How airports and airlines can jointly boost revenues, lower costs, and improve the customer experience
Airports and airlines are natural partners that work together in many ways on a daily basis. Even so, they are missing out on opportunities to better coordinate to boost revenues, lower costs, improve efficiencies, and enhance their customers’ experience. Given the competitive pressures on the industry, these natural partners need to take their relationship to the next level and exploit synergies wherever possible.
We have identified four key areas where airports and airlines could work jointly to unlock value: sales channels, loyalty programs, digitization programs, and joint real estate development and hub operations. The first three can help airports and airlines work together more smoothly to improve the customer experience and boost airport commercial sales by 10 to 20 percent and airline commercial sales by more than 50 percent, with relatively little incremental investment. One example is to integrate in-flight shopping — when passengers have plenty of time to browse goods online — with prompt delivery of purchased goods upon arrival, before passengers rush to catch another flight or to claim their bags. Airports and airlines that are already innovating in this manner are enjoying robust commercial sales.
The fourth area focuses on how hub airlines and airports can coordinate to improve efficiencies, lower costs, and foster economically dynamic aviation clusters — populated with their ecosystem stakeholders — to compete better in the global travel market of the future. In all of these joint activities, the challenge will be designing a business model with the right profit- and cost-sharing mechanisms and with the right technologies.
Airports and airlines are made for each other. They are very good at coordinating to get their millions of shared customers safely from place to place. However, they do not work together well on other aspects that could boost revenues, lower costs, improve efficiencies, and enhance the customer experience.
Given the intense pressure on airports and airlines around the world — pressures that include geopolitical issues, increased competition, and the need to lower costs — these two natural partners should make unlocking synergies a priority. There are four key areas where airports and airlines could work together to unlock value with relatively limited incremental cost: sales channels, loyalty programs, joint digitization programs, and improved real estate development and hub operations.
Airports and airlines should work together to solve a basic problem that prevents them from selling more products to their millions of passengers: In the airport, people do not always have time to shop in stores and browse inventory if they are rushing to catch the next plane or to claim their baggage. People have the time to shop while on airplanes, but aircraft cannot carry large inventories of goods. To give passengers more time to shop, and make it more convenient, airports and airlines could integrate their sales channels for retail goods. There are three options, one or more of which could be put to use at the same time: airplane to gate, airplane to airplane, home to gate.
The airplane-to-gate sales channel exists in-flight. Once on board, passengers could use seat screens to browse the full selection of products offered at the destination airport and make purchases. Airport staff could then draw on the inventory housed at the airport and deliver those goods at the arrival gate or a selected collection point to save passengers time, allowing them to quickly depart the airport. Airlines would promote the channel and integrate the e-commerce website into the in-flight entertainment system.
Similar to the airplane-to-gate channel, in the airplane-to-airplane channel passengers could use seat screens in-flight to browse the full selection of products offered at the transit airport. Airport staff would access the inventory on site and deliver those goods to a delivery point at the transit gate of the connecting flight, allowing the passenger to move quickly from gate to gate. Here again, airlines would promote the channel and embed the e-commerce website in the in-flight entertainment system. This channel could benefit airlines with a high volume of connecting traffic.
An integrated online sales channel would also allow departing passengers to browse and buy from the full selection of the airport’s commercial products while still at home, and then pick up those items at their departure gates. In this case, airlines would promote the channel to their passengers, while airports would store the inventory and provide delivery.
It is important to note that some airports have already introduced new technologies and business models to improve sales. For example, Hong Kong International Airport has introduced the i-Gate facility, which allows travelers to order goods directly on tablets at the departure gates and have the goods delivered to them within 10 minutes. London Heathrow Airport’s online travel store, Heathrow Boutique, offers a “Reserve & Collect” service where passengers can reserve products online, then pay and collect the goods at the shop.
The fact that Hong Kong International Airport and London Heathrow Airport are already innovating and enjoying robust commercial sales may make them hesitate to establish joint sales channels with airlines as that would mean sharing profits that they currently keep for themselves. However, our research suggests that even after accounting for profit-sharing, these joint sales channels could boost airport commercial sales by 10 to 20 percent, while airlines could increase their commercial sales by more than 50 percent.
Moreover, as noted, they can achieve these gains at relatively low incremental capital and operating costs. These costs would probably include: designing and deploying a joint online shopping platform (which for modern in-flight entertainment technologies can cost below US$1 million), additional data charges for transmission of product orders to airports, and staff to upload the products on the e-commerce website and deliver goods to passengers. The major impediment to the integration of these sales channels is designing a business model with the appropriate profit-sharing mechanism and the right technology while avoiding too much cannibalization of in-flight sales.
To give passengers more time to shop, and make it more convenient, airports and airlines could integrate their sales channels for retail goods.
Airports and airlines have a long successful history of collaborating to transport their millions of shared customers safely from place to place. However, this is no longer sufficient for business success. With a far more dynamic geopolitical and economic environment, and increasing global competition, these two natural partners need to make every effort to unlock synergies. We believe that priority synergies are in sales-channel integration, joint loyalty programs, joint digitization, and collaboration in real estate development and hub operations. By taking their partnership to the next level, airports and airlines can thrive and grow together in the global travel market of the future.