GQ: What are the greatest challenges facing airports today?
AG: I think the challenges are trying to keep up with the capacity demands, which is growth in a lot of places. But it is not just growth, it is change. It is change in airline business models as airlines themselves try to adjust to the market. But airports are physical facilities and it is very difficult and expensive to readily accommodate market changes.
Particularly, for mature airports, those attempts at adjustments get more and more expensive. You have to maintain your operations. Renovations always cost more than new facilities. Airports increasingly need to respond to the environmental issues. All of those things add up to money in an era where airports are in more of a competitive situation.
Airlines are extremely sensitive to all costs, including airport costs, even though those costs are only about 4% of their total. The airport’s community is very insistent on air service frequency, the reach of routes and pricing. They want the airport manager to deliver frequency, many routes and cheap prices. Doing all of that and making those accommodations and having to spend that kind of money add up to a real challenge.
GQ: How can airports meet those challenges?
AG: Some of the things we are doing to help airlines and airports meet those challenges is to have as much harmonization and commonness of standards and procedures in airports. So let’s take the need for flexibility. How can you increase your flexibility in a physical facility? You can do that by not tailoring your facility to a specific carrier, but having facilities and processes that can be used by a variety of carriers. So if a carrier changes, if you lose a carrier, if a carrier goes up or down in value at your airport, they can be replaced by a different carrier and the same equipment, facilities and processes can be used for other carriers.
Easier said than done, certainly, but ACI and member airports have been working with other stakeholders in the industry on exactly that: trying to get best practice procedures, but also common procedures and common platforms, particularly with respect to technology.
Technology now enables a lot of things so the airport can create a platform that can be used by different airlines or other airport users to process passengers, baggage, aircraft or ground equipment using their own systems, but also able to plug into a common airport system. If an airline or a ground handler changes, they can basically plug into the same system.
That is becoming increasingly accepted by the airline community. Airlines like to do their own thing so they can control and advertise their service offerings, but the sum total of everyone doing that at the airport becomes very expensive.
Just things like space, to the extent that more and more airlines are moving to ticketless travel, was a big boom. Now using different technology for passengers, being able to get through the different processes, will reduce the need for space, particularly pre-security checkpoint space at airports, and that will save a lot of money. It will save money in the future and it frees up valuable space currently at airports.
We were just talking about making the security screening issues more convenient for passengers. Part of that, if you need to take your shoes off, you need a seat so you can put your shoes back on again. A lot of those issues have to do with space and configuration. Space doesn’t get created overnight and configuration takes time to develop if you can do it at all.
The more space you can free up from activities that can be done in other ways, the more space you have for other activities, in this case security screening. Hopefully, we will get to the point where a lot of these screening activities can be streamlined if not eliminated, but we are where we are now, and when you have to screen each and every human being and all their belongings, that takes space. It is a huge logistical problem.
GQ: As long as you brought the security question up, how do we resolve the issue of security harmonization? How can airports cope with a different set of security rules in each country or even at each airport?
AG: Well, that is interesting. You have to bring this down to cases. Rules are one thing; processes are another. So one country or region says “X” is a threat. Liquids of a certain size, certain kinds of implements, are threats. We know this because of our own intelligence or we fear this because of our own situation. There could be many reasons why something is decided to be a threat.
So should everyone adopt that? Will there be an inconsistency there? Maybe this is an inconsistency that needs to be there because maybe it is not credible enough or everything is theoretically a threat. If a bunch of big people create trouble, do you then ban big people?
Much of it is a matter of perception and once it is a matter of perception, then it is a choice. Then it becomes very individual. Those kinds of variations will just be with us. I don’t see any reason to say that everyone should adopt the highest level because it is just a particular threat that someone perceives or wants to protect against, which is not really relevant for everyone else.
But there are threats from international intelligence or domestic intelligence or whatever. There are many ways one can confront and mitigate a particular threat. There are low-tech ways and hi-tech ways. In the U.S., for example, with the volumes going through those airports, they need to use hi-tech ways because they don’t have time to use low-tech ways. Labor costs are very expensive in the U.S. so they need equipment to do the job.
In some places that don’t have that kind of volume, to mitigate that exact same threat, may not require any equipment at all. It may require trained people, whether it should be done at the gate, at the entry to many gates or at the terminal entry. Again, it really depends on the configuration of the airport, volumes and practicalities. One may want harmonization as the basic objective, but you don’t need harmonization in every piece of the process. Even things like taking shoes off or not taking shoes off. I’d rather not take my shoes off, so if this is required in one place, I don’t want it required everywhere.
