“The standard price of an advanced purchase ticket to
Spain was £103.00 once liberalisation took place with the
new agreements 2 years later saw the same ticket
decrease to £79.00 to Spain.” Doganis, R (2001)
In turn, motivating growth in airline traffic with new entrants and an increase in routes available. More evident of the new ‘Open Market’ effect was the commencement of Ryanair and their flights to Dublin. Ryanair was low cost and unrestricting creating other airlines such as British Airways reducing fares but keeping restrictions in place.
It seemed that the aviation was becoming a major industry impacting on worldwide countries everywhere but many believed that becoming liberal was not going far enough to provide a fairer service for consumers. Therefore hence became a new direction with the Open Skies Agreements being introduced in 1992 and onwards.
Post 1992
Post 1992 saw another evolution in creating more of a fairer market for consumers and various airlines entering the world of aviation. The low cost and low fare airlines began to emerge with great force such as Easyjet, Jet2 and Air One in the US and UK all of which replicated the South West model which was now a major low cost airline in the US.
South West Airlines were an insight into future operations in aviation; their mission was to create in Texas a low cost alternative to driving between two points, their business strategies were to multiply the amount of people travelling to one destination to another. The concept was to allow faster check in with no assigned seating and to achieve higher occupancy on board making the tickets available using certain, methods i.e. internet or customer service desks only able to retail tickets. Their main aim was to use methods which were more efficient and cost effective.
Open Skies
Open Skies Agreements were an updated version of the bilateral agreement set out in the Open Market Phase but with amendments to both countries with the 3rd, 4th and 5th Freedom Traffic Rights; it must be acknowledged that Open Skies does not mean complete freedom in the air for airlines and the routes they use. This in turn gave greater competition for the consumer to choose from but had many implications such as lack of capacity for runways and airline slots which many had lost due to new airlines, the only aid in the solution for this problem became the emergence of mergers and alliances and FFP’s. This is discussed below
.
Relationship between Airlines and Airports
This is quite similar in looking at the relationship between travel and hospitality, where, it is difficult to ascertain which one came first and can you have one without the other. The simple answer to this is no they both go hand in hand together for without the demand for aircraft and airlines no one would need a base the same visa versa an airport wouldn’t survive without having aircraft and airlines being readily available for the consumer.
Post War saw a lot of air bases changing to leisure bases for airlines to whisk travellers going abroad. What was once grassy or dirt tracked runways the sudden increase in leisure travel meant that concrete surfaces which decreased the drag force for aeroplanes began to operate. Many argue of where and which was the first airport to be established, what’s more important is their structure and how different in usage they have become.
Functions, Finance and Structures
The function of an airport is classically allocated into divisions ‘Airside and Landside’. Landside consists of parking and transportation, access roads, Airside includes runways, ramps and fuel areas. Passengers arriving at the airport go from landside to airside accessed through terminals which contain check in services, security, luggage and boarding. However the area that passenger’s wait is typically called concourses.
The structure can be varied depending on the size and scale of an airport. Small airports for example Blackpool Airport in Lancashire is a relatively small centralised operation in which the directing manager is routinely involved in the day to day running of the business they have one terminal which copes with both arrivals and departures. This type of business is usually in a rural area located away from major cities and towns. Blackpool has only 3 main carriers using the airport and has only a selection of European destinations such as Spain and Ireland. A medium to large airport for example could be Manchester Airport which is classed as a gateway regional airport in the terms they have a larger selection of destinations that is accessible by the entire North West region. Manchester is decentralised within three main terminal areas due to the influx of passengers they have to serve annually. Manchester airport which is owned by the BAA, have three terminal buildings which offer a vast array of flights to all ends of the world including domestic flights to other regional or local airports. Manchester Airport is a relatively complex business which they more likely have a board of executives with heads of departments below running the daily operations (please see appendices for figure – which shows the various types of organisational structure). More and more airports are increasing their airside areas and therefore becoming decentralised. The importance for managing airports effectively is forming awareness of change. Recognising tourist’s needs is a major contributor for the change in how airports are managed. The business of an airport wants to create an experience for all who use it and numerous factors inhibit the experience mentioned such as speed of check in and security, availability of services and facilities, atmosphere and environment is important however it all comes down to money and how much the airport can make out of both users.
