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Rise to the Challenge

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Rise to the Challenge THINK ACT BEYOND MAINSTREAM March 2017 MasteringRise to the thechallenge TheTransformation risks and opportunities of digitization Journey for airports A comprehensive guide to reinventing companies 2 THINK ACT Digital airports FOLLOW THE LINE: THE PASSENGER THE BIG AND OPERATIONS JOURNEY 3 P. 5 USD 2.5 to 5 billion in revenues could be lost by airports over the next five years unless action is taken. Page 8 3 to 6% is the associated share of operating margins at risk. Page 8 60% of European airports have a Chief Digital Officer driving digital innovation. Page 7 THINK ACT 3 Digital airports Industry pundits are hailing digitization as the golden ticket to generating new opportunities at airports. We sound a note of caution. Today's airport industry is awash with buzzwords. ly on some of the exciting opportunities for airports Mobile check-in apps, self-service bag drop, indoor below. geo-location, electronic bag tags, interactive digital Alongside the undeniable opportunities for airport displays – everything boils down to one thing: The operators, a whole swathe of new challenges and digital revolution is here and it's transforming the air- threats have emerged, from mastering the technical, port industry. cultural and legal challenges of digitization to the risk In the airport business, digitization is considered of losing passengers to alternative flight experiences, synonymous with opportunity. Industry pundits are hemorrhaging duty-free sales and a decline in the use hailing the changes associated with digitization as the of airport parking services. Airport operators need to golden ticket to generating new revenue-earning possi- find a way to deal with these threats now if they are to bilities at airports. Those changes, the pundits imply, avoid a sizeable dent in their operating margins. The are almost exclusively positive. time has come to rise to the challenge. We sound a cautionary note. It's not that we don't believe that digitization will revolutionize many as- pects of airports or that this could have a positive Cover photo: polygraphus / iStockphoto polygraphus photo: Cover effect on the airport industry. Indeed, we touch brief- 4 THINK ACT Digital airports Understanding the passenger and opera- tions journey is key to grasping the potential of digital change. To understand the full potential of digital and to pre- Car-sharing, again supported by digital technology, is pare for the risks it involves, we need to look at the another option for the journey to the airport. A airport process from two perspectives: the passenger We divide the operations journey into five stages, journey and the operations journey. from arrival, check-in and baggage to ground and The passenger journey essentially represents the apron. Again, digital opportunities arise at all stages of customer perspective. Improving the customer's jour- the journey. For example, in stage 2 – terminal opera- ney and experience is of strategic importance for air- tions – digital initiatives include lighting and heating ports as it will enable them to attract airlines to the optimization using real-time sofware connected to the terminal, enhance customer loyalty and develop ancil- Internet of Things (IoT), instant feedback from bath- lary revenues from areas such as shopping, food, lei- rooms allowing for an immediate response by mainte- sure, and parking. The limited potential for increasing nance or cleaning teams, passenger flow monitoring aeronautical revenues makes these activities even based on connection to the airport's wireless Internet more important than in the past, and airports need to network, and location-based task allocation to gate make them a matter of priority. agents from the control desk via smart watches. B We divide the passenger journey into nine separate So far we have only looked at the upside – the myr- stages, from arriving at the airport to boarding the air- iad possibilities for innovative applications generated craf. Opportunities for generating revenue through by the ongoing digital revolution. But we should re- digital initiatives arise at all stages. For example, in member that one man's gain is another man's loss: stages 1 and 2 airports earn significant revenue from There is no guarantee that the airport operators will be parking and vehicle-related services. Current digital the ones to benefit from this shifing landscape rather initiatives involve pre-booked parking offers and smart than existing competitors or new entrants. Add to that parking systems that can manage capacity in real time. the multiple challenges for airport operators in getting Offsite parking can be offered, combined with trans- to grips with digital and it soon becomes clear that it portation direct to the terminal, managed online. won't all be wine and roses on the journey ahead. THINK ACT 5 Digital airports A FOLLOW THE DOTTED LINE: THE PASSENGER JOURNEY IN 9 STAGES Airports can apply diferent levers