitor, manage and control staff access to restricted areas.

81 Project watch Prince Mohammad Bin Abdulaziz International Airport.

83 Project watch extra Joe Bates and Steven Thompson turn the spotlight on airport development projects in Indonesia, the Philippines and Kazakhstan.

84 ACI’s World Business Partners Airport World on Facebook Airport World is now on Facebook.

Find us at www.facebook.com/airportworld for the latest industry postings.

87 Environment news 88 The last word Airport World talks to Dag Inge Rasmussen, chairman and CEO of Lagardère Services.

90 ACI traffic trends

Airport World on Twitter Airport World is now tweeting.

You can follow us @airportworldmag for the latest industry updates.

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AIRPORT WORLD/JUNE-JULY 2013

NEWS

ACI Europe issues State aid warning

The importance of Europe’s regional airports and an ever increasing threat to their livelihoods due to proposed new EU legislation was top of the agenda at ACI Europe’s Regional Airports’ Conference & Exhibition in Lyon.

In his opening remarks, ACI Europe’s director general, Olivier Jankovec, noted that over the last 15 years, regional airports have been the most “dynamic segment of the European airport industry in terms of passenger growth”.

He said: “Regional airports have been the primary enabler of European connectivity, with more than 70 of them now hosting single or even multi-airline bases. With most of Europe mired in recession, their role as essential public transport infrastructure driving local economic capabilities is coming to the fore.

“More than ever, communities across Europe are relying on their airports to support inward investments, exports, tourism and wider economic regeneration.”

However, he warned that the European Commission’s proposed implementation of stricter rules on State aid for airports – ACI Europe believes that aid is crucial for airports handling up to one million passengers per annum while the EU believes the figure should be only 200,000 – posed a very real threat to future survival of many of Europe’s smaller airports.

He said that he feared that if the Commission gets its way, up to 80 airports across Europe faced the risk of closure.

Jankovec stated that the facts don’t lie and that size really does matter, with 51% of airports handling less that 5mppa and 65% of those with less than 1mppa operating at a loss.

He told Airport World: “We believe that the critical threshold for an airport to be able to cover all of its operating costs is generally around one million passengers per annum. So, on that basis, we are telling the Commission that for airports handling less than one million passengers, you need to allow some form of operating aid.

“We are not saying that this should take the form of a blank cheque, but there must be some possibility of public financing for these smaller airports in recognition of their inability to cover their losses.

“You have to remember that because of their size, it is much more difficult for small airports to develop their retail and F&B concessions and other sources of non-aeronautical revenue which they can then use to attract airlines and develop their facilities.

“To put it simply, in many ways public financing plays the role that non-aeronautical revenues do for the bigger guys. Losing any small regional airport will decrease connectivity and have damaging consequences for surrounding communities and economies.”

Jankovec also claimed that it was time for the EU to address and effectively outlaw the one-bag policy being imposed by certain low-cost carriers due to its detrimental impact on vital retail/F&B revenues at regional airports.

Later in the conference, the Europe Commission’s head of unit, Alain Alexis, came under fire from delegates for the EU’s alleged anti-competitive legislation towards small airports and for allocating €32 billion to the rail industry and just €7 billion to aviation, which was argued didn’t allow for a level playing field.

Other topics covered during the conference included enhancing relationships with the community/local businesses/government; marketing and social media; and regulatory framework – opportunities and threats.

News in brief The Australian Competition and Consumer Commission (ACCC) has revealed that passenger satisfaction levels at Sydney Airport are at their highest levels for 10 years. According to the ACCC’s monitoring report, greater value and choice across the airport and strong investment in improved facilities are the key reasons for rising satisfaction levels.

Los Angeles International Airport’s new breed of volunteers are a lively bunch, drink a lot of water and are a bit furrier than normal – but it’s alright, as they are dogs! The four-legged volunteers are

10

part of the gateway’s new PUP (Pets Unstressing Passengers) initiative.

$3 billion validation of our intention to be the world’s premiere A380 hub.”

Dubai International Airport has become the world’s leading hub for A380 operations, according to published airline industry flight schedule data for 2012. The data shows the airport had 7,259 A380 scheduled flights to 28 destinations, the majority of which were operated by Emirates. Paul Griffiths, CEO of Dubai Airports, said: “The opening of Concourse A earlier this year was a

Italian specialty store Bottega dei Sapori will open at Pittsburgh International Airport (PIT) this summer. In March this year, AIRMALL announced its partnership with Airest Collezioni to bring a selection of luxury brands to PIT. The new stores are part of a $10 million upgrade, a yearlong construction project that will result in the most significant overhaul of the concessions programme since the airport opened in 1992.

AIRPORT WORLD/JUNE-JULY 2013

NEWS

Big money for new Istanbul airport

The Turkish government has awarded the concession to build and operate Istanbul’s new €8 billion gateway to Turkey’s Cengiz-Kolin-Limak-Mapa-Kalyon consortium.

The consortium won the contract after agreeing to pay the Turkish government a hefty €22.1 billion over a 25 year period following the airport’s planned 2017 opening.

The news is a huge blow for both Turkish airport operator, TAV Airports Holding, and Germany’s Fraport Group, both of which made it through to the final stage in the bidding session.

Both TAV and Fraport – the latter bidding in a joint venture with Turkey’s IC Holding – withdrew from the race when the price for the airport soared beyond their expectations.

TAV Airports CEO, Dr Sani Sener, commented: “Knowing that this is not solely a construction project, but operational capability is pivotal, we have declared that we would not aim at winning the tender at any cost. Such an approach would jeopardise the company’s health, as well as the future of the Turkish economy and aviation sector.

“As per our smart growth strategy, we’ll continue to pursue new opportunities around the world. I hope that the result of this tender would benefit highly our country and its aviation industry.”

The new airport will eventually have three runways – for simultaneous use – and a capacity of up to 150mppa.

What’s cooking at Heathrow

Russia looking to the East

Honolulu upgrade commences

The Russian government is planning to invest $3.2 billion on upgrading the airports in its Far East Federal District, according to Economic Development Minister, Andrei Belousov.

According to preliminary design documentation revealed by the Belousov, work will start on the revamp in the coming months in a bid to modernise the main gateways of the largest of Russia’s eight federal districts by 2017.

The first airports to benefit from the modernisation and reconstruction programme are expected to be Petropavlovsk-Kamchatsky and Ulan-Ude, as Russia’s Ministry of Transport recently announced that they lacked the infrastructure and technology to match their “strategic importance”.

They will be followed by projects at a further 59 small to medium size airports across the Far East Federal District.

Belousov claims that the upgrade will act as a catalyst for the growth of long-distance domestic flights within Russia as well as new international services to destinations such as the Middle Asia and North America.

The hosts of the TV show MasterChef UK – John Torode and Gregg Wallace – have been signed up as official food tasters for Heathrow Airport.

The pair – two of the UK’s best known food lovers – have been given six months to improve the dining experience at the airport’s 73 F&B outlets. They have also been tasked with introducing healthier food choices across the terminals and creating a platform to champion British culinary talent. Their experiences will be used to form Heathrow’s first ever food guide.

Ben Crowley, head of F&B at Heathrow, said: “We want to continue to innovate to be the best in our league for airport dining.”

An extensive improvement project at Honolulu International Airport has begun with groundbreaking for a new Aloha Air Cargo (AAC) facility.

The $12m AAC terminal, being built with private investment, will consolidate cargo operations, support offices and customer service operations into a single location.

The facility is part of the gateway’s $750m overhaul under a state-wide Hawaii Airports Modernisation Program designed to ensure that it is equipped to handle rising traffic demand.

The facelift will include runway and taxiway improvements as well as the new Diamond Head Commuter Terminal and L-shaped Muaka Concourse, which is to be built on the site of the current commuter terminal.

Completion of the entire project is scheduled for the third quarter of 2017.

For daily news updates, visit www.airport-world.com Terminal 2B at Paris-CDG has closed for a facelift. Operator, Aéroports de Paris (ADP), claims that after 30 years service, the time is right for its “significant redevelopment”. It insists that the revamp is part of its drive to “increase the satisfaction of passengers and airlines by adapting facilities to the highest standards of quality”.

Melbourne Airport has welcomed the Federal Government’s approval of its Southern Precinct Program. Phase 1 of the project includes development of a new domestic terminal facility,

17 new aircraft parking bays, dedicated ground transport facilities and significant road upgrades.

Melbourne Airport CEO, Chris Woodruff, said: “We will look to finalise discussions with our airline customers with a view to the new terminal being operational by mid 2015.”

The UK’s Lydd Airport is to be revived as a “small regional airport” after the government gave the go-ahead for a €9 million expansion plan. The airport – also known as London Ashford Airport – was first opened in the 1950s and, at its height in the mid 1960s, handled 250,000 passengers

a year. The new plans will increase passenger capacity to 500,000 per year and create more than 300 new jobs for the area.

Stockholm Arlanda has officially inaugurated its new-look Terminal 2, claiming that a 2,000sqm expansion of the facility makes it bigger, better and more “passenger-friendly”. The expansion has allowed for the introduction of a range of new retail and F&B outlets and is expected to boost passenger flows. The near €50 million upgrade is expected to be completed in 2015 with the addition of a new baggage sorting system.

AIRPORT WORLD/JUNE-JULY 2013

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EVENTS: ASIA-PACIFIC CONFERENCE

Busy times Joe Bates looks back at some of the highlights from the recent ACI Asia-Pacific Regional Assembly, Conference and Exhibition in Phuket.

D

espite the beautiful backdrop of Phuket, business and the opportunities and challenges facing Asia-Pacific’s airports remained top on the agenda at the recent ACI Asia-Pacific Regional Assembly, Conference and Exhibition in Thailand.

This year’s Airports Authority of Thailand hosted event attracted over 400 delegates from 33 countries, few of which would have been left in any doubt about the huge growth potential of the region.

Indeed, conference sessions about the role airports play in advancing tourism and economic development; sustainable development; as well as planning the future of airport operations and driving cultural changes within airport organisations, all provided a brief snapshot of the type of challenges and opportunities facing ACI’s fastest growing region.

In his opening remarks, Tan Sri Bashir Ahmad Abdul Majid, managing director of Malaysia Airports Holdings Berhad and president of ACI Asia-Pacific, reminded delegates that traffic across the region increased by 7.5% in 2012, and showed no signs of slowing down.

“Our airports handled 1.5 billion passengers last year – that’s 30% of the world market. The top five airports in the world in terms of service delivery, also always come from our region. So, in terms of traffic growth, operational efficiency and service levels to customers, we did very well.

“But this is just the start, as forecasts predict that this region will grow much further and become the biggest aviation market in the world. There is huge potential as far as Asia-Pacific is concerned. But this also brings its challenges. Passengers will become more selective, more discerning and want even higher levels of service from us in the coming years.

“We must be up for the challenge. We must ensure that our airports have the capacity to accommodate the growth that is going to take place in this part of the world. We must have the capacity to allow airlines to grow and ensure that we have the facilities and services to meet customer expectations.

“They are huge challenges, but I am very confident that based on what our airports have done in the last couple of years, we will be able to meet the challenge. But we certainly won’t be able to do it by ourselves, we must realise that in order for us to deliver what we are expected to do as airports, we must

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AIRPORT WORLD/JUNE-JULY 2013

work with our stakeholders. This means governments, World Business Partners, tourism ministries, the airlines and others to achieve our goals.”

He added: “ACI will continue its efforts in advancing the interests of airports and together with other stakeholders, will aim to provide the travelling public with an air transport system that is safe, secure, efficient and environmentally responsible.”

In his keynote address at the conference, Xiaoyu Zhao, vice president of the Asian Development Bank noted that Kathmandu’s Tribhuvan International Airport and others in Bhutan, Afghanistan, Laos and Fiji were among the many smaller airports across the region to have benefited from financial aid from the bank.

The theme of the 2013 conference was ‘Sustainable Airport Business – Expanding Aviation Beyond Boundaries’, so it was fitting that tourism, and specifically the role airports play in tourism development, was the subject of the first session.

Moderator, ACI World’s World Business Partner chairman and Airbiz managing director, Greg Fordham, noted that Melbourne Airport’s success in attracting Emirates to the gateway in the mid 1990s was a perfect example of what can be achieved.

“Back then, Melbourne was considered the rust belt of Australia due to the industries it had lost,” recalled Fordham. “People were leaving it in their droves and all international traffic to Australia came through Sydney, so its decision to work with the government of the State of Victoria to attract Emirates came somewhat from the left field.

“The strategy seemed even more bizarre because back then nobody had heard of Emirates or Dubai, let alone thought about travelling with a Middle Eastern carrier. But they made it happen, and in 1996 it launched three services a week to Melbourne. Today it operates three services a day to Melbourne and 84 weekly to Australia, many with A380 aircraft.

“Melbourne Airport has since developed the strategy and is now focusing very much on China. As a result, the airport is tailoring its retail, branding and even signage to the Chinese traveller. Victoria’s government is signing sister city agreements and trade deals and Tourism Victoria is looking at marketing campaigns with airlines.

EVENTS: ASIA-PACIFIC CONFERENCE

“It just shows what can be done if you don’t always focus on the obvious and recognise that airports have a key role to play as the team leader in co-ordinating targeted strategies for the growth and development of air services.”

Next up, ACI World’s senior manager, environmental protection, Xavier Oh, called sustainable development, “aviation’s permission to grow”, and warned airports not to forget the importance of communicating with local communities.

Day two began with a lively and entertaining debate about driving organisational change. Dubai Airport’s senior vice president, Jill Nealon, noting that her company’s commitment to delivering integrity at the same time as coping with huge growth and expansion, was no easy task.

For Dubai Airports, said Nealon, the process included re-writing all of its strategic policies; introducing a new code of conduct; giving managers clear guidance notes (in six different languages as 37 different nationalities are employed at the airport); making leaders more accountable; fine-tuning its performance management system (PMS) and developing new training and educational programmes.

Nealon told delegates that Dubai Airports had also introduced an employee engagement survey that provides staff with the opportunity to give feedback on their bosses, and underpinned everything with “communication, communication, communication”.

She cited a cleaner that recently found and handed in a bag containing passports, $10,000 in cash and jewellery as a fantastic example of honesty and integrity at Dubai Airports.

In other news, Eric Miart, environment activities account manager and consultant to ACI World on A-CDM, warned that airports failing to adopt collaborative decision making would “continue their business as usual, miss a lot of opportunities and probably become a future second class airport”.

He said: “However, with A-CDM, you will be in a better position to meet the coming challenges. You will remain a first class airport, you will improve your efficiency and get other benefits such as improved safety and environmental performance.”

And Bangkok’s Suvarnabhumi International Airport, Mumbai– Chhatrapati Shivaji International Airport and Hong Kong International Airport were congratulated for their efforts in managing and reducing their carbon emissions at the airports, under ACI’s Airport Carbon Programme.

ACI Asia-Pacific’s regional director, Patti Chau, said: “Airport Carbon Accreditation was first extended to our region in November 2011 and eight airports have been accredited since then. I am especially delighted to welcome Hong Kong International Airport as the first airport in Asia-Pacific to achieve the Airport Carbon Accreditation ‘Optimisation’ level.”

The CEO and Leaders Forum featuring Tan Sri Bashir Ahmad Abdul Majid; Sydney Airport chairman, Max Moore-Wilton; Ghanem Al-Hajri, chairman of Sharjah International Airport; and Vince Scanlon, general manager airport operations for Adelaide Airport, provided an entertaining and sometimes humorous end to an enjoyable conference.

AW

AIRPORT WORLD/JUNE-JULY 2013

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EVENTS NEWS: AIRPORT CITIES

Game on

Images courtesy of airportcities.aero.

Africa learnt more about the airport city phenomenon at the recent Airport Cities World Conference and Exhibition (ACE) in Ekurhuleni, writes Steven Thompson.

I

t is surely a sign of the increasing importance of emerging markets that the Airport Cities World Conference and Exhibition (ACE) was held, for the first time, in Africa.

The annual event was hosted by the City of Ekurhuleni, known as South Africa’s workshop and home to the continent’s busiest gateway, Johannesburg’s OR Tambo International Airport.

The city, just to the east of Johannesburg, already has bold plans to become Africa’s first ‘aerotropolis’, and more than 700 delegates from 45 countries, representing over 100 airports or airport authorities, were in Ekurhuleni to hear more about its ambitions.

The conference was also given updates and progress reports from some of the most significant airport city projects across the globe.

Following sight-seeing tours, including a trip to the Apartheid Museum, Nelson Mandela’s family home, Desmond Tutu’s home, and the Oliver Reginald Tambo cultural precinct, delegates were taken on an Airport City Tour and then attended pre-conference master-classes run by event chairman, Professor John Kasarda.

The conference, held at the Emperors Palace Hotel, saw Deputy Minister of Transport for South Africa, Sindisiwe Chikunga, deliver the welcome address.

She noted that ACI’s most recent forecast predicts that global passenger numbers will grow to 12 billion in the next 20 years and said that despite the current economic climate, this positive outlook should “encourage us to address the long-term aviation needs of our respective countries”.

“Developing airports remains a priority for this South African government. We must deliver airport infrastructure to deliver economic growth,” added Chikunga.

She said South Africa had a network of 135 civil aviation airports which played a significant part in the 2010 FIFA Football World Cup.

Chikunga also commended the City of Ekurhuleni for its vision in developing the Ekurhuleni Aerotropolis, concluding: “The Department of Transport embraces the concept of the airport city and aerotropolis to meet the social and economic goals of this country.”

The first day of the conference culminated in the Gala Evening at the nearby Germiston Lake.

On day two, delegates split into two streams and attended sessions on topics including governance and strategic roadmaps, investment and infrastructure management, commercial development and real estate, airport design and non-aeronautical revenue development.

The emerging markets session saw Kasarda introduce speakers such as Sanjay Khanna, of GVK, who talked about Mumbai’s ambitious SkyCity project. He revealed GVK was on the brink of gaining government approval for the development.

Khanna said: “It has been a three year planning process and we are just about to get approval from the government. I think it will be a nice development for the city of Mumbai.”

Graham Bolton, of ARUP, then painted an encouraging picture of the scene in emerging markets. He said there was “fertile ground for aerotropolis developments”, adding that they already form an integral part in master planning for new airports.

ACE was brought to a close with the Farewell Reception held by Malaysia Airports Holdings Berhad (MAHB), the host for next year’s event in Kuala Lumpur.

The farewell event saw the unveiling of the new Airport Cities Excellence Awards, which will take place for the first time in 12 months’ time. With so many promising airport city and aerotropolis projects on show this year, there is bound to be plenty of competition for the top awards in 2014.

AW

AIRPORT WORLD/JUNE-JULY 2013

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ACI WORLD NEWS

World in motion

ACI brings the Voice of the World’s Airports to ICAO’s Air Transport Conference.

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CI World Governing Board vice president, Rick Piccolo, and other senior airport executives met at the headquarters of the International Civil Aviation Organization (ICAO) in Montréal this March for the once-a-decade Air Transport Conference.

The five-day conference, which was only the sixth such event since ICAO was formed in 1944, sought to address and resolve economic policy issues in favour of a future that includes an economically viable and sustainable air transport sector.

Attended by over 1,000 delegates from more than 200 States and international organisations, the conference included the presentation of over 100 working papers, including seven from Airports Council International.

The papers presented at the conference sought the development of ICAO policy on aviation economics, liberalisation, fair competition, taxation and charges, and consumer protection.

Speaking on the Freedom to do Business Panel at the pre-Conference Symposium on Sunday March 17, Piccolo stated that the regulatory environment was very different at the time of the last Air Transport Conference in 2003.

Today, regulators needed to allow market forces to work for airports in the same fashion that was made possible for airlines, said Piccolo, who noted that ACI supported the principles of effective market access, transparency, non-discrimination and fair competition.

He said that the market could be harsh, and airports took risks investing in new infrastructure since there was no guarantee that airlines would utilise this infrastructure in the long-term.

On the symposium panel discussing Consumer Protection, managing director of Malaysia Airports Holding Berhad and chair of ACI Asia-Pacific, Tan Sri Bashir Ahmad Abdul Majid, observed that passengers’ expectations were increasingly demanding and that handling their many needs was challenging.

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But he remarked that, thankfully, for the most part, service provided to passengers by airports and airlines was very high.

Problems generally arose when things went wrong, and it was important for the industry to work together to develop common procedures, and here ICAO could provide a suitable forum.

He warned that if industry did not act, there was a risk that government regulations would be introduced which could be out of step with industry capabilities.

Robert Deillon, CEO of Geneva Airport and ACI Europe Board Member, speaking on the symposium’s panel on Taxation, called for the need for light-touch regulation. He said that this was necessary as the increased competitiveness of airports meant that concepts such as ‘single till’ were outdated, and that competition and contestability meant that detailed regulation could impede infrastructure development and improvements to customer service.

Speaking about the ICAO conference, Angela Gittens, director general of ACI, said that ACI was consolidating its international representation role as the voice of the world’s airports.

She added that the level of engagement that ACI was able to muster was testament to the increased stature and importance of airports in shaping the international aviation policy agenda.

In addition to the speakers at the pre-Conference Symposium, airports were represented by the chair of ACI-North America, David Edwards, executive director of Greenville-Spartanburg International Airport; ACI-NA president, Greg Principato; and the regional director of the Asia-Pacific, Patti Chau.

During the Conference, ACI presented working papers on Market Liberalisation, Slots and Night Curfews, Passenger Protection, Airport Competition and Economics of Airports; and jointly presented papers with CANSO and IATA on taxation and modernising air traffic management.

ACI WORLD NEWS

ACI events

2013

2013

2013

2013

2013

September 22-25

July 29-31

November 2-5

October 19-23

June 10-12

ACI North America Annual Conference & Exhibition San Jose, USA

ACI World/ACI Latin America & Caribbean, Airports Economic Regulation Conference Mexico City, Mexico

ACI Latin America & Caribbean Regional Conference & Exhibition Montevideo, Uruguay

ACI Africa Regional Conference & Exhibition Lomé, Togo

ACI World Annual General Assembly ACI Europe Congress & Exhibition Istanbul, Turkey

ACI offices ACI World Angela Gittens, Director General PO Box 302 800 Rue du Square Victoria Montréal, Quebec H4Z 1G8 Canada Tel : +1 514 373 1200 Fax : +1 514 373 1201 aci@aci.aero www.aci.aero

ACI Fund for Developing Nations’ Airports Angela Gittens, Managing Director c/o Geneva, Switzerland Tel: + 1 514 373 1200 Fax: +1 514 373 1201 acifund@aci.aero ACI Asia-Pacific Patti Chau, Regional Director Hong Kong SAR, China Tel: +852 2180 9449 Fax: +852 2180 9462 info@aci-asiapac.aero www.aci-asiapac.aero

ACI Africa Ali Tounsi, Regional Secretary Casablanca, Morocco Tel: +212 619 775 101 atounsi@aci-africa.aero www.aci-africa.aero ACI Europe Olivier Jankovec, Director General Brussels, Belgium Tel: +32 (2) 552 0978 Fax: +32 (2) 502 5637 danielle.michel@aci-europe.org www.aci-europe.org

ACI Latin America & Caribbean Javier Martinez Botacio, Director General Quito, Ecuador Tel: +593 2294 4900 Fax: +593 2294 4974 jmartinez@aci-lac.aero www.aci-lac.aero ACI North America Greg Principato, President Washington DC, USA Tel: +1 202 293 8500 Fax: +1 202 331 1362 postmaster@aci-na.org www.aci-na.org

ACI represents 573 members operating 1,751 airports in 174 countries and territories, which in 2011 handled 5.4 billion passengers, 93.1 million tonnes of cargo and 77 million aircraft movements. ACI is the international association of the world’s airports. It is a non-profit organisation, the prime purpose of which is to advance the interests of airports and promote professional excellence in airport management and operations.

