Exambela Consulting
An Exambela Commentary
Exambela Consulting
would like to thank the
following people for
their generous input into
this commentary:
Robert Aaronson
Former Director General,
Airports Council
International World
George H. Casey
President & CEO,
Vancouver Airport Services
Hervé de Place
President of the Board,
Aéroports de la Côte d'Azur
Richard Gooding
Chief Executive,
London City Airport
Dr. Michael Kerkloh
CEO, Munich Airport
Olle Sundin
Managing Director
Regional Airports Division, LFV
Wilfried Van Assche
Chief Executive Officer,
The Brussels Airport Company
“There will
be blood…”
Diversify, Differentiate, Innovate:
Airport Strategies for Success in a New World
David Feldman
The airports business used to be simple. Only a few things really seemed to matter: grow
traffic, capture market share, and keep the politicians happy. It was the combination of
these three things that kept the industry going—and kept airport CEOs in their jobs. But
these old rules no longer apply in the airport world. Competition between airports has
become stiffer, and market share can no longer be taken for granted. Neither can traffic
growth, especially in challenging economic times when both business and leisure travel
are taking heavy hits.
The changes in the airport world have generated casualties: Brussels and Pittsburgh some
years back, and more recently, some of the fast-growing low-cost airline bases. In the future,
the impacts of growing competition and declining traffic are likely to challenge airports in
different regions around the globe, from fast-growing hubs in the Gulf to retrenching hubs
in Europe and North America.
In order to be among the winners, airport CEOs will need to define new strategies, develop
new business models and adopt new value propositions for their airports. They will need to
put the right teams in place who buy into the new strategies and execute flawlessly. Most
importantly, they must keep in view a strategy for long-term, sustainable success and not
simply react to today’s or tomorrow’s crisis. In Exambela’s experience working closely with
different airports around the world, we have observed that the most successful strategies go
beyond simply reflecting the needs of customers and delivering a sufficient return to investors
or other stakeholders. To adapt and thrive in this new world, airports will need to embrace
three crucial tenets: diversify, differentiate and innovate.
The combination of thriving competition between airports and hard economic times means
that many of the business models that have been the bedrock of airport growth over the past
20 years no longer apply and cannot be counted on for success. It is becoming increasingly
apparent that the airport industry will see even more casualties in the years ahead.
Mid-sized connecting hubs such as Brussels in the 1990s and, more recently, Pittsburgh
and Milan Malpensa that lack any fundamental competitive advantage over larger, more
established hubs were forced to restructure when the local hub airline became less viable or
disappeared completely. Other mid-sized connecting hubs in Central Europe, in South Asia and
in other geographies are just as susceptible to downturns in travel markets as economies falter.
Similarly, many low-cost airline bases, which were successful in transforming previously
dormant regional airports, subsequently found themselves overbuilt and/or overstaffed when
the low-cost carrier serving the airport left or went bankrupt (for example, Clermont-Ferrand
in France, Kent-Marston in the UK, Malmö in Sweden, etc.). In other cases, investors have tried
to unload the airports because they are unable to achieve sufficient profits. Fraport’s sale of
A member of the
1
European Partner Group
 Hahn airport is an example. Despite the significant economic development in the region of
Hahn that resulted as the airport increased traffic from near zero to nearly four million last
year, Fraport was unable to ever achieve sufficient return on investment in the form of
innovative new revenue sources to counter the losses of operating the airport, and it sold
the airport for 1€ in 2008.
Other examples of failed strategies include an overreliance on generic commercial develop-
ment, such as simply adding more retail with high prices and a mediocre product offering,
or “airport cities” which in some cases relied too much on rising real estate prices and the
corresponding glut of office space instead of underlying value of the airport asset. In these
cases, some airports and their investors simply expanded retail space without any sense of
customer requirements or offering anything unique. This “build it, and they will come”
approach, without differentiating their offerings or understanding different customer segments,
in these cases has left behind empty shops and unhappy shareholders.

New business In contrast, a handful of business models have proved to be especially well adapted to today’s
models for competitive and economic environment, and several others are emerging as promising, as
new times shown below in Exhibit 1. Some of these business models, such as alliance anchor hubs and
“airport city” development, have been successful for some airports for several years. But not
every airport can attract 50 million passengers per year, and so an airport company must care-
fully construct and adopt the business model that plays to its airport’s own unique strengths
and markets.

