Dr Hongwei Jiang [HREF1], Lecturer, School of Aerospace, Mechanical and Manufacturing Engineering [HREF2]
, RMIT University, Melbourne, 3001, Australia. Email: george.jiang@rmit.edu.au
Airports are an essential part of the air transportation system. They play a vital role not only within the macro environment of transportation, but also in the process of increasing the quality of life of their regional economies and direct participation in wealth creation.
Historically, publicly owned and generally strictly controlled airports have been treated as "Public Utilities", with public service obligations (Doganis, 1992). Consequently, the economic performance of airports was not given top priority. With widespread airline privatisation and commercialisation, progress toward airport commercialisation and economic performance has grown in importance. Increasingly airports are real enterprises, their goal being long-term profit generation to both sustain independent development and reward stakeholders.
For most airports their application of Internet Technology is a Web site. However this is limited to a marketing presence, or a simple electronic brochure. Most sites are static, incapable of supporting online commerce. A very small number of airports use the Internet to manage internal operations-maintenance, scheduling, billing, purchasing, accounting, and personnel, and still fewer airports are connected electronically to their suppliers and business partners. Overall the Internet's contribution to airport economic performance is insignificant.
The objective of this paper is to discuss the improvement of airport economic
performance through Internet Technology. It starts with consideration of airport
business models, followed by airport revenue and cost structure, and then analysis
of airport economic performance measurement, finally, it provides some solutions
for airports and future Internet applications.
In the current turbulent environment, large airport development and management is a significant strategic issue. Managing a modern airport is like managing a town, it is very complicated. Some airports have over 50,000 employees such as Hong Kong International airport and Amsterdam Schiphol airport, together with a huge number of users such as airlines and passengers (in some cases over 70 million per year).
With airport privatisation and commercialisation, improving an airport's economic performance is increasingly important for airport managers. Other industry issues such as terrorism and soaring fuel prices make this harder than ever.
To enhance employee productivity and business performance airport managers are turning to technological solutions such as the Internet. Some airports such as BAA (British Airport Authority) plc have already demonstrated that Internet Technology can increase revenue and significantly reduce operational costs, while other operators still struggle to break-even.
This paper discusses the part Internet Technology could play in helping airports
improve their economic performance. First, some basic issues such as airport
models, airport revenue and structure, and methods of measuring airport economic
performance need to be introduced.
The traditional strategy of government-owned airports, operated and managed by a Ministry of Transport or Department of Civil Aviation is to meet basic and essential needs of passengers, airlines, freight forwarders and other direct airport customers such as retailers. Such a strategy will have significant implications for airport planning and design. In particular, the airport will be primarily oriented to facilitating passenger handing and throughput; with all extraneous or unnecessary activities kept to a minimum and with relatively little space allocated to them. Within imposed design and space constraints, airports following this traditional strategy can still try to maximise commercial revenue. Clearly they will be severely constrained in what can be done, particularly within the terminal, both by a lack of space and the priority given to meeting passengers' primary needs. This traditional airport model can be seen in over 100 airports in China, most airports in Canada before 2000, and all airports in Papua New Guinea.
In contrast a 'commercial airport' will exhibit critical differences in both its strategic mission and its inherent marketing implementation, when compared to the 'traditional airport' concept (Jarach, 2005).
The aim in this case is income maximisation from any airport activity. This
also means that one regards the airport as a business opportunity, which not
only serves its direct and traditional customers-airlines, passengers, cargo
shippers and so on - but also a wider range of potential customers including
airport and airline employees, visitors, people meeting passengers, local residents
in surrounding communities as well as local businesses and industries (Doganis,
1992). This strategy has several design implications. While every effort is
made to facilitate movement of passengers and cargo through the airport; every
effort is also made to maximise opportunities for additional commercial income
generation even from activities indirectly related to air traffic- such as light
industry or even leisure complexes. To be most effective, such a strategy requires
abundant and flexible space both in- and out-side various airport terminals
and buildings. Examples of the commercial airport model include Frankfurt airport,
Amsterdam Schiphol airport in Europe and Melbourne airport in Australia. Figure
1 best illustrates the enriched service package offered by a modern airport
enterprise.
Figure 1. The enriched service package offered by a modern airport enterprise (Jarach, 2005)
Regardless of whether a traditional or commercial airport model is applied, airports' revenue and cost structures are very similar, the difference lies in the percentage of each revenue and cost component.
Airport's income comes from both aeronautical/traffic-related activities (aeronautical revenues) and non-aeronautical/commercial sources (non-aeronautical revenues).
Unlike with revenues, there is no industry standard for the reporting of airport operating costs. From published accounts, however, it is usually possible to identify the three separate cost items associated with:
Airports operating under the traditional model assess their performance using criteria based solely on traffic growth. This is in spite of a growing awareness by airport management of the financial and commercial implications of operating an airport.
