Airport Strategies to Gain Competitive Advantages

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

2. 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

3. 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

4. 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

5. 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)

6. 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

7. 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

8. 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

9. Porter’s Generic Competitive Strategies COMPETITIVE ADVANTAGE Uniqueness perceived by the customer Low cost position COMPETITIVE SCOPE Industry wide Particular segment only

10. 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

11. 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

12. 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

13. Ansoff’s Positioning Matrix PRODUCTS Present New MARKETS Present New

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

15. Internal Growth (II) • Market development: • 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

16. 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)

17. Vertical Integration • Forward: • 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

18. 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

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

20. 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

21. 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