TAV Airports
TAV Airports targets new trajectory as travel returns
In this Q&A we speak to Franck Mereyde, newly appointed Chair of TAV Airports’ Executive Management Committee, about recovery, strategy and performance at the Turkish airports group.
Introduction: Deputy CEO of powerful Turkish group TAV Airports since 2017, Franck Mereyde was recently appointed as Chair of the Executive Committee and an Executive Board Member. The move comes amid other senior changes at the Groupe ADP company, as long-standing Chief Executive Sani Sener retires (though he remains as Deputy Chair) and as Serkan Kaptan is named CEO. The company changes occur against the backdrop of an encouraging traffic recovery in TAV’s key markets, led by Turkey, its home market. Significantly, a surge in inbound tourism to the country lifted passenger numbers beyond 2019 levels at major TAV Airports locations in April. Crucially, state airports authority DHMI has forecast that passenger traffic at Turkey’s airports will recover to 93% of 2019 levels in 2022 (86% for international traffic), and 104% in 2023 (95% for international). In this interview, Franck Mereyde (who began his career with Groupe ADP at Paris CDG in 2005) talks about strategy, the role of commercial and the big projects ahead.
“We will amplify even more our focus on customer experience, sustainable growth with new ambition for zero-carbon emissions, and digitalisation”
Chair of TAV Airports’ Executive Management Committee Franck Mereyde
The Moodie Davitt Report: What are your strategic priorities and those of your senior team at TAV Airports today? How do these align with the wider Groupe ADP strategy for recovery and expansion?
Franck Mereyde: During the last two decades, TAV Airports achieved sustainable growth and established a portfolio of 15 airports in eight countries. It has a unique business model, which enables the company to provide services at every step of the passenger journey, through its service companies. The strategic shift back in 2014 allowed these subsidiaries to grow beyond the airports in TAV’s portfolio, and looking back, coupled with organic and inorganic growth, it has been an incredible success. Today, the global footprint of the group reaches 90 airports in 29 countries. We focus on three areas of growth. We work hard on marketing our airports and increasing connectivity to improve organic growth. We also always look for profitable inorganic growth opportunities. In regards to this, in 2021 we added Almaty to our portfolio and extended our Antalya concession to the end of 2051. Service companies are also instrumental in achieving incremental growth and providing opportunities for deeper involvement in a given airport.
As the new senior team, our goal will be to build on the impressive achievements of the past and continue growing the company in accordance with the new environmental and social challenges. This is fully aligned with the wider Groupe ADP strategy, as we have defined a single common ambition to imagine the sustainable airports of tomorrow. It was already in our DNA, and we will amplify even more our focus on customer experience, sustainable growth with new ambition for zero-carbon emissions, and digitalisation.
How do you see the prospects for the return of travel in 2022 and what are your projections for traffic across the TAV estate?
When the pandemic hit back in 2020, our priority was to secure the health of our employees and passengers. We quickly adopted the precautions at our airports and diligently implemented the new standards required by the health authorities at international and national level. Secondly, we moved to secure the financial health of the company, through a stringent costs savings programme and we applied for force majeure compensation vis-à-vis aviation authorities to compensate for the loss of traffic due to the pandemic. In terms of traffic, our forecasts were in line with the recovery of the industry on a global level. We estimated that O&D traffic would recover faster than transfer, domestic would recover faster than international, and tourist traffic would recover faster than business. In the end, thanks to our diversified and balanced portfolio, we managed to stay ahead of the recovery curve and in 2021, our total traffic stood at 58% of 2019. This year, our expectation is to serve 71 to 76 million passengers across the TAV portfolio –of which 40 to 44 million will be international traffic. We expect full passenger recovery in 2023.
TAV OS is a key contributor to TAV Airports’ ambition to improve hospitality across its own airport network and with other airport partners (Primeclass at Muscat Airport pictured)
How are you factoring in the continuing impact of COVID and the current impact of the Ukraine-Russia crisis into your budgeting for this year?
