Airport Business

MAY 2018

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TECHNOLOGY About 84 percent of passengers said they preferred sitting within 10 feet of the glass. Tinianov said the survey results confirm passengers put a high value of sitting somewhere with a view. It also provides a path for future planning for airports. "You need to put more people into the same footprint of space, so that seating, the lost real estate at the perimeter of the building, you need to recapture that," he said. "One, because you need it for increased passenger flow and two, it's the most valuable property you have. It's where the people are happiest and have the lowest stress levels." Horton said the study showed passengers were willing to sit closer to one another in the gate with the dynamic glass. One even took a selfie using the outside backdrop in the photo. "People intuitively know that windows and views are a good thing, but they really want the validation to support that," Tinianov said. "I also recognize that airports have a limited footprint. DFW is going to add 10 percent more passengers on an annual basis "While this is a stand-alone product, it has the ability to positively impact multiple systems in the building," he continued. "You really want to look at the way you can create some broader cost savings and design flexibilities for the terminal." Horton said DFW is exploring the opportunity to deploy the dynamic glass at a larger level across DFW's terminals. "We definitely see the value and we hope to be exploring a strategy for implementing across our network," he said. "Using these smarter ways of managing energy that goes into a building and reducing the demand so it requires less energy to operate is something we're always going to chase." AIRPORT OPERATORS SHOULD PREPARE FOR RETAIL AND MOBILITY DISRUPTION Thanks to rising passenger volumes globally, the outlook for airport operators is currently stable. That said, airports' commercial and aeronautical revenues could be under threat from a raft of disruptive forces. By Mar Beltran AIRPORTS today are operating in an evolving environment: although passenger volumes are soaring, today's fliers are increasingly cautious about their spending when in the terminal. What's more, a higher volume of passengers using low-cost carriers (LCCs) could mean higher parking and food and beverage revenues – but it also means discounted aeronautical charges and diminished appetite for higher-priced duty-free and luxury goods. And the negative effect on revenues is already being felt: after decades of sustained growth, global duty-free and travel retail (DF&TR) sales contracted in 2015 and then flattened in 2016, even though tourism growth remained buoyant. Pressuring airports' revenues further is the prospect of technological disruption. Currently, the rise of both ride-hailing apps and online shopping outlets could threaten airports' commercial and ground transportation business models. And threats to airports' transport infrastructures will likely emerge in future decades, too, from the development of electric and autonomous vehicles. Of course, such factors can also carry significant opportunities for airports to increase revenues but the onus remains with airport operators to seek these openings – and to exploit them. Soaring passenger volumes: a double-edged sword? Indeed, for the past three decades, airport passenger numbers have soared, largely thanks to increasing worldwide wealth and population growth and, more recently, from both an international tourism boom and falling fuel prices. S&P Global Ratings expects this trend of stable returns to continue for the next one-to-two years. According to figures by the International Air Traffic Association (IATA), year-on-year global air traffic growth at the end of 2017 stands at around 7 percent – which is double the worldwide average for projected economic growth. And the growth outlook appears positive: the International Civil Aviation Organization (ICAO) predicts that passenger numbers will nearly double in the next 15 years. Also contributing to the aviation industry's expansion is the enduring rise of LCCs. By the end of 2016, LCCs' market share averaged 24 percent globally, with Europe and South America leading the way (with LCCs enjoying a 34 percent share in both geographies). This more diverse landscape of airlines is only intensifying competition – and is causing aeronautical revenues (per passenger) to stagnate. In 2017, airport revenue per passenger averaged $20 – down from $21.22 in 2014 – according to the Airports Council International (ACI), the trade body representing over 800 airports and above 70 percent of global passenger traffic. And given that the ratio between aeronautical and non-aeronautical revenues has remained the same, it appears that airports' revenue growth is falling across both commercial and aviation businesses. Challenges for commercial operations So, why are airports' commercial revenues also trending downwards Certainly, the deep structural transformations in the retail and mobility industries play a significant part – namely online shopping and the rise of alternative mobility options to the private car (such public transport, car or ride sharing). After decades of sustained growth, DF&TR sales contracted in 2015 and were flat in 2016 – a possible concern given that global tourism figures were resilient during this period. The rise of online shopping is markedly changing consumer behaviour, and dissuading passengers from spending in the terminal. The challenge for airport operators is that – should commercial revenues continue to trend downward – aeronautical tariffs will need to increase if they are to sustain their current margins. Disruption to airports' ground transportation business models could also weigh on airport revenues in the future, and for some airports they represent a significant share of total revenues. For instance, parking and ground transportation fees (paid by taxi, bus, and car rental operators) Continued on next page 14 airportbusiness May 2018

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