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An exploratory study into airport choice factors for European low-cost airlines
ARTICLE IN PRESS
Journal of Air Transport Management 11 (2005) 388–392 www.elsevier.com/locate/jairtraman
An exploratory study into airport choice factors for European low-cost airlines David Warnock-Smith, Andrew Potter Cardiff Business School, Cardiff University, Aberconway Building, Colum Drive, Cardiff CF10 3EU, UK
Abstract Low-cost carriers are an increasingly important part of the European aviation industry. Airport choice is a crucial factor in determining their success or failure. While research has been conducted into airport choice factors, their relative rankings have not previously been investigated. This paper addresses this through an exploratory survey of eight European low-cost airlines. The paper finds that demand for low-cost services is the most important choice factor, with aeronautical charges ranked fourth. Further analysis reveals different requirements depending upon airline characteristics. This implies that airport managers need to tailor their service offering to individual low-cost airlines rather than treating the sector uniformly. r 2005 Elsevier Ltd. All rights reserved. Keywords: Low-cost airlines; Airport choice factors; Europe aviation markets
1. Introduction Within Europe, there has been a significant growth in the number of low-cost carriers (LCCs) operating. One feature of the low-cost model is the use of secondary or regional airports. These airports compete with each other to secure the services of LCCs, a situation exploited by the airlines to reduce their costs as much as possible. Given airport charges can represent around 12% of LCCs’ costs (Doganis, 2001), this focus is understandable. Airport choice, however, reflects more than just the cost factor. Therefore, it is important for airport management to understand the relative importance of these factors to offer the service required by the airline. Through an exploratory survey of LCCs in Europe, this paper aims to identify the relative importance of a number of airport choice factors. Further, it looks to ascertain whether differences exist between different clusters of airlines. From this information, it should be Corresponding author. Tel.: +44 2920876915; fax: +44 2920874301. E-mail address: [email protected] (A. Potter).
0969-6997/$ - see front matter r 2005 Elsevier Ltd. All rights reserved. doi:10.1016/j.jairtraman.2005.05.003
possible for airport management to provide services more tailored to the demands of particular airlines. This ranking of airport choice factors represents the main contribution of this paper. The paper proceeds by firstly considering the previous research on airport choice factors for LCCs. The survey method is then detailed and followed by an analysis of the results. In doing so, the responses of the whole sample are considered before breaking the results into smaller groups to compare findings between them. Finally, the implications for airport managers are outlined.
2. LCC airport choice factors In deciding which airports to operate from, a number of different factors are considered by LCCs. For Ryanair, airport choice factors include low airport charges, quick turnarounds, simple terminals, rapid check-in facilities, good passenger facilities and accessability (Barrett, 2004). Ryanair, as with many other LCCs, can be regarded as a ‘market making’ airline,
ARTICLE IN PRESS D. Warnock-Smith, A. Potter / Journal of Air Transport Management 11 (2005) 388–392
using low prices to be attractive to passengers who would never have considered flying before (Gillen and Morrison, 2003). However, this does not apply to all LCCs and therefore it is important that an airport has either a high demand for LCC traffic or a positive economic forecast to increase demand for point-to-point traffic (Scheers, 2001). Additionally, passengers are willing to travel further to access cheaper flights thus placing a lesser emphasis on an airport’s current catchment area and more on accessibility (Francis and Humphreys, 2002). Demand can also be increased by having convenient slot times, along with spare airport capacity, enabling the servicing of both the business and leisure markets. This also improves operational efficiency by increasing the utilisation of aircraft (Calder, 2003). An additional factor is competition between both airports and airlines. Some airlines in Europe take advantage of strong airport competition and negotiate with as many as five airports, despite having the stated intention of introducing a lesser number of routes (Gillen and Lall, 2004). This exploits the increasing commercial focus of airports in Europe, which has resulted in a desire to attract new routes and airlines at almost any cost (Francis and Humphreys, 2002). With airline competition, the growth in the number of LCCs has resulted in greater competition between them, as well as an increasing number of bankruptcies (Anon, 2004). This implies that airline competition may also be a factor affecting airport choice.
3. Method To provide a ranking as to the most important airport choice factors for LCCs, a postal survey was carried out. This was chosen in preference to an interview-based approach due to the geographical spread of airlines to be contacted. The survey design was based around 15 factors affecting airport choice determined through the literature review process. The respondents were asked to rank the importance of each factor on a Likert scale running from 1 to 6. The LCCs were selected on the basis of information provided by both Anon (2003) and the Internet. Only true LCCs were included—charter airlines that offer ‘seat only’ packages were excluded. The list was further refined by only including airlines, that offer services to the UK. This does not significantly restrict the generalisability of the findings as most major European low-cost airlines do provide services to the UK. Twenty-three surveys were sent to 10 UK based and 13 European Union (EU) based LCCs. Nine responses were received, from 6 UK to 3 EU based LCCs, and of these, one was from a UK airline that had yet to start operations and was therefore removed from the sample
389
as the focus was on airlines that were currently operating air services. Subsequently, this airline filed for bankruptcy before operating a single service. The final sample size was 8, giving a 34.7% response rate.
