Digital airports

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Amsterdam Business School

Digital Airports

Master of Business Administration

Student Name: Neha Shahdeo

Student number: 10839585

Supervisor: Prof. Dr.John Cullen

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Acknowledgement

This case study could not have been done without the support of Anil Balgobind (DAP director) for providing me the opportunity to conduct this thesis at Schiphol, and Jelte Baerends, who was very open and flexible in guiding me through this study. Knowledge shared by them helped me gain insights into a complex subject, which is yet not

supported with academic literature.

The support and guidance of my supervisor, Prof. John Cullen, was very valuable in structuring my thesis. Prof Cullen, was very helpful in streamlining my research effort by advising the right direction to focus on, which was very useful in finishing my thesis on time.

My sincere gratitude goes to these people for supporting me with their time, effort and willingness to share their insights with me.

Neha Shahdeo September 2015

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I. Introduction

Airport industry is amongst the prime enablers of global connectivity and economic prosperity. Airports are the gateways to aviation and play a significant role in facilitating tourism, business travel and worldwide supply chains. The increase in passenger volume creates greater demand on Airport infrastructure, the airport industry is swayed by the dynamics of global economy, these factors make this industry unpredictable where the aeronautical revenue is seen shrinking gradually. Airports need to achieve operational efficiency to reduce cost, and at the same time they need to provide differentiating services to enhance customer experience and generate sources for non-aeronautical revenue.

The emergence of new airports and airlines benefits the customer with increased choices to plan their journey. Increased competition in airport industry fuels the need for

airports to constantly innovate and strengthen their position and be attractive to passengers and airlines, both in terms of attractive prices, seamless service and differentiating experience.

Schiphol Group manages and operates airports in the Netherlands and is a key contributor for economic growth. Schiphol aims to stay attractive to passengers and airlines and maintain the steady flow of traffic. To ensure its growth and sustainability Schiphol has undertaken a Digital transformation program.

Globally airports are increasing the usage of digital services in an attempt to improve connectivity, customer experience and sustain their position in the competitive marketplace. Digital transformations incur heavy costs to the organization, they span across the entire organization and seek to make organizations more agile and responsive to change.

In this report I will discuss the evolution of airports, discuss the airport customer and the need for Digital transformation in airport industry to reduce operational costs and enhance customer experience and hence customer loyalty.

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This study is performed within the context of Organizational transformation and innovation with the objective to get exposure to the practical application of theoretical knowledge acquired during the course of the Amsterdam MBA program. The discussion in this report is in the context of Digital transformation and achieving a competitive edge above other digital airports in terms of low cost and differentiation, which in turn helps Schiphol in establishing itself among the top airports globally.

In addition to the academic frameworks listed in reference section, ample reports related to airports industry, airport annual reports, white paper documents from aviation experts have been consulted. The list of articles are listed in the References section.

Research question

Digital Airports - Need for digital airports and the value created in reducing cost and increasing customer loyalty.

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II. Conceptual Framework

Digital airports and digital strategy is an emerging concept, the related academic literature in this area is currently lacking. However many established concepts were very useful in discussing the need for digital transformation of airports and the diversified value created by them. These are customer segmentation, Business model and value proposition, Progression of economic value, Competitive advantage, concept of “How Strategy Shapes Structure”, Ulrich’s HR model and Schien’s Change model. I will also consult the latest industry related white papers, news articles and publications of management consulting firms , websites and annual reports of world’s leading

airports as well as subject matter experts, organizations like SITA, DKMA, IATA etc.

A. Customer Segmentation

Customer segmentation is a widely adopted marketing concept, which is useful to

demonstrate, that customers of an industry have different needs and one strategy fits all cannot ensure customer satisfaction. This concept asserts the need for deep customer engagement, so that organizations can diversify their offerings and provide

personalized, value creating services as per different needs. Customer segmentation helps in building a focused value proposition for customers and provides the insight to Whom (segment), What (proposition), and Why (benefits) to appeal to diverse customers ( Marketing Management and Strategy, 2006.- Doyle & Stern book) . Customers can be segmented on the basis of the below mentioned criteria:

 Needs segmentation – Segmentation is done on the basis of homogenous needs of a group of customers, like sensitivity to price (low – high price) or frequency of usage (incident - often).

 Profiles segmentation– Segmentation is done on the basis of descriptive, data driven, measurable customer characteristics, like Geographic (region, rural, urban) or Demographics (age, sexes, family status, income) etc.

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 Life events segmentation - Segmentation is done on the basis of customers in similar event or stage of their life, like women with 1st child, marriage, college student, post retirement etc.

 Personas – Segmentation is done on the basis of common set of needs and drivers of a customers. It aims to personalize the offerings by understanding the world of each persona e.g. in airline industry different personas are Business , leisure, family, an special needs traveler

I will use this concept in relation with the next section to demonstrate the different customers of airport industry based on Personas and why a homogenous service level leads to low customer satisfaction and digital solutions can improve customer engagement and insights.

