You might have read the headlines from the 2013 ACI report: “80% of small airports are making a loss.” To the casual observer this statistic suggests that airports must grow their passenger numbers in order to be viable. But there is a more sublime approach, which is for small airports to become intermodal transport hubs, and share big data and market intelligence with LCC low cost carriers.
In the battle to win business from low cost carriers, small airports have very sensibly focused on bringing their infrastructure to the same quality as large airports. The best smaller airports have invested in passenger facilities, shops, lounges and parking areas that have the same look and feel as the major international hubs … just on a more compact scale.
Sure, the LCCs like to be associated with modern, passenger-friendly facilities … but regional airports are discovering they need to do more than that to attract and retain their airline customers.
And that extra ingredient which can tip the balance is big data. Specifically, the LCC’s marketing and financial people want help with completing their Excel spreadsheets. The strength of being a regional airport is knowing the local community. So here’s some examples of the kind of big data airports can share:
Demographics. What is the demographic in your catchment area?
Intermodal transport. How do passengers get to/from your airport?
Revenue sharing. What opportunities are there for LCC revenue sharing?
We’ve written a detailed insight below of how big data can help small airports to attract more airlines.
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Regional airports look for new ways to attract regional carriers.
Diving deep into data to attract new customers.
The 2013 ACI Economics Report (1), published late March 2014, highlighted the financial challenges faced by the world airports: two thirds of them are operating at a loss, and 80% of the airports catering for less than one million passengers annually are in the red.
So only a small proportion of regional airports have been profitable over the last few years. And in the current global economic phase, little improvement, if any, can be expected in the near future. So if small airports are likely to stay small … how can they turn that dynamic to their advantage?
It’s true that in a high fixed-costs business, every additional passenger generates a worthwhile marginal revenue versus the low incremental costs of handling that passenger. So of course generating incremental passengers traffic to increase the return on their assets is a very important part of the equation for airport operators.
But in this race for volume, few regional airports will get to the finish line since securing new routes is now largely the result of a bargaining negotiation where the power is ultimately in the hands of the low cost carriers. Very large airports will always be in demand by airlines … and it is a must for the management team at those larger airports to increase or consolidate their market position.
So the cards seem stacked against the regional airport from the outset.
In every region of the world there are only a handful of carriers willing to start a new route, while there are hundreds of medium and small airports looking for extra traffic.
So the big question is, how could these airports aim to be profitable – or at least break even – while the demand for more services from the airlines and passengers is constantly pushing up their costs, and the incremental revenue from new air services is limited?
At MilanAmos we think it requires a re-thinking of the regional airport’s marketing planning strategy. We believe that regional airports have the opportunity to leverage business intelligence and multimodal transport as a way to work with their LCC partners.
It’s not the destination, it’s the journey that counts.
Consider this. Airlines are focused on where passengers fly to, but airport marketeers are interested in where passengers fly from. So as a starting point, regional airports could recognize that airlines are approaching the same challenge – getting more passengers – from a different angle.
While volumes are important, a revenue & yield driven focus is a paramount of importance for airports in their approach to airlines, especially with low cost carriers.
Since LCCs have control over their distribution, the destination itself is diluted within the destination clusters defined by these airlines. The exception to this is network carriers, where the catchment area of the new market and its revenue impact on the whole network is a key element.
That’s why regional carriers and LCCs are looking for destinations which meet their portfolio approach. This category of airline needs to have the bulk of ‘sea and sun’ destinations to sell to their passengers on their main platform where aircrafts and crews are based.
But for the LCC a specific destination does not really matter since, through their aggressive pricing policy and direct distribution, they can easily shift traffic from one airport to another. Whether people fly to Corfu or the Costa Blanca for their holiday is, to a great extent, an irrelevance to the LCC.
However what will matter for LCCs is the revenue generated per passenger in terms of airfare and ancillaries. The decision to operate is based on the comparative yield or average revenue per nautical mile of one destination compared to another within its own cluster of destinations.
So the main focus, when preparing a route analysis, should be to benchmark the yield versus other comparable destinations, in addition to the potential volume of passengers.
