Airline Business Management Report

8/9/2019 Airline Business Management Report

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LONDON METROPOLITAN UNIVERSITY

CA2E71C Airline Business Management Page 1

COURSEWORK

(REPORT)

By

Nikola Georgiev

Student ID: 07059973

EMAIL: [email protected]


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I. Introduction

II. Catchment Area Analysis

III. Forecasting

IV. Airport and Airline Network Fit

V. Incentives and Marketing Support


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I. Introduction

The following report evaluates the possibility to attract an airline to operate flights

from Gatwick Airport, UK to Varna Airport, Bulgaria. Detailed examination of

catchment areas, airport fit and marketing opportunities have been reviewed, as well

as forecast analysis of the route examined. The targeting airline to execute the

above mentioned route is chosen to be Bulgaria Air the Bulgarian national carrier,

based on the fact that they have the capacity (i.e. aircrafts, personnel, etc.) to do so.

Review of the passenger traffic for the above mentioned destination has been

evaluated and forecasted for a period of five years.

II. Catchment Area Analysis

i. Gatwick Airport

The population of London is 7.5 million citizens. 44 % (forty four percent) of the

residents are aged between 20 44 years old. Gatwick airport is located within Sussexborough (Crawley town) boundaries and is mostly settled with families with children, with

relatively few pensioners. Crawley is home to more than 100 000 residents. It is likely that

the families will have two wage earners and with unemployment relatively low overall, family

incomes are around the national average (www.crawley.gov.uk).

Purchasing power may be limited, spending on credit cards is low and a range of

loyalty cards are used. However, most households run at least one car and take regular

holidays in Europe and the Mediterranean.

There is a great choice of hotels in and around Gatwick Airport and Crawley, as well

as variety of attractions including amusement parks, museums, leisure centres, theatres,cinemas, shopping malls. One of the most popular attractions is the Tilgate Park & Nature

center. The park is very important part of the fabric of Crawley and includes three lakes, a

walled garden, nature center, craft outlets, picnic areas, etc. Crawley boosts many golf

courses, the famous one Tilgate Forest Golf Center an 18 hole championship course.

Crawley area is very attractive cultural area. There are many events and festivals including

Crawley festival, Crawley Folk festival, Crawley International Mela Youth International

event, Crawley Irish festival (www.crawley.gov.uk).


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The proportion of businesses in Sussex by sector is in-line with the south east region.The majority of business units in Sussex are within the banking, finance and insurancesectors followed by distribution, hotels and restaurants. The smallest numbers of businessesare within the agriculture and fishing, energy and water.

Source: Annual Business Inquiry workplace analysis (2004)


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Employment by sector

The number of employee jobs within Sussex by sector generally reflects theproportion of the South East region. The largest employment sectors are public admin,education & health along with distribution, hotels and restaurants.



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Business sizes by sector (number of employees)

Micro and small business sizes in Sussex make up 97.1% of all business in Sussex.

The largest employers are found in the public, admin, education & health sector but even

within that sector 58% of business units are micro-enterprises and 42% are small

businesses (www.satistics.gov.uk).


Micro-enterprises (1-10 employees) and small business (11-49 employees) make up97.1% of all business units in Sussex. The largest employers are found in the public, admin,education & health sector but even within that sector 58% of business units are micro-enterprises and 42% are small businesses. The 13% of all public service businesses whichemploy 50 or more employees are concentrated in West Sussex (www.statistics.gov.uk).


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Job density (2004)

Crawley has the highest job density within Sussex, (jobs in proportion to the workingage population), which can be explained by the large number of jobs created by GatwickAirport. While Adur has the lowest job density suggesting high unemployment or residentsare not employed locally. Part-time employment in Sussex is higher than other areas in theSouth East at 37.6% of which 74% are female. While of the 62% of people in Sussex in full-

time employment only 40% are female (www.statistics.gov.uk).

Source: Job Density, LSC 2004

Job density shows the ratio between the total number of jobs to working-agepopulation. The total number of jobs is a workplace-based measure and comprisesemployees, self-employed, government-supported trainees and HM Forces. Sussex has ajob density of 0.84, which is below the South East (0.86) but the same as England (0.84).For an area with a low job density it means that residents are not employed locally or the

area is an area of unemployment or inactivity. Within Sussex Adur (at 0.64) has the lowestjob density (www.satistics.gov.uk).