B. Business Model and Value proposition

The Business Model Canvas along with a mechanism to track performance can become effective method for formulating strategy (McGrath 2010). Many definitions have been made for the concept of business model and value proposition. Lanning (1998: 55) states the value proposition to be a set of experiences, including value for money that an organization offers to customers. Customers may perceive this set or combination of experiences to be “superior, equal or inferior to alternatives”. If the business model is not established well, business may be unable to find focus on the value proposition to its customers. As claimed by Richardson (2008) business models should have the value proposition, value creation and delivery system and should provide answer to four key questions mentioned below:

 Who is the customer?

 What does the customer value?

 How do we make money in this business?

 What is the underlying economic logic that explains how we can deliver value to

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In her article “why Business Model matter?”(Magretta 2002) asserts that the main question is how to differentiate between an organizations idea from the rivals idea: “a successful business model represents a better way than the existing alternatives”. Magretta asserts that the business model should read like a story of the organization. It is useful for business to identify who are its customers, in which way value can be

created for them. Then it is easier to formulate goals and strategy to serve that customer base. In later sections this concept will be applied to define the airport customer of the present era and what value can be created for him/her to increase loyalty, the related economic logic in the digital economy.

C. Progression of Economic value

The progression of economic value (Pine & Gilmore 1998) is a model that demonstrates the generic progression of economic value that business go through during the process of evolving to cater to the needs of our changing society.

The progression of offerings from commodities to

transformations goes from low-value tangible offerings to high-value intangible

offerings. Higher the customization to customer needs, higher the value creation and thus a higher premium can be charged for these offerings.

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The Progression of Economic Value is a model useful in understanding what the

business is offering to its customers, accordingly the competitive strategy and business model should be built around it. The progression from lowest to highest value offerings is -

 Commodities - Business charge for undifferentiated products.

 Goods - Business charge for distinctive tangible things.

 Services - Business charge for activities performed.

 Experiences - Business charge for the experience customers get by engaging with

them.

 Transformations - Business charge for the benefit customers get by spending

time there, and serves as a guide for others.

This concept is used to classify airports as per their economic offerings. How those airports functions and satisfy customers helps in deciding where they are placed on the airport evolution stage, discussed in later sections. A clear assessment of the current stage can help airport create a roadmap and the future strategy for gaining competitive advantage over other airports. This will also be useful in discussing in

which area the most economic value can be created “Economists have typically

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offering, as different from services as services are from goods. Today we can identify and describe this fourth economic offering because consumers unquestionably desire experiences, and more and more businesses are responding by explicitly designing and promoting them” Harvard business Review.

D. Competitive Advantage

The competitive advantage strategy as proposed by Michael Porter (1980) is a mechanism for understanding how an organization choses to position itself in the industry it is part of.

This decision is crucial to an

organization’s profitability, which is influenced by the dynamics of the underlying industry and the

organization’s position within that industry. Michael porter suggests, an organization can have a competitive advantage over its rivals by positioning itself in one of the quadrants of the adjacent figure.

Cost Leader

To achieve cost leadership, organizations provide low cost services for a certain level of quality, they engage in price wars with competitors and try to achieve operational efficiency to reduce costs. To be successful with this strategy, businesses strive to

achieve economies of scale and expand their market and follow a broad scope strategy to gain competitive advantage. Following a low cost strategy has the risk that competitors may also achieve operational excellence and reduce their cost, and several other firms catering to a focused group may reduce a broad market to a narrow market.

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Differentiation Strategy

To be a differentiator, organizations need to develop unique capabilities that create unique value for customers and sell them at a premium price. To be successful with this strategy organizations need to invest in innovation and highly skilled human resource, to successfully create and exploit the unique attributes. The uniqueness can be created in operations, sales, brand etc. or throughout the value chain. Being a differentiator an organization becomes risk prone to several risks like, the consequences of competitors copying the unique attributes, the perceived value may get diminished over time and competitors may begin to offer better differentiating value.

Focus (Niche) Strategy

As the name suggests focus strategy of a business stresses on one particular customer segment and aims to cater to specific needs of this segment and achieve a competitive advantage by earning customer loyalty. Businesses in this segment usually cater to a narrow market and pass on the higher costs to customers. Organizations which succeed in this segment have a good grasp of the selected market segment and benefit from having a narrow spectrum to cater to as it is easier to respond to their needs.

Like other strategies, this strategy also faces the risk of competitor imitation, broad segment players can adapt their offering to the needs of this segment also and be more profitable due to economies of scale. The market share may be reduced by several players catering to the same customer segment.