Then there is the issue of consistency. Consistency is not necessarily the best thing for security. It is the best thing for me as a passenger to know exactly what I need to do so I won’t get irritated, but it is not actually the best thing to do. You need to throw in a little randomness, which doesn’t necessarily have to be from country to country, but in the same place you want to switch things occasionally because you don’t want to make it that easy to guess the system.
To some extent, that is partially what happened for 9/11. It was a little too easy to see exactly what was done every time. Even reaction can create a security threat. Shortly after 9/11, when the TSA took over security, they were dumping the terminal all the time. Every time something had gone through, they dumped the terminal. Well, that kind of consistent behavior creates its own security threat. Once I know what you are going to do in a given situation, I can create that situation and now my target is the aftermath of your reaction. So you don’t necessarily want to react the same way all the time. It is difficult to tell people who are traveling, especially frequent travelers like I am – it is difficult to say that to them, because they want that consistency, but that is not always the best thing.
GQ: Shifting gears a bit, Vancouver Airport recently announced the implementation of a fuel tax moratorium and will be capping airport fees. What do you think about that policy? Is that a good thing? Is this something other airports should do?
AG: I don’t really believe in capping fees because what are those fees going for? For airports, their prices reflect cost. They cannot charge above their cost. So if you are going to cap a fee, you better be able to cap the cost that that fee covers, otherwise you are going to have a deficit and that is not sustainable. To the extent that saying that you are going to cap landing fees means you have found other revenue sources – and airports are definitely looking to diversify their revenue sources – that is fine and that is a good marketing technique, but as far as a principle, it is nonsensical.
If all you are charging for is recouping your costs, you better be able to recoup your cost at some point, otherwise you are going out of business. As far as taxes, however – and taxes are part of life – I think governments certainly have the right to tax their businesses.
We are opposed to singling out aviation as a source of taxation because of some perceived special environmental mitigation – which I think it is pretty easy to see through because we haven’t seen those taxes really used for environmental mitigation. If they were for environmental mitigation, then other industries would be taxed proportionately.
Aviation is a very low proportion of impact on the carbon footprint. So if you were taxing the entire society based on carbon footprint, that would be one thing, but what we are seeing is that aviation has been singled out. The visibility of aviation makes it a target. So that is our main objection – of targeting aviation – either for environmental mitigation or for other taxes.
Aviation should pay its fair share of taxes in the society, but there is no reason to pay a higher share than that. It is perplexing given that commercial aviation has never really made money in the history of its existence over the long term. So why it is seen as a cash cow is a mystery.
GQ: You mentioned diversification of revenue. What are airports doing today to diversify their incoming revenue streams and what should they do to diversify?
AG: They are doing things on two fronts. The most important one is increasing non-aeronautical revenue. This has been going on for a while now, particularly in Europe and Asia, developing their terminal concession offer. I don’t know if you are old enough to remember when airports were considered closed markets, captive markets, and therefore, you didn’t have to have the best goods and food and beverage and you could charge the highest prices because passengers were seen as having no choice, nowhere else to buy from?
That changed several years ago so airports are really becoming known as places where it is good to shop, where you get good prices, where you get good food and beverage offerings. So you almost defer your purchasing and imbibing until you get to the airport because you know you are going to have some worthwhile experiences there. Shops have gotten larger. Airport shops were always the last thing considered when planning and developing an airport. Here is some space over here; we can squeeze a shop in there.
Now the retail offer is very much planned as a full partner in airport development, again, because you can’t have airport development without the revenue to do it. That is very important. In many airports the terminal offer is a huge element, particularly with duty free.
In some airports, in the U.S., for example, parking is a huge source of revenue. It is usually a larger source of revenue than the terminal concessions, partly because you have a lot of parking in the U.S. It is a domestic market and you have more short-haul flights, so you don’t have as much of the terminal concession availability.
But beyond that, now you see airports developing their other land for revenue purposes. Particularly newer airports try to get as much land as they can as a buffer to mitigate or to prevent community impacts and to prevent encroachment of noise-sensitive uses near the airport, which then goes to curb its development. Now that buffer land is being seen as opportunity for development for airport-related or airport-supportive or airport-irrelevant activities as long as they are not noise-sensitive activities.
