Montréal-Trudeau handled a record 16.6 million passengers in 2016, including a 5.9 per cent increase in international traffic, the airport’s busiest sector. ADM, the non-share, not-for-profit operator of Trudeau and Mirabel airports wants to build on this success.
The airport has leveraged Quebec and Montreal’s language and culture to link with similar markets in French Europe and North Africa. “We have worked with airlines like Air Canada and have focused on special destinations where there is a solid North American base of those passengers in Montreal,” says James Cherry, the recently retired chief executive of ADM. Wings interviewed Cherry just before he stepped down.
“The main reason for [growth] has been Air Canada’s expansionary strategy, supported by low fuel prices and a favourable exchange rate,” says Philippe Rainville, Cherry’s successor as chief executive.
Last summer, Air Canada launched non-stop seasonal service between Montreal and Casablanca, and year-round service between Montreal and Lyon. The Casablanca service, using Rouge equipment, is Air Canada’s first African route and the only scheduled non-stop to North Africa by a North American carrier.
“Because we have a solid French base, we can optimize those flights and increase our numbers for both transiting passengers and links with destinations such as Brussels, Lyon, Geneva and Casablanca. It was a challenge at the beginning, but it is working really well,” Cherry adds. The number of connecting passengers jumped in 2016 to 3.1 million and represents almost 19 per cent of the airport’s passenger traffic.
“If the present trend continues, our annual traffic will be in the neighbourhood of 20 million passengers by 2020, propelling Montréal-Trudeau to the next level,” says Rainville. “The prospects for 2017 are already very promising.” These include Air Canada’s new daily route to Shanghai that was launched in February and Air Transat’s roster of destinations, which is expanding to include Tel Aviv. The Air Canada-Shanghai service is expected to generate some 125,000 passengers a year.
“Our passengers have never had so many travel options, particularly internationally,” Cherry points out. “With the launch of the international expansion, we will be able to effectively meet this projected growth in demand.”
One thing Cherry would have liked to have seen during his tenure was individual airports with a direct seat at the table when negotiating bilateral air agreements. “We’ve got a good piece of airlines already and we work closely with them to ensure they help us to develop the market place,” he explains. “But airports do belong at the [bilateral] table because our interests are a little different from the airlines. It isn’t always in the best interest of an airline when an airport goes after a destination or route. It would be useful to have airports as part of the discussion.”
To support growth, Montréal-Trudeau cut the ribbon on a new six-gate international pier in time for the busy summer season. The pier is the centrepiece of a $350 million (US$273 million) expansion and improvement program that has added 800 square metres of retail space in both the domestic and international area, with a stronger focus on local brands and experiences.
“Our renewed retail offering at Montréal-Trudeau is our commitment to offer a truly Montreal experience, rather than something generic,” Cherry points out. To illustrate the point, Avenue des Canadiens, an upmarket restaurant and bar that opened last spring features a true hockey experience, including Canadiens’ memorabilia and retail outlet.
Montréal-Trudeau now has almost 16,000 square metres of retail space, a 38 per cent increase since 2011. Non-aeronautical revenue accounted for 46.1 per cent of total revenues in 2015, with retail contributing 27.5 per cent.
An aesthetic highlight of the development is an interior open-plan area designed to create a unique atmosphere through the integration of artistic and cultural elements, including a lighted ceiling installation titled Nuée de verre (Veil of Glass) composed of different-coloured glass triangles illuminated by spotlights. Cherry is very supportive of the art installations, noting they represent a small percentage of the overall budget. “It is these little extras, in conjunction with the open-plan [and] transparent architectural design that make all the difference,” he says. “The project is part of a master plan to create a facility that is both functional and vibrant. It has been completed showing imagination and taking into account our limited financial resources.”
Financial resources are certain to be an issue going forward. Montréal-Trudeau was one of the first airports to be leased out to a local, not-for-profit operating authority in the 1990s. It’s a watered-down version of the airport privatization that had already taken place in the U.K. Those leases are set to expire in 2072, which will impact airports ability to borrow in the future.
Airport investments are typically amortized over 40 years, meaning the investment window will begin closing by 2032 at the earliest so airport authorities can transfer assets back to the federal government in good condition and debt free.
“There are at present no clear arrangements for the transfer of airport assets and contracts back to the federal government when airport authority leases expire,” as noted in the Canadian Airports Council 2015 review of Canadian transport. “Unless these issues are addressed, airport authorities will no longer be able to obtain financing for major airport expansion projects and to maintaining existing assets.”
Addressing this so-called “end-of-lease” issue could mean converting existing leases into perennial agreements or inviting in the private sector.
“There is potential in the Canadian market for pension fund investors and other Canadians to get involved in the success of Canadian airports going forward,” said George Casey, chief executive of Vantage Airport Group, a Vancouver-based airport investment and management company. “We have seen that happen in places like Australia where the local investor is involved in the success and development of airports.” Vantage, which operates smaller Canadian airports in Hamilton, Moncton and British Columbia has transferred 20 international airports over to the private sector and took over the operation and redevelopment of New York’s LaGuardia Airport (see below).
There are signs that early resistance to airport privatization is softening. The federal government is considering selling its airport holdings to help pay to rebuild Canada’s crumbling infrastructure. In early 2016, David Emerson, the first chief executive of the Vancouver Airport Authority recommended just that. Whatever the government decides, ADM is ready. Indeed, the Montreal authority busted open the debate on private sector models in 2015 with its presentation to Emerson’s review.
“We are in an odd position where Canadian pension funds are investing in airports around the world, but they can’t invest equity in airports in Canada,” Cherry observes, adding that privatization may not be for everybody. “Canada’s airport sector has already passed the point where a uniform solution works for everybody. Some airports may decide to privatize. Others will not. I am neither stressed nor intimidated by how a private investor might act in the airport community. I am willing to look at a range of ownership possibilities.”
