Frost & Sullivan Market Insight: The Development of Airport IT - Improving the Customer Experience

September 2012The Development of Airport IT-Improving the Customer Experience Lida Mantzavinou, Consultant, Aerospace & Defense Practice “We Accelerate Growth”

The Development of Airport IT-Improving the Customer Experience Market Insight Introduction Imagine an airport where the passenger enjoys a seamless experience, avoiding queues and bottlenecks, and has available time to spend within the airport’s commercial area while arriving at the gate on time; an airport where airlines can achieve on-time performance and minimum turnaround time.This is the future vision of an airport that maximises operational efficiency and revenue generation, while maintaining high customer loyalty. Technological tools have been developed to help airports achieve their vision. Taking advantage of geolocation and smartphone proliferation, airports can maximise profits. By achieving operational efficiencies, airports will be able to compete globally and reach new performance targets set by their peers related to improving the passenger experience and the quality of service offered to airlines. As the passenger is increasingly positioned at the centre of the industry’s attention, airports will be focusing on building a direct relationship with the passenger. The question that inevitably arises is how airports are going to develop this relationship. Several airports have set the benchmark for the industry, such as Oslo, Amsterdam, Copenhagen, Dallas and Los Angeles, by implementing the latest technologies in the airport environment in order to offer the best passenger experience. Frost & Sullivan expects that an increasing number of airports will be implementing standalone or integrated technology solutions in the short term in order to generate non-aeronautical revenues and benchmark peers. Understanding Passenger Behavior The Main Driver of Non-aeronautical Revenues and Better Passenger Experience In a Frost & Sullivan study conducted in 2010 focusing on evaluating the passenger travel experience in the U.S.,1 it was reported that passengers are satisfied with the travel experience prior to arriving at the airport (e.g., online travel booking and check-in) and during the flight, but they are unsatisfied with their experience within the airport (e.g., parking, security, immigration, baggage claim). The lack of internal passenger databases, as a result of airports’ lack of focus on recording passenger data and airline reluctance to share their own data, did not allow airports to understand passenger behaviour and build a direct relationship that would help improve KPIs, while generating non-aeronautical revenues (Figure 1). Airports only recently realised the central role of the passenger in driving non-aeronautical revenues, and in meeting and exceeding internal and external KPI targets. Revenue generation has been increasingly shifting toward non-aeronautical activities,2 where profit margins are reported to be higher. For example, BAA reported a profit margin of 76 per cent3 from retail, duty-free and food & beverage; 92 per cent from advertising; and 62 per cent from car parks. 1 Sample of 2003 passengers© 2012 Frost & Sullivan Page 2

The Development of Airport IT-Improving the Customer Experience Market Insight Figure 1: Inefficiency in an Airport’s Business Model Non-Aero Revenues e.g. Duty & tax free, retail, F&B, car parking Services e.g. check-in kiosks, Services baggage handling e.g. flight AIRPORT AIRLINE PAX Aeronautical Revenues Services e.g. Landing, parking e.g. Airline ticket charges charges, passenger charges Services e.g. Process enabler, gates, security, immigration *F&B: Food & Beverage Steps to IT Innovation – Past, Present & Future Since 2000, airports, taking advantage of the Web evolution, launched websites in an attempt to bridge this gap and build a channel of communication with the passenger, providing real-time information regarding flight arrivals and departures, airport retail stores, parking and other airport services, and airport maps. The trend shows that an increasing number of visitors spend more time on airport websites, allowing airports to gather information regarding the visitor’s origin, areas of interest, time spent per webpage, etc. (Table 2). Table 2: Evolution of Time Spent on Airport Websites CAGR traffic volume** % Growth in duration AIRPORT (2012-2021) spent on website Atlanta Airport 2.54% 33% London Heathrow Airport 4.53% 49% Los Angeles Airport 1.90% 5% Frankfurt Airport 7.33% 8% Denver International Airport 3.36% 27% Hong Kong International Airport 0.66% -6% Dubai Airport 3.23% 20% Amsterdam Airport Schiphol 1.96% 29% * Data gathered for top eight airports globally in terms of traffic volume from 2010 to 2012. ** Albatross Source: Alexa.com 2 Non-aeronautical revenues take into account revenues that are generated by retail concession, car parking, rental car concession, property income/rent, advertising, food & beverage (F&B), and others (asset divestment, fuel concession, interest, security, utility charges, service provisions) 3 Source: Competition Commission 2006© 2012 Frost & Sullivan Page 3

