The love-hate relationship between airport operator and hub carrier

There are mutual dependencies between an airport operator and a hub carrier. Both companies contribute to the overall product "Airport". In many subject areas, the interests of both parties are therefore identical. Different interests can occur in subject areas in which the airport operator represents the interests of all airport users and they do not meet the interests of the hub carrier, or where the airport is representing their own interests.

Different Roles

The airport operator is holding the concession to operate the airport and is therefore responsible that the infrastructure is used efficiently and suffices to accommodate future growth. The planning and the day-by-day management of infrastructural resources should therefore stay where the financial responsibility is located i.e. with the airport. Airports leaving the management of infrastructure to airlines will be faced with inefficiency and continuous demands for more and better infrastructure which produces higher costs (for example inefficient resource allocation and lack of control of slot adherence). A hub carrier is planning their network and schedule in order to satisfy the demand of passenger and cargo transportation and in doing so, to make as much profit as possible. For an airline, the planning of resources like aircraft and crews is their core competence and should not be handed over to an airport as the financial responsibility to shareholders lies exclusively with the airline.

Different Businesses

There is a big difference of the cost structure between airline and airport. An airline has 70-80% variable costs. In case of an economic downturn it will reduce costs by eliminating flights with a low profitability and can so reduce their main expenditures substantially and quickly. The planning horizon is usually 2 flight seasons except for fleet planning which is covering 2 to maximum 5 years. An airport has 70-80% fixed costs. The main cost factor, infrastructure, cannot be reduced quickly if revenues drop because airlines cut their flight schedule. Airports therefore tend to build functional infrastructure which is cheap to build and maintain. The planning horizon (master plan) covers often the best part of the concession period and can be as long as 30 to 50 years.

Conflict 

Though the relationship between hub carrier and the airport is a symbiotic one there are conflicts in the one between hub carrier and hub airport. From the airport’s view, the hub carrier presents with its big market share a cluster risk and a danger to its independence. To attract other airlines is the sensible thing to do in order to mitigate those risks, at least from an economical and entrepreneurial point of view. This is a balancing act though, because the airport has to be careful not to cause a too competitive environment in order to prevent an adverse effect on its main customer. The hub carrier in turn expects from the airport a better and more exclusive infrastructure than the other airlines to get a competitive advantage. All this of course offered at costs which should lie considerably below the prices paid by competitors for less suitable facilities. And there should be no competition, even to destinations presently not served by the hub carrier.

Conclusion

This conflict exists at most of the hubs of this world. It should be addressed by airport and hub carrier in order to find a cooperation model without intruding into the partners business or responsibility. It should not be lopsided but serving both partners even if it means compromising. It should allow both, airport and hub carrier to grow and to conduct its business within limits to be agreed on in a memorandum of understanding, without interference of the partner.

The problem with early flight arrivals

Some of the most common of the aggravations affecting air travelers is a flight delay or a cancellation. An early arrival of the inbound aircraft of their respective outbound flight is good news. It increases their chances of a timely departure. Not so good for the arriving passengers though if the ground staff is not ready yet. Which happened quite often to me - no one there to operate the air bridge or no one there to open the door from the air bridge to the terminal.

Not so good news for the airport as well, because early arrivals can be a disruption just like late arrivals.

Usually, airports plan for 15 minute buffers in their resource allocation (stands, gates). Fifteen minutes before Scheduled Time of Arrival (STA) and after. Sure, an early arrival helps when the airport endeavors short turnaround times. But if a flight arrives earlier then the planned buffer, it means that the airport has to cater for costly reserve capacities. Furthermore, there will be many changes affecting the operation.

What can an airport do against this? They can demand slot adherence, or the airline(s) will loose that slot and/or tell them that there will be no stand available. In a collaborative manner, of course, the airport will first approach them, raise the problem and discuss joint measures.

Why it is counterproductive to let passengers know how long waiting lines are

People say that knowledge is power. The more knowledge, the more power. Suppose you knew the winning numbers for the lottery?  What would you do? You would run to the store and mark those numbers on the play card. And you would win.