As COVID related restrictions are lifted across most of the globe, we expect the recovery of traffic to further converge with 2019 levels. We are closely following the tragic humanitarian crisis and related political and economic developments brought by the Ukraine-Russia war. In 2022, Turkish traffic so far is very strong for all of our major source markets except for Ukraine and Russia with Antalya preliminary April international traffic showing a decline of -7% versus 2019. We have started to reap the benefits of diversification efforts in Turkish tourism. Although there is a marked decrease in our Russian and Ukrainian guests, other source markets have made up for most of the lost traffic so far in April. Germany is +25% above 2019, UK is +67% above 2019, Iran is +41% above 2019 and the remaining source markets are +8% above 2019. IATA data show that despite increasing jet fuel prices, international traffic stays resilient for now. Therefore, we are keeping up with our previous projections for 2022, while keeping a close eye on the developments. In terms of financials, with significant international passenger recovery, ongoing cost control and the addition of Almaty we reached 88% of our 2019 Q1 EBITDA in Q1 2022.
ATÜ Duty Free, the partnership between TAV Airports and Heinemann-led Unfree Duty Free, is in prime position to benefit from the resurgence of Turkish traffic (Luxury Square at Istanbul Airport pictured)
How do you see the evolution of duty free, food & beverage and other services for the group?
For our service subsidiaries, we have a new strategic orientation in place since 2014, when we moved to grow our service offer beyond the airports managed by TAV. This move has been a success and the global footprint of the company extended to another 75 airports in addition to the 15 that are operated by TAV. TAV Technologies and TAV OS are spearheading this expansion, providing airport IT and hospitality services – including lounge operations. BTA and ATÜ Duty Free are also quite active with F&B and duty free offerings while Havas recently gained pace in international expansion by taking over ground handling services in Zagreb. Our business model enables us to gather and consolidate data covering each and every step of the passenger experience. This ability in return helps us to respond quickly and innovate to meet the changing expectations of our passengers. We see the passenger experience as a whole and in order to grow non-aeronautical revenues, it is imperative that all stakeholders collaborate. Digitalisation of processes and services is key here, and the last two years immensely sped up this trend. We are closely monitoring the level of passenger satisfaction through programmes like ASQ (Airport Service Quality). In the end, there is a strong correlation between happy passengers and spend.
BTA Catering, in which TAV has a majority share, operates a range of high-class airport outlets, including at Istanbul Airport
What is the plan to expand the reach of TAV OS and other service providers in which TAV Airports is a shareholder? How can you do this by using the global reach of Groupe ADP?
As a member of Groupe ADP, we will be creating stronger synergies and further consolidating our offer in services in the coming years. The group has a common ambition and innovation and hospitality lies at the core of this ‘One Group’ approach. It provides us with a global platform, including 29 airports all around the world. TAV has highly qualified teams who will strongly contribute to the services offer of the group as well. Regarding duty free and F&B, we are using the combination of our companies’ skills with the very successful experience of Groupe ADP in Paris. We are also used to managing JVs with strong partners to match the local needs and provide the best offers like in Latin America or in France for our lounges and hospitality business.
What are the priority projects for 2022 across your airports?
In 2022, the target across our portfolio is to closely follow the revamp of traffic and adapt our services to meet the demand, with the high level of efficiency we achieved in the last two years. Our investments in Antalya and Almaty have begun. These are two flagship assets in our portfolio, which proved resilient throughout the recent crises, and are expected to contribute strongly to TAV in the long term. Both airports will have brand new terminals, which will showcase our best offers in hospitality. Therefore, we will be focusing on developing these projects, exploiting the extensive resources and know-how of the group.
How have you worked with partners to mitigate the impact of the past two years? Can you do more to support those partners at a time when cash retention remains a big challenge?