for creating value at various points along the line. LANDSIDE AIRSIDE Way to security/ border control 4 9 5 6 Security/ Gate & border control boarding 7 8 3 1 Check-in Way to the gate Access and 2 way to check-in B FROM ARRIVAL TO APRON: THE OPERATIONS JOURNEY IN 5 STAGES Again, as in the passenger journey, digital opportunities arise at every step of the way. 3 4 Security, Passenger 2 passport service Terminal ops 1 Ground 5 and apron 1 Arrival, CKI and baggage Source: Roland Berger 6 THINK ACT Digital airports Amid all the hype about digital, airport operators need to keep their feet firmly on the ground. Digitization means challenges as well as opportunities. Look around today's airports and it would appear that these hurdles is to slow down the overall pace of digital airport operators are constantly launching new digital innovation. A key technical challenge is the lack of stan- initiatives. Dig a little deeper, however, and it turns out dardized architecture and technology. Airport operators that things are not moving as fast as one might expect. currently use various technologies, such as Wi-Fi, Blue- Operators remain attached to their traditional busi- tooth, NFC, or iBeacon. No standard exists as yet. ness model, based on a combination of aeronautical They also face the challenge of multiple data sourc- revenues and non-aeronautical revenues – the latter es, including the airport itself, airlines and numerous from areas such as retail, parking, real estate, and ad- service providers. Stakeholders need to be prepared to vertising. All operators are trying to increase their share this data and airport operators need to know non-aeronautical revenues, using digital levers wherev- how to use it. This is particularly difficult due to the er possible. But digital has yet to become a truly disrup- vast amount of data that needs to be analyzed, ofen in tive lever in the industry. real time. And the scale of this data is set to increase Airport operators face a multitude of challenges dramatically in the future with the IoT and smart ma- when it comes to mastering digitization. This includes chines. Players will need appropriate IT infrastructure technical challenges, cultural challenges, legal challeng- and computing power, which may require significant es, and financial challenges. The combined effect of capital investment on their part. THINK ACT 7 Digital airports Cultural and organizational challenges represent an- Many digital initiatives are, by their very nature, other hurdle. Airports have captive customers and of- spread between different stakeholders – the airport, ten enjoy a monopoly in their particular geographical the airlines, duty-free shops, service providers, and so area. As a result, they have not traditionally developed on. They also cross different devices and channels, customized services for passengers. This situation is such as websites, smartphones and digital screens. now changing, especially for large international hubs, Airports cannot go it alone on such innovations. They where attracting passengers and airlines to the termi- need to form partnerships with other players. nal is key. Sydney Airport shows one way of going about this. The airport has established a unified approach by cre- ating a single platform for all stakeholders. This strat- egy has made a significant contribution to the air- The International Air port's bottom line. The airport can now leverage its unified platform to develop additional services, such Transport Association (IATA), as pre-booked parking deals, online travel guides to Australia in collaboration with commercial partners, the trade association for the and in-app duty-free shopping with delivery upon ar- rival at the airport. world’s airlines, launched a As well as the technical, cultural, and organiza- tional hurdles mentioned above, airports also face Fast Travel Program aiming legal challenges. For example, in the area of data se- curity: To support the development of digital initia- to ofer 80% of global tives, airports must guarantee data security and priva- cy – not just to meet the legal regulations but to keep passengers in 2020 a their customers happy too. Cyber security is also key in the area of operations. complete range of relevant Finally, airports face various financial challenges. Investment by airports to date has been limited com- self-service options pared to the airlines, to say nothing of the major play- ers in the digital world – Google, Amazon, Facebook, throughout their journey to and the like. Few airports except for the major hubs can rely on economies of scale. Ofen, they operate in provide better convenience local areas with only their own budget to rely on. This contrasts with the major airlines, which are frequent- and reduce queues. ly several times larger than the airports in terms of their revenue and footprint. Moreover, as with all leg- IATA acy players considering digital initiatives, quantifying the impact of digital initiatives, such as return on in- vestment, is notoriously difficult.
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