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Strengthening the Airport Value PropositionHow Airports can Use Modern Technology to Build Value for Airlines and PassengersA Frost & Sullivan White Paperby Alexander Michael, Director of Consulting, Digital Transformation and Diogenis Papiomytis, Director of Consulting, Aerospace & DefenceCOMMISSIONED BY AMADEUSStrengthening the Airport Value Proposition2 All rights reserved 2017 Frost & SullivanForeword How IT can strengthen the airport proposition to the benefit of airlines and passengersWith global growth in passenger volumes set to continue, as per IATAs 20 year passenger forecast, the competition amongst airports is likely to intensify. In the past, when faced with competition, we have seen airports compete predominantly on financial terms. However, the reality is that this is no longer enough. Airlines have more complex needs than ever before, and using financial incentives no longer has the impact it once did. It is therefore incumbent upon airport operators to demonstrate the value that they bring in the two areas of operational efficiency and passenger experience. Both of which are central to airline decision-making when it comes to airport selection and airport relationships. Modern technology now offers airports a significant tool to enhance the value that they offer to airlines. It offers quantifiable advantages in easing the passenger journey, and therefore enhancing the travel experience, and in terms of operational efficiency, both in terms of improved productivity and cost reduction for airlines.Therefore, by incorporating IT into its value proposition an airport can strengthen its positioning and points of differentiation. By doing so, airports are in a better position to protect aeronautical revenues by justifying fees, as well as in delivering new and innovative services. This paper explores how airports can include IT into their value proposition to airlines and what this means both for airlines, as well as the passenger experience. I would like to thank both Frost & Sullivan for developing this report, and also to the many contributors that provided their time and insights.I hope that this paper provides a source of insight, as well as some practical recommendations, as we work together in supporting the delivery of better journeys for all. John Jarrell Head of Airport IT Amadeus Frost & SullivanCONTENTSForeword . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4Airport IT: An Increasingly Strategic Priority . . . . . . . . . . . . . . . . . . . . . . . . 8Digital transformation redefines infrastructure and service provision . . . . . . . . . 8The strategic role of the airport CIO . . . . . . . . . . . . . . . . . . . . . . . . . 9Airport IT spending increasing with digital transformation . . . . . . . . . . . . . . 9Airport ownership influences long-term strategic ambitions . . . . . . . . . . . . . 10Dematerialisation of airport IT control . . . . . . . . . . . . . . . . . . . . . . . . 10Crafting Strong Airport Value Propositions . . . . . . . . . . . . . . . . . . . . . . . . 13Balancing the interests of different airport customers . . . . . . . . . . . . . . . . . 14Bridging the differences in value . . . . . . . . . . . . . . . . . . . . . . . . . . . 14Value propositions beyond landing fees . . . . . . . . . . . . . . . . . . . . . . . . 15Passenger focus to decrease the field of tension between airports and airlines . . . . . 16Attracting Airlines to Airports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20The basic business case is route economics . . . . . . . . . . . . . . . . . . . . . . 20Operational efficiency and passenger experience are equally important . . . . . . . . 21Airport IT supports both operational efficiency and passenger experience . . . . . . 22Airport IT supports end-to-end process management . . . . . . . . . . . . . . . . . 22Airport IT supports process innovation . . . . . . . . . . . . . . . . . . . . . . . . 23Keeping Airlines Happy at Airports . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25Ease of setting up new airline applications and services . . . . . . . . . . . . . . . . 25Improved communication of critical performance through shared KPIs . . . . . . . 26Enhanced Management of the Passenger Experience . . . . . . . . . . . . . . . . . 26The Role of IT in Enhancing Revenue Streams . . . . . . . . . . . . . . . . . . . . . . . 30Collaboration benefits enabled by IT . . . . . . . . . . . . . . . . . . . . . . . . . 30Data analytics improve business on both sides . . . . . . . . . . . . . . . . . . . . 31Agility triggers incremental revenue . . . . . . . . . . . . . . . . . . . . . . . . . . 32The Role of IT in Managing Cost and Performance . . . . . . . . . . . . . . . . . . . . 36Passing on IT-enabled direct cost savings . . . . . . . . . . . . . . . . . . . . . . . 38Total Cost of Ownership: IT makes hidden costs transparent . . . . . . . . . . . . . 38Sharing benefits, justifying investment . . . . . . . . . . . . . . . . . . . . . . . . . 38The Last Word . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42Strengthening the Airport Value Proposition4 All rights reserved 2017 Frost & SullivanExecutive Summary Unlocking the benefits of digital transformation Today, digital transformation is a priority for airports, as well as many other organisations.The challenge is to define what digital transformation means in the airport environment. So often a buzzword, or a catch-all term for everything related to technology, airports must embrace its potential to change how they do things. The proliferation of IT systems, and a lack of data, is endemic in many airport environments today. However, investment in airport IT offers the potential to sweep away many of the current constraints fragmented systems. The common thread that unites all airport operators regardless of size, geography or model is the need to modernise, attract traffic, improve operational efficiency and enhance the passenger experience. The key component in delivering on each of these is technology, but also management vision. Despite this, airport value propositions regularly neglect the fact that IT can facilitate significant benefit across each of these key areas. Airports also have to deal with a set of stakeholders which often have different interests. Indeed, airport interests are often different to those of their stakeholders too. Costs, revenue streams and growth opportunities are not always aligned. Therefore, airports must balance the different interests of customers, minimising frustration and identifying shared value. Greater competition from other airports and new transport hubs makes it ineffective for airports to incentivise solely on costs. Instead, they have an opportunity to define more comprehensive value propositions underpinned by IT. By doing so airports can achieve greater value creation for all stakeholders, encourage collaboration and stimulate innovation and differentiation, but it requires a change in focus. By focussing on the passenger as the ultimate