Sponsor: Global Infrastructure Partners (GIP)
Geography: West Sussex, UK
Deal size: Large cap (>$500 million)
Initial investment date: December 2009
Realisation date: $91 million in distributions in 2H 2014; $498 million distributions received inception-to-date, equivalent to 90 percent of original investment
Top-line revenue growth: From FY 2010/2011: 7.8 percent AAGR (Aero: 8.1 percent; Non-Aero: 7.3 percent) or 34 percent cumulatively
EBITDA growth: From FY 2010/2011: 11.0 percent AAGR or 52 percent cumulatively
Average time per month spent with portfolio company (days): 3-5 full time employees sustained since due diligence phase of investment, 5.5 years ago
No matter how one looks at it, after being acquired by Global Infrastructure Partners (GIP) and a group of co-investors in December 2009, Gatwick Airport is an excellent example of a business transformed.
Beginning with the hard data, Gatwick, London’s second-largest airport and the second-busiest in the country, achieved an average annual growth rate (AAGR) in top-line revenue of 7.8 percent from 2011 until today, and 11 percent AAGR in terms of EBITDA. While the numbers speak for themselves, the story behind those numbers is just as impressive.
One of the key areas GIP identified from the beginning was the need to improve the customer experience.
“I’ve had the opportunity to fly in and out of Gatwick both before and after the GIP acquisition of the airport and what has really struck me is the real focus on customer experience because Gatwick was not a positive experience at all before that,” David Narefsky, a partner at law firm Mayer Brown, said.
“What they’ve done to deal with the flow of traffic through the airport, the change in the security logistics, the queuing – everything that drives us crazy as passengers – it’s really impressive,” he added.
GIP recognised that a significant source of passenger complaints was the security queue. The firm implemented new operating procedures and a new generation of security processing technology, resulting in a 150 percent increase in passenger throughput from 220 passengers per hour to 550 passengers per hour.
Other initiatives included expanding the airport’s global footprint from 62 countries to 68. This was achieved by identifying which long-haul routes were key to success and which existing airlines and routes were most attractive to incent passenger growth. GIP also invested in route analysis systems which could determine with greater accuracy the potential growth of each route. The firm was thus able to achieve an 8.1 percent annual growth rate in passenger traffic after its first full year of operation (2010/2011).
Increasing the capacity of Gatwick’s runway, the single busiest commercial runway in the world, was another effective move on GIP’s part. Runway peak capacity went from 50 moves per hour to 55 moves per hour, resulting in £30 million in increased annual earnings with minimal investment.
But the fund manager also focused on improving non-aero sectors such as the retail and food and beverage segments of the business.
GIP employed extensive benchmarking to identify underperforming stores and restaurants as well as to target higher growth/higher margin opportunities within a given store. This resulted in a 26 percent increase in total revenues in three years when combined with the impact of passenger growth, according to GIP.
As for the airport’s car park, the fund manager introduced dynamic pricing through a wider range of products, which has resulted in a 50 percent increase in car park revenues from 2010/2011.
“Knowing the airport industry, I am well aware how difficult it is dealing with airlines, improving customer service. All the things they mention in their narrative were very impressive,” Michael Barz, a partner at Dentons, noted. “Now, if we could bring this to the US it could really help out our ‘LaGuardias’,” he added, referring to New York’s LaGuardia Airport.
“In summary, the GIP and Gatwick teams have transformed the customer experience at Gatwick from check-in to the airfield, using industrial best practices in the airport context,” GIP wrote in its submission.
The judges resoundingly agreed.