Same for airports? Suppose you knew the waiting time at checkpoints like at Dulles International Airport. What would you do? Experience shows that when there is not much waiting time passengers tend to dwell and get to the checkpoint later. Which may create a problem later. It also shows that when there is long waiting time passengers tend to go to the checkpoint immediately. Which increases the problem now.

I think that airports should endeavor to steer the passengers indirectly based on the information they have. They may wait to announce gates until they see that there is capacity at checkpoints. They may change gates of arriving flights or bring passengers to other arrival halls.

Airport business is full of decisions and judgements and guesses, and also looking outside of the box.

The need for airport performance indicators

All businesses, whether in the public or private sector, need to measure and monitor their performance. The use of performance measures in the airport industry is particularly important because of the specific characteristics of airports. In a perfectly competitive environment, market forces will ensure that optimal performance can be equated with profitability. However, the conditions under which airports operate, are far from competitive. Regulatory, geographical, economic, social, and political constraints all hinder direct competition between airports. At the same time, the extent to which airports can attract other airports' traffic with different price levels or service levels is also very limited. Most airports therefore enjoy a quasi-monopolistic position and may abuse such a position by extracting high revenues from their customers. Profit may not equate with efficiency and productivity. Moreover, overall profitability is totally inadequate as a measure of the economic performance of discrete activity areas within an airport.

However, many airports still assess their performance by solely measuring profit or traffic growth. This in spite of a growing awareness by airport management of the financial and commercial implications of operating an airport.

Example: Sydney Airport Performance

 

Only a few airports have developed a systematic approach towards measuring performance. In general, there is no accepted industry practice for measuring airport performance. Additional indicators measuring the inputs and outputs in both physical and financial terms are essential.

In the coming weeks, we will explore more about how to measure an airport operation's efficiency and productivity. We will discuss performance indicators which serve as a management tool for the airports themselves. They are used to analyze and monitor past and present performance. Most importantly, they should make sure that management understands the financial mechanism of airport operation.

The role of an Airport Management Center for efficient operations

It is certainly a challenge to improve or at least maintain on-time performance and service quality with a continuously growing number of passengers. Airports are establishing structures, processes and technologies to address the challenges of today and the future. Eurocontrol's initiative of Airport Collaborative Decision Making (A-CDM) aims at improving the airside process with a focus on the aircraft turnaround. What about the rest? What about structures, processes and technologies to address this area of business together with the airport partners?

Coordination on ground is a quite complex matter. There are multiple players with their own coordination centers providing disparate services. You will find many shared processes and responsibilities though. Service levels are not aligned and processes have many interdependencies. Even though there are infrastructure limitations, airport and ATC slots, winter operation or specific passenger behavior, you will find rarely a 'superordinated' coordination.

An Airport Management Center (AMC) can address this challenge. The airport operator manages the operation together with their partners. Supported by the top managers of all partners the common goal is operational excellence. The key services are coordinated in one room, moderated by the airport, based on a free flow of information. This will not only require a room but also efficient IT systems.

However, are you ready for this change of culture? The airport's top management must be convinced that this change is necessary in order to achieve its goal. Unfortunately, most of the time such a re-thinking is triggered only after a bigger or smaller crisis. The starting point is a paradigm shift from administrating to orchestrating the operation. There the airport operator takes a leading role in managing the airport operation. The next challenge will be internal shifts of power and responsibilities. This is usually where such projects fail because it may include organizational changes.

After having overcome the mostly internal hurdles, the airport will have to take the initiative and convince their partners to join the center, build the room, implement new IT systems, and to provide know-how transfer and training.

What are the main functions of an AMC? It is an information center which collects and disseminates information. It facilitates communication because peers are sitting in the same room and can talk freely and efficiently. Decisions are made in a collaborative and coordinated manner. Of course, it also creates goodwill amongst the airport partners and a community feeling. Eventually, efficient teamwork, control over operational activities and a leading role by the airport will be achieved.

American queuing 76% better than individual queues

Once the flow of passengers passes a control point (security, passport) which has more than one control position, American Queuing system has clear psychological and physical benefits against individual queues.