The Development of Airport IT-Improving the Customer Experience Market Insight However, airports need to track, record and measure real-time passenger data within the airport environment in order to understand passenger behaviour and update their KPIs. A 2011 Frost & Sullivan study indicated that airports have set new operational and commercial KPIs with the “passenger experience” at the core, aiming at minimising waiting times and queuing in the various touch points (e.g., security, immigration, check-in) to a maximum of 15 minutes, improving airline on-time performance by 80-85 per cent, decreasing average airline turnaround time by 5 per cent, maximising dwell time, and improving overall non-aeronautical revenues by 3-6 per cent (Figure 2). Figure 2: Airport Operational and Commercial KPIs, 2011 The following have been identified as the most important airport KPIs globally. Operational & Commercial KPIs CONSENSUS TARGETS 1. Check-in/Security/Gate Wait times Max 15’ 2. On-time performance 80%-85% 5% (-) 3. Average turnaround time VARIES 4. Baggage Delivery time 1/1000 5. Misconnected bags VARIES 6. Dwell time 3%-6% (+) 7. Retail revenue/square foot 8. Footfall traffic/square foot 9. Average retail transaction size Source: Frost & Sullivan Airports set their KPIs according to different objectives. For example, Oslo airport implemented a Bluetooth solution aimed at measuring queues at security and to enforce its service-level agreement (SLA) with its security solutions provider. Dallas airport invested in a business intelligence platform that allowed monitoring revenues generated from concessions, which amounted to US$50 million in 2011. In 2010, Dubai airport invested in a business intelligence platform that was implemented initially on the airport’s zone in order to track passenger movements, assets and baggage, and improve the passenger experience. In 2011, Dubai airport was ranked by Skytrax4 as the best airport in the Middle East, climbing up the rankings from third in 2010. Abu Dhabi airport in 2011 invested significant amounts on an internal Business Intelligence (BI) solution that will allow communication between the various operational, commercial, passenger and financial information systems. In 2012, Abu Dhabi airport was ranked as the best airport in the Middle East. Technological investments contributed to a better passenger experience and improvements in the passenger process. 4 Skytrax awards are based on results gathered from 12 million passenger surveys covering more than 388 airports. The survey evaluates the total passenger experience across 39 airport service and product features, from arrival at an airport, through transit and departure processes, to the boarding gate.© 2012 Frost & Sullivan Page 4

The Development of Airport IT-Improving the Customer Experience Market Insight Technological Solutions Enabling Airports to Build Relationship with the Passenger and Reach KPIs Airport technology providers, such as Sita, Amor, Arinc, Amadeus and Ultra, have developed solutions that can be implemented in the whole airport area or at specific airport zones, e.g., check-in, security, gates, immigration, and terminals. The main technologies that an airport can invest in are Wi-Fi triangulation, Wi-Fi signature, Bluetooth, NFC (near field communication), and RFID (radio frequency identification) (Exhibit 1). Initially, technological solutions can be implemented that track the passengers at specific airport zones by utilising one of these technologies, typically Bluetooth, enabling the airport to anonymously track queues, measure waiting times and monitor service-level agreements. As a next step, the airport can implement a combination of these technologies, with Bluetooth and Wi-Fi triangulation allowing more efficient data gathering, across all airport zones covering the whole terminal. Focus is extended to passenger flow tracking that will allow the airport to efficiently manage its resources (employees and assets) and improve KPIs. By tracking passenger flows and measuring waiting times, airports will be able to optimise way-finding and the terminal’s layout, and resolve bottlenecks. Implementation of RFID technology will enable airports to track assets, such as carts and baggage, and optimise allocation, thus decreasing waiting times, avoiding waste or over-use of resources and achieving a lower rate of mishandled baggage. Additionally, airports will be able to optimise their offerings to airlines by resolving bottlenecks and navigating the passenger to the gate, allowing minimum connecting times and on-time airline performance. Faster turnaround times can result in optimisation of airport capacity and increase in aeronautical revenues (Figure 3). Ultimately, the airport should integrate passenger information recorded in the zones and terminals with information captured in other areas (e.g., asset tracking) and from other airport systems (e.g., baggage). The airport can interact with the remaining stakeholders (e.g., airlines, groundhandlers) and share information in order to improve services offered to the passenger and eventually move toward a terminal CDM5 environment. The BI platform is the technological solution that will allow data integration and interaction between the different stakeholders. BI platforms aim to consolidate existing databases, held by different departments and stakeholders, and bridge information gaps through the use of innovative technologies. All stakeholders can benefit from more efficient operations as a result of integrated information, real-time decision-making and situational awareness (Figure 3). 5 CDM: Collaborative decision-making© 2012 Frost & Sullivan Page 5

