Digitalization of airports Experience and learnings from a European perspective Dr. Martin Streichfuss Head of Transportation Competence Center, Roland Berger Shanghai, 13th October 2016
Introduction The ongoing digital transformation creates significant business opportunities for airports Our learnings from Europe Agenda A B C Features of the ongoing digital transformation Aviation has been at the forefront in adopting new technology A new transformation is underway driven by digitalization Airports are key drivers in the industry Often they do more than other players in the value chain Digital opportunities for airports Opportunities exist along the entire passenger value chain From mobility to boosting nonaviation revenues Multi-modal mobility concepts, digitization of shopping through mobile payments and the use of e-stores, flow monitoring via Wi-Fi and Bluetooth are only a few examples for innovations Realization of digital opportunities Airports need to operationalize these opportunities "Digital" is often not a core strength A new way of thinking and acting is needed Tools like Design Thinking, Rapid Prototyping and Hackathons are instruments from the start-up industry that can be used by airports, too 2
1 Features of the digital transformation Aviation has been at the forefront in adopting new technology Again, a transformation is underway driven by digitalization A wide view on digital aviation Cutting-edge yesterday > Navigation and landing aids > Global distribution and booking systems > Yield and revenue management systems > Electronic tickets > GPS-aided and RNAV navigation Current drivers > Airline and airport cost structure optimization > Traditional non-aviation revenue potential mostly realized > Airline yields are at best stable in a growing market > Push for differentiation and product innovation Transformation today Multi-channel retail Wayfinding Location based services Real-time tracking of cargo Augmented reality apps Permanent tag luggage 3
1 Features of the digital transformation This transformation is driven by growing passenger demand and the availability of new technologies Key digital drivers Continued global air passenger growth Changing, more digital passenger demands Growth of new travel technologies Expected pax traffic growth '15-'35 p.a. Share of air pax carrying a device Share of mobile bookings 1) 6.2% 6.2% 83% 33% 4.8% 24% 46% 39% 15% Domestic China Domestic Asia World Smartphone Laptop Tablet Hotel Travel packages Air 1) Apps not included, 2nd half 2015 Source: Boeing, SiTA, Criteo, Roland Berger 4
1 Features of the digital transformation Airports are key drivers in this changing industry, taking a stronger position and doing often more than other players in the value chain Digital roles in the aviation value chain Airports > Clear advantage for digital investments due to own land-based infrastructure > Existing direct relationship with retailers, passengers and airlines Central role in aviation value chain > Financial strength for investments > Digital first movers due to pressure from online retail Threat to business model > Physical stores still remain strong asset and core business with most attention > Dependence on airports and their infrastructure Digital transformation Airlines > Limited distribution of in-flight internet so far reduces digital potential on-board > Hence dependence on players on the ground, e.g. airports or retailers > Lower willingness to invest in passenger experience, often due to low profitability > Traditionally not a highly digitalized industry Dependence on infrastructure and ground equipment > High degree of manual labor with standardized processes and work > Low maturity indicates strong potential Retailers Ground handlers 5
1 Features of the digital transformation Airports are uniquely placed to tackle the challenges that accompany the digital transformation It's a new business model Challenges to be addressed by airports Ever shorter horizons > Long-term-planning cycles often prevail, as airports were pure infrastructure providers in the past > Now, digitalization pinpoints the need for continuous innovation and re-thinking of own initiatives > Indeed, technological progress will even be faster in the future, e.g. driven by AI Building of scales > Only few airports are large enough to tackle technological innovation in house > Yet, digitalization means collaboration: airports and tech companies, but also among airports > By joint initiatives, e.g. a joint app, airports can gain scale and decrease implementation risks Digital passengers > Customers have never been as informed, demanding and tech-focused > Especially lucrative transfer passengers lose loyalty and look for best value for money > Airports need to re-gain those customers by offering a holistic modern experience Commercial rationale > Digitalization is not a self-fulfilling prophecy investments need to make commercial sense > All measures shall be carefully examined for revenue potential or cost synergies > Digital initiatives need to be benchmarked with classic investments, e.g. retail space enlargement 6
Passenger mobility Digital retail Airline cooperation Operations 2 Digital opportunities The digital transformation thereby creates opportunities along the full value chain From mobility to boosting non-aviation revenues Overview of digital opportunities Connecting more passengers to the airport Pushing duty free retail into online channels Building win-win partnerships with airlines Making best use of the infrastructure > Better connectivity to airports with multi-modal transport services > Higher customer satisfaction with real-time inform. > Additional revenue potential with new transport services, e.g. Uber, ride sharing > More personalized multi-channel retail offers for pax > New digitalization of entire shopping experience at airport > New attractive service offerings possible, e.g. VIP services > So far limited exchange of customer data both airports and airlines can use > Tailoring service offerings along the entire value chain possible > Possibility of sharing risks in the development > Automated data exchange to improve efficiency > Existence of new technologies for cost intensive areas, e.g. FM > Potential to optimize pax flows to maximize time in areas with revenue potential 7
