New Delhi. 05 October 2020. External disruptions such as the COVID-19 pandemic have severely impacted the aviation sector, resulting in significant value erosion for service providers such as airlines, airport developers and operators. For instance, as per industry reports, airlines across the world are expected to lose more than $300 billion as a result of the pandemic. Released today, Building future-ready airport business models, a Kearney report assesses the need for airport owners and operators to transform their existing business models, and further discusses 3 key diversification strategies for them to make their business resilient to external shocks and become future ready.
“The aviation sector is particularly susceptible to disruptions like COVID, and such shocks can significantly reduce passenger traffic, especially in the short term. For airports, where passenger-driven revenue streams drive more than 60% of revenues even for best-in-class airports in the world, these disruptions can lead to acute financial pressures. Hence, it is critical for airport owners and operators to reassess their business models and improve their resilience in dealing with external shocks” said Manish Mathur, partner and head of Kearney’s Asia Pacific, Transportation and Infrastructure Practice.
Bringing in global perspectives, Pablo Escutia, Kearney partner from Spain and Global lead for Kearney’s airports vertical, said, “While most airports across the globe are moving towards non-aeronautical revenue streams, only a few leading ones such as Frankfurt, Changi are diversifying their operations to generate meaningful returns from passenger-independent revenue streams such as by utilizing real estate assets. It is the need of the hour for airport operators to start considering diversification strategies to make their business models more robust”
Regarding diversification strategies, Anshuman Sinha, Kearney partner, said, “Sweating real estate assets can generate significant value for airport operators. However, the real estate product mix must match the unique profile characteristics of each airport which include traffic profile, location, connectivity and real estate environment.”
The report draws lessons from leading airports in the world, including Frankfurt am Main Airport in Germany, Changi Airport in Singapore, Hong Kong International Airport, Charles de Gaulle Airport in Paris, and Schiphol Airport in Amsterdam, that have adopted different strategies and business models to diversify their revenue streams. Three diversification strategies are outlined and discussed at length:
- Sweating real estate assets to extract the most value
- Initiating capex-light service offerings with quick speed to market
- Geographically diversification of core business
This report is relevant to all key stakeholders within the aviation ecosystem, especially focusing on how airport owners and operators can improve their readiness to navigate disruptions caused by external shocks