AIRPORT WORLD/JUNE-JULY 2013

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ACI VIEWPOINT

View from the top ACI director general, Angela Gittens, reflects on the importance of putting passengers first and the need to do more to promote a more positive public perception of airports.

A

irport directors and operators pride themselves on placing passengers at the heart of their operations.

In my travels, I see countless examples of thoughtful design and well-managed passenger facilitation initiatives, and learn of many more in my conversations with ACI members, government officials and other industry stakeholders.

Airports leaders know the value of placing passengers first and consequently have invested in facilities and woven airport business strategy around passengers. This we know.

From the passenger perspective however, airport facilitation efforts are often an airport’s best kept secret. As airport leaders, we are often so busy managing our operations and rolling out new initiatives that we fail to invest in promoting the value and even existence of our passenger facilitation investments and projects to our most important stakeholder – the passenger.

We can all attest to the fact that without a gentle nudge in the right direction, airport passengers can choose to view the glass half empty rather than half full. But pointing out what we do

today, can go a long way in helping airports to move the public perception needle to accurately reflect the reality that airports facilitate the travel experience, protect passengers and serve as the passenger’s advocate in our dealings with the many parties that control or affect the passenger journey through the airport.

As a key priority, ACI is developing strategies and practical tools to help our member airports better promote the tangible and intangible ways in which they positively impact the passenger journey.

Our goal is to help the airport sector assume its earned seat in the arena of positive public perception for its efforts to minimise disruptions, problems and delays and continuously strive to improve the passenger experience as well as boost local and national economies by facilitating commerce, tourism and generating employment.

We will share news with you very shortly as we reach final consensus on a co-ordinated global industry approach.

AW

AIRPORT WORLD/JUNE-JULY 2013

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AIRPORT REPORT: MUMBAI

Passage to India Oliver Clark talks to GVK Power and Infrastructure Limited chairman, Sanjay Reddy, about his company’s plans to modernise its airports in India and further afield.

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tanding on the waterfront in central Mumbai is the Gateway to India; a huge stone archway built in Victorian times to celebrate the arrival of what has become an enduring image of the city and an attraction visited by millions every year.

So, it is perhaps fitting that later this year, Mumbai’s Chhatrapati Shivaji International Airport (CSIA) will unveil its own gateway to India which it hopes will be equally iconic – the revamped Terminal 2.

Dubbed ‘T2’, the refurbished facility will consist of four integrated levels covering more than 439,000sqm, with new taxiways and aprons, 21,000sqm of retail space and give the airport the capacity to cater to 40 million passengers annually.

Offering what has been billed as unrivalled levels of customer service and state-of-the-art facilities, T2 will handle the airport’s international

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operations and will be the first thing millions of international tourists experience as they arrive in India for the first time.

A huge exhibition area will showcase Indian art through the centuries with touch screens for visitors to explain each piece and learn about its history and origin.

It is also the culmination of years of work by operating company GVK to modernise and expand CSIA’s facilities to ensure it can handle the ever-growing passenger numbers registered by the gateway, while also positioning it to become a leading international hub.

“I think the opening of Terminal 2 represents one of the most important milestones in the history not only of CSIA but also of Mumbai,” says Sanjay Reddy, chairman of GVK Power and Infrastructure Limited.

AIRPORT REPORT: MUMBAI

Indian aviation – the facts • One state-owned airline (Air India), and six private airline groups • India has 130 airports. They include 17 that handle international traffic and around 80 which handle regular scheduled domestic services • Over 160 million passengers passed through India’s airports in 2012 – 60% of them being handled at privatised airports. This compares to just 40 million in 2002, when privatised gateways accommodated only 2% of the traffic • Low-cost dominates the domestic market, accounting for a 70% share of traffic • Passenger numbers are expected to reach 452 million per annum by 2021, making India the third largest aviation market in the world While its ultra modern facilities will no doubt prove attractive to airlines, Mumbai serves as the beating heart of India’s financial, business and entertainment industries, many offering compelling reasons for carriers to come, says Reddy.

“I think airlines are going to be attracted to Mumbai because it is the commercial centre of India and ideally located for international routes. There is currently a good mix of different carriers, but we are targeting long-haul airlines connecting Europe and the US and emerging markets such as China, Africa and South America,” says Reddy.

According to its route development action plan, GVK is seeking new services to Manila, Ho Chi Minh, Jakarta, Beijing, Guangzhou, Moscow and Tehran in the next one to two years, followed by services to Rome, Lisbon, Manchester and Seoul amongst others over the coming decade.

The airport’s efforts are already bearing fruit and it celebrated a new Air China service to Chengdu last year.

“T2 will make CSIA a gateway to both the city of Mumbai and the hinterland for millions of international passengers and, more importantly, we are setting new benchmarks in ways of operating, it will receive global recognition for its design and quality of service.”

Reddy, the son of GVK founder GV Krishna Reddy, has a diverse portfolio of businesses to oversee. They include energy, resources, airports and transportation infrastructure.

And he has steered the group’s ever-expanding airport profile, which now includes Chhatrapati Shivaji, Bengaluru, and, will soon include a terminal at Denpasar in north Bali and a new greenfield airport at Yogyakarta.

Reddy says the T2 project was not without its challenges. GVK planners were hampered in the first instance by the fact the airport is hemmed in by urban development making expansion difficult. Delays and the region’s weak financial outlook also had a knock on effect on passenger growth forecasts, but the construction is now on track.

The new facility represents the cornerstone of GVK’s route development strategy, which seeks to attract new carriers from Europe, Asia, Russia and the CIS and North America under the campaigning title “A hub in the making”.

With this in mind, T2 has been designed to handle large volumes of connecting passengers and to allow airlines to easily organise banks of arrivals and departures, two elements that are seen as crucial by GVK to make CSIA an enticing proposition for long-haul carriers.

Customer service The new Terminal 2 represents the culmination of GVK’s brief to improve the customer experience and capacity of CSIA. When it was awarded the contract to operate CSIA in 2006, the airport was congested, its facilities were in a bad state and it had a reputation among passengers for delays and lengthy queues.

Proof of what has been achieved since can be found in the host of awards for customer service and safety, including the prestigious Golden Peacock National Quality Award for 2012 from India’s Institute of Directors, and the ACI ASQ award for 2011 in the 25-40 million passengers per annum category.

For Reddy the awards are a nice recognition of what has been at the core of GVK’s business philosophy for decades.

“As far as customer service is concerned, I believe it is of paramount importance. Our family business began in the hospitality sector and we have hotels as well as airports; as a family, we very much believe in hospitality as the core of our business,” he says.

But Mumbai was only the beginning of GVK’s airport ambitions, and just three years after taking over Mumbai, the company formed the major part of a consortium that was awarded the contract to manage Bangalore’s newly opened Bengaluru International Airport.

AIRPORT WORLD/JUNE-JULY 2013

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AIRPORT REPORT: MUMBAI

Navi Mumbai With scope to expand CSIA limited by its location, the Indian government has given the go-ahead for a new international airport to be built on the outskirts of the city.

Named Navi Mumbai International Airport, it will be managed by a private company on a similar model to CSIA. So does Reddy see it as a potential threat? Not at all he says, as Navi is intended to be primarily a domestic airport.

“It is not going to be a threat at all. We have a very unique situation. Perhaps Mumbai is the only case in the world in which an international airport is rebuilt but because of traffic increases, a new secondary airport is built. Typically, the existing airport is destroyed or turned into a secondary airport.”

Reddy also points out that GVK can bid to also run Navi Mumbai and if this contract was forthcoming “we would develop it as a complementary airport to the facility we have here and not competing for traffic.”

Bengaluru Bengaluru’s traffic grew rapidly after its completion, and once again, the Indian government’s brief was that the private operator should expand the facility and improve services as befitting of an airport that serves as the home of the country’s burgeoning IT capital which has been described as the Silicon Valley of India.

A year after taking over Bengaluru, operating company Bangalore International Airport Ltd (BIAL) unveiled an ambitious development programme including the expansion of the existing Terminal 1 to cater for 36 million passengers.

Work began in August 2011 at a cost of $221 million, and involves the extension of the terminal in both directions with improvements including better access to seating, amenities and commercial facilities and smoother check-in and departure processing.

The project is expected to be completed by the summer of 2013.

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“When we decided to expand Bengaluru, our priority first and foremost was to improve the passenger facility and expand the terminal because there was a dire need for more capacity as it was handling more than 12 million passengers. With the completion of this work, the facilities will be able to handle between 18-20 million,” explains Reddy.

Passengers will also experience “a next generation of facilities and amenities”, beams Reddy.

Meanwhile, BIAL is pursuing a route development strategy that centres on making Bengaluru the gateway to southern India. In 2011, the airport attracted six new international airlines including Etihad, Tiger, Cathay Pacific and Bangkok Airways.

According to Reddy, BIAL sees IndiGo and Jet Airways as partners who can help develop the airport’s regional network further.

Indonesia In November 2012, GVK took a step in a new direction with the signing of a contract with Airports Authority of Indonesia (Angkasa Pura Airports) to manage to manage non-aeronautical commercial operations at Bali’s Ngurah Rai ‘Denpasar’ International Airport under a five-year operations and management contract.

Ngurah Rai is Indonesia’s second busiest airport after the capital, Jakarta, and is severly congested leading to the need for an overhaul of its facilties.

GVK also has signed a memorandum of understanding with the Indonesian government to develop an international greenfield airport in Yogyakarta in central Java.

Reddy is excited about the prospects of both projects.

“The government is very keen on the [Yogyakarta] project; there is a lot of potential as a tourism attraction but currently transport is severely limited.”

With GVK’s already long experience of managing and modernising overcrowded airports into award winning facilities, they should have AW little trouble with their new Indonesian projects.

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AIRPORT REPORT: PHILADELPHIA

Cautious

optimism An airline merger and a $6.5 billion capital improvement programme promise to breathe new life into Philadelphia International Airport, writes Nicole Nelson.

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ending approval from Justice Department antitrust regulators and US Airways shareholders, Philadelphia International Airport’s largest carrier is expected to merge with American Airlines by the third quarter.

With eight hubs between the two carriers, not to mention Philadelphia’s close proximity to American’s hub at New York–JFK, it would be natural to anticipate consolidation on the horizon that could potentially fetch the City of Brotherly Love the short end of the stick.

But, CEO, Mark Gale, is far from viewing this anticipated transaction as half empty. On the contrary, he is clearly cautiously optimistic about the potential for Philadelphia International Airport (PHL) to have bounty overflowing.

“A lot of the focus is on what the future will hold when US Airways becomes American Airlines, and how each of the eight hubs are going to be treated,” admits Gale.

“It is a big question. However, while some concentrate on the negative, I am the opposite and think that the future for PHL is very bright, to be honest with you.”

The lifelong Philadelphian and PHL veteran employee recalls when America West bought US Airways in 2005. For the sake of argument, he mentioned that PHL continued to be not only the merged airline’s primary North/South connectors, but also the carrier’s primary gateway to Europe.

If history repeats itself in the upcoming merger, Gale believes his airport will be better positioned than ever to accommodate the traffic of what will be the world’s largest airline.

“We have done our own analytical work and our discussions with US Airways Group CEO, Doug Parker, have indicated that Philadelphia is not only critical today, but will continue to be critical to the new airline as it goes forth in the future as a hub,” enthuses Gale, noting that US Airways heavily dominates PHL service with 70% market share.

PHL has fantastic opportunities to grow and, in fact, has a Capacity Enhancement Program (CEP) in place and ready to go.

US Airways is very cognisant of that.”

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In addition to previously approved construction work including the Taxiway K extension and a major $117 million expansion and renovation of commuter Terminal F, Gale says the resurgence of the multi-faceted CEP is on the horizon after a year of negotiations with US Airways throughout the course of 2012.

The $6.4 billion programme includes a variety of terminal, airfield and landside improvements to both reduce delay and congestion, and also enhance capacity for the future of Philadelphia going forward.

“If you roll back the hands of time, the master planning process for our CEP began back in the 2000 timeframe,” Gale says, pointing out that in 2002, the programme was identified as the first airport project under a Presidential Executive Order to environmentally streamline projects of national transportation and infrastructure importance.

Gale mentions that PHL is currently amidst the second of two extensions that have been reached since the FAA issued its Record of Decision in 2011.

The document ultimately calls for the extension of two runways, the addition of another, and new terminals as well as a consolidated ground transportation facility (CONRAC), an automated people mover (APM) system, and a complete re-build of the Cargo City portion of the airport.

AIRPORT REPORT: PHILADELPHIA

If you roll back the hands of time, the master planning process for our CEP began back in the 2000 timeframe At the time, the residual-based airport was negotiating with its airlines under terms of majority-in-interest provisions operating under a use and lease agreement that expired at the end of June 2011.

Because the Record of Decision was fresh and questions lingered as to how fast PHL was going to move forward with this anticipated 13 to 15-year phased programme, the airport agreed to a two-year extension to its existing use and lease agreement in 2011.

As part of that agreement, the airlines approved $250 million toward the CEP to get started on projects that included land acquisition and early planning and engineering activities.

Approximately two-thirds of the $6.4 billion was projected to be handled through bond sales, the debt service of which is run through the rates and charges that ultimately hit the airlines.

“We wanted to make sure that as we were incurring more debt, we were not pricing PHL out of the market,” Gale reveals, noting that PHL is determined to remain a highly competitive airport in terms of not only the services and facilities it provides, but also its cost and operating structure in order to continue to attract new airline services.

Discussions continued with the airlines through 2011, culminating with US Airways going public with some serious concerns about the CEP, and in particular, the new runway, in January 2012. US Airways was seeking further justification to not only validate the cost but to understand what benefit the airport will receive.

The ‘high friction’ moment in the recent past culminated with a meeting between the airport, Philadelphia Mayor, Michael Nutter, and US Airways’ Parker.

AIRPORT WORLD/JUNE-JULY 2013

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AIRPORT REPORT: PHILADELPHIA

“All sides agreed that there was common ground and consensus on projects in the CEP that we wanted to get started moving on, but we needed to come to agreement on those issues,” says Gale.

“There was a lot of back and forth on projects, costs and funding sources. But ultimately, one year later in January 2013, we were able to announce terms of an agreement with another two-year extension to start in July 2013 and take us through to June 2015.”

In the most recent agreement, comes a pre-approved capital expenditure of $734 million. This bulk sum is capacity enhancementrelated with a few repair and rehabilitation projects.

Coupled with the previously approved $250 million plus some expenditures approved in 2010, PHL has received project authorisations totalling $1.56 billion from the airlines.

Under the terms of the agreement effective July 1, 2013, projects approved to commence include land acquisition, wetlands mitigation work, preliminary engineering and design work, taxiway improvements and construction to extend PHL’s longest runway by 1,500 feet.

In addition, the construction of a landside consolidated rental car facility and the beginnings of the terminal redevelopment component will start at the heart of the existing US Airways mainline operation in terminals B and C. Gale explains that the passenger screening checkpoints at TB and TC are very tight, cramped and outdated and are about to be redone.

At the same time, PHL wants to tie in a new inline baggage handling system and explore the ticket lobbies and the practices of passengers for lobbies of the future. He says all of these projects and more are in the approved project budget with $200 million to get started on the first piece of terminal work.

Money is also earmarked to begin design work for the $300 million-plus Automated People Mover system to efficiently transport high volumes of passengers while reducing PHL’s carbon footprint with electrified vehicles.

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Additionally, over $100 million in funding will cover the first phase of airfield work, including the extension of one of PHL’s primary runways.

Right now, the airport’s longest runway is 10,500 feet, and the desire is to extend that by 1,500 feet to make an even 12,000 feet.

“We need to do that so our airport can comfortably handle the largest and longest-haul aircraft so we can put ourselves in a competitive position to attract airlines that may want to fly non-stop from PHL to points abroad in Asia, India and Africa,” enthuses Gale.

“At 10,500 feet on a hot summer’s day here in PHL, some aircraft that fly those routes would take a penalty because the runway is not long enough and they would have to lighten their load by way of passengers or cargo.

“Around 12,000 feet is key to give us the ability to let those aircraft take off fully loaded without penalty.”

All in all, Gale says he believes that the CEP is off to a good start.

“The $1.56 billion out of a $6.4 billion programme is a pretty good statement on behalf of the City of Philadelphia, the airport, and primarily US Airways, that you can collaborate and work together on these big projects to get positive results,” Gale says.

Further into the CEP are plans to build the contentious new runway along the south side of the airfield, as well as extending the existing unidirectional runway by 2,000 feet, to make it 7,000 feet in total length.

The redevelopment of Cargo City is planned to modernise PHL’s freight facilities, while future terminal redevelopment takes a longer look at potentially knocking down some of the existing terminal buildings and recreating new LEED-certified facilities that have dual taxi-lane capabilities.

“It is a long build – not something that is going to happen overnight – and considerable money will be spent in doing this,” says Gale.

“I am looking forward to the challenge.”

AW

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SPECIAL REPORT: ECONOMICS & FINANCE

Airport profitability Despite the sizeable commercial profits of some of the world’s biggest gateways, the majority of airports lose money. Graham Newton asks why and if anything can be done to reverse the trend.

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t all looks so promising. Air connectivity has become the heartbeat of the global village, and by 2030, airports will handle some 10 billion passengers.

There is strong growth in every region apart from the mature markets of North America and Europe, where high traffic levels already exist.

But in the shadows of the bright light of a booming business, lurks a disturbing truth – 70% of airports lose money.

Somewhat perversely, the key problem is that to make money, an airport must first spend huge sums to satisfy the increasing demand for its product.

For many, it’s a high-risk strategy. Airport assets are geographically fixed, need long-term viability to pay back investment and have no real alternative use.

Moreover, the demand for an airport’s product is largely outside of its control, depending instead on airline customers that operate very much in the short term. Business can disappear in the blink of

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an eye. About 20% of Europe’s active air routes change regularly, for example.

When coupled with the fact that 84% of European airports have a dominant carrier with over 40% of available capacity, it seems hardly surprising that the majority of airports never turn a significant profit.

“Airports are asset-intensive businesses that require large minimum investments just to accommodate a single landing,” notes ACI World’s economic director, Dr Rafael Echevarne.

“A single-runway airport can accommodate from one to over 30 million passengers. Thus, there is a critical mass that must be achieved before airports can start recovering the large operating costs and the infrastructure investments.”

With achieving critical mass a key factor, it follows that the profits that do exist are concentrated in the major hubs. Indeed, some 60% of airports

SPECIAL REPORT: ECONOMICS & FINANCE

North American challenges An ACI North America capital needs survey estimates that US airports need $71.3 billion for infrastructure development over the next five years.

“If we don’t get the changes we need in the federal system then it is going to be extremely challenging to fund these developments in a sustainable way,” says Deborah McElroy, ACI-NA’s executive vice president for policy and external affairs.

A key method for airport development funding in the United States, the Passenger Facility Charge (PFC), hasn’t gone up for 13 years and so has lost half of its purchasing power. That puts a lot of pressure on airports to access capital through bonds.

While many US airports have excellent credit ratings thanks to prudent financial management, the amount of debt being taken on is huge.

“The concern then switches to how will airports find the revenue streams that will pay off these debts?” says McElroy.

“We recommend that the PFC is increased to at least restore its purchasing power. Even that would only increase it to $8.50 – which still compares favourably with the fees charged by some airlines for ancillary services, such as hold baggage.”

McElroy states the various airport charges paid by airlines are a small percentage of their overall operating cost. Although accepting that it is a tough environment for all stakeholders in the aviation value chain, she says there does need to be an increase in airport fees.

worldwide handle less than one million passengers and it is rare for them to make money.

Squeezed from all sides, these smaller gateways have neither the economies of scale to drive down costs nor sufficient traffic to generate significant aeronautical revenue or commercial opportunities.

And, with increasingly tough regulatory and environmental pressures, they may not be able to grow their facilities, even if airline demand warrants it. Expansion approval is hard won.

By contrast, the major hubs tend to be a magnet for airline business, increasing airline charges and commercial potential.

But while “bigger is better” goes some way to explaining why the majority of airports are not in a position to make money, it doesn’t fully address the fundamental challenges that all airports face. The struggle to deliver sustainable airport profits runs much deeper.

Give and take In simple terms, making money requires a two-fold approach: cutting costs and increasing income.

Trying to compare airport costs between gateways is almost impossible due to the many different operating models. Some airports provide ground handling, for example, others do not. Some lease terminal facilities to airlines while others do all the work themselves.

And, some need to spend substantial sums on winter equipment and supplies, which is an alien concept to those operating in sunnier climes.

But as a guide, the UK Competition Commission assesses that approximately 82.5% of total airport costs are fixed. Much of this is tied up in capital costs – the building and equipping of new terminals, aprons and runways.

There are also the fixed costs of meeting regulatory requirements, such as safety and security. “There are a large proportion of costs that are not

“We agree there needs to be transparency and consultation so we can build a sustainable system in conjunction with airline partners,” she says.

Greater local control is the second vital element in ensuring sustainability for US airports. The federal government is understandably ponderous, and so greater control on a local level will give airports some much needed flexibility in their business and financing strategy.

“This will ensure airports can help airlines operate efficiently and provide passengers with a pleasant travelling experience,” says McElroy.

The green shoots of privatisation are also taking hold in the United States. San Juan in Puerto Rico has been privatised and Chicago Midway and a smaller airport in Georgia are going through the process. While McElroy stresses that this won’t change the fundamental issues or the rules, it is a positive development.

“It isn’t about being pro or anti-privatisation,” she says.

“It is about airports having the option. It worked for Puerto Rico, so other airports should have the same opportunity.

“I’m confident that airports will continue to serve airline and passenger needs,” she concludes. “Airports have shown great creativity in the past in generating new revenue streams and I am sure we will see more great innovation in the future.”

really controllable in that they are imposed by the very nature of the business,” confirms Echevarne.

Those costs that are controllable – operating expenses – are already being reduced as part of airports’ good business practise.

