The Evolving Airline Industry: Impacts on Airports
2.6 Summary
in-creases in airport fees, and perhaps begin to adjust their networks and schedules in an effort to reduce the impacts of airport charges on their operating costs.
growth could be constrained by the inability of current and planned airport capacity to handle it. In addition, the possibility of increasing fuel costs makes it more difficult for even an LCC to operate profitably at the extremely low fare levels typically associated with such airlines.
LCCs will continue to play a role in the evolution of the global airline industry, but it is increasingly clear that they will not dominate air travel markets to the extent that some had predicted. The growth potential for LCCs is limited both by the number of point-to-point markets that can support such services and by the reality of increasing costs as LCCs mature. At the same time, existing legacy airlines facing LCC competition will not simply stand by and watch their market shares erode. In the United States and around the world, legacy airlines have responded by adopting some of the business practices of LCCs to match low fares for price-sensitive travelers, while further enhancing their premium ser-vices to retain the high-fare price-insensitive market segment.
For airports, there is therefore no single airline business model that is expected to be-come predominant. Both LCCs and legacy network airlines will continue to compete and coexist at airports. Despite differences in their business models, both groups will have sim-ilar concerns. Improved productivity and lower costs will be paramount, and airline man-agements will continue to scrutinize airport fees and the cost of terminal facilities. The les-sons from airport experiments with less elaborate “no frills” terminals are of interest not only to maturing LCC/hybrid airlines but to established network carriers as well. Overall, airports can expect that airlines will be less willing to pay for “signature architect” terminal buildings at airports.
The second most important trend for airline industry evolution is the rapid growth of the emerging global mega-carriers. These airlines from the Middle East as well as Asia have very aggressive growth plans, designed to capitalize on their structural unit cost advant-ages. Carriers such as Emirates, Etihad, Qatar, and Turkish have already made a mark on many airports and the traffic flows of existing legacy airlines. It is not at all clear that all of these emerging global airlines will be able to realize their ambitious growth plans, giv-en the realities of economic cycles and a limit to the total volume of air travel demand at fares that can cover increasing operating costs. As mentioned, much of their connecting hub traffic will have to come from competition with existing U.S. and especially European legacy airlines.
As they expand their hubs, the mega-carriers are all looking to serve new spoke cities, and the competition between airports hoping to attract them will intensify. Airports will face increasing demands for a variety of fee reductions and/or revenue guarantees from these airlines. Just as LCCs have successfully pitted competing airports serving the same catchment area against each other in the quest for cost concessions, these new global carri-ers will also promote the traffic benefits to the airport of starting new international spoke-to-hub flights. However, the airport needs of these full-service international airlines are
very different from those of LCCs. They require gates that can accommodate large wide-body aircraft, premium-class check-in and lounge facilities, and expanded immigration and customs processing.
Finally, the recent evolution and future prospects for NLCs will have an important im-pact on both industry structure and airports. Legacy airlines have been forced to achieve cost reductions and productivity gains, with the goal of making them cost competitive with LCCs in domestic markets and with the new global mega-carriers in international markets.
However, the financial difficulties of U.S. legacy airlines have prevented them from renew-ing fleets and investrenew-ing in their product offerrenew-ings, whereas European legacy airlines have yet to go through the painful process of restructuring to become more cost competitive.
Looking ahead, the consolidation of U.S. airlines into perhaps three international net-work carriers and two to three very large domestic LCCs is expected to help them become more competitive on a global scale. European legacy carriers face a more significant set of challenges, with a greater need for cost and productivity improvement and a greater threat to their network flows from the emerging global mega-carriers. The continued participa-tion in and expansion of global alliances and joint ventures is an extension of what is likely to be an inevitable process of consolidation, and these alliances will be important to estab-lished NLCs hoping to retain market shares while reducing unit costs in the face of these threats.
For airports, the lesson is that flexibility is critical in virtually every facet of airport sys-tems planning and operations. The absence of a dominant business model or singular driv-ing force in the airline industry, when combined with the tremendous volatility of factors ranging from fuel prices to airline profits and even the future existence of individual car-riers, sets the stage for continued and unpredictable change. Furthermore, airlines can al-ter their business models, fleets, and routes within several months, if necessary to adapt to changing conditions. Airports, on the other hand, routinely must plan for capital in-vestments in facilities that will remain in place for decades. Airports must therefore plan, design, and manage flexibly.
Exercises
2.1. Consider the way A380 and the B787 aircraft are penetrating airline fleets. What are the current total sales of these aircraft? Which airlines are using them? Pick two airlines that use one or the other: on what routes do they fly these aircraft? What do you conclude about their future role?
2.2. Examine the network of one of the Gulf-based carriers using their web site. What are their routes? With what frequencies do they fly these routes? To what extent does their
ser-vice complete with other hub airports? (Think of it this way: if you were in one of the cities served by their hub, what alternative routes would you have? Through which alternative hubs might you fly?)
2.3. Choose one or two airlines operating at your local airport. Describe their pattern of service for some destinations: at what times and how often do they serve them? What are the scheduled turnaround times? By visiting the airport and observing actual arrivals and departures, determine how closely their actual operations match the schedule. What do you conclude from these observations?
2.4. Choose one or two low-cost airlines serving your airport or region. Describe their history: how have they competed with the established airlines? What are the comparative fares? What routes do they serve? What kind of facilities do they use at a local airport?
How do you think these airlines might affect the future facilities and operations at this air-port?
2.5. Consider the development of a major airport in your region: what airlines have started