Small airports and the bottom line
ACI World’s vice president and chief economist, Patrick Lucas, and vice president for airport customer experience, Dimitri Coll, remind us of the economic challenges facing small airports and how enhancing customer service can boost revenues.
Airports are asset-intensive businesses that require large investments just to accommodate a single aircraft landing. They must achieve a critical mass before they can start recovering these large investments in infrastructure and their operating costs to reach profitability.
However, the majority of airports across the globe are small. In pre-pandemic times, as much as 90% of the world’s airports had fewer than five million passengers (in 2019) on a per airport basis. And airports that serve smaller markets tend to have higher overall unit costs on a per-passenger basis.
The economics of airport infrastructure is such that average total costs decline with an increase in market size up to a point – this refers to economies of scale. As such, a significant proportion of smaller airports operate at a loss. This challenge was only exacerbated through the pandemic.
Based on data from the ACI Airport Economics Survey, 97% of airports that have fewer than one million passengers operated at a loss in 2019. The propensity to reach profitability increases with airport size thereafter.
The reason smaller airports remain in operation hinges on the fact that they contribute to the local, social, and economic development of their surrounding communities. Because of the positive externalities that they generate, government intervention in the form of subsidies
or grants helps to cover the shortfall or deficits.
In the case of major airport networks, which consists of a portfolio of airports under a single operator in a given jurisdiction, profitable airports in the network tend to cross-subsidise or compensate the net losses of smaller airports.
Small, emerging, and regional airports play a vital role in feeding traffic into hub airports for onward journeys to other major national and international destinations, while also generating traffic that ensures the sustainability of larger airports within the network.
Airport traffic development has, of course, important social and economic benefits in terms of job creation and the economic vitality for communities where smaller airports may be located.
In many jurisdictions, it also represents an important policy objective for tourism authorities and regional economic development. Smaller airports that are commercially driven or have a policy objective to support the economic development of the communities they serve have various managerial levers at their disposal.
Air service development
The strategic development of traffic involves several levers and the engagement of multiple stakeholders to ensure its success.
This first part in this process involves setting the scene and understanding the potential demand for new routes. Conducting thorough market analyses and forecasts to determine the viability of new routes or increased air service is a foundational piece.
Secondly, ensuring that an airport has the necessary infrastructure to support the desired level of air service, including terminal facilities, runways, taxiways and air traffic control systems are crucial for being able to accommodate growth in passenger demand.
Thirdly, a key ingredient for success considers the implementation of effective marketing and promotional strategies alongside the local tourism authorities and hospitality industries to increase awareness of the airport and the destination served.
The fourth element relates to airport-airline relations – that is, building strong relationships with airlines and working with them to develop new routes and attract additional air service to an airport is fundamental to air traffic growth.
The provision of incentive packages such as landing fee or passenger fee discounts, marketing support, and streamlined customs and immigration processes are all important measures to consider for stimulating airline demand.
Many airports already offer incentive packages in the form of passenger volume discounts and load factor rebates. Approximately 70% of airports globally offer incentives to airlines, across all traffic sizes, based on results from the ACI Airport Economic Survey.
Enhancing customer experience to boost revenues
Enhancing the customer experience goes hand in hand with air traffic development. Airport customer experience management is a holistic and structured concept and can be defined as the practice of designing and reacting to customer interactions to meet or exceed customer expectations.
Increasing customer satisfaction leads to brand loyalty and advocacy, which in turn enhances revenues.
ACI World demonstrated through the research report Does passenger satisfaction increase airport non-aeronautical revenues? that customer experience is the single best way to increase non-aeronautical revenues.
Analysis of the ACI World Airport Service Quality (ASQ) data shows that:
- An increase of 1% in the number of passengers leads to a growth of non-aeronautical revenue (NAR) ranging from 0.7% to 1%
- An increase of 1% in the size of the commercial area leads to a growth of NAR of 0.2%
- An increase of 1% in global passenger satisfaction (as defined in the ASQ Survey) generates, on average, a growth of NAR of 1.5%.
Airports are tasked with meeting and exceeding passenger expectations through different providers including airport operators, airlines, ground handlers, retailers, governmental agencies, and more.
According to ASQ 2022 benchmark, small airports (i.e., less than 2 million passengers) globally are performing well in the fist touchpoints of the passenger journey: Check-In, Security Screening, and Border/Passport Control.
Nevertheless, the commercial experience as well as the experience at the gate are areas that seem to be a component of the customer experience where there is room for improvement. Especially in the optic of increasing non-aeronautical revenues.
There is also room for enhancements in Wi-fi service quality, availability of charging stations, and entertainment and leisure options items. Nonetheless, small airports are performing well in terms of wayfinding which has an important impact on the level of stress experienced by passengers.
A good customer experience is when:
- The customer accomplishes their goal with a positive emotion, in accordance with their needs and expectations, and that it is effortless
- An airport constantly delivers a good experience over time and meets the customer’s expectations, in accordance with the brand promise.
The first step to managing the airport customer experience is to understand the passenger needs and expectations and a programme such as ASQ is a good starting point (aci.aero/programs-and-services/asq).
ACI World supports the growth and development of small and regional airports by a suite of solutions adapted to their reality and business model.