Making the Most of a Downturn

On tap at Orlando: efficiency; new ideas; and weathering the financial storm

Operational Efficiency; privatization
Microeconomist from the Brookings Institute, Clifford Winston, began presenting on airlines, airports, and the economy by stating, “There are important things to learn from the economic crisis in terms of characterizing the role of public policy.

“My main point is to stress that competition and cooperation are important in times of crisis.

“Competition is still the critical driving force of efficiency; ultimately it’s what spurs growth because it facilitates innovation and technical change,” he says.

In terms of the airlines, Winston relates that the fundamental problems are matching capacity with demand, and being able to forecast demand in order to commit to capacity in advance. A poor match leads to excess capacity and fare wars, says Winston, while insufficient capacity leads to the loss of market share.

According to Winston, the airline industry’s adjustments to the current economic shocks have made operations more efficient. Re-regulation would only limit the industry’s flexibility and, in turn, limit its ability to adjust to the shocks.

“If anything, we need to open up the playing field,” says Winston. “More deregulation of international operations would allow airlines to run with a more diversified portfolio.”

“We are starting to see a bit of this with Open Skies; but we can see a lot more, and I think that would lead to much more efficiency and benefits to consumers,” he says.

Considering airports, Winston says because almost all U.S. airports are publicly owned and managed, airports are more insulated than airlines from erratic economic shocks because they have more diverse public and private revenue sources.

Among the current economic issues airports face, the most critical concern reductions in airline operations causing potential revenue shortfalls, and changing patterns of airline service that may affect airports in low-density areas of the country, says Winston. Efficiency can be gained, he relates, by appropriate investment in infrastructure and a conscious move toward the privatization of both airports and the air traffic control system.

“The nightmare with air traffic control is that billions of dollars are spent on things that are decades late, over-budget, and by the time they are completed, the technology is out of date.

“Markets are not the end-all and they do not always perform flawlessly; and I don’t want to endorse full-fledged privatization. But we should start thinking about experiments.

“The idea is to encourage explicit competition among airports by playing them off one another in different regions of the country. Airports can also play parts of the airline networks off one another; these are subtle ways competition can develop,” he says.

“Cooperation is also very important. Airports and airlines in the private world that I see, are engaging each other with their mutual interests in mind,” says Winston.

“I am pushing for more deregulation and privatization; we need less rather than more government intervention in the aviation industry.”

Retail Trends
Urban affairs analyst Richard Florida applied his “creative class” concept to retail operations within airports as part of his presentation at ARN ‘09. Florida says that in an airport environment, where options are limited, airports of the future should look less like a mall, and more like a neighborhood.

“What makes a great neighborhood is a mixture of both local and commercial goods to choose from,” says Florida.

Florida cites Austin-Bergstrom Int’l Airport as an example of a neighborhood-like airport which offers incentives for local artists, concessionaires, and musicians. Florida stresses the importance of maintaining an airport as a reflection of the local community, utilizing authenticity as a key marketing tool.

Deputy manager of revenue development at Denver Int’l Airport, Patrick Heck, relates that a successful concessions program will have a distinct vision and goal set. Denver’s primary goal in this arena is to create and maintain a vibrant first-class concession program offering a range of quality food, beverage, and retail services in a branded environment, with a specific emphasis on local, regional, and national brands. By implementing concession design standards to create an engaging environment, Heck says Denver is able to respond to customer needs and provide value and great customer service in everything they do.

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