"Stuck In the Middle"

If an organization attempts to achieve an advantage in several fronts cost leadership, differentiation and niche (focus) may be said to be "stuck in the middle". They have no distinct strategy and are attempting to be a generic player with a lack of focus which makes such organization very high risk prone to operational inefficiency and creating ambiguity, as it is difficult to cater to all segments with one strategy. Organizations adopting this strategy may become the worst performers of this industry. By creating

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different business units, each with a separate strategy, can be less likely to be stuck in the middle and can develop capabilities which can be shared across the organization.

Hybrid Strategy

To achieve competitive advantage organizations need to do an assessment periodically and develop a strategy based on its strength and the dynamics of the underlying

industry. These are called generic strategies but they need tweaking, as per the industry dynamics of the organization as well as the spectrum of customers they serve, such a

strategy is referred to as a “hybrid strategy”. As asserted by the research done by Davis

(1984 cited by Prajogo 2007, p. 74) firms which apply the hybrid business strategy which is a combination of low cost and differentiation strategy, surpass the performance of those organizations which adopted a generic strategy. Even porter agreed that hybrid business strategy could exist (Porter cited by Prajogo 2007, p. 70). The airport industry is swayed by fluctuating markets and have an unstable demand, such an industry which is rapidly changing and highly uncertain requires a flexible strategy which is diversified, and can serve different needs of the millennial passengers. In later sections, I will

discuss how digital solutions help airports to adopt “hybrid strategy “to serve with low cost and create a differentiation in its offering.

E. Strategy Shapes Structure

The concept as illustrated by the W.Chan Kim and Renee Mauborgne in their article “How Strategy Shapes Structure " discusses the aspects of corporate strategy and starts with the assessment of its environment, it is useful for drawing long term strategy, in the context of how the organizations want to orient themselves, whether they want to be part of a red ocean and play for operational efficiency or they want to transform and create a blue ocean. The authors of this article discuss how alignment of strategy is essential for sustainability. The two approaches discussed by them are:

Structuralist strategies - assumes that the operating environment is given and focus on competing in a red ocean by delivering either low cost or differentiated offering.

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Reconstructionist strategies - that seek to shape the environment and create a blue ocean through innovation and aim to deliver both low cost and differentiated offerings.

How an organization chooses to follow one of the approaches depends on, Organizations environmental attractiveness, the capabilities and resources available. Whether

Organization has a strategic orientation for competing or for innovating.

The success of the chosen strategy depends on the alignment of

 The value proposition- the value that attracts customers, it is the utility buyers receive from an offering minus the price they pay for it

 The profit proposition - how profit is made out of the value proposition, it is the revenue generated minus the cost to produce it

 The people propositions - the incentives that motivates people working to support and implement the strategy.

This concept is useful and applicable for airport industry, which is an attractive and fast paced industry. The current players are well-established, some airports when

compared to Schiphol have geographic advantage or labor cost advantage. In such an environment just achieving operational efficiency is not sustainable, rather innovators and disruptors are required to dominate and sustain the market.

F. Transformation and human capital

Digital transformation is an organizational transformation, Digital capabilities require skilled workforce and culture change. In the below section I discuss , concepts where HR can help in cultivating an innovative culture by performing a change agent role and the related model which needs to be applied for bringing this change. The model for HR business partnership as demonstrated by Ulrich, discusses four key roles played by HR that of:

 Strategic Partner - Perform the activity of Organizational diagnosis, aligning HR and business strategy.

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 Administrative Expert - Performs the activity of shared services, reengineering organization processes.

 Employee Champion - Performs the activity of providing resources to employees, listening and responding to employees.

 Change Agent -Performs the activity of ensuring capacity for change, managing transformation for enabling organizational change.

In the 1980s, psychologist Edgar Schein defined organization culture (Schein 1990) as a pattern of basic assumptions, invented, discovered, or developed by a given group, as it learns to cope with its problems of external adaptation and internal integration, that has worked well enough to be considered valid and, therefore is to be taught to new

members as the correct way to perceive, think, and feel in relation to those problems.

Schein Developed a model for understanding and analyzing organizational culture and divided an organization’s culture into three distinct levels Schein (2004). The three levels refer to the degree to which the different cultural phenomena are visible to the observer.

Artifacts - are the visible organizational structures, and business processes which may include any tangible, overt or verbally identifiable elements in an organization.

Architecture, furniture, dress code etc. all exemplify organizational artifacts. These are the visible elements and people not part of it can be clearly distinguished.

Espoused values - are the organization's stated goals, strategies and visions which translate into rules of behavior. These values should be closely aligned with the underlying assumption of the culture.

Shared Basic Assumptions - are the deeply embedded, unconscious beliefs, perceptions, thoughts and the ultimate influencer of actions. These assumptions are typically so well integrated in the office dynamic that they are hard to recognize from within.

This model is useful in organizational transformation to understand the levels where change is required.