There are 15 to 20 indicators commonly used to measure airport performance such as cost-efficiency, labour and capital productivity, revenue generation and commercial performance, and profitability (Doganis, 1992; Ashford and Moore, 1999; Humphreys and Francis, 2000). Table 1 presents the most popular of these. Some have been used for analysis of specific markets such as France (Assaily, 1989), Australia (Doganis et al., 1994), the UK (CRI, 2002) or more generally to compare airport performance within Europe (Graham, 2003) and around the world (TRL, 2002).
By considering total revenue generated, since most airports handle both passengers
and freight, this suggests the use of an output measure which combines the two,
such as the WLU (Work Load Unit). The WLU originated from the airline industry
and uses a weight criteria for combining these two types of traffic (i.e. one
WLU = one passenger or 100kg of freight). Some argue, however, the focus should
be passenger numbers since freight handling at airports is very much an airline
activity and has little impact on an airport's economic performance.
Table 1. Performance indicators commonly used to assess economic performance
(Graham, 2003)
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1. Cost efficiency
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4.Revenue generation
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2. Labour productivity
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5. Commercial performance
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3. Capital productivity
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6. Profitability
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Researchers have used all of the indicators in Table 1 for research purposes. As it turns out the actual situation is rather simpler. In 2000, a survey of 200 of the world's largest airports was undertaken by Loughborough University and the UK Open University to investigate how they measured their performance (Francis et al, 2001). Some of the most popular measures used were found to be cost per passenger and total, aeronautical and non-aeronautical revenue per passenger, whilst revenue per WLU, for example, was less commonly used.
In this paper, the most popular measures of economic performance are used,
e.g. cost per passenger and total revenue per passenger.
As noted before, greater attention has begun to be placed on the commercial
aspects of running an airport such as financial management, non-aeronautical
revenue generation and airport marketing. The application of Internet Technology
can help airports achieve these goals and improve their economic performance
by:
Revenue per passenger can be generated by using Internet Technology in two main areas: improving service and Internet marketing.
Information included on airport websites, which have been set up by most airports, display various degrees of sophistication. Typical information includes airport location details, car parking, and local transport details, with opportunities for pre-booking car parking spaces or buying public transport tickets online. Tourist and other information about the airport's services area might be included. Nearly all airport websites, even the most basic, include terminal maps and a facilities list, such as shops and catering available. Major airports sites now include real-time flight information and flight-delay details. This information will soon appear on those sites of smaller operators (Hoevel, 1999).
Clearly, the Internet can play a much greater role than simple travel information.
Airports can strengthen relationships with existing customers by allowing them
to access - via its Web site - previously inaccessible decision-support information,
such as detailed research reports, or environmental protection documents. Shareholders
can track performance of their shares and have instant access to the airports'
financial reports, e.g. Melbourne Airport in Australia.
Research has shown increased customer service levels can improve customer relationships and in turn increase revenue per passenger. The following case study demonstrates this.
Case study-Manchester Airport Web Presence
In common with many enterprises, the airport recognised that
the Internet could have a significant impact on its business model and set about
investigating how it could exploit the potential of this new medium. Peter Burgess,
General Manager of IT at Manchester Airport, explained, "We had a Web site
but not a Web presence. We wanted to put Manchester Airport onto the e-map and
use the Internet to establish and promote our brand. It was essential that we
create a quality site with rich content. The challenge was clear. We needed
to integrate people, processes and systems to bring further value to our business."
As Burgess explained, "To all intents and purposes an airport is a utility.
At its heart it is a strip of concrete on which planes land and take off. The
question was how could we add more value to the business through promoting ourselves
on the Internet? We came to the conclusion that we needed to provide travellers
with services that would enhance their overall experience of using the airport."
From this premise Manchester Airport decided to create a genuine Web presence that could then be further developed to supply viable commercial income streams. In effect the airport was looking to use its expanded Internet presence to increase its bottom-line profitability. A dynamic Internet presence would help boost the number of travellers using the airport, itself adding to the airport's bottom line, and open up the possibility of generating extra income via the e-commerce potential of such a Web site. "We wanted to provide Internet surfers with facilities to come to an electronic version of Manchester Airport and share facilities without having to travel to the physical airport", said Burgess.
Given the complex relationship between the airport itself and the companies that operate within its boundaries it was readily apparent that the business objectives of the airport would need to be handled sensitively in order to maintain the high level of rapport enjoyed between all parties.
Finally, as an organisation that is owned by a number of
local government councils, the airport was very concerned to serve not just
its direct customers but also the members of the surrounding communities. To
this end it was decided that the site should offer local residents information
and advice with regard to any way in which the Airport might impact their lives.
