LEK. Special Report The Future of Airport Ground Access How Airports Can Respond to Disruption Contents Overview................................................................. 2 The challenges of new mobility ................................ 3 How airports can respond in the short-term.............. 8 Changing mindset: long-term strategies ................. 12 Conclusion............................................................ 15 Endnotes............................................................... 16 About L.E.K. Consulting L.E.K. Consulting is a global management consulting firm that uses deep industry expertise and rigorous analysis to help business leaders achieve practical results with real impact. We are uncompromising in our approach to helping clients consistently make better decisions, deliver improved business performance and create greater shareholder returns. The firm advises and supports global companies that are leaders in their industries, including the largest private and public sector organizations, private equity firms, and emerging entrepreneurial businesses. Founded in 1983, L.E.K. employs more than 1,400 professionals across the Americas, Asia-Pacific and Europe. For more information, go to www.lek.com. 1 Overview Transport is changing. Digital technology and business model innovations are generating a new breed of ride-sharing and ride-hailing services such as Uber, Lyft, DiDi, Ola and Grab, collectively known as transportation network companies (TNCs). Together with trends toward car and bike-sharing and the emergence of electric scooters, these “new mobility” options are transforming the way we move around our cities. They are also changing how we get to and from airports. For consumers and passengers, new mobility increases choice and reduces cost. But the trend brings uncertainty for airport operators and investors, who are already starting to see its effects on financial performance and infrastructure investment decisions. And the changes we have seen so far are only the beginning. With the rise of electric vehicles, connected and autonomous vehicles (CAVs), and aerial mobility — and the widespread adoption of Mobility as a Service (MaaS) — more technological and business disruption is on the horizon. If airports are to continue to thrive, managers and boards must see the developments in ground transport as an opportunity, and find new ways to balance operational needs, reputation, commercial health and shareholder returns. Airport investors and TNCs, too, must understand the implications of new mobility for their businesses. This report • explores the challenges that new mobility options are creating for airports globally; and Nine key actions for airports Airport stakeholders need not take a passive approach to this changing landscape, but instead can respond in a variety of ways to secure continued success in the future. In the short-term, airports can: 1. Ensure that ground access and parking pricing is providing appropriate economic signals 2. Differentiate between curbside and other pickup/ drop-off areas 3. Develop a more sophisticated parking offering, including dynamic pricing and new products 4. Improve information and communication for the digital age, as a precursor to MaaS In the long-term, they will need to: 1. See new mobility as an opportunity to improve operational and financial performance and to support reputational considerations 2. Develop tailored strategies based on a robust understanding of passenger responses to mobility options 3. Manage the key trade-offs between operational, financial and reputational implications created by the proliferation of new mobility options 4. Plan for future mobility changes, and incorporate flexibility into infrastructure designs 5. Adopt a broader view of the passenger experience, by considering the journey to — and arrival at — the airport (i.e., “sofa to gate”) • recommends short and long-term actions that airports should consider in response to mobility disruption. 2 The challenges of new mobility Airport ground transport has remained fundamentally unchanged in its heavy reliance on private cars and taxis1 since the beginning of mass commercial aviation more than 70 years ago. Until the emergence of TNCs in 2012, private cars, taxis and rental cars represented at least 80-90% of all journeys to and from airports. Rail links or dedicated rail lines, where in use, typically capture 10-25% of such journeys. Rail is available at approximately 80 of the world’s 100 largest airports, and is more important in airport catchment areas where there is heavy road traffic congestion. In only the past six years however, TNCs have grown rapidly and have taken significant share from all other ground transport modes in most major global markets. Data from expense reporting service provider Certify on business and travel spending shows that TNCs grew from 8% of U.S. business traveler spending in 2014 to a staggering 62% in 2017 (Figure 1). In one case, two TNCs at San Francisco International Airport (SFO), Uber and Lyft, grew from 4% of drop-off mode share in 2014 to 29% in 2017. In the process of winning nearly one-third of SFO’s arriving passengers, these TNCs reduced the share of every other mode — notably, not only taxis and rental cars, but also door-to-door vans and public transport (Figure 2). Figure 2 Growth of TNC use at SFO SFO emplaned passengers by mode of access (2014-17) Percent 100 Growth of TNC use by U.S. business travelers 8 TNC Taxi Car