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III. Case study

A. Description

The methodology for carrying out research and analysis for Digital airport

transformation, was carried out with a case study approach. Different aspects of the theories discussed above have been used to demonstrate the changing needs of the current airport customer, evolution of airports with the progression of economic value and the requirement of hybrid strategy to gain competitive advantage. The

recommendation section discusses the Reconstructionist approach for Schiphol and steps for organization culture change with the help of HR n a change agent role.

The qualitative case study method was chosen instead of doing a quantitative or

empirical research since the domain of digital strategy is still emerging and is still fuzzy, hence an explorative rather than predictive approach was chosen.

B. Methodology

The qualitative case study started with a discussion with the executives of DAP (Digital Airport Program) at Schiphol Group, followed by attending meetings and reading the program documents shared with me, to gain insights and understanding of their vision on transforming and sustaining Schiphol as a Digital Airport.

A deep dive analysis was conducted in the process of plotting the competitive landscape of Schiphol versus the four leading airports namely Changi, Incheon, Munich and Copenhagen. These airports have been regularly awarded for best in class customer service and providing excellent customer experience and have been mentioned for their digital capabilities.

To plot this competitive landscape , I participated in a brain storming session with the participants of DAP and finalized 9 broad categories for digital excellence namely On

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time performance, ASQ, Opex (pound) Per passenger, Automated Border Control, Instant Feedback system, Real time data access and collaboration ,Biometrics usage, self-service score at the airport and Differentiated projects. I downloaded apps, and visited the airports website and tried to use their features as a passenger would to discover the strength of these airports in the above mentioned categories. The fields which could not be tested by this method, were analyzed and scored on the basis of expert's opinion as published in company website of firms like SITA, IATA, DKMA, ACI etc . I used numbers to score these qualitative data and plot a graph to show the score of each airport in terms of customer satisfaction and digital capabilities.

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IV. Airport industry

The demand on air transport has seen upward trends, with globalization and increase in population, being the most important factors. The pressure on airport capacity is

enormous, as per the Airport Council International (ACI) with increase on demand of air passengers, the total critical infrastructure required to cater to the capacity

worldwide would be deficit by 15%, by 2020.

This compels airports to focus on operational efficiencies and reducing airport costs rather than just focus on infrastructure expansion. Building new physical infrastructure has huge environmental and cost impact and are not the preferred solution. Research led by the Airports Council International found that 41% of airport revenue was centered on non-aeronautical revenue streams in 1983, the figures by 1998 had changed, and non-aeronautical revenue was almost 50% of total operating revenue (Graham, 2008). Airport management was traditionally dependent only in management of passengers and airlines whereas the current demand is to diversify their portfolio and nurture non-aviation income streams such as parking, real-estate and other commercial activities (Graham, 2013). As the focus continues to move towards non-aeronautical revenue, airports are transforming from just being transition points for passengers between two locations, to being business hubs bringing an assortment of products and

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services to targeted passenger market segments. Decrease in aeronautical revenue and rise in the number of airports globally exerts further pressure on airports to provide excellent service at reduced costs and increase customer loyalty.

Over the last two decades airports have dramatically evolved their operations and business models to be able to cater to the explosive growth in air transport demand. Deregulation fueled in a new aviation age in North America, Europe, Asia, and emerging economies, offering elaborate choices to passengers for airports, routes and airlines. Airports evolved to be relevant to changing times with increasingly complex operations. The evolution of airports and the different models in them as described in Cisco Smart airports article (2009) are:

A. Airport 1.0: Basic Airport Operations

The basic airport operates in a landlord model, where the airport is the landlord and provides real-estate infrastructure whereas airlines and other tenants pay a fees to use the facility and develop their own business around it. All the stakeholders operate in silos with very low collaboration, and are managed by centralized system. There is very little information sharing to achieve operational efficiency, focus is on providing basic

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capabilities for arrival, departure, basic passenger service and moderate retail. These generalized services have very less focus on passenger experience.

B. Airport 2.0: Agile Airports

The Airport 2.0 features “agile airports” which have all the facilities provided by a basic airport, but are much more adaptable to the changing environment. These airports function in service model which provides shared services to stakeholders. In agile airports, airlines and tenants not only use the real estate infrastructure but also use the shared services provided by the airports. This enables the airlines and tenants to focus on their core business rather than setting up and maintaining their own system. The business model of shared services , enable agile airports to have better technical collaboration, reduce silos and achieve better flow of information, making them very responsive to environmental changes . These features of Airport 2.0 enable them to achieve greater operational efficiency, faster turnaround times and improves passenger experience.

C. Airport 3.0: Smart Airports

Airport 3.0 are “smart airports” which operate to provide stage experience by exploiting technology. Smart airports facilitate the basic operation of Airport 1.0, the Agility of Airport 2.0 and are also smart enough to be proactive and anticipative. Smart airports have real-time information sharing, deep collaboration and exchange of data, and process integration across all airport stakeholders, service providers and integrates the entire airport ecosystem together. Smart airports refine operational efficiencies, personalize passenger experience and facilitate seamless air transport which is hassle free and a memorable experience which help in new benefits across the value chain.

