Robust business cases optimise aviation assets and unlock hidden potential, says EC Harris head of transportation Mark Prior
Increasingly business cases are often rushed and based on unsubstantiated evidence and incorrect data. In many cases this can lead to substantial financial shortfalls throughout the airports life cycle and periods of ownership.
The need to ensure that financial risk is understood, planned and managed is the key to sustainable ownership models and structures, especially in times of economic uncertainty. However, we often find that even though robust business cases underpin any aviation development, insufficient consideration is given from the outset.
Creating, implementing and managing business plans Traffic growth and passenger-type projections are often unreliable, and the actual number and type of passengers may deviate greatly from that forecast.
However, these forecasts still remain the underlying basis upon which business cases, decisions and financial acquisitions are generally made. As a result the investors’ expectations of the business are rarely achieved.
The Institution of Civil Engineers has recently unveiled four scenarios facing the aviation sector in the next 30 years; each having an impact on passenger numbers.
Matching demand with development through the construction of a visionary business plan is essential to ensuring forecasted and anticipated returns from aviation assets.
Getting this right will ensure optimisation of investment. Meeting strategic objectives The key components that should be embedded within any plan include:
- Government and political ambitions
- Traffic growth forecast and market demand analysis
- Owner and operator ambitions
- Asset conditions and the environmental impact
- Availability of capital, revenue and operational financing
- Maximising aeronautical and non-aeronautical income streams.
Effectively incorporating all inter-related factors will create a sustainable airport model that is built on targets that are both realistic and reflect local market drivers.
Robust capital, operational and revenue expenditure It is important to recognise that capital delivery and commitment is only one of the tools available to aviation asset owners. Getting the strategic approach to the assets right, which needs to be planned, managed and understood, will ensure the robustness of capital, operational and revenue expenditure, as well as optimising income streams.
Scenario planning and testing associated with changes in passenger forecasts will match passenger demand with the development need of the asset. This effectively determines the optimal time to invest, providing financial certainty for both operators and owners.
Maximising income and optimising cost Airports that analyse aeronautical and non-aeronautical income streams and link this back to traffic forecasts and facilities planning, will create airport environments that maximise income, optimise cost and generate sustainable socio economic benefits to the community.
- Mark Prior is head of transportation at EC Harris