But, in a tough economic environment, airports must continue to work hard. Throughout the world, the largest component of operating expenses is personnel costs, followed by contracted services.

As for income, this comes from two main sources: aeronautical revenue and non-aeronautical revenue. Globally, some 53% of airport revenue is derived from aeronautical sources. A significant trend is the growth of passenger-based charges, which now comprise more than 60% of total aeronautical revenues.

In effect, this enables airports to share some of the investment risks with their airline customers as their income stream becomes increasingly traffic reliant.

But, airlines can respond quickly to a volatile market. Airports are not nearly so mobile, which makes the trend toward passenger-based charges particularly dangerous for sustained profitability.

In 2011, airlines in Europe opened up 2,491 new routes and closed 1,936. A sizeable chunk of an airport’s annual income has the potential to become a question mark in the ledger.

Even if this challenge could be overcome, as Echevarne points out, if an airport were to attempt to recover all its costs purely from aeronautical activities, in many cases it would be a prohibitively expensive place to land.

This is why developing non-aeronautical revenue is now a key strategy for airports large and small on every continent. Certainly, many airports have been innovative in discovering and developing new non-aeronautical revenue streams.

These commercial projects have come in a vast range of shapes and sizes, such as office developments, business and industrial parks, logistics hubs, hotels, parking, rail and transport infrastructure, and retail

AIRPORT WORLD/JUNE-JULY 2013

29

SPECIAL REPORT: ECONOMICS & FINANCE

developments. ‘Airport city’ developments, such as Seoul Incheon, have been particularly successful.

It will be important for airports to continue to innovate in a broad portfolio of commercial activity. Not only can profits generated be reinvested into the broader airport infrastructure, but also may improve the organisation’s credit rating, in turn lowering the cost of borrowing for future projects.

Rethinking regulation The framework that underpins the airport business is an important factor in how far airports can go in reducing costs and boosting revenue.

For a start, it’s a very competitive market. Airports in overlapping catchment areas compete for passengers. Around 63% of European citizens live within two hours of at least two airports, for example. And where rail connections exist, 50% of passengers on routes of less than four hours are taking the train rather than flying.

Airline buyer power places further pressure on airport margins. It is normal business practice for an airport to largely rely on a single carrier.

And among bigger hubs, airlines and airline groups are increasingly moving towards a multi-gateway model, allowing them to switch capacity or at least threaten to switch capacity.

For airports to secure a more sustainable future, there needs to be a regulatory regime that takes account of the competitive environment in which airports operate.

At least part of the problem comes down, again, to the mismatch between timeframes. Many regulatory regimes feature short-term thinking – often looking no further than the next government elections – while airport investments need longer-term awareness.

Given the perils involved in delivering such major capital projects, future regulations must look to provide greater certainty and so help to reduce investment risk.

“On the one hand, the regulatory authorities determine the minimum requirements an airport must have to operate and how the associated investments can be recovered,” says Echevarne.

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The view from a credit rating agency Olli Rouhiainen, credit analyst at Standard and Poors, says the majority of the rated European airports are investment grade as they benefit from good cash flow predictability and stability.

“We have seen the sector perform robustly through the last downturn with the rated airports only experiencing a modest volatility,” notes Rouhiainen.

Passenger volumes across the rated airports during the downturn period ranged from marginally positive to about 10% negative. But airport efforts in revenue generation and cost reduction meant EBITDA volatility was lower than passenger volatility.

Rouhiainen believes the variations in profit margins among airports are mainly caused by differences in the business model.

“Margins can also differ depending on the mix of revenues between aeronautical and commercial revenues,” he says.

“Overall, we see that the rated European airports have EBITDA margins between 30%-50% and the profitability has been relatively stable during a difficult operating environment.

“We have seen improving margins for companies that have been allowed to increase charges ahead of inflation due to capital expenditures necessary to improve the airport.”

“Then, the regulator has a key role to play in terms of those taxes imposed on airports and air transport in general, which are not necessarily reinvested in the industry. Obviously this unnecessarily penalises demand and the financial sustainability of airports.

“On the other hand, limiting the returns airports can attain from non-core activities, like shopping, is a disincentive for investors and ultimately goes against attracting much needed infrastructure investments,” he adds.

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SPECIAL REPORT: ECONOMICS & FINANCE

Competitive pressures in Europe “In 2011, in Europe, the average Return on Capital Employed (ROCE) was just 4.3%,” informs Donagh Cagney, economics manager, ACI Europe.

“Wider commentary and regulatory decisions about the airport business imply that a ROCE of circa 6-7% is the minimum threshold for sustainability. Below this point airports are competing with interest rates, as investors can consider it more advantageous to save their capital rather than invest it in airports, in light of the associated risks.”

European airports have been working hard to rectify that situation, successfully reducing operating costs per passenger over the last two years.

This kept overall operating expenditure flat in 2010, despite the 4.2% growth in traffic. And in 2011, overall operating expenses grew 6% – less than the 7.3% increase in traffic.

“This represents a considerable response to prevailing market demand, given the proportion of costs which could not be avoided,” notes Cagney.

Since 2009, there has been a substantial (29%) increase in capital costs – that’s €2.09 billion. Interest on this kind of finance has soared to an eye-watering 45%.

Airports haven’t squeezed the airlines to overcome any revenue shortfall either. In 2012, 65% of European airports either froze or reduced their aeronautical charges.

It’s a reflection of the market reality in Europe, where competitive pressures are huge. Aside from the majority of local passengers enjoying a choice of departure airports, some 62% of passengers transferring through a European hub airport now have a choice of transfer airport options too.

“There are no easy solutions to the problem of airport profitability,” says Cagney. “Demand-side pressures are strong due to competition and the weak economic climate. Similarly, the fixed cost nature of airports removes the flexibility to respond. This squeezes airport margins.

“The prospects for individual airports depend on what factors can be controlled and what cannot be controlled,” he adds.

“A combination of cost efficiency and choosing and implementing the right business model will help airport profitability. However, it is not reasonable to expect this to work for smaller airports facing considerable competitive pressures in areas with a limited demand for air travel.”

Horses for courses The drive for profits has seen a number of different airport business models, from full privatisation to 100% state ownership.

Privatisation is usually touted as the game-changer. It is a trend that began with the privatisation of BAA in 1986. This is seen as a watershed moment because, until then, nearly every airport in the world was government-run and had the management style and economics to match.

According to ACI, there are roughly 450 airports worldwide with some form of private sector participation. Europe and Latin America lead the way. Africa and the United States are showing some interest while in Asia-Pacific airports are mostly government-owned.

The evidence to date suggests there is actually no right or wrong answer in terms of ownership. More important is the management mindset.

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AIRPORT WORLD/JUNE-JULY 2013

SPECIAL REPORT: ECONOMICS & FINANCE

Asia-Pacific on the rise Based on the preliminary ACI results, Asia-Pacific airports finished 2012 with a strong 7.1% increase in passenger numbers while the Middle East, led by Dubai and Abu Dhabi, recorded even more remarkable growth of 12.1% when compared with 2011.

Many airports in the region, most of them major hub airports, have recorded double-digit growth rates in 2012 due to the robust economic growth in their own countries and the rising propensity to travel in the region.

Even so, “numerous airports are still operating at a loss partly due to the fact that the revenue generated does not match up with the high operating costs,” explains ACI Asia-Pacific’s regional director, Patti Chau.

Strong traffic growth comes at a cost. Last year’s traffic results also showed that among the top 20 busiest airports in the world, nine are in the Asia-Pacific region. And many of the airports in the region are already operating beyond their design capacity.

According to the 2011 ACI Economic Survey, capital expenditure in Asia-Pacific will be increased to $42 billion during the years 2013-2016, compared with $5.8 billion in 2012.

While government ownership is the norm, the regulatory regimes differ wildly. ACI members are spread over 43 countries. “The region is unique in that it has the most advanced economies and, at the same time, some of the least developed,” says Chau. “This makes common goals and objectives hard to identify.”

This is especially true for economic regulations. Some governments operate a light-touch regime, while others support more rigid controls.

ACI has been advocating a light-touch economic regulation model at ICAO and other forums, to ensure that airports are not labelled as monopolies and are able to operate as much as possible as commercial entities.

Get this right, Echevarne believes, and the possibility of profit looms large. Successful airports can hit on a winning formula regardless of infrastructure ownership.

“Airports have evolved from being simply public-sector infrastructure providers into sophisticated, business-oriented service providers,” he says.

“This transformation has occurred mainly as a result of the realisation by governments around the world that airports are major engines of socioeconomic growth for the territories they serve and that, with the right management in place, they can be run efficiently and in many instances can be self-sufficient.”

So, while an airport is always likely to be asset intensive, gateways can and do adapt their chosen business model to suit their specific circumstances and the nature of the market dynamic within which they operate.

They can be O&D airports, alliance anchor hubs, low-cost carrier bases or intermodal gateways. They can create airport cities, focus on business travel or freight, provide top-level retail experiences or invest in specific features or service qualities, such as fast processing times.

In other words, airports can be chameleons, adapting to their environment be it increasing traffic, competition or new management and operational techniques. So, while there is no one-size fits all formula and no magic wand for success, airport profits may yet find a AW way out of the shadows.

AIRPORT WORLD/JUNE-JULY 2013

33

SPECIAL REPORT: ECONOMICS & FINANCE

New money Is the airport industry going to be the next big beneficiary of Islamic financing? Umar Moghul considers its merits and appeal for gateways looking to fund key construction projects.

T

he recent global economic crisis, the consequent reduction in the availability of bank financing to fund infrastructure, and shareholder pressure has refocused attention on Islamic project finance.

There is a pressing need in the Middle East for new infrastructure, be it roads and bridges or airports and rail, but most Islamic project financings to date have been in the energy sector.

However, recent trends demonstrate an interesting shift towards airport construction (and other non-energy assets) increasingly being financed on an Islamic basis.

Both the Kuala Lumpur International Airport and the International Terminal at Istanbul’s Atatürk involved large Islamic financing tranches.

Perhaps the largest such involvement was in 2012 when the Saudi Arabian General Authority of Civil Aviation (GACA) issued a 15 billion Saudi Arabian Riyal sukuk (an asset-backed or asset based certificate). The proceeds of which are intended to finance, at least in part, the construction of a new $7.23 billion airport in Jeddah.

GACA subsequently awarded a contract to a consortium of TAV Airports, Al Rajhi Holding Group, and Saudi Oger to build the new $1.2 billion airport in Medina under a public-private partnership agreement involving a build-operate-transfer (BOT) structure.

This financing comprised of Islamic equity participation, forward financing facilities provided by the National Commercial Bank of Saudi Arabia, and, a $750 million syndicated Islamic facility arranged by Sumitomo Mitsui Banking Corporation (for details about the project see Page 81).

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AIRPORT WORLD/JUNE-JULY 2013

Islamic finance overview Contemporary Islamic finance is a burgeoning subsector of the international financial markets. The industry is young and hence conclusive data about its growth and assets under management is difficult to obtain, although improvements continue to be made in this regard.

Reliable estimates indicate that the industry is somewhere in the neighbourhood of $1.3 trillion of assets under management with several hundred institutions globally participating.

To properly understand Islamic finance, one must first understand that rules surrounding trade and finance are part and parcel of the religion by which Muslims are to conduct their lives and organise their finances and businesses.

These rules are part of the Sharia, from which Islamic law (and other aspects of Islam) are derived. This derivative process, along with interpretation and subsequent application, is performed by trained Muslim jurists. Islamic finance utilises a structure whereby jurists provide ethical-legal advice.

Islamic finance is in many respects akin to socially responsible investing (SRI). There are what may be termed, substantive principles, that speak to the substance of an investment or, in other words, the purpose for which the capital provided will be utilised.

In practice, the substantive principles are applied to a target company’s line of business, to the assets involved, and to specific activities which the capital may advance. Industries such as gambling or pornography are typically prohibited under these rules.

Perhaps the most conspicuous feature of Islamic finance – and where it differs from SRI – is that the mechanism of financing must

SPECIAL REPORT: ECONOMICS & FINANCE also comply with what may be termed as ‘procedural principles’.

These include prohibitions against riba (commonly, but incompletely, translated as ‘interest’) and gharar (inappropriate uncertainty).

The rules derived from these two control the manner in which a financing takes place. Here, Islamic law is less concerned with the purposes for which money will be utilised and more so with how, and on what terms, capital is provided.

It should be mentioned that the substantive overlap somewhat with the procedural principles in governing, for instance, how income is generated and how profit and loss (simply speaking) is shared.

In its modern, and perhaps most relevant form, the prohibition against riba disallows the earning or paying of any benefit, monetary or otherwise, on a loan of money.

Loans appear to be countenanced by Islam as charitable activities, not as profit-making ventures. This prohibition extends to trading involving certain other commodities, such as gold, silver and foodstuffs.

When these commodities are traded, one for another, the trades must be made in equal measure and without deferral.

Because earning a profit without assuming a market or asset risk is unlawful, equity arrangements lend themselves more readily to Islamic finance.

Islamic law demands that entitlement to a return on capital be tied to the successor performance of the subject asset or project.

As for gharar, Muslim jurists generally hold that Islamic law prohibits transactions involving excessive uncertainty.

Broadly speaking, this encompasses transactions in which the asset consideration or other key terms are non-existent or insufficiently specified.

By way of example, it is also deemed to apply to instances of trading in risk, such as derivative instruments, and some conventional insurance policies where there is deemed to be (excessive) uncertainty regarding the aggregate premium to be paid and the amount paid upon realisation of the insured risk.

Airports These concepts of riba and gharar drive the structuring of transactions away from conventional arrangements, such as interest-bearing loans, and call for creativity.

The use of sales and leases is common in contemporary Islamic finance.

Moreover, the presence of an asset is a virtual necessity, and contemporary Islamic finance transactions often present with what

is often considered as greater ‘proximity’ to the asset as compared to their conventional counterparts.

Airport and other project transactions can thus be much easier to structure and document than, for instance, the construction of a mere financial product. However, such financings must exist and succeed within a conventional framework.

Islamic financing tranches are usually integrated within a much wider, multi-sourced financing arrangement. This typically involves the Islamic financiers coming in alongside conventional lenders, multi-national development institutions, and credit agencies.

Integrating Islamic financing solutions typically requires the Islamic banks to assume a pro rata and pari passu position with the other, senior conventional lenders while at the same time trying to adhere to Sharia principles.

Islamic construction contracts (in Arabic, istisna) have been used for infrastructure projects, requiring the financiers to enter into a construction contract directly with the contractor.

This fundamentally changes the risk profile of a conventional project financing.

So this arrangement has been modified such that the financiers contract with the project company which, in turn, serves as the main contractor and possesses the ability to sub contract. The project company agrees thus to the procurement manufacture and delivery of the asset.

The procurement contract itself acts as a funding mechanism whereby periodic payments may be made to the financiers. A forward lease is sometimes also utilised while construction is underway; leasing begins once the subject asset, or sufficient components thereof, have been delivered.

This enables the financiers to generate a return replicating the economics of a conventional financing. There are, of course, a number of additional complexities and nuances beyond the purview of this article which require careful consideration, including taxation and inter-creditor issues.

The challenge is to develop finance structures consistent with Islamic principles and also attractive to international providers and project sponsors. The potential for reward and growth is significant. AW

About the author Umar Moghul is a partner in international law firm Stephenson Harwood’s Dubai office. To contact Umar, please email: umar.moghul@shlegal.com

AIRPORT WORLD/JUNE-JULY 2013

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SPECIAL REPORT: ECONOMICS & FINANCE

China’s mission Peter Morris and Joanna Lu report on the financial challenges facing China’s airports as the country bids to upgrade its infrastructure to cope with future growth.

F

or many observers, the opportunity presented by investment in airport infrastructure has often appeared as a ‘no brainer’.

Up to the year 2000 and in many cases beyond, the average traffic demand at the vast majority of global airports showed consistent 6% per annum growth over many decades, and those airports recorded solid and sometimes substantial returns on capital invested.

The revelation of the further financial opportunity presented by airport privatisation was first seen in the UK, then Sydney, followed

by Delhi, Mumbai and others.

It excited everyone from governments to potential investors. For airports it meant a new opportunity to shrug off the shackles of government control, direct or indirect, and start to perform as a commercial business.

For governments, it meant that a borrowing requirement was offloaded, funds received, and a state-of-the-art facility appeared as if by magic.

Customers saw new and improved facilities. Even the airlines seemed pleased when some of these new airport entities focused on reducing their reliance on aeronautical charges and opening up the potential of new revenue streams from a range of other services.

And, for investors increasingly nervous about short-term economic stability, it provided an opportunity for stable long-term returns above inflation. It seemed almost too good to be true.

It was, however, partly a product of an asset bubble valuation carried by cheap debt financing that did not last. Aviation markets followed economies down. Those with capital became increasingly nervous about long-term capital commitments and public authorities were often unrealistic in their value and regulatory expectations.

From 2005/06, when Budapest Airport and others attracted multiple bids at up to 30 times earnings levels, we see relatively few bidders and 10-15 times multiples in recent Gatwick or Stansted transactions.

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Yet while the investment pendulum has now swung back from the extremes of the early to mid-noughties, the business fundamentals of the airport investment model still appear sound: • Long-term demand for aviation will still outpace GDP • Governments which face rising problems of employment, education, healthcare and dependency budgets are keen to realise value for public sector capital in ‘non core’ areas • The opportunities for former public sector airports to expand revenues and reduce costs can be considerable In particular, the need for airport infrastructure investment to meet demand growth continues apace in China, Middle East, Africa, India and South America. The challenge continues to be to find appropriate ways to balance the expectations and needs of multiple parties from government to airlines, passengers to wary financial investors, airport operators to concessions operators, and, to do this over the long lives of airport assets. China is an example which has its own special considerations.

China’s challenge China has faced the considerable challenge of air passenger growth which has averaged 15% per annum for more than three decades, and is still expected to continue to grow at around 8% yearly for the next 20 years.

China has responded with the most comprehensive airport plans in the world, planning a further 50 airports (in addition to needed expansion of the current 180) by 2015.

SPECIAL REPORT: ECONOMICS & FINANCE

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Although opportunities for foreign investment were potentially opened through Provisions of Foreign Investment in Civil Aviation (CCAR-201) published in 2002, the reality has been that most infrastructure funding has been sourced domestically.

Limited examples of foreign investment in Chinese airports are Hangzhou, Nanjing and Xi’an, and there have been some failures.

The Provisions on the Domestic Investments into the Civil Aviation Industry (for Trial Implementation) published in 2005 has further liberalised the investment in, or even control of, airports by domestic private capital.

Exceptions are airports in the specified nine cities including Shenzhen, Xiamen, Dalian, Guilin, Shantou, Qingdao, Zhuhai, Wenzhou, Ningbo.

Since the need for foreign airport infrastructure funding appears not to have been an issue to date, perhaps the question is what the global airport market can look to offer to China?

Taking a broad view, this might potentially come from examples of revenue diversification, global performance benchmarking or the benefits of outsourced competition.

These elements have proved successful in various airports around the world to increase the value generated from the airport investment.

Some practical examples of this are seen by the improvements in Shanghai Hongqiao, Hangzhou and Zhuhai after management co-operation with Hong Kong airport.

AIRPORT WORLD/JUNE-JULY 2013

37

SPECIAL REPORT: ECONOMICS & FINANCE

Major Chinese Airport Revenue 2011 – Aeronautical and Non-Aeronautical

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One particular area of interest for Chinese airports is in the development of revenue coming from non-aeronautical activities.

Looking at a selection of the top airports in terms of profitability and non-aeronautical revenues, Hong Kong secures a higher profitability associated with its share of non-aeronautical revenuesdespite generally facing a lower annual traffic growth rate.

One feature of this additional revenue is revenues from outsourcing. Shanghai Pudong and Shenzhen also appear to benefit from their more diversified non-aeronautical revenues.

While the Civil Airport Charges Reform Plan (2008) has given airport management more freedom on pricing aeronautical and non-aeronautical services within a price-cap framework, the different market conditions, location and opportunities between the airports, we believe, call for a much more diversified charging regulatory system to realise the full business potential.

From the end of 2004, CAAC experimented with a franchised operation model at five airports in four cities – Beijing, Shanghai, Shenzhen and Xiamen. The franchised operations included ground service and commercial business. CAAC is also now promoting this operating model around the country.

Later, the State Council of the People’s Republic of China released Management Ordinance of Civil Airports (the Ordinance), which was officially implemented from July 2009.

The Ordinance tries to further liberalise the non-aeronautical services in China’s airports but currently give the airports the choice if they will use the franchise mode in airport operation.

While this has been a big step for Chinese airports to develop their non-aeronautical business in a more professional way, the pilot airports, such as Beijing and Shanghai, still tend to use a joint venture mode in ground handling, air catering and advertising activities to retain control of the business.

38

AIRPORT WORLD/JUNE-JULY 2013

For the airport retail and food & beverage service, although most of the pilot airports started adopting the franchise mode, more work is needed to regulate pricing and service standards. Guangzhou, Shenzhen and Xiamen still have ground handling or catering service provided by the airport company directly.

The evidence from European airports on the introduction of ground handling competition suggested that there were clear reductions in cost, and improvement in service quality possible.

One particular success of the European model, has been the introduction of new entrants, who bring with them skills learned from global logistics and across multiple airports.

The major mainland airports are still in the early stages compared to Hong Kong in outsourcing competition, but they will appreciate the potential benefits of operational excellence and cost reduction that are possible.

International Airport Services Co Ltd was officially put into operation in Shanghai on February 27, 2013 after a three-month trial. The company was a joint venture by Shanghai Airport Authority, Shanghai International Airport, Cathay Pacific Airways (CX) and Air China (CA).

The true success of an airport business model needs to be measured through a mix of operational, financial and customer satisfaction parameters.

China is one country where good planning and ample funding for airports can then be turned in to an optimum business model using the lessons learned by airports worldwide.

AW

About the authors Peter Morris is chief economist for Ascend – a Flightglobal advisory service. Colleague, Joanna Lu, is a managing consultant in the firm’s Hong Kong office. For more information visit: www.ascendworldwide.com

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SPECIAL REPORT: ECONOMICS & FINANCE

San Juan–Luis Muñoz Marín International Airport.

American revolution With Puerto Rico’s main gateway successfully privatised and an increasing number of airports adopting new business models, are times finally changing in the US for airport ownership?

Joe Bates investigates.

T

o the outsider it might appear as if little has changed in the US in terms of airport ownership – almost all the of nation’s 545 commercial service gateways remaining publicly controlled entities that are owned, operated and developed by cities, counties and states.

The fact that airports are viewed very much as key public assets for their respective cities and regions, and the way the US airport system is funded – with major contributions from the federally controlled Passenger Facility Charge (PFC) and Airport Improvement Program (AIP) grants – means that this is unlikely to change any time soon.

