GAD - Global Airport Development Conference 2020 review. Part 2

Summary

• Air passengers have a whole new expectation about their health and it will dominate how airports function and are built in the future.
• Cargo needs have been a godsend for the industry in its darkest hour, but the surface infrastructure embarrasses the technical developments of the airlines.
• The future for airport concessions, especially in the retail segment, lies in mobility.
• Virtual terminals for virtual (or real) airlines.
• New York ditches its third world airports in favour of all shiny and new, and the private sector picks up most of the tab.

Airport Development 2020: considering the challenges of developing airports in the current circumstances, prioritising and investing wisely, and responding to new financial and business pressures.

For Part 1 of this report, please see GAD - Global Airport Development Conference report Part 1

"The only thing we know about a traffic forecast is that it must be wrong"

Contributors from Jacobs (Consultancy) (moderator); Allegheny County Airport Authority; (ex-) Heathrow Expansion executive.

Jacobs representative (moderator):

The joke has it that the only thing we know about a traffic forecast is that it must be wrong.

In reality, forecasters have done a good job in the past, but can that be the case any longer, under these circumstances? No airport in the past six months would own up to having one. Scenarios are changing so quickly. What would be the composition - routes, schedules, frequency - in the future? The variable now is the supply/demand equation rather than the infrastructure requirement.

Operations will be influenced by arrival and departure testing and now the progress of vaccines. Much is still up in the air but the fundamental business has changed.

'Contactless' will increasingly be part of the solution (but could it be used as an excuse for supplier cost-cutting?). Healthcare at airports is impinging on operations. As '9/11' was to security, so COVID-19 is to health. Passengers seeking assistance at check-in desks rather than booths. Being directed to an Immigration Officer prior to check-in.

Passengers have developed a new expectation about health

Passengers are changing in the way that they behave. They have expectations around health. New categorisations may evolve. The business passenger may not require frills in the future, just rapid, safe access and egress. Retail - how will online shopping fulfilment centres impact airport retail?

There will be more competition between airports. The most efficient will win. (Not the cheapest?). Business continuity and cash preservation. Cash is king now.

Agility needed to respond to the nature of the 'recovery' - no-one is sure how it will pan out. Right-sizing of facilities. Technologies may be required that we don't even know about yet. And still need to drive value for investors, or there won't be any.

Ex-Heathrow Expansion representative:

There is a new 'alternative' on the block. Customers have been exposed to the alternative of home living and working.

Breakthroughs are taking place. No methods of rapid testing. Development of vaccines. New treatments and possibly even a cure, but also mutating viruses. Anything can happen and there is a new U.S. President.

Referred to IATA research on people's willingness to fly, found only a low percentage has confidence (but other research has much higher levels).

So at Heathrow passenger journeys need to be predictable and safe. They will henceforth be both health and security conscious. Economic revival is another thing. Will business and insurers accept that air travel is safe? That business can't be done by Zoom? Climate change will return to the agenda.

New procedures will be built into departures permanently for 'testing; with equivalent 'proof of health' certification on arrival.

(But is that not the thin end of the wedge? What else could the authorities demand medical proof for?)

"Urban Living in cities will return" and "big cities will get bigger" (no reasons offered as to why).

'Skin' meetings will return as human energy is driven by interaction. 'Futorologists' he has worked with predict the sharing economy (Uber, airbnb etc.) is here to stay, and that 'the City' (presumably meaning the City of London) will remain the airport's chief customer.

This is a foretaste of things to come

This is about pandemics rather than COVID-19. "There will be more pandemics and we need to be ready" (there always have been, including four this century alone).

Modulisation will add the opportunity to create space only when and where it is needed. The temporary terminal built at Heathrow for the 2012 Olympics introduced the question "do we need to build everything for a 50 year lifespan?

Singapore's Changi T3 with its flexible landside environment should be a model.

Pittsburgh Airport's modernised terminal is a good example of a 'big box loose-fit'

Allegheny/Pittsburgh Airport representative:

Enormous pressure put on operations and budget by pandemic but "not changing our mission."

Pittsburgh's diversified economy arose from the collapse of the steel industry. It also meant that it was not dependent on one airline (US Airways) any longer as it scaled down dramatically there, leaving the airport with considerable debt.

The modernised terminal there and a proposed new one will incorporate "post-pandemic issues".

A large, 900-acre, four-runway airport with an equally large X-shaped midfield terminal has to be 'right-sized'.

New facilities will reflect the transition from hub to O&D operations. "We know business travel is coming back".

Ready to go to the bond market in May-2020, but halted by the pandemic.

