Airports 4.0: Impact of Digital Transformation on Airport Economics - Viewpoint
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Airports 4.0: Impact of Digital Transformation on Airport Economics Viewpoint May, 2015
Agenda
1 What is Airport 4.0 ?
2 A holistic view at digital airport economics
3 Key success factors of a digital transformation
Arthur D. Little – Introduction to the Economics of Digital Airports – May 2015 21. What is an Airport 4.0 ?
Airports are at the fore-front of global challenges and innovations of our society and business,
among which Digital Transformation
Global trends
Scarcity and stability of Rise of emerging
resources economies
Social & demographic Urbanization and
shifts integrated mobility
New health & wellbeing
demands
Airport Digital revolution
industry
Fast changing business
Hyper-competition
ecosystems
New customer power Disruptive technological
and sophistication advances
Business trends
Arthur D. Little – Introduction to the Economics of Digital Airports – May 2015 31. What is an Airport 4.0 ?
The airport expenses into “smartization”, i.e. into digital based solutions, should grow by ~40% in
2020 vs today with the objective of better customer experience and improved operations
Smart airport spending – in Bn$ 2014
As a public service infrastructure, an airport is a processor /
connector between the flow of aircrafts and the flow of +39%
[passengers + baggage]…
13.214
…Hence the strong focus on airport operations for “smart 1.126 Others
airport” spending (see besides) Car parks
2.393
9.517 317
841 1.012 Building Operation
232
As an economic entity, it leverages this position in the value 1.704 Security
chain to monetize those flows through many different 769 3.154 Baggage sorting
approaches, at each step of the journey… 2.241 Check-in
3.010
…Smart airport investment should then demonstrate an Apron
2.141 Airside Resource Mgt
attractive business case, with high impact on growing 444 245
184 344
revenues and lowering the costs and capital expenditures 1.061 1.513 ATM
2014 2020
Source : Smart Airports Market Forecast 2014-2020, Profound Market Intelligence
Arthur D. Little – Introduction to the Economics of Digital Airports – May 2015 41. What is an Airport 4.0 ?
Airports are currently mature to implement 2.0 digital solutions but should look forward for the next
10-15 years in order to implement an Airports 4.0 model
Airport models
All about manual and analogic processes
Airport 1.0
Long lag-time between resource solicitation and the airport answer
Implementation of self-service thanks to the automation of some key flow processing
Airport 2.0
tasks (bag-drop, passport check)
Several focused initiatives to leverage digitalization so that to optimize flow
Airport 3.0
monitoring and processing
Full-connected with all stake-holders
Airport 4.0 Superior proactivty and reactivity to adapt to the real-time solicitation of the airport
(operational needs, customer requests etc…)
Arthur D. Little – Introduction to the Economics of Digital Airports – May 2015 5Agenda
1 What is Airport 4.0 ?
2 Economics of Full Digital 4.0 Airports
3 Key success factors of a digital transformation
Arthur D. Little – Introduction to the Economics of Digital Airports – May 2015 62. Economics of Full Digital 4.0 Airports
A Full Digital Airport leverages 6 technology clusters to optimize its economics by increasing
capacity of existing facilities, lowering OPEX and boosting revenues
Clusters for airport
digital technologies Capacity increase OPEX optimization Revenue growth
Flow monitoring &
Wifi / Bluetooth or Imaging based or flow monitoring, Indoor geo-localization…
management
Check-in & Bag Drop, Self-Boarding, Baggage lifters, Automated Taxiing, New Security check points (?),
Process automation
Automated-Docking, …
Collaborative Decision Making
Total Airport Management Center, Real-time operation management
(Air & Ground Ops)
Intelligent Building BIM, real-time energy and utilities management, intelligent preventive maintenance, data-based asset
Management management, …
Customer engagement Beacons, Digital & interactive display, CRMs systems
Predictive solutions Automated planning management for key use of airport resources
Arthur D. Little – Introduction to the Economics of Digital Airports – May 2015 72. Economics of Full Digital 4.0 Airports
Digital transformation as clearly a great impact on capacity utilization and therefore on required
CAPEX for extension
In % of airport assets Examples of capacity increase
