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. “Facilitating, developing and enhancing the retailing experience in this way will help to improve [airports’] commercial performance. When data are shared, airport retailers also can know when flights will land and how many passengers from specific locations are on them. They then can offer a more personalized (and effective) shopping experience. World Duty Free Group, Heathrow Airport’s flagship retailer, plugs flight arrival and destination data into its store software so that associates who speak the appropriate languages and possess needed cultural sensitivities will be on hand to welcome shoppers when they enter airport stores.

Airports also can create apps for their passengers, offering additional “Airports information and services, and gaining a chance to collect more customer data. By combining such data with flight information, airport staff can need to be know in advance about issues like travel delays so they can deliver as customer- targeted messages and promotions directly to passengers. Airports, of course, will need executives with significant experience in understanding centric as and analyzing big data. Although the amount of personal customer data airlines are.” available to airports is small now, tech-focused strategies will deepen — Paul Griffiths the data pool, opening new opportunities to airports that can take CEO, Dubai Airports advantage of it.

Airports face stiff competition. In the UK, for example, leaders at each airport are striving to entice repeat customers. This requires an intense focus on the customer. “Airports aren’t just an infrastructure business,” Dubai Airports’ Griffiths said. “The public sector mentality of just ‘running buildings’ isn’t appropriate. Airports need to be as customer-centric as airlines are.”

As a result, airport leaders today confront challenges akin to those faced by executives in other customer-centric businesses like malls, holiday resorts, and the hospitality industry. To focus on meaningful customer relations, leaders in the airport sector may need to bring aboard executives with backgrounds in those sectors.

Switching to a customer focus is entirely doable. Several other industries—and companies— already have transformed. Airlines have undergone a significant shift in the last 20 years. Higher operating costs and competitive pressure have forced them to differentiate themselves. Some have gone to cost-cutting, fee-based models for seemingly every service. But many seek to offer a smooth, easy travel experience that makes customers feel valued. Many airlines view themselves as hospitality companies, with a focus on welcoming, entertaining, and supporting passengers, whom some airlines call “guests.” To achieve that, many are investing in mobile app technologies and aiming at building a 360-degree view of their customers (Accenture 2016). Airports can take a similar approach. “We need to treat passengers as guests,” Deborah Ale Flint, the CEO of Los Angeles World Airports, which owns and operates Los Angeles International and other airports, told Korn Ferry. “What can we learn from the hospitality industry and how they use metrics to inform their decisions?” TALENT TO MAKE AIRPORTS SOAR 6

Airports also may look to the online retailing titan Amazon for lessons on customer service. The e-commerce pioneer seeks to understand the customer experience at a granular level. As part of yearly training, Amazon CEO Jeff Bezos asks his enterprise’s managers to attend two days of call- center training, so they can interact with customers directly. One of Amazon’s greatest innovations is the personalized recommendation system, built on big data it gathers from its millions of transactions. Banks also are trying to reshape themselves around the customer. Clients rarely walk into branches to do their banking, which mostly occurs now over the Internet. That has caused banks to beef up their hiring of UX designers, customer experience professionals, retailers and innovators, seeking experts who understand customers’ needs and expectations from non-banking sectors. Cruise lines also may offer models for airports. Cruise ships take great care to offer fun, all-encompassing experiences for their passengers. But even here, segmenting customers can improve revenue. On longer cruises with wealthier passengers, many cruise ships adjust the mix of products in their on-board retail shops, featuring more high-end jewelry and other luxury items. Ultimately, Dubai’s Griffiths said, it’s all about perception. “The airport experience on the ground needs to be as good as the airplane experience is in the air,” Griffiths said. That requires an intense focus on customer service.

The critical role of talent.

As airports shed their image as being only transportation hubs, their executives hope they are seen as environments where travelers increasingly are willing to spend on entertainment, shopping, food, and business services. But to increase revenue in this new business model, airport leaders must give up a perspective focused on pure logistics and start thinking more like executives of brands. And that is where the CCO comes into play. The ideal CCO has experience in the travel, hospitality, or retail industry and is prepared to apply lessons from those worlds to the increasingly commercial environment of an airport.

Further, Korn Ferry has found that specific traits, characteristics, and experiences of CCOs may be highly predictive of favorable outcomes. The firm has found that four dimensions govern human performance in the workplace: competencies, traits, drivers, and experiences. Korn Ferry research shows these four areas to be highly predictive of performance differences and correlated with all key talent variables, including engagement, retention, productivity, leadership effectiveness, and leadership potential. The first three of these are measurable via the firm’s KF4D quantitative assessment tool. 7

To understand what competencies, traits, and drivers make for success in commercial executives, the firm analyzed data on 78 executives whose titles included “commercial” or “sales” at companies on Forbes’s “Most Innovative Companies” (MIC) list (Forbes 2016) and compared them with a comparable set of 1,034 executives at companies not on the list. Firm research found that executives at companies on the Forbes list stand out in a number of dimensions.

Competencies: Forbes MIC executives are much more likely to score high on global perspective, ensuring accountability, developing talent, managing ambiguity, and having a strategic vision. TALENT TO MAKE AIRPORTS SOAR 8

Traits: Forbes MIC executives are much more likely to score high on adaptability, tolerance of ambiguity, and situational self-awareness. 9

Drivers: Forbes MIC executives tend to score higher on collaboration, but much lower on the need for structure.