Dual imperatives; mantra of 'Safety and Security' plus 'Air Service' was revised to a triple imperative, adding 'Health'.

Objective is to design a terminal with public health at the forefront; a 'first'.

Promotional video:

The 'Big Box Loose Fit' strategy has held up well under review and allowed the airport authority to 'pivot' the design accordingly.

Partnering with the robotics industry, which just happens to be co-located

The airport has partnered with companies in the local robotics industries - Pittsburgh is at the U.S. epicentre - to design enhanced facilities for more mundane tasks such as cleaning (e.g. self-driving cleaning carts with UV facilities).

Focusing on cargo developments.

Introducing a 'micro-grid' - "first airport in the world to go off-grid and supply all our own energy" (there are several airports in the Indian sub-Continent that do this) by way of solar energy and 'natural gas' (shale gas fracking is likely to be banned by a Biden administration).

Examining the changing contribution of cargo to an airport business and its implications for future decision making

Subjects: Trends in E-commerce and supply chain; developing a strategic approach to gaining and retaining a greater share of airline traffic; capitalising on existing assets to deliver competitive facilities and services.

Contributors from Executive VP North America, CCR Airports (moderator); Director, Cargolux Airlines; Chairman Airis USA; CEO Total Airport Services

Cargo is one of few bright spots - it is providing 50% of our revenues

CCR Airports representative:

Airports worldwide have had to deal with a unique problem in their own way, but if there has been a bright spot anywhere it has been cargo operations.

Airports with a cargo contribution have watched volumes and revenues going up. In his case - 50% of revenues coming from cargo now.

Equally important to the global economy. Normally only 1-3% of cargo is shifted by air. But that is 45% of the value of total global cargo.

A highly labour-intensive business

Cargolux Airlines representative:

All-cargo operator based at Luxembourg Airport.

Early mover of PPE from China to Europe, large volumes of it. Early impact. 70% of handing agent staff unable to work (many had the virus, or schools closed etc.). No-one to handle the cargo. National emergency plan activated involving the military and other (non-aviation) logistics staff.

Avoided complete collapse. Indicative of how labour-intensive cargo-handling is. Business Continuity Plan has had to be revised as a result. Now has a 'pandemic section'. Advises everyone experiencing this to do the same.

What can airport operators do better to help airlines now?

Be less dependent on people. For example, automated processes to build pallets. There is only one facility anywhere doing this.

Capture supply chain data (e.g. from freight forwarders) earlier in the process than in the present arrangement. Many airports will need to offer more parking spots (apron) and close to warehouse facilities. Customers are paying a premium for speed, accuracy and traceability. Many warehouses are poor on traceability. Facilities must also be eco-friendly.

The technical capability of cargo airlines is not matched by ground facilities

Airis representative:

Aviation (especially cargo) facilities developer, present at all the world's major gateway airports.

The pandemic exposed vulnerability in the supply chain and tested its integrity. The infrastructure to handle the enhanced cargo flow was tested and in some cases failed, because the infrastructure is old, ossified and obsolete.

Cargolux is a technological world leader in its procedures but the handling of what it carries on the ground is in antiquated facilities without mechanisation or automated robotics.

(Interesting point: that there should be robot toilet cleaners at Pittsburgh Airport but no robots handling cargo).

Cargo infrastructure typically built for a 50-year life cycle, but no evolution in line with changing business models. Warehouses are dumb buildings without technology to keep pace with the rest of the world. The pandemic made the future arrive early.

But Airis is trying to do something about it, creating a new platform that adapts to change, beyond 'the warehouse'. The evolution started after '9/11.' Common-use arrangements are in place among airlines, but airports are not replacing outdated facilities quickly enough.

So now they are designing buildings in line with the need for 'eco-systems'.

Facilities will be 'small cities' with 24-hour operation with a distinct 'community'. Resilience will be built in, including a 'clean throughput' system to help handle the billions of COVID-19 vaccine doses that will be distributed.

"Infrastructure in North America has been inherently unsuitable"

Total Airport Services representative:

A North American service company dealing with passenger and cargo segments; a balanced portfolio which has been "a Godsend in these times."

Infrastructure in North America has been inherently unsuitable, especially warehousing and parking spaces. Bigger aircraft not catered for.

The pandemic has emphasised what the needs were:

• #1 Employee welfare. TAS created its own screening process. Future facilities should include medical facilities.
• #2 Pharma. Handlers dabbled with it as a niche, because of the facilities needed. But it is no longer a luxury, everyone should deal with it.
• #3 Small package operators. They need airside space so supply became acute and they were joined by 'non-urgent players. Airports much understand that these suppliers will need ever more space.
• Security of operations (all)

Security must be ramped up at all airports. Especially where pharma is concerned.

