How Airports Reach Growth Goals with Digital Transformation

GREG MILLER: Welcome to Cherry Bekaert's podcast on approving financial performance of regional hubs through commercial process technology optimization. I'm Greg Miller, the leader of Cherry Bekaert's Government Transportation Group, and joining me is Jim Holman, the leader of Cherry Bekaert's Digital Advisory Strategy and Process Group. The COVID-19 pandemic had an immediate and significant impact on airport traffic, and that impact continues today, with ACI projecting traffic to be 21% under pre-pandemic levels, equating to approximately $13 billion in anticipated lost revenue for 2022.

GREG MILLER: Consequently, many airports are looking for ways to diversify revenue streams away from passenger traffic and to improve margins within non-aeronautical revenue streams. As airports implement these strategies, they are often faced with inefficient processes or outdated systems. Today, we're going to discuss aligning an optimized process model with a technology platform and strategy. Jim, from a process and technology perspective, what's the current state of airport operations?

JIM HOLMAN: Traditionally, there's been an outsourced or partnered approach with external service providers covering much of the airport's fee-for-service revenue stream, tied to historical practices and the mindset that it's always been done this way. Much is also tied to manual, inefficient processes and outdated systems, which makes it difficult or unprofitable to bring in-house revenue sources that are currently outsourced. Examples include fixed-base operator (FBO) revenue, advertising, parking, bars and restaurants, and gift shops.

GREG MILLER: From the financial perspective, we see similar issues. The monthly close process is often extended and not fully leveraging existing systems, which results in numerous Excel workarounds. Staff pull data from one system, repackage it, filter and slice it, then another person reviews it, a journal entry is built and posted, and someone else reviews it again, creating many inefficiencies.

GREG MILLER: Even with new IT platforms in the aeronautical space, there is regulated software we must use. For example, AIP reimbursements and PFC reporting must go through particular systems, so compatibility with systems like Delphi or Source is a concern. Knowing these operational inefficiencies on the operational and financial reporting sides, Jim, why have airports been reluctant to focus on operational improvements?

JIM HOLMAN: There are four primary reasons. First, the current state of operational and financial processes is often not understood and not well defined. Second, airport business professionals tend to stay in the airport world for much of their careers, creating a closed shop. Third, inefficiencies are hard to detect when many midsize airports do the exact same thing the same way. Finally, there's a reliance on institutional knowledge, especially in accounting, and airports are generally risk averse regarding change, particularly in back-end processes and systems.

GREG MILLER: If an airport wants to optimize processes or evaluate IT platforms, what should they be doing?

JIM HOLMAN: One important approach is a business process assessment. An airport should review and understand current processes as they are, not as they want them to be, which is difficult to do internally because departments and individuals adjust their behavior. It's useful to identify pain points and areas where the team spends the most time on routine work, then determine where the airport can eliminate zero-value tasks, automate low-value tasks, and delegate tasks to less expensive resources.

JIM HOLMAN: Improving internal commercial and financial processes will always help, especially for month-end close. Airlines have also become more receptive to engagement by airports to learn about airline technology initiatives. Airlines are trying to optimize and automate processes, and there are synergies airports can take advantage of, such as self-reported data that drives invoicing and AP automation portals introduced by airlines.

GREG MILLER: What types of technologies have airports typically been investing in, and what impact have those investments had on operational effectiveness?

JIM HOLMAN: Most technology dollars have been geared toward customer experience or security initiatives. Allocating funds to internal efficiencies or insights to better manage operations has also impacted customer experience, particularly through data and analytics. Other investments include more advanced core financial solutions or ERPs with open interfaces, airport property and revenue management solutions that reduce internal billing effort, and enterprise asset management (EAM) solutions that streamline asset management, maintenance, ticketing, and FAA-mandated reporting.

JIM HOLMAN: FBO solutions that automate general aviation billing, revenue recognition, and cash management of fuel and aviation service revenues can be helpful, especially given the high-volume, small-dollar "one-and-done" FBO transactions that have traditionally resisted automation. Human capital management solutions can streamline payroll processing, protect employee confidentiality, and assist with recruiting, onboarding, and retention—critical during the current labor shortage.

GREG MILLER: When airports decide to implement technology to gain efficiencies or better manage operations, what emerging technologies should they consider and how should they approach selection?

JIM HOLMAN: Start with the foundation and consider technology that accelerates improvements in core processes rather than chasing trending technologies. Perform the blocking-and-tackling work first. Airports can perform software identification and evaluation projects internally or hire an outside firm to source solutions that address process needs. Specifically, evaluate recent advancements in ERP, property and revenue management solutions, and security and access control.

JIM HOLMAN: Integration is huge because mismatched pieces of technology are common. Have the IT department take ownership of connecting technology components to reduce burden and cost for outside service providers. Finally, implement BI and data analytics on top of integrated solutions to assess data and gain insights like never before.

GREG MILLER: What are best practices for aligning process improvements with technology platforms to achieve the airport's future state?

JIM HOLMAN: Start with an IT strategy and organizational assessment to identify resource capacity and skill gaps within the IT group before choosing solutions. Engage IT early to determine current skills, alignment to objectives, and readiness to learn new skills needed for the future state. Labor shortages and IT turnover are highly disruptive to achieving future-state goals and optimizing processes, so enabling IT to extend the skills of current employees is critical.

GREG MILLER: Some listeners might think you're advocating for insourcing when the broader trend is to outsource. What areas should airports consider insourcing versus outsourcing?

JIM HOLMAN: Use a litmus test: consider insourcing fee-for-service revenue streams if the airport has the technology platforms to support automated transaction processing, especially for self-reported billing data elements. Many fee-for-service charges are driven by tenant- or customer-triggered self-reported data; insource those streams if you can automate the transactions. Needed platforms include a cloud-based ERP with open APIs, a property and revenue management solution, and integration capabilities such as an integration platform as a service (iPaaS).

JIM HOLMAN: Candidates for outsourcing are internal services that do not materially improve the passenger experience and can be integrated into the airport's core technology solutions. Do not outsource a service if doing so creates additional manual effort to support the outsourcing; sometimes outsourcing an internal function increases inefficiencies, so those functions should remain in-house.

GREG MILLER: Thank you, Jim, for sharing your insights on digital advisory. I look forward to hearing your presentation on process optimization at the AAAE Southeast Chapters Finance and Administration Conference in February. Both Jim and I are excited to see everyone back in person in Daytona Beach this coming February. In addition to attending Jim's presentation, please stop by our table at the registration and break area and introduce yourselves.

GREG MILLER: Disclaimer: Cherry Bekaert is not providing accounting, financial reporting, or tax advice on this podcast. Please consult with your accounting or tax advisors or Cherry Bekaert for more guidance. For more information about digital advisory or any topics that impact your airport, visit our Cherry Bekaert website at cbh.com.