The Development of Airport IT-Improving the Customer Experience Market Insight Figure 3: Airport Strategic Road Map Frost & Sullivan has identified four steps to help an airport achieve operational and commercial goals. Track the passenger in zones/terminal • Measure Performance • Anonymous (MAC address) (queues, waiting times, pax flow) • Bluetooth & WI-FI 2. M • Benchmark against Peers RD EA & Internal KPIs CO SU RE RE Analytical Tools 1. Geo-location Generate non-aero revenues • Increase dwell time 4. Improve Customer • Decrease stress levels GE E OV Experience & Operations • Increase average spending NE RA PR • Optimise Resource allocation Generate aeronautical revenues TE IM • Optimise retail space • Share data with airlines 3. • Resolve bottlenecks • Operational improvements • Improve relationships • Increase employee efficiency LBS Source: Frost & Sullivan Completely integrated and interactive business intelligence platforms are not yet recognised as viable solutions due to perceived constraints and cost of implementation. Furthermore, lack of cooperation among airport stakeholders is a hurdle in realising the full benefits of a technology implementation. However, most airports6 have acknowledged the potential benefits from the implementation of a business intelligence platform to be 1-5 per cent in cost cuts and up to a 3-5 per cent increase in revenues (concessions). Furthermore, customer satisfaction is expected to increase, generating additional revenue streams. Up to now, several major airports have implemented technologies7 and integrated solutions, setting a benchmark, while many smaller airports, mostly based in Europe, have implemented standalone solutions (Figure 5). Early adopters based in Europe (e.g., BAA) and in the U.S. (e.g., Dallas airport, Los Angeles airport) are currently implementing integrated solutions, outperforming their peers, and have the infrastructure in place to take advantage of geolocation trends and offer location-based services. Nevertheless, many airports maintain a wait-and-see approach to make sure the cost of infrastructure investments will be justifiable. For example, Las Vegas airport has been evaluating business intelligence solutions according to specific targets: 4-5 per cent reduction in costs (primarily from optimum resource allocation) and 3-4 per cent increase in non-aeronautical revenues (primarily from concessions). 6 Frost & Sullivan survey, 2011 7 According to primary research conducted by Frost & Sullivan in 2011, the most preferred technology is Wi-Fi triangulation (e.g., Dallas DFW, Houston, Auckland, Brussels, Barcelona (BCN)).© 2012 Frost & Sullivan Page 6

The Development of Airport IT-Improving the Customer Experience Market Insight Frost & Sullivan has estimated that technological projects are set to pick up gradually, initially in Europe and Middle East, making for a total market of approximately $300 million over the forecast period (2012-2020). Concessionaire dashboards, staff dashboards and off-airport tracking will provide real-time information to the airport, enabling them to allocate resources efficiently, enhance information sharing among the stakeholders and enable passenger flows, resulting in revenue maximisation. Geolocation Trend and Smartphone Proliferation: Key Elements for Achieving KPIs Technological advancements in the telecom industry and smartphone proliferation8 are providing opportunities for industry stakeholders to directly interact with the passenger. Smartphones are expected to become the primary digital method that consumers use in order to gather information, purchase9 , and interact10 with brands, friends, retailers and other businesses. In an airport environment, approximately 50 per cent of the passengers11 use smartphones, and 10 per cent of those smartphone users have their Wi-Fi enabled, while 20 per cent have their Bluetooth enabled12 . Smartphone users increasingly download airport applications13 as they are actively looking for information about their immediate environment. Several airports, such as Atlanta, Heathrow, Dallas, Frankfurt, Amsterdam, Denver and Dubai, have already designed user- friendly applications that provide free real-time information to the passenger. For example, Dallas and Amsterdam have launched applications that automatically push updates to the user regarding their flight and gate of departure, security waiting times, parking lot availability, concessionaire listings and user ratings. In order to accelerate growth of “opt-in,” airports can incentivise passengers through programs and campaigns that allow them to have access to special concessions deals and discounts offered within close proximity to their location. In 2012, DFW airport launched an advertising campaign in the terminals promoting mobile check-ins at DFW shops and restaurants aimed at educating the passenger regarding application usage and opt-in for push and pull information. The airport also sent “brand ambassadors” into the terminals to promote awareness of the mobile application integration program through handouts, giveaways and live smartphone demonstrations of how to take advantage of the deals at the airport. Location-based services14 are emerging as a critical component of the airport’s offering. Through push/pull real-time information, the airport develops a one-to-one relationship and engages the passenger, thus strengthening customer loyalty. It also enables the airport to reach the passenger at each touch point and provide targeted and relevant information, e.g., congestion alerts and mobile coupons, that can increase passenger spending and improve the overall passenger experience. 8 In 2011, Apple reported 200 million i-phone users, Blackberry reported 50 million users, and Android reported 100 million users. According to a Frost & Sullivan study conducted in 2011, the global smartphone market is expected to grow from 170 million unit shipments in 2009 to 500 million in 2015, with iOs and Android operating systems experiencing the strongest growth. 9 The mobile payments market is expected to quadruple by 2014 to $630 billion, 5 per cent of total e-commerce sales (2011 forecast). 10 In 2012, 40 per cent of total mobile users take advantage of geolocation features. 11 U.S., Europe and APAC regions are ranked as the largest smartphone purchasers globally, Frost & Sullivan study, 2011. 12 Frost & Sullivan study, 2011 13 Frankfurt airport’s application was downloaded 27,000 times within two months of its release, while the number of passengers carrying a smartphone doubled in one year, reaching 54 per cent of total passengers. (Frankfurt airport survey, 2011). 14 Location-based service is defined as any information, entertainment or social media service that is available on a mobile device provided by the operator (e.g., airport) and is offered to the consumer (e.g., passenger) by making use of the device’s geographical position.© 2012 Frost & Sullivan Page 7

