Privatization, commercialization and deregulation of airports – incentives for airport to compete and maximize profits. Increasing importance of airport concession revenue – affects performance of different airport regulations, and leads to evolving vertical relationships. As competition in the airline market intensifies, airport-airline relationship becomes increasingly important. Discuss the impacts of airports on airline competition – focus on airport performance and airline-airport relationship.
In the topic below we are going to discuss what incentives an airport needs to compete and maximize profits. Also we will discuss the increasing importance of airport concession revenue and the affects of performance of different airport regulations which would lead to evolving vertical relationships. Also we will discuss how airport-airline relationship becomes increasingly important as competition in the airline market intensifies. We will discuss the impacts of airports on airline competition and focus on airport performance and airline-airport relationship. Airport performance and airline-airport relationship:
The impacts of airports on airline competition may consist of a supply of services an airport can offer both tangible and intangible to meet the needs of airline customers. A customers decision on choice of airport or airline can be divided into three: Core: the essential benefit that is offered.
Actual: the features that deliver the benefit.
Augmented: additional services/benefits that distinguishes the product from others. Most competition takes place at the augmented level. Research find that access time and flight frequency are the two main determinants of airport choice. But they also find that the importance of these two variables differs according to traveller’s and trip characteristics. In particular, individuals travelling alone and women are more sensitive to access time. Hess and Polack (2006) Airports that have totally or partially common catchment areas compete for departing or arriving passengers. When a potential passenger is deciding between flying from one airport or from another, she considers as a constraint the time she will take to and from the airport, which includes the distance and waiting time, this latter depending on frequencies and timetables. This time has a cost for her so she will choose the airport where she can be onboard more quickly, which means more cheaply. However the cost of time is not the only factor that influences her decision. The price she pays for an airline ticket is also an important factor of her decision. Then she will prefer to depart from the airport where the sum of her flight fare and the cost of time to go the airport is smaller. And it often happens that different airlines charging different fares operate in competing airports to the same destinations. Though it may happen, it is very unlikely that the same airline operates routes from competing airports to the same destinations with the same fare. This means that the passenger considers in her decision the set of “airport+airline” and not only the airport alone. For instance, a Londoner flying low cost to Marseille decides between Ryanair from Stanstead and Easyjet from Gatwick. The decision depends on the total cost of travelling time to the airport and the fares that these airlines charge. It is not possible to analyse competition between airports alone, without considering the airlines that operate there. Airport competition may exist when two or more airports are near enough to serve the same city, or, in other words, to have the same catchment area so dispute the same market. However this situation is not frequent. Rarely two airports would be situated so near each other that their catchment area would exactly coincide. Rather, most competing airports have a common part of their catchment areas. Large cities or densely populated areas are sometimes served by more than one...