rental 75 37 62 50 8 25 55 30 0 Note: 2014 17 Based on Q1 data from 2014 through 2017 as reported by Certify on business travel spending Source: Certify; L.E.K. research and analysis 4 4 3 80 12 4 60 9 Other Free hotel shuttle Door-to-door van Public transport 29 TNC 4 Taxi 13 15 10 40 9 Rental car 8 Parking (private car) 30 28 Drop-off (private car) 2014 17 20 Source: San Francisco International Airport Customer Survey Data Ground transportation mode share for business travelers in the United States (2014-17) Percent 100 27.9m 5 5 7 0 Figure 1 23.5m This shift away from established modes to TNCs is affecting airports in three significant ways: 1. Financial performance 2. Infrastructure investment planning, decision-making and return on capital 3. Passenger experience 1. Financial performance Ground transport is a major source of revenue for airports, with parking and ground access charges typically contributing one-quarter or more of total airport revenues.2 Yet TNCs generate substantially less revenue per passenger than parking, taxis and rental cars, thus increased use of TNCs may cut into airports’ income. Figure 3 shows that TNC access charges are lower than charges for taxis or short-term parking at many airports. This suggests airports may be leaving money on the table and creating an inequitable environment for taxi operators and their customers. This depends, of course, on the transport service provided and on the level of access that each transport operator receives. Taxis often have 3 Figure 3 Taxi access charges remain higher than TNC access charges, on average Airport pickup fees for taxis and TNCs* (2018) USD** 7.5 Taxi TNC 6.2 6.0 4.5 4.6 4.6 4.1 3.3 3.0 3.0 2.6 3.1 2.9 2.6 $3.50 Taxi avg. $2.90 TNC avg. 2.5 2.1 2.0 1.5 1.1 0.0 DEN LHR DFW SYD SIN BNE MEL Notes: * Pickup charges across airports were collected and normalized to provide as much of a like-for-like comparison as possible. Normalization included taking the average of various charges where rates differ by time of day, and accounting for all fees paid by the driver from waiting to pickup of customers. ** Exchange rates applied as at 05/10/18: 1 GBP = 1.30 USD, 1 SGD = 0.72 USD, 1 AUD = 0.71 USD. Source: Uber website; TfL; Taxi Singapore; ACCC Monitoring Report 2017; Fly Denver; Taxi DFW layover facilities and preferred terminal curbside access for pickups. TNCs, meanwhile, tend to use nearby short-term parking areas. Where all transport operators have the same curbside dropoff option at departures, however, there is no clear justification for TNCs paying less than taxis or other transport operators. At present, the implication is that the growth of TNCs means passengers are effectively trading down from a higher-revenue parking product or taxi service to a lower-revenue but highervolume TNC product. This has far-reaching implications: if airports fail to act now, they may face declining financial performance as TNC usage continues to increase. For airports, the shift from parking to TNC revenue may not be entirely negative. TNCs appear to have enlarged the chargeable ground transport market by taking share from non-revenuegenerating pickup/drop-off modes such as private vehicles. For example, Denver International Airport reported that from 2015 to 2017, parking revenue fell by about 1%, or $2.5 million, to $176 million. However, over the same period, ground transport revenue, including fees collected from TNCs, rose 29%, or $2.8 million, to $12.4 million.3 This represents a net increase of about $0.3 million in combined parking and ground transport revenue. However, the risk still remains that if airports do not appropriately monetize TNC access, they will be left with a revenue gap. The impact of TNCs on an airport’s ground transport revenue will depend on how much the airport relies on parking revenue — and the degree to which passengers utilize mass transit instead (Figure 4). 4 Figure 4 Public transport mode share varies regional Public transport mode share as a function of passengers* (2008) Public transport mode share (%) 70 Asia OSL HKG 60 50 PVG Europe ZRH VIE 40 CDG CPH ARN CAN LGW 30 BRU SYD 20 10 AMS MUC Australia & NZ PEK SFO North America EWR IAD DCA BKK JFK BOS MEL BNE LHR FRA SEA PHL DEN LAX PHX DFW AKL 0 10 20 30 40 50 60 70 80 Millions of passengers Legend Rail (direct heavy or light rail) Note: Rail connection via shuttle/bus Rail in construction * Passenger numbers as of 2011; public transport mode share as of 2008 Source: PTUA; Global BRT Data; L.E.K. research and analysis The market share held by mass transit — which is generally not monetized directly by the airport — is another factor driving the observed variation in ground transport revenues. Figure 4 highlights regional differences and the impact of rail availability on public transport mode share.4 Airports in North America and in Australia and New Zealand (ANZ) may be the most exposed to risks from falling car parking revenues. Because they tend to have much lower shares of public transport modes than their counterparts in Europe and Asia, they typically generate more ground transport revenue per passenger than do airports in other regions. Historically, this has been a strength, but in the context of rising TNC use, it now appears to be a potential weakness. North American airports in particular are greatly exposed to disruptions, with parking revenues accounting for about 23% of total airport revenues in 2016, compared with 13% for ANZ airports, 7% for Europe and 3% for Asia.5 Several Australian airports have already seen a decline in shortterm parking transactions that can be attributed primarily to the rise in use of TNCs. Melbourne Airport saw a decline of about 20% between 2013 and 2017, while Brisbane Airport saw a fall of about 30% over the same period.6 2. Infrastructure investment planning, decision-making and return on capital In addition to being a source of airport revenue, ground transport options are a driver of infrastructure investment, requiring parking facilities, access roads and curbside pickup/drop-off areas. These assets are capital intensive and have long life spans, which puts them at risk of disruption from changes in passenger behavior and mobility trends. 