By Nuno M. Brilha (Lisbon, Portugal)
The last 12 months have produced some bold headlines in the airport industry. The ACI Europe Airport Commercial & Retail conference 2018 was dedicated to ”transformational disruptors in the airport commercial space”, while the 2018 ACI Europe/World General Assembly focused on ”airports as brands and businesses”, and the recent ACI Europe Airport Commercial & Retail conference 2019 declared ”airports should adapt or die”.
What is going on in the industry that sparks such daring claims? What exactly is being disrupted, branded or facing adaptation or death? Spoiler alert: it’s nothing less than the traditional airport business model!
Over three decades have elapsed since the former BAA was privatised, becoming the UK’s largest private airport manager, operating seven airports in a regulated market. Suddenly airports had a broader scope and new-found objectives. Airports were no longer just operators of infrastructure, but businesses in their own right.
Taking advantage of strong barriers to entry, new non-aeronautical business portfolios have mostly been designed on the concession of the passenger facing business areas. For a time, there was a rage for star categories such as travel retail, then car parking and, more recently, F&B concessions were won mostly on MAGs and concessionaires paid-to-play and to be safeguarded from competitors for the duration of their respective contracts. Effectively, these have been the decades of location-location-location, harnessing footfall by using three critical airport concession management success factors: 1) areas, 2) layouts and 3) retail mix. From a captive audience perspective, there were ‘golden hour’ rules, ‘sense of place’ architecture and ‘passenger experience’ tactics to capture the most value – mostly from impulse buying.
The disruption of the traditional airport operator actually began over thirty years ago, so why look surprised in the face of change?
Having physically grasped the captive market, how can airport managers generate consumer enthusiasm? The quick answer is, of course, with bigger and better brands. Step one: take a selection of international brands that contribute to a dynamic space and provide a safe shopping atmosphere. Step two: add a dash of sense of place with local brands to convey differentiation and uniqueness. Simple, isn’t it?
But the presence of mainstream international brands – directly or via travel retail operators – enforces standard categories and assortments, leaving little space to wow the passenger and create genuine consumer enthusiasm. Looking for innovation and flexibility, some airports have allowed more risk sharing with brands and travel retail operators, balancing concession contracts and even joint ventures.
On the other hand, cross sharing stock and expertise has short term upsides and does not change existing business practices from both parties. Nor does it lead to engaging Travel Retail in the age of consumerization. So what is missing?
At this juncture, most airports are experiencing the limits of the traditional operator model and are facing direct threats from industry outsiders – mainly from digital players that are redesigning the connections of the wider Travel & Tourism industry. In fact, while airports have been focusing on the US$ 67 billion Travel Retail market, the global Travel & Tourism market is reaching US$ 3 trillion – effectively leaving Travel Retail as a small niche, ripe for disruption.
Enter the Airport Retail Framework.
The traditional operator approach is not enough anymore to push the commercial revenue stream, let alone maximise it, which is why the ‘traditional’ business model is now basic business. Hence, using the Travel Retail perspective, the framework uses a 7-step approach to address fundamental business questions – from the business model design to the existing airport key competencies.
It should be used to critically assess the status quo by ticking the boxes that best describe current airport retail practice and thus to position it in the evolutionary scale. The higher total sum will indicate the current evolutionary stage of the airport. But, more importantly, provide a playbook for change concerning the indispensable evolution of the airport business model.
At the end will airports adapt or die?
Adaptation is actually an opportunity, and by embracing change and adhering to the new frame of reference, airports may veritably envision exciting times ahead while still holding strong competitive advantages.
What to do, then?
Start your adaptation by considering these three conditions.
#1: In addition to getting the basics right, airport retail has mounting challenges, as the global retail business has already moved from tracking in-store footfall to driving engagement across the customer journey.
#2: A cultural shift must occur in the airport mindset – from the conventional ”build it and they will come” mantra to the new digital mantra: ”the customer base is the mother of all growth”.
#3: Passenger traffic and the resulting aeronautic revenue will always be a key part of the customer base, but the contemporary airport business model is built on new layers of competencies, meaning: ”it’s not about the size of your passenger volume, but what you do with it”.
If these conditions make sense and you are already executing on them, congratulations. You are prepared to deal with the challenging and exciting times ahead for airport travel retail.
Nuno M. Brilha is an executive, lecturer and researcher, specialized in Strategy and Marketing, with a passion for the Air Transport, Tourism, and Technology industries. Over the last 15 years his professional experience was built on growing non-aviation business portfolios at international airports, and fast scaling global internet companies, resulting in an effective knowledge of the workings and tactics of the traditional and the digital economy.
BA (Hons) Business Studies from University of Westminster, followed by a Post-Graduate course on Air Transport; Airports and Intermodality from Cranfield & ISTC; a MSc in Management and Tourism from University of Aveiro and diverse international executive courses at the Universities of Westminster, Cranﬁeld and INSEAD.
He is now working on completing his PhD on Strategy and Marketing from the Universities of Minho, Aveiro and Beira Interior.
Co-authored the book Aviation and Tourism – Implications For Leisure Travel and published the Evolution Of The Airport Industry – From Commercialisation to Globalisation and also The Strategic Convergence of Transport and Tourism National Policies: The Case For Portugal.
As university lecturer, he teaches and researches Strategic Management, Strategic Management for Civil Aviation and Airport Management at ISEC Lisboa – School of Aeronautics and recently published Airport 3.0 – The New Business Model For The Airport Company and From an Airport Operator to an Airport Platform: Towards a New Business Model.