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'Airport service providers need to reassess their business model'

As the pandemic has severely impacted the aviation sector, a report by Kearney has suggested that there is a need for airport service providers to reassess their business models to become more resilient to external shocks.

The report noted that Covid-19 has brought the aviation sector to a grinding halt. External disruptions and catastrophes in the past indicate that the sector is particularly prone to being severely hit by such events.

Demand has taken a significant downturn, which inevitably impacts the supply-side ecosystem and erodes value for service providers, including airlines and airport developers and operators.

"As a result, there is an urgent need for these service providers to reassess their business models and explore business diversification strategies to make themselves more resilient to external shocks," said the report titled aBuilding future-ready airport business models'.

Manish Mathur, partner and head of Kearney's Asia Pacific, Transportation and Infrastructure Practice noted that the aviation sector is particularly susceptible to disruptions like Covid, and such shocks can significantly reduce passenger traffic, especially in the short term. For airports, where passenger-driven revenue streams drive more than 60 per cent of revenues even for best-in-class airports in the world, these disruptions canlead to acute financial pressures, he said.

"Hence, it is critical for airport owners and operators to reassess their business models and improve their resilience in dealing with external shocks" he said.

Pablo Escutia, Kearney partner from Spain and Global lead for Kearney's airports vertical, said: "While most airports across the globe are moving towards non-aeronautical revenue streams, only a few leading ones such as Frankfurt, Changi are diversifying their operations to generate meaningful returns from passenger-independent revenue streams such as by utilising real estate assets. It is the need of the hour for airport operators to start considering diversification strategies to make their business models more robust"

The report suggests three diversification strategies, sweating real estate assetsto extract the most value, initiating capex-light service offerings with quick speed to market and geographic diversification of core business..