5 Already TNCs are beginning to change the relative utilization of each of these ground transport areas. This is affecting not only how airports plan for future infrastructure, but also the return on capital for these investments. Pittsburgh International Airport is embarking on a $1 billion facility improvement program, which initially included the construction of about 5,000 additional parking spaces. After a more thorough review, however, the airport decided to scale back to 3,500 spaces because of the increasing use of TNCs.7 TNCs can also connect passengers to mass transit and solve “first and last mile” personal mobility issues, thus affecting airports’ ground transport planning and decision-making. Public transport authorities are increasingly seeing TNCs as means of feeding mass transit corridors, particularly when they can be incorporated into a MaaS ecosystem. For instance, passengers can use a TNC to access the train that allows them to travel directly to the airport, saving money and beating road congestion. In the future, these kinds of multi-modal trips will likely be planned and purchased in a single MaaS app; such services already operate in several cities around the world, such as Helsinki. We are witnessing a mobility evolution that is leading to greater complexity and uncertainty for forecasting mode shares. And TNCs are only the first new mobility option to emerge. Although autonomous vehicles, aerial mobility and widespread MaaS usage are some years away still, these options are likely to arrive within the life spans of ground transport infrastructure assets constructed within the past 10 years (or being built now). These future mobility options could pose further threats to airport revenues, and they raise crucial questions about how to future-proof infrastructure (e.g., parking garages). L.E.K. Consulting has seen this phenomenon play out in several projects with major global airports, where we helped reforecast expected parking requirements based on declining parking usage and concerns around the long-term demand for parking in light of future mobility trends. The findings highlight the essential value of airports being able to analyze their catchments to understand current trends and anticipate future changes. For a major European airport, L.E.K. analysis illustrated how airport access mode shares change based on the distance a passenger must travel to reach the airport. The analysis revealed that TNC/taxi use drops significantly after 10-25 km, while curbside pickup/drop-off and short-term parking maintain share regardless of distance; both long-term parking and public transport shares grow with distance (Figure 5). Departing passengers airport access mode by distance from the airport Bringing new mobility into the equation, this analysis suggests that nearby catchments (short-distance trips) are more at risk from ongoing TNC disruption (i.e., taxi for curbside service and car for short-term parking). Both nearby and more distant catchments (longer trips) are more exposed to long-term trends in autonomous vehicles, electric vehicles, aerial mobility and MaaS. INDICATIVE 100% Public transport Percentage of passengers This research shows that passenger decision-making reflects not only the relative economics of each option (as expected) and the greater convenience of taxis for short distances, but also the greater affordability of long-term parking, public transport or curbside service for longer distances. Figure 5 Mode share changes based on passenger distance to airport Taxi and TNC Car rental Car - curbside Car - parking 0% Less than 10km Distance from the airport 100+km Source: L.E.K. survey 6 3. Passenger experience New mobility options can improve the passenger experience. TNCs are making point-to-point travel cheaper and easier, and are introducing new features such as driver reviews, trip-time estimates, and location sharing with friends and family. However, TNCs also have the potential to worsen the passenger experience. TNCs can increase congestion at curbside pickup/ drop-off areas if they take mode share from private vehicles that otherwise would have gone to parking areas or from mass transit options. Indeed, many airports have already begun to introduce strategies to mitigate congestion. Heathrow and Sydney airports direct TNC pickups into short-stay car parks rather than curbside areas, though TNCs still add to precinct and road congestion. Furthermore, multi-airport systems such as Los Angeles, Paris and Chicago will need to consider how pricing and congestion are affected by new mobility options across their broader catchment areas. New mobility ground options are changing two principal criteria that passengers consider when choosing the optimal airport for their travel plans: cost-to-access and travel time to the airport. This may alter the competitive dynamic in dual-airport systems. It also raises questions about how airports can retain and expand their catchment areas — and about what ground transport infrastructure and incentives are necessary as part of achieving that goal. Airports will need to consider how TNCs and other new mobility developments are likely to affect (i) vehicle flow within airport precincts, (ii) ground transport operations and (iii) the passenger experience. Airports need to ensure they can capitalize on these changes and enhance their reputation by providing greater choice and improving the customer experience. 