Airport Strategies to Gain Competitive Advantages Dr Anne Graham University of Westminster London

Introduction Airport commercialisation and airline deregulation has increased opportunities for competitive advantage Competitive analyses, strategic options, directions and methods are all considered in this paper Relevance of general business models are assessed

Porter’s Five Force Framework of Competitive Analysis Threat of new entrants Power of suppliers Rivalry amongst existing firms Power of buyers Threat of substitutes

Competitive Analysis: Airline Customers (I) Threat of new entrants: Large investment needed Long/complex planning processes Lack of available sites Economies of scale? Threat of substitutes: High speed rail links Improvements in road/rail infrastructure to major airports But Lacks have changed economic balance between rail and air

Competitive Analysis: Airline Customers (II) Power of suppliers: How are the services provided? How much competition is there? Power of airlines: Influences government pricing control/economic regulation Broader role of increasing trade/tourism may be considered Small number of airlines, even smaller number of alliances But can the airline shift to an alternative airport (Network carriers v LCCs, charters, freight ops)

Competitive Analysis: Airline Customers (III) Rivalry amongst existing airports: Small islands/remote regions Major airports with concentration of short-haul and long-haul operations Hub airports Overlapping catchments area Urban situation Regions

Competitive Analysis: Passenger Customers Many other retailers Many passengers and other customers Attractiveness of captive market and affluent customer High street and internet shopping competition Different competitive forces as regards aeronautical and commercial services – but both ultimately dependant on airline services

Controllability of the Sources of Competitive Advantage Two main sources: Price Product Airport has varying levels of control Most control: non-aeronautical areas Partial control: aeronautical areas Least control: Location and catchment area

Porter’s Generic Competitive Strategies COMPETITIVE ADVANTAGE Uniqueness perceived by the customer Low cost position COMPETITIVE SCOPE DIFFERENTIATION COST LEADERSHIP FOCUS Industry wide Particular segment only

Airport Strategies: Cost Leadership Controllability of costs Economies of scale Price insensitivity of markets Weak relationship between costs and prices in some cases Not very relevant to airport industry

Airport Strategies: Differentiation Examples: proximity to population, quick transfer times, lack of environmental restrictions Differentiated products for different passengers eg fast track But differentiated products not common but major issue with LCCs

Airport Strategies: Focus or Niche By type of airline (eg charter, LCC, freight operators) By particular geographic area Cost focus – LCCs Differentiation focus: Liege airport London City airport

Ansoff’s Positioning Matrix PRODUCTS Present New MARKETS MARKET PENETRATION PRODUCT DEVELOPMENT MARKET DEVELOPMENT DIVERSIFICATION Present New

Internal Growth (I) Market penetration: Market development: New regional services Loyalty cards ‘Niche’ airports Market development: New types of traffic (eg Vienna) New commercial products (eg internet, travel value) ‘Differentiation’ airports

Internal Growth (II) Market development: Related diversification: Improved surface access Consultancy services Related diversification: Commercial services for other markets (eg AirportCity) Surface links eg Heathrow Express Unrelated diversification: Ireland: Great Southern Group of Airports

Horizontal Integration Brought about by privatisation Horizontal Established and new operators Knowledge transfer, risk spreading, cost synergies? Market/brand benefits? PlaneStation concept Market penetration (Manchester airport, Hahn airport)

Vertical Integration Forward: Backward: Travel agencies at Cardiff, Norwich Backward: Established practice of some airports BAA World Duty Free Stronger links with airline (‘supplier’ of passenger product): LCCs Copenhagen, Australia, Frankfurt Charter flights at Norwich Planestation and EUJet

Alliances and Franchises Alliances could potentially benefit from shared resources/knowledge, joint bidding for international projects But no market accessibility benefits Very limited impact of Pantares Airport branding needs to improve market potential and image for franchising to work

Retrenchment and Divesture Most strategic directions/methods focused on growth Retrenchment: Zurich and Brussels Divesture: Concentrating on core business BAA TBI

Competitive Strategies for LCC Customers Small sized airports: Use spare capacity but what happens when investment is needed? Medium sized airports: Do LCCs supplement or substitute conventional airlines Strategic options: Standardised product Differentiated product Low cost terminal Two airports

Conclusions Broad focus has been adopted – number of airport strategies identified Complex issues to consider – more than one key customer, nature of composite product Relevance of concept of competitive advantage for different airports