Such an approach is becoming a new standard as large network carriers tend to rationalize their overall network by having their low cost entity (e.g., Vueling for IAG, Germanwings for LH Group and Transavia for AF-KL) operating secondary non-business destinations.
Agility and foresight are the keys to airport profitability.
The general movement towards a single fleet type, and more generally towards fleet simplification, provides more scheduling and capacity flexibility for airlines, particularly for short and medium haul sectors.
It represents a great opportunity for regional airport operators since the overall cost of operation is lower for the airline. This allows the LCC to operate destinations with lower market potential as their break-even load factor will be lower.
This also allows airlines to be more opportunistic in their operations, as they can rapidly re-allocate assets from one destination to another. Constant change is in the nature of the air transportation market, and now airlines are rapidly changing their schedules based on the expected market conditions.
However, in this environment of rapid change, airports cannot rely on historical data only. And data is where the smart regional airport has the opportunity to differentiate itself.
Think of it from the airline’s perspective. It’s a high risk for them to operate their destinations for the next scheduling season (i.e., starting in the next six months) with historical data that is only reliably available three months after departure? That’s like launching a product without doing any market research.
So a fair forecast on future demand and revenue – based on future scheduling and realistic assumptions – is how regional airports can align themselves with LCCs.
Sure, historical data is necessary, but is insufficient on its own to build a competitive market analysis. Airlines are continuously reassessing their current routes and evaluating new routes based on future market conditions, along with expected market demand and revenue.
Small airports need to speak the same language in order to engage in fruitful discussion.
It does not mean that airlines will accept their forecasts, but they will certainly compare it to their own evaluations and engage with the regional airport to discuss any potential gaps.
In this case, data has changed the dynamic of the relationship between the LCC and the regional airport. We think business intelligence is a vital way to move from being one of many suppliers to becoming a trusted commercial partner!
Turning regional airports into intermodal transport hubs.
The traditional vision for an airport is to provide the overall infrastructure to plane and deplane passengers and cargo, and to support the smooth operations of airline operators. In their marketing approach, regional airports focus greatly on the quality of these infrastructures and convenience of operations.
But when it comes to traffic estimates, it is not uncommon to over estimate the catchment area of the airport in order to present a favorable picture of the potential number of passengers to be transported on the routes. But LCCs take this into account and systematically reduce such traffic figures. This leads to a downward spiral where airports further increase their declared catchment area … and airlines counter by adjusting such projections in the opposite direction!
This fuzzy way of delivering figures not only makes it increasingly hard for the airport and the LCC to plan revenue … it undermines the trust between the two parties.
Milanamos proposes a new paradigm, based on accuracy and transparency.
We say that the best way to increase an airport catchment area – and to be trusted – is to look at intermodal connections to and from the airport. By including sea, rail, bus and other transport methods, the regional airline can credibly present a bigger picture.
It’s an approach that does require some focus, political support and collaborative work with these other suppliers of transport systems. It also requires business intelligence solutions to determine the incremental revenue that these other means of transport will contribute. By default, such an approach cannot be done overnight and calls for collaborative effort.
The good news is that Milanamos specializes in providing big data from multiple transport sources and turning that data into valuable business intelligence.
Going intermodal brings benefits all round.
The benefits of an intermodal, big data approach can be very significant for all parties: multimodal transport suppliers, tourism authorities, the regional economy, and of course the airport as an intermodal hub and the LCCs who use that intermodal hub all stand to gain.
Plus, of course, the public enjoy a better travel experience, which increases customer satisfaction, referrals and market demand.
Being a regional airport provides greater agility to become a smart airport, concentrating on a new paradigm that is focused on yield, future demand and intermodal connections.
MilanAmos has the expertise and tools for regional airports and their ecosystem to realize this ambition, and to build meaningful and convincing market analyses for airlines.
It’s a solution that will require some engagement and focus, but at least the models are there waiting to be used. And results can be significant.
So if you’re a regional airport, we suggest that you take steps to become a smart airport and an intermodal hub. Presenting accurate, big data about an enlarged, multimodal catchment area can help you to engage with and inspire low cost carriers.