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For an area with a high job density means that working-age people commute to thisarea for employment and there may be a high level of local demand for employees. WithinSussex Crawley has the highest job density (at 1.40) which is probably explained by thelarge number of jobs created by Gatwick Airport.

ii. Varna Airport

The population of Bulgaria is 7.5 million citizens. Varna region has a population of

over 1.6m citizens, of which 976 thousand men and 665 thousand women (57/43% ratio).

For the period 1997-2007 the population of the municipality of Varna has increased by 4.6

percent, while that of Bulgaria has decreased by 5.8% (www.nsi.bg).

Population distribution by age is:

a) Human Resources

From 2000 to 2004 the number of economically active persons has increased by 7%while the unemployment rate has dropped 2 times (from 11.7% in 2000 to 5.26% in 2004).64% of unemployed are women (www.varna.bg).

b) Education and science

Varna has highly trained personnel who speak foreign languages, thus only thestudents completing language schools are 600 per year. There are 5 000 students who

graduates every year in Varna. 25% of the working population are university graduates, 50%

under workin a e pensioners

18%

Source: www.varna.bg

working age


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of the working age population have completed secondary education(www.minedu.government.bg).

There are 12 (twelve) vocational schools that teach 8 (eight) thousand students at 72(seventy) majors, 5 (five) private vocational high schools, 53 (fifty three) comprehensiveschools. 3 (three) special schools, 2 (two) technical Schools, 18 (eighteen) technicalcolleges, vocational schools and Art schools, 8 (eight)universities, special institutes, colleges,including University of Economics, University of Medicine, Technical University, Varna FreeUniversity, the Naval Academy (the biggest on the Balkans), Institute for InternationalTourism, Institute of Hydrodynamics Center, Institute of Oceanology, Institute of MetalScience, BAS, Institute in waterways, Institute for Fisheries and Aquaculture. There are total

of - 28 thousand students and 2100 teachers (www.minedu.government.bg).

c) Economics

1. Sectoral structure

The Economy in Varna region is well represented at the national level produced by gross

domestic product, representing 5.4% of the total national. The District ranks third in the

country invested in foreign investments per capita. Equity ratio in the economy of the area:

25% industry, 20% transport, tourism 35%, 10% trade, 10% construction (www.varna.bg).

Leading to the regional economy sectors are agriculture, tourism, chemicals production,

shipbuilding and repair, food processing and manufacturing of electrical appliances.

Municipality of Varna has significant economic potential and its related infrastructure is well

developed. Structure in the economy is highly diversified.The following Graph shows the distribution of the net revenue on sales by industry

61%16%

14%

6%3%

Trade & Tourism Industry Transport Construction Others



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The two most developed clusters in Varna are marine and tourism industries. The

municipality also has businesses in sub-metallurgy and machine building, food processing,

clothing industry, electronics, footwear industry, production of building materials and

construction, furniture manufacturing.

Maritime Industry:

During the past 90 (ninety) years in Varna shipyard were built over 800 ships.Odessos Ship Repair Plant JSC is the largest and best equipped plant in Bulgaria Ship

suitable for dry-dock vessels of up to 35 000 dwt and repair of ships sailing to 150 000 dwt;

1000 people own personnel, subcontractors - 500(www.varna.bg).

Navigation Maritime is the largest national maritime carrier state property. It has

tankers, container vessels, mass and general cargo, ferries with a total tonnage of 1 810 000

dwt. It provides about half of revenue in the region, and 90% of revenues from the transport

sector in the region and implements 20% of imports and exports to Bulgaria. Marine

engineering SA - manufactures marine equipment. Deck has produced equipment for over

190 ships and 75 000 tonnes of steel structures.Tourism Industry:

Tourism is one of the major industries in the economic structure of Varna Municipality.

Resorts "Golden Sands", "St. Constantine and Helena "," Riviera " and " Sunny Day are

world famous, three of them have won the Blue Flag award for best beach

(www.mi.government.bg). The resorts offer numerous opportunities for sports, spa and

entertainment. The potential of this sector of the municipality is characterized as unique

combination of natural resources (beaches, mineral waters) and cultural heritage and

traditions.