-9%
100%
Non-CAPEX focused solutions, i.e. process optimization through
Energy & Utility 11,0% 91% data-analytics :
10%
Ground access &
– Runway capacity increase by +10% (LGW)
24,0%
Car Parks – Check-in capacity >20% (CPH)
24%
CAPEX-based solutions :
Terminal Building
– Automated bag-drop +30% (ORY)
41,0%
& Systems 35% – IATA future security check-point concept
– …
Runway &
24,0% 22%
Apron
Airside : 10% to 15% capacity increase
Landside : up to 30% capacity gain, but unit cost +15% for
Asset Base 2.0 Asset Base 4.0 intelligent building & equipment
Source : ACI average world airport P&L 2014, Arthur D. Little analysis
Arthur D. Little – Introduction to the Economics of Digital Airports – May 2015 82. Economics of Full Digital 4.0 Airports
2.0 An holistic view at digital airport economics
Process automation and Energy & Building management could have a great impact on OPEX
In % of airport revenues
-14% Examples of OPEX optimization
52,3%
Automation of passenger treatment processes saving 20% to
Others 11,0% 44,8% 50% of staff
Maintenance
Sharing of real-time situation awareness for ground operating
2,5% 11,0%
3,4%
staff of airports, handlers, airlines and other 3rd parties : -10%
Utilities
4,2%
supervision costs
SGA 2,2%
2,9%
Reduced labor-cost and external purchasing for maintenance
Contracted 3,8%
12,7% (linked to CAPEX optimization and intelligent assets)
Services
10,1% Automated administrative processes (revenue accounting and
billing, basic training etc…)
Staff 18,6% Reduced energy consumption (lighting, heating…)
14,8%
Organizational challenges are also key to be considered to
OPEX 2.0 OPEX 4.0 leverage those gains potential
Source : ACI average world airport P&L 2014, Arthur D. Little analysis
Arthur D. Little – Introduction to the Economics of Digital Airports – May 2015 92. Economics of Full Digital 4.0 Airports
From an helicopter-view the impact of the Digital Transformation of airports on revenues seems
quite significant
Potential threats on airport revenue streams
Revenue Growth Accelerator
Moving some transactions away from the airport :
Increased dwell-time thanks to better operation
– Duty-free online…
efficiency driven by digitalization
– … with pick-up on-board of goods purchased
Enhanced interaction with customers:
Disintermediation of services providers operating at
– Better flow knowledge and tracking of individuals
airports :
at the airport terminal
– Car sharing solutions using long-term parked
– Ability to push sales and to propose hyper-
vehicles
segmented offers, instantly
– …
Dynamic pricing (today in car parks, tomorrow in
retail with discount coupons / bundled offers etc…)
Arthur D. Little – Introduction to the Economics of Digital Airports – May 2015 102. Economics of Full Digital 4.0 Airports
Obviously, more efficient and faster processes are the key for customer spending increase at
airports
Correlation between dwell time
Split of passenger dwell time at airports
and spend-per-pax at airports
Spending ratio
21% 26% 3,5
Process time
5% Queue, Watch & Wait 3,0
Basic Needs
Commercial Dwell-Time 2,5
47%
2,0
650 +40,0%
600
1,5
330 330
Billion-hours 1,0
225
lost at airports Spend-per-pax : +2€ to
0,5 +3€ per additional hour
Check-In Security & Orientation FIDS Gate
Passport 0,0 Minutes
Impact of digitalization 5 15 25 35 45 55 65 75 85 95+
Source : Dolby & Holder, Arthur D. Little projects
Arthur D. Little – Introduction to the Economics of Digital Airports – May 2015 112. Economics of Full Digital 4.0 Airports
Digital Transformation is also key to address the current and future Digital consumers, that are
representing ~40% of the world population today
USA Western Europe Asia
Current and future digital Current and future digital Current and future digital
consumers : 40% of pop. consumers : 33% of pop. consumers : 33% to 50% of pop.
Source : United Nations
Arthur D. Little – Introduction to the Economics of Digital Airports – May 2015 122. Economics of Full Digital 4.0 Airports
2.0 An holistic view at digital airport economics
Actually, revenue increase lead by Digitalization is still uncertain today : revenue upside can be
threaten by “digital competitors” ; nevertheless digital interaction is a must-have
Examples of revenues upsides and downsides because of
In % of airport revenues
+5,1% digitalization
46% Retail + F&B :
44%
7% Others
+5% to +15% thanks to increased dwell-time
7% > +10% (?) potential from enhanced customer interaction
9% Real Estate ? competition from online dutyfree ?
