The competitive landscape for airports has evolved. The same drivers of competitive change within the airline industry - the emergence of low-cost and the mega-Gulf carriers, global alliances and consolidation - are affecting airports too. This in turn sees many taking a more pro-active approach.
European airports find themselves at the heart of many of the challenges. "Airports are now in competition more than they have ever been before," suggests David Feldman, managing partner with Exambela Consulting. For example, the rise of pan-European low-cost carriers means airport competition, especially in point-to-point markets, is in many cases less about proximity in location and more about opportunity, operating environment and costs. "Airports are in competition with each other across Europe. Ryanair doesn't really care whether the airport is in Charleroi, Barcelona or Manchester," he says, noting the airline can move to where the best deal or opportunity is.
Athens International Airport chief executive Yiannis Paraschis, new chairman of ACI World's governing body, adds: "We have seen examples where low-cost carriers have very quickly walked away, or could not continue in the market or thought they could find a better opportunity elsewhere."
Ryanair has shown its ruthlessness in moving aircraft or closing bases altogether in protest at landing fees, evident in its willingness to ground 80 aircraft over this winter - even if high fuel costs are also a factor. Its message to airports at the recent World Route Development Forum in Berlin was clear; it expects airports to take a share of the fuel pain.
Feldman notes that the heightened competition, together with attempts to drive regional tourism, can result "in some strange behaviour to bring in airlines", offering highly attractive rates to bring in passengers.
Lufthansa has been a vocal critic of the use of public money to support the development of micro-airports. It argues uncertainties on the financial markets give policy-makers more reason to use "scarce resources" sparingly. "Some micro-airports offer excellent opportunities for cutting back on subsidies totalling in the millions."
What impact the economic difficulties in Europe may have on regions' desires and abilities to offer incentives to develop new routes remains to be seen. Spain, for example, has been bolstering its tourism by encouraging more flights through the lowering of fees.
"[In] those countries where tourism can have a pivotal, catalyst role in the short-term economic development, governments are in a difficult position," says Paraschis. While governments may be tempted to look at ways to drive tourism, airports also have their own business to support. "We have to make sure we grow our part of the value chain, otherwise we run the risk that others look at it [airports] as a zero-profit business and use it for other parts of the business," says Parachis.
"It's a tough world out there," says ACI Europe director general Olivier Jankovec, adding in times like this it is as much about retaining traffic as attracting new routes.
He says the changing landscape for airports is a consequence of Europe's liberalisation and that transformation brought by low-cost carriers is spreading "Some of the features of the low-cost model are getting used by network carriers." He notes the new-look Alitalia moved away from pure hub-and-spoke structure to serve airports across Italy, and Air France is also now moving into the regions.
COMPETING HUB TO HUB
But competition among hub airports generally, and again in Europe in particular, is also in a period of change. This is driven by new competitors and capacity issues.
"I think it is dramatically changing, certainly in the regions of Europe and the Middle East," says Niko Herrmann, Zurich-based partner at consultancy Oliver Wyman. "A key driver is the evolution of aircraft. If you look at the Middle East carriers, they can pretty much fly to any point on the planet non-stop. So the one key traffic area where major European carrier hubs had a natural advantage is being eroded at a rapidly increasing pace. So the competition for transfer traffic increases.
"For example, [to fly] from the US East Coast to India, you used to go through Europe. But now you can go direct or through the Middle East or through Istanbul. And you have multiple carriers through the same alliances," he notes. As the alliances have grown larger, so competition within hubs in the same alliance to secure traffic increases.
"If you look at flights from China - in any alliance there are at least two to three carriers that could serve as a touchpoint. So what can airports do to support that? I think this is where a lot of airports see the opportunities."
Big mergers in the North American market give an additional strand to the changing competitive landscape. "With consolidation in the USA, there is increasing competition within the hubs within the same airline," says Bob Hazel, Reston, Virgina-based partner in Oliver Wyman.
"If you look at United and Continental, each had their own strong hubs, and you find these hubs are in competition within the same airline. It's the same with Northwest and Delta. International hubs within the same major carrier are jockeying for position."
So what can airports do to better compete in this evolving landscape? "There is a lot an airport can do," says Exambela's Feldman. "If an airport is smart it will find ways of attracting new passengers via Google." He suggests, for example, an airport may be able to develop attractive parking options as a way of enticing passengers to travel through the airport and then propose duty free shopping in advance.
An airport can also lobby and benefit from factors that make its location more attractive to particular markets, such as capitalising where smoother visa arrangements are in place for travel to certain markets. "Turkish Airlines flies nonstop to many US destinations. For Iranians travelling to the USA, they can easily travel via Istanbul without the visa problems of connecting via a western European hub," says Feldman.
Jankovec adds that airports are now more involved in network management, providing analysis to support new route decisions which airlines traditionally have done. "Now its coming to them ready made, part of airports becoming much more pro-active.
"They have to try and make sure they have a competitive offering," he adds, but points to the frustration of seeing this undermined by costs they cannot control. "When an airline is looking at a destination, they look at the total cost, and that includes taxes and navigational charges. You can only be competitive on what you can control," he says.
Airports are also looking beyond airlines to help secure business. "Increasingly, airports are playing a larger role in the travel experience," says Oliver Wyman's Herrmann. "In the past, these were just infrastructure providers. Today, you see airports advertising their competitive advantages to the general public.
"Self-connection; I think this is one area that is just starting to have a role," he says. "You can provide for the various types of traveller to self-connect and spend their time at the airport in a meaningful way."
While self-connecting remains embryonic, Malaysia Airports has been active in pushing development of ways to facilitate self-connecting. In Europe Milan airports operator SEA has developed its Via Milano concept, a service offering passengers connecting flight options, while Dublin airport operator DAA has just developed its Airport Genie product.
For those in constrained markets there is increased activity to offset the slower rates of growth, or in same cases, the regulatory restrictions capping the ability to grow.
"Because it [the USA] is not a growth market - and growth hides a lot of sins - we are seeing a much sharper focus on commercial issues to an extent we have not seen before," says Oliver Wyman's Hazel.
Paraschis at Athens Airport also notes the focus on growing non-aeronautical revenues for airports in mature markets, especially those that have been privatised or corporatised. "They have gone from being a provider of mere infrastructure to become businesses in their own right," he says. He says non-aeronautical activities at Athens airport contribute about 40% of its annual revenues and around 65% of its profits. This has recently been bolstered by the opening in October of a major new solar energy park.
But capacity issues loom in Europe, with projections there could be a capacity shortage to meet demand of 10% by 2030. "One of the big problems will be capacity and this is very important to us. We want political visibility for the capacity issue," says ACI Europe's Jankovec. He believes the European Commission can give long-term direction to the issue and all eyes will be on its strategy for tackling airport capacity as part of its forthcoming airports package. Jankovec argues this is key to reaping Single European Sky benefits. "If you don't have matching capacity on the ground, you don't solve anything," he says.