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Airport Strategies to Gain Competitive Advantages

Dr Anne Graham

University of Westminster

London

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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

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Porter’s Five Force Framework of Competitive Analysis

Threat of newentrants

Threat ofsubstitutes

Power of suppliers

Power of buyers

Rivalry amongstexisting firms

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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

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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)

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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

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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

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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

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Porter’s Generic Competitive Strategies

DIFFERENTIATION COST LEADERSHIP

FOCUS FOCUS

COMPETITIVE ADVANTAGE

Uniqueness perceivedby the customer

Low cost positionCOMPETITIVE

SCOPE

Industrywide

Particularsegment

only

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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

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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

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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

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Ansoff’s Positioning Matrix

MARKET PENETRATION

PRODUCT DEVELOPMENT

MARKET

DEVELOPMENT

DIVERSIFICATION

PRODUCTSPresent New

MARKETS

Present

New

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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

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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

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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)

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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

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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

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Retrenchment and Divesture

• Most strategic directions/methods focused on growth

• Retrenchment: Zurich and Brussels

• Divesture:– Concentrating on core business– BAA– TBI

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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

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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