7 How airports can respond in the short-term The growth of TNCs and the relative decline of parking means airports must think of their ground transport businesses more broadly as ground access businesses instead. Any declines in car parking or taxi revenues must be compensated by other ground access revenues. infrastructure such as parking garages and roads. This is known as commercial pricing. However, this approach misses an opportunity to use pricing signals to influence behavior and demand. The good news is that airports can take short-term tactical steps to protect — and even grow — revenues, enhance the passenger experience and position themselves for the future. These measures include: 1. Ensure that ground access and parking pricing is providing appropriate economic signals 2. Differentiate between curbside and other pickup/ drop-off areas 3. Develop a more sophisticated parking offering, including dynamic pricing and new products 4. Improve information and communication for the digital age, as a precursor to MaaS Increasingly, airports must consider the role and impact of pricing as a demand management tool. For instance, airports can use pricing to reduce terminal curbside congestion by directing private vehicle pickup/drop-off traffic (e.g., “kiss and drop”) to different parking areas, improving use of remote car parks or encouraging mode share shifts to suppress vehicle congestion (Figure 6). This introduces a deeper need to segment and understand the ground transport market, where passenger preferences and willingness to pay can be balanced against the need to manage on-site congestion and asset utilization (Figure 8). For most airports, this represents a paradigm shift. In practice, such an approach would imply the following: 1. Ensure that ground access and parking pricing is providing appropriate economic signals Traditionally, pricing of parking or ground access has been based on achieving a reasonable rate of return for ground transport • Consider the demand management challenge at vehicle unit, regardless of operator. A car represents a single unit of congestion. Buses and other large vehicles excluded, all passenger vehicles and light commercial vehicles entering an airport site — or certain high-demand areas of an airport, such as the curbside areas — effectively cause the same amount of congestion. Therefore, the same pricing signal is appropriate. Figure 6 Pricing can help manage demand across options according to quality and amenity Premium Non-premium Near by pickup/ drop-off area Access Remote + shuttle Curbside Long-term (farther) Valet Storage/ parking Curbside Short-term (close) Remote + shuttle Airport passengers and transport operators can choose from a spectrum of both access options (e.g., curbside vs. remote pickup/drop-off) and storage options (e.g., valet vs. free parking). The key is in setting the right pricing signals to maximize financial outcomes, asset utilization and customer choice while also managing congestion. 8 • Set charges to specific airport areas based on passenger willingness to pay. Some airports effectively discriminate between transport operators in allowing access to terminal curbside areas for pickups. Taxis generally operate at premium curbside areas, while TNCs are often relegated to more distant passenger pickup areas. However, what if a TNC passenger is willing to pay more for curbside access? Then the airport should monetize that desire. If instead, a TNC passenger wants the lowest possible price, he or she can meet the ride at a short-term parking area or remote area. The key point: The airport, not the operator, should offer differentiated pickup/drop-off options to the passenger. Careful consideration will be required to execute these changes in a way that minimizes reputational and commercial risk. In the U.K., for example, to mitigate the community’s potential negative reaction, Edinburgh, Stansted, Glasgow and Manchester combined the announcement of new charges on pickup/drop-off areas with a variety of official statements, discount schemes and community grants. 