Airports: Managing the Digital Square Foot
The day after Labor Day has special significance for the IT teams at many U.S. airports. It marks the end of the summer peak traffic and the beginning of a relative lull in passenger volumes until the pre-Thanksgiving Holiday build-up.
In this small 8-week window, IT teams will roll out systems upgrades, data network enhancements and modifications to business critical applications. It is a time when night-shift work becomes a norm for many IT engineers as they rush to complete their well-choreographed task lists before a moratorium on any significant changes goes into effect November until mid-January.
In recent years, technology services change windows have become increasingly important as airports extend their range of digital services to their airline and concession partners. It is not uncommon for digital services to generate several million dollars in annual revenue at large airports, much of which comes from the provision of data core network transport services.
But despite the growth in airport digital services offerings, these revenues remain a largely ancillary overlay to the airport score business, property services. That may be about to change.
Many U.S. airports will reach their first centennial milestone in the next decade or so. In that time they will have survived and even thrived in their first century by effectively managing their airport properties through regulation and deregulation, fuel price spikes and troughs, airline consolidations, liquidations and demergers and, of course, an unrelenting terrorist threat.
While it’s hard to imagine that the list will ever shorten, it is easy to see a change in the make-up of the airports’ digital services
Change is a constant for airports, as it is for most businesses, and the next few years will see the convergence of at least three factors that may have a seismic impact on the business model of airports and the role of information technology in that model.
First, U.S. airports are taking on a greater level of debt obligation in a bid to accelerate much needed renovations and accommodate future capacity needs. The Airports Council International, a global trade representative body for airports, estimates U.S. airports’ capital developments needs for hub airports to rise almost 10 percent to $75 Billion for the period 2015-2019 compared with the 2013-2017 forecast. Airport executives will be under pressure to identify new sources of revenue to fund their rising debt service and find ways to protect existing revenue streams.
Second, new technology, and particularly mobile technology, is dramatically changing how both airlines and passengers will use airports. Home bag-tag printing, self-service check-in and self-service boarding will remove the need for traditional counter space in Departures and at the Boarding Gate, both of which represent important real-estate revenue sources for airports. Several U.S. domestic carriers already forecast full-automation for the majority of their passenger processing within 5 years.
Third, airports are becoming large hubs for valuable data and information as they deploy modern sensor and application technologies. For example, consolidated on-site high-tech video systems and Wi-Fi infrastructures generate vast stores of valuable data about the performance and operation of the airport. These and other data are an opportunity for airports to go beyond a pure property services manager or landlordrole and to participate in the real-time digital travel value-chain alongside airports, concessionaires and ground transportation operators. This latter point could prove profoundly disruptive for traditional airport business models.
With a need to generate more revenue, a pressure on existing revenues and a potential new emerging digital role for airports, airport executives will take a serious look at the opportunity for digital revenues to be a more significant item on the airport’s income statement.
However, airports going down this road will have a few hurdles to overcome. They will need to learn to innovate new value-added services for their customers; a role that they have not necessarily had to do in the past as many traditional digital services, like carrying network traffic, mostly emerged as a customer demand rather than as an innovative offering.
At the same time, airports will need to better understand the value of their new-found treasure trove of data and how to derive revenues consistent with its value. This will be a significant challenge for organizations that have not traditionally had to commercialize information and may require changes to longstanding commercial agreements with their airline and concessionaire tenants. Today, airports are more likely to give away many of their most valuable datasets - and even pay to get them back.
Lastly, if airports are to become integrated members of the air travel value-chain, they will need to become hubs for the real-time exchange of information and even test the value of exchanging information with other airports – something not done today and a significant shift away from their more traditional role of landlord or facilitator.
Each year, the pre-holiday change window becomes more packed with an ever-increasing list of important airport technology services changes. While it’s hard to imagine that the list will ever shorten, it is easy to see a change in the make-up of the airports’ digital services.
As many airports approach their first centennial celebrations, they can reflect on a century of successfully creating value from every physical square foot of their property. Their second century may well be all about mastering the digital square foot.