Talent to Make Airports Soar Innovative Chief Commercial Officers Can Help Boost Non-Aviation Revenue Skyward for Financially Pressed Airports Around the Globe
Total Page:16
File Type:pdf, Size:1020Kb
Talent to make airports soar Innovative Chief Commercial Officers can help boost non-aviation revenue skyward for financially pressed airports around the globe. 1 Airports: big turns for a big business. Airports are a big business, generating $142.5 billion in revenues annually (ACI-NA 2014). But they are also in the midst of a long-term shift in their fundamental financial model. Today, only 55% of their total revenue comes from aeronautical sources, such as airline terminal rental fees, landing fees, and associated charges paid by airlines. And the percentage of non-aviation revenue is expected to increase in coming years as airports aggressively pursue alternate sources, including restaurants, entertainment, retail kiosks, and, in some cases, spas, hotels, and museums. This shift will dramatically alter the business—and the talent required—in significant ways. The pursuit of revenue innovations will require airports to recruit, retain, and develop executives who can apply their experience from customer-centric industries outside aviation. Korn Ferry Hay Group interviewed dozens of executives around the world to find out how airports are responding to their long-term challenges. The firm also drew on the Korn Ferry Four Dimensions of Leadership, a research-validated assessment tool, to paint a picture of the kinds of leaders that airports will need if they are to thrive in the days ahead. The insights offered by this research: n Chief commercial officers are instrumental in the transformation of airport revenues. n To achieve the major transformation to a more customer-centric model, airport leaders will need to invest in technologies to help them understand their customers and develop a 360° view of them. n Existing partner industries, such as hospitality and the airlines themselves, can provide a model for big changes. Airlines, in particular, will play a key role as airports expand their customer focus. n The revenue shift will demand changes in airports’ cultures as well as in their business practices, and managing this will require a commitment from top leaders. TALENT TO MAKE AIRPORTS SOAR 2 Challenges and responses Today’s airports confront financial challenges on two fronts: n The agencies that own and run them—which, especially in the United States, often are taxpayer-supported government bodies—are less than eager to fund large construction projects, diminishing a key source of capital for investment in growth. n The airline business is increasingly subject to cyclical ups and downs that can adversely affect aeronautical revenues. Airports, in response, have become more self-reliant businesses. With many airports privately held—or held by a hybrid of public-private partnerships and not just fully public entities—many also have faced increasing pressure to deliver returns for investors (Bloom, Collins, and Deming 2014). These challenges have prodded airports to create and generate new revenue sources. Denver International Airport, for example, has entered into an agreement with local communities to develop 1,500 of its acres for retail use, office parks, warehouses, and manufacturing (DIA 2015). More fundamentally, airports are looking to the passengers as a source of revenue. To do that, they must create a user or customer experience that is as enjoyable, relaxing, and entertaining as possible. “In 2015 our commercial income outstripped aeronautical charges on our P&L,” said Paul Griffiths, CEO of Dubai Airports, which operates and develops Dubai International Airport and Dubai World Central in the United Arab Emirates. His statement to Korn Ferry echoed a theme brought up by many other executives. To accommodate a new financial model, airports need to recruit, retain, and develop appropriate leadership talent. In most cases, that means hiring a chief commercial officer (CCO). As in many industries, this is an emerging role, perhaps held at one time by a vice president of sales, and it reflects the importance of growing the business through new markets and new partnerships (Korn Ferry 2015). The firm, in its work with airports, has found that the vast majority of them have CCOs aboard or are looking to fill that position in the near future. Declan Collier, CEO at London City Airport, calls the role the “revenue engine” of the airport, adding that technology will play a big part in making offerings available beyond airport borders, through “click and collect services,” for example. So far, the CCO’s job has been to maintain the strategy for an airport’s marketing plan, but leaders in the job are gaining a much bigger role in creating and growing new revenue streams. Andew Liau, managing director at the equity investment company Ardian, says the role of a CCO is to help the airport adapt to the changing customer and optimize relationships between airlines and retailers. He says that digital innovation means the first contact for travelers often occurs before they arrive at the airport, and CCOs must adapt the revenue model to account