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MANCHESTER AIRPORT SOLUTION AT A GLANCE
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| CORE FUNCTIONALITY |
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| SOFTWARE USED |
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| BUSINESS PARTNER |
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| BUSINESS |
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| BENEFITS |
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Source:[HREF3]
Historically the airport industry has been rather passive towards marketing, only responding to customer needs when absolutely necessary. The more businesslike approach to airport management, coupled with a more commercially driven and competitive airline industry, has encouraged airports to take a more dynamic and proactive role. In the United Kingdom, for example, many airports have set up marketing departments, started to use pricing tactics and promotional campaigns to attract new customers, and begun to undertake market research (Humphreys, 1999).
The Internet offers many marketing and revenue opportunities, and increasingly
airports are taking advantage of this. For example, customer profile and preference
information can automatically be collected from website users. Pre-ordering
purchases, online shopping, and advertising can also increase non-aeronautical
revenues. Airports are beginning to experiment. For example, BAA plc in co-operation
with the travel company expedia UK provides online reservations for many airlines
and hotels, last-minute travel details, weather updates, health advice, travel
plans, and destination profiles. Furthermore, in 2000, BAA plc invested in lastminute.com.
It also has airport upgrade packages available on the net. In turn Amsterdam
Schiphol airport uses the Internet to further its concept of an AirportCity.
It defines the Internet as the virtual AirportCity and customises information
for specific groups such as business, leisure, and transfer passengers. It also
provides information to customers interested in Schiphol real-estate properties
and online purchases from the See Buy Fly shopping centre can be made. In September
2001, Schiphol launched its virtual travel agency, Schiphol Travelport, which
allows passengers to book online airline tickets, rentals car, airport taxis,
and other travel products. It also has the Schiphol Travel Update service, which
uses SMS or e-mail to update passengers and others on arrivals and departures
times, check-in counters, gates, or baggage carousel.
Airports advertise to the public through the Internet as with all other usual media channels such as television, radio, newspapers, magazines, and posters. The choice of media, as with all marketing, depends on relative costs, target audience, and message the organization wants to put across. Most commonly, airports try to increase consumer awareness of flights and closeness of the airport by listing destinations on offer or focusing on the convenience of public transport links. More specific messages may relate to a certain service or facility at the airport - a notable example being the advertising various airports have undertaken to recover some of their lost retail trade since the loss of EU duty- and tax-free sales. The advertising may be targeted at certain market segments, particularly business travelers. For instance, Abu Dhabi's airport marketing campaign 'Start at the Heart' was based around a heart logo designed to inform business travelers that they could check in at the 'heart' of the city and take a luxury car to the airport (Graham, 2003).
Web-based marketing programs offer incredibly cost-effective methods of creating
customised versions of information and products. Development of these systems
requires careful profiling of both product and prospect and then carefully mapping
these needs to relevant products and offerings.
Application of Internet Technology for airports can also significantly reduce airport operation cost. A good example of the application is e-Business, Figure 2 shows that an airport may be involved in both B2B (Business to Business) and B2C (Business to Customer).
Figure 2. Airport e-Business System
Airport facility B2B market provides one stop for the airport industry, and it can cut airport procurement costs significantly (e-procurement). For example, both http://www.airfield-lighting.com/b2b/catb2b.html and http://www.thirtythousandfeet.com/b2b.htm provide B2B portals for airports.
The retail B2B market enables airports to contact retailers worldwide directly
which also cuts airport outsourcing fees. For instance, BAA plc established
its own retail B2B platform including UK Airports Retail, World Duty Free, and
International Retail, ensuring retail becomes an important element of the airport
experience.
Airport B2C can also integrate Internet and Intranet together and provide 24/7 services for airport customers, which can lower airport operational costs. Figure 3 gives an example of B2C used at The Kuala Lumpur International Airport (RMS- Retail Management System, developed by AMC Company).
Figure 3. Example of RMS Airport Solution (Source: AMC Company, 2003)
There are vast opportunities and challenges in the application of Internet Technology
to the airport environment. Clearly it is time to focus on Airport B2B, B2C
and Internet Marketing to improve airport services and economic performance.
It is also important to develop business solutions based on the SPT (Simplifying
Passenger Travel) concepts and to tighten the customer relationship to improve
non-aeronautical revenues. The old business model was flawed and key to improving
passenger logistics was the provision of information ahead of the logistical
flow. New technology, including Internet and wireless communication, enables
airport processes to be effected earlier in the travel chain without a physical
service desk. This could increase processing capacity of the terminal whilst
reducing costs of passenger processing.
This work clearly shows Internet Technology and its application can assist
the airport industry to improve its economic performance.
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