EXHIBIT 1
Established and emerging
airport business models Business Model Representative Examples

Alliance Anchor Hub Dallas/Ft. Worth, Paris CDG, Frankfurt, Singapore Changi, Hong Kong

Established “Airport City” Developer Amsterdam, Dublin, Zurich at Bangalore, Abu Dhabi

Multimodal Port Amsterdam, Hong Kong

Airport as a Destination Dubai, Singapore Changi, Athens (landside)

Home Fortress with Manchester Airport Group and its satellite airports, East Midlands,
Satellites Bournemouth and Humberside.

Niche Player London City Airport for business travellers, Liege for Cargo

“Do what others can’t” Express cargo hub at Cologne/Bonn; business aviation at Farnborough and
Biggins Hill; fastest travel times between Europe and Asia via Helsinki

Perpetual London Heathrow, possibly Los Angeles LAX

Emerging Construction Site

Offsite or Volaris Airlines’ virtual airport in Mexico City serving Toluca Airport
“virtual” airports

Source: Exambela Consulting analysis

New business models have been developed to reflect changing market dynamics. For example,
the business model successfully built upon airport retailing developed by BAA in the 1990s at
Heathrow is no longer the cash cow it was, due to increased competition along with security
regulations restricting liquids on board aircraft. BAA’s focus now appears to be the profitable
management of multiple, long-term construction sites at its airports. In effect, BAA has become
less and less an as an airport operator, but more of a construction manager at Heathrow.

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 London City Airport has pursued a different strategy and developed into a one-of-a-kind niche
airport. Offering its target market the fastest passenger processing times of any airport in
London, its competition is not so much those other airports, but rather conference calls or
high-speed trains. Its business model is not based on stealing share from other airports as
much as it is on making air travel convenient enough to entice the businessperson who has
other alternatives.
“Do what others can’t” is another viable business model adopted by some airports to fill gaps
in the competition’s service offerings. For example, Cologne/Bonn provides 24-hour operations,
allowing it to be one of Europe’s few night hubs for express cargo operators. In the London
area, both Farnborough Airport and Biggin Hill have turned a traditional liability—their
remote locations—into a competitive advantage. They have been successful with London’s
strong business jet market, providing the high-quality and flexible service demanded by this
segment that extreme congestion makes impossible at London’s larger, closer-in airports.
Helsinki provides another example of this strategy. Whilst it has neither a large local popula-
tion to draw on nor the tourist appeal of some other European capitals, it does have a strategic
geographic advantage. Flight times between Europe and Asia are faster via Helsinki than via
Europe’s more central hubs or the Gulf airports. Combining its strategic location with
shorter transit times due to its medium-sized, efficient terminal, Helsinki has created
a genuine competitive advantage as a medium-sized connecting hub.
Finally, airports are becoming more and more “virtual,” as activities such as check-in, shopping,
pre-ordering and purchasing of customised services (parking, lounge access, etc.) take place
outside of the physical airport itself. Low-cost Volaris Airlines in Mexico City has pushed
this concept even further, developing a city terminal located in a shopping mall in which
passengers complete check-in formalities. They are then bussed to Toluca Airport 60 kilometers
away to actually enplane. Abu Dhabi-based Etihad Airways has a similar service, with luxury
coaches allowing it to expand its catchment area into Dubai. Whilst these examples have
been developed by airlines, these “virtual” services could also be developed by airports
themselves in the form of revamped “city terminals” that had been popular in the air trans-
port industry some years ago. Some of the smaller, out-of-the-way European airports that are
LCC bases provide profitable shuttle services into larger cities to counter the operating losses
at the airport.