However, if you thought that this adds up to little going on behind the scenes in the US right now, you’d be very wrong as this is arguably the busiest time for deals, potential deals and changes in airport business models since Congress first entertained the idea of change when it launched the Airport Privatization Program nearly 20 years ago.

Private investors interested in getting a piece of the action will no doubt be hoping that the recent privatisation of San Juan–Luis Muñoz

40

AIRPORT WORLD/JUNE-JULY 2013

Marin International Airport (SJU) in Puerto Rico turns out to be third time lucky for the US, following the failure of the sale of New York– Stewart and collapse of a $2.5 billion deal to privatise Chicago Midway in 2009.

Stewart became the first US commercial airport to be privatised in 2000 when the UK’s National Express Group paid the State of New York $35 million for a 99-year operating lease, but things didn’t work out as planned, and it offloaded the gateway to the Port Authority of New York and New Jersey (PANYNJ) for $78.5 million in 2007.

And, the US’s next attempt at privatisation ended in embarrassment when the winning bidder for Chicago Midway, the Vancouver Airport Services led Midway Investment and Development Corporation (MIDco) consortium, failed to find the funds to complete the deal.

San Juan–Luis Muñoz Marín International Airport Aerostar Airport Holdings – whose $1.75 billion deal for a 40-year concession to operate Luis Muñoz was ratified by the Department of

SPECIAL REPORT: ECONOMICS & FINANCE

We believe that Aerostar can demonstrate to the US aviation industry that airport public-private partnerships can be successful

The Puerto Rico government has indicated that it estimates that it will receive over $2.6 billion in revenues and other benefits from the PPP transaction over the term of the lease.

Chicago Midway The potential privatisation of Midway is still on the agenda after Chicago Mayor Rahm Emanuel’s decision to retain a slot for the Illinois gateway in the FAA’s Airport Privatization Pilot Program.

As a result, a lease of up to 40 years is potentially up for grabs, with six consortiums theoretically battling it out for the prize after satisfying the city’s requirements as qualified bidders.

The six comprise: • Transportation (DOT) earlier this year – believes that its deal cannot be compared to anything that has gone before in the US, as it is completely different in terms of location (Puerto Rico, an unincorporated US territory) and financial commitments.

Aerostar – a joint venture between Highstar Capital IV and Mexican airport operator ASUR – has pledged to invest up to $1.4 billion on upgrading the gateway during the term of the lease.

It has pledged to execute a $240 million capital programme in the first three years of the lease, which includes a Capacity Enhancement Program (CEP) for the terminals.

The CEP includes a new inline baggage handling system for Terminal B/C, a new consolidated security checkpoint, new passenger check-in facilities, and new customer service conveniences such as Wi-Fi, power and charging outlets, and enhanced concession offerings.

The majority of this work will be completed by the end of 2014 with additional improvements to Concourse C complete by mid-2015.

Andrew Vasey, chief development officer at Aerostar Airport Holdings, told Airport World: “Aerostar sees significant development potential at SJU, which attracted us to the opportunity initially.

“The emerging economies in Central and South America present significant growth opportunities for Puerto Rico’s business and tourism industry with airlines from this region still in growth mode.

“We will be adding another four gates in the terminal area to the 10 that already have access to the US Customs and Border Patrol services as part of our focus on this growth.

“There are also many opportunities for growth within the existing footprint of the airport, including the capacity enhancements that Aerostar is making to improve the passenger experience and upgrades to our general aviation and cargo operations.”

Talking about whether Aerostar felt any added pressure to succeed as SJU was the first major US airport to be privatised under the FAA’s pilot programme, Vasey says: “We believe that Aerostar can demonstrate to the US aviation industry that airport publicprivate partnerships can be as successful as P3 transactions in sectors such as toll roads and public infrastructure.

“As far as kick-starting the P3 process in the US market, we have definitely seen immediate interest from other US airports who are interested in the process, the benefits and the changes that a potential P3 transaction might bring.

“Chicago-Midway is in the process now, so that transaction, if completed, should further contribute to the viability of airport P3 deals in the US market.”

• •

•

• •

AMP Capital Investors Limited – an active manager and investor in airports worldwide, its portfolio including Melbourne in Australia and Newcastle in the UK. Corporación América Group – an Argentina-based airport operator with 49 airports in seven countries.

Global Infrastructure Partners (GIP) – the controlling investor and active manager of London City, Gatwick and Edinburgh airports in the UK. Great Lakes Airport Alliance – a partnership of Macquarie Infrastructure and Real Assets (MIRA), and Ferrovial, whose airport assets include London Heathrow, Brussels and Copenhagen.

A joint venture between global airport operator, Incheon International Airport, and Hastings Funds Management.

A joint venture between Industry Funds Management and Manchester Airport Group (MAG), the latter boasting interests in 13 airports across the globe that include Brisbane and Melbourne in Australia and Manchester and East Midlands in the UK.

“I am encouraged by the solid financial and operating experience of the six qualified bidding teams,” says Michael Zalewski, chairman of the City Council Committee on Aviation and a member of the Midway Advisory Panel.

“This review process continues, as does the evaluation of whether a Midway transaction makes sense for Chicago taxpayers, Midway and the City of Chicago, but I am encouraged by what I have seen so far.”

Mayor Emanuel has previously stated that he will only rubber stamp the move if it offers the best deal for Chicagoans.

However, for now, both the Chicago Department of Aviation and the City of Chicago are remaining tight lipped about any possible deal for Midway.

The FAA was slightly more forthcoming, saying that it expects a decision to be made in the third quarter of 2013.

Hendry County Airglades Airport The only other gateway still in the FAA’s privatisation programme other than Chicago Midway, is Hendry County Airglades Airport, a tiny general aviation facility in Florida.

It is, however, in demand with the FAA currently reviewing a management purchase agreement for it from Airglades International Airport, LLC. The company – whose stakeholders include USSC Group Inc, Hilliard Street Capital and Florida Cargo Fresh Inc – has been selected on the basis of its promise to transform the airport into a cargo focused facility that will bring economic benefits for the local community.

AIRPORT WORLD/JUNE-JULY 2013

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Branson Airport’s distinct terminal building.

SPECIAL REPORT: ECONOMICS & FINANCE

The big picture So does the privatisation of Luis Muñoz Marín and potential leasing of Chicago Midway mean that the US is at last ready to embrace the privatisation of its airports?

The FAA’s deputy associate administrator, Catherine ‘Kate’ Lang, for one, remains sceptical about the US’s desire to let the private sector have a greater say in the running of the nation’s airports.

“The privatisation programme has been on the agenda for 17 years, and has consistently failed to attract much interest from US airports, and I don’t exactly see them queuing up to join now, despite the recent developments,” she told Airport World.

“There has been a lot of curiosity about San Juan, but you could argue that why would we want to change an airport system that works well and has provided stability during difficult economic times?”

Lang notes that existing US economic and regulatory legislation ensure that when it comes to airport rates and charges, the FAA imposes a very broad statutory framework, whose governing principles are based on being “fair and reasonable”, “non-discriminatory” and “economically self-sustaining”.

She also believes that light handed regulation of the system, the fact that many functions are already in the private sector, and access to inexpensive capital, act as disincentives to airport privatisation in the US. The current system does, however, forbid airports from pocketing their ‘profits’ and spending them elsewhere as all net revenues must be spent on-airport, which is very different to the privatised model.

She adds: “There are, of course, limitations to the US model, and while I think it works remarkably well, the proof is in the pudding when you look at the density and development of the system.”

Lang, who jokes that the US is a bit of a “late bloomer” when it comes to airport privatisation, also concedes that the nation’s airport system would be a very difficult one to change.

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And, untypically for an American, she refuses to promote one business model over another (public vs private, dual till vs single till or hybrid), prophetically stating that “the best business model is the one that works best for you, as long as it’s not illegal, anti-competitive or discriminatory”.

She also notes that all business models only remain good if they continue to evolve and grow.

Wise words indeed, because although the US airport system may not have fully embraced privatisation, it is evolving, and now boasts one privately built and operated commercial gateway (Branson, Missouri) and a growing number of quasi-government run airport operators which include the newly created Connecticut Airport Authority.

Branson Airport Missouri’s Branson Airport is different to any other airport in the US as it is the nation’s only privately funded, developed and operated commercial gateway.

To all intents and purposes it is also privately owned, but operator Branson Airport LLC’s decision to give it to Taney County after building it – in exchange for a 50-year lease – theoretically makes it publicly owned.

It took the dramatic step to give it access to tax exempt debt that would help finance its construction.

The $160 million airport was the brainchild of businessmen Glenn Patch and Aviation Facilities Co (AFCO) – later joined by former bond trader, Steve Peet, and a group of investors that included a unit of Citigroup – who decided to build it after voters twice rejected the opportunity to back and fund its development.

And when it opened for traffic on May 11, 2009, with a single 7,200ft runway, 58,000sqft terminal – described by some as about a third of the size of a suburban supermarket – Peet stayed on as its CEO to oversee its successful addition to the US’s airport system.

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SPECIAL REPORT: ECONOMICS & FINANCE If truth be told, it wasn’t an overnight success, and had to form its own low-cost airline (Branson Express) to stimulate traffic growth, but, it did the trick as Frontier Airlines followed, and in March this year, Southwest launched daily flights to Chicago, Houston and Dallas/Fort Worth as well as a weekly service to Orlando.

Executive director, Jeff Bourk, says: “Getting Southwest is a major coup for Branson and justifies our belief that there was the potential for a new low-fare airport that makes visiting the area quicker, cheaper and easier for vacationers.”

The addition of Southwest means that around 335,000 passengers are expected to use the airport this year – a far cry from the 80,000 that passed through Branson in 2009, and well above the 225,000 to 250,000 figure Peet revealed that he hoped to see in its first three years.

Indeed, such is the confidence that the airport has in its growth potential that Bourk even talks about the possibility of handling up to 2mppa by 2020.

Impossible? Well, think again, as Branson is no backwater. Its Ozark mountains location, status as the third-largest outlet-shopping venue in the US and reputation as an entertainment capital – the city boasts over 50 theatres between them showing 100 daily shows – already attract over eight million visitors yearly.

And, Bourk believes that Branson Airport can only become more popular in the future as the word spreads and passengers realise that they no longer face the prospect of paying “sky high” fares to fly to nearby Springfield Airport, which is also 52 miles and a one-hour long drive away.

In addition to its 750,000 passenger capacity terminal and single runway, the airport boasts and operates its own fuel farm, FBO facility, general aviation facility, rental car complex and parking lots on its 922 acre site.

So what are the advantages and disadvantages of going it alone?

Bourk says: “We don’t have the restrictions of the federal grant assurances. In other words, we are not so regulated and told what we can and cannot do by the government. This means that we can negotiate our deals directly with the airlines and tenants on business merits alone.”

As an example of more freedom afforded by its business model, Bourk says that Branson can encourage airlines to launch services by granting them ‘initial development rights’, which mean that no other carrier is allowed to operate on the same route.

He adds that being independent also ensures that there is a lot less red tape to contend with, and points out that if the airport was profitable, its shareholders would be able to keep the money.

Bourk lists the disadvantages as not being eligible for any federal grants such as Passenger Facility Charge (PFC) and Airport Improvement Program revenue, which, for Branson, would amount to over $1 million per annum.

“We are not profitable yet, but we have only been open for four years and have a lot of debt to pay off,” comments Bourk.

“However, enplanements are growing each year and Southwest coming here will significantly boost our numbers and mean that other airlines will have to seriously consider this market in the coming years.

“We don’t need to grow massively, but is it unreasonable to think that we could grow to half a million or even one or two million passengers yearly?

“If you look at other airports our size that have had air services for much longer, such as Myrtle Beach and Reno, they are handling one

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million and 2.5 million enplanements respectively, so two million people here is definitely achievable. We have a lot of room to grow.”

Connecticut Airport Authority Arguably the US’s latest quasi-government airport organisation, the newly formed Connecticut Airport Authority (CAA) was set up to develop, improve and operate Bradley International Airport and the state’s five general aviation airports of Danielson, Groton/New London, Hartford Brainard, Waterbury-Oxford, and Windham.

Its goal is simple – to make Connecticut’s airports more attractive to airlines and bring in new routes and businesses, which support Connecticut’s overall economic development and growth strategy.

And, in line with its new, more entrepreneurial philosophy, its 11 member board is primarily made up of people from the private sector with more commercial backgrounds.

They include chair, Mary Ellen Jones (Pratt & Whitney) and former ACI World director general, Robert Aaronson, as well as three state officials.

CAA chair, Mary Ellen Jones, said: “The big difference between now and when we were part of the State of Connecticut’s Department of Transportation (DOT) is that we are a bit more agile and entrepreneurial in terms of operating our airport system.

SPECIAL REPORT: ECONOMICS & FINANCE Bradley also harbours ambitious plans to upgrade its airfield and road system and eventually build a new Terminal B to cope with rising demand, which currently stands at around 4.5mppa.

According to the most recent economic impact analysis, Bradley International Airport contributes $4 billion in economic activity to the state of Connecticut and the surrounding region, representing $1.2 billion in wages and 18,000 full-time jobs.

Other quasi-government operators in the US, according to Jones, include The Rhode Island Airport Corporation and the Port Authority of New York and New Jersey (PANYNJ) and the Massachusetts Port Authority (Massport).

Gary/Chicago International Airport Another airport looking to the private sector is Gary/Chicago (Indiana), which recently hired a consulting firm spearheaded by former Indianapolis and Jacksonville boss, John Clark III, as an advisor to help it secure a private investor to help develop the airport site.

According to The Times of Munster, the contract calls for a successbased fee for Clark’s consulting firm of greater of than $200,000 or 0.5% of any public-private partnership deal struck.

The airport authority is looking to find a private investor willing to pump at least $100 million into the airport.

LA/Ontario International Airport

“We had very strong support from the Governor of Connecticut, from the legislator and the business community to do something different.

The model we use now was actually copied from other US airports and brought into effect in the middle of 2011, although the official transfer to the CAA won’t happen until this summer.

“Like any new organisation, we are looking to bring in new blood. We are bringing in new talent with more commercial experience to help us develop and grow the business. However, we also need people who know the airport and state, so I think the fact that the bulk of our staff have transferred over from the Department of Transportation gives us a good mix of talent.

“We want to enhance the airport experience for our customers by introducing new concessions, more comfortable facilities and, of course, new airline services and cargo operations. We are now more focused on customer satisfaction than ever before.”

And, it appears to be working, as American Airlines recently announced that the August 2013 launch of a new trans-continental service to Los Angeles and JetBlue has said that it will boost its operations out of Bradley with new flights to Fort Myers and Tampa.

Jones now wants a transatlantic service, and although that might prove difficult to achieve, it wouldn’t be a first as Bradley did briefly have a Northwest Airlines B757 flight to Amsterdam in 2007/8 before the global recession put paid to it.

The future of LA/Ontario International Airport (ONT) remains unclear after talks about the gateway’s possible sale/lease to the City of Ontario were put on hold when it filed a claim against owner, Los Angeles World Airports (LAWA).

The threat of litigation means that it is impossible for LAWA to discuss specifics.

A spokesman was, however, able to issue a response to a question about the value to LAWA of leasing/selling ONT. They said: “The Los Angeles Board of Airport Commissioners does not perceive any value in selling or leasing the airport, but LAWA has been co-operative in the negotiations process.”

She also confirmed that the May 7 announcement that Ontario International Airport Terminal & Equipment Company, LLC (ONT-TEC) had signed a deal for the lease of terminal space and the maintenance and operation of terminal equipment at LA/Ontario would have no bearing on whether LAWA chooses to sell or lease ONT. Last year, LAWA rejected Ontario’s rock bottom bid of $50 million to take over the airport.

Its offer followed LAWA’s 2011 call for Expressions of Interest (EOI) from parties interested in leasing the airport, although nothing came of it despite interest from 10 consortiums and global airport operators such as Fraport, GMR, Munich and Incheon.

Airport World understands that the EOI is no longer in effect and LAWA is unlikely to go down this route again.

LA/Ontario, like many US airports, has experienced a downturn in fortunes in recent years, with traffic plummeting from its 2007 peak of 7.2 million passengers to 4.2 million last year. And, the latest projections indicate that the figure could fall to below 4mppa in 2013.

The decline in traffic has led to claims from the City of Ontario that ONT has been “mismanaged” over the years, a claim LAWA strongly denies, pointing out that it has invested more than $560 million on capital improvements at LA/Ontario.

Watch this space for further developments.

AW

AIRPORT WORLD/JUNE-JULY 2013

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SPECIAL REPORT: ECONOMICS & FINANCE

Smooth operator

LeighFisher’s Annie Lindseth and Zoe Haseman and Albuquerque’s Felix Vivian reflect on several projects that reduce Albuquerque International Sunport’s costs by making it more energy efficient.

E

nergy efficiency is a powerful cost reduction tool capturing the attention of airports across the world.

And, it is not difficult to see why, as airports have traditionally been big energy users, with a host of equipment ranging from sophisticated baggage and security systems to lighting, heating and air conditioning systems all leaving their mark on monthly utility bills.

Forward thinking airports find ways to meet these demands using less energy, and they save money in the process as energy costs typically represent 10% to 25% of total airport operating expenses.

At a representative set of airports analysed by LeighFisher, these operating costs grew over 10% annually during the three-year period from 2007 to 2010.

Not every year guarantees such rapid growth, but wise airport operators are certainly aware of the threat that rising energy costs pose to their finances. And some gateways, like Albuquerque International Sunport, are already disrupting this trend with cost saving energy efficiency initiatives that are specifically tailored to airports.

Sunport’s case, shown in the chart opposite, is particularly compelling because its energy efficiency and renewable energy initiatives played a key role in its purchasing of 11% less electricity from its utility provider in 2012 than in 2007, while the price of the electricity they purchased rose over 30% from $0.06 per kilowatt hour to $0.09 per kilowatt hour in the same time period.

Energy efficiency strategies have already aided Sunport in saving over $2.5 million on their 2012 utility costs over a 2007 baseline.

Many of the initiatives applied at the New Mexico located airport are broadly applicable to airports across the world.

LED lighting Investing in LED runway and terminal lighting, for example, can yield significant utility bill savings when airports use them to replace traditional fluorescent bulbs.

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Light emitting diode technology boasts a longer useful life and more efficient energy use than its traditional lighting competitors, which justifies its higher purchase price.

In its 2012 paper, Air Transport and Energy Efficiency, the World Bank estimates that LED technology can improve airfield lighting wattage by up to 90%.

Combining this advanced technology with airfield best practices such as airside lighting controls to limit lighting when it is not needed makes lighting upgrades even more effective.

Albuquerque International Sunport began installing LED runway lighting in November 2008, and to date efficient LEDs have replaced 1,836 traditional bulbs. This efficient technology is used for taxiway centreline, take-off/hold, touch down zone, runway guard, taxiway edge, and illuminated guidance lighting.

Efficient lighting produced measurable, salient utility bill reductions, accounting for over 460,000 fewer kilowatt-hours of electricity purchased to power the airfield in 2012 than in the previous year.

Heating and ventilation Heating, ventilation and air conditioning (HVAC) upgrades curb fuel consumption and improve energy efficiency in ways that are less obvious to passengers but surprisingly effective.

Albuquerque is currently upgrading the four boilers in its Central Utility Plant. The project includes replacing two boilers, which were installed in 1987, with efficient modern equipment and installing ultra-low nitrous oxide burners on all four boilers.

These combined measures will reduce fuel consumption and limit air pollution, enabling Sunport to fund a portion of the project with a Voluntary Airport Low Emission (VALE) programme grant from the Federal Aviation Administration.

SPECIAL REPORT: ECONOMICS & FINANCE

Energy efficiency benefits

Source:LeighFisher, 2013 From 2007 to 2012, Albuquerque International Sunport saved over $2.5m on their utility bills while the unit price of electricity increased by over 30%.

These boiler upgrades will reduce natural gas consumption by 6.2% annually, saving over $16,000 per year at 2013 natural gas prices.

While boilers and burners might not inspire the public to the same degree as a green building or renewable energy project would, the efficiency benefit of replacing old equipment with newer models is well documented.

Sunport’s example provides a strong case for all airports to reexamine their HVAC equipment and its associated energy consumption.

Building Automation Systems Building Automation Systems are an excellent way to optimise energy use in existing buildings. Sunport installed a building automation system in its terminal building in 2007, and later extended it to control parking lot lighting.

It provides a centralised interface for making the building’s energy decisions and it enables managers to adjust lighting and indoor temperatures at non-peak times, curbing energy use in a way that is customised to the airport’s specific needs and operating hours.

Systems like this demonstrate that airports can reduce indoor energy use significantly through retrofits in existing facilities.

New, highly efficient buildings often make headlines, but airports can step closer to optimising their energy use through simply integrating new technologies, like the Sunport’s building automation system, into existing facilities.

Renewable energy On-site renewable energy generation allows airports to reduce their utility purchases and shield themselves from rising utility rates that are outside of their control.

Producing electricity on-site also eliminates losses from transmitting electricity from power plants to the point of use, which average 6% in the United States.

Many airports also choose renewable energy because of its air quality and public relations benefits. From a cost perspective, renewable energy is also becoming increasingly attractive. Solar photovoltaic panels, for example, have declined in price by an average of 27% in the last year alone, according to the Solar Energy Industries Association, with the exact pricing depending on the technology in question.

Though on-site electricity generation is a different strategy from a traditional energy efficiency project, it provides airports with similar cost savings and emission reduction benefits.

Albuquerque International Sunport has installed multiple solar arrays over its on-site parking lots, and has an additional array under construction.

The installation of these arrays illustrates the remarkable falling cost of solar. The gateway’s array purchased in 2012 cost 39% less than the array purchased in 2010. Costs fell from $6.61 per watt to $4.02 per watt, including installation and supporting equipment. Analysts predict these costs will continue to decrease as a result of oversupply and more efficient manufacturing in the solar photovoltaic market.

As most airports have rooftops or land available for installation, on-site renewable energy generation is becoming an increasingly attractive investment.

Many airport operators choose to partner with a solar provider to implement and manage their solar panels throughout their useful lives.

Through this partnership, airport operators are able to negotiate reduced electricity rates as a result of their solar energy production.

This arrangement is called a Power Purchase Agreement and provides airports with secure access to electricity at stable prices, which can markedly reduce operating costs.

In addition to making financial sense, innovative energy initiatives can improve any airport’s environmental impact, and efforts to make the airport more sustainable – financially, environmentally, and socially – rarely go unnoticed.

Efficient lighting, buildings, and HVAC systems, along with renewable energy, enjoy broad public support, and communities increasingly recognise their importance.

The examples from Albuquerque International Sunport provided here illustrate some excellent energy efficiency opportunities, paving the way for more airports to take advantage of these and similar strategies going forward.

AW

About the authors Annie Lindseth (consultant) and Zoe Haseman (associate director) both work for global airport management consulting firm LeighFisher (www.leighfisher.com).

Felix Vivian is sustainability program coordinator with the City of Albuquerque Aviation Department.