In short, successful commercial and sales executives at innovative companies have a global perspective, strategic vision, a high degree of adaptability and tolerance for ambiguity, and tend to take a very collaborative approach. In addition, says Robert Sinclair of Bristol Airport, “CCOs need the ability to represent the airport at a senior level with key external influencers. That means a certain level of gravitas and credibility.” Airports seeking leadership talent to manage in a time of great transition would do well to look for individuals who match those characteristics. TALENT TO MAKE AIRPORTS SOAR 10

Game changers.

Refocusing on the customer requires new technology and a significant internal upheaval and a totally new way of thinking for many airports. Managing that change requires several phases.

First, change must come from the top. CEOs, directors, and C-suite leaders need to set the organization’s direction, and they need to “walk the walk” by allocating resources to the change. A change strategy that works also focuses on people, not on technology.

Second, education is a key part of change management. Leaders need to devote the time and energy to communicate with their colleagues and to get staff to buy in to the new value on customers so their experience improves, exponentially. Many companies employ “change agents” who are involved in specific change activities.

Third, companies that successfully change focus on operational improvements must give staff the necessary support and training. They must also take care to avoid change fatigue, which happens when organizations try to put too much change in place too quickly.

Airports also need to take a serious look at planning how they will carry out their desired change. Naturally, the CCO will play a critical role in ensuring that strategic and commercial interests dovetail properly during such major transitions. Paul Kehoe, chief executive officer at Birmingham Airport in the UK, says the CCO’s job is to “ensure the commercial plan ties in seamlessly with the airport master plan.”

Conclusion

In the past airports were utilitarian places that travelers would dash through, maybe grabbing a magazine or a snack on their way to their flights. Today’s airports are becoming far more elaborate, with a range of amenities for travellers. What’s more, today’s airports are competing with one another for passengers as well as for revenue. To succeed, the modern airport can no longer rely solely on aviation-related fees. They need to be known for the experiences they offer travelers.

And as airports transform themselves, they need executives who understand the customer-centric business model. That will require them to seek talent outside the airport industry, looking into hospitality, travel, retail, and beyond.

The challenges are great. But the opportunities are equally enormous. As airports embrace a more customer-centric way of thinking, they have the chance to radically transform the travel experience while creating greenfield revenue opportunities. For airport executives—and for CCOs in particular— this is the chance of a lifetime. 11

References

Accenture. 2016. “Digital Readiness for Customer Experience in the Airline Industry.” Accenture: Chicago.

Airports Council International-North America (ACI-NA), 2014. “2014 ACI-NA Concessions Benchmarking Survey.” ACI-NA: Washington, D.C.

Bloom, Ken, Neil Collins, and Zack Deming. 2014. Rebuilders of the Backbone: Executive Leadership for Infrastructure Public-Private Partnerships. Korn Ferry Institute: Los Angeles.

Denver International Airport (DIA) et al. 2015. “Adams County Communities and Denver Announce New Regional Pact to Drive Job Creation at and around Denver International Airport.”

Forbes. 2016. “The World’s Most Innovative Companies.”

International Air Transport Association (IATA). 2012. “Airlines to Welcome 3.6 Billion Passengers in 2016.” IATA: Geneva.

Korn Ferry. 2015. “Korn Ferry’s Top 15 for 2015: The Most In-Demand C-Level Positions for the Year Ahead.”

Korn Ferry. 2015. Korn Ferry’s Four Dimensional Executive Assessment: Research and Technical Manual.

Acknowledgements

Korn Ferry is grateful to these leaders in the field for their generous sharing of their time and insight. Declan Collier, London City Airport, Chief Executive Officer Clive Condie, London Luton Airport, Chairman Deborah Ale Flint, CEO Los Angeles World Airports Paul Griffiths,Dubai Airports, Chief Executive Officer Andrew Jurenko, Global Infrastructure Partners, Senior Advisor Paul Kehoe, Birmingham Airport, Chief Executive Officer Andrew Liau, Ardian, Managing Director Amanda McMillan, AGS Airports, Chief Executive Officer; Glasgow Airport, Managing Director Ken O’Toole, Manchester Airports Group; Manchester Airport, Chief Executive Officer Robert Sinclair, Bristol Airport, Chief Executive Officer Wendy Spinks, High Speed 1, Commercial Director Stewart Wingate, Gatwick Airport, Chief Executive Officer TALENT TO MAKE AIRPORTS SOAR 12

Contributors

Zack Deming Global Civil Aviation Practice

Tim Shaw Global Civil Aviation Practice About Korn Ferry Korn Ferry is the preeminent global people and organisational advisory firm. We help leaders, organisations and societies succeed by releasing the full power and potential of people. Our nearly 7,000 colleagues deliver services through our Executive Search, Hay Group and Futurestep divisions. Visit kornferry.com for more information.

About The Korn Ferry Institute The Korn Ferry Institute, our research and analytics arm, was established to share intelligence and expert points of view on talent and leadership. Through studies, books, and a quarterly magazine, Briefings, we aim to increase understanding of how strategic talent decisions contribute to competitive advantage, growth, and success.

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