How they are financed
There are four main types of ownerships used which are; state ownership in which US airports currently reside with the government being in full control of all management operations. Public ownership operates through a council authority. Mix of both public and private airports share the business 50/50 and private ownership through an airport authority. One of the notorious private airport companies leading in the world today is the BAA which holds 7 major airports in the UK along with other airports being privately owned across the globe by the BAA.
There are many ways in which an airport is financed they are aeronautical incomings and non aeronautical the list below is are non- aeronautical;
Airport Retailing
When airports became fully established retail options weren’t widely available. It was more a case of a contact point to board aircraft. Since then consumers waiting to board flights wanted more functions to be able to entertain one another. The breeding of retail became a starting point for airports to increase their incomings to aid in the increase prices of the preservation of the airport and runways.
Airports have a captive audience and many airports have realised that due to this the constant hike in prices of fuel and others airports believe that having a basic shopping area will assist in the charges of running an airport. There are arguments that are unfair and immoral of the Airports and their companies to use this as an advantage to establish incomings yet many including the BAA have stated that all prices are subject to the MRRP (Manufacturer’s Recommended Retail Price).
Other non – aeronautical incomings are achieved from sales of VIP areas and their private lounges.
Costs and charges
Airline costs and charges at airports (aeronautical fees) vary depending on the area most of the charges are for facilities provided from the airports these are;
- Use of runways and landing fees
- Security charges
- Passenger duty
- Parking and boarding access charges (rented per hour)
- Air Traffic Control
- Environmental charges
- Many others...
IATA’s role in this section along side the CAA are investigating ways in which to drive costs on behalf of member airlines through consultation, new strategies and protection, this is still one of the areas in which are regulated by the UK government. Airlines on average worldwide pay $43.5 billion a year to airports over the last decade according to IATA.
Developments
Airlines
Many airlines were government owned prior to liberalisation many scheduled airlines were known as flag carriers for example British Airways and Singapore Airlines due to airports becoming commercialised airlines now support airport operations in paying for APD, rental charges for airside equipment, fuelling charges etc…. The airports’ profit margins greatly due to these standard charges for air tax.
Airports
Airports were traditionally a public utility due to the radical change within airlines; the airports suddenly found themselves operating towards commercialisation. When airports began to run commercially it was from one building (a terminal) but as the industry grew with the influx of passengers alongside the increased number of airlines and slots becoming available the need to increase in size was evitable.
“Airports are an essential part of the air transport system.
They provide all the necessary infrastructure needed to
enable passengers and freight to transfer from surface
to air modes of transport and allow airlines to take off and land.” Graham, A. (2007)
Trends and Issues
With the aviation industry being fast in changing, trends and issues has become apparent in all forms
Increase Costs and Fees
The increasing costs of passenger duty tax (APD) and infrastructure fees excluding fuel forms the 2nd largest external costs to airlines, and according to IATA;
- Over the past 5 year’s airport aeronautical revenues per passenger increased 27%.
- The unit cost of air navigation increased 9.4% during the same period.
- At the same time airlines reduced unit costs (excluding fuel) by 16%.
This has meant that airlines go in two directions they are either forced to increase their seat prices which could establish the end of budget travel or they are forced to run into administration (chapter 11) the latter means that alliances or major airlines try to acquisition the failing companies a prime example of this would be BA who tried to buy certain airlines and their slots, which in turn was disallowed by the Monopolies and Mergers Commission on the basis that it would minimise competition against all other airlines.
Types of Flights
Since the beginning of commercial aviation, scheduled airlines were the forefront and had seized the market. Since the industry became deregulated the vast array of flights available for consumers has grown, the varieties are scheduled, charter, low cost and budget or no frills. Scheduled would be BA, Charter’s are Thomsonfly, and Easyjet would be all three of the other choices. The changes in the type of flights have been caused by the change in purchasing (the rise of the internet), other factors such as increased income especially disposable and the increase in the desire to gain value for money.
Air alliances and Mergers
Since the beginning of the Open Skies Agreement and the introduction in Low Cost Airlines, many airlines failed to take off or had ended up in what is known as chapter 11 (bankruptcy) this was due to the vast array of choice when it came to airlines, the fact that prices were being lowered to attract the consumer. Many airlines had no other option than to merge and create alliances. The first established airline alliance began with Pan Air. Now there are three major alliances with many airlines involved globally they are Star Alliance, One World and Sky Team (see appendices for current members).
