Of Airports, Business Models

Nov. 19, 2008
One on one with ACI’s Angela Gittens

BOSTON — During this fall’s meeting of airports at the ACI World/North America joint conference, the director general of Airports Council International, Angela Gittens, sat with AIRPORT BUSINESS to discuss the business of airports as the industry looks to the future — at a time when the present is challenging enough. The business model of airports around the world is evolving — rapidly, she says. The important thing is to let market forces work, and for airports to be facilitators. For the passenger, the evolving business model is one in which the airport takes the lead in the customer experience.

Gittens took over ACI’s director general position in April, succeeding Robert J. Aaronson. She has held senior positions at airports in Miami, Atlanta, and San Francisco, as well as with TBI Airport Management and HNTB Corporation.

Following are edited excerpts of our discussion with Gittens ...

AIRPORT BUSINESS: Looking ahead at the future of airports, what stands out for you?

Gittens: The nature of the business and the nature of airport management’s role in their airport has evolved over time. It is now characterized by a more or less full responsibility for the processes at the airport and the outputs.

Once upon a time, airports were generally run directly by governments as part of an overall governmental function. They essentially acted as landlords [and] the provider of infrastructure, as government does with streets. The government built the roads for the vehicles and for the airplanes, and sometimes built buildings in between; sometimes they didn’t. Sometimes the airlines built it. Even when the airport did, most of the process going on inside of those buildings was undertaken on behalf of others, primarily the airlines.

Over time, the airlines started to outsource some of those processes; and over time, the airport took over some of those processes.

What’s been happening in [the U.S.], because of the volatility of the airline business where airlines come and go … it started to fall more and more to airports to at least manage the base, and then more and more to manage some of the processes.

In other countries, governments started to corporatize or privatize their airports, which meant they brought in either pure investment by parties who then had some levels of control, like shares of airport stock, or they might have brought in a concessionaire to operate and manage the airport in return for potential revenue or a fixed fee. They may have set up the airport as a self-sustaining enterprise, like what was done in Canada, where these are non-profit entities but they pay rent to the government and taxes to their localities, just as though they were a private business.

A later evolution is when companies run more than one airport in different countries. You have a corporation that owns an airport in Australia; owns an airport in Europe, or Africa — or anyplace but North America.

AB: It appears that the business model of airports is changing on a global basis.

Gittens: There’s this range of business models that’s moving this segment of the industry to control more of the process — the property and the process — because they have to have the vision and the authority to carry out that vision, since the other thing that’s going on in the world is liberalisation. What we call deregulation is now happening on the international side where increasingly, instead of bilaterals, there’s Open Skies or liberalisation, so that instead of the various countries getting together and deciding where airplanes will fly, airlines decide where airplanes will fly. So it’s up to the airports, or somebody, to try and attract and retain air service for their community. There’s not a governmental entity doing it for you anymore. Now the market is doing it.

That’s prompted various competitive behavior. Airports now conduct passenger surveys; they have to listen to their customers; put in different features; take responsibility for processes that maybe someone else should have responsibility for. As long as it affects the attractiveness of that airport to either a carrier and/or passenger, it’s something that the airport has to be mindful of.

I take security processing as one of those. Technically, the state, as they call it in ICAO parlance, should be responsible for the screening of passengers and baggage. To the extent that that’s not done, or done in a way that creates delays or is under-resourced, the airports increasingly do it. They can’t afford to have their airport be a place that it’s difficult to get through.

AB: Airports speak more and more of controlling the customer experience.

Gittens: Take one example — the common use processing systems; what we used to call CUTE, common use terminal equipment, but it’s expanded beyond that now. It’s CUSS, it’s CUPPS.

That has fallen to the airports, or the airports have assumed it, energetically, for a couple of reasons. One, for flexibility. As capital investment becomes more and more expensive and as airports mature, it’s getting very expensive to make capital investments in them anymore. There aren’t many green fields; there may be no more room, and your next piece of expansion is going to cost you millions of dollars.

So, you want to stretch the capacity you have to meet more and more demand. One way of doing that is to get flexibility. At one time, an airport might have had 90 ticket counter positions and no more than 30 were used at one time. Rather than build another ten for a carrier, which now will take another terminal, you have them share. To have them share, you have to be able to accommodate their needs – their own data processing; their own data security; their revenue management; their passenger management; their brand.

AB: And brand is why Southwest Airlines says they don’t like common use systems.

Gittens: Yes; and that’s been heard. With CUPPS [Common Use Passenger Processing Systems], the technology has been improved and modified and customized, basically, to meet these issues.

AB: Can we discuss the move toward Open Skies, or deregulation?

Gittens: Or liberalisation, which is what it is in the rest of the world.

We support liberalisation in general; we basically support accommodating the market. We support having the market speak. Aviation, more than any other mode of transportation, is about eliminating national borders. It’s accommodating global communication.

AB: What other key issues are hot buttons for you?

Gittens: I think the issue of airport economics will come more to the forefront. I talked about the airports’ business model evolving; we know airlines are the volatile sector, and I don’t see that changing. Demand will continue to grow, in spite of the current situation.

The issue for airports is how to keep up with the capital investment demands that growth brings? There are going to have to be evolutions in the relationships among airports, airlines, and government regulators, including taxing authorities, on allowing their economic engine to continue to run. It’s going to be an issue.

We’re all concerned about environmental impact. It’s still noise — climate change is the flavor of the month. Noise and air quality are issues that airports need to deal with. Sometimes it’s a tradeoff.

I see coming up a greater emphasis and building of knowledge of what airports can do on the ground to reduce their carbon footprint, which is tiny, but they can help.
I think air traffic modernization is critical. Demand is going to continue to grow, and there is no way that this system can accommodate that demand with current technology. It’s not going to happen.