2. Differentiate between curbside and other pickup/drop-off areas Curbside access is the most valuable ground transport asset, yet it is often congested and rarely monetized. Furthermore, as airports grow and become even more congested, these areas risk becoming a bottleneck and damaging the customer experience. Instead, airports can use branding and pricing signals to differentiate between high-value curbside areas, near-terminal pickup/drop-off areas and remote pickup/drop-off areas with shuttle bus services to terminals. In fact, remote drop-offs may become the norm for passengers at many airports, with curbside access treated as a premium paid product. Indeed, at a number of airports around the world, we are already observing this trend toward instituting curbside access charges in combination with a remote pickup/drop-off offer (Figure 7). Benefits of successful differentiation of pickup/drop-off areas include greater profitability and demand management of ground access areas. Figure 7 Airports can differentiate ground access and storage offers Departure Curbside access Pickup/drop-off area • “Kiss + drop” Valet Long-term parking Legend Short-term parking Premium access • Uber • Hire cars General access Remote/ off-site parking Remote access 9 Figure 8 Charging differentials for terminal vs. remote drop-offs Price of drop-off options for selected international airports (2018) AUD First period Dallas – Fort Worth* Remote drop-off facilities at selected international airports Subsequent periods Remote drop-off 0-1h $1 8-30m 0-8m** $5 Terminal drop-off 5-10m $7 Terminal drop-off Remote drop-off $0 0-1h Manchester^ 0-5m Remote drop-off $0 0-1h Stansted^ 0-5m 5-15m $5 10-30m Edinburgh^ 0-5m $13 Terminal drop-off 5-10m Remote drop-off 10-20m $9 Terminal drop-off Remote drop-off $0 0-30m Glasgow^ 0-10m 0 10-15m 5 $7 Price ($) Terminal drop-off 10 Airport Distance Travel time Frequency Dallas – Fort Worth* 4km 10-15 min 15 min Manchester^ 1-2km 5-7 min 15 min Stansted^ 3km 10 min 10 min Edinburgh^ 1km 5 min N/A Glasgow^ 1km 5 min 10-15 min 15 Passengers are incentivised to use free alternatives by pricing the premium option at c.$5 for the first period Shuttles have a minimum frequency of 15 minutes and a travel time of 5-10 minutes Note: * Converted from USD to AUD using CY18 average exchange rate 1 USD = 1.30 AUD. ** DFW charges more for 0-8 minute trips than for 8-30 minute trips to discourage commuter traffic from entering. ^ Converted from GBP to AUD using CY18 average exchange rate 1 GBP = 1.78 AUD. 3. Develop a more sophisticated parking offer, including dynamic pricing and new products • Reserved spaces Airports have made significant improvements in the sophistication and (as a result) profitability of parking businesses over the past two decades. However, TNCs present new challenges that necessitate a review and revision of parking products, positioning, pricing and customer engagement. • Remote parking Parking solutions will vary by airport, but components may include: • Dynamic pricing (e.g., by hour, by day, weekend vs. workday)8 • Premium parking (e.g., closest to terminal) • Valet parking • Loyalty and partner programs (e.g., in conjunction with toll road operators) • Free remote parking (to send pricing signals and to manage reputational objectives) Airport stakeholders will need to think carefully about how their parking portfolio fits together, how it meets various customer segments’ needs and willingness to pay, how it influences behavior, and how it influences demand and asset utilization. Airports also need to be prepared to react quickly to emerging business models, such as peer-to-peer carsharing networks. 10 4. Improve information and communication for the digital age, as a precursor to MaaS Over the past decade, as passengers have become digital natives, many airports have not kept pace. The emergence of TNCs, mobile flight bookings and mobile boarding passes are just a few proof points showing how comfortable — and reliant — passengers have become with mobile technology as a means of gathering information, planning travel and making bookings. Yet the quality, availability and user-friendliness of airport information have, for the most part, fallen behind. Airports are missing the opportunity to share ground transport options with passengers and, in turn, to influence the use of different transport modes and the uptake of parking offers, all while improving the reputation of the airport. In addition, being unable or unwilling to keep up leaves airports out of a future MaaS ecosystem, which will be entirely digital and will rely on high-quality, real-time information sharing. For broader changes in ground transport options to be effective, airports will need to invest in improving information sharing. Website, mobile app and integration upgrades (e.g., with MaaS and TNC apps) will make it easy for passengers and employees alike to find information about, make decisions on, and buy parking or other transport options. Airports will need to succeed in communicating the positioning, availability, and attractiveness of each product in a way that reaches the right customer segments and achieves potential uptake. Airports will also need to be clear about which marketing channels to use and how to maximize sales. For instance, to maximize the value of providing online and app-based information (and MaaS integration), airports will need to drive pre-bookings for parking. Pre-bookings will help airports gather information on demand that can be used for predictive pricing and data analytics. Then, to maximize the value of sales to drive-up parking customers, airports will need to improve signage, wayfinding and product description so customers have enough information to select their preferred parking option. Otherwise, the airport will lose out on the benefits of customer segmentation. Additionally, airports can use digital tools to encourage higher vehicle occupancy to mitigate congestion within the airport precinct and on arterial roads. Gatwick Airport has recently launched Faxi, a carpooling app for staff that offers preferential parking for carpoolers and aims to reduce congestion, emissions and parking infrastructure requirements. 