for that. 3 New destinations for dining, entertainment, and work. As demands for increased security rise globally, passengers are arriving at airports earlier than in years past. They are bringing their mobile computing devices, and they increasingly want work and entertainment options while they wait. This already has led airports to set up more space for retailers, restaurants, and entertainment. They’re exploring new types of services, including office space and other work areas. And through strategic use of branding, airports are seeking to enhance the user experience. Kuala Lumpur International Airport, for example, offers travelers the experience of relaxing in a rain forest-like setting. Singapore’s Changi Airport includes butterfly and sunflower gardens, movie theaters, and an area where children can paint. And Incheon International Airport in Seoul has a 330-yard golf driving range. Other airports are including hospitality options in expansion plans. “Without a Officials at New York’s LaGuardia Airport envision adding retail space and perhaps a hotel as part of a revamp that may cost as much as $4 growing route billion and will include reconstructing the Central Terminal Building. network, you’re a The $32-billion retrofit at Al Maktoum International Airport in Dubai is to include retail space, five-star hotels, and landscaping along with shopping center, facilities for customs and security. Meantime, Abu Dhabi International not an airport!” Airport in the United Arab Emirates soon will house a museum. — Ken O’Toole CEO, Manchester Airport Even as airport leaders, especially CCOs, look to a future with different facilities, they’re also focusing on fundamentals like route management and airline relationships. As Ken O’Toole, CEO of Manchester Airport, the UK’s third-largest airport, observed: “Without a growing route network, you’re a shopping center, not an airport!” Fine-tuning the right responses to the many challenges airports confront can be taxing, says Robert Sinclair, CEO of UK’s Bristol Airport, who noted, “The role of an airport CEO is changing from simply managing infrastructure to managing highly commercial and competitive businesses, with increasingly demanding stakeholders.” The key for today’s airport executives is to balance growth in airline routes with expansion in infrastructure and amenities. To do that, airport leadership needs to start with customers: the thousands or millions of people walking through their facilities every day. TALENT TO MAKE AIRPORTS SOAR 4 Customer focused, savvy. As airports evolve into complex, customer-focused businesses, new challenges will arise that may be unfamiliar to their leaders. In many cases, airports are competing with one another for passenger traffic, which is expected to increase to 3.6 billion passengers in 2016. That’s about 800 million more than the number carried by airlines in 2011 (IATA 2012). To become more competitive, airports face three challenges: First, airports must focus more on the full customer experience, a journey that begins before customers even arrive at the airport. This includes how they are greeted at the curb, at retail kiosks, at bag checks, and as they traverse security. “We tirelessly work on the customer experience,” says Amanda McMillan, CEO of AGS Airports and managing director at Glasgow Airport. “People want to have an experience at the airport.” Second, airports lack detailed customer data. Unlike airlines, airports often don’t even know their customers’ names, so they are looking for “The closer ways to collect data. Partnering with the airlines and retailers may allow airports and them to collect such data. They also may need to create compelling airlines work smartphone apps to tap a new pipeline of customer data. together, the Third, airport leaders traditionally have come from the air travel or better it is for aeronautics industries. In the past, the main responsibility of airport executives was to ensure the safe and efficient operation of aviation the passenger.” facilities. Today they may need to deal with a range of issues, including — Stewart Wingate flight delays and what sorts of retail and dining experiences they can CEO, Gatwick Airport bring to airports. Stewart Wingate, the CEO at London’s Gatwick Airport, emphasized to Korn Ferry the importance of a strong airline-airport partnership. “The focus [of the airport] is with airlines all day long. Investing time with them is crucial,” Wingate said. “Collaboration is key across the value chain, from understanding what planes they are ordering to what routes they are considering. The closer airports and airlines work together, the better it is for the passenger.” As airport leaders transform their strategies and their execution of them, the comprehensive customer experience will increase in significance. Fortunately, technology can make a big difference. 5 “By tapping smart phone technology, passengers soon may be able to make choices about items like duty-free goods before arriving at an airport, potentially purchasing them in advance and collecting them at the airport on their way to their destinations,” said Andrew Jurenko, senior advisor at Global Infrasttructure Partners.