The Future
Research suggests on the profit margins of the aviation industry globally airlines are set to make a combined net profit of $3.8 Billion in 2007 according to Mintel Reports and Wall Street Journal, they also states that;
“According to the IATA European airlines will account for
$2.4 billion of the profit forecast, while Asian- Pacific
Airlines will make up $1.7 billion. North America airlines are
expected to lose a combined $600 million. It is also forecasted
that by 2010, Asia will be the world’s largest aviation market,
accounting for one third of the air traffic”.
www.mintelreports.com
Environmental issues
“The aviation industry is entering a new era of change as
we aim to meet our environmental challenges. The industry
is in the midst of a transformation that is as comprehensive
as the one that took place a century ago when we went from
Orville Wright flying for a few seconds in 1902 to the first
daily passenger flights from London to Paris in 1919. This
stunning speed of innovation has not abated, and the next
two decades will be among the most daring and progressive
in aviation history as people in all parts of the industry
work on new technologies and processes to limit aviation’s
impact on the environment”. Rochat, P
Many suggest that environment concerns such as CO2 Emissions could be a barrier that will halt much of the future trends becoming apparent for example; Heathrow’s 5th Terminal at the current state many residents and campaigners believe that a new terminal which is said to have a capacity of ‘35million passengers a year’ is concerning for both noise pollution and climate pollution. This major development to provide a world class airport has created many arguments and rejections from local areas and businesses, but the BAA and the CAA have stated that;
"Aircraft operations are 20% more efficient than only
ten years ago, and a further 25% improvement is
projected by 2020." BAA and CAA
Market Changes
Due to the increase demand in more for less and the issue of climate change, the market demand hasn’t changed dramatically. Certain technological advances which are shown below have captured much media. The only other change is security at airports due to the increase threat of terrorism, many airports have enlarged security both internally and externally to reduce the opportunity of an attack.
Technology
With the demand for more environmentally sound aircraft there have been several major changes, with new aircraft that can hold double the amount of a normal jumbo that is based on two levels reducing the need for two aircraft, thus reducing CO2 Emissions. Airport side, to reduce queues most airlines have a now an electronic system of checking in either through the internet or through booths located in the arrivals hall (please see appendices). These are to aide in the increase in passengers arriving and departing the airport, to alleviate pressure at check in desks and the agents.
Conclusion
This report has shown the history leading into one of the most profitable and established industries worldwide, looking into the differences and similarities between airlines and airports with the advantages and disadvantages of both. It has also shown that much goes into an ever changing industry not all being positive. However, the aviation industry will continue to grow in all ways, shapes and forms to achieve both profit and what the consumer demands. It is clear to say that this industry is very complex and will always have that status.
Appendices
Figure 1 - New Bilateral Agreement Negotiations
See Attached
Figure 2 - New Bilateral Agreement Negotiations
Opportunities for innovative and competitive pricing
Elimination of restrictions on capacity and frequency (opening new operating rights
Eliminating unfair operations and competitive practices
Multiple destinations abroad
Authorisation of more US cities to become International Gateways
Liberalisation on rules regarding charter flights
To provide a more competitive cargo service
This was taken from Doganis, R. (2001)
Figure 3 – Eight Freedoms of the Air
See Attached
Figure 4 – Organisational Structures (Public and Commercialised)
Pre Commercialisation:
After Commercialisation took place:
Figure 5 - Three Major Alliance Players
The three largest airline alliances are:
Figure 6 - Mergers and Acquisitions – British Airways and Virgin Atlantic
British Airways threatens Virgin Atlantic bid
By Stephen Foley
Monday, 26 May 2003
British Airways is planning an emergency strategy session this week to discuss ways of scuppering any merger between rivals Virgin Atlantic and bmi British Midland - and top of the agenda will be whether it could mount a bid of its own for Sir Richard Branson's Virgin.
British Airways is planning an emergency strategy session this week to discuss ways of scuppering any merger between rivals Virgin Atlantic and bmi British Midland - and top of the agenda will be whether it could mount a bid of its own for Sir Richard Branson's Virgin.
The move comes as Virgin claimed it considered an audacious £1.4bn hostile bid for British Airways when its shares were at their nadir at the start of the year.
Now BA says it is "not ruling anything in, not ruling anything out", as senior executives fly back to discuss the revelation that bmi and Virgin have been in on-off talks over a merger or other form of co-operation.
A bid for Virgin is one option that will be considered, as will the possibility of an appeal to the competition authorities to block any tie-up between Virgin's rivals. Sources at BA said yesterday that the company could "work up a case" against the combination.