11 Changing mindset: long-term strategies New mobility options need not be viewed as a threat. Indeed, the changes they bring offer opportunities to improve the health of the business, increase returns, reduce congestion, enhance the passenger experience over the long-term and support reputational considerations. This starts with a mindset shift, and continues with robust analysis and strategic decision-making to manage important trade-offs. In general, it requires that airport stakeholders step back and rethink their commercial model for ground transport. Strategic activities that airports can use over the long-term include: 1. See new mobility as an opportunity to improve operational and financial performance and to support reputational considerations 2. Develop tailored strategies based on a robust understanding of passenger responses to mobility options 3. Manage the key trade-offs between operational, financial and reputational implications created by the proliferation of new mobility options 4. Plan for future mobility changes, and incorporate flexibility into infrastructure designs 5. Adopt a broader view of the passenger experience, by considering the journey to — and arrival at — the airport (i.e., “sofa to gate”) 1. See new mobility as an opportunity to improve operational and financial performance and to support reputational considerations Airports must make an effort to be proactive rather than reactive. Stakeholders should be asking themselves now how to profit from new mobility options, including those further into the future (such as autonomous vehicles and aerial mobility). There is no way to stop or reverse new mobility trends. Airports must operate as part of the new mobility ecosystem, and resist the impulse to ignore change or seek to control it through enforcement or regulation. The TNC experience offers many lessons in this respect. Instead, airports should see ongoing mode shifts and emerging mobility options as opportunities that should replace — or improve on — historical ground transport profitability and returns. 2. Develop tailored strategies based on a robust understanding of passenger responses to mobility options Airports will need tailored strategies to deal with the changes new mobility brings. Given the many differences across cities and countries in existing mode shares, geography, catchments, wealth and airport competition, blanket recommendations will fall flat. Further, if we rely on preferences as they are revealed, it will be too late. Airports will need to conduct robust analysis and research based on their own unique situation, and must address the implications of ongoing fundamental changes in passenger behavior. For example: • A passenger on a three-day business trip is dropped off at the airport near her autonomous vehicle, which then returns home, rather than using the premium valet parking that she used in the past. This results in: –– loss of parking revenue, which could be partially offset by airport precinct/curbside charges; and –– potential increase in curbside congestion, and an additional trip from the airport and associated congestion as the autonomous car returns home. • An inbound leisure passenger arrives at an airport and uses a peer-to-peer car-sharing network to pick up (for two weeks) a vehicle that was dropped-off earlier that day by an outbound passenger. This results in: –– loss of long-stay parking revenue from the outbound passenger, which could be replaced by short-stay parking revenue — or no revenue at all, if the two passengers are able to coordinate their schedules and meet at the free pickup/drop-off area; and –– loss of rental car revenue from the inbound passenger, who otherwise would have rented a car for two weeks. 12 Over the next decade or so, airports will need to develop the predictive capacity to understand and model such fundamental passenger behavioral changes and associated mode share shifts. Analytics will be imperative to ensure that appropriate operational, pricing and investment decisions can be made. the airport’s unique operating context, ownership structure and revenue model. 3. Manage the key trade-offs between operational, financial and reputational implications of changes created by the proliferation of new mobility options Airports need to plan now for further mode share shifts and for the emergence of more advanced mobility technologies — most notably, autonomous vehicles, MaaS and aerial vehicles — in order to incorporate these plans into infrastructure design and timing. Wherever possible, airports also must incorporate flexibility into infrastructure plans. Many airports are being challenged like never before to manage trade-offs between ground transport revenues, operational efficiency and reputation. For airport operators, financial and operational outcomes have always been top of mind, but now reputation is becoming increasingly important given the wide stakeholder ecosystem and the growing influence of social media. For an airport, reputation is influenced by several factors: customer journey (e.g., travel times, congestion), environment (e.g., noise, carbon footprint), disruption to the local community, and perceptions of safety and monopolistic behavior. There are inherent connections between financial, operational and reputational outcomes, and some links are stronger than others. For example, poor operational performance can affect both finances and reputation. Delays, congestion and confusion about getting to the terminal can affect customer