The Road to Recovery

2 September 2009 (Last Updated September 2nd, 2009 18:30)

John Grant, managing director of global route development consultancy ASM limited, tells of good news on the horizon.

The Road to Recovery

Future Airport: A recurring question in the aviation industry at the moment is whether to focus on short, mid or long-term concerns. As a business, do you always look to the long or mid-term?

John Grant: More mid-term. It is increasingly tough out there, and it would be almost corporate negligence for people to bury their heads in the sand and wait for the recession to disappear. Now is the time that you need to be out there looking for new business opportunities. The world has changed and if an airline drops a destination it used to fly to and says, 'we've dropped it in times of economic recession', it doesn't necessarily mean that the aircraft is going to go back there in a year's time. Almost anything is up for grabs.

We've just carried out a piece of independent research in which we sent an internet survey to airport CEOs around the world to gauge how bad they thought the market was. Most airports of any size and geographic region said it'll probably be about 18 months before they see an upturn in their traffic and business. But 84% said they're spending more on marketing and route development activity than last year, purely because they recognise now is the time to invest in that area of the business.

FA: What if you don't have the cashflow and resources?

"Many airport CEOs predict it will be 18 months before passenger traffic begins to grow again."

JG: Of course, it's down to resources, but it's equally about being effective. We asked CEOs what they use as their means of marketing communications and business development.

Most people start with events such as Routes, and then follow it up at airline offices and then by personal visits to the airports. If resources and costs are an issue, then attending events like Routes where you can see 20 airlines in two days has to be more effective compared with running around the world, doing three meetings in Europe, then doing four in the US, and spending tens of thousands of pounds on travel.

FA: How have you found the last 12 months?

JG: They've been really exciting for us. We've expanded operations and successfully developed our business in China, and Central America and the Caribbean, which are totally new and emerging markets for us. It was a conscious decision to widen our portfolio so we're less vulnerable to the economic downturn in other parts of the world. That was our first plan of action and it's proven to be extremely successful.

The important thing is to keep delivering results for our clients around the world. Even though everyone talks about global meltdowns, recessions and economic crises we've still got new airlines adding new routes to our clients' destinations or building more frequency to those destinations. You have to look at all areas, for example low-cost and charter, and you have to care about the business. My team are passionate about the clients as much as everything else.

FA: It's a very personable business, you work with a client for a long period of time, and get to know them and what they're doing.

"84% of CEOs say they're spending more on marketing and route development activity than last year."

JG: It is about relationships. It's as much about the relationships with your clients as it is about the relationships with the airlines that we talk to on behalf of those clients. Those relationships have been going on for ten or 15 years in some cases so it is a very personable type of business.

FA: Which must give you a lot of personal joy when a job comes right.

JG: Absolutely, we work for some relatively small airports in various parts of the world, so to them, getting one new service is as important as another airport we work for getting a daily 747. It's almost more important, the strategic value to them is far greater, and they are therefore so much more enthused than bigger clients that just shrug their shoulders and move onto the next one.

FA: With so many airlines going bankrupt, more slots are becoming available. Does this open the market up for other airlines?

JG: We haven't seen much in the way of emergent airlines or new carriers coming into the market. We've seen some carriers taking advantage of other airlines' shortcomings and filling in gaps, but if you're an investor and you're looking to invest in an airline, you will find it very hard to raise the capital.

What we're seeing is backfilling and opportunistic market entry, which goes back to my point that if you lose someone, there is an opportunity to backfill every time. It's quite interesting, whether you're a big airport or not. Those opportunities are still out there.

"Attending Routes is a popular basis for business development."

FA: You say that in 18 months' time traffic will start to increase. Will it be a slow-burning return to the record numbers of just before the recession?

JG: Not only is it going to go back, it's going to go beyond. You know, this is an amazingly resilient industry. The bounce-backs after 9/11 and then after Sars were staggering, and the industry will bounce back again, there is absolutely no doubt about that. I think we'll probably be at the levels we were a year ago in three years' time, and then we'll be going forward again.

FA: OPEC has suggested that they're not going to increase supply of oil, but all they're looking for is the standard oil price to be $60-$80 a barrel, how would that effect the airline market?

JG: That's what the airline industry was living with two years ago. It was managing quite successfully at that time.

FA: Only at the high numbers of traffic though.

JG: Well, that is the precursor to that, it's like a milking stall, if that's the price of fuel, that's going to drive the cost base, therefore the yield needs to be x and the volumes need to be y to bring some sort of synchronicity into the market.

FA: It's all about waiting for all the lines on the graph to cross at a healthy point.

JG: Absolutely, the big issue is also going to be the impact on disposable income. I guess that's probably more of an issue in the EU and US where for the low-cost guys, disposable income equates to discretionary travel, which equates to six trips a year rather than three, and that then drives the volumes that they require, so it is interesting.

FA: From a global perspective, as far as disposable income is concerned, the European and US markets look after themselves. But which key growth markets look the most promising for you?

"Events like Routes, where you can see 20 airlines in two days, have to be effective."

JG: South America. We've not been shocked; we knew that this market was still growing and that it had tremendous potential. Most of its airports are reporting growth and they're all building new facilities and infrastructure. A recent discussion came to the conclusion that maybe this is because the bubble wasn't big enough to burst in the first place.

This region hadn't over-saturated itself, so it wasn't in a vulnerable position, and you still see growth coming out of markets there. Peru is still seeing double-digit growth and one of our clients in the Caribbean had 17% growth last year.

Although China is much maligned at the moment, there is still growth in that market. It's going to lead the global recovery and be one of the places where we see the quickest return. There are still gems out there that are giving cause for optimism, and rightly so – airports should take note.

FA: There is often confusion for airports about who the customer really is. Is it the airlines or the passengers?

JG: It's a very simple answer: who does the airport send the invoice to?

FA: Is it really as clear cut as that?

JG: An airport obviously has a role to play in building and maintaining a relationship with its passengers, providing the products and facilities that are needed. But that's linked to the market position they take, and that market position is linked to the airlines they attract and are trying to attract. The passengers belong to the airlines; the airlines belong to the airport. If an airport tries to bypass the regular distribution channels, they're exposing themselves to some complex issues, and the airlines are the providers of capacity.

FA: Is the idea that there is opportunity everywhere in spite of the economic crisis?

JG: Absolutely, and that's one of the amazing things about the past 12 months. We don't crow about it at ASM, but we have people asking us to help them out. Those really are the people who are more savvy and more astute in their business planning, rather than those who are saying 'well, we'll just sweat it out and see what happens'. Dare I say it: if you're going to employ a consultancy that specialises in route development, now is the time to do it.