The Development of Airport IT-Improving the Customer Experience Market Insight Conclusions Air traffic is expected to grow by 6.1 per cent in expanding regions and 3.1 per cent in maturing regions per year up to 2030, according to Airbus. Strongest growth is expected in the Asian and Middle East regions, where GDP growth is forecasted by IMF to reach 8 per cent and 6 per cent, respectively. More investments on airport infrastructure development will be needed in order to cater to the growth. Regarding the European and North American regions, although air traffic growth is expected to grow at a slower rate, there will be a need for airport investments due to capacity constraints. Airport privatisation will be the only way to fund airport developments, as the financial and banking crisis has urged governments to cut down on investments and seek cashing-in opportunities. Return on investment will be key in attracting private investors. Therefore, efficient operations and maximisation of revenues will be critical factors in attracting capital. Airports will need to re-position themselves in the supply chain and become the entity that will ensure efficient collaboration between stakeholders and guarantee operational excellence in order to satisfy the passenger. Implementing the relevant technological tools will allow airports to develop an end-to-end passenger experience framework, leveraging smartphone proliferation and geolocation trends. Frost & Sullivan’s new report on Airport IT will be available in Q4 2012. To learn more about this report, please contact lida.mantzavinou@frost.com or Steven.webb@frost.com.About Frost & SullivanFrost & Sullivan, the Growth Partnership Company, works in collaboration with clients to leverage visionary innovationthat addresses the global challenges and related growth opportunities that will make or break today’s market participants.Our “Growth Partnership” supports clients by addressing these opportunities and incorporating two key elements drivingvisionary innovation: The Integrated Value Proposition and The Partnership Infrastructure.• The Integrated Value Proposition provides support to our clients throughout all phases of their journey to visionaryinnovation including: research, analysis, strategy, vision, innovation and implementation.• The Partnership Infrastructure is entirely unique as it constructs the foundation upon which visionary innovationbecomes possible. This includes our 360 degree research, comprehensive industry coverage, career best practices as wellas our global footprint of more than 40 offices.For more than 50 years, we have been developing growth strategies for the global 1000, emerging businesses, the publicsector and the investment community. Is your organization prepared for the next profound wave of industry convergence,disruptive technologies, increasing competitive intensity, Mega Trends, breakthrough best practices, changing customerdynamics and emerging economies?Contact Us: Start the DiscussionJoin Us: Join our communitySubscribe: Newsletter on “the next big thing”Register: Gain access to visionary innovationwww.aerospace.frost.comCONTACT US 877.GoFrost (877.463.7678) • myfrost@frost.com • www.frost.com

Frost & Sullivan Market Insight: The Development of Airport IT - Improving the Customer Experience

by Frost & Sullivan on Sep 25, 2012

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