experience, discouraging passengers from spending in the terminal (reducing income per passenger) or, even worse, deterring them from using the airport or from flying altogether. From a reputation perspective, poor operational performance drives the perception of shareholders and other stakeholders regarding the airport’s ability and intentions. This, in turn, can have tangible financial outcomes through reducing future negotiating leverage. Any future strategic change should be assessed against each of these dimensions. The importance of each will vary according to 4. Plan for future mobility changes and incorporate flexibility into infrastructure designs Parking facilities in particular need to be considered for potential alternative uses, because airports may need to plan for fewer parking spaces per passenger over time. Given their long life span, these types of infrastructure would provide a measure of risk mitigation if they were designed as possible mixed-use facilities that could transition over time to aerial vehicle landing pads, offices, residences or hotels (Figure 9). 5. Adopt a broader view of the passenger experience, by considering the journey to — and arrival at — the airport (i.e., “sofa to gate”) The passenger experience starts long before travelers step inside a terminal. Airlines and other travel industry participants have long embraced a holistic view of the passenger experience. Airports need to do the same. This means thinking of the ground transport experience as part of the airport’s passenger experience: the ease and efficiency of arrival at the terminal, the quality of signage and wayfinding within the airport precinct, the fluidity of traffic circulation, the availability and quality of staff to direct traffic, and so on. Airports that are more advanced in this line of practice may need to take some ownership of the passenger experience from the moment the passenger leaves home — or even earlier, during the ground travel-planning phase. 13 Figure 9 Designing future parking systems Aerial vehicle landing areas Future parking facilities may be used as landing, disembarkation and parking areas for aerial vehicles. Electric vehicle charging stations Charging stations are increasingly popular in airports and are considered a simple way to increase overall customer satisfaction. CAV parking facilities Future parking facilities that exclusively park CAVs will be redesigned for such a purpose without stairs/ elevators and narrower parking spaces. Robotic parking valets/stacking Robotic parking valets are becoming increasingly popular as a way to improve user experience and optimize space in areas of high demand. Adaptable parking facilities Car ownership may peak in coming decades with more consumers relying on a variation of ride-sharing rather than their own vehicles. This decreases demand for parking spaces in the near future. Parking facilities will be developed with the future intention of turning the space into residential and commercial areas Smart parking apps There will be a rise in smart parking apps that allow drivers and vehicles to search for free spaces using in-build computers and GPS. CAVs may also park in people’s driveways and move themselves if the driveway is in use. The changing nature of parking facilities “One of the great changes in the next 20 years is going to be redevelopment of parking garages.” Christopher Leinberger, George Washington University, April 2017 Parking facilities become mobility hubs Car parking developments may evolve into a mobility hub, in which the location becomes a transit stop and provides options to individuals such as parking, last-mile bike-sharing or retail. Fleet-owned CAV CAVs may be owned by communities or corporations. This would increase their utilization and decrease the demand for parking facilities due to the vehicles continuously being on the move and being fleet-owned. It is estimated that up to 90% of parking spaces may be eliminated due to CAVs. Parking will become a luxury product Parking will become a luxury product as only individuals wealthy enough to afford their own CAVs will use parking facilities. A higher level of service will be expected (e.g., valet, EV charging, ANPR, autonomous cleaning, contactless payment). This will lead to a more efficient process for the consumer, while increasing revenue for the operator. Source: Navigant Research; Property Council of Australia; Gensler; LA Times This would have been nearly impossible a decade ago. But smartphones and mobile apps mean airports can engage with customers at all stages of travel: pre-journey, en route and post-trip. Passengers use a mix of apps to determine how to get to and from the airport (e.g., travel planning, maps, MaaS, TNCs), opening up many ways for airports to get involved. For instance, a light-touch involvement might include providing information to other services (e.g., TNC, MaaS apps), whereas a deeper involvement could see an airport developing its own MaaS platform or even participating directly in service provision via a fleet of shared automated vehicles that manage pickup/ drop-off. 14 Conclusion New mobility is already affecting airport ground transport businesses around the world, and this is only the beginning. The advent of autonomous vehicles, aerial vehicles and MaaS will bring even greater changes. Airport leaders must be proactive in breaking their activities into short-term tactical measures and long-term strategic goals. In the short-term, airports can ensure