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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 newentrants
Threat ofsubstitutes
Power of suppliers
Power of buyers
Rivalry amongstexisting firms
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
DIFFERENTIATION COST LEADERSHIP
FOCUS FOCUS
COMPETITIVE ADVANTAGE
Uniqueness perceivedby the customer
Low cost positionCOMPETITIVE
SCOPE
Industrywide
Particularsegment
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
MARKET PENETRATION
PRODUCT DEVELOPMENT
MARKET
DEVELOPMENT
DIVERSIFICATION
PRODUCTSPresent 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