AIRPORT WORLD/JUNE-JULY 2013

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Sydney’s Eat Art Truck.

Everybody wins Susan Gray takes a closer look at F&B innovation in Australia as airports bid to boost revenues and raise customer satisfaction levels.

O

ver the last few years, food and beverage has rapidly evolved to become a diverse, enjoyable and innovative part of the airport journey.

Whilst this is evident across the world, in this article we focus on F&B innovation in Australian airports.

Australia has a very strong domestic food and beverage market, supported by a buoyant and growing eating-out culture. Recent retail figures show that whilst the Australian retail market overall is largely static, a look at the F&B numbers in isolation shows healthy and sustained growth.

This vibrant marketplace is witnessing fantastic F&B innovation on a daily basis. An increasing amount of the innovation is in the less tangible aspects of the dining experience – the ambience, design features, menu delivery, service options, lighting and so on.

However, whether environment-related or food-related, some common themes are evident. Trends that airports can tap into include: Provenance and authenticity of product, of packaging and of environment. Brands that can demonstrate they are sourcing their products or ingredients ethically and responsibly are growing in popularity. This is as important with major names such as McDonald’s as it is for smaller local players.

Localisation and sense of place. The F&B experience can be a powerful and authentic way of conveying a sense of place for airports and of bringing the character of the local region into the terminal experience.

Sustainability of product, of packaging and of environment.

Environmental awareness may be difficult to measure, but it is now commonplace to find eco coffee cups and locally sourced, low food-mile ingredients.

Portability and ‘food on the move’. There have been many developments in this area in response to modern consumers’ changing behaviours.

Recognising this, some airports are not only requesting, but requiring, these aspects to be incorporated as an integral part of the overall airport experience.

When running its most recent F&B tender, Cairns Airport explicitly required bidders to provide a local sense of place and demonstrate true innovation.

Alicia Prince, general manager, commercial, at Cairns Airport, explained: “We started with the view that the F&B offer at Cairns should be regionally representative, putting a strong emphasis on positive brand attributes like sustainability and local provenance.

“Collectively, the airport, our partner HMSHost, and local coffee plantation Skybury have combined to deliver a truly local version of an airport staple – the coffee offer.”

The unit has a fit-out inspired by the plantation’s eco-friendly design and features imagery that captures a sense of the region.

The menu features locally grown produce, a takeaway retail element including coffee beans (whole and ground), related products like chocolate-dipped coffee beans, and branded, sustainable packaging. Skybury is a fine example of F&B innovation in practice.

But many airports are still struggling to be truly innovative when it comes to food and beverage. This could in part be due to an unwillingness to relinquish the commercial model which has historically delivered such favourable commercial returns for airports.

AIRPORT WORLD/JUNE-JULY 2013

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SPECIAL REPORT: ECONOMICS & FINANCE

The Four Alls Brew House at Perth Airport.

Increasingly, the more progressive airport management teams are exploring innovations in commercial arrangements, designed to encourage and reward experimentation and innovation whilst ensuring that this important income source is well protected.

Not every single outlet can be a unique, boundary-pushing concept – getting the core or basic offer right creates a commercially solid platform upon which to innovate. This starts with an analysis of the market and the target customer groups and strategic planning of F&B locations with relation to passenger flows, retail and other services.

A balanced portfolio approach is required. After all, customers will tell you they want choice. If the airport’s size can support several categories and brands, this is the ideal. But for many smaller airports or standalone terminals this variety of brands can be commercially difficult to deliver.

One of the real challenges in bringing new brands to the airport is that F&B in an airport environment requires a different operating model from that of the high street. Fixed costs and variable costs are considerably higher than at most downtown locations.

This is further complicated by the challenge of replicating the more intangible aspects of an F&B experience, the ambience and environment that make a place unique and the experience memorable.

A potential solution is for an airport to partner with a smaller, local brand, and with a global expert operator like SSP, HMSHost and Delaware North. This trinity approach works only if it’s a collaborative one, built on long-term, clearly articulated, shared ambitions.

A great example of this in action is at Perth Airport. As executive general manager, Scott Norris, explains: “F&B innovation for us means always challenging the status quo, and looking at new ways to deliver a great experience for our customers.

“Our new Domestic Terminal 2 has a very specific and unique passenger profile, with a high concentration of passengers working in the resources and mining sector. We required an F&B experience customised to our passengers, their spending habits, and their unique attributes.”

Norris said that the Little Creatures brewery in Perth is a world-famous locally-based business, and Perth Airport worked very hard developing a unique F&B vision.

“Our F&B partners, Delaware North, have now brought this Western Australian icon to the airport. It wasn’t just about opening a pub with a famous brand – it was about working with our partners to deliver a bespoke concept unique to Perth Airport.

“The result is the Four Alls Brew House which brings the distinctive character of the Fremantle micro-brewery to the airport.”

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What of the next round of F&B innovation for airports? We see one trend having plenty of relevance for airports – pop-up shops, pop-up restaurants and other formats of temporary installations.

A recent downtown Sydney example was the Real Food Projects store, an inner-city pop-up which stocked only ‘seasonal, local and sustainable foods produced within a few kilometres radius of the store’.

Promoted on Facebook and Instagram, part of the appeal of the store was also the limited availability and therefore exclusivity of the products.

This is a powerful message that resonates well in an airport environment and is part of the reason why ‘premiumisation’ and customisation are showing such positive trends in domestic and travel retail today.

Similarly, the ‘food truck’ movement in inner Sydney has potential at airports. Co-ordinated by the local council, the trucks are run on a franchise model, with the current mix comprising ‘mobile’ versions of local eateries.

The trucks are themed and provide food prepared and served with portability in mind. One of them, the Eat Art Truck, even makes one side of the truck available as a canvas for renowned and up-and-coming street artists on a monthly basis.

Nine trucks currently roam the city, situating themselves strategically near high traffic locations at key times of the day and night. Using the Food Trucks app on your smartphone, you can check out which trucks are currently open, and their location on Google maps. You can also get updates on where they’re going to be next via their Twitter feeds.

This type of innovation is perfect for areas of high passenger volumes where space limitations make permanent F&B impractical.

Retro Espresso pioneered this approach in the Pacific, with two Airstreams located in the forecourt at Auckland International Airport delivering a distinctive and memorable experience including coffee and fresh, locally baked cakes and pastries.

Innovation is a mindset, and F&B provides a fertile ground. Ultimately, creating and delivering a profitable and sustainable airport commercial programme is both an art and a science, and getting the balance right is critical to achieving commercial success and delivering a great F&B experience to consumers.

AW

About the author Susan Gray is the managing director of CPI Australia, part of Concession Planning International, which helps airports, travel retailers and brands provide a distinct customer experience.

She can be contacted at susangray@concession-planning.com

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The time is now

Joe Bates reports on Louis Armstrong New Orleans International Airport’s plans to transform its image, facilities and operational capabilities with a new state-of-the-art terminal.

D

irector of aviation, Iftikhar Ahmad, is in no doubt about the importance of the planned new international terminal to Louis Armstrong New Orleans International Airport.

“Our current terminal is 50 years old and, quite frankly, no longer fit for purpose as it is built for a pre-9/11 aviation industry,” admits Ahmad.

“It is old and tired and doesn’t represent a good image of our city.

Its outdated infrastructure and set-up have driven operational costs to high, unsustainable levels.

“The existing terminal also generates relatively low revenue from parking and concessions due to the set-up. This high cost, low revenue model makes costs higher for airlines to operate, and therefore puts the airport at a competitive disadvantage for attracting new flights and business.

“Change is long overdue. The new facility will totally change people’s perceptions of New Orleans Louis Armstrong.”

The $826 million terminal will be built on the north side of the gateway and, if all goes to plan, open in May, 2018 to coincide with the 300th anniversary of the city of New Orleans.

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Designed to accommodate up to 12 million passengers per annum, the new 30-gate terminal’s facilities will include nearly 80,000sqft of concessions and a new inline explosive baggage system for screening checked baggage – something the airport currently lacks.

In addition to the 645,000sqft terminal, the Parsons Brinckerhoff managed project includes plans for a 3,000-vehcile capacity parking garage, an extra 42 acres of apron and a new environmentally friendly power plant.

Crescent City Aviation Team – a joint venture between LEO A DALY and Atkins – is leading the design efforts, while RS&H is conducting environmental impact studies of the new site and the terminal building.

Also on board are Unison Maximus Consulting Solutions (financial analysis) and Jones Lang LaSalle, which is examining the plans’ land-use options.

So why has it taken so long to take the decision to go ahead and build it? “There are many reasons, but in the past few decades it was primarily because nobody wanted to invest in the airport if it was to be relocated to another site,” answers Ahmad.

SPECIAL REPORT: ECONOMICS & FINANCE

“A couple about to get a divorce don’t go and look for a new house,” jokes Ahmad, while conceding that the lack of a definite plan for the airport until as recently as 2010, was no laughing matter.

“Quite honestly, the airport has been plagued by decades of indecision and inaction. While other states and cities made big decisions about their airports and where they would be located in the 1960s and 70s, little was done here, and, as a result, getting consensus on the airport’s future has been a problem for 30 or 40 years.

“However, since 2010 when we decided not to privatise [Louis Armstong New Orleans was in the FAA’s Airport Privatisation Program] and to stay at our existing location, we have worked hard on gaining trust and building a consensus. Today, there is no more confusion.

We are here for the long-term.”

The decision to build the new terminal comes less than two years after New Orleans’ mayor, Mitch Landrieu, requested the Aviation Board undertake an in-depth and robust analysis of four proposals for the future of Louis Armstrong New Orleans International Airport (MSY) from the airport’s master plan.

The airport was recently renovated in advance of Super Bowl XLVII, but the behind-the-wall infrastructure is in need of an overhaul.

According to the results of a comprehensive analysis of available options, the north alternative provides the best opportunities for revenue growth and sustainable operating costs, in addition to giving MSY and the region the best job and economic development potential.

“The Louis Armstrong New Orleans International Airport serves as a gateway to millions of tourists and business travellers each year and is a critical driver for the creation of jobs and economic development,” says Mayor Landrieu.

“Creating a new, modern airport is integral to our success as a world-class travel destination and hub for commerce. It makes economic sense and will create over 13,000 jobs in construction.

“Recently, significant progress has been made to improve the air service, facilities and customer experience at Armstrong International.

But this option provides us with the ability to build on these improvements and create the world-class airport that this city deserves.

“We cannot afford to let another 30 years go by without a clear path forward. The north side option is financially feasible and delivers a strong return on investment for our region.”

And, Ahmad reveals that building the new terminal on the north side of the airport will allow the existing terminal to be redeveloped for other uses.

“One of the exciting things about choosing the north side alternative is that we have an economic development opportunity to convert the 110,000sqft Concourse D of the existing terminal into charter, general aviation, cargo, multi-modal and other commercial use,” says Ahmad.

The chosen north side terminal project will cost approximately $650 million with possible additions including a $72 million power plant project, $87 million for a flyover addition from the I-10 to improve access to the airport, and $17 million for a potential on-site hotel.

The total cost is estimated at $826 million. Pending completion of environmental reviews, which will include extensive community engagement, construction is expected to commence in 2014, with completion in 2018.

Funding for the new terminal project will come from various airport self-generated funds along with federal and state aviation grants. The City of New Orleans will not be funding any part of the new terminal project.

To streamline the remaining design and construction process, the City and Aviation Board are seeking approval from the state legislature to use the Construction Manager At Risk method (SB 65 by Senator Ed Murray).

“For decades, the Aviation Board has studied the possibility of building a world-class airport. We are now moving into action,” enthuses Nolan Rollins, outgoing chairman of the New Orleans Aviation Board.

“This plan will create jobs and economic development for our community and will make our airport more competitive. Perhaps most importantly, we will have an airport worthy of our city,” But the news about the new terminal doesn’t mean that the airport was content for passengers to put up with “old and tired” facilities for the next five years.

Indeed, in early 2013, Mayor Mitch Landrieu unveiled more than $300 million in improvements at MSY as part of an Airport Modernization Program that includes a new and bright interior with a refurbished ticket lobby, expanded concourse, improved baggage reclaim, remodelled restrooms, updated exterior, a new car rental facility and new retail and restaurant offerings.

Those improvements will be utilised over the next five years, and then will be used in the repurposing of the existing terminal.

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The airport plans to use Concourse D as a base for charter and general aviation flights when the new terminal opens.

Ahmad is also quick to point out that increased efficiencies and a 30% rise in concession revenues following a recent revamp of 40 outlets have helped reduce MSY’s projected enplanement costs per passenger of $11.79 this year and $16.31 per in 2014 to around $8.41 – marginally less than at the average residual airport in the US. “We’re pumped up about the new terminal, but we are just as excited about our new business model, which is low-cost to the airlines and allows us to compete much more on an equal footing with other tourism markets,” he notes.

Louis Armstrong New Orleans International Airport is a critical asset for the city, the region and state.

It currently carries approximately 80% of the state of Louisiana’s enplanements, provides over 12,450 direct and indirect jobs for the local community, and facilitates over $2.6 billion in tourism spending.

In 2012, MSY saw over 8.6 million passengers – a marginal 0.6% rise on the previous year, but still down on the 9.8 million accommodated at the airport before Hurricane Katrina.

Indeed, the airport has enjoyed double-digit passenger growth for seven of the last 12 months and the upturn in MSY’s fortunes – it now serves 41 destinations non-stop, one shy of the 42 before Katrina – has made Ahmad confident that it can attract new direct weekly routes to Paris and London in the near future.

It also means that the airport is on target to handle 9.5 million passengers in 2013.

Ahmad says that the airport’s importance to the city of New Orleans, and now the city’s support and commitment to MSY’s development, ensures that there are currently no plans for the gateway to re-apply to join the FAA’s Airport Privatization Program.

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Global partner Atkins has worked closely with airports all over the world for more than 50 years. They have performed aviation planning, engineering, and construction services for 37 of the top 50 airports in the United States. In just the last five years alone, they have managed more than $1 billion of runway-related construction projects.

Atkins is no stranger to complex and unique assignments like the new airport terminal and ancillary development at the Louis Armstrong New Orleans International Airport (MSY). The Crescent City Aviation Team, a joint venture partnership between Atkins and the Leo A Daly, demonstrates their collaborative commitment to solving critical issues and implementing innovative, far-reaching ideas for the New Orleans airport and the community it serves.

Atkins is dedicated to the long-term improvement of MSY. The team’s focus is to design a world-class terminal befitting the famous Crescent City by improving passenger convenience, reducing operating costs, and enhancing the public’s first impression of New Orleans.

New Orleans Louis Armstrong was in the pilot programme, but withdrew in 2010, citing upfront costs, financial risks, loss of a key city asset and market uncertainty.

“They say never say never, but I don’t see that on our horizon today,” he muses. “We are quite happy with the way things are at the moment, and long may that continue.”

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SPECIAL REPORT: ECONOMICS & FINANCE

Greek odyssey Hans-Dieter Janecke talks us through the latest developments regarding the government’s plans to privatise Greece’s regional airports.

W

ith the notable exception of Athens, today all Greek airports are operated by the government owned Hellenic Civil Aviation Authority (HCAA).

Athens is different because when the government looked to build a new gateway for the Greek capital about 20 years ago, it was the private sector that stepped forward and made it happen.

Indeed, a consortium led by German construction group Hochtief planned, financed and built the current Athens International Airport, which opened for business in 2001.

And Hochtief is still the major shareholder of operator, Athens International Airport (AIA) SA, although this will change later this year when a Canadian pension manager’s €1.1 billion acquisition of Hochief AirPort is rubber stamped.

Airport charges Greece devised its existing airport fees and charging system during the development and construction process of the new Athens International Airport.

The so-called Airport Development Fee (ADF) obliges airlines at all Greek airports – not only Athens – to pay a flat fee, which today amounts to €12 for passengers with final destinations in EU countries as well as Norway, Iceland, Liechtenstein and Switzerland and €22 for passengers with other final destinations.

Funds generated from the ADF are split between HCAA and the airports – 25% to HCAA in the case of Athens, and 50% in the case of regional airports.

Apart from the ADF, aeronautical charges at the regional airports are limited to landing and parking fees and even these have not been charged by HCAA for the last couple of summer seasons in a bid to promote tourism to aid Greece’s flagging economy.

There are no charges for other services like the use of infrastructure in passenger terminals or the rent of check-in facilities. Also, there is no separate charge for security measures.

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Diversity of airports HCAA’s airport portfolio includes airports, which are extremely diverse in terms of size and traffic structures. They ranges from major gateways like Heraklion International Airport in Crete, handling more than five million passengers per annum, to many small airports welcoming less than 100,000 passengers.

Traffic at many of the regional airports is also highly touristic – in many cases 60-80% of the annual traffic occurs in the four month period from June to September – and, as such, play a crucial role in tourism development across Greece.

The situation, however, means that many of these airports require high capacity in summer, but remain largely unused in winter. Consequently, airport operators have to adjust their resources to this pattern.

It is not an ideal scenario, but for residents of many of Greece’s very small islands, airports remain a crucial infrastructure, which allows fast transportation to the mainland urban centres of Athens, Thessaloniki and other major cities.

Indeed, in some cases the only alternative to air transportation is a ferry, which for some of the more remote islands can take upwards of eight hours.

Their social, economic and political importance, however, ensures that the government is duty bound to keep them operational even if they are not profitable.

Air routes to these islands are often operated under the PSO (Public Service Obligation) regime, which is applicable under EU legislation and which allows subsidies to the airlines operating these routes.

SPECIAL REPORT: ECONOMICS & FINANCE Heraklion International Airport Heraklion is capacity-constrained and the plan is to develop a new airport at the Hellenic Air Force base near Kastelli as a replacement for the existing gateway.

The new airport is, however, not part of the regional airports privatisation process and will be dealt with in a separate tender.

Once completed, Crete’s existing Heraklion International Airport – also known as Nikos Kazantzakis Airport– will be closed.

Most probably this project will be launched under a BOT structure involving a complex process of financing, both for the construction of the airport and of the necessary new access roads.

The fact that it will be built on a greenfield site and requires significant investment distinguishes it from Greece’s other regional airports projects.

Potential investors will include major construction companies, not only airport operators.

Privatisation process After an extensive preparation period, the regional airports privatisation process commenced in April 2013 with the publication of a request for Expressions of Interest in Greece’s regional gateways.

The project is being managed by the Hellenic Republic Asset Development Fund, supported by a team of advisors that include Citibank, Eurobank, Norton Rose, YLP, D&V Law, Lufthansa Consulting and Doxiadis Associates.

In addition to the Greek government, the move is also supported by the Troika consisting of the European Commission, the European Central Bank and the International Monetary Fund.

All believe that it and a wider privatisation programme that includes transport and energy networks, state corporations, and real estate assets, is the best way to generate fiscal revenues that can help reduce Greece’s debt burden.

The details Around 15 to 20 of the country’s smallest regional airports will not be included in the transaction, due to their specific PSO function. The bigger regional airports will, however, be privatised in two clusters: The first cluster includes the airports of the Ionian Sea and the mainland, which handled about 10 million passengers in 2012.

The group includes the airports of Thessaloniki, Chania, Kerkira (Corfu), Zakynthos, Kefalonia, Aktion and Kavala. Potentially three additional airports may be added to this group: Alexandroupolis, Araxos and Kalamata.

The second cluster includes airports in the Dodecanese, Cyclades and Aegean, that between them, accommodated a total of nine million passengers in 2012.

These airports include Rhodes, Kos, Santorini, Mykonos, Mytilene, Samos and Skiathos. Possible additions to the second cluster are Chios, Karpathos and Limnos, as well as Nea Anchialos.

The final composition of the two clusters will be defined in the request for proposals, which are likely to be issued this summer.

The concession period for the two clusters will be at least 30 years and the fee will be a combination of an upfront fee, and recurring payments.

Legally, the deals will be ‘service concessions’, but the winning bidders will be obliged to upgrade and maintain their respective airport infrastructure to ensure that they are equipped to meet future demand and the customer service levels required by the government.

It is estimated that the winning bidders in each cluster will have to invest between €200 and €220 million on upgrading their airports in the first three years of the concessions.

As mentioned above, the very small regional airports are not included in the above two clusters. They will, however, be transferred to an as-yet-to-beestablished public airport management company in due course.

Restructure and fees In order to implement the concession of the two airport clusters and the new public airport management company, the Greek government will restructure the Hellenic Civil Aviation Authority (HCAA) so that its responsibilities no longer include operating airports.

As a result, the HCAA will focus on its regulatory and supervisory role in civil aviation. This will include the responsibility for safety, security and economic regulation for airlines, airports and air navigation service providers. Furthermore, another HCAA branch will continue to provide air navigation services.

In addition, the government has stated its intention to modify existing legislation on airport charges to lessen the dependence on ADF revenue and allow for the introduction of a more diversified system.

The changes are designed to ensure that the new concessionaires will be profitable and are in a better position to compete with their peers in the Mediterranean region – the latter point being viewed as critical to the success of the Greek tourism industry.

A cap on regulated charges based upon a benchmarking mechanism is one way the government plans to improve the charging system.

And, as an incentive to upgrade the airports, any increase in airport fees is likely to be tied to the completion of any short-term investment programmes.

So what happens next? The overall tender process for the two regional airports clusters consists of two phases – a prequalification phase with clearly defined criteria and the second phase, in which prequalified bidders receive the request for proposals and may prepare binding offers.

If all goes to plan, Greece’s regional airports could be in private AW hands by this time next year.

About the author Hans-Dieter Janecke is a managing consultant at Lufthansa Consulting.

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Investor spotlight Samsung C&T Corporation’s vice president, head of strategic development, Kwan Young Chung, talks to Airport World about Incheon International Airport and his company’s aviation investment strategy.

When and where was Samsung founded?

Samsung C&T Corporation was founded as a trading company by Lee Byung-Chull in Daegu, South Korea, in 1938. Today we comprise an Engineering and Construction Group and a Trading and Investment Group, which, between them, employ more than 10,400 staff in 133 offices in 50 countries across the globe.

What did the company initially do and how has it diversified/grown over the years?

The Samsung Group started as a trade company in the late 1930s.

Over the next three decades, the company diversified into areas including food processing, textiles, insurance, securities and retail. We entered the electronics industry in the late 1960s and the construction and shipbuilding industries in the mid-1970s and these areas drove signficant growth. Since the 1990s, Samsung has increasingly globalised its activities becoming a leader in a wide range of businesses.

projects in Korea and overseas in which Samsung C&T undertook a major engineering, procurement, construction (EPC) role. These include other airports of different sizes and operational capabilities such as Gimhae (Busan) in Korea.

What services/technology/facilities does the company provide for airports today?

As a conglomerate, Samsung is in a position to provide numerous services and products to the aviation marketplace. This portfolio includes technology, systems, commercial and infrastructure solutions that aim at providing specialised support to the airports throughout their lifecycle.

