Our key takeaways from GAD World 2020
After the worst year ever for the aviation industry, what are investors doing to manage the risk and returns and what are the recovery trends across the regions?
Those in the airport sector often face similar challenges. So each year, when the GAD community gets together, the sector's key players always have something to bond over. This year, it's the communal experience of Covid-19.
Although traffic was virtually non-existent in Q2 2020, "the aviation industry remains essential", Juan Angoitia, Senior Managing Director, Ardian, told us optimistically.
Indeed, airports' initial response to the Covid-19 pandemic was foundational for the return of traffic in the summer months. Namely, the focus on the health and safety of staff and passengers signalled to the world that business can continue, and the focus on the balance sheet, cash flow management, and liquidity protection enabled the business to come back.
Since then, there was some partial recovery, but each region's experience will vary. Europe, for example, reached -70% traffic in August and September (YOY). Traffic at Delhi Airport subdued, but Xi'an Xianyang International Airport has seen traffic at 2019 levels, Denitza Weismantel, SVP, Global Investments & Management, Fraport, told us.
"Everyone has a unique experience in terms of recovery", Gerald Ong, Director, Aviation Marketing, MAHB, said, citing differences in government aid and regional health guidelines. Beyond that, Covid-19 infection levels are also key traffic influencers, Holger Linkweiler, Managing Director, AviAlliance, said.
For example, cargo has become an important revenue source, and island destinations have also proven popular, both of which make routes management crucial. In terms of passenger profile, the top reason to travel is to visit friends and family, while leisure and business travel are considered luxury. Short-haul, direct flights also triumph over long-haul flights, while domestic travel becomes key. (However, international travel will continue to be attractive, Weismantel said, but it will take a longer time to recover.)
As the European summer began, traffic and demand rose and fell quickly. Flexibility, therefore, became crucial, but it would have been better if the airport was able to forecast. Current forecasting models take into account GDP, population, tourism, fares, trade, and geopolitics among other factors. But the current data used for forecasting "are not predictive enough", Arvind Chandrasekhar, Associate Partner, Head of the Solution Group Network & Fleet Management, Lufthansa Consulting, said.
There are vast amounts of resources that the airport sector hasn't tapped into yet, for example:
Some of this data can be used in combination to show tangible results. Search activity, lower Covid-19 infection rates, and easing restrictions at the destination can indicate an increase in demand and inform route prioritisation decisions. Other examples also include, Air Travel Pulse (co-developed by IATA and McKinsey & Company) which analyses indicators for demand recovery to guide commercial and operational decision-making, Jaap Bouwer, Expert, McKinsey & Company, said. In a similar collaboration with the World Travel & Tourism Council, the World Travel Dashboard was created which, with a focus on tourism, tracks online patterns and trends in customer behaviour.
Despite the challenges of the past 9 months, the industry is optimistic. Kim Day, CEO, Denver International Airport, sees a steep rebound in 2021 when a vaccine becomes available. Travel is still attractive, and the pent-up demand will make an impact in traffic numbers, before levelling off.
"Growth is still in our future", Day told us, "we just don't know when we're going to hit it."
Customer concern, however, cannot be underestimated. Much like safety was a key concern post-9/11, health and cleanliness will stay crucial post-Covid-19.
"I think there's a bit of mystery for people who haven't flown yet", Day said. "Our motto is we're ready, when you're ready.
Despite the blow of Covid-19, and despite the disappointing case of St. Louis, the same optimism is present in investor appetite in the US market. With this experience behind, one of the key takeways from Juan Camargo, Managing Director, Omers, is that political support needs to be obtained from the get-go.
"We have a duty here to minimise the backwards steps we make", Shawn Kinder, Senior Advisor, PJ Solomon, noted in order to protect investors' interest in the region.
"When you're investing in US airports, you have to be optimistic", Brent Tasugi, Principal, Infrastructure Equity, AMP Capital, concluded.
The sluggish return of leisure and business travel during the rebound period put domestic travel and cargo at the forefront of airports' aeronautical revenue source. The increased importance of cargo, despite its crucial role in the global supply chain, was unexpected, and many were caught off guard by the demand.
Alain Breuer, Director, LUX Hub Management, Cargolux, recounted that in March 2020, when the pandemic hit, 70% of his workforce was unable to work either because they were infected or they needed to stay home to focus on childcare. It goes without saying that as a consequence, operations halted. Cargo relies heavily on human expertise, and because of that, employee wellness programmes will be key in the future.
Furthermore, if cargo continues to play a key role in aeronautical revenue, operational optimisation will be needed. "Customers pay a premium for speed", Breuer reminded us, so simple changes like bringing parking to closer proximity to the warehouses can make a huge difference.
Finally, considering that we live in a world of smart technology, existing facilities cannot keep pace. Modernisation and digitalisation of the antiquated concept of warehouses will be necessary to stay operational and competitive.
Although it seems impossible to bring an inherently physical industry like the airport sector into the virtual world, efforts to digitise have long been in the cards. This year, it seems, those early investments into making airport visits a digital experience paid off.
Bangalore International Airport has been on this digital journey for years with the intention of:
Now that the industry is preparing for a recovery induced by the promise of a vaccine, enhancing customer experience will be essential. At Bangalore, this takes the form of an enhanced digital presence via an improved website and mobile app, where customers will be able to access a digital concierge, enter a loyalty programme, pre-book smart boxes and even food, Satyaki Raghunath, Chief Strategy & Development Officer, Bangalore International Airport, presented.
While operations were grounded, airports - as Carlos Ozores, Principal, ICF, summarised - found "a moment of opportunity to do something that would otherwise be difficult to do": implementing sustainability measures and roll out new initiatives.
JFK, Newark, and LaGuardia Airports can now boast with their own electric bus fleets, and JFK is opening new charging infrastructures to accommodate the increasingly electric Uber and Lyft vehicles. Despite the challenges of the pandemic, "we are still 100% committed", Christine Weydig, Director of Environmental & Energy Programs, The Port Authority of NY&NJ, said.
As a highly visible sector, such initiatives to serve the community are paramount, according to Arturo Garcia-Alonso, Operations Specialist, AVPORTS, especially if the trends of flight-shaming reach the Americas.
From a financial perspective, investor pressure to demonstrate sustainable business practices are already present, Adriana Bejarano Carrillo, Head of Environmental, Health and Safety, Aeris Holding CR, CCR Airports, told us. And although it is difficult to put a price tag on ESG initiatives, the trends overwhelmingly point towards their necessity. Failure to act is synonymous with being short-sighted. Mitigating ESG concerns now, therefore, is an essential part of the airport's business strategy.