9%
2% Advertizing Advertising :
2% 3% F&B
2% Spectacular sales increase for products being advertised
digitally today (but will it last ?), … hence higher revenues
13% 15% Retail for advertising operators…
… but that are not converted into higher advertising fee for
3% 2% Rental car airports has ad operators claim for higher CAPEX for digital
displays
9% 9% Car Parking
Car park and car rental :
Non-Aeronautical 2.0 Non-Aeronautical 4.0 Yield management enables +6% to +10% sales increase…
but price comparators or car sharing solutions might take-
Source : ACI average world airport P&L 2014, Arthur D. Little analysis way 10% to 20% of revenues
Arthur D. Little – Introduction to the Economics of Digital Airports – May 2015 132. Economics of Full Digital 4.0 Airports
2.0 An holistic view at digital airport economics
Overall, unleashing the potential value of Airport 4.0 economics looks quite attractive vs the current
Airport 2.0 business model with a significant EBIT improvement potential
Total EBIT
margin (% of 27,5% 39,1%
revenues)
A “full-digital greenfield” airport would generate more than
Aeronautical +10pts EBIT margin
56,2% 56,2%
Revenues
Capacity increase by 15-20% minimum, but CAPEX reduction only
by -10% (cost of intelligent building & equipment)
Non-Aeronautical OPEX reduction by 15%
43,8% 46,0%
Revenues
Revenue growth mainly induced by the “side-effect” of better
customer satisfaction and increased dwell-time
OPEX -52,3% -44,8% Challenges for airport operators are the following :
At what pace can we achieve our full digital transformation ? What
-18,3% are the key success factors ?
Depreciation -20,2%
How to preserve most gains for the airports while sharing part of
Airport 2.0 Airport 4.0 this additional profit between stakeholders ?
Source : ACI average world airport P&L 2014, Arthur D. Little analysis
Arthur D. Little – Introduction to the Economics of Digital Airports – May 2015 14Agenda
1 What is Airport 4.0 ?
2 Economics of Full Digital 4.0 Airports
3 Key Success Factors of a digital transformation
Arthur D. Little – Introduction to the Economics of Digital Airports – May 2015 153. Key Success Factors of a digital transformation
A Digital Transformation requires new skills and talents ; it should involve the entire airport
organization
Revenue focused departments Operation focused departments New business analytics department :
Small team : 5-20 people
Airline marketing Airport Operations – Airfield / Data & fact-based-driven, process
Commercial revenues & passenger Terminal
agnostics : mix of new comers and
marketing Airport Maintenance / Facility
Management
some grey-hair process experts
Real-Estate
Other internal service providers
Transfor- Flight statistics & forecast Ability to gain autonomy in
mation developing tools and analysis in-
(handling, security…)
team
house…
Business
Airport planners, Analytics … and to embrace open-innovation
Support functions
designers & developers Transverse approach, no hierarchical
linked towards existing departments,
Program & master-planning Strategy
but could be split into revenue
Engineering (when in-house) Finances
focused experts vs operation
Project management Human Resources
focused experts
…
Commando spirit
Arthur D. Little – Introduction to the Economics of Digital Airports – May 2015 163. Key Success Factors of a digital transformation
Achieving a Digital Airport Vision and Business Model requires the combination of (1) a usual
strategic planning approach and of (2) Design Thinking bricks
Digital Transformation Governance
Sourcing
Strategic Vision : strategy :
Ambition target, in-house / open-
Ideate Imple-
alignment of priorities for innovation Prototyping
solutions mentation
change, impact on Customized /
airport economics vendor solution
…
Change management
Boosting creativity, shortening “go-to-market” cycles, winning the buy-in of the organization…
… while focusing efforts and managing potential conflicts of interest
Arthur D. Little – Introduction to the Economics of Digital Airports – May 2015 173. Key Success Factors of a digital transformation
3. Key Success Factors of a digital transformation
A successful Digital Transformation must provide tangible and economic benefit to every
stakeholders of an Airport 4.0
Airports & Airlines :
Transform into a « Smart airport » , consider risk-
sharing and value-based relationships
Find a modus vivendi with airlines to manage the
battle for consumer ownership through digital
Airports & Investors : Airports & The City
media
Implement lean & agile Contribute to the aviation
business model : industry green effort
– Skills and activities of Next generation airport Contribute to & prescribe
tomorrow ? business model mobility strategies based on
– Integrator vs Orchestrator ? digital-enabled solutions
– “Flexible” CAPEX ?
Airports & Consumers :
Leverage big data & technology to understand
« hyper-consumers » and boost both customer
experience and commercial revenues
Find the right balance between being “a
connector” and a “place of enjoyment”
Arthur D. Little – Introduction to the Economics of Digital Airports – May 2015 18Contact details
Contact details
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business cities around the world. We are proud to Hiroto Suzuki
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Arthur D. Little – Introduction to the Economics of Digital Airports – May 2015 19You can also read