that their pricing structure sends the right economic signals, differentiate between curbside and other pickup/drop-off areas, develop more sophisticated parking offerings, and improve communication with passengers. In the long-term, airports should see new mobility as an opportunity. They should conduct robust analysis, manage key trade-offs, incorporate flexibility into infrastructure designs and take a more holistic view of the passenger experience. Only thoughtful, tailored strategies will enable airports to thrive commercially, operationally and reputationally. Yet new mobility has implications beyond airport management. Boards will have a responsibility to understand and take a position on the potential of these trends to impact their businesses. Airport investors will need to estimate investment risk and return profiles, and to assess airport management’s response to disruption. Meanwhile, TNCs will need to work with airport management to agree on financial and operational terms that balance the interests of the airport, the TNC and the passenger. It is an exciting but also highly uncertain time for airport ground transport businesses. The nine key steps outlined in this report highlight the potential for airports to benefit from financial, operational and reputational improvements. However, missteps, poor planning, or reactionary management will leave airports, passengers and transport operators worse off. Airports around the world must begin assessing their unique situation now, and planning their response to disruption from new mobility. Editor’s note: For more information about this report, contact strategy@lek.com. 15 Endnotes 1 In this report, the term “taxi” includes limos and hire cars/town cars. 2 Ground transport revenue varies by airport but generally comes from car parking, charges for access to pickup/drop-off areas and rental cars. 3 Denver International Airport 2017 Financial Report, p.13. 4 T he variation in observed rail share reflects several factors, including travel time and travel time reliability relative to competing surface transport options, connectivity into the airport catchment (particularly the central business district), and terminal access to and from the airport station(s). 5 ATRS 2018 Airport Benchmarking Report Part 1, pp. 61-66. 6 CCC Monitoring Reports 2013-2017 (https://www.accc.gov.au/publications/airport-monitoring-reports/airport-monitoring-report-2016-17); Bureau of Infrastructure, A Transport and Regional Economics (https://bitre.gov.au/publications/ongoing/airport_traffic_data.aspx). 7 CAPA (Sept. 24, 2018) and CNBC (Sept. 23, 2018). 8 To function effectively, dynamic pricing requires an ecommerce pre-booking sales channel with significant share of total parking. 16 About the Authors Mark Streeting is a Partner in L.E.K. Consulting’s Sydney office and one of Asia Pacific’s leading thinkers on airport ground transport and transport economics. He has 30 years’ experience in these areas, having worked with the Bureau of Transport Economics, the Commonwealth Department of Transport, London Underground, Booz Allen Hamilton and PricewaterhouseCoopers. Mark has extensive experience advising airport clients on multi-modal ground transport strategies. Most recently, Mark has supported a handful of major APAC airports in the successful overhaul of their medium- to long-term ground transport strategies. Ian Kershaw is a Manager in L.E.K. Consulting’s Sydney office. He has also worked in L.E.K.’s Boston, London and Melbourne offices. Ian’s areas of expertise are strategy development, transaction advisory and business performance improvement. He has completed engagements for a wide range of travel and transport clients, including airports, airlines, aviation support companies and mass transit authorities. Most recently, Ian developed a terminal strategy for an Australasian airport, advised on the potential acquisition of an Australian aviation supply company, and conducted a business improvement review for a New Zealand transport authority. Natasha Santha is a Principal in L.E.K. Consulting’s Melbourne office. She regularly advises governments and corporations on strategic, policy, and commercial issues relating to major capital infrastructure and transport, often with a focus on mitigating the impact of new mobility disruption. Natasha has recently advised APAC airport operators on the potential impact of transport technology on their ground access businesses and on how to future-proof these assets. She has also worked extensively across the energy value chain, including renewable technologies and alternative fuels. Ashish Khanna is a Partner in L.E.K. Consulting’s London office and is the Global Co-Head of New Mobility and L.E.K.’s European Financial Services Practice. He is deeply involved in advising and commentating on the trajectory of transport technology innovation and has been at the forefront of advising infrastructure investors and businesses globally on the potential impact and opportunities arising from new mobility trends. In relation to airport assets, Ashish recently created a 30-year forecast of the expected modal access evolution of three European airports and assessed the implications of the forecast on the airports’ future investments and master plans. 17 L.E.K. Consulting is a registered trademark of L.E.K. Consulting LLC. All other products and brands mentioned in this document are properties of their respective owners. © 2018 L.E.K. Consulting LLC. All rights reserved.