customer and by sharing key performance indicators that validate the passenger experience, airports can overcome many tensions with stakeholders.A basic route economics business case remains the key driver of decision-making when airlines select airports for new routes, and route economics will always trump IT considerations. Nonetheless, route economics are increasingly a “hygiene factor” requiring airports to promote operational efficiency and improved passenger experience if they are to differentiate. Airport IT supports both. After an airline selects a new airport, there are ongoing opportunities to demonstrate value. These range from ease of setting up new applications; improved measurement of performance through shared KPIs; better management of logistics; and an enhanced passenger Strengthening the Airport Value Proposition5All rights reserved 2017 Frost & Sullivanexperience. Technology, when deployed effectively, is instrumental in breaking down the silos which often frustrate customers.Airports are realising that the true value of IT lies in enhancing customers revenue streams, not just in optimising their own financials and KPIs. It is true that offering agilityallowing airlines to maximise incremental revenuecarries a cost borne by airports. However, that cost tends to be dwarfed by the opportunity cost incurred by airlines that fail to exploit short-term opportunities. This misalignment of IT cost and airline revenue streams is a long-standing problem in the airport environment, and has historically impeded the creation of accurate business cases behind IT investment.Data analytics allow airports and airlines to better understand how they may increase each others business. Because the exploitation of data analytics also leads to greater transparency of IT costs and related benefits, communication with airlines can improve. There is a strong correlation between IT investment, airline ground performance and passenger experience. So much so that in many cases, the acknowledged return on IT investments far exceeds the return on other airport capex projects. Airports should demonstrate this correlation in their value propositions.Pre-integrated IT solutions in the cloud should be the cornerstone of airport digital transformation, because they decrease complexity and increase agility. Airports should harness the power of the cloud to explore new business models; help customers trigger new revenue streams; and deliver a better experience for passengers. By doing so, airports will be able to turn the promise of digital transformation into real value for all. Frost & Sullivan has engaged with 50 airports through its recent multi-client study and has interviewed 18 airports, airlines and industry experts for this paper specifically. They mostly agree on one thing: the basic value of an airport is its ability to attract traffic because it is convenient to passenger journeys. It is still true that if there is market demand for a particular airport, airlines will compromise on all other drivers, including the IT environment.This paper explores the role of IT as part of the airport value propositionneither over emphasising its role nor underplaying its significant potentialand it recommends the areas airports should be focussing on.Strengthening the Airport Value Proposition7All rights reserved 2017 Frost & SullivanThe airport CIO is taking on a strategic role, as airport IT becomes central to the value offered to all stakeholders in the airport spaceStrengthening the Airport Value Proposition8 All rights reserved 2017 Frost & SullivanAirports are going through a period of deep digital transformation as they evolve from disparate IT systems and a lack of data exploitation to connected, intelligent airports that harness the benefits of digital platforms, data analytics, cloud, mobile and collaboration. The digital transformation of airports supports more efficient operations, better passenger experiences and improved route economicsbenefits which are central to the value offered by airports to their customers. That is why airport IT is a priority, why airports are investing more in technology and why the position of the airport CIO is increasing in importance, taking on a more strategic role.Despite the encouraging signs that IT is a key focus for airports around the world, the value propositions articulated by airports do not necessarily reflect this. Airports would be able to build attractive value propositions that contain significant IT-enabled benefits but they must do more to express the value perceived by passengers, airlines and other customers. Digital transformation redefines infrastructure and service provisionThe airport industry is cautious and has traditionally not been at the forefront of embracing new IT paradigms, but current airport IT trends suggest the tide is slowly changing, and the provision of infrastructure and services is evolving. Other conservative industries like retail banks and healthcare are on a similar trajectory. They have also realised the power of cloud and SaaS and are going away from doing everything in-house. While it is true that many airports continue to run their own IT infrastructure for AIRPORT IT: AN INCREASINGLY STRATEGIC PRIORITYDigital transformation is an emerging priority for airports which is why they are investing more in IT and why the position of the CIO is increasing in importance and taking on a more strategic position within the organisation.While there are differences, based on region, ownership models and long-term strategic ambitions there is a uniform desire to modernise, attract airlines and improve both efficiency and passenger experience.Smart planning can drive cost reductions at the airport, as it will accommodate more traffic without the need for capacity expansion. As such, Frost & Sullivan expects IT budgets to rise faster than anywhere else at capacity constrained airports.There are positive signs that IT and modernisation is a strategic imperative, however, the value propositions of many airports do not necessarily reflect this and they could do more to articulate the value they can offer to airlines.1PRIORITYMODERNISESMART PLANNINGVALUEStrengthening the Airport Value Proposition9All rights reserved 2017 Frost & Sullivansecurity reasons, the notion that airport IT departments should be better at managing data and applications securely is increasingly perceived as a fallacy. Airports may fail to fully appreciate the characteristics of modern technology deployment and may assume that local deployment of departure control systems (DCS), generally accepted as the paramount critical airport IT component, leads to greater resilience. Ultimately, an airport IT department cannot have better physical security and better information security capabilities than cloud service providers. The strategic role of the airport CIOThe role of the airport CIO is changing. Moving from an operational enablement role, CIOs are empowered to help set the vision of the Airport of the Future
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