Incorporating Shock Events into Aviation Demand Forecasting and Airport Planning (2024)
Chapter: 13 Step C: Scenario Implementation (or Stress Testing)
CHAPTER 13
Step C: Scenario Implementation (or Stress Testing)
Evaluating Robustness
The next step in the process is to evaluate how the airport business would cope and respond to the scenarios previously developed. The scenario planning literature sometimes refers to this as “wind tunneling.” In design and engineering, wind tunnels are used to test the aerodynamic performance of an object (e.g., a wing, airplane, car, or building). In the context of scenario planning, the scenario forecast is the wind tunnel, and it is the airport plans and business that are being tested, as described by van der Merwe (2008).
Scenarios represent the different future conditions within which the strategy, business model or other decision must fit. Wind tunneling is used to test decisions for robustness and for exposing opportunities and risks. An important additional benefit of wind tunneling is that the leadership engaged in wind tunneling are continually adjusting their assumptions as they enter the different worlds described in each scenario. As leaders check their decisions or business mode in the various scenarios, they are often required to adjust their thinking based on evidence of flawed assumptions. This process is filled with critical learning opportunities in the scenario-based strategy framework and draws highly on constructivist learning principles.
Note: Constructivism is the theory that individuals construct new understandings and knowledge through experience and social discourse, rather than passively receiving information.
In the context of airports, this involves evaluating how the current airport plans and strategy would be impacted by the shock event and whether it has the tools and flexibility to mitigate or exploit the situation. Moving beyond the traffic aspects of the shock event, this can encompass a range of functional groups including (but not limited to) the following areas.
Planning
The master planning and general development of the airport are heavily guided by expectations around traffic development. In light of the traffic forecast generated for the shock event scenario, consideration can be given to the questions suggested in the following list.
- Are the current plans (or the plans being developed) able to accommodate the traffic implications of the shock event during the event and its aftermath?
- What areas of the plan may be challenged by the shock event?
- Does the plan have sufficient flexibility to allow for modification or adjustment? For example, can it be completed or adjusted incrementally to deal with substantially slower growth or accelerated to accommodate faster growth or changes in traffic mix?
- What aspects of the plan might hamper the ability to respond to the shock event?
- Does the plan allow for meaningful shedding of operating and capital costs when faced with a sustained traffic decline?
- Does the plan include development of nonaeronautical revenue sources to provide financial resiliency in the event of significant traffic decline? Are these sources of revenue traffic-dependent, or are they more sustainable through a crisis?
Finance
The implications for the finances of the scenario forecast and measures that are in place to address impacts should also be considered. As previously documented, the COVID-19 pandemic had a major impact on both aeronautical and nonaeronautical revenues and led many airports to take cost-reduction measures. U.S. airports were able to utilize the grants and debt access available in the 2020 CARES Act and subsequent acts, but such support might not be available during and after other shock events. Issues that may need to be considered include the following:
- How will revenues and costs be impacted by the scenario forecast during the event and afterward?
- If revenue declines are expected, does the airport have sufficient reserves, access to finance, or a diversity of revenue sources that would allow it to weather the shock? What cost-reduction measures can be put in place (may need input from other departments)?
- If the airport needs to accelerate development plans or make new investments, is it in a position to do so (i.e., given current debt loads)? Are contract provisions for capital projects flexible enough to allow postponement or cancellation if there is a shock event?
- Are capital expenditure projects modular, allowing for small commitments during the project, or contracted for an entire major project?
- What level of government support can be expected, if any? Airlines and airports received direct support during the COVID-19 pandemic, but not all events may have this safety net, nor may the government be capable or willing to provide the same magnitude of support for another event.
- Does the business plan provide access to liquidity in times of crisis, e.g., are there sufficient cash on hand and reserves to comply with bond covenants?
Marketing and Commercial Activities
The impact on and role of these departments may also need to be considered. The strategies for airline marketing and route development may help mitigate some impacts of the shock event, or the event may present new opportunities, such as the ability to attract new carriers. Will marketing efforts include developing incentives to restore traffic or take advantage of new opportunities? The shock event could have implications for commercial activities such as retail, parking, real estate, and car rentals, all of which are linked to finance as well. For example, the entry of a new LCC or ULCC may change the spend rate of passengers and the retail, food, and beverage offerings they are seeking.