• Passengers is neither stressed by long lines even before he lines up nor does it give the impression of chaos.
• They will not ask themselves whether they are in the wrong line, because the waiting time is the same for all passengers.
• The queue will not block because of a "difficult case" which takes longer than usual.
• The waiting time in the queue is not dependent on the performance of a single counter but depends on the number of occupied counters and on the average processing times.
• The movement of the waiting passenger accelerates according to the number of available counters, i.e. the waiting time seems shorter for the waiting passengers (the queue moves constantly forward).
• Individual queues need 76% more waiting area. With large number of passengers, passenger circulation is very limited or even prevented.

Sure there are disadvantage of the American Queuing system: It must be actively managed by 1-2 people in order to ensure optimal throughput at the checkpoint. And, when there are empty queues the posts and tapes interfere with the aesthetics of the waiting area.

Is your Airport Duty Manager a leader?

More and more I become aware of the importance of the Airport Duty Managers, in particular regarding Collaborative Decision Making (CDM). 

As the designated moderator of the CDM process he/she must be perceived and accepted by his peers as the informal leader. To achieve this status, however, behavior and especially communication of the Duty Manager are essential, as demeanor, appearance and communication triggers and determines human interaction. This interaction in turn is the key for collaboration. In addition to distinct management and leadership abilities, Duty Managers should have excellent communication skills.

I hope that none of the following issues do apply to your Airport Duty Manager(s):

• Work almost exclusively re-actively. They rarely manage (act proactively) and are therefore not perceived as leader.
• Do not prepare sufficiently for possible irregularity scenarios but leave managing (preparation for possible scenarios) to the “responsible functions” without being part of it.
• Lack additional area of responsibility they have to manage (improvements)
• Do not communicate on a structured, regular basis with their partners inside and outside of the organization.
• Are not perceived as leaders or moderators but as mere supervisors controlling the partners.
• Neither possess the necessary skills nor the authority to lead a group of people not subordinated to them.

Airport governance model to establish leading position of airport company

How is your dialogue with your airport partners, in particular your hub carrier (or biggest carriers)?

In order to achieve and maintain a leading position it is important for the airport company to institutionalize contacts with partners on all management levels. Despite data sharing and the processes around it, a successful Collaborative Decision Making (CDM) model should also address performance management and a solid governance model.

Institutionalized meetings do not only ensure the dialogue between the airport and their partners but also between the partners. This dialogue has to be regular and structured. Separate, additional meetings with the hub carrier (or major carriers) have to be added to emphasize their importance and to allow the discussion of matters bilaterally.

Policies on the different subjects have to be formulated which will serve as guidelines in the CDM meetings. Deviations from these policies have to be authorized by top management. Every meeting between airport  with partners requires an internal preparatory meeting where every agenda point is discussed and possible compromises are reviewed.

This may all sound too logical and straightforward to you but rest assured, there are not many airports out there practicing these fundamentals.

Collaboration and performance at South African airports

Last week I was in South Africa visiting the Airport Management Centres at the airports Johannesburg and Cape Town. It has been more than two years since my last visit and I was wondering what their maturity level would be. It was simply great to see them continuously working on improving airport performance and collaboration. Just highlighting two areas: stakeholders and performance.

Stakeholders: They have representatives from the airport, from the major airlines, from all three ground handlers, ATC and recently a fueling company (because of the current fuel issues in South Africa). Sure, there are still some issues with cooperation but can you imagine that a ground handler representative would pick up the telephone of his competitor while he is away? These things happen there.

Performance: Needless to say that they have improved their on-time performance and many other areas. They even publish the airline's performance on the Internet. With the airline's consent. And every morning they have a briefing with the airlines where each airline sets their punctuality target for the day (so does the airport). Every hour they check where they are.

I am sure we will hear many more success stories about ACSA. Particularly after ACSA has won a bid for the expansion, maintenance and operation of Guarulhos, Brazil's busiest airport, located at a suburb of the city of São Paulo.

The role of transparency in Airport CDM

How much transparency does Airport CDM consider when it wants to facilitate the sharing of accurate and timely information? Is sharing of EOBT and similar information addressing the real need of transparency?

Sharing operational data is, in my opinion, not sufficient. Only the sharing of problems, quality, output and performance will increase internal and external pressure for both managers and staff to act. And, it will make yourself more credible towards your partners.