To put it simply, airlines and airports share a common goal; operating as many flights as possible to increase revenue.
However, achieving common ground and good communication has continued to be a challenge since the enforcement of airline deregulation.
To get some insight into exactly where the disparities lie and start to look at how they can be fixed, I spoke to Kevin Gill, Chief Operating Officer at Townsville Airport. He’s in a unique position of having experience from both sides of the coin; he worked as General Manager for privately owned ‘Macair’ for 8 years before joining Queensland Airports Limited (QAL) in 2008.
Where do the potential opportunities lie for airlines and airports to be maximising their revenue streams – have you any examples of this?
The traditional airport has been a landlord. The more contemporary airport immerses itself in understanding the airlines that would fit their destination, because ultimately an airport is a conduit to the destination. If we look at the Gold Coast Airport for example, you’ll tend to focus on typically low cost carriers, which are the correct fit to deliver tourism.
If you’re an airport like Townsville, it’s broader based with strong business content. The first step is to understand the correct airlines that would suit operating to your airport. Be proactive, and look at the emerging trends in your destination that could drive new destination ideas that may be of interest to your targeted airlines.
We have an example of that here; QAL’s research department identified a direct Darwin to Townsville service as an opportunity, because to get to Darwin, often meant a journey through Cairns or Brisbane. It became apparent that there are synergies with Darwin that were growing, between the two cities, those synergies were generally the mining industry and its on-going growth. Both destinations have strong Defence connections, and there’s also Darwin’s increasing relevance as a gateway into Asia, and Townsville’s lack of connections into Asia.
As a result, the airport started to pitch a direct service to the airlines. AirNorth recognised the opportunity existed and commenced the route which has been very successful and is growing rapidly.
It was a new thinking of airports saying – “we’re not a landlord – we know our destinations, we know the opportunities, and we know our target market, let’s see where we can take this one”.
How does Townsville Airport ensure good operating costs for airline rates – where’s the focus?
Airport charges increased markedly at the start of the century, but if you look at the contemporary airport now, airlines get a lot more than a runway.
Looking beyond that initial price spike, investment in Australian airports has been very strong since they were Federal government owned. If you look at airport charges as a percentage of airfares, they are still modest.
Airports now work hand in hand with airline partners to ensure that the Airport experience is seamless. This maximises operational efficiencies and thus an Airline’s OTP.
Can you talk us through some of the common causes for disparate objectives between an airport and airline?
I’ve spent most of my career in airlines, so have seen both sides of the story.
Larger Airports have enjoyed strong financial performance in Australia but people often don’t understand the high levels of capital that are required to maintain and develop these assets. The airline industry has a history of uniformly not making much money.
Airports take a long term view with infrastructure development with planning horizons often beyond 10 years. For example an airport may wish to increase the footprint of their terminal to meet long term projections and invest accordingly and pass on an increase charge to the airline.
On the other hand, the airline will not reap the benefits of the expanded footprint immediately and accordingly could be reluctant to agree to the increase charges in the short term.
That often causes a disparity in terms of short term versus long term thinking.
Different airlines also have different needs as dictated by their customer base. FIFO operators only require a minimal facility whereas Virgin for example may require lounge and meeting facilities.
Certain airlines potentially may consider that they end up benefitting more from new infrastructure than other airlines.
What’s the key to successful communication and collaboration?
The first thing that goes through my mind is empathy. Until you’ve worked at an airline – you don’t get to understand the pressures that airlines are under.
A jet airplane costs up to $8,000 an hour to operate, so if you’re an airline operator and the airport encourages you to start a new route, the costs rack up really quickly.
When an airport comes to an airline and advises them of a major redevelopment there is often a cost increase that is added to the list of increasing costs that an airline faces. Ultimately, the passenger ends up paying for it. Therefore it is imperative to ensure that the airlines feel that they are getting are getting value for money.
Airlines are trying to reduce costs and create a margin. This is typically 5% of turnover. Airports are thinking about the longer term to ensure the correct infrastructure is provided to meet long term demand growth. If the parties can understand each others perspective then they are much more likely to collaborate effectively and reach mutually acceptable outcomes.
There’s no doubt that airlines and airports have to be partners. We are increasingly immersed together. An airport is reliant on airlines adding capacity to grow their business and enable them to reinvest. There are other ways that airports can assist airlines. QAL for example, provides ground handling support services and also aircraft maintenance services to airlines. It’s about having a deeper relationship beyond being a landlord.
What do you envisage the airport of the future to look like – what will be the differentiation between those that succeed in becoming cash flow positive and those that don’t?
If the destination is strong, then the airport should prosper, the airport needs to be proactive, and support destination growth.
Work with what you’ve got. If you know what your destination key trigger points are, then again, be proactive. Look at new route opportunities and drive the agenda with airlines with constructive ideas. Know you’re the industry you’re operating in. You’re in aviation; you can’t be a passive landlord.
Airports that are smart really look at all of those negative touch points in facilitation, and try to overcome them, whether it be front of house road transport congestion, or runway congestion. Technology enabling smart solutions is also going to be very important.
Join Kevin at Regional Airport Development 2014 where he will be delivering the presentation ‘Attracting Airlines and Strengthening Relationships’.
Find out more by visiting www.regionalairports.com.au