The prices of tourist services in Bulgaria are competitive compared with those in

Croatia, Greece and Spain. There is an increased demand for Wellness and Spa services

and high demand in the months outside the active season. There are prerequisites for the

development of health, cultural and ecotourism. The municipality has over 485 hotels, which

have over 149 thousand beds capacity (www.mi.government.bg).


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The following graph (Graph 1) shows the tourist nationalities mix, who visited Varna

region in 2008.

Graph 1


2. Infrastructure

Municipality of Varna occupies a key position in the trans-European networks as a port and

center as part of the current and future transportation corridors. A major competitor of Varna

and Bourgas ports is Constanta (Romania). In the territory of the North East region undergo

three pan-European transport corridors: 7 (Danube waterway), 8 (Durres - Skopje -

Sofia - Bourgas - Varna), 9 Helsinki - Kiev - Ruse Alexandroupolis

(www.mrrb.government.bg).

Road infrastructure is relatively well developed (density 709 km/1000 square km). Its

total length is 144.2 km. 12% of the roads within the municipality are highways, 41 percent

are first-class roads. 90% of the road network is in good condition.

The density of railway network exploited in the Municipality of Varna is 5.14 km/100

square meters and formed three railway stations. Topoli railway station is specialized in port

activity. Railway station Varna - West is intended as a freight station and engine house, a


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railway station Varna - East - primarily as a passenger terminal. Very important is the railway

line Karnobat - Sindel - Varna, since it is included in the Corridor 8

(www.mrrb.government.bg).

Varna Airport is the second largest airport in Bulgaria. It is a civil airport for domestic

and international transport. Its development is in direct relation to tourism and it is typically

seasonal. Mainly charter flights are international - 89% of the total number of passengers

was on international routes. Its area is 2 414 ha. It is linked to international road E-70 and F-

87 and has modern navigation equipment.

First in importance to the financial results were passenger charters, the second -

international scheduled flights to a third - internal scheduled flights to Sofia and Bourgas, on

the fourth - cargo charter flights, and the fifth - general aviation. Liaise with the airport 36

countries and 101 cities (www.caa.bg).

Varna port connects directly to Russia, Ukraine and Georgia by ferry and ro-ro

connection through a railway line Rousse - Varna and the European Corridor Rhine - Main -

Danube. Trade and port activities are directed mainly towards the countries of Europe, the

Middle East and South Africa. Varna port handles all types of cargo - liquid, bulk, number,

containers and ro-ro. It is the most important seaport for North East region. It passes through

a quarter of the turnover of goods. Port clock mode of work and has very good relation with

the national rail network and good relationship with the national road network. It covers a

territory of 30 km. and has 35 berths, 76 142 sq. . covered storage area, 458 870 sq. .

open storage area, 66 pcs. quay cranes and other specialized machinery

(www.mtitc.government.bg).

Pass through the port mainly containers, grain, cement, clinker, fertilizers, calcium

soda. Servicing of vessels is carried out by agents, brokers, drivers, suppliers, freight

forwarders. The total number of services provided are over 25 000. Freight on the waterway

is mainly undertaken by the Bulgarian maritime fleet, and a minor share of some private

companies. Cargo handling is carried out by Port Complex Varna. Port of Varna consists of -

East, dry port, oil terminal, port poplar, timber port and naval base

(www.mtitc.government.bg).

Binding of Varna and the sea with Beloslavsko Lake and the building of Varna West port

and ferry terminal allows the water to penetrate deep, thus ensuring better interactionbetween the four modes of transport, unloading port of Varna - East removal of cargo activity

and environmental contamination in the resort town.


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III. Forecasting

The following chart shows the total number of passengers on flights from UK to Varna for

the period 2004 2009 (CAA UK Statistics).

66282 69055

113182 113658131409

140492

0

50000

100000

150000

200000

250000

2004 2005 2006 2007 2008 2009

Passengers UK to Varna 2004-2009

Passengers

Source: http://www.caa.co.uk/default.aspx?catid=80&pagetype=88&pageid=3&sglid=3


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The following chart shows the passenger traffic by cities (market share) UK to Varna for

the period 2004 2009 (CAA UK Statistics).