Those are sources of commercial revenue airports can gain. Particularly in Europe and Asia, airports are also taking their expertise and their ability to invest to other airports. So they actually invest in other airports, helping with their management expertise to increase the value of the other airports and then that is another source of non-aeronautical revenue.
With respect to the aeronautical revenue, airports are applying more and more of their charging mechanisms to be passenger related rather than aircraft related, which gives them a little more margin of flexibility as the airlines change their business models. Airports are increasingly looking beyond the airline to the passenger as their end customer. That is what they really try to attract. You do it certainly via airline marketing, but your eye is really on the passenger. You set your charge ratios to be more based on the passenger than on the aircraft.
GQ: You were talking about taxes before – how it is a fact of life but also it can be very unfair to single out aviation. The airlines are certainly incensed about the recent aviation tax levied in Germany and similar aviation taxes, but don’t the airports have even more to lose if people go elsewhere or fewer people fly as a result of these taxes? Isn’t that where airports should be taking the lead?
AG: Absolutely. We’re certainly in sympathy with the airlines on it. Hopefully this German tax – because it came out of nowhere – and especially as it trailed all these bailouts to other industries – then this other industry, that has also been very much hurt, gets taxed. It really symbolized the extent to which we are very misunderstood. I think as an industry, we have not acted enough in concert. We have done it on safety and it has been very successful. We have lately in the last few years started to do it on environment, and it has been successful so far. We have not done it on economics and I think partly because we are at odds with each other on a small element of economics and, as an industry, we have missed the biggest picture.
So hopefully this will help us pull together more in challenging these kinds of things. Now you have to do these things in advance. Challenging something once it is done is a lot more difficult. As an industry I would like to see us work together more on principles of the economics of this industry. It is not a matter of the airports charge too much; it is a matter of what are the margins for this industry? What does this industry produce for the community? Airports are very familiar with that because airports are in the community. Airlines are less familiar because they go from one place to another, but in every community, they bring economic benefit. I think we need to come together as an industry much better on the economics of the industry, not the economics of airports versus the economics of airlines.
GQ: You mentioned the need for airports to be able to adapt to changing business models. You’ve also talked about the move towards low-cost airlines which is getting larger, but also that it’s getting more difficult to determine who is a low-cost airline because the business model is changing. How does that impact airports?
AG: I think it is important not to get too caught up in what may be a very short term phenomenon and to look to the passenger. In Malaysia, for example, there was a big call for a low-cost carrier terminal which became a low-frills terminal and the passengers complained, “Why don’t I have access to the consumer goods that I would if I were going through the other parts of the airport?”
Just because someone is saving money on their airplane seat, in fact, because they are saving money on the airplane seat, they have got the money to spend on other things and that is what they want to do. Somehow, the actual airplane seat, the travel itself, has the lowest perceived value. I don’t know how or why that happened, but the passenger is least willing to spend money on that. They are more willing to spend money on everything else. So the whole concept of low-cost terminal cannot be a low-standard experience.
We have to get that balance of looking at the passenger and giving the passenger what he or she wants while trying to soothe the airlines. Airlines may ask for “X” today and then if it doesn’t work or they change their mind because they have seen a different picture and they want “Y” tomorrow. They expect the airport to make that accommodation. Because we are infrastructure you can’t just change things. These assets last 30 plus years. Sometimes you have to bite the bullet and accommodate the airline as best you can, but sometimes you have to say “no”.
Sometimes you have to say, “We are going to have to do it this way because too much customization is too expensive for us. We don’t have confidence that the model you are promulgating is going to be a sustained model.” Now you need to be politic about that, but we want to be welcoming to any carrier. Your community wants as many carriers as they can, but sometimes chasing the dream of another is illusory.
GQ: It seems like more and more airlines are joining alliances these days. Does that present special challenges for airports? How can airports assist airlines here?
AG: That is an interesting question. There are going to be airport winners and losers in that whole process. On the one hand it reduces competition and as such, might be a bad thing for airports and for communities. Again, this is airports as they represent communities. It may not be a good thing for communities. On another hand, to the extent that it strengthens, it keeps these airports and airlines in business. That is a good thing.