Passenger mobility 2 Digital opportunities As passenger mobility changes, goal for airports is to participate in the new revenue streams and to get access to more customers Opportunities for passenger mobility Key drivers > Growth of transport options that avoid airport concessions Didi Chuxing, uber Ride sharing > Potential of robo-cabs within a few years, reducing need for car parks > Growth of longdistance bus networks with high granularity Departure fee for non-concessioned cars picking up passengers Curb-side access fees to participate in increasing arrivals by non-concessioned cars or robo-cabs Multi-modal train and bus station with wide and frequent connections to the hinterland 2 1 3 Station Airport 8
Digital retail 2 Digital opportunities Retail is a key revenue source for airports Digitalization presents both risks and opportunities, e.g. personalized multi-channel offers Opportunities for digital retails Key drivers > Increasing competition from online retailers with price leadership > Cooperation with airlines and retailers, in place circumventing the airports > Firm demand for multi-channel, e.g. shopping both online and offline with same retailer > Increased demand from passengers for personalized services VIP 1 Landside 2 3 4 Sale of VIP services (parking, grooming, etc.) via airport or partner site, collection of goods purchased online / in town, discounts depending on airport entry time 5 Digitization of shopping experience along NFC touch points, QR codes, pop-ups, mobile payments and extended use of e-stores Airside 6 7 9 8 Entertainment options that switch seamlessly between airport and airplane 11 10 9
Airline cooperation 2 Digital opportunities Airport and airline cooperation is mainly focused on operational aspects Significant opportunities for non-aviation, digital revenues Opportunities for airline cooperation Key drivers Leveraging customer touch points jointly > Growing push by airlines to participate in digital retail > E.g. via in-flight internet, making use of long client contact > Growing interest by airports in airline customer data for personalized offers and personal shopping > Targeting of passengers for retail sales currently still excludes lounges Lounge shopping: Purchasing airport retail products in airline lounge 1 3 Buying airport retail products through in-flightapp, picking up at landing Exchanging customer intelligence in order to tailor service offering 2 10
Operations 2 Digital opportunities Use digital data to improve the airport's operations' efficiency Decreased costs and higher passenger satisfaction Opportunities for operations Key drivers > Operations often already optimized for non-digital levers, e.g. regarding staff costs > New technologies are now available to increase efficiency of operations and lower staff costs even more > Also, increasing interest in passenger data to influence navigation in the terminal, e.g. to increase ancillary revenues Landside Flow monitoring with Wi-Fi, Bluetooth or imaging based as well as geo-localization Intelligent building management with real-time energy and utilities management 1 2 4 3 Customer engagement with digital and interactive displays Airside Process automation with digital luggage tagging; security solutions with e.g. automated suspects identifications Data based asset management and preventive maintenance 5 11
3 Realization of digital opportunities Key question is how to operationalize these opportunities New approaches from start-ups Requirements of digitalization and suitable formats Quicker development Stronger customer focus > Adapt to the "fast past" in the industry > Act quicker, develop solutions faster, e.g. early prototypes of solutions > Put yourself into the position of the customer and understand pain points > Involve customers in the development and the test of products/solutions Design Thinking > Systematic approach to deal with innovation in multidisciplinary teams > Generates ideas and approaches for new products and services Rapid Prototyping > Testing of products in early stages with limited resource input and quick adjustments > Early-stage market exposure Increased openness More daringness > Regard new ideas and approaches as potentially valuable > Consider solutions from competition and other industries as well > Be brave enough to try out novel ways to approach problem solving > Come up with new and different approaches and solutions Hackathons > Collaboration of transversal experts to deliver creative outside-in solutions to a certain task > Needs willingness to share confidential information (data) 12
3 Realization of digital opportunities To master the transformation, many airports partner up to design a product portfolio along the customer and operations journey Target product portfolio (example) Involvement options Acquisition Startupcontribution Outsourcing Joint-Venture Own development 1) Travel portal Airport commute platform Travel portal Find a Travel- Mate Community Apps to track baggage location Lounge shopping with airline Service for frequent travelers, storage of clothes incl. cleaning "Food to go" home concepts 1) Possible profit sharing for other airports Planning Booking Journey to airport Stay at airport Flight to destination Journey Customer and operations journey Flight from destination Journey home Follow-up 13
Mastering digitalization: Take the driver seat Focus your activities around the customer Do not lose sight of business case Guiding principles Leverage your central role > Clear advantage for digital investments due to own land-based infrastructure > Existing direct relationship with retailers, passengers and airlines > Financial strength for investments Build around the customer > Global passenger growth in aviation will continue, particularly in Asia > Passengers of the future will be more digital and more demanding > This creates opportunities along the entire travel value chain Ensure return on investments > Digitalization yields potential both on for additional revenues and cost efficiency > Initiatives need to be planned and thoroughly challenged for return on investment > New paradigm of continuous innovation and shorter investment cycles is needed 14
Your contact Martin Streichfuss Senior Partner Global Head of Transportation Competence Center Zhanfu (Jeff) YU Principal Co-leader of China Transportation Competence Center CONTACT Roland Berger Dreischeibenhaus 1 40211 Dü sseldorf Germany Tel.: +49 211 4389-2193 Martin.Streichfuss@rolandberger.com CONTACT Roland Berger 20/F Tower A Gateway Plaza, 18 Xiaguangli, Dong San Huan North Road, Chao Yang District Beijing 100027 China Tel.: +86 136 5116 4091 +86 10 5954 1669 zhanfu.yu@rolandberger.com 15