The claims over the weekend are the culmination of a week of grandstanding by the airlines. Consolidation has moved high up the agenda as the troubled industry struggles to combat an economic downturn and the fear of flying caused by war, terrorism and disease - but mergers and acquisitions activity would have to surmount enormous personal, business and regulatory hurdles.
It has emerged that Sir Richard engaged the services of Credit Suisse First Boston, the investment bank, and private financiers Texas Pacific earlier this year to examine whether Virgin should make an audacious £1.4bn bid for BA. However, the plan, nicknamed Project Balloon, was never carried through.
Virgin says it was advised by competition lawyers that a combination with BA would require some concessions but would be cleared by the regulators.
Although BA and Virgin are the only two UK companies allowed transatlantic flights, the second licence would be up for grabs if the two merged.
The talks between Virgin and bmi, revealed on Thursday, appear to have stalled as the pair failed to agree on price, but Virgin sources continue to insist that they will resume.
The flag-carrier has been rattled by the prospect of a deal between Virgin and bmi, which would combine BA's main transatlantic rival with one of the UK's biggest short- haul operators.
Yesterday, Virgin dismissed the idea that BA could bid for the group as "a flying pig scenario". Will Whitethorn, spokesman for Virgin, said: "British Airways is a public company. We can make a hostile bid for them and there is nothing at all they can do about it. But Virgin is 51 per cent owned by Sir Richard. He has no plans to sell, only plans to expand."
BA said that Roger Maynard, its director of investments, is returning from a trip to Australia to discuss the bmi-Virgin talks with Rod Eddington, the chief executive.
A spokesman for BA said: "We will be looking where we fit in, whether we should fit in, and whether we should take steps to make sure we fit in."
US Court dismisses Virgin's BA Lawsuit
By Martha Linden, PA News
Tuesday, 26 October 1999
British Airways today welcomed a decision by a US court to throw out outstanding claims against it from a one billion dollar (£600 million) lawsuit brought by Virgin Atlantic.
British Airways today welcomed a decision by a US court to throw out outstanding claims against it from a one billion dollar (£600 million) lawsuit brought by Virgin Atlantic.
District judge Miriam Cedarbaum dismissed all the remaining claims in the lawsuit first filed six years ago by Virgin.
Virgin had claimed BA had abused its dominant position in the market place by providing unfair incentive schemes, a charge dismissed as baseless by BA.
Five of the eight claims were dismissed initially by the same judge - the remaining allegations were dismissed yesterday after it was ruled Virgin had failed to produce evidence in support of them.
Bob Ayling, chief executive of British Airways, welcomed the court's ruling.
He said: "British Airways is gratified by the considerable care and effort taken by the court.
"Judge Cedarbaum has comprehensively dismissed charges which we have always believed to be baseless and without merit in fact or law.
"This is a great day for everyone at British Airways."
A spokesman for Virgin said the company was "very surprised" by the ruling and said Virgin would appeal.
He said: "We are very confident that, as we proved to the European Commission, we will prove to the US courts that BA has abused its dominant position and has been going against the consumer interest."
Figure 7 – Online Check in Service and Self Service Check in Booths
- Jet2.com Online Service
Manchester Airport - Self Service Check in Booths
ONLINE CHECK-IN & SELF-SERVICE CHECK-IN
Check in without the stress
Start your journey from the comfort of your own home, office or hotel by checking in online from 24 hours* before your flight departs and minimise the queues at the airport
You can select your preferred seat and print your boarding pass**, all on your home PC.
If you don’t have online access you can still save time by using a Self-Service Check-in kiosk*** at the airport, giving you the same seating and boarding pass options as Online Check-in.
Afterwards, maximise your free time by leaving your baggage at a Bag Drop***, allowing you to shop, dine or relax as you choose before boarding your flight.
*Check in from 24 hours up to 1 hour before departure. For flights from the US Online Check-in closes 2 hours before departure. **Available on selected routes. ***Available at selected airports
Bibliography
Books
Graham, A. (2007); Managing Airports: An International Perspective 2nd Edition, Butterworth – Heinemann, Oxford
Doganis, R. (2001); The Airline Business in the 21st Century, Routledge, London
Websites
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Journals
Rochat, P. (2007); Journal of Airport Management, September Issue, SPG Media#
Additional Reading
Hanlon, P. (2007); Global Airlines: Competition in a Transitional Industry 3rd Edition, Butterworth – Heinemann, Oxford
