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1 August 2017

Are Airports Capitalising on the Tourism Boom?


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Are Airports Capitalising on the Tourism Boom?

Image of plane on tarmac for tourism article

By Tom Chirnside, Senior Director, Growth Capital 

Australia has seen a huge influx of Asian tourists over recent years as overseas travel becomes affordable to the region’s fast-growing and increasingly affluent middle class. Yet sadly for the nation’s air transport industry, financial constraints and capacity issues could prevent service operators from making the most of this tourism boom.

Tourism surge

The rise is Asian tourists arriving in Australia’s airports I expected to continue over the coming years, creating a higher demand for better airport services.

Over the last financial year, more than 123 million passengers moved though Australia’s eight capital city airports. By 2020 this figure is expected to rise to more than 140 million, predominantly driven by tourists from China and surrounding areas.

To meet demand, airports and flight carriers need to think strategically about how they plan to take advantage of the tourism boom or risk losing revenue to other countries.

I’ve talked a lot about technology in some of my previous articles, and it’s an issue that no organisation is immune to. Yes, technology can provide a huge opportunity for growth, but it can also require large amounts of capital, and this is only one aspect that airports need to pay for. Regulation changes and security, to name but a few aspects, can also be very capital intensive. As a result, forecasters expect a modest 2.3 per cent annualised growth until 2022.

Overcoming growth barriers

The sector is among the most capital intensive in the economy, with just 40 cents spent on wages for every dollar of capital outlay. These capital requirements are only likely to become more restrictive as innovations in automation, air traffic control and security infrastructure become more costly, while having shorter life cycles before being superseded.

With growing cost pressures from technological obsolescence and regulatory requirements, airport operators are expecting increased traffic to place the greatest strain on capex budgets. This rising demand will require operators to invest in a range of infrastructure such as runways and terminals, to minor assets such as lighting, seating and CCTV, much of which will require years of planning and long build times.

Should airports decide not to invest, tourists will begin to look to other destinations for their holidays, and will lose out on millions of revenue.

With the impending development of Western Sydney airport, investment has already begun, however, it’s been speculated that the airport won’t be up and running for another decade. What’s the plan for Australia’s airports to take advantage the tourism boom now or in 12 months’ time?

Alternative funding options

Currently, using alternative capital solutions to fund airport infrastructure and equipment is still relatively unconventional. A strange idea, especially as businesses and consumers alike move towards a ‘shared economy’ – where managed services are becoming more ingrained in the everyday business environment – and away from ownership.

Isn’t it time that airports do the same?

New Zealand is already leading the way when it comes to investing in tourism. Fall behind now Australia and you may not be able to compete so well for the tourist dollar in the future.

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