Passenger Traffic by cities (market share) UK to Varna 2004 - 2009

31,18%

6,80%

7,60%

1,42%

2,12%

2,52%

1,28%

2,02%

3,16%

3,24%

9,65%

4,54%

1,17%

0,12%

2,78%

20,40%

Gatwick

Heathrow

Luton

Stansted

Aberdeen

Belfast Intl

Birmingham

Blackpool

Bristol

Edinburgh

Glasgow

Leeds Bradford

Manchester

Newcastle

East Midlands

Southampton


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The following chart shows the passenger traffic by regions (market share) UK to Varna

for the period 2004 2009(CAA UK Statistics).


The following chart shows the predicted forecast for the new route LGW - VAR for the

period 2010 2014. Average rate of growth (based on average annual rate of growth of3,4%).

Passenger Traffic by regions (market share) UK to Varna 2004 - 2009

1,17%

4,54%

9,65%

6,40%

9,14%

6%

65,98%

Total London

Total Midlands

Total North East

Total North West

Total Scotland

Total South East

Total South West


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145269 150208 155315160596 166056

0

50000

100000

150000

200000

250000

2010 2011 2012 2013 2014

Average rate of growth 2010-2014

Passengers

Financial Forecast

The market share of Bulgaria Air for the route VAR-LGW-VAR proves to be close to100%, since there is no direct competitor flying on the above mentioned route. Therefore,

we can make the following financial forecast for a 5 year period of servicing the route

based on the above passenger demand making assumptions of average fare levels and

load factor. Flights from LHR to Sofia (the capital of Bulgaria) generally cost 120 British

Pounds (based on research of airlines flying the route including BA, Bulgaria Air, etc.) on

average for a return ticket. As an estimate we take this average fare cost in our financial

forecast in order to calculate possible gross revenue.

2010 2011 2012 2013 2014

145,269X120 150,208X120 155,315X120 160,596X120 166,056X120

17,432,280

GBP

18,024,960

GBP

18,637,800

GBP

19,271,520

GBP

19,926,720

GBP


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IV. Airport Facilities and Network Fit

Within easy reach of London, Gatwick Airport is the busiest single runway airport in theworld, the second largest airport in the UK and the eighth largest in Europe. There arecurrently around 90 airlines which operate from the two terminals, serving over 200destinations. Gatwick Airport serves around 32 million passengers every year and receivedthe Best UK Airport award for the sixth time at the Travel Bulletin Awards in 2009(www.gatwickairport.com).

The airport is virtually operating on a non-stop basis 24 hours a day, 365 days a year

and represents the following flight statistics ( April 1, 2009):

Scheduled flights 43%Charter flights 23%Low-cost flights 34%Domestic 11%European 65%

Long-haul 24%Leisure 84%Business 16%Origin and destination 90%Transfer 10%

Around 90 airlines operate from Gatwick airport, serving 13 domestic and 200 overseasdestinations. There are 108 stands in total - 32 pier served stands in each terminal and 44remote stands serviced by coaches. Across the two terminals there are 317 check-in desks -191 in South Terminal and 126 in North Terminal. The airport facilities include:

1 RunwayRunway length: 3,316m long by 45m wide


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2 Terminal Buildings - South (which is opened in 1958) and North (which is opened in1988)South Terminal has 120,000 square metres of which 14,768 square metres is retailfacilitiesNorth Terminal has 75,000 square metres of which 12,530 square metres is retailfacilitiesAirport LoungesFast rail links to London: Gatwick Express, 30 minutes to London -www.gatwickexpress.com

Which Airline and why Gatwick Airport?

Our targeted airline is Bulgaria Air, which we find will best fit to operate the routeLondon Gatwick Varna. Bulgaria Air is the national air carrier of the Republic of Bulgaria.The airline operates regular flights from Varna and Sofia to 28 major destinations in Europeand the Middle East, but also charter and business flights upon request to more than 100other destinations. Together with its partners, Bulgaria Air offers its customers opportunitiesfor travelling to over 400 cities in Europe, Asia, Africa and Northern America. Bulgaria Airoperates seven B737-300, five B737-500, two A-319 and A-320 as well as thirteen BAE 146-200 and BAE146-300 (www.air.bg). They can regularly operate one of their B737-300 orB737-500 (depending on passenger traffic) for their flight LGW-VAR. According to theirflights schedule, there is a gap that could best fit operations of this flight on the followingdays:

Monday: Departing 14:35 Varna Arriving 16:20 LGW, Departing LGW 17:20 Arriving atVarna 22.35*

Wednesday: Departing 14:35 Varna Arriving 16:20 LGW, Departing LGW 17:20 Arrivingat Varna 22.35*

Friday: Departing 14:35 Varna Arriving 16:20 LGW, Departing LGW 17:20 Arriving atVarna 22.35*

Sunday: Departing 14:35 Varna Arriving 16:20 LGW, Departing LGW 17:20 Arriving atVarna 22.35*

* Local times


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Gatwick Airport will be the most convenient airport for the airline to operate to, based onpassenger background and route evaluation (orientated towards the leisure market).Furthermore, the carrier is operating flights to the USA with its partner Virgin Atlantic (on acode share basis) from Gatwick airport; hence passengers will have only airside transit,rather than changing airports (i.e. Gatwick to Heathrow).

In general, the route Varna LGW provides many opportunities for both ends to increasepassenger traffic. According to the Bulgarian Civil Aviation Authority (www.caa.bg), there is ademand of approximately 150 000 passengers yearly on the above mentioned route (fromVarna). British citizens are the 2nd largest visitors in Varna region (according to statistics asper graph 1 above), both for tourism and regular visitors that own properties in the area.Furthermore, the flight can be used as connecting flight for many travellers wishing to fly todestinations beyond UK, through connecting flights, including USA, Australia, Asia, etc.;Varna has a catchment area of over 2.8 millions people (www.varna-airport.com), whichmakes it a strategic destination. Another important issue to take in consideration is the fact,that there are no direct flights from Varna to London, which drives all the passenger traffic tothe capital of Bulgaria Sofia (565 kilometres away).

V. Incentives and Marketing Support

There are different techniques that can be used by Gatwick airport to support the

creation of the new route VAR-LGW-VAR. Currently, Gatwick airport has the following

pricing structure for aircrafts type B737 to land/take of (www.gatwickairport.com):

Landing charges (off peak as per the flight schedule above) - 264 British

Pounds.

Emission charge 2.02 British Pounds/ per Kg of Nox

Navigation charge (per landing) 85 British Pounds + 0.50 British Pounds per

metric tonne

Passenger charges 11.21 British Pounds

Parking charges (per quarter hour) 4.82 British Pounds + 7.5p per metrictonne

Departing charges 155 British Pounds

Because this is a new route creation, the airport can adopt the following discount

structure in order to attract the airline to operate the above mentioned route, as well as to

boost the passenger traffic.

Discounted Charges:


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The marketing activities of the airport to promote the new route will be focused

towards passengers and travel agents/tour operators.

Passengers Marketing Travel Agents Marketing

Local Press (newspapers, magazines, etc)

Radio & TV

Outdoor Advertising (Posters, Billboards,

etc ;)

Internet (Banners exchange, internet ads,through airport website, etc.)

PR activities

Workshops

Fam Trips

Events

Website

Exhibitions

PR activities

New route incentives 1 year 80%, 2 year 60%, 3 year 40%,

4 year 20%

Passenger Traffic Growth, Number of routes

developed, based aircrafts, etc.;

Flat (all in one) fee

Marketing Support

Based on projects (i.e. co-branding,

destination advertisement, local tourism authorities

involvement, etc.;

Usage of Airport office space Free or discounted


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REFERENCES:

Websites:

National Statistic Institute of Bulgaria - www.nsi.bg

Varna Municipality - www.varna.bg

Varna Airport - www.varna-airport.com

Ministry of Education of Bulgaria - www.minedu.government.bg

Ministry of Regional Development of Bulgaria - www.mrrb.government.bg

Ministry of Economy, Energy and Tourism of Bulgaria - www.mi.government.bg

Ministry of Transport, Information Technology and Communications -

www.mtitc.government.bg

Civil Aviation Authority Bulgaria - www.caa.bg

Civil Aviation Authority UK -

http://www.caa.co.uk/default.aspx?catid=80&pagetype=88&pageid=3&sglid=3

Bulgaria Air - www.air.bg


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Gatwick Airport - www.gatwickairport.com

National Statistics UK - www.statistics.gov.uk

Borough of Crawley - (www.crawley.gov.uk)

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Airline Business Management Report