Operations, Safety, and Security
The implications for the safe and secure operation of the airport are always a priority. Consideration can be given to whether the shock event results in new security or health requirements or whether the advent of new aircraft technology will materially change operations (with implications for facilities and planning). There could also be human resources implications such as the need for recruitment to develop new skill sets.
Community/Stakeholder
Airport stakeholders, both inside (e.g., tenants, concessionaires, ground handlers, freight forwarders) and outside of the airport may be impacted by the traffic changes in the scenario
forecast. Consideration needs to be given to what these impacts may be and what role the airport has in communicating with and managing these stakeholders. For example, the entry of a rapidly growing new carrier could raise activity and noise levels around the airport, leading to difficulties with the local community. Another consideration is business partners. During the COVID-19 pandemic, airports sought to provide relief and work in partnership with tenants.
Complete Coverage
Beyond the groups already mentioned, it is also important that all relevant aspects of the business are covered. While many airports are dominated by passenger air services, the impact on and role of cargo; GA; aircraft maintenance, repair, and overhaul; and other aspects of the airport business may also need to be considered.
The Engagement Process
The process by which the airport is evaluated against the scenario forecasts needs to be established. The recommended approach, drawing upon scenario planning literature, is in-person workshops whenever possible. This allows for open and free-flowing discussion of the issues and enhances engagement with the topic. As noted previously, the commitment of time by multiple participants may not be possible. In this case, the use of online video chats, surveys, email, or document exchanges will still bring about significant benefits.
A key aim of the exercise is to stress test the airport’s plans. Therefore, there is a need to honestly assess the plans and not seek to protect existing ideas and work.
Before the workshop, information can be sent out to the participants to introduce the scenario planning exercise and possibly to conduct some initial analysis on the forecast data. For example, the finance group could prepare an analysis of the expected impacts of the traffic forecast on airport finances, although this is not a necessary precondition of the exercise.
The workshop should start with explaining the goals of the exercise and summarizing the work to date, including an overview of the scenario forecasts. Each scenario forecast is then presented in more detail followed by a discussion on the implications for the airport. Where there are participants from different departments, they can be put in the role of decision-maker for that area and consider how they could respond and what tools they currently have available to them. Key questions for participants to consider are included in the following list.
- What sort and scale of impact will the scenario forecast have on their department or decision-maker?
- What warning signs for the event might there be? Are there early signals that the airport could monitor to ensure that it is ready if the event does occur?
- What aspects are expected to hold up well against the scenario forecast?
- What aspects are expected to be most problematic or in need of attention?
- What contingencies or tools are in place that would help manage the impacts of a shock event?
- Which contingencies or tools would need to be in place to better manage the shock event, and why are they not available (or what is needed to make them available)?
- Would being in a position to better address the shock event require fundamental changes to the airport plans or strategy? If not, why not?
A key aim of the exercise is to stress test the airport’s plans. Therefore, there is a need to honestly assess the plans and not seek to protect existing ideas and work. In some cases, there may be a tendency to be emotionally invested in the current plans and so be unwilling to consider
potential weaknesses or shortcomings. The moderators need to make clear that the process is about enhancing robustness and resilience, thereby enhancing current plans, and not about tearing down or critiquing previous work.
If time and resources allow, another approach to stress testing the plans is to assign a red team or devil’s advocate team whose primary goal is to identify problem areas or weaknesses in the plan when faced with the scenario forecast. As discussed in Part II, red teaming is an approach developed in military planning to identify vulnerabilities and has been used by the TSA to assess security screening. The process should be one of dialogue, challenge, willingness to critique ideas, and ultimately to devise better solutions and mitigation strategies to potential shock events. Participants should feel comfortable to engage in conversation and open to having their ideas challenged by participants. As with Step A, the moderator needs to ensure all voices are heard and that contrarian views are given a platform.
Simplifying the Process
The use of a facilitated engagement process involving multiple departments may not be possible for all airports. As noted previously, simplified approaches can be deployed instead, such as using online interactions or surveys. For smaller airports, it may be sufficient for a small group or even a single individual to list implications for the airport and share them with relevant stakeholders for confirmation (or challenge) and additional insights. Incorporating multiple viewpoints is a critical element of this process, but the amount of time and commitment from stakeholders can be reduced to ensure their involvement and to match available resources.
Outcome
By wind tunneling or stress testing the airport against the scenario forecasts, the exercise in Step C will identify areas of weakness in current plans and strategy (as well as areas of strength) and point to remedial options to be explored in Step D.
