THE answer to a difficult question is often right in front of you. For London City Airport CFO Patrick Burrows, a situation in which that was the case arose after he’d begun to make plans, having left his previous employer, New Look.
Times had been tough at the fashion retailer, and a failed attempt at an IPO was to effectively see him end his tenure. But what to do next? That was the question for which Burrows was grasping for an answer.
The lightbulb moment came while providing consultancy service and advice to investors looking to dive into fashion retail. “I listened to myself: and what I was saying to them was, ‘You’d have to be mad to be on the high street at the moment.’ I came home one night and said to my wife: ‘I don’t want to work in retail,’” says Burrows.
It was late 2010, and retail was “a difficult place to be”, Burrows adds – in something of an understatement. His time as New Look CFO was effectively project-based. He was spending time commuting to its Weymouth head office, but the personal sacrifice would really pay off if its £1.7bn IPO came through.
But, in a glut of failed listing attempts at the time which included that of Merlin Entertainments, choppy market conditions did for New Look. So Burrows moved on. And he wanted a business that could meet three criteria: it understood its customer, it could grow, and it had private equity backing. London City Airport “ticked all the boxes”.
Burrows’ wish-list is perfectly understandable – although ‘growth’ is certainly relative. On his private equity leaning, he goes somewhat misty-eyed in reliving his time at university, studying economics. Perhaps indicative of how his time at New Look ended, Financial Director ponders, he speaks of the “divorce” between ownership and control that can be seen in a PLC environment – a subject of some of his papers during his studies.
“[In a PLC] you talk to analysts, not owners. I like it that in a PE environment, the management sits in the same room as the owner – everybody is focused on enhancing shareholder value,” he explains. “You can make very quick decisions, get on and run the business and if you get lucky, you can achieve value for the value you’ve created.”
Despite the regulatory, political and public involvement that can encompass running an airport, Burrows was keen to take on the ‘LCY’ (its international airport code) finance role. And this is where the ‘customer’ aspect of Burrows’ criteria comes to the fore.
Recalling an incident that occurred just after he joined the airport, Burrows recounts a tale of a chat with the CEO of an airline who told him “that he was my customer, and people in the terminal were his customers. I said to him that’s not the model I’ve joined the airport to work.”
Burrows has clarity on the customer model for an airport such as London City – which is analogous to his time in retail.
“The best retailers work with suppliers to sell more products and drive more customers, then they both benefit,” he says. In other words, the airport must take a virtual customer approach to the airline, and vice versa. Their success is conjoined. The airport provides a platform for airlines to succeed, but both offer a product and a service.
This attitude was one that Burrows admits required a transformation of relationships between the two. Common sense would say that it would be madness for airlines and airports to work against each other, and while this isn’t exactly the case, the relationship between them is strained by the layers of regulation that sit between.
The largest airports have pricing set by the regulator, which makes it difficult for them to have a commercial relationship with the airlines. “It becomes transactional”, Burrows explains. Airports sign up to service level agreements with airlines, such as getting people through security in ‘x’ minutes, which is very functional and operational. “Clearly in that relationship, your way of working becomes very functional if it’s not focusing on the passenger,” he says. As penalties are put in place if targets are missed, airports become very operational in their focus.
And as Harvard’s Robert Kaplan and David Norton theorised, the best businesses must focus equally on customers, people, operations and financials.
“When I arrived at London City, we focused heavily on operations like any other airport,” Burrows says. Its PE ownership also meant that its financial position was closely monitored. “I’d say we were focused less on customers and people. Part of my mission over the past three years has been to change that balance. If you’re in a business to deal with customers and don’t focus on them, there’s clearly work to be done.”
Some might take Burrows’ remit as broad, to say the least. While his ultimate role as an executive is to create value, why should this not be more focused on the particulars of a CFO? Financial rigour, accounts? Burrows doesn’t take umbrage, at what could be taken as a slight on his abilities or raison d’être.
“Why do you come to work? I come to work to make this business better. You have to stand back and say, ‘What do we need to do to deliver that?’ In this business it was primarily about delivering for our customers: passengers, or airlines,” he says.
Where Burrows can leverage his 27-year career in a myriad of roles with Tesco, and then as FD of New Look, is in being a “finance guy”, which means he makes decisions based on data and facts.
