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De-risking growth in the airports sector

UK airports suffered tremendous disruption throughout the pandemic, so how are they driving growth?
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By Zoe Parkes , 

Recovery and Restructuring Practice Leader, UK

22/03/2023 · 4 minute read

UK airports suffered tremendous disruption throughout the pandemic. Oscillation between restriction-free movement and stringent lockdowns stunted international travel and induced a challenging period of cash-flow troubles and prevailing uncertainty. Over two years on, business is bouncing back for the sector - faster than some had predicted. While footfall hasn’t quite reached pre-pandemic levels, terminal passenger numbers for 2022 were up +244%[1] year-on-year. Demand for aviation continues to rise, as global markets reopen and holiday-makers prepare for the approaching summer season. Airports are responding with ambitious and innovative plans to increase passenger numbers, schedule more flights, and relaunch long-term renovation and expansion projects. Following the immense adversity faced by the sector, it is imperative an evolving risk environment is incorporated into airport growth strategies.

How are airports driving growth?

Terminals need to accommodate projected increases in passenger volumes. Subsequently, airports face outgrowing their facilities. Expansion, renovation, and even new-build projects are therefore highly probable to accommodate growth plans. Proposals for new runways are also likely to be discussed during strategy meetings, particularly if current infrastructure is unsuitable for busier flight-schedule projections. However, capacity expansion is not the sole objective. Many operators are considering how to enhance the end-to-end customer experience throughout the airport. Customer demand for premium services is leading some operators to offer parking and luggage assistance bolt-ons to boost revenue. Digitalisation and process optimisation will be a value differentiator amongst competitors, with the latest technological advancements promising to improve wait-times and transform long-standing security restrictions.[2] Resultantly, passengers will spend more time in the concessions area, and operators are presented with an opportunity to capitalise by boosting food and retail sales. Ensuring that a range of new, varied, and popular outlets are available for passengers of all ages is therefore a key growth driver; and increasingly vital for customer satisfaction.

Understanding your risk profile

Taking advantage of progressive market developments in the sector could enable effective growth targets. However, a sudden burst of activity at this nascent stage of recovery could expose airports to unexpected risk events:

  • New runways could be at risk of under-utilisation if airline partners do not have the appetite to increase their schedules following economic difficulties.
  • Significant capital is tied up in expansion projects, which are commissioned on the basis that target passenger numbers will be reached. If dwindling business travel and the cost-of-living crisis materially reduce demand for services, airports could suffer long-term financial consequences of ‘paying off’ the physical development of their site.
  • Conversely, large volumes of passengers passing through a terminal under construction could increase an operator’s third-party liability risk in the event of a health and safety incident.
  • Ensuring that the workforce is appropriately sized and trained to scale up operations is also critical to avoid staff shortages and disruption seen in 2022.
  • The retail industry experienced the second-highest number of insolvencies last year, worsening an airport’s risk of revenue loss and reputational damage if on-site retailers shut down.[3]
  • The sector’s digital transformation heightens airports’ cyber risks of ransomware, data theft, and even terrorism.

Understanding your evolving risk profile is crucial to safeguarding your business and preventing avoidable large claims. Marsh can support with the following activities and more, to help airports bolster resilience in the current, dynamic risk landscape:

  • Remain agile to emerging macroeconomic and geopolitical events and model potential impact on business
  • Prepare for uncertainty and disruption with business interruption reviews and business continuity planning
  • Analyse cyber risk exposure, and cyber maturity, and assess the protection of digital assets
  • Implement strategic and operational workforce resilience measures
  • Evaluate environmental, social, and governance (ESG) strategy and climate resilience
  • Incorporate learnings of the last 2-3 years into sustainable risk management planning
  • Review the risk financing programme to ascertain whether cover remains consistent with risk appetite
  • Consider whether new risk transfer mechanisms – such as parametric insurance – would be suitable for your business

[1] UK airport data | Civil Aviation Authority (caa.co.uk)

[2] Passengers to benefit from biggest shake-up of airport security rules in decades - GOV.UK

[3] Company Insolvency Statistics October to December 2022 - GOV.UK

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