4. Choice factors for all responses The results for the full sample of airlines can be found in Table 1. The top factor is a high demand for LCC services within the airport’s catchment area. Seven out of the eight respondents cited this factor as an important consideration, with the remaining airline seeing demand as a somewhat unimportant factor. Equally, LCCs look for markets where there is a large potential demand for their particular niche of service (ranked fifth). This confirms that LCCs are market makers in many instances (Gillen and Lall, 2004). The second ranked factors are convenient slot times for take offs and landings and quick turnaround facilities, reflecting Calder (2003). Equally, availability of slots throughout the day is important in maximising fleet utilisation, another important element of the lowcost model (Doganis, 2001). If the responses are scrutinised further, it becomes clear that those LCCs based at quieter regional airports give this factor a lower ranking. This would follow when one considers that these airports have a greater amount of available capacity. The importance of quick turnaround times is again linked to the need to keep aircraft airborne as much as possible. Two of the most significant reasons for LCCs operating from secondary and regional airports are lower turnaround times and increased punctuality (Lawton, 2002). Good aeronautical discounts were the fourth ranked factor. This finding confirms the view of Doganis (2002, cited in Francis et al., 2003) that fees may not be the most significant factor in the low-cost operation of a route. Conversely, airport managers perceive aeronautical charges as the most important factor for LCCs (Francis et al., 2003). Overall, six of the eight airlines rated aeronautical discounts as important or higher. One reason why the other two airlines gave this factor a low rating may be that they are conversions from full services carriers (FSCs) and already operate from primary airports. Consequently, the cost of moving to another airport with lower costs outweighs the higher aeronautical charges. Turning to the lowest ranked factors, a high level of airline competition has the lowest average value of 2.63. The LCC market has proved volatile with a number of failures due to competition between LCCs and with FSCs (Doganis, 2001). Therefore, the airlines are less interested in competing with others to preserve their existence. The experience of the airport in dealing with LCCs is also ranked lowly in the survey. Partially, this is
ARTICLE IN PRESS D. Warnock-Smith, A. Potter / Journal of Air Transport Management 11 (2005) 388–392
390
Table 1 Ranking of airport choice factors for the full sample of LCCs Rank
Factor
Average (n ¼ 8)
Standard deviation
1 2 2 4 5 5 7 8 8 10 10 12 13 14 15
High demand for LCC services Quick and efficient turnaround facilities Convenient slot times Good aeronautical discounts Positive forecasts for business and tourism Cost conscious airport management High airport competition Good surface access Spare airport capacity Good environmental policy Ambitious expansion plans Privatised, deregulated airport Good non-aeronautical revenues Good experience of LCCs High level of airline competition
5.00 4.63 4.63 4.50 4.38 4.38 4.13 4.00 4.00 3.75 3.75 3.63 3.13 2.88 2.63
1.07 1.30 0.92 1.51 1.30 1.19 1.13 1.20 0.76 1.28 1.28 0.92 0.99 1.13 1.41
related to the issue of airline competition. Additionally, this finding confirms the view that there are first mover advantages for the LCC establishing a route, creating entry barriers for new airlines (Francis et al., 2003). In such an instance, the airport would have no experience of LCCs. Good non-aeronautical revenues for the airport are also not considered a significant factor. To some extent, this finding is quite surprising, given the potential for non-aeronautical charges to subsidise aeronautical charges. However, LCCs focus more on reducing their own costs. This is particularly illustrated through one of the case studies in Francis et al. (2004), where a lack of non-aeronautical revenues resulted in the airport seeking to increase the charge to the LCC. Consequently, the airline stopped the service.
High demand for LCC services Quick and efficient turnaround facilities Convenient slot times Good aeronautical discounts Positive forecasts for business and tourism Cost conscious airport management High airport competition Good surface access Spare airport capacity Good environmental policy Ambitious expansion plans Privatised, deregulated airport Good non-aeronautical revenues Good experience of LCCs High level of airline competition 1
2
3
4
5
6
Average Ranking Start Up
Conversion
Fig. 1. Impact of airline origin on airport choice factors.
5. Choice factors for LCC clusters There are many variations around the basic LCC model and, therefore, a number of different clusters were compared to quantify these differences:
Airline origin—In forming LCCs, two approaches have been taken. Firstly, there have been new airlines established with no previous operational experience (such as easyJet). Secondly, and often in response to the growth of these new airlines, FSCs and charter airlines have either converted themselves or part of the operations to the LCC model (e.g., Air Berlin). Airline size—Given the air transport industry benefits from economies of scale, it could be expected that airport choice factors will be influenced by the size of the airline. Date of entry to low-cost market—There appears to be first mover advantages within the LCC sector
(Francis et al., 2003). Therefore, differences between the airport choice factors may exist. The results from each of these comparisons will now be examined in more detail. Particular focus is given to the variables where there are major differences between the average values. 5.1. Comparison of airline origin Some differences between new airlines and conversions may exist because the latter often use their previous operations as the starting