Six ways GCC airports can prepare for Covid-19 recovery

Reducing fixed costs and boosting liquidity are just two of the ways that analysts think airports in the Middle East can explode out of the blocks once Covid-19 subsides
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Airports

Marwan Bejjani and Camil Tahan, partners, and Alessandro Borgogna, senior executive advisor, and Vivek Madan, manager, at Strategy& Middle East (part of the PwC network) offer their insights.

The GCC region is home to some of the world’s most advanced airports, including Dubai International, King Abdulaziz International, and many others under construction.

Today, these facilities are empty due to the Covid-19 pandemic. Once travel resumes, however, GCC airports will play a critical role in restarting economic activity, particularly for travel and tourism. Airport leadership teams should therefore take action now to adjust to changing travelers’ habits and requirements.

When the economy recovers, travellers are likely to display different behaviours and habits for online booking, preferred destinations, and for health and hygiene preferences in airports.

Already, many GCC airports have adopted new screening procedures and sanitation initiatives, although in the short term this has meant increased costs without any corresponding rise in traffic.

Airports are natural monopolies, so they do not face the same existential threats as other types of business. They should nonetheless treat the current crisis as an opportunity to make six measures to position themselves for the rebound.

1. Increase revenue. Airports should seek to generate revenue when the crisis eases, through focused marketing campaigns to increase traffic and attract new tenants. A central theme should be to assure passengers that facilities are safe and clean. Airports can also become more innovative about offering integrated sales of duty-free products—for example, cooperating with airlines to offer in-flight sales that are collected at the destination airport.

2. Adjust capacity. Airports suddenly have far more capacity than they need, requiring that they manage capacity to make their operations more efficient. For example, they could close some parts of the airport (gates, concourses, or even terminals) and consider single-runway operations where feasible. Airports can take advantage of lower passenger volumes and invest in areas that will improve the customer experience later on, such as renovations in sections of the airport that would be disruptive during normal operations.

3. Reduce fixed costs. Airports should focus on managing labor costs effectively in the short term­—for example, through flexible work arrangements, paid or unpaid leave, or more efficient shifts and employee rosters. Airports should review all supplier contracts, such as facilities management, to ensure that more of the cost base becomes variable and tied to operations, rather than remaining at fixed fees.

4. Strengthen the balance sheet and boost liquidity. Although airports are under less liquidity pressure than other travel players, they can nonetheless improve their financial situation. For example, they can consider reworking payment terms with some suppliers to improve their short-term cash flow. Another approach is to refinance some debt, allowing airports to capitalise on lower interest rates.

5. Quantify the impact of the crisis and document lessons learned. Airports should keep a careful log of the cost of COVID-19 impact and the measures they have taken to mitigate these additional expenses. They should develop a “lessons learned” handbook that senior leaders can use to analyze and understand the impact of a major traffic disruption—along with best practices to manage such situations in the future.

6. Accelerate long-term transformation programs. Airports should launch, or continue, long-term transformation programs. For example, facilities should continue their push to digitize processes to make the passenger experience more streamlined and touch-free. They can work more closely with airlines on initiatives to boost traffic, and they can continue launching financial initiatives to improve liquidity—such as sale-and-lease-back arrangements on airport assets ranging from ground support equipment to entire terminals.

Although GCC airports are bearing the brunt of the economic impact of COVID-19 crisis, that is likely to be short-lived. An eventual resumption in air travel is inevitable. In the interim, airports have a window of opportunity to ensure that they can capitalise on the recovery.

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