The best showcase would be Incheon International Airport where, besides the construction work that Samsung C&T performed, the group is involved in security systems, display systems, ICT solutions, passenger-processing technology and duty free, to mention just a few.

What is Samsung’s ‘Smart Airport’ solution?

What is the appeal of the aviation industry?

The aviation industry is appealing to Samsung C&T for three reasons. It is global. This translates into visibility and exposure to our brand and capabilities. It is multi-disciplinary and long-term. It also provides opportunities to integrate Samsung C&T’s Capabilities throughout the life-cycle. And it is dynamic and technology-driven, requiring advanced technology, systems and solutions that Samsung understands, develops and manages.

Did Samsung effectively build Incheon International Airport?

We participated in the construction of Incheon International Airport and acted as lead contractor for the main terminal building, the satellite terminal, the multi-modal transportation centre and one of the runways.

But, we haven’t just helped build Incheon. Indeed, there are many other

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I would define it as the provision of systems which are able to capture and transform the information generated by the interaction of traffic flows, processes and different stakeholders into business opportunities, and to provide guidance to efficiently implement and operate the airport as a whole.

Does Samsung have any direct equity investments in Incheon or any other airports?

We do not have any direct equity investment in Incheon or any other airport as it is not normal practice for the private sector to invest in airports in Korea.

How important to the company is your airport property portfolio?

As Samsung C&T is a relevantly new entrant to the aviation industry, aviation has yet to become a major and established business for our company in revenue terms. What counts is our commitment to the industry

SPECIAL REPORT: ECONOMICS & FINANCE

on developing and delivering top-notch capabilities that exceed our customers’ and partners’ expectations.

What criteria/investment potential does an airport need to appeal to Samsung?

There is a set of common criteria that investors, operators and major players in this industry require. A business case would include an analysis of the market, the aviation industry, the investment and legal framework, the operational environment, the necessary licenses, and the commitment and role governments undertake in the execution of airport projects. We also look at where to place value enhancing synergies.

manage water and energy consumption. We can also provide support with solutions that manage waste and air quality and acoustics in terminal buildings.

What would you say to those that say that aviation is a risky investment?

Does the company have any investment partners?

There are risks to any investment and the aviation industry is no exception.

As in any other form of business, investors need to choose their projects, partners and business models wisely. Understanding of market dynamics, politics, the robustness of mitigation plans and feeing comfortable to operate under certain risks all come into play.

Having said that, aviation has a bright future with forecasts predicting that traffic will grow at a considerable rate for the coming 30 to 40 years.

This effectively means that air transportation provides certainties and guarantees in traffic terms that therefore lessen the risk profile of the investment in general.

The growth forecasts ensure that the industry is healthy enough to sustain major airport infrastructure development projects for decades to come.

Yes, Samsung C&T does have regular investment partners, but we are, nonetheless, open to working with others.

Is Samsung in it for the long-haul?

What is your airport investment strategy?

We have a two-fold investment strategy for airport projects. First, to contribute to the bankability/profitability of the airport project through the implementation of our wide range of businesses and capabilities. Second, to have access to stable revenue sources with considerable margins.

Do you believe in the airport city/aerotropolis concept and does this appeal to Samsung?

We view an airport city/aerotropolis as an opportunity through which Samsung C&T can integrate our wide range of businesses and capabilities throughout the lifecycle of the airport. The concept is indeed appealing to Samsung C&T in spite of the limited number of successful projects to date.

How important is it for airports to be environmentally friendly?

It is very important, and I think we are in a good position to help airports as technology and innovative solutions will inevitably play a pivotal role in helping the industry in its mission to be environmentally friendly. Samsung C&T, for example, already provides a number of ‘green technology solutions’ which would help airports more effectively

Rest assured that Samsung C&T is a long-term partner the aviation industry can count on.

Other than Incheon International Airport, what is your favourite airport and why?

I cannot answer this one as I like most of the airports I travel through, especially those which provide top-notch experiences and access to multiple destinations to its end-users. My work at Samsung C&T requires extensive travel, and for this reason I have become an expert when it comes down to understanding the mismatch that often exists between what the airport is, what it offers and what the passengers require in terms of services and connectivity. It’s worth noting that airports in Asia and the Middle East are considered top performers when it comes to delivering tangible travel experiences and working under optional operational environments.

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LEADERSHIP

More than just results Dr Richard Plenty and Terri Morrissey reflect on key skills and competencies required by today’s airport leaders.

G

ood leadership is easier to write about than to do. Not only do leaders of organisations have to manage day to day operations, but they also have to ensure that their organisations are going in the right strategic direction – at the same time, keeping their staff on board and dealing with the impact of unexpected crises and events.

Leaders are generally judged not only by the results they achieve but also by the perceptions of others, which may or may not be fair.

Airport leadership is becoming as complex as leadership in any other sector. Traditionally, the aviation industry attracted operators and ‘techies’ looking for safe and secure employment.

As airports have grown in scale, with multiple functions and complex operations – no longer strips of concrete but engines of economic growth – the need for professional leadership and management at all levels has grown.

The development of airports into fully fledged businesses, more competition and challenging economic circumstances, has also increased the need for a more commercial approach.

There is no doubt leadership is a ‘hot topic’ in the sector. Our interviews for Airport World with airport CEOs have consistently identified leadership succession planning as one of their key challenges.

At the ACI World Assembly, Conference and Exhibition in Calgary last September, one of the main sessions was on ‘Leadership and the Next Generation of Airport Professionals’.

Some top CEOs and HR directors took part, and the session attracted a very large and engaged audience.

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And, the ACI World Governing Body reviewed the general issue of airport leadership and succession at the same meeting.

All the available evidence (for example, Exambela’s bi-annual CEO survey of European airports) suggests, not surprisingly, that there is a strong connection between the quality of leadership in an airport and the results that are achieved.

So what are the skills and competencies required of the modern airport leader? And, are these common across the sector or do they vary from airport to airport?

Key components of airport leadership Excellent airport leadership is about taking the organisation in the direction that it needs to go, keeping key stakeholders on board and delivering results consistently, year after year.

It adds value to the infrastructure and the asset for airport investors, and does so in a way that is sustainable, ethical and seen as responsible by the wider community.

The ability to achieve ‘sustainable growth’ is fast becoming a critical measure of success. There is only so much that can be done to cut costs and make processes leaner and more efficient, beyond that, new sources of revenue and income must be developed.

Sustained good performance is an essential starting point for effective leadership. Excellent leaders have a results and delivery orientation and mindset. They will generally find a way of getting the job done and delivering results even when they lack some of the desirable characteristics of the ideal leader.

LEADERSHIP

This may be because they have the confidence to surround themselves with others on their leadership team with the skills they lack, or (more often) because they possess the determination and will to succeed whatever the obstacles.

‘Big Picture’ competencies The ability to put things in a broad perspective whilst still being able to pay attention to detail – what Shell calls ‘helicopter’ and McKinsey the ‘dolphin’ quality – is an extremely valuable asset in leadership.

It requires intellectual ability, the capacity to spot patterns and linkages, and systems thinking. We see three main components in the airport setting: • Thinking strategically – the vision to take the organisation in the right strategic direction, see the wood for the trees and able to chart a clear way forward even in uncertain environments • Maximising business opportunities – the capability to identify and develop opportunities for growing revenue from existing and new businesses; demonstrating an entrepreneurial spirit, a commercially focused mindset and a capacity for innovation • Building a high performance culture – the capacity to translate strategy into action by converting a vision into clear business plans, setting strategic objectives and ensuring individuals have challenging targets for which they are accountable These skills are important to ensure that their organisations are properly connected to business strategy, particularly when their circumstances are changing.

As Declan Collier, CEO of London City Airport and president of ACI Europe, says: “It’s the requirements of the business that should always drive organisation and leadership development”.

Relationship competencies Leaders do not operate in isolation but have to get on with a wide variety of people. Indeed, the ability to get things done through others is a defining characteristic of nearly all leadership roles.

In the airport setting, this requires not only emotional intelligence but also a degree of political nous and social savvy. Developing the following competencies can be very helpful: • Building networks and alliances – the development of relationships, alliances and partnerships – both external and internal – to support business objectives • Leading others – the skills to lead, manage and inspire change.

To engage, motivate, develop and support individuals and teams potentially from diverse backgrounds, to achieve their objectives and goals even when these are challenging and difficult • Communicating effectively – the ability to engage and influence stakeholders, shape opinion and to create an environment where constructive dialogue and feedback is encouraged James Cherry, past chair ACI World and president and CEO, Aéroports de Montréal, believes that the ability to engage people is the cornerstone of leadership.

“Without engagement you have no hope of ever achieving the objectives of the organisation,” he says.

Self competencies Leadership is challenging and can make high demands on those who aspire to do it well. The personal example set by the leader makes a huge difference to the respect that people feel for them and the responsibility others are prepared to take on.

Not surprisingly, the best leaders tend to be those who are comfortable with themselves, resilient and mentally tough.

In times of change, people increasingly look for leaders who are role models of personal leadership. In the airport setting we see the following characteristics as key: • Leading by example – demonstrating the will to lead, a proactive approach, courage, clarity, resolve, and personal accountability for delivering on commitments

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• Managing work – the personal skills and discipline to set clear priorities, focus, develop clear and realistic work plans, make timely decisions and delegate work appropriately as well as remaining flexible when circumstances change • Authenticity – individuals who are true to themselves, aware of their own strengths and weaknesses, demonstrating integrity, fairness and an openness to learning Tan Sri Bashir Ahmad Abdul Majid, president of ACI Asia-Pacific and managing director of Malaysia Airports Holdings Berhad, speaks of the need to take enough time to assess a situation before taking action, and to create a climate of openness where people are encouraged to speak out and leaders are prepared to listen.

A sector approach to leadership?

The leadership competencies we describe were developed on the basis of research, interviews, literature review and practical experience, not just in airports but across a range of industries.

We have defined the competencies in much more detail at four levels ranging from ‘new recruit’ to ‘airport director’. An initial version was piloted with considerable success at Dublin Airport Authority, which subsequently adapted the template to their own circumstances and continue to use it.

The overall framework has also been introduced in London City Airport. And, in recognition of its CEO’s Irish origins, we have used the shamrock (above) as a motif for summarising it!

As it stands, there is, as yet, no common agreed framework for leadership that runs across the sector. Not surprisingly, airports have tended to develop their own models of leadership and own competencies that they believe are unique to them.

After all, airport leaders operate under different business models and don’t all have the same degree of freedom. They have different owners, operate under different models, in different circumstances and with very different sizes and complexity.

Despite these differences, all airports carry out the same principal functions. As the tutors on ACI World’s strategic HR programme, we find that despite coming from many different backgrounds, our participants have more in common than they have differences.

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And, industry leaders such as Dr Yiannis Paraschis, chairman ACI World, point out that while circumstances are very different in mature markets to the developing world, airports everywhere have increasingly become fully fledged businesses where it is important for leaders to have a business and entrepreneurial mindset when striving for performance in a regulated market.

There would be potential to develop this framework in a way that could be used more widely. The model is generic enough to encompass most situations. The emphasis put on different competencies would vary from airport to airport, and other specific competencies could be added as required.

There would be great benefits for the sector if a broad cross sector framework could be developed as has been done in some of the most successful global multi-nationals. A common language would make it easier to identify and develop potentially talented people, transfer learning between airports, and facilitate staff exchanges and development.

Standards would be lifted as airports, particularly the smaller ones, begin to understand the leadership agenda more clearly.

Realistically, developing a shared understanding and agreement on a topic as difficult as leadership within the airport sector is always up for debate. And where best to do it than at our Leadership and Change Management Forum in Bologna in October this year where you can hear from experts in the field!

In the meantime, it is important for airports to recognise that leadership really matters and, take stock in the best way they can of the leadership talent they have at their disposal as well as what they will need in the future.

About the author Richard Plenty and Terri Morrissey are co-organisers of ACI Europe’s Leadership and Change Management Forum, which this year takes place in Bologna, Italy, on October 23-25 and features a special Master Class on Leadership presented by three experienced CEOs who will debate the topics raised in this article.

The authors can contacted via email at info@thisis.eu

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SPECIALMEDIA REPORT: ECONOMICS & FINANCE SOCIAL

Making the right connections Using social media to communicate with today’s new breed of connected traveller can enhance an airport’s image, performance and boost revenues, write David McMullen and Shubhodeep Pal.

D

id you know that in February 2013, Hartsfield-Jackson Atlanta International Airport became the first location in the world to register a million check-ins? These were not passengers checking-in for their flight, but ‘checking-in’ on Foursquare, a popular location based social network.

Every time a person ‘checks-in’ on Foursquare, he announces his location to his hundreds of connections on social media. That is also a huge number of people literally telling the airport, “Look, we’re here.

What do you have for us?”

Why the ‘connected traveller’ matters Our world today is more connected than ever before. According to Google, 80% of travellers today plan their trips online and half of all passengers use mobile devices to access travel information.

Moreover, they share their experiences and reviews on the go too.

Indeed, TripAdvisor says that 91% of travellers post pictures of vacations, 57% post status updates and 34% check-in while travelling.

In fact, 75% of business travellers and frequent flyers carry smartphones today and, just as many of them log-on to airport Wi-Fi when it is available for free. Most of them check for flight information, while others check for security wait times.

While airlines have already bought into this new paradigm, it is arguable that it took the better part of the 21st century for airport executives to buy into the true need for airport marketing.

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Now that many airports have embraced the need to connect with passengers and market their services better, we are seeing increased adoption of a new type of marketing powered by social media.

In fact, the recent ACI Europe digital report shared that 77% percent of European passengers are already passing through a social media enabled airport. Certainly, the adoption is there. But what about results?

Opportunities for airports on social media Social media has become a compelling marketing platform for airports since it is easy, and cheap, to engage travellers, learn their preferences and build advocacy.

Eindhoven Airport’s latest Facebook VIP programme offers physical benefits such as free parking, food and fast-track security and immigration to a number of Facebook fans each month in an effort to create social advocates and generate awareness for their facilities.

Eli Lejeune, the Dutch airport’s marketing manager, says: “Facebook is an important way for us to stay in touch with our guests. Normally these passengers are in touch with airlines, since the ‘deal’ is between them.

For us it’s important to know more about these passengers, to optimise our product and signal other wishes.

“Through Facebook this can be done in an interactive and an easy going way. That way we can build a relationship with them and stay in touch 365 days a year.”

Through social media, airports also have the opportunity to turn a negative customer experience into a positive, through proactive customer

SOCIAL MEDIA

service. After all, how many other brands have customers fully immersed for several hours at a time?

Edinburgh Airport in the UK has been very proactive with 24/7 Twitter and Facebook customer support, updating passengers of delays. Manchester Airport even has a 24/7 flight board built into its Twitter stream. Passengers can send a private message to the account with the word ‘Flight’ and their flight number to receive live updates on the status of their flights.

The goodwill resulting from this simple, but effective transaction, is very likely to result in a positive personal recommendation or review, which often spreads.

Most importantly, in times of crisis, airports have realised the benefits social media can offer by opening platforms where information can be instantly shared with a large audience, who, in turn, often spread it further.

As a result, many airports have successfully used social media to disseminate timely updates during severe weather, and even during unpredictable natural occurrences such as the Icelandic ash-cloud or even a freak wheels-up landing that Warsaw Chopin faced, during the LOT B767 incident.

Airports have understood how to use social media in crisis, not only as a prevention of a negative – but as the creation of a positive.

How airports are currently using social media Admittedly, many airports across the world have taken cognisance of these factors and have responded accordingly by building up their social media presence.

In a global study conducted by SimpliFlying last year with 55 of the most ‘socially-active’ airports, we unearthed some fascinating statistics.

Some of the key findings are shown in the infographic above.

Increasing revenue opportunities While brand engagement and customer service score high with airports in engaging the connected traveller, revenue opportunities are growing as well, with already over 35% of airports are looking to drive revenues from social media.

A recent survey from NCR revealed that while 70% of travellers in the UK had purchased items from airport retailers, 42% of them would be more likely to purchase if they received a coupon on their mobile phone.

This shows the potential for targeted promotions.

Recently, Abu Dhabi International Airport sent out a tweet promoting the premium lounge during off-peak hours, and that resulted in over 10 people paying to use the lounge in the middle of the night!

All of that is additional revenue. Manchester Airport has partnered with cafes, to offer discounts on Twitter.

Though, few airports have gone as far as London Gatwick when it comes to driving retail from the connected traveller. They recently partnered with Tesco to offer virtual shopping to passengers.

As a result, passengers at Gatwick’s North Terminal could scan up to 80 barcodes for products pictured on the virtual fridges and have them delivered to their homes up to three weeks later.

Following in Gatwick’s footsteps, Delhi International Airport has recently inaugurated a similar initiative. It has partnered HomeShop18, India’s leading virtual retailer, to introduce a ‘Virtual Shopping Wall’ called ‘Scan N Shop’ at the airport.

Given the variety of features, wide user-base and targeting opportunities social platforms offer, much more can be done. Apart from ‘convenience marketing’ at Gatwick and Delhi, there are a number of ways in which airports can increase retail opportunities.

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SOCIAL MEDIA

Cult relationship management to drive revenues

Mobile and free Wi-Fi is critical

Another avenue for airports to drive revenue is through targeting the connected travellers better. Those million people who checked-in at Hartsfield-Jackson Atlanta are leaving digital breadcrumbs about their preferences – all accessible publicly.

Airports can find out where they like to shop, eat, and even which brands they like. Traditionally, airports have not had customer relationship management (CRM) systems, but through this information left online, segmentation can be profitable.

Facebook offers surprisingly precise targeting to a large user-base, which can be sliced and diced in multiple ways. For instance, an airport marketer for Singapore Changi could create very specific offers to promote retail to females aged 18-25, who are in long-distance relationships, who have mentioned Tiger Airways.

Retail offerings can be made for pre-paid SIM cards to such groups. Once a specific group is targeted, a customised offer can be easily created.

Moreover, special privileges can be offered to those travelling most frequently through an airport, and announcing their presence online. For instance, a Foursquare Mayor (someone who has the highest number of check-ins at a location) of an airport served by Air New Zealand, gets free lounge access regardless of the class he is flying.

Surely, the first thing he’d do once inside the lounge is to check-in and share his experience. This would potentially drive his ‘friends’ to try out the lounge the next time they fly, and perhaps even pay for the use.

In the age of the connected traveller, CRM is cult relationship management, and thoughtful segmentation and targeting can lead to revenue gains.

Leading airports, like Helsinki, report that Wi-Fi usage has grown 30 times since they started offering it fort free. At Toronto Pearson, it grew 10 times. And, most passengers are accessing the airport Wi-Fi using mobile phones these days. Hence, the case for an airport mobile app is very strong. And lots of airports are looking to drive revenues from these apps too.

The Copenhagen Airport app has an augmented-reality feature that allows anyone to view and review retail outlets, as they hold up their phone and walk down the terminal.

Las Vegas–McCarran’s wayfinding app points out the nearest slot machines for travellers to occupy. The Singapore Changi app doles out offers from nearby retailers. All of them, looking to drive sales.

Ultimately, airports must remember – the connected traveller is here, and they need to adapt fast.

They first need to listen to where their customers are ‘talking’ online about them, then segment them and then create a strategy to drive key goals like customer service and revenue.

After all, tweeting without a strategy, is just typing!

AW

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About the authors David McMullen (vice president, airports) and Shubhodeep Pal (head of operations and innovation) both work for Singapore-based aviation marketing consultancy SimpliFlying.

Visit www.simpliflying.com for more information.

~inter

a1rport • europe The world's leading airport exhibition

SPECIAL REPORT: ECONOMICS & FINANCE REWARDS & RECOGNITION

The people business Recognising and rewarding good work and holding an annual Awards of Excellence programme is part and parcel of enhancing engagement and being an employer of choice, writes Christiane Beaulieu.

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nyone involved in business knows that some of the biggest challenges facing organisations are to attract, retain and motivate talented employees.

This is becoming even more critical in view of today’s workforce issues that are affecting all employers, including an aging population, the pending mass retirement of baby boomers, skills shortages, increased youth mobility and new social values such as work-life balance and personal development.

Increased layoffs of professional personnel in recent years have weakened the traditional loyalty arrangement between a company and its employees.

Gone are the days when one would work with the same employer during your entire active life. People are becoming more mobile too.

Professionals, especially in certain high-demand areas, are becoming a sort of exchangeable commodity.

In addition, the younger generation has different values and different views about work in general and view relationships with their employer differently. Family and personal life often have priority over work, or at the least, must be conciliated with work.

Airports are, of course, not immune from these challenges, and need to come up with innovative ways to keep their staff engaged, or risk losing them to other industries.

James Cherry, president of CEO of Aéroports de Montréal (ADM), notes: “As employers, we can’t do much about these broad economic or labour market trends. But we can do something about the way we respond to these issues. We need to adapt our HR practices to ensure we keep our employees on board.”

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ADM, which operates Montréal’s Trudeau and Mirabel airports, has about 650 employees and through innovative HR practices is committed to becoming an employer of choice, affirms Cherry.

“Being an employer of choice has many advantages. In addition to increasing your chances of attracting and retaining the best talent, it also enhances your competitiveness. Simply speaking, it makes great business sense,” he says.

For Cherry, an “employer of choice” has several defining characteristics, including an inspiring senior management, empowered employees, a distinctive corporate culture, a focus on talent development, and consistency of management practices.

“But, at the end of the day, in becoming an employer of choice, the number one objective is to engage employees,” he notes.

Engaged employees are important because they will talk about the company in positive terms, demonstrate a strong desire to remain in the organisation, and be more willing to go the extra mile to achieve its objectives.

Aéroports de Montréal has adopted a vision that states it “aspires to be an employer open to the world, one that leverages the talents of its employees, promotes their autonomy and recognises their contribution while communicating in an authentic way.”

As part of this vision, it champions team spirit, respect for the individual, loyalty, integrity, and creativity. Recognition is also a critical component.

“We believe it’s important to value and promote employee contributions,” says Cherry. “To offer concrete rewards in line with achievements and to support employee career development.”

SPECIAL REPORT: REWARDS ECONOMICS & RECOGNITION & FINANCE

Recognising excellence In line with its vision, about a decade ago, ADM launched an innovative employee recognition programme designed to underscore that the organisation’s success is directly linked to employees’ contributions.

ADM’s Awards of Excellence programme recognises individuals or teams whose achievements stood out during the year and winners are selected among entries submitted by employees themselves.

“This is a terrific peer-to-peer recognition programme that is highly appreciated by all our employees,” says Cherry. “Nominations have been increasing steadily year after year, and in 2012, totalled about 60.”

The awards are given in several categories which have been gradually expanded over the years and are based on a strict set of criteria. Nominees are judged by a jury set up for each category.

Enthuses Cherry: “The categories reflect our values and priorities.