“I believe that most intelligent people, if presented with data and facts, will make good decisions. So one of the first things I did was introduce the concept of – I hate the term – ‘business partnering’,” he explains.
This process, where the finance team becomes more closely linked with other departments, came about when Burrows’s first conversations with London City’s directors found that their perception of finance was of its limited offering: namely in producing accounts and keeping track of costs.
“I heard nothing about revenue,” says Burrows. “We’re a high-margin business, so revenue’s far more important in delivering value than costs.”
Burrows set about analysing why finance didn’t talk about revenue: “The honest truth was that we didn’t understand it.” He hired “a couple of really talented, ambitious young guys” to help create a model to understand the revenue it was generating and forecast it in a credible way to allow the business to make better decisions.
Piece of the puzzle
Another big part of the revenue puzzle was filled at the time with the recruitment of Matthew Hall as chief commercial officer. Hall’s background in the airline data and technology industry proved a boon. Hall and Burrows set about purchasing a huge tract of data from the Civil Aviation Authority (CAA). Unlike in retail, where you must build your own dataset, the CAA sold access to who flew from A to B, what demographic they were, pre- and post-destination. Burrows describes it as “a treasure trove”: “No-one was tapping it, in our view.”
A database expert was hired, and the next six months were spent mining the information. The result was a series of growth plans that were fact- and data-driven. LCY was able to establish a pipeline of 30 cities that it could see a very strong economic case to fly to from its airport – to which airlines weren’t currently flying.
“As an airport we don’t fly anywhere, so we started talking to our airlines. Over the past two years we’ve had 16 new routes added as a result of that activity. Running an airline is a very tough place to be,” he explains. The airlines “loved it”, he adds.
The data was also used to track where passengers were coming from and to – finding little nuggets such as how Westminster-based travellers would tend to fly in from the west of London, rather than use LCY. The airport also looked at the end of routes; in certain cities, London City had 10% of the seats on the route but only 8.5% of the passengers. “That missing 1.5% is about half a million passengers a year – a significant target market,” Burrows says. A marketing team was then established to talk to those “missing customers”.
Cultivating a more symbiotic relationship with the airlines has been an advantage, as has the more sophisticated use of technology and data. Another example of this revolves around LCY’s passenger USP – fast transit in and out of the airport. Using Crowdvision technology encompassing a staggering 190 cameras, the airport can track people by ‘reading’ the tops of their heads and see whether they arrive within a 20-minute deadline for entrance to boarding gate, or within 15 minutes from plane to Docklands Light Railway.
This transit involves both the airlines and UK Borders Agency appreciating how important this KPI is for the airport. And the airport has beaten its target, and will look to use it as a part of its marketing effort. Burrows admits that he is hungry to get even more out of this smart tool: “You start asking questions – to break the journey down. Where do they congregate in the lounge? Which concessions do they visit? How many toilets do we need? We have data to make that decision. That’s an example of where a finance guy’s quest to deliver a proposition is central to growth.”
This growth also depends on some meaty long-term planning. The airport has 18 ‘parking slots’ for planes for 70,000 air traffic movements from the airport a year. LCY is allowed, by legislation, 120,000. Burrows explains: “The reality is we have enough space, as long as [passengers and airlines] are willing to use our middle-of-the-day slots.”
The ‘business traveller’ slots, early in the morning and late in the evening, are almost gone. So LCY has had to tell its private equity owner GIP that it needs more parking spaces. But building over water is, unsurprisingly, very expensive.
“We had to tell the owners early on that there was a significant investment needed, and getting permission to extend an airport is a very elongated and, at times, tortuous process,” he says.
Three years down the line, the planning phase is nearing the endgame. Success would mean a further two years of building. But LCY was acquired by GIP in 2006 – and has been tipped since 2012 to be looking for an exit. How does that affect such forward-thinking investment?
“They pay us to tell them what the right thing is for their business, and to grow it. That’s my mantra; sometimes it’s not what they want to hear,” Burrows admits. “During PE ownership, things can get short-term at the end of the cycle … but if it’s worth more, then I’d do it. We have those conversations, but must tell them what the right thing to do is, and you’re employed to run the business. I leave them to do those financial calculations.” ?
IN BLACK AND WHITE
2011 – present CFO, London City Airport
2008 – 2010 Group FD, New Look
1994 – 2008 Various (incl. FD, control and FD, international), Tesco