The future of airports

Words by Katie Puckett

Prepare for take-off! With passenger numbers set to double, and technology shaking up everything from retail to runways, aviation is soaring into a new golden age

The world is taking to the skies. And every one of those journeys will begin and end at an airport.

Great cities of the past were built around ports and railway stations. But in today’s globalized world, airports are arguably the most important link to prosperity. Digital communications allow us to talk to or trade with anyone, at any time, anywhere in the world. But if we want to actually meet them or receive the goods we’ve bought, by far the fastest way is by plane.

“There is an ever increasing thirst for travel, whether for business or leisure. We want more from our airports, our aircraft, our journeys, and more for our communities”

Tim Morrison, WSP

Aviation is a catalyst for economic growth, enabling people and businesses to reach a global marketplace for goods and services and to travel for work, leisure or education. A study of the impact of European airports found that a 10% increase in a country’s air connectivity was associated with a 0.5% increase in GDP per capita. Airports and associated aviation activity create and facilitate €675bn in GDP each year, just over 4% of the entire European economy.[1]

Air freight is essential to modern life, but it is in the movement of people that airports have the greatest effect on economic development. Researchers studying the impact of US airports found that higher economic output, wages and incomes, the share of college graduates and high-tech industry all correlated strongly with the number of passengers per capita, rather than with flights or cargo.[2] “In today’s knowledge economy, far and away, the most precious cargo [airports] move is people,” said Richard Florida at the University of Toronto.

John Kasarda, author of Aerotropolis, describes aviation as the “physical internet” underpinning global trade. As the virtual internet exponentially increases the connections between people and places, the physical one will have to keep up …

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Between 2016 and 2040, ACI World predicts average annual growth of 4.5% in passenger traffic, 2.5% in air cargo and 1.9% in aircraft movements [5]

Between now and 2040, US$2.6tn of investment will be needed in airport infrastructure,  0.1% of global GDP. [7] But who’s going to pay for it all?

Airports are expensive and asset-intensive — and most of that investment has to happen upfront, before a single plane can land. “Airports are under intense pressure to expand and to make very large capital investments to renew their facilities,” says Jason Brooks, aviation director at WSP. “The pace of change has been very dramatic over the last decade, and it will be even more so over the next.” Projects are becoming larger, as the scale, quality and associated infrastructure increases. And they’re more complex too, because the building work must be completed without interrupting airport operations.

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They may be essential infrastructure, but airports also have to make money. With investment has come a greater emphasis on profitability and returns. Until relatively recently, nearly all major commercial airports were government-owned and operated. The UK was the first to privatize its airports authority in the mid-1980s, and since then, deregulation has led to a proliferation of different ownership and management models. In 2017, 51 of the busiest 100 airports had some private sector participation, five more than in 2016. Of the busiest 500 airports, 39% had private sector participation, a one percentage point increase on 2016.[8]

“The fundamental motive for airport privatizations is to finance upgrades or expansion that states are unable to pay for,” says Stefano Baronci, director of economics at Airports Council International (ACI) World, the international organization that represents airports. “In an economic climate where states are increasingly cutting expenditure to reduce debt, government financing and full ownership is not always sustainable. Even government-owned and managed airports are increasingly required to have a commercial focus. Private capital needs to generate fair returns proportionate to the risk.” 

Two-fifths of airport revenues come from non-aeronautical activities, such as food and retail concessions, car parking and advertising. For some airports, the proportion is much higher [10]

Airports operate in a market that is tougher than ever. Liberalization opened the door to a new, disruptive breed of carriers such as Southwest, Ryanair, Condor, Easyjet and AirAsia, which now account for around one-third of air traffic worldwide.[9] To keep fares low, they offer a no-frills service and demand that airports do the same. Traditional airlines have had to follow suit to compete. So airports’ core aeronautical activities have become less profitable, and they are more dependent on other sources of income.

To stay in business, airports need to keep passengers streaming through their departure gates and through their shops, restaurants and bars. We may be paying less for plane tickets, but one way or the other, we’ll be paying more for bigger, better airports.

Low-cost airlines growth and market share [11]

Small comforts

Two-thirds of airports operate at a net loss — typically the very smallest

Some 92% of loss-making airports handle fewer than 1 million passengers a year.[12] But if they weren’t there, the loss to the communities they serve would be far greater. “A small region with few inhabitants may not generate sufficient passenger flows for an airport to be profitable,” says Mattias Frithiof, strategy consultant at WSP, who has studied the viability of regional airports for Swedish municipalities. “But if you lose it, you lose extremely vital accessibility and you can lose whatever business community or employers that you do have.”

“Airports face pricing pressure from airlines, so they can only make money from the passengers. That will totally change the concept, and drive them to put passengers at the centre”

Frank Lin, WSP

The expansion of aviation has given passengers more choice than ever before, and increased competition between airports, regions and countries.

The global aviation industry operates on a “hub and spoke” model, so airlines typically route passengers through hubs that serve many destinations, rather than offering point-to-point flights between every single combination. This means they can serve a greater range of places more efficiently, and that passengers have a choice of possible routes — and places to make their connection.

The biggest hubs were traditionally in the US and Europe, but a new breed of ambitious mega-hubs has come online across the Middle East and Asia. The global pattern of air traffic is shifting eastwards, as population growth and prosperity is swelling the numbers travelling for work and the middle classes who can afford to fly for leisure in countries such as China, India and Indonesia.

By 2022, passenger traffic in emerging economies will overtake advanced economies. By 2040, airports in emerging economies will handle 61.6% of passengers — 10 billion more each year they do today. [13]

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In an increasingly crowded global market, the world’s hubs are pitted against one other to attract a fickle, footloose customer base. “Certain locations are more convenient, but it’s all about the level of service that people experience when they’re travelling,” says Brooks. “Transfers are a very different experience — most people probably never go outside of the airport.”

Smaller airports, meanwhile, will compete among themselves to attract the most direct flights and be the best-served gateway to their region.

In a global beauty contest, they all need something to set them apart.

“It is an extremely competitive marketplace and passengers can vote with their feet. Airports neglect passenger experience at their peril”

Andy Thomas, Grimshaw

Footnotes

[1] Economic Impact of European Airports, ACI EUROPE/InterVISTAS, 2015   [2] Richard Florida, Charlotta Mellander, Thomas Holgersson, “Up in the Air: The Role of Airports for Regional Economic Development”, Economics and Institutions of Innovation 267, Royal Institute of Technology, Centre of Excellence for Science and Innovation Studies, 2012  [3, 4, 5] ACI World, Annual World Airport Traffic Forecasts, 2017  [6] ICAO/IATA/World Bank DataBank. [7] G20 Global Infrastructure Outlook  [8] Policy Brief: Airport ownership, economic regulation and financial performance, ACI World  [9] STATFOR, EUROCONTROL  [10]  Airport Economics 2018, ACI World  [11]  anna.aero/OAG  [12]  Policy Brief: Airport networks and the sustainability of small airports, ACI World  [13, 14, 16] ACI World, Annual World Airport Traffic Forecasts, 2017  [15]  ACI World

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