Innovation and creativity is probably the most popular, and the reason our positioning is based on innovation.”

Currently, the programme has seven categories, including: • Commitment and preparedness: For teams or individuals who went the “extra mile” or rallied others around a cause or common objective.

• Team spirit: For a team who carried out a complex project requiring the cooperation of many employees or departments.

• Innovation and creativity: For teams or individuals who proposed, developed or implemented a concept, technical solution or work method that was original and added value.

• Environmental merit: For demonstrating leadership or commitment in protecting the environment.

• Occupational health and safety: For teams or individuals implementing a solution, method or equipment that significantly improved EH&S performance.

• Customer experience: For those who proposed an initiative having a positive impact on customer satisfaction or the delivery of a customer service.

• Volunteerism and commendable action (a new category): For individuals or teams who show exceptional dedication, through volunteerism or acts of bravery.

The Awards of Excellence are presented every October at a special gala presided over by Cherry and other senior ADM managers.

“It’s like our very own version of the Oscars, only funnier,” chuckles Cherry.

“The gala is an immense success each year and employees are very proud to display their trophies.”

The recognition programme has become “an institution that says a lot about the kind of organisation we are,” he adds. “Employees really enjoy the programme as shown by the high participation level in terms of the number of nominations, the number of people involved and attendance at the gala.”

As an important player in the aviation industry, Cherry says that ADM is proud to be aiming high when it comes to employee relations and the working environment.

He says: “We believe that looking after your employees well is a win-win situation because they will, in turn, respect you and be loyal to the company.

The bottom line is better productivity among the staff and better organisational results, plus a happier working environment for all.”

In fact, he adds, the most important aspect of airport leadership is the ability to engage employees and stakeholders.

“Without engagement and motivation, you can’t really hope to achieve your organisation’s objectives,” suggests Cherry.

Engagement requires giving employees a clear understanding of their roles and responsibilities, communicating well, defining specific expectations, and, ultimately, providing proper feedback.

“These are all reflected in the recognition programme, which does not provide a monetary reward, but often encourages employees to aim even further and higher,” states ADM’s long-serving president and CEO. Cherry says he believes the many successes at ADM over the past decade have been made possible by its strong, and highly engaged, team.

“Among these accomplishments has been the successful rationalisation of our two airports, which saw all passenger flights consolidated at Montréal-Trudeau and Montréal-Mirabel repositioned as an all-cargo and industrial airport.

“We also completed a major modernisation and expansion programme at Montréal-Trudeau, boosting capacity and incorporating the latest self-service technologies to make us a leader in this area. Last year we saw passenger volumes soar to record levels despite difficult times in our industry.

“We have achieved this because of our people, and they deserve to be recognised.”

AW

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IT INNOVATION

The way forward The evolution of airport IT systems and collaborative decision making will transform operations at the world’s gateways in the years ahead, writes John Jarrell.

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ir travel has grown dramatically in recent history, with analysts expecting the number of airline passengers to double over the next 20 years.

As a result, there has, inevitably, been a pronounced demand on airports to manage the increase in air traffic. The surge has placed a particular strain on airports that continue to deploy old-fashioned legacy IT systems that are unable to cope in response.

The struggle to meet demand is becoming a serious issue for airports, especially in light of the competitive growth observed in alternative methods of transport such as high-speed rail travel.

EUROCONTROL estimates that by 2030, 10% of demand will fail to be met, meaning 260 million passengers will be unable to fly due to a lack of airport capacity. However, for many airports, cost, geographic, environmental and regulatory restrictions are holding back physical expansion and infrastructure development.

Therefore, in order to effectively manage an increasing number of passengers, airports are looking to innovative technology to maximise the physical infrastructure available.

Integration across actors in the airport eco-system Most airports are operating with legacy IT systems, some of which are over 30 years old and may no longer be fit for purpose.

This situation may have arisen from fragmentation of IT development throughout the airport, making integration and data sharing between partners an expensive, complex and time-consuming task.

As a result, a lack of information relating to which passengers are at the airport and where to locate aircraft and baggage means that airport operations are under permanent strain.

One key way to improve operational efficiency throughout the airport is to integrate different players within the airport eco-system in a collaborative decision making (CDM) model.

Typically, in the current airport, each division operates without the necessary knowledge or information to maximise collective performance, and, subsequently, no single partner has the ‘complete picture’. As a result, co-ordination of operational processes is compromised.

If airports were better able to integrate these processes, they would be in a position to handle a greater quantity of passengers with improved efficiency.

Airport collaborative decision making (A-CDM) involves integration of data across all actors in the travel eco-system

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(including travel sellers, airlines, airports, ground handlers, passengers, air traffic controllers and border agency officers), so that they are able to share data in real-time and can work together more efficiently and transparently.

For example, in terms of aircraft take-off, an integrated IT solution can calculate the most efficient start up time for each aircraft – aiming to minimise delays, congestion, fuel consumption and passenger frustration. This can only be achieved by considering all actors and sharing operational data such as the target off-block time.

Streamlined collaboration within the airport will enable better decision making, and also facilitate inter-airport co-operation. This is of particular relevance for passengers who are making a journey via a hub airport.

Disruption management Deployment of a CDM model in the airport environment is particularly important in the context of disruption management.

According to the Central Office for Delay Analysis in Europe, if all the hours and minutes of flight delays were to be added together, 70% of the total would be related to flight turnaround processes at the airport.

If airports are to retain and attract airline customers and travellers, it is important that all flight-related services within the airport should run as smoothly as possible to reduce delay, frustration and associated costs.

This inevitably necessitates more joined-up thinking and integration between airports, airlines and ground handlers which can be achieved with deployment of a CDM model.

Airports becoming business-oriented service providers Cost containment is challenging for airport operators as a result of expensive asset bases which must be maintained and enhanced over time to cater to customers’ changing needs.

SPECIAL REPORT: ECONOMICS IT INNOVATION & FINANCE

In response, airports must now position themselves as sophisticated and business-oriented providers.

In fact, by building on data obtained from passenger activity in the airport, airports will be in a position to develop a new business model to provide value-added services to reduce pressure on aeronautical revenues.

Increasing revenue per passenger will come from enhancing and creating new retail experiences that will encourage people to spend more time and money at the airport on shopping, leisure, entertainment, dining and personal/business services.

Going a step further, airports could greatly enhance their revenue if they were able to offer services in advance of passengers arriving at the airport.

Merchandising could be tailored to increase targeted sales of airport services.

For example, if a flight was delayed for an extended period of time, and a passenger had previously been spending a large amount in duty free, then the airport could offer them a luxury lounge upgrade.

Passenger activity within the airport could be recorded every time a boarding pass is scanned: at check-in, at security controls, on making purchases and before boarding the plane.

This would enable the airport to provide passengers with real-time information regarding changes to their journey and offers further chances for service provision.

Enhancing the passenger experience to drive loyalty In line with the need for airports to become service providers, and, in light of competition from both other airports and alternative modes of travel, expectations of the passenger continue to grow.

Travellers expect a seamless journey from booking to arrival, and the airport is becoming an increasingly important part of the passengers travel experience.

A recent report from Amadeus, entitled Reinventing the Airport Ecosystem, identified key developments that passengers would like to see over the next five years.

These included: remote check-in and bag collection, use of mobile phone to navigate through all key touch points, self check-in kiosks, and frequent flyer cards as permanent boarding passes, permanent electronic bag tags, automated self-bag drop, ‘self-service’ immigration/passport control/boarding and, notification of baggage loading.

For leisure and business travellers, removing stress and streamlining processes such as bag drop-off can reassure passengers around one of the biggest causes of anxiety in the airport.

Unsurprisingly, passengers require speed, simplicity, convenience and reliability of airline and airport processes. Mobile technology means that travellers are accustomed to receiving information on demand.

If airports are able to enhance the passenger experience, they will maintain an advantage over their competitors, and passengers will begin to perceive air travel as an enjoyable and stress-free endeavour.

As passenger growth rapidly increases, airports must not only maximise the resources available, but also simultaneously reposition themselves as service providers. This must be done without neglecting the quality, and even enhancing the passenger experience.

By deploying the latest IT solutions, airports will be able to retain AW passenger numbers in an increasingly competitive environment.

About the author John Jarrell is head of airport IT for Amadeus. airport@amadeus.com

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Discover what IT is at www.amadeus.com/airport as ofllJ une 2013

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SUSTAINABILTY

Health monitor Francis Stone reports on the challenges, opportunities and benefits to airports of adopting a globally accepted framework for reporting their sustainability performance.

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ustainability is an issue that is pertinent to every business sector, but arguably none more so than aviation. Indeed, the sector has its own Sustainability Reporting Framework developed by the Global Reporting Initiative (GRI) to address issues of particular relevance to airport and airline operators.

In the case of airports, there is a particular framework for reporting risks like wildlife strikes, noise and human trafficking.

So what are the organisational and management challenges that face airport operators as they seek to achieve compliance with the GRI Reporting framework?

What milestones can airport operators achieve along the way and how best can reporting be used to promote the commercial, environmental and social responsibility of the airport in question?

One of the key principles underlying GRI is the expectation that the reporting organisation identifies its stakeholders – those that it impacts and those that impact upon it – and reports on how it has responded to their reasonable expectations and interests.

Without doubt, the demands of the international community for airports and airlines to act in a responsible manner now place new burdens on management.

And, there is no denying that adherence to the requirements of the Global Reporting Initiative has an impact throughout the organisation, and represents a new style management challenge, at a time when there are plenty of those.

However, it is a challenge worth undertaking in order to ensure sustainability and, in essence, an airport’s licence to grow.

The mounting expectation for airport and airline management to communicate about its environmental, economic and social performance has largely been focused on ‘green issues’ and the steps being taken by the industry to mitigate those concerns. But, there is more.

The industry is increasingly being pressed to demonstrate the steps it is taking in other areas, such as its performance in reducing the risk of accidents and minimising incidents of ‘wildlife strikes’.

Noise is another area of concern, particularly as it pertains to people living near airports. As there are no internationally agreed airport noise standards, the GRI reporting structure should help the industry report how it measures noise, enabling it to make necessary improvements.

The scope of GRI reporting can be further extended to include impact on local communities through employment and business development; impact on biodiversity; and, even, human trafficking.

Delta is the latest airline to put GRI reporting front and centre. In its 2012 Corporate Social Responsibility report, CEO Richard Anderson, commented that the airline was looking to build a business model that would improve its sustainability “for the benefit of our customers, employees and shareholders for many years to come.”

Crucially, he added, that Delta believed that “transparency goes hand in hand with sustainability.”

The report highlighted significant accomplishments, among them, were reducing its annual aircraft greenhouse gas emissions by 8.4 million tonnes since 2005; verifying its greenhouse gas emissions from 2005 to 2011; and, establishing standards for calculating and publicly reporting carbon footprints.

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It also reveals that Delta has successfully reduced the number of 50-seat regional jets it operates and replaced them with larger two-class aircraft that are far more fuel efficient.

Delta Air Lines also claims to have addressed 11 additional Global Reporting Initiative indicators than in its 2011 report. The situation clearly demonstrating that, for many, achieving GRI standards is a work in progress.

The comparatively new trend of sustainable development means that there has not only been an increase in the number of organisations in the aviation sector issuing reports on their sustainability activities, but also in those having them assured by an independent third party.

These best practices are strongly encouraged by GRI as third-party assurance of a report’s materiality, accuracy, consistency and completeness, enhancing the credibility of the report, while driving improvements to the organisation’s internal data collection and reporting process.

It is also worth noting that third-party assurance is not a one size fits all process, and needs to take into account the organisation’s business and its distinct sustainability challenges. It involves working with those responsible for collecting and collating reporting data, as well as those drafting the report’s content.

So what should an in-depth, third-party assurance assessment focus on? The simple answer, is the material issues driving sustainability in an organisation.

This can be achieved by comparing what the organisation views as its most important issues, such as those discussed at senior management meetings, and those the organisation chooses to report publicly.

This internal materiality scan is then supplemented by reviewing the company’s external stakeholder communications (media and blogs, for example) and then verifying message alignment between the ‘inside’ and ‘outside’ story.

An assurance process that is skewed towards verifying data can be a costly, time-consuming exercise that provides limited value to the reporter and the intended audience.

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What is the Global Reporting Initiative?

GRI is a global non-profit organisation based in Amsterdam that has developed the world’s most widely-used framework for reporting sustainability performance.

Around 95% of the largest corporations on the planet use GRI, whose framework is designed to enable all organisations to measure and report their economic, environmental, social and governance performance – the four key areas of sustainability.

Issues covered by the framework include safety (including monitoring and measuring performance to reduce the risk of runway accidents such as wildlife strikes); and noise, particularly the impact on neighbouring communities as there are no internationally accepted levels of airport noise.

Other issues include the impact on local communities through employment and business development; and, the effect airports have on biodiversity and human trafficking.

Assurance should help the organisation make sure it is “getting the right numbers not just getting the numbers right.”

There is, of course, a commercial imperative behind all of this as well.

According to a survey conducted by Accenture and the UN Global Compact, the incorporation of sustainability within management thinking and processes is a way, of “strengthening brand trust and reputation”.

The aviation industry is no different to others in seeking evidence that a rigorous commitment to sustainability will lead to increased revenues, lower costs, less risk, improved reputation and stronger corporate governance.

Independent verification of that is the shortest, most transparent AW route towards achieving a competitive advantage.

About the author Francis Stones is EMEA director of global assurance organisation, BPA Worldwide.

2012 ACI

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SECURITY

Staff watch

Ajay Jain takes a closer look at the latest identity management solutions airports are using to monitor, manage and control staff access to restricted areas.

T

he safety and security of airport environments is an everevolving challenge. The multitude of rules and regulations governing security clearance, identification and access for airport and airline employees, vendors, and tenants are often made even more complicated with siloed systems and processes used to manage credentials for facility access.

These challenges all warrant a solution that enables improved management of identities and strengthened airport security.

Physical identity and access management technology (PIAM) is a proven solution to assist with unifying identity management, integrating disparate physical security systems, automating processes and simplifying control of employees, vendors and other identities.

PIAM software allows airports to manage the ‘lifecycle’ of identities as they relate to physical access, including synchronised on/offboarding across all systems harbouring an identity record, access profile and zone management, and role-based physical access.

Reducing the risk Airline and airport workers require access to sensitive and restricted areas during the normal course of their required duties. Ensuring that only authorised personnel have access to restricted areas is an important aspect of airport security, and one that requires the same high level of attention as passenger security threats.

At airports across the globe, many of the physical identity and access management operations are handled manually, leading to potentially dangerous errors, including a higher cost of operations, enrolment and termination delays, and a lower level of overall security.

A multi-layer balance between security, costs and practicality is required to address this issue. Leveraging technologies such as PIAM can help airports achieve security goals as well as improve efficiencies and customer service.

In the airport environment, several challenges still stand in the way of achieving sustainable reduced risk, including: • Cost pressures, which have limited staff sizes and man-hours in the air travel market, including less available time to manage identity issues • Wide variety of systems, often involving operators to work in and out of multiple computer screens when addressing identity and access control issues • Extensive prerequisites to qualify for a credential (which would permit certain access), all of which must be tracked and documented • Continuing usage of paper files and photocopies • Dependence on manual processes, which are error-prone and expensive These elements add to the fact that airports present one of the most complicated scenarios in which to administer restricted-area access control, identity verification, and issuance of an access credential.

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Meeting the challenge with a unified system Today’s identity management solutions include the fabric of systems, policies and procedures that govern and streamline the lifecycle of an identity, and its relationship to an enterprise or entity.

In other words, unified software systems can better meet the dual challenge of access control and identity verification. It centralises all identity information across relevant systems for the employment lifecycle of the individual while also applying rules based conformance.

Applying this concept to an airport environment where identities need to be authenticated on a daily basis, and physical access rights need to be controlled and managed dynamically based on their role and policies affecting their access, several strategic safety and security benefits are evident.

For instance, when an employer terminates an employee, the termination process automatically flows through the various areas, ensuring that all aspects of that identity are simultaneously disallowed in the system and all assets such as card, keys, etc are returned or billed for properly and in a timely manner.

Unified software systems that seamlessly interface with various systems throughout the airport can streamline time-consuming and inefficient processes such as issuing ID badges, managing various databases, adding new employees, responding to changing work assignments, and assigning access privileges across multiple physical access control systems.

In terms of the US airport environment, such software can also integrate and embrace specific requirements related to TSA compliance and FAA regulations.

If there are prerequisites for an access control credential, software can track and confirm those requirements (authorisation, IDs, security checks, training, etc).

Also contributing to efficiency, use of special document-specific scanners for passports, and drivers’ licenses, for instance, can store and manage PDF documents and monitor for expiration dates as part of an employer or identity record. Paper file storage is not needed.

Uncomplicating the process The more complications that exists in any system, the harder it is to monitor and understand, and more importantly, respond to anomalous incidents.

There are many ways a software solution for airport identity management can uncomplicate the process, boost overall operational efficiency, and, lower costs while achieving a higher security level and meeting regulatory requirements.

Software can leverage an existing ‘livescan’ solution and automatically submit applicants’ information for automation of security threat assessment (STA) results and notification of criminal history records checks (CHRC) ready for review.

SECURITY

Software can monitor airport workers’ STA status in real-time and tie it to activation of an electronic airport badge.

Software systems also enable operators to set prices for employer interactions for direct billing or regular invoicing of charges such as badging, background checks, penalties, violations, lost assets (keys, cards, etc) and training.

Automation can recoup transactions that would not be cost-effective to recoup using manual methods.

Related to compliance monitoring, software can generate reports on an as-needed basis (nightly, weekly, monthly and on-demand) in the format required by bodies such as Transportation Security Clearinghouse – an organisation set up in the US in partnership with the federal government to provide background checks on aviation employees – and other channel service providers.

It can also provide real-time auditing capabilities, eliminating the need for manual audits.

Another benefit is that changing systems, processes, and directives can be easily adapted in a software environment.

Previous investment in business policies and operations is not lost if a system changes.

Software can replace offline, non-automated processes, which are also not scalable and do not enable the automated compilation of information.

Software systems can solve various airport pain-points and combine the needed elements of low cost, customer service, and security/compliance. Off-the-shelf software can streamline and automate each airport’s operational processes.

Safer airports Standardisation reduces complexity. Reduced complexity allows for better control, better information, and faster response times.

By applying tools that can streamline workflows, automate processes and integrate disparate systems, we can reduce insider risks associated with manual, error-prone systems and practices, provide an environment for 100% compliance, increase operational efficiencies, and reduce costs.

Deployment of multiple software systems can be managed through a single web-based database. Policy-driven software provides a holistic approach, combining global identity with compliance and risk assessment.

Benefits include greater efficiency, lower costs, proactive management of regulatory compliance – and, safer airports for everyone.

AW

About the author Ajay Jain is president and CEO of Quantum Secure. www.quantumsecure.com

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PROJECT WATCH

Prince Mohammad Bin Abdulaziz International Airport New terminal and enhanced airfield to transform gateway to the Muslim holy city of Medina.

project details Location: Medina

W

hen the TAV-led Tibah Airports consortium made history by winning the tender to operate Medina’s Prince Mohammad Bin Abdulaziz International Airport, it knew exactly what was expected from it by the Saudi government.

Under the terms of its 25-year Build-TransferOperate (BOT) concession for the airport – which officially commenced in June 2012 – it agreed to construct a new terminal and carry out a number of airfield enhancements within three years.

The terminal will effectively double Medina’s capacity to 8mppa.

One year on from taking over responsibility for operating the airport, its new terminal is already beginning to take shape.

Indeed, Saudi Arabia’s first full airport privatisation project is doing so well that there is already speculation that the project, which is being partly funded by Islamic financing, could be repeated elsewhere in the region.

“It is probably one of the world’s more unusual BOT concessions as Saudi Arabia’s is one of the richest countries and doesn’t need the money,” says Waleed Youssef, chief strategy officer for TAV Airports Holdings.

“What the Saudi government wanted from the deal was to bring in some outside expertise and create an environment for change, and possibly use it as an example for further change, in the aviation sector.

“It is early days, of course, but I think we have already shown privatisation can work very successfully and should no longer be almost a taboo word for the Gulf region.”

Issues such as the size of Saudi Arabia’s airport system, the fact that the airport operator and regulator are one entity and that the Civil Aviation Authority gets its budget from the Central Ministry of Finance, certainly make it difficult for the government to plan long-term capital investment projects in Saudi Arabia.

Important developments: Today, 90% of the airport’s income comes from aeronautical revenues, a figure the concessionaire wants to reduce to 85%.

Youssef notes that although the figure of 85% may still seem high, Medina’s status as holy city for Muslim pilgrims means that it traditionally handles up to 50% of its annual traffic within a 40 day period each year.

He also says that the duty free concept doesn’t exist in Saudi Arabia as there is no tax, and explains that as the vast majority of pilgrims are not traditionally high earners, the potential to earn significant revenue from retail is somewhat limited.

TAV Airport is confident that the enhanced handling capacity the new terminal brings will mean that more pilgrims fly to Medina than are able to do so today, the bulk of whom currently use Jeddah, as Mecca and Medina are only 500km away.

He also believes that TAV can use its experience as an airport operator of primarily Muslim airports to stimulate more traffic between them and Medina.

Indeed, TAV’s network of airports currently provide 25% of Medina’s traffic, and Youssef admits one of the challenges he is looking forward to is growing and serving passengers at both ends of their journey.

Concessionaire, Tibah Airports, will also look to raise customer service levels at Prince Mohammad Bin Abdulaziz International Airport, although Youssef admits that the basic requirements of pilgrims is much lower than traditionally expected at other airports across the world.

Clauses built into its contract means that the next phase of the airport’s development – expansion to the yet to be built new terminal – will be automatically triggered when passenger numbers pass certain thresholds.

Youssef says that this philosophy gives Tibah Airports the flexibility to only build new facilities AW when they are needed and not before.

New terminal and airfield upgrade

Scheduled completion date: 2015

Principal companies involved: Tibah Airports (TAV Airports Holdings, Saudi Oger Ltd and Al Rajhi Holding Group)

Total investment: $1.14 billion

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PROJECT WATCH EXTRA

The big build

Joe Bates and Steven Thompson turn the spotlight on airport development projects in Indonesia, the Philippines and Kazakhstan.

Jakarta’s new Terminal 3 set to open in 2015 Jakarta–Soekarno Hatta International Airport’s new Terminal 3 is being designed to “send a message to the world” about Indonesia’s evolution.

Operator, Angkasa Pura 2, also wants the new 380,000sqm showpiece facility to reflect the country’s technological, political and cultural aspirations.

The latest artists’ impressions give you the chance to judge for yourself what you think of the efforts of the terminal’s design team.

One thing for certain, is that the new 25mppa terminal – primarily being built to accommodate Garuda Indonesia’s fast expanding international and domestic fleet, will be one of the most impressive facilities in the Asia-Pacific region when it opens for business in late 2015/early 2016.