Re-imagining airport design

Subject: restructuring terminal operations to optimise the asset in the current situation and for the commercial realities of the new normal.

Contributors from Aviation Director, Pascall + Watson; Senior VP Technical, DAA International.

Pascall + Watson representative:

Projecting 36/48 months in the future owing to present uncertainty, when airports think again about expansion.

Two themes here.

• (1) Design pre-COVID-19 and now, and
• (2) in the 'post COVID-19 world'.

The fundamentals now are:

Digital processes and data enablement.

Most airports already using technology. Most (not all) passengers similarly equipped.

Automatic processing machinery - allows terminal space to be freed for other uses.

Biometric processes - enabling passengers to use their personal signature to pass through the building. Heading towards a 'single token' scenario.

Aircraft and airline technologies

Enabling people to change the way that they make their journeys. Knock-on effect at airports in the way they respond to those changes.

Retail changes in supply and consumption. Drop-off in in-airport sales; imperative to find other means of driving sales and helping people pass their time.

Carbon reduction - this has taken place in many countries, but still requires more carbon offsets in the industry. Airports are good and getting better at delivering 'green' buildings. However, development remains a carbon-intensive activity. Many of the buildings constructed recently will not 'pay for themselves' in carbon terms in 50 years.

COVID-19 has created a pause to consider what factors will influence airport development in the future.

Romance is dead, at least in the air

The romantic, 'privileged' image of aviation is passé. There are many factors affecting the quality of the journey now that are just in the airport. Car door to aircraft door distances have got bigger.

Within that space, health and the perception of health (in others) is here to stay.

Testing should be focused by all airports on departing passengers rather than arriving ones.

The onerous nature of a passenger journey will be made even worse by the necessity to think about health status: have I done the right tests, the right vaccinations? Do I have the certificates, do I have my 'biological passport'?

How can this be turned to the user's advantage, to reintroduce positive predictability?

More will be sought from the existing asset base. Space must be used more efficiently.

Aeronautical revenue flows under threat. Non-aeronautical revenues take on even greater significance.

Spare gate space to be developed for purchase delivery? Because of increasing car to aircraft distance a single retail special experience is difficult to develop already.

Design must take into account staff safety. They are the ones who interact the most.

The key will be taking the multiplicity of data/information sources in terminals and 'layering them' to deliver additional services.

Technological interface with passengers will come earlier than it does now. The 'virtual front door' will start in the user's living room.

Creating the virtual terminal

DAA International representative:

DAA has been working on 'the virtual terminal' concept to enhance terminal operations through technology.

The DAA representative echoed the same points. The glamour of the airport is long gone. The front door is no longer where the road to the airport ends, or the car park.

He challenges himself with the questions, what are/will be the technologies that reduce what needs to happen in the terminal?

"Would you use an airport terminal if you didn't have to?" For most people the answer is no.

So can an airport provide a terminal without building one? Workshops over two years to imagine 'the virtual terminal'. Conclusion was that all activities that take place within a terminal could take place outside it, up to the point of embarkation. At the least, all terminal activities are ripe for disruption.

The problem to solve is that the passenger wants to go directly to the destination as quickly as possible. All the bits in between are incidental. There are too many agencies, touch points and businesses that get in the way. There is a cornucopia of activities and services, some of which are bookable electronically, while others require a physical airport presence. There is no co-ordination.

A typical journey requires interaction with seven different agencies and businesses and 18 different touch points.

The entire value chain must work together (IATA Vision 2050). But data can at least minimise the 18 points. The beneficiaries would be:

• Airlines. Fees and charges should reduce + increased passenger interface to sell goods
• Passengers. Increased speed/convenience/journey equality/choice/economy.
• Airports. Decreased Capex, Opex, plus flexibility to expand and contract at short notice.
• State services. Security, certainty, efficacy and reduced human error

And 'reduced touch points' are what people want to hear in the 'COVID-19 days.'

Current 'Thinking out of the box' includes taking the bag(s) out of the journey altogether and managing them separately but that would undoubtedly increase road vehicle emissions).

Taking that a stage further, would it not be better to pick the passenger up from home and deliver him to the airport while doing the 'processes' on the journey? (But again, that would mean additional emissions and the avoidance of public transport options).

The representative mentioned MaaS (Mobility as a Service) gateway to manage entire trips, as developed for events such as the Olympic Games in London. A digital version of a 'frequent users pass', for which the technology is available, but it has not quite got there yet in the air transport business.

