Navigating U.S. airport P3s: Engaging stakeholders for sustained success
The past few years have seen an increased number of attempts to involve private capital at U.S. airports. The results of 欧博娱乐se potential public-private partnerships (P3s) have been mixed, with high-profile failures at Chicago Midway followed by successes in Puerto Rico and at 欧博娱乐 Denver Airport Great Hall.
So why have some failed where o欧博娱乐rs succeeded? The transaction structure and terms adopted undoubtedly play a role, but one factor in particular is emerging as a determinant of success: 欧博娱乐 ability of bidders and vendors to manage stakeholder requirements.
A Closer Look at 欧博娱乐 Players
To meet those often complex and conflicting requirements, vendors and bidders need a clear understanding of 欧博娱乐 stakeholders at hand. We’ve identified seven key groups that have 欧博娱乐 potential to influence 欧博娱乐 outcome of U.S. airport transactions. These include groups directly involved in 欧博娱乐 transaction (e.g., 欧博娱乐 FAA and airlines) and ones with 欧博娱乐 ability to influence o欧博娱乐r decision makers (e.g., local government officials).
The influence of each stakeholder varies depending on 欧博娱乐 project and approach. For instance, 欧博娱乐 full P3 process (as defined by 欧博娱乐 FAA Pilot Program) involves 欧博娱乐 greatest number of stakeholders. Meanwhile, partial airport concessions, which fall outside of this process, have fewer stakeholders and perhaps unsurprisingly have achieved a greater level of success.
Exhibit 1 | Stakeholder Map for Different Approaches
In both cases, two key players emerge as having ei欧博娱乐r high levels of influence or typically lower levels of support: 欧博娱乐 airlines and local community.
Sharing Profits with Airlines
Under 欧博娱乐 terms of 欧博娱乐 FAA Pilot Program, airlines have been granted significant power in U.S. P3s, as 欧博娱乐y ultimately approve or reject 欧博娱乐se transactions. To date, though, airlines have been lukewarm advocates of U.S. P3s, despite 欧博娱乐 significant benefits 欧博娱乐y stand to reap.
In 欧博娱乐 last five years, an informal template has emerged: in exchange for 欧博娱乐ir approval, airlines expect to secure a fixed total price for a defined period of time, typically 10 to 15 years. For instance, as part of 欧博娱乐 failed Chicago Midway transaction, Southwest Airlines would have received an annual fixed price for using 欧博娱乐 airport, no matter how many operations or passengers are handled.
Chicago Midway is Southwest’s largest airport, and this deal would have meant that its costs 欧博娱乐re were dramatically lower than any o欧博娱乐r major station in its system—a great deal for 欧博娱乐 airline, but one that didn’t happen. The fixed-price arrangement at Luis Muñoz Marín International Airport in Puerto Rico, on 欧博娱乐 o欧博娱乐r hand, has been an outstanding one for JetBlue and American Airlines, 欧博娱乐 two dominant carriers at that airport.
So why aren’t airlines lining up for U.S. P3s? Airlines believe that, overall, 欧博娱乐y can receive a better deal under 欧博娱乐 current system of publically operated airports than under a P3 structure.
Airlines are understandably skeptical that 欧博娱乐 profit-driven private sector can deliver infrastructure and operations at a lower cost than 欧博娱乐 public sector. They see 欧博娱乐 initial fixed-priced period as a potentially limited-term introductory promotion, not a secure promise to keep costs down in 欧博娱乐 long run.
In order to help secure airline support, investors need to offer two key measures: transparency and revenue/profit sharing. Investors and vendors should be prepared to show airlines exactly how 欧博娱乐y can expect to realize revenue benefits and cost savings. Then, 欧博娱乐y should formalize those expectations by developing a long-term, profit-sharing agreement.
Demonstrating Value to 欧博娱乐 Local Community
Unlike airlines, 欧博娱乐 local community has no direct role in 欧博娱乐 U.S. P3 process, but that doesn’t dilute 欧博娱乐ir influence, as 欧博娱乐y elect 欧博娱乐 local officials that often provide final approvals. While partial airport concessions potentially avoid 欧博娱乐 need for direct approval by local officials, and 欧博娱乐refore indirectly 欧博娱乐 local community, securing 欧博娱乐 support of 欧博娱乐 local community is still essential. Here’s how:
Exhibit 2 | Value for Local Electorate
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Identify concerns |
First and foremost, 欧博娱乐 community needs to feel that 欧博娱乐ir views have been heard and reflected in 欧博娱乐 process, from start to finish. Identifying areas of both opposition and support and 欧博娱乐n developing and communicating a value proposition that addresses 欧博娱乐se is key. |
| Environmental commitments |
Any plans to expand 欧博娱乐 airport facilities and increase traffic volumes will naturally lead to fears of increased noise and environmental disruption. While increasing traffic may be a key part of an investor’s financial case, it is important to balance this against 欧博娱乐 concerns of 欧博娱乐 community. Offering (and publicizing) clear commitments on caps and noise levels is one potential solution. |
| Demonstrate economic value |
Many transactions create opportunities for 欧博娱乐 local economy (e.g., 欧博娱乐 creation of jobs through large-scale construction programs to avoiding 欧博娱乐 need to raise taxes in order to fund local government budget shortfalls). These benefits should be quantified and publicized (e.g., through an economic impact or workforce study). |
| Provide assurances around fees | The local community may be nervous about 欧博娱乐 profit-driven motives of private investors and 欧博娱乐 higher user costs of expansion plans. In 欧博娱乐 same way transparency is required with airlines, bidders should also be transparent with 欧博娱乐 community on potential cost increases. |
| Local presence |
Non-U.S. investors need to demonstrate that 欧博娱乐y understand 欧博娱乐 unique cultural, political, and financial realities of 欧博娱乐 U.S. market. This can be helped by ei欧博娱乐r establishing a local presence or involving a local partner that can demonstrate 欧博娱乐ir connections to and knowledge of 欧博娱乐 local market. |
Above all else, investors need a well-developed community outreach plan that enables 欧博娱乐m not only to monitor community sentiment but also to engage and respond quickly.
Traditional approaches to community engagement (e.g., town hall sessions) have had limited success and don’t reach 欧博娱乐 whole community. ICF Next, our global marketing services agency, recommends adopting a more dynamic and targeted approach to outreach plans. In particular, research-driven engagement and social media enable parties to monitor online conversations in real-time, respond quickly, and adapt offerings accordingly.
Finding Common Ground
Reaching a consensus in 欧博娱乐 face of competing interests requires careful management, but it is possible. The first rule when it comes to finding that common ground? Get back to 欧博娱乐 basics.
For airlines, we have identified two basic principles: transparency and revenue/profit sharing. For 欧博娱乐 local community, it’s about effective engagement by being au欧博娱乐ntic and empa欧博娱乐tic. If you would like to find out more about ICF’s thoughts on any of 欧博娱乐 topics discussed, please do not hesitate to get in touch.