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D. Airport 4.0: Digital Airports

Airport 4.0 are digital airports which are transformational, they thrive in innovative culture and cause disruptions which creates value for all airports stakeholders. These airports have strong stakeholder alignment, and are proactive and responsive to personalized needs of each passenger. They optimize operational efficiency, increase capacity and provide differentiated experience at lower cost.

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V. Organizational overview

Schiphol Group operates as one of the largest hub airports in Europe, named Amsterdam Airport Schiphol, which serves 319 destinations directly, facilitates 56 million passengers and processes 1.6 million tons of cargo annually. Being a major airport hub of Europe and the world it serves as a vital engine for sustainable growth in the Netherlands. Schiphol Group has four shareholders: the State of the Netherlands to 69.8 percent, the city of Amsterdam 20.0 percent, 8.0 percent Aéroports de Paris, the city of Rotterdam 2.2 percent (company website).

Schiphol airport operates in a hub and spoke airport model, and has developed into an Airport City where passengers, airlines and businesses interact 24 hours a day. Schiphol airport enables all the services required by these stakeholders. The major business areas that constitute the Airport City formula are:

Aviation – this business area is at the core of the airport city hub. It constitutes of services to travelers, airlines, handling companies and logistics service providers. Aviation services provide infrastructure and manages services to facilitate passenger, airline and cargo in a seamless and secure manner.

Consumer Products & Services – this business service relates to enabling a smooth travel and enabling services to make passengers comfortable at the airport. These

include parking, retail service, food and entertainment. Advertising is another attractive service of this business area.

Real Estate - This business area is responsible for real estate infrastructure development which provides and manages real estate in Schiphol to make it more attractive for hotel and local business. The high quality real assets are used as hotels, office buildings or by airport service providers. The rental revenue has a significant contribution in Schiphol Group’s profitability.

Alliances & Participations - This business area, focuses on the development of regional airports and forming alliances abroad to participate in innovation and sharing

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expertise to achieve operational efficiency of the Schiphol airport city. These activities encourage foreign operations and are instrumental in developing innovative concepts and solutions.

Aeronautical and non-aeronautical revenue is derived from the above mentioned business areas. It is important for Schiphol to remain attractive to passengers and airlines, so they choose Schiphol Amsterdam airport over other airports. In the next section I discuss, the competition faced by airports in the current era, and the aspects determining the sustainability of an airport.

The growth for a hub airport like Amsterdam Schiphol airport is influenced by the global economic situation. As per the analysis of CPB, airports should take steps to handle a significant increase in the passenger’s traffic, influenced by population rise and the expected growth of global economy. The growth in the emerging economies have

impacted and will continue to impact the business at Schiphol .The growth of passenger market in next 15 years is expected be between 3 to 5 percent. The focus of this growth, is anticipated to be in Asia and the Middle East, and the airports from this region will have dominating positions among the top 25 airports of the world.

The business model of European network carriers incur higher cost than that of competing point-to-point carriers from other geography. This change is witnessed in holiday as well as business travelers. The network carrier market itself is facing extreme competition, Air France KLM have to compete with the likes of Emirates, Qatar airways, Etihad etc. As 70 percent of the flights from Schiphol are operated by KLM or skyteam, fighting this competition is critical to KLM and Schiphol’s success.

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As shown in the chart, Schiphol is placed as high quality airport with high price. To sustain its dominance as a hub airport Amsterdam Airport Schiphol must also combat with

increasing competition from other hub airports. Airports such as Brussels and Dusseldorf, effect Schiphol’s

catchment area, and reduce the market share of travelers who are close to Schiphol and should choose Schiphol. Outside the catchment area apart from the emerging competition from the east, Schiphol also faces intense

competition from traditional players in Western Europe like London

Heathrow, Copenhagen, Munich and Frankfurt, which are increasing their capacity and quality by investing in infrastructure, technology, branding and innovation.

Freight is a major source of revenue for the Netherlands this market has very

competitive players in the form of Chinese and German airports, If Schiphol wants to consolidate its position as a freight hub and passenger choice airport it is essential for it to keep pace with the leading players.

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VI. Analysis and discussion

Exceptional customer service is the most essential contributor for the sustainability and survival of airports across the world. Excellent customer service is defined as the

synergy created when an airport’s ability to exceed its customers’ needs and expectations consistently matches the customers’ perception that their needs and expectations are well met. (Paternoster, 2007).

The service level, customer experience and ease of travel play a crucial part in routing traffic at airports. An important and widely accepted indication of the service quality of airports are the prestigious Skytrax passenger service award which is the largest, annual global airport customer satisfaction survey. This award known as the as the Passengers Choice Awards indicates that Schiphol passenger satisfaction is ranked 9th in the world for the year 2015, which is four places lower than 2014.