The keys to a Each airport is unique, and there is no single template for success. However, in developing
successful airport sustainable strategies for airports around the world, Exambela has observed that many of the
business model: most successful new business models follow a three-pronged mandate to “diversify, differ-
Diversify, entiate and innovate.”
differentiate,
Diversification is a key element for any airport’s strategy, and an overreliance on a single
innovate
revenue source without a sense of underlying customer needs has been responsible for some of
the industry’s recent casualties. For example, Brussels Airport saw the majority of its traffic
disappear in 2001 when the hub airline Sabena went bust. Dead center between Europe’s
busiest airports—Heathrow, Frankfurt, Paris CDG and Amsterdam—Brussels had little
chance of competing with the giants outside of its narrow geographic scope. However, under
new ownership and new management that joined the airport in 2005, the airport devel-
oped a new strategy no longer based on imitating the “big guys,” but rather on transforming
Brussels Airport into a highly efficient, mid-sized European gateway. A key element of this
strategy included diversifying its carrier base beyond the national airline SN Brussels, to include
international flag carriers and a mix of low-cost carriers, for which the airport is building
a dedicated facility.

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 Nice Côte d’Azur Airport, along with its subsidiary Cannes-Mandelieu Airport, provides
another example. These airports’ combined flights are divided roughly evenly—a third each
—among Air France and other network carriers, low-cost carriers and business jets. Each
segment has very different market dynamics from the others, allowing the airport company
to be better able to weather bad times.
Athens also has successfully diversified its revenue sources as a core part of its strategy, not
only in the form of actively marketing to new airlines for aeronautical revenues but also in the
form of “magnet store” retailing on the airport site for non-aeronautical revenues. By bringing
in giant warehouse-size retail centers in a location that provides easy access and easy parking
—nearly impossible in downtown Athens—Athens International Airport has become a
destination of choice for Athenians to buy washing machines and living room furniture,
providing a unique and valuable source of profits for the airport.
In Asia, Singapore Changi, whose primary business model is to be an “alliance anchor hub”
for Singapore Airlines and Star Alliance, also has pursued an international strategy to make it
less dependent on traffic at its home airport. Through its division Changi Airports Inter-
national, the airport owns or manages airport activities around the world.
Differentiation is a frequently overlooked element in most airports’ long-term strategic plans.
Sadly, too many airports, whether a hub airport in Europe or a regional airport in Asia, look
and feel the same. However, in an age of increasing customer centricity, creating a unique
value proposition has become more important than ever. The airport value proposition now
must go far beyond simply impressive architecture, to address how customers experience the
airport asset and so create the “airport as a destination.” Customers, whether they are airlines,
passengers, concessionaires or other businesses operating from the airport, must be given a
reason to choose one airport over another, perhaps even over an airport closer by.
Successful examples of this strategy include the hotel doorman at London City Airport, a
Turkish bazaar in the center of Istanbul Airport, and a butterfly garden in Terminal 3 at
Singapore. Creating a differentiated sense of uniqueness that reflects the local culture is also
a key part of Vancouver Airports Services’ strategy when it bids for airports around the world,
and it is a key driver of Vancouver Airport’s consistently high customer service ratings.

“Creating airports with a local sense of place is a key element of our brand”
George H. Casey, President & CEO, Vancouver Airport Services

An emerging area of potential differentiation is environmental strategy. For example, LFV,

the operator of 16 airports in Sweden, was one of the first to recognise the importance of the
environmental sensitivities at airports and is believed to be the first airport company in the
world—as well as the first major Swedish company—to become climate-neutral in terms of
greenhouse gases.
Innovation is the final element essential for newly successful airport business models. A culture
of innovation allows an airport to stay ahead of the curve and anticipate future trends. As
today’s markets and customer needs evolve, an inflexible adherence to what worked in the
past can be a death sentence.
Successful innovation requires “out of the box” thinking. In truth, the basics of the airport
business have not changed much over the past 30 years. An airport essentially is a big box
(sometimes a fancy new box, and sometimes an outdated old box) that people enter through
one end, engage in various activities inside (check-in, seat assignment, security, etc.), and
then exit at the other end to board the plane. Improvements in the speed and efficiency of
these standard procedures and processes often have been offset by the need for new or more
complicated processes (for example, security). Most of the examples of innovation at airports
have been invisible to customer (such as improved air traffic control procedures) or have been
initiated by the airlines rather than by the airport (such as web-based check-in).

