Airports and airlines have a symbiotic relationship – they need each other to thrive. Ultimately, both airports and airlines serve the same customer: passengers. However, they remain separate entities, beholden to laws and treaties that govern airspace and mandate fair business environments, and in some cases, pursuing different goals.
Airlines are connected to airports through partnerships, and as anyone who has tried to catch a flight knows, it’s important your carrier is available at the airport. Airline partnership is what drives traffic to the airport, filling its business and shops with customers while they wait for departure. Airports are just as integral to airlines, as they provide the facilities – like a runway, handling facilities, and cargo facilities – necessary for airlines to conduct their business.
As travel has expanded internationally, airports increasingly play a vital role as a connector. While airlines may have strong local networks for sales and promotion, when they move internationally, those connections are often much weaker, if they exist at all. Destination airports can help stimulate demand for international airlines, benefiting the airline as the local relationship lends credibility, and ensuring the airline continues to plan its route to that airport’s destination.
A change in policy in the 1970s, referred to as deregulation or airline liberalization, shifted the airline-airport relationship from a government-regulated one to one that exists at the discretion of the airline. This opened the door for negotiation, as armed with the freedom to choose, airlines can now negotiate for the best price when they launch a new service. Deregulation also moved the airports’ revenue source from the airlines, who previously paid a guaranteed fee, to profit generating directly from the passengers.
Business Relationships Between Airports and Airlines
Overall, three different types of relationships are formed between airports and airlines:
- Agreements – These are negotiated, and often include compromises.
- Rates by resolution – These are established with consultation, often including ordinances, regulations, and permits.
- Hybrid – In some cases, airports may have rates resolution partnered with revenue sharing.
Relationships will also vary by country. For example, in the United States, an airport acts more as services coordinator and landlord, whereas in France and the United Kingdom, a blend of public and private companies own the airport, positioning the airline as more of a customer to the airport. Not only can public versus private ownership dictate the relationship between airports and airlines, but the government regulation, including regulations related to passenger service charges, landing charges and development, can impact relationships.
In their paper on The Stakeholder Theory Perspective, the authors note that each entity in the relationship has specific, different goals.
What Airlines Want:
- Optimized revenue as a result of efficiency
- Fast turnaround times
- Minimal airport charges
- Additional airport capacity
- Convenient schedules
- Quality ground transportation
- Exceptional customer service
- Well-liked dining and shopping options
What Airports Want
- Sustainable operations
- Growth
- Use that meets the needs of all carriers, not just one
- Ability to attract passengers as a global hub through its airline network
- Diversity in airline relationships
The Negotiation Process
To balance these different demands and strike a compromise satisfying for both parties, airports will undertake a use and lease negotiation process, according to a presentation by the American Association for Airport Executives (AAAE). The process is typically conducted in three phases:
- Planning. During this phase, the airport will establish its goals, translating them into ranges and options. From there, executives will develop a term sheet.
- Airline Engagement. In this phase, airports will engage airlines with the concept, refine the term sheet, and draft (and likely further refine) the lease, through negotiation.
- Execution and Transition. Finally, when the airport is ready, they will transition to executing the agreement and becoming operational.
Trends in Negotiations
An evolving, deregulated and competitive landscape has spurred many changes. According to the AAAE, recent trends include:
- A growing numbers of rates set by resolution
- A move away from long (10 years or more) leases, which is a mutual decision from both airlines and airports
- Airline associations established to manage the equipment
- Less rigorous Majority-in-Interest (MII) clauses
- Increased shared (common uses) spaces between airlines, including outbound baggage systems
- Amped up bankruptcy protection
- Option for airlines to avoid leasing space or gates with “per-turn” fees instead
- Increased airline participation in capital development
Benefits of Airline Agreements
Given all the complexity, is an airline agreement a good thing? In short, yes. An airline agreement offers several benefits for airports, including:
- Clear, established expectations for both the airline and the airport
- Structured airline payments across the base rate, cost center structure, rent fees and charges, and an established calculation
- Establishes the length of the agreement, which is increasingly short unless an airline will partner with the airport on larger development
- Clarifies which party controls gate use and other facilities
- Offers legal protection
How Airlines and Airports Can Work More Effectively Together
As airports work to balance their interests with the (often different) interests of multiple airlines, keeping these best practices in mind can make for a smoother process:
- Benefit stakeholders. Just who are those stakeholders? The airport and the airline, among other stakeholders like passengers, general aviation, investors, service providers, local and federal government, suppliers and any other person or entity impacted by the relationship.
- Increase customer purchases with integrated sales channels. Time can be a barrier to purchases for flying travelers. In the terminal, passengers may have to rush past shopping to make a flight; on the flight, passengers may sit idly with no access to make purchases. Consulting firm Strategy& advises airlines and airports to partner together to ensure passengers have accessibility when they have the time. This integration could entail allowing passengers to pick up inflight purchases when they reach their gate, delivering purchases between planes, or allowing passengers to purchase items in advance, which can then be picked up when they reach the gate.
- Use joint loyalty programs to propel sales. While most airlines offer loyalty programs, airports are less likely to do so. Strategy& advises that combining to offer rewards more broadly, like free parking, retail discounts, or flier miles, would not only boost sales, but may help cut costs and airports and airlines could then share the burden of supporting these programs logistically.
- Improve the customer experience. This practice is one of the key focuses for The International Air Transport Association (IATA), according to a keynote address from IATA CEO Tony Tyler. Improving the experience means amping up convenience and efficiency, through e-ticketing, self-service kiosks, fast-tracked experiences from arrival to departure, and better baggage delivery. And, Tyler also highlighted one critical way to improve customer experience: cut costs by promoting e-freight.
- Combine real estate development, infrastructure and hub operations. Development at the airport can impact airlines; involving airline stakeholders ensures the development the airports is investing in will offer improvements for the airlines. Development and infrastructure should improve operations, making them more efficient, effective and flexible.
- Make safety a team effort. This should be a top priority for all stakeholders. Airports and airlines can partner to establish a global standard for ground operations, and partner on improving runway safety.
- Make security measures a team effort. Arduous security lines are almost synonymous with flying, but all that time spent standing in security lines is time passengers could be spending making purchases instead, Tyler noted. He championed the needs for a better – but still secure – process that doesn’t involve all the unpacking and undressing required today.
- Partner for sustainability. The airline industry has already established substantiality goals (like improving fuel efficiency by 1.5% annually and cutting 2005 net emissions rates in half by 2050. Airlines aren’t the only entity that can get creative. Tyler cited airports like Madrid-Barajas, Detroit and Stockholm-Arlanda, which use land to grow sustainable biofuel source crops.
- Create cost efficiency together. With increasingly tight margins for both airlines and airports, it’s easy to foster tension. However, Tyler argued a better way to answer this tension is to partner to grow business together, through collaboration on capital expenditure development, transparent consultation, service level agreements as part of longer-term agreements, and new approaches to risk sharing.
Like any symbiotic relationship, close quarters can make for some tension, but ultimately, both parties are better off together instead of working in isolation.