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A. Customer Segmentation

Schiphol aims to continue dominating as a leading airport and reposition itself to overcome risks, counter competition and have sustainable growth. The decision about Schiphol airport’s positioning in the airport industry and gaining a competitive

advantage as a cost leader, differentiator or niche player should depend the target customer segment, business model and the value proposition. Applying Richardson’s (2008) methodology to find answers to below mentioned questions

 Who is the customer?

 What does the customer value?

 How do we make money in this business?

 What is the underlying economic logic that explains how we can deliver value to

customers at an appropriate cost?

As per United Nations 40 % of the world’s population represents digital consumers. As per SITA (2015), worldwide 97% of all passengers carry a PED with them and they want to stay connected during their entire journey. The figure below shows the percentage of

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passengers carrying smart devices. Booming mobile technology has transformed the airport passenger and their needs.

The percentage of digital customer will continue to grow and will eventually replace the non-digital consumers. The digital consumer has less sensitivity for delay and has elaborate choices for mode of travel and service providers with very low switching cost. They are tech reliant and have become a medium for viral spread of good or bad

reputation through online social medium.

In recent years, the passengers’ expectations have grown considerably especially in regards to quality of service. Privatization has transformed airports to deliver safe and secure operations, raised standards of customer service. The demand for air travel at lower cost brought in the era of low-cost carriers that affect the passengers’ expectation towards airports services. There are different personas of air travel consumers who travel for different purposes and have different set of expectation from the airport. These Personas can be:

 senior travelers

 Families

 Leisure travelers

 Young explorers

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A study on the influence of passengers’ demographics on airport attributes has

indicated that 95% of the passengers who travel for the purposes of other than business (i.e. leisure) are more conscious of the cost of travel (Carstens & Heyns, 2012). In general, passengers expected the same standard of service at the airport regardless of how much they paid for their tickets. Safety is a non-negotiable issue for all personas and is the most important concern for air travel consumers.

B. Value Proposition and Economic Logic

The need for safety is enormous, still digital passengers have low tolerance for long security check queues and relate it to a bad airport experience.

The impact of bad security experience has a significant impact on a passenger’s decision to choose an airport next time they travel. The information flow regarding security flow is not sufficient and 1 out of every 5 passengers is not sufficiently informed of the

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As per IATA (global passenger survey 2014) 90% of passengers expect the process of baggage drop to take less than 3 minutes, the travelers from Asia Pacific expect even higher performance and want to finish the process in 1 minute. The passengers need for faster and smarter services is evident in the increasing number of passengers opting for self-service option during their passenger journey.

The emerging digital air travel consumer wants to take control of their journey and prefer end-to-end passengers’ self-service solutions. They want to self-process and expect easy access to all the information they want, exactly when they need it. The key area for creating value for the digital passenger is to provide seamless travel experience and for control over their journey through time-saving self-service options at lower cost. The business traveler expects a seamless travel along with experience of memorable and best in class travelling.

Meeting these needs of the passengers at expected cost for each persona creates value for airport customer, which helps to gain customer retention and loyalty that will translate into profitability. Customer value proposition has three dimensions: the physical attribute of the product or services such as price, quality, speed of delivery and completeness of the service; the relationship that a customer experience by interacting

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to the customer (Ndaa, 2000). By providing a valuable service from arrival at the airport to the departure will serve its purpose as the core measurements of satisfaction,

acquisition, retention, and market share of the airport’s customer perspective (Kaplan & Norton, 1996). To achieve a high level of airport services is strong collaboration with all airport stake holders is essential to serve the passenger at all touch points and provide personalized services.

Airport worldwide are focusing on exceeding passenger expectation by persistently seeking innovative solutions and leverage technology in the identified key areas such passenger processing, safety & security, airport environment, and passenger instant feedback management to serve them better.

The Return on investment of enabling high level personalized customer service is the increase on non-aeronautical revenues as happy passenger will buy and spend more than passengers who are the least satisfied and hassled at the airport.

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A deeper customer engagement provides a better grasp of passenger needs. Happy experience of passengers creates customer loyalty, future demand, greater ability to up-sell and cross-up-sell tailored services based on real-time information and status of the travel environment and capability to use integrated passenger information linked to events and conditions such as weather, traffic, and seasonal trends over time. Customer loyalty will increase passenger spending, supported by a stepped-up marketing and promotion efforts, which will enhance the airport’s retail mix.

DKMA has published in their studies that airports who were able to improve their year on year passenger satisfaction levels, achieved it without radically transforming their airports infrastructure (DKMA). They only focused on optimizing the passenger

experience by identifying and improving what matters most to passengers. Exceptional customer service helps the passenger feel more at ease and hassle-free, which translates to repeat business, greater spending rates, and eventually greater net commercial

revenues and higher ratings, that are fundamental for the sustainability of the airport business.