Also filling flights by way of crowd sourcing.

Operational goals should be:

• Pay once - cover all touch points;
• One click gets you to your destination;
• Build less physically, build more virtually (but if that were to apply to all industries what would happen to the construction business?)

Re-imagining retail strategy: how are airports adapting to the current environment and what are the long term implications for airport retail?

Subjects:

• What is the current reality of travel and passenger spending patterns and how airports cater to them?

• How is the acceleration of the digital trend impacting the development of long term strategy?

• Evaluating PPP, partnership and management models.

Contributors from President, DSI (a consultancy); Assistant Commissioner of Concessions, Chicago O'Hare and Midway airports; Senior Director Commercial Developments, Vantage Airport Group.

Ghost kitchens find a home in the airport

Chicago Airports representative:

We have had to reinvent ourselves. We are working on 30% of passengers this year vs. 2019.

Simple message: passengers want a safe and clean environment. Open RfP held for digital equipment, first time they had done it. 120 companies attending; to be brought online 1Q2021.

Potential new innovations include 'ghost kitchens', which is the airport equivalent of the city restaurant takeaway for delivery only, for example providing food that is ready to be collected on deplanement as well as enplanement, or between flights.

There are three times of the day at both ORD and MDW where traffic flows are the same as they were in 2019 (morning, evening, midday). It is still a case that there is limited dwell time between some flights, even now.

Vantage Airports Group representative:

Vantage has strong business hubs and more balanced business/leisure airports. Obvious emphasis towards leisure now. They have found a surprising degree of resilience among the passengers.

Mini trucks delivering food replacing High Street chains

DSI representative:

We have mixed views from our clients. Very little from Italy, which remains closed. Opportunity for technology to advance at a breakneck speed.

Business models are changing. Emergence of mini food trucks touring terminals, serving gates, baggage claims, mobile kiosks replacing Starbucks. Businesses are moving, where they are physically able to, to where the business is taking place via either fixed or mobile functions. Concession contracts are being renewed rapidly and repeatedly.

There is research that her organisation has done that has established a solid link between the contentment of the service delivery employee and that of the passenger, which impacts on spend potential.

Chicago Airports representative:

(On managing disparate groups of workers/employees) They do not force concessionaires to open. With 60% of facilities open at O'Hare and 40% at Midway, the 'new new' for the Chicago airports is nothing like as bad as it is out on the street. Customer 'message' is more important than ever.

Vantage Airports Group representative:

(Speaking about New York LaGuardia project, the largest P3 project in U.S. history) Initiatives were introduced before the pandemic, for example with Grab.

DSI representative:

She perceives a return to common-use lounges, rather than individual airline ones. Along with meet & greet, there are opportunities arising from this situation to improve the lounge experience, especially for those people requiring assistance (40% of passengers at London Heathrow airport are reported to require some form of assistance).

Another revenue generator might be assistance given to passengers arriving by way of Transportation Network Companies when, for example, they are arriving into an off-terminal, or even off-airport space.

How hard will it be to bring unused concessions back into use and to change others back to their original purpose?

Moderator comment:

It also works the other way. Some airports are considering converting spa facilities into testing centres. The testing fee could be high to generate similar revenues. And what happens when testing is no longer needed? How hard a sell will it be to attract customers back to a 'spa' again, or does the space lie unused?

Chicago airports representative:

The commercial mix will inch up but we do not expect a return in activity to 2019 levels for five years.

Vantage Airports Group representative:

Is equally confident that business will come back, but sees a shorter timeframe of "a couple of years".

(The disparity between the Chicago and Vantage timeframes is perhaps one that needs to be investigated further. How are these estimates made? What is the science? Why is it that some airline CEOs see a return normality as soon as summer 2021? Why the large discrepancies?)

Keynote speech: The Port Authority of New York & New Jersey

Subject: Defining the future of New York's airports

Contributor: Executive Director, Port Authority of New York and New Jersey.

To say this is a challenging time would be one of the world's great understatements. But all Port Authority facilities have remained open and operating at a high standard.

Airports have suffered a catastrophic peak: 98% passenger traffic fall compared to just -17% for seaport cargo volume (Oct-2020 +15%!), but that has since improved to -77% (Oct-2020).

The improvement in Oct-2020, with bridges and tunnels back to -11% (from -62%) compared to -77% for airports and -78% for PATH (the rapid transit rail system), is indicative of the problems faced by the surface public transport systems in this badly afflicted city-region.