Our portfolio consists of concessions – except for Almaty. We have applied for force majeure compensation vis-à-vis aviation authorities to compensate for the loss of traffic due to the pandemic which resulted in extensions and rent relief. Accordingly, as we reach agreements, these measures benefit all our stakeholders. It has been a very trying period for all industry stakeholders and since the beginning, we had an approach to share the burden with our partners whenever possible.
The acquisition of Almaty Airport in 2021 has buoyed revenue and profits for TAV Airports
TAV continues to seek expansion for its services companies; ATÜ Duty Free at Carthage Airport pictured
Where is TAV Airports on the digital journey, and what initiatives are you taking to connect better with travellers today?
On the backdrop of the COVID crisis, digitalisation efforts gained prominence for all businesses. Our strategy has three main pillars. First, thanks to the maturity of digital tools within the company, we were able to switch to distance working swiftly and stayed connected. Today, we benefit from the experience of the past two years to implement a hybrid system, to retain and develop talents and to increase connectivity regardless of time and place. Second, we were able to further digitalise the passenger journey at our airports. The immediate benefit was to reduce human contact and increase touchless processes for safety. Now, as the pandemic loses steam, we are able to provide better passenger experience thanks to the adoption of digital applications. Touchless security checks, self check-in, digital menus at F&B points, a 360-degree approach to informing passengers of the latest developments in a fast changing environment using TAV Mobile app, websites and social platforms all gained prominence. Third, our IT subsidiary TAV Technologies produces products and services covering all the needs of an airport. An example is that in Izmir we implemented queue management software which can monitor, alert and suggest options to optimise waiting times, resulting in increased passenger satisfaction and operational efficiency. Therefore it’s a two-fold approach – using digitalisation we aim to create happy passengers while benefiting airport operators and stakeholders. These efforts are also an area of priority within our ‘One Group’ approach with Groupe ADP. Just before the pandemic, we had jointly organised the Airport Start-Up Day in Paris and Izmir. The idea is to create a larger platform of innovation, in collaboration with stakeholders, to imagine and shape the future of airports. Even during the pandemic period, we have invested a lot with TAV Technologies in new generation software for airports, including artificial intelligence and IoT tools. We have strengthened TAV Technologies with more than 100 developers and partnerships with universities, labs and start-ups. Now, our road map is to develop these solutions to support our airports and the airports of our partners.
“The group has a common ambition and innovation and hospitality lies at the core of this ‘One Group’ approach”
Chair of TAV Airports’ Executive Management Committee Franck Mereyde
Can you outline strategy to expand TAV Airports’ reach to new airport contracts? What are the geographical priorities?
Our goal is to continue growing in a sustainable and responsible fashion. Our target geographies cover the MENA region, Eastern Europe, CIS countries, the Caucasus, and Central Asia. These are all developing regions, where growth will happen. Regarding our service companies, with full new-generation software in various languages and improved on our airports, TAV Technologies is targeting all airports. TAV OS is also extending its footprint all around the world for hospitality and lounge services, usually with partners. Aviation is one of the two drivers of globalisation –together with IT. The latter enables the free flow of information and capital, and the former enables the free flow of people and goods. While we see the rise of reactions against globalisation these days, in the longer term the trend will continue. And we would like to focus on the developing markets, where the middle class will grow and increasingly connect to the rest of the world. As part of this strategy, recently we have been following opportunities in many places including Montenegro and Nigeria.
What are the biggest challenges facing the business in 2022?
In the short term, the risks related to political instability exacerbated by the Ukraine-Russia war and the risk of a recession due to rising inflation are the two issues, which may hinder the pace of recovery following COVID. On a bigger scale, the single most important challenge is decarbonising the economy as a whole, and the aviation industry specifically. Protecting the planet is a moral and business imperative for all of us. As TAV Airports, a member of Groupe ADP, we already have a good experience to face these challenges, and it is in the DNA of our teams. Three TAV airports are already carbon-neutral (ACA 3+), and it is exciting to share this new ambition with the profession and all our stakeholders.
The Moodie Davitt eZine Issue 310 | 6 May 2022
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