Woodhead, the lead designer for the architecture and interiors of the new complex, is confident that new terminal will be “a model of efficiency and comfort overlaid with the curation of Indonesia’s unique cultural and environmental experiences for passengers.”

It also believes that the distinct design of T3 will create a sense of place that expresses the local and regional identity of Jakarta and Indonesia.

Woodhead states: “In the design of contemporary airports, we need to look deeper when preparing an authentic cultural interpretation for the future that addresses the airport’s civic function.

“The concept for the interiors seeks to integrate artwork and cultural references into the structure and materials. A further expression of cultural diversity unified into one gigantic work of art.”

Seven bid for Mactan-Cebu

Almaty master plan

The Philippine government is currently considering seven bids from groups interested in building Mactan-Cebu International Airport’s new terminal.

Bidders include a joint venture between GMR Infrastructure and Megawide Construction Corp and a consortium comprising Incheon International Airport and San Miguel Corp, which was recently named as the preferred bidder for the $377 million Manila Airport expressway.

Other consortiums to have made bids are AAA Airport Partners; Filinvest-CAI; MPIC-JGS Airport Holdings Inc; First Philippine Airports and the Premier Airport Group.

The Philippine government is keen to push through the deal for Mactan-Cebu’s new $240 million terminal project this year.

“Ensuring that the government receives the most advantageous deals with long-term stability is our priority,” the Department of Transportation and Communications (DOTC) said in a statement.

In addition to a new 3.5mppa capacity international terminal at Mactan-Cebu, the government wants the successful bidder to invest a further $185 million on expanding the domestic terminal to 41,000sqm.

Next on the agenda are PPP projects to expand Puerto Princesa ($110 million) and for the new airports in Bicol ($120 million), Laguindingan ($200 million) and Bohol ($175 million) on Panglao Island.

Kazakhstan’s Almaty International Airport has laid out its master plan to accommodate passenger growth for the next 20 years.

Lufthansa Consulting and the airport have finalised their comprehensive master plan development project, which “will put Kazakhstan’s largest international airport on the right track to face the future challenges in its market environment and meets international safety standards”.

In a statement, Lufthansa Consulting added: “Almaty International Airport will be able to accommodate future growth in terms of passengers, cargo and aircraft movements.”

The master plan project started in November 2011 and allocates space to the airport and airfield areas, such as the existing and new passenger terminal, cargo and maintenance facilities as well as the runway system.

Aibol Bekmukhambetov, president of Almaty International Airport, said: “Thanks to the fruitful collaboration with experts from Lufthansa Consulting, Almaty International Airport now has settled a road map for the development of both the airfield and terminal infrastructure, which will be consistently implemented. “Our airport will make every effort to meet the growing demands and needs of carriers and their passengers.”

Almaty International Airport currently services more than 50,000 flights annually, handles more than four million passengers every year, and AW cooperates with 40 airlines.

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WBP NEWS

The latest news from ACI’s World Business Partners Enhancing the Changi experience Changi Airport Group is to partner with SITA to introduce the latest passenger self-service technology.

The airport has equipped more than 450 check-in counters and 111 boarding gates with SITA’s common-use system, AirportConnect Open.

Under the new agreement, airlines across three terminals at Changi have migrated to this new platform, which supports both agent-assisted and self-service passenger processing.

Tan Lye Teck, executive vice president for airport management for CAG, said: “We are always on the lookout for new ways to enhance the airport experience, and we leverage technology very extensively throughout Changi Airport to facilitate processes and provide passengers with a seamless travelling experience.

“At the same time, the use of technology also allows us to work closely with our airline partners to achieve efficiency and productivity gains, resulting in a win-win situation for all stakeholders at the airport.”

Suite success for Ultra Electronics

Ultra Electronics Airport Systems has been awarded a contract to provide a comprehensive suite of Airport Operations and Information Systems for Panama’s Tocumen International Airport (TIA).

The project will complement expansion and modernisation work already underway at TIA that is designed to realise the gateway’s vision of becoming the region’s leading international airport.

Ultra and TIA will work together to deploy, integrate and commission a variety of systems including Flight Information Display and Resource Management Systems, Airport Operational Database and an Aeronautical Billing System.

“Our systems will help them realise their growth and expansion plans,” stated Jim Houghton, Ultra’s director of business development for the Americas.

Passenger traffic at Tocumen International Airport has nearly doubled over the past five years.

Boingo announces global Wi-Fi deal with AT&T

Boingo has announced a global Wi-Fi roaming agreement with AT&T meaning that travellers abroad can now gain access, via the AT&T Wi-Fi International App, to Boingo’s global network of Wi-Fi hotspots.

The app lets AT&T customers on applicable data global packages access up to 1GB of Wi-Fi each month at no additional charge.

The total Boingo managed and operated network reaches more than 1.5 billion people worldwide annually.

Additionally, as part of the agreement, Boingo customers travelling in the US will also be able to access AT&T’s network of Wi-Fi hotspots throughout the country, including airports, restaurants, sporting arenas and retail locations.

Howard Buzick, vice president of business development for Boingo Wireless, said: “With the explosion in both Wi-Fi enabled devices and customer data demand, Wi-Fi roaming continues to be a key facilitator for global data access.”

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New ‘virtual shopping wall’ at Frankfurt Heinemann Duty Free has unveiled a ‘QR code wall’ at Frankfurt Airport.

The billboard allows people to scan pictures of duty free items and have them delivered to an airport collection point or straight to their home.

The shopping trend is a big hit in Asia and will soon be a common sight at Frankfurt Airport.

Located right next to the gates, the giant virtual shopping billboard displays 60 different perfumes, cosmetic items, spirits and confectionery products. Shoppers make their choices from three categories: Bestsellers, New and Special Offers.

Alongside each product is a QR code which travellers can scan using the Heinemann Express Shopping app or a standard QR code reader.

By scanning the codes, shoppers get more information about the goods on offer, place selected items into a virtual shopping basket and place orders for those goods. All it takes is a few clicks – and the products ordered are conveniently delivered to a pick-up point right next to the QR code wall in less than 15 minutes.

Markus Ettlin, head of central marketing at Gebr Heinemann, said: “The trial is not all about sales. We are more interested in finding out how the new virtual shop is used and which nationalities it appeals to most.

“At the same time, of course, we want to make shopping even easier and more relaxing for our customers.”

Ute Pohl, head of retail at Fraport, said: “We are excited to see how passengers will respond to the new virtual shopping range. And we’re proud to be the first German airport to offer travellers this totally new shopping experience.”

Kuching opens new pay-in lounge

Plaza Premium Lounge has opened Kuching International Airport’s first pay-in lounge. The lounge will give all travellers an opportunity to enjoy premium lounge facilities without having to fly business or first class.

These include the use of comfortable seating, complimentary Wi-Fi, a range of beverages and hot food, television, newspapers and magazines and computer stations.

In Malaysia, Plaza already has airport lounges in Kuala Lumpur, Kota Kinabalu, Penang, Langkawi and Senai.

WBP NEWS

Security upgrade at Reno-Taho

Reno-Tahoe International Airport has officially opened a new consolidated security checkpoint.

Designed by Gresham, Smith and Partners as part of the airport’s ‘Gateway Project’, the 18,000 square-foot checkpoint has allowed Reno-Tahoe to add extra security lanes and new state-of-the-art millimetre wave passenger screening technology.

It effectively brings all passenger screening to a centralised location on the first floor.

The two-storey building extension has also allowed for the opening of more than 10,000 square-feet of retail and restaurant concession space designed on the second floor.

“We continue to make improvements at RNO to improve the passenger experience,” comments Krys Bart, president and CEO, Reno-Tahoe Airport Authority.

“Once through security, passengers will be able to flow from one concourse to another. The incorporation of the Lake Tahoe theme in the materials selection and design details helps to enhance the sense of place that passengers experience when traveling through our airport.”

The Gateway Project incorporated many of the different eras of the terminal facility’s history since its original construction for the 1960 Squaw Valley Olympics.

New iPad restaurant at MSP

OTG Management has opened its second ICRAVE designed MinniBar at Minneapolis-St Paul International Airport.

Chef Andrew Zimmern, a Minneapolis local, and James Beard, award-winning celebrity chef, created the concept for MinniBar, offering globally inspired sandwiches and custom cocktails, all of which can be ordered via OTG’s signature iPads.

ICRAVE’s design was inspired by Minnesota as the land of 10,000 lakes. Fiberglass panels flow upwards, forming a canopy that becomes a central focal point of the bar.

Grounded by green, yellow and white custom mosaic glass tiles that wrap the base, this free-standing café will be a hub for travellers at the heart of the gate hold area.

The space is complete with 46 iPads for ordering food and browsing the web, and charging stations at every seat.

Rick Blatstein, CEO of OTG, said: “This addition brings us to a total of 14 new locations and nearly 1,000 iPads at MSP in under a year’s time. The pace of execution and the customer feedback is remarkable. We are thrilled with the results to date.”

In 2012, OTG unveiled a new F&B programme for Delta’s Concourse G at Minneapolis-St Paul. To date, it incorporates more than 1,000 Apple iPads in a variety of dining and gate seating areas.

APN Outdoor Contact: Janine Wood, general manager, marketing Address: Level 4, 33 Saunders Street, Pyrmont NSW 2009, Australia Tel: +612 8569 3000 Email: janine.wood@apnoutdoor.com.au Website: www.apnoutdoor.com.au APN Outdoor leads the way in the areas of connecting airport audiences with advertisers.

APN Outdoor creates assets within the airport environment to demand the attention of the airport audience as they move in and around the terminal.

Billboards that enhance the environment and the customer experience, digital boards which grab attention and aid point of sale messaging or communicate a consumer message to this highly valuable customer group are just a few examples of what they do.

Innovation, audience research and expert product knowledge are the hallmarks of APN Outdoors sales and marketing approach.

APN Outdoor airport partners include Christchurch, Canberra, Perth, Sydney, and they now have a strong hold in Brisbane with this recent success.

Atlantic Aviation FBO, Inc. Contact: Clive Lowe, senior vice president Address: 6652 Pine Crest Drive, Suite 300, Plano, TX 75024 Tel: +1 972 905-2500 Email: clive.lowe@atlanticaviation.com Website: www.atlanticaviation.com Atlantic provides a wide range of aviation services and is also USA’s largest and premier network of fixed base operations.

Its dynamic growth and outstanding customer service continue to set us apart in the aviation industry.

Atlantic aims to be the finest chain of FBOs in the industry and is dedicated to delivering the highest quality of service in a warm, friendly and professional manner.

Eid Passport Contact: Abrar Ahmed, group president Address: 5800 NW Pinefarm Place, Hillsboro, OR 97124 Tel: +1 503 924-5367 Email: aahmed@eidpassport.com Website: www.eidpassport.com Eid Passport integrates leading edge products and services into solutions that combine identity authentication, background screening, and access management to make facilities, assets, and people safer and more secure.

Its patented programmes enable highly secure facilities — such as military installations, government buildings, manufacturing and distribution sites, ports, and commercial buildings — to increase security and streamline access for authorized personnel.

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Going green

ENVIRONMENT NEWS

Steven Thompson takes a closer look at some of the latest environmental stories from across the globe.

Paris-Orly to create €4 million man-made marsh

Paris-Orly Airport is creating a €4 million man-made marsh to filter “contaminated storm water”.

Operator, Aéroports de Paris (ADP), is investing in the innovative filtration system to treat water contaminated with de-icer.

The environmentally friendly system will involve the creation of a 10,300 cubic metre tank and a marsh, planted with reeds. It means that winter products such as de-icer, contained in airport storm-water, can be treated and then released into a 6,500sqm filter marsh where purification will be performed by a combination of sand and oxygenating plants.

ADP claims that the flexibility and energy-efficiency of the system more than justifies its cost – it is investing €4 million, assisted by a 20% subsidy from the Water Agency.

Franck Mereyde, managing director of Paris-Orly said: “We are committed to improving the management of our environmental impact.”

The marsh is scheduled to begin operating in winter 2013 for an adjustment period of one year.

Sea-Tac on track with recycling efforts

Seattle-Tacoma International Airport (Sea-Tac) has been hailed in the State Recycler of the Year awards.

The Washington State Recycling Association hailed the airport after it achieved a record recycling rate of more than 30%, savings more than $300,000.

Through an innovative programme with tenants, Sea-Tac increased its recycling rate from 24% to 30.5% in 2012. In addition, donations to a local food bank increased by more than 200% to provide enough food for over 385 meals per week.

Stacy Fox, Sea-Tac’s environmental programme manager, said: “This award is a testament to the efforts of all Sea-Tac’s tenants and employees.”

BWI opens clean energy fuelling station

Clean Energy Fuels Corp has opened a new public access compressed natural gas (CNG) fuelling station at Baltimore/Washington International (BWI) Thurgood Marshall Airport.

The facility provides CNG fuel for public and private vehicles and fleets, including airport shuttle buses, shared-ride vans, taxis, trucks and personal-use CNG vehicles.

Among key Clean Energy station users will be a new fleet of CNG airport parking shuttles operated by IMPARK. Wayne Pennell, COO for BWI Marshall Airport, said: “This CNG station provides important fuel options for BWI Marshall Airport, our partners, and our neighbouring communities.”

Edinburgh generates electricity and money from food waste

Edinburgh Airport has been handed a grant of more than €50,000 because of its recycling efforts.

The Scottish gateway recycled 82% of its waste and 12.3 tonnes of food a month last year. The food was sent to a recycling plant which uses the waste to generate electricity.

The airport received a grant from Zero Waste Scotland – a body which aims to encourage recycling in Scotland.

Edinburgh used the money to help towards the installation of 75 new recycling bins throughout the terminal. The gateway has also received gold status in the National Recycling Stars Awards.

Solar panels and wind turbines power new car rental facility

Chicago Midway International Airport has opened its new “green” $55 million consolidated rental car facility.

The development replaces the rental car customer service centres, facilities and parking lots that were previously located in and around Midway and puts them together in one location.

The facility contains several environmentally-friendly features such as solar panels and wind turbines to generate clean power, a detention basin to manage storm water and elements to collect rainwater for irrigation.

More than 17,000-square-feet of vegetated green roof space has been incorporated into the building and water used to wash the rental cars will be recycled.

Chicago Department of Aviation commissioner, Rosemarie Andolino, said: “This project is a major enhancement that provides benefits for travellers, the airport, rental car companies and, the Midway community.

“By relocating rental companies to this new facility, we have freed up valuable space in Midway’s main parking garage and terminal, while increasing capacity for rental cars by more than 500%. As with all projects at Chicago’s airports, sustainability is fully incorporated into the facility’s design and construction.”

The Midway consolidated rental car facility includes a customer service centre, a five level garage that can accommodate 1,870 vehicles, and a quick turn-around (QTA) facility where the vehicles are fuelled, washed and prepared for rental.

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The last word Airport World talks to Dag Inge Rasmussen, chairman and CEO of Lagardère Services.

How important is an airport’s retail/F&B offering to customer service/passenger satisfaction levels?

Passenger surveys have shown repeatedly that retail and F&B are among the most important influencers on an airport’s customer satisfaction level. Many travellers see terminal dwell time as ‘dead time’ or as an interruption of their journey; we turn that perception on its head by making the retail and F&B experiences strong enough for the traveller to truly enjoy their time in the terminal. The right retail and F&B experiences – integrated within a fantastic 'whole airport' experience – shift the traveller’s mindset to view that dwell time in a whole new way. To achieve that, every element of the airport experience (from security procedures and washrooms to retail and F&B) needs to be world-class and their impact on the travellers’ behaviour and satisfaction level is extraordinary.

What do passengers want when it comes to an airport’s retail/duty free offering?

Choice, quality and value are often cited as the traveller’s fundamental needs, but actually a good supermarket can provide them. Travel retail needs to go much further. What travellers really want is an experience that engages and excites them, backed by outstanding personal service, and a feeling that the whole personalised experience not only went way beyond their expectations but also gave them great memories to take away from that airport.

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At many airports, a generic retail experience simply kills the travellers’ interest in shopping It’s vitally important that every aspect of the experience should be perfected, including exciting activations and promotions in the stores and a range of exclusive items that they can’t find anywhere else.

How important are brands?

Brand power is a vital element in appealing to the passenger, but the brand name is not the only element; there are many ingredients that we combine to create a great brand experience in the stores. The imperative is having the right brand in the right place and utilising that brand power as part of a high quality experience that truly resonates with the traveller. Brand power is a powerful magnet to attract the curious shopper and we work very closely with many leading brands to ensure we create a unique offer at each airport that engages and excites.

What is your take on ‘sense of place’ in the retail environment?

At LS travel retail we operate at over 130 airports worldwide and we see ‘sense of place’ as a huge element in the airport experience and retail can be one of the most powerful influences in making that happen. We tailor the retail experience to the location and the passenger profile to drive a

AIRPORT WORLD/JUNE-JULY 2013

strong commercial performance, but we ensure that it also reflects the location, such as through cultural themes within the store design and local/regional preferences in brands in the retail offer.

We also develop our own specialist brands to support this sense of place, such as through our Discover stores (showcasing local/ national flavours, culture, souvenirs etc) and our own F&B concepts.

At many airports, a generic retail experience simply kills the travellers’ interest in shopping and also reflects badly in their assessment of the whole airport experience. The service aspect is an especially important influence on a sense of place at airports and is an issue that we focus on very strongly.

At the Trinity Forum you called for the introduction of a new training/education platform based on fostering greater co-operation between airports, retailers and suppliers. Why? I made that call because I share the frustration of many in the travel retail industry – retailers, suppliers and airports alike – at the slow pace of evolution of our operating model. Time and again, we hear at industry events how everyone appears to agree on the principles

of new ways of working together, especially in adopting shared approaches, but we now need to see these strategies put into practice. In particular, I think the inflexibility of the Minimum Annual Guarantee model is stifling the true potential for the airport, retailer and supplier to deliver the best possible passenger experience and simultaneously optimise commercial returns. A better experience really does encourage more people to use a particular airport and it’s only by sharing the strategy that we can create the optimal experience for the traveller.

What is your expansion policy, and can we expect more acquisitions this year?

We are already in the top three operators in travel retail (2012 total sales €2.5 billion, +12% year-on-year) and we are fully committed to establishing top-five positions in every category, including F&B, so we’re very committed to continued growth. Acquisition is one of the tools we use for growth, and we are always working on possibilities as you can never know when the right opportunity will be there.

Our priority is to grow by consistently delivering the right quality of performance both for our airport partners and for our own operations and we do that through retail strategies delivering higher sales and a stronger experience for the customer. We truly believe that the smartest route to our own success as a company is by first delivering success for our airport partners and we certainly have the expertise and experience to

Factfile

THE LAST WORD

Name: Dag Inge Rasmussen Age: 52 Job title: Chairman and CEO of Lagardère Services Nationality: Norwegian Time in aviation industry: In travel retail for 25 years Best known for: Probably for my enthusiasm and positive approach Little known fact: I’m Norwegian, but was actually born in Sweden and educated in France. achieve that aim across all aspects of travel retail. We have consistently delivered our performance promises to our airport partners and, with our growth strategy well established, we look forward to sharing further success with them in the future.

In general, do airports do retail well?

I’d give a qualified ‘yes’ to that!

Most airport managers are fully aware of the importance of retail, both as part of the traveller’s experience and as a vital and powerful non-aeronautical revenue source, so the retail experience is certainly improving at most airports. However, it does very much depend on the quality of the appointed retailer and also the degree of co-operation, trust and shared commitment between the airport, the retailer and the brands.

We’ve found that wherever we have taken up new contracts and have shared that type of positive relationship with the airport, we have been able to drive significantly higher levels of spending (up to 50% higher in some cases) and have also raised

customer satisfaction levels significantly. We must never forget that the passenger doesn’t perceive the retail experience and the airport experience as separate issues – to them, it’s all part of the same and (for better or worse) a single aspect can dictate their perception of the whole airport experience. That’s why great retail really is the most effective way to boost the traveller’s perception of an airport.

How is your customer service philosophy reflected in terms of staff training, management leadership and in the retail experience?

I’m glad you asked this question because I love to talk about customer service! It is actually one of our proudest achievements at LS travel retail, so much so, that we believe that we make more commitment to service quality than any other retailer. We never forget the old saying – ‘people buy from people’ – and we have found that the sustained commitment and investment we make in training our people drives much stronger performance. For example, we

recently took up a new contract at Rome’s airports and devoted 3,000 hours to training in the first month alone; this has already delivered major increases in spend per passenger, well above even our ambitious expectations.

Our in-store teams provide a range of services to the traveller and we have developed specialist training for them in addressing the needs of high-spending passenger profiles. The focus is all about delivering great service as part of a more personalised experience, and this certainly surprises and delights the customer with a quality of experience they simply don’t expect at an airport. Their assessment reflects on the whole airport experience too; satisfied shoppers take away a highly positive image of the airport. For example, at Warsaw Chopin we have developed an in-store service programme called ‘The Club’, whereby our staff in the Liquor department give specialist support to shoppers, such as when selecting a whisky for example. The staff can answer questions and guide the shopper through a tasting session and this expertise almost always persuades the shopper to trade up to a higher premium product.

How successful are arrivals duty free shops?

Within the EU there is, unfortunately, no tax advantage for Arrivals duty free so its commercial potential has not been developed to the depth achieved in other regions, such as Asia. For many airports, Arrivals shopping is a very useful service for the passenger and a valuable additional revenue driver for the airport and retailer. As such, Arrivals shopping is a welcome additional service for many airports but the important issue is to ensure that the facility is actually the most effective use of both space and resources and that it truly addresses the needs of the passenger profile. Of course, even when those two criteria are met, it is the skill of the retailer and the quality of the retail experience that will determine if the commercial return is truly optimised. We operate a number of Arrivals locations and these are usually much smaller than the main stores but they enable the airport to drive revenue through a very effective use of limited space.

AIRPORT WORLD/JUNE-JULY 2013

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89

TRAFFIC DATA

ACI traffic trends The latest ACI traffic figures show that global passenger traffic increased by a healthy 4.6% in March, with the Middle East (+15.4%), Africa (9.4%) and Asia-Pacific (9.3%) leading the way.

The market for international travel remains buoyant for the month of March. The Middle East, Africa and Asia-Pacific all posted double digit gains in international passenger traffic of +16.4%, +14.1% and +10.9% respectively. On an aggregate basis, domestic traffic increased by +2.6%. With the ongoing economic slowdown across Europe, domestic passenger traffic saw a decline of -5.9%.

ACI World’s economics director, Rafael Echevarne, notes: “International passenger traffic continues to show resilience month after month. In essence, it is the international travel markets, especially in Asia-Pacific and the Middle East, that are keeping the aviation sector afloat during these uncertain times.”

Freight traffic, however, continues to exhibit signs of weakness with an overall year over year decline of 1%.

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90

AIRPORT WORLD/JUNE-JULY 2013

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