In Mar-2020 to Sep-2020 there was a USD1.2 billion revenue decline and the projected loss from 2Q2020 to 1Q2022 (24 months) is USD3 billion.

PANYNJ is self-sustaining, with no tax money from New York, New Jersey or the Federal Government, so all profits in normal times to go the Authority's Capital Revenue Plan. With capital drastically reduced, the CRP is under review, particularly in respect of capital spending.

USD3 billion in aid has been requested from federal resources. Hoping for a federal infrastructure bill and long term infrastructure investment will depend on events in 'D.C.'

Refer to this CAPA report concerning the policies on air transport from the two Presidential candidates:

U.S. presidential policies ignore aviation infrastructure

Brief resume of health measures currently introduced at PANYNJ airports

Source: GAD/PANYNJ slides.

The two major projects under way and under construction are Newark Airport Terminal 1 and the rebuild at LaGuardia Airport.

In both cases priority is given to 21st Century 'Global' standards (all U.S. airport operators will be aware of previous political criticism of 'third world' standards at some airports, including LaGuardia); best in class technology, state of the art security and much better access.

Additionally, PANYNJ aspires to a partnership with airlines for 'seamless' customer experience, 'iconic' local concessions (presumably meaning more of them rather than national and global brands), the introduction of civic art and architecture, and a 'focus' (minority businesses, regional economic growth and employment opportunities) on the local community.

The cost of Newark Airport's T3 is the same as projected PANYNJ losses to 1Q2022

At Newark's T1 there is a USD3 billion development, (coincidentally the same as the projected loss to 1Q2022). A new USD600 million car park and centralised rental building is being expedited as quickly as possible. A new and high-capacity road network is part of the scheme.

T1, with 33 gates, replaces what he described as the "completely reviled" Terminal A.

A new AirTrain faculty will be built to replace the current ailing one, with access from midtown Manhattan in less than 30 minutes.

LaGuardia - "the first major new U.S. airport in 25 years"

The USD8 billion LaGuardia redevelopment is a 'finished product', and in his opinion the first major "new" airport in the U.S. for 25 years (previously Denver).

It should take an airport which ranked as the worst in most consumer surveys to a position of 'best in class'. The entire airport has been revamped.

This redevelopment would not have been possible without public-private co-operation with LaGuardia Gateway Partners (Terminal B) and Delta Air Lines (Terminal C). Most of it is now open, with additions to come by way of Delta concourses, a connecting hall between terminals and the addition of AirTrain stations.

Terminal B is 90% open. (It was designed before the pandemic, majoring on self-check-in, and adaptation to it was possible in the later stages. Unfortunately, the degree of adaptation was not evident in the presentation).

Promotional Video

https://youtu.be/RK3Ndg8F7fM

Source: PANYNJ.

Access will improve dramatically with the AirTrain connection

One major challenge remains, i.e.: access to the airport. Congested roads mean unreliable travel times and emissions. Travellers are forced to use road vehicles. LaGuardia is the only major east coast airport without a direct rail mass transit connection (although they are not all with stations actually inside the airport perimeter).

The projected ridership for the new AirTrain link is six to 10 mppa. 3,000 construction jobs will be created and local businesses are expected to benefit hugely. There will be no construction in residential areas.

The Long Island Railroad will run from Grand Central and Penn Stations in midtown Manhattan to Willets Point in the Queens borough, from where the AirTrain will connect in six minutes into the airport, with stops at both terminals.

The project is in environmental review. The route is endorsed by the FAA and there is "widespread support" generally.

75% of the financing came from the two private partners, and (at a moment when the value of PPP deals is being questioned) there has been "excellent co-operation between partners".

Developments at JFK Airport are in the design and development stages, with a wide range of private partners. The slide below sums them up.

Source: GAD/PANYNJ slides.

Timeframes for the deals are being restructured.

PPPs are the way to go

The Authority has a favourable view of the value of PPPs, in terms of innovative project delivery, expertise and the financing option.

The latter because it permits PANYNJ to "leverage scarce dollars from our capital plan". The private sector does multiple things better than the public one. The Authority seeks one procurement, a design-build one, for its projects, and this suits existing arrangements perfectly.

In the past five years the authority has negotiated four PPPs, two at LaGuardia and two at Newark, which have collectively totalled USD11.5 billion in investment. Design-Build is now the default position on all PANYNJ projects and PPPs are sought for all major projects.

The downside is that PPPs require greater negotiation to define roles precisely, as the Authority retains accountability for performance standards, not the private partner.

There is a big focus on on-time and on-budget construction. There remains a clear role for the public agency to clear the way through local issues, so the private partner can get on with the job.