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VII. Need for digital transformation

If it cannot be measured it cannot be managed! By measuring customer satisfaction and experience, airport management are better able to understand the unique requirements of various passenger. Airports need to keep pace with the expectation of digital

consumers, to be able to understand those need a deeper customer engagement is essential. This requires the extensive usage of digital solutions at all passenger

touchpoints to measure and manage customer experience. Like many other industries, airports have turned to digital technologies to improve customer experiences. Numerous airports around the world have begun investing in digital solutions such as mobile apps, self-service check-in, baggage drop, and way-finding maps as a means to improve

customer experience issues.

The adoption of digital technologies is already a rising trend at most of the leading airports worldwide. Many services like car-parking, automated border control airport navigation, accessing information, entertainment, baggage drop etc. are being facilitated digitally, through solutions, like Smartphone apps, self-service kiosks, biometrics and augmented reality. However there are several service providers, airlines, immigration officials, retail service providers, handling agents etc., at an airport each striving to innovate and take the service standard to the next level. Each service provider will have a different level of service provision, without real time integration the entire passenger journey cannot be optimized and a heterogeneous quality is created at the airports, depending on the requirements of the passenger, differing expectations of quality is likely to exist (Jarrah, 2001).

The solution for airport is to adopt a digital strategy and evolve to Airport 4.0 level to become Digital airports.

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VIII. Discussion on Digital strategy

There is a lot of interest in digital strategy and digital transformation amongst business, however the related academic literature is yet not at the same level. Digital strategy is defined as the level of IT engagement of an organization as a response to the industry conditions Mithas et al. (2013), whereas Woodward et al. (2013) suggests that digital strategy is the strategic use of IT in an organization. Conventionally IT was deployed at a “functional level strategy that must be aligned with the firm’s business strategy”

(Bharadwaj et al. 2010, p. 1). In the digital economy , Digital business strategy is deployed to synchronize business and IT to gain competitive advantage built on the ability of digital technology to engage with customers and gain previously inaccessible information (Mithas and Lucas, 2010; Prahad and Krishnan, 2002).

Airports wants to achieve high service quality by applying digital strategy, this

alignment is a multifaceted concept. As per a model developed by Berkley and Gupta (1994) for IT alignment, which asserts that IT usage impacts service quality through improvising features such as tangibility, responsiveness and reliability. Service quality and customer satisfaction has been shown to be strongly correlated, Woodside’s model (1989) put forward that overall customer satisfaction is a function of service quality, and is impacted by various service encounters throughout the customer’s journey. Oh (1999) found that satisfaction is influenced by a combination of perceived customer value and price. It is suggested that airport digital strategies lead to an improvement of passenger perceptions of airport service quality. The figure below sketches the interactions among the variables of digital technologies, applied in airports and the proposed influences of these on airport service quality. The framework is based on Verhoef, Reinartz & Krafft’s conceptual model of customer engagement and Fondness and Murray’s conceptual model of airport service quality, as discussed in the research, Digital Strategy in Airports (Jaffer & Timbrell 2014).

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As per a report by Mckinsey (2014) digital technologies empower business with

enormous power and grasp on the insights of the underlying industry and environment. The strategic use of digital technologies, provides astounding volumes of information which was inaccessible before. Cloud, social and open source platform enables inputs from billions of people taking innovation to a new level. Analytical and processing capabilities have also accelerated. The rapid adoption of these technologies are profoundly changing the strategic setting and modifying the configuration of competition, the functioning of companies, and, eventually, performance across

industries. Digitization sinks the entry barriers, and invites competition, from big and traditional players as well as new and small players from anywhere in the world. To be sustainable, organizations need to become fast paced, agile and responsive to their environment. It should develop an organizational culture to be able to constantly innovate and create value for stakeholders.

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IX. Defining Digital airports

Digital airport – agile an innovative organization which has a skilled engaged workforce which promotes a culture for disruption and change. It is customer centric and holds a diversified services portfolio of low cost, differentiated and transformational

experiences.

As per a report by Aurthur D. Little, an airport functioning as a Digital Airport will integrate the below mentioned technology clusters to enhance its economics by expanding capacity of existing facilities, reducing the OPEX and increasing revenues

 Flow monitoring & management

 Process automation

 Collaborative Decision Making (Air & Ground Ops)

 Intelligent Building Management

 Customer engagement

 Predictive solutions

Aurthur D .Little suggest when an airport operating as Airport 2.0 transforms into Airport 4.0 , there is optimize capacity and reduce operational cost .

Capacity increase - Airside can achieve 10% to 15% capacity increase and Landside can achieve up to 30% capacity gain.

Operational expenditure - Automation of passenger treatment processes saves up to 50% of staff and Sharing of real-time situation information for all service providers will save 10% supervision costs.

