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Forging a New Partnership

Dec 18, 2012

By Kenneth H. Gwyn

In 2005, I had the opportunity to address the Low Cost Airport Conference in Berlin, Germany. This gathering of airport officials from around the world came on the heels of the recovery from the tragic events of 9/11. The aviation industry of the United States was in the midst of one the most turbulent financial periods in its history. Decreased demand that resulted from the attacks on 9/11 caused revenues of the airlines to suffer. Costs began to grow as new security mandates were placed on the airlines. Several airlines filed for bankruptcy. There was significant upheaval in the business model for many of the major carriers.

Fast forward to today. While the 9/11 shock waves have subsided, the resulting changes are having more of a longstanding impact on the industry. Airline consolidation, bankruptcies, service reductions, passenger fees and volatile fuel costs are now a part of the new air travel landscape.

Working through the current challenges will be difficult. If the industry is to be successful in redefining the air travel experience, it will require a new relationship between airlines and airports. I have identified five areas where dialogue and mutual understanding is critical. These areas are: cost reduction, revenue growth, customer service, facility control, and contingency planning.

Cost Control

Airport managers are under growing pressure to control costs. An airport’s ability to sustain or grow airline service is directly linked to holding down fees paid by airlines. There also may be some feedback from the traveling public on rising prices for airport services. It is very likely that airlines will become more involved in revenue decisions made by the airports. Costs will be questioned. Capital budgets will be scrutinized. Cost-benefit analysis will become more a part of the decision making process. These discussions can be quite contentious. It is important that a common understanding be developed about how cost will be allocated.

Revenue Growth

Closely aligned with cost control is revenue growth, particularly those that impact aeronautical users. Revenue diversification is a worthwhile goal and can take many forms.  Imposing new or increasing fees for certain airport services is one approach.  New services may also be offered as a way to raise revenue. Many airports are looking to utilize surplus airport real estate for commercial development. One area that looms on the horizon that will certainly test the new partnership will be the control over revenues for capital projects. The current debate regarding changes to the Passenger Facility Charge (PFC) will set the stage as to how well airlines and airports can forge a new partnership on this key issue.

Customer Service

If the airline industry is going to experience any growth, it must be driven by a focused commitment to customer service. Both the airports and airlines are “joined at the hip” in improving the travel experience.  The current situation offers airport and airlines the opportunity to really work on defining what type of customer experience both want to offer customers and to work jointly to meet those expectations.

Control of Airport Facilities

There is a great deal of discussion about control of airport facilities.  Common use, airline consortiums, public-private partnerships and privatization have surfaced as models for controlling access and reducing the costs of operating various facilities.  Airlines have taken a growing interest in having input into the costs of services and control of those services. Airports must be sure that the larger interest of the traveling public is taken into consideration. Control of airport facilities is an area where input from all effected parties and mutual understanding is critical to productive airport-airline relations.

Contingency Planning

A recently released government report, ”FAA Aerospace Forecast – Fiscal Years 2011 – 2031” identified several risk factors that would alter their forecast of continued growth over the long term. Primary risks cited in the report included the worldwide economy recovery, oil prices and the threat of terrorism. These potential dangers can be mitigated by implementing contingency or scenario plans. These plans should include anticipated actions that the airport and airline partners would take should the turbulent events occur. Having a candid dialogue with the airline partners will lead to a more orderly transition and lessen the tension when implementing these strategies.

It is difficult to determine exactly what the airline landscape will look like once all the dust settles. What is clear is that a renewed spirit of cooperation between the airport and airline is being driven by the changes occurring in the industry. A new partnership which can address key issues of mutual interest will go a long way to having a thriving commercial aviation industry.

 


Kenneth H. Gwyn is currently the Assistant Director of Aviation for the Dallas Airport System.

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