You have more airlines even though it is concentrated power but they can give more routes, more frequency. Then there is the price problem, but more routes and more frequencies are typically good. On a third hand, does it give them too much political power, which can be very, very damaging for the airport and that is something we have to be concerned about.
On a fourth hand, one thing about this business, so far it has always managed to find capital. Not right this minute because the capital markets are pretty much closed, but over time that is always a limitation to the power of airlines – the fact that competition can come in. As long as that continues to be possible and as long as an airport makes sure they do not allow all of their facilities to be tied up so they cannot accommodate new entrants or an emerging entrant, then that will mitigate the harm that may be done by these alliances.
Now as a passenger, I think, depending on the price issues, if there is not enough competition and price is going up, then that is not good for the economy, not good for passengers. But for smoothing the trip, if you stay within the airlines of an alliance and therefore your baggage is handled properly and changes get handled properly, then it can be good for passengers.
So it can go a variety of ways. I think it is inevitable, but I don’t think over time it will ever constitute a very high proportion, just because this industry has proven itself to be so dynamic that the more you try to control it, the more it spurts out of control and then something else happens. To the extent that all of that keeps the system honest, then I think there is a place in the industry for the alliances.
GQ: In the U.S. there is a new rule about three hour tarmac delays. Some airlines have voiced concern about the new rule. I would imagine there are huge implications for airports as well. What are your thoughts on the three hour tarmac rule?
AG: Oh, airports love it, absolutely. Airports have been very irritated about tarmac delays because the airport can help. Often, the airport is blamed. Airlines say, “Oh, the airport was closed, or security was closed. We couldn’t go back.” That is just nonsense. These airports want to help. They are aghast when passengers are stranded for many hours, so airports applauded the rule.
I think the early evidence is that there have not been more airline cancellations, because that was the concern. If airlines were concerned they would not be able to make the three hours, they would cancel the flight. For passengers, that would be worse than sitting on the tarmac for a long period of time. But apparently that has not been the case, at least not so far. We haven’t had a winter season yet and the rule states they have to have certain amenities on board when delays occur. That is just humane.
I think it is a shame that a law had to be passed. One would think, “These are your customers.” You would take care of this yourself. There are going to be times when things just go very wrong and so these things can happen. But most of the time, it is a matter of someone making the decision to bring that plane back. What happens is you are optimistic. Gee, if you can just get this plane out of here, maybe in about twenty minutes...
So this gives them something else to think about. It is another variable to put into the mix and that is good. I think it will make for better decisions because previously, without this, the person in dispatch making the decision is only thinking about an airplane. They are not thinking about people. They are thinking about the connections down the line and trying to preserve an operation. Those are legitimate concerns. This puts another set of concerns into the mix. As I said, I think you are going to get better decisions.
GQ: If you can look into your crystal ball in the future, how will airports be different five, ten or 15 years out from the airline perspective and also the consumer perspective?
AG: I think you will see more technology. Not so much just because of airports and airlines, but because of what is going on out there in the world. You see some signs of it now with mobile phones being used for the check-in process, including the security process and identification. What we now call “technology” is accepted and used by more and more people.
Airports should think about what we need to do to accommodate that future. As we are getting the younger generation, that is going to open up even more possibilities in terms of how they interact in the world because what they do and how they behave will be increasingly more of how we do business because they are going to be in control of that.
At the same time, though, as the baby boomer generation is getting older and living longer, the whole issue of accommodating that older passenger – they may be on walkers and canes and wheelchairs and oxygen and all that, but they are not staying home. These are not your grandfather’s old people.
That accommodation will also take place for both airports and airlines, to not just accommodate but cater to that population and so you are going to see both things go on at the same time. I think certainly there is going to be a combination of more self-service – you are seeing that – but also more customizing. You are going to have a kind of self-service for the masses, but at the same time, the customer is going to be able to choose the menu of services.
We are going to know more and more about the customer. These things are possible now. Airports and the airlines have been in that mode for a while. Airports are getting more and more in that mode, to know more about the customer before they get to the airport and to really cater to the choices that customer wants.
GQ: Is there anything I haven’t asked or any specific message you would like to impart to the readers of Air Transport News?
AG: I would say that airports are not merely suppliers. Airports are key stakeholders in providing that customer experience. The more we, as an industry – airports, airlines, ground service, suppliers and the tourism and convention and visitor stakeholders – work together, the stronger we will be. I think that is my message.