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 The airport world does offer a few examples, however, of genuine innovative thinking. For
example, Swedish airport operator LFV has been particularly innovative in developing new
revenue sources, such as advertising billboards on control towers, “check-in shops” where pass-
enger complete check-in a retail setting and airport special event parties, as shown in Exhibit 2.

EXHIBIT 2
Examples of LFV’s new
revenue streams include
check-in shops and
control tower billboards

In terms of innovation and customer interface, Nice Côte d’Azur Airport has introduced a
Club Airport Premier for frequent flyers at the airport. This loyatly programme offers a range
of value-add services including biometric technology to speed passengers through the airport.
Another example of innovation comes from a new entrant in the airport world. GE Commercial
Aviation Services, a division of General Electric, manages what is believed to be the lowest-
cost terminal in the world, a former military building at Austin Airport in the United States
converted into a trans-border terminal for the ultra-low cost Mexican airline VivaAeroBus.
GE achieved this by leveraging its infrastructure management expertise outside of the airport
industry and managing all activities within the airport terminal.
Exambela recently asked the leaders of 22 European airports to identify which other European
airports they thought were “best in class” in terms of innovation1. The results are startling
(see Exhibit 3):

EXHIBIT 3
Exambela European Airport
Leadership Peer Survey: 16
" Best in Class" mentions for
Innovation relative to size Amsterdam
14
of airport company
Innovation “Stars”
12 Munich

10
Number of
“Best in Class ”
mentions 8
Copenhagen Medium-Sized,
Strong Performers
6 Europe’s Largest Airports
Brussels
Lag Behind
Athens Zurich
4
TAV
Aéroports de Paris BAA
2 Dublin Manchester AENA
Fraport
Vienna Aeroporti di Roma
0
0 50 100 150 200
Size of Airport Company (2008 passengers)

Source: Exambela Consulting analysis

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 Interestingly, none of Europe’s largest airport companies—AENA, BAA, Aéroports de Paris
or Fraport—are perceived as “innovation leaders.” In the eyes of European airport manage-
ment, the industry’s clear innovation leaders are mid-sized European hubs, in particular
Amsterdam and Munich. Munich Airport is a successful major European airport that has sought
to make innovation part of its core culture. The airport has a dedicated innovation team with
an innovation budget. This team has been responsible for the various value-creating projects
at the airport, including customer-facing products such as MUC Card, the Winter Market
and “Shop in the Box.” It also has been responsible for backoffice innovation by using
bio-fuels for ground service equipment and ramp process improvements.

“It’s through a systematic approach to innovation management that Munich Airport has become
voted Europe’s best airport four years in a row. Innovation is the management of change.”
Dr. Michael Kerkloh, CEO, Munich Airport

Implications for The airport world continues to evolve, and airports—and their management teams—must
Airport Leaders also evolve to survive and to thrive. All types of airports in all regions around the world will
be affected, whether they are hubs, regional airports or low-cost airline bases. In order to
ensure its place amongst the winners, an airport must be able define a unique, compelling
business model that reflects the requirements of customers and other stakeholders at the airport.
However, especially in times of distress, it is all too easy to get caught up in the immediate
crisis and lose sight of the long-term vision and goals that must be the basis for any long-
term, viable strategy. Those airports that can diversify, differentiate and innovate in their
service offerings and value propositions will emerge from the current turmoil in stronger
positions to succeed.
In order to do so, airport CEOs must first make sure they have the right team in place, with the
right objectives so that they can define and ultimately implement a sustainable and successful
strategy. An innovative strategy does no good if it doesn’t have the people behind it who can
make it work. In this new era, being an airport CEO isn’t what it used to be.

1 See Exambela Consulting report “European Airport Leadership Peer Survery – 2009 Summary Results”, www.exambela.com

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About Exambela Exambela provides strategic counsel to corporate leaders and financial investors in the airport
Consulting industry. Exambela works with clients throughout Europe and worldwide. Typical assignments
include strategy development, executive leadership development, value-add marketing and
financial transaction support.
For further information, please contact:
David Feldman
Managing Partner
Exambela Consulting
david.feldman@exambela.com
www.exambela.com
All rights reserved. For information about copying, distributing and displaying this work,
contact david.feldman@exambela.com.