In the meantime, there is an airport (or in ADM’s case, airports) to run. Montréal-Trudeau recently scored in the high 90s in passenger satisfaction for both arriving and departing passengers. The airport has also launched YULi, a mobile app to provide passengers with a personalized route, including walking time and wait times at the security checkpoint, real-time updating of all flight information, online reserving of parking spots near the terminal and the ability to pushout exclusive promotional offers at airport shops and restaurants.
“This app will allow passengers to breeze through the airport,” Marc Cardinal, ADM’s director of technologies and innovation told delegates at the SITA IT Summit in Barcelona. “With two clicks, passengers will have 90 per cent of the information they will need.” More important to the bottom line, the app will enable Montréal-Trudeau to increase revenues by further monetarizing the passenger.
Fifty-one kilometres along Autoroute 13, north of Montréal-Trudeau, work continues on Mirabel, ADM’s repurposed cargo airport and industrial facility. Mirabel is already home to several big names in global aerospace including Bombardier’s C Series assembly plant, Pratt & Whitney Canada and L3 Communications. The demolition of Mirabel’s passenger terminal is almost complete and ADM has invested $50 million to fully refurbish the airport’s main runway, an essential piece in ADM’s cargo strategy.
Cherry stepped down as Montréal-Trudeau rides a wave. “Traffic is up by 83 per cent, we have a great variety of destinations, Air Canada has invested in routes out of Montreal and our commercial revenue has increased by over 80 per cent. We have every reason to be optimistic for the next while.”
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It’s up to you, New York, New York
Canada’s Vantage Airport Group has been involved in 28 airport projects worldwide and is a global leader in private sector airport management and finance. Its redevelopment of New York’s LaGuardia Airport may be the foothold the Vancouver-based operator is looking for to fully break into the U.S., a market that has been slow to embrace private sector models.
LaGuardia Gateway Partners, a consortium headed by Vantage, has taken over operations of LaGuardia from the Port Authority of New York and New Jersey, which also operates John F. Kennedy International Airport and Newark’s Liberty Airport. The transfer is part of an ambitious $5.12 billion (US$4 billion) modernization of the cramped and outdated airport, including the redevelopment of LaGuardia’s 52-year old Central Terminal (Terminal B).
LaGuardia handled 28.4 million passengers in 2015, with close to half travelling through the Central Terminal. The project is the first rebuild of a major American airport in over a generation, and the largest public-private partnership undertaken in the U.S.
“It’s a good opportunity to look at different options or private involvement in the development of airports in the U.S.,” said George Casey, chief executive of Vantage. “We think it is a very interesting model for the U.S., and one that sets the stage for the private sector working closely with stakeholders to deliver public infrastructure.”
It is a welcome rebound from 2013, when a $3.23 billion (US$2.52 billion) deal to privatize Chicago’s Midway Airport was cancelled because of tightening money markets. Much of the groundwork that went into the Chicago deal has laid the foundation for LaGuardia. “We had a good experience in Chicago,” Casey says. “We worked very closely with the Chicago Department of Aviation, airport personnel, unions and airlines, and completed the necessary transition work ahead of the project potentially unfolding. It gave us good insight into the workings of Midway, but also on the U.S. perspective. So, we gained some experience even though it didn’t close.”
LaGuardia has its share of detractors, including those who would like to shutter the dysfunctional airport, shift traffic to Kennedy and Newark and build a dedicated express rail link connecting Manhattan with JFK. Still, the plans for the new development are impressive, including approximately 121,000 square metres of new terminal space, including retail and pedestrian bridges that span airside taxi lanes, a global first in airport development. The project also includes a central hall that will create a single, unified airport.
“Despite different government models, we have added value – and in some cases, significant value – at airports we have taken over,” Casey points out. “That value has come in a number of areas such as access to capital, development expertise, continuous improvements around non-aeronautical revenue and innovative approaches in dealing with airlines and airline partnerships.”
Vantage began operating in 1994 as an airport consulting division of the Vancouver Airport Authority (VAA). The VAA sold its final 50 per cent stake in the company late last year, although the two companies maintain a strategic alliance. “YVR remains best in class,” Casey insists. “We will continue to capitalize on the partnership we have had with them over the last 20 [plus] years. We are excited that our relationship still exists and we can access the world-class resources of Vancouver International Airport. At the same time, we are an independent organization and can share resources back with YVR.”
While Vantage has been able to build an impressive global portfolio, it remains a bit player in its home market. Commercialization in Canada has put the largest properties such as Toronto-Pearson, Montréal-Trudeau and Vancouver out of reach of private sector operators. That might be set to change.
“Canada is still evolving,” Casey observes. “The interesting thing about the Canadian market is its similarities with major airports in Australia. All the airports were part of a central airports corporation that are now spun-off under long-term leases to private consortiums. There has been capital investment and these airports are world class. The Canadian market could look at the Australian experience and potentially benchmark against that.”
Back in the big apple, Vantage will oversee construction of the project, operations and commercial development of the terminal building through to 2050. The modernization will be completed in phases over the next six years, with a significant milestone being reached in early 2020, when 100 per cent of passengers will check in at the Central Terminal.
“The development of LaGuardia’s Central Terminal meets Governor [Cuomo’s] central vision for infrastructure, and what the airlines need to operate going forward,” Casey insists. “We are obviously looking at other opportunities in the U.S. market to build on what is happening at LaGuardia. We see activity in the market and we are bullish on the success of LaGuardia and what that will bring for other projects.”