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A fully digital airport will enable more secure and stringent immigration and border control systems. It would also provide for exceptional experience for the passengers which is personalized and differentiated. The innovations happening in the airport ecosystem can be translated and used in other industries.

As discussed in the section 7 about airport industry as per Aurthur D.little airports are matured as Airport 1.0 and moving to Airport 2.0. Airports should strategically build a roadmap for transformations and achieve and sustain the efficiency level of Airport 4.0.

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X. Schiphol’s position as a Digital airport

Schiphol has started a transformation program applying digital business strategy to become a digital airport. I performed a qualitative research for digital capabilities among the world’s leading digital airport, by analyzing the information available on the internet, accessing company website, white papers etc. The data on the internet points that Schiphol Amsterdam airport is among the top airports of the world, is leading in some areas such as the usage of bio-metric technology, but it still lacks behind the world’s most awarded airports like Changi and Incheon in terms of airport intelligence there are many other airports apart from the below listed airports which are competitors of Schiphol, but these five airports were chosen for my study, as they have been

acknowledged as leaders in airport digital strategy and customer satisfaction . Excel report attached in the annexure .

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XI. Recommendation

Schiphol wants to gain competitive advantage by applying Digital business strategy. In the process of drawing a road map for Airport 4.0 or Digital airport, it should follow the Reconstructionist strategy that is transformational and adopts Hybrid strategy to

provide low cost as well as differentiated offering. To create a culture for reconstruction Schiphol needs a strong value, profit and people’s proposition (W.Chan Kim and Renee Mauborgne in their article “How Strategy Shapes Structure " ). Value and profit

proposition of Digital airport 4.0 have already been discussed above, for people

proposition, HR should adopt the role of a change agent and transform the organization culture at all the 3 levels proposed by Schien namely Artifacts, Espoused values and shared basic assumption.

Organizational transformation can be managed by the 8-Step Process for Leading Change (Kotter, 1995) as listed below:

1. Establishing a sense of urgency 2. Forming a powerful guiding coalition 3. Creating a vision

4. Communicating the vision

5. Empowering others to act on the vision 6. Planning for and creating short-term wins

7. Consolidating improvements and producing still more change 8. Institutionalizing new approaches

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XII. References

1. Marketing Management and Strategy, P. Doyle and Ph. Stern, Prentice Hall, 4th Edition 2006.

2. Paternoster J. (2007), Excellent airport customer service meets successful branding strategy

3. http://www.sita.aero/globalassets/microsites/atis-2015/insight-sessions-presentations/ian-dawkins-insight-sessiond-atis2015.pdf

4. Carsten S. & Heyns G. The Influence Of Passenger Demographics On Airport Attribute Evaluation

5. DKMA (2012), New economy things you should know about how passengers shop at airports http://www.dkma.com

6. DKMA , THE ROI OFGREAT CUSTOMER SERVICE: How satisfaction influences passenger spending http://www.dkma.com

7. Airport Council International and DKMA, ASQ Best Practice Report – Staff Courtesy, Managing waiting times

8. Jarach, D. 2001. “The evolution of airport management practices: Towards a multi-point, multi-service, marketing-driven firm,” Journal of Air Transport Management, (7:2), March, pp 119-125.

9. Magretta, J. (2002). Why Business Models Matter. Harvard Business Review, May.

10. McGrath, K. (2010). The business model canvas and the balanced scorecard.

http://businessmodelhub.com/profiles/blogs/the-business-model-canvas-and-1

11. The progression of economic value (Pine & Gilmore 1998)

http://rushkolnik.ru/tw_files/4995/d-4994348/7z-docs/4.pdf

12. https://hbr.org/1998/07/welcome-to-the-experience-economy

13. Porter, Michael E., "Competitive Advantage". 1985, Ch. 1, pp 11-15. The Free Press. New

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14. Hambrick, D, "An empirical typology of mature industrial product environments" Academy of Management Journal, 26: 213-230. (1983)

15. Dave Ulrich’s HR models (1998) 16. Edgar H. Shein 1990 MIT. 17. http://www.sita.aero/ 18. http://www.iata.org/Pages/default.aspx 19. http://www.dkma.com/en/ 20. http://www.jaarverslagschiphol.nl/ 21. http://www.munich-airport.de/de/general/newslett/index.jsp 22. http://dit.cph.dk/wp-content/uploads/2015/05/Facts-and-Figures-2014_UK.pdf 23. https://www.cph.dk/en/about-cph/press/news/#newscategoryid=&year=2015 24. http://www.changiairport.com/ 25. http://www.cyberairport.kr/pa/en/a/index.jsp 26. http://www.mckinsey.com/insights 27. http://www.adlittle.com/

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XIII.

Annexure

Competetive_Landsca pe.xlsx

Digital airports