Airports influence roughly 15% of all greenhouse gas emissions in the aviation industry. This article gets down to how scope 3 reduction potential can – and must – be realized.
In times of growing uncertainty, airports must be ready for whatever lies ahead
Airports are not having an easy time of it. Not only did the COVID-19 pandemic ground their aircraft and practically wipe out their revenues, they are now facing increasingly vocal pressure to decarbonize. At the same time, the shortage of available aviation specialists, demographic change, stricter regulatory requirements, expanding cost pressure and tighter public budgets are limiting their room to maneuver and investors in the industry are less forthcoming than in the past. In these times of straitened circumstances and extreme uncertainty about the future, having a solid bedrock of profitability is crucial. We look at how airports can ensure that they themselves generate enough profit to finance the investments they need to make – and in the process make themselves future-proof.
The environment in aviation is growing tougher by the day, the challenges airports face more complex than ever. On the one hand, there is the increasingly urgent task of decarbonizing and becoming "green airports"; on the other, there are new quality, safety and operational regulations to be met, increasing the burden on airports and their day-to-day activities. In addition, airports are more and more expected to live up to their role as regional mobility hubs, lynchpins in local economic development. Pressure, it seems, is building on all sides – and stakeholders are demanding that airports step up to the table.
But that is only half the story. As the pressure on airports expands, so their room to maneuver shrinks. The current lack of specialists in aviation and ongoing demographic change is making it harder to fill essential positions in their organizations. Cost pressure is expanding as airlines and other partners attempt to pass on their own spiraling costs, while public budgets are becoming tighter. Inevitably, this leaves airports with fewer resources to meet the increasing demands that they face.
Perhaps most challenging of all, however, is the fact that airports are operating in an increasingly uncertain environment. After decades of being able to rely on passenger and freight volumes rising year on year, the COVID-19 pandemic suddenly pulled the rug from under their feet. Macroeconomic developments, such as inflation and growing capital costs, mean that the financial basis on which airports operate and do their planning is not as secure as it was in the past. And owners, stakeholders and investors in the global aviation industry are proving less forthcoming than in the past when it comes to financing new investments.
The pressures on airports and the increasing challenges they face create something of a conundrum for airport operators. On the one hand, they need to be adaptable; but at the same time, they must take a long-term view and hammer out an expert investment plan that can cope with future eventualities. They are thus pulled in two contradictory directions, having to plan for a future that they cannot foresee while remaining sufficiently flexible to deal with challenges that they cannot avoid.
The answer, we believe, lies in building a solid bedrock of profitability for airports. This enables them to finance the investments they need to make out of the money they earn themselves. As the environment grows more and more uncertain, airports must learn to be less and less dependent on external budgets. This is the only way they can deliver reliably on what is expected of them.
Make your airport future-proof
To master this challenge, two elements are critical. First, airports must understand which topics to address. This calls for an all-embracing perspective, the ability to avoid getting lost in the detail, and the capacity to set clear priorities. Second, those involved in running airport operations must take the right approach to dealing with uncertainty, investigating different scenarios as we describe below. Critically, topics must be addressed in the right way – the majority of transformation efforts and projects in aviation are currently unsuccessful, despite the high level of knowledge and expertise available within airport organizations. And whatever specific actions the airport decides to take, it should mobilize, embolden and enable the organization to act on a continuous basis, not stopping and starting depending on time or other pressures.
The figure above illustrates our approach to building a future-proof airport. There are four levels of transformation: functional excellence, cross-functional collaboration, value creation and breadth, and new businesses. The further you move to the right in the illustration, the more you move from optimizing the organization to building or rebuilding it – and the greater the impact on the profit and loss account:
Functional excellence typically includes topics such as technical maintenance, ground handling, and procurement and tendering.
To achieve functional excellence, it is necessary to secure cost efficiency within all functions, for both personnel and administrative costs. Given that the long period of increasing revenues and plentiful budgets is now over, this is a good moment to infuse cost sensitivity within the organization. Focusing on organizational units rather than the entire company is also a simply way to start optimizing the business model.
Cross-functional collaboration can cover areas such as lifecycle management for real estate and technical infrastructure, and passenger experience management and revenue growth.
Cross-functional collaboration expands the area of focus beyond individual organizational units, to rebuilding key processes across different functional units. This is an opportunity to shape a more collaborative culture within the organization, solving problems on the job rather than in the boardroom.
Value-creation depth and breadth involves ensuring profitability while catering to increasing demands.
Value-creation depth and breadth requires a new overall approach to partnerships, taking into account the cost and quality of services, innovation, and control over quality and staffing – as we discuss in this article . It might involve an airport operating a high-end terminal building for regular flights, so as to retain its premium positioning, while building a less luxurious terminal for low-cost flights, say. In other areas, such as ground handling, a delicate balance is required to ensure that the airport remains in control of quality and staffing while avoiding the financial exposure that comes from increasing volatility. In commercial activities within the terminal, it is also essential that the airport retains control of the overall customer experience, while at the same time benefiting from the excellence and expertise of partner companies.
New businesses range from opportunities in cargo and real estate to services as a mobility hub and retailing within terminals.
Airports can exploit a variety of new business opportunities, projects and solutions. Besides moving into cargo or real estate, say, the development of airports as mobility hubs brings with it many possibilities for new revenue streams, some of which have an impact on terminal planning. In retail, airports are seeing a shift towards food and beverage sales, while traditional stores are increasingly acting as display centers for retailers' products. Larger airports can also consider offering services to smaller ones in areas such as staff training, luggage handling management, IT services, and so on – a practice known as "airport-as-a-service".
The four levels of transformation for airports are underpinned by three further elements:
Most organizations were designed for stable market environments and often come with a legacy of complex administrative processes.
This makes them notoriously inflexible and difficult to transform - a topic we have investigated in further articles .
The key element here is that the organization should work across its different units, addressing specific topics rather than slavishly following the organizational chart. Equally importantly, the leadership should trust the organization to do its job, which in return will generate more commitment and responsibility from the organization. This needs to be handled carefully.
When it comes to working with partner companies, airports should ask themselves not whether they can do something, but whether they are the best person to do it.
Airports have always worked with partners, but continued growth of aviation in the past meant that they did not always focus on how best to exploit those industry partnerships. Now the game has changed, and airports must ask themselves whether partners with specific expertise would not be better taking on some of the things they currently do themselves. A useful approach here is to take a big strategic question – such as the question of the business model itself – and break it down into smaller questions, evaluating what role partners could play. We discuss this approach in detail in this first Top Line result framework study, and bring an interesting approach in our Detox your business study.
Rather than developing a long-term masterplan, airports must start thinking in scenarios.
Today's businesses of all types need to develop an ability to envision different potential future scenarios – a sort of third eye. This includes classifying and prioritizing the various uncertainties that they face in a systematic fashion. Used effectively, scenario-based management goes beyond simply minimizing risk and helps businesses discover previously overlooked opportunities in aviation. Scenarios enable them to perform two vital tasks within the organization: First, they form a basis for checking the validity of existing decisions and strategies; and second, they can be used to develop robust, "no regret" moves that will be beneficial in any scenario. For more on scenario-based management, click here.
Our consulting services for the aviation industry
Want to find out more about how you can make your airport fit for the future? Roland Berger is a leading full-service provider of advisory services and airport consulting to clients in the aviation industry. Drawing on extensive experience in airport operations and many real-life case studies, we advise clients on their landside and airside operations, facilities, planning, solutions and strategies. Contact us for a quick review, so we can together reflect on how best you can tackle whatever challenges the future may hold.
Scenario-based management – Taking action in an uncertain world
Today's uncertainties can paralyze firms into inaction. Thinking in scenarios helps them get back to work – and reveals previously overlooked opportunities.
Detox your business: Keep it simple, stupid
Detox your business: Simplification is the ideal way for companies to equip themselves for a future shaped by volatile and complex markets.
Results Factory – Mobilizing for organizational change
Businesses need to reorganize their operations to cope with uncertainty. The Results Factory is a powerful, employee-centric approach to organizational change.
Top-line results – How to grow in times of heightened uncertainty
The Covid-19 pandemic and war in Ukraine have created levels of uncertainty not seen in recent times. For companies, returning to top-line growth is more of a challenge than ever. What business needs now is a more dynamic, fast-acting solution specially designed to cope with unpredictable environments. We propose a top-line results framework that requires a shift of mindset by companies.
Cleared for takeoff
Turning air transportation green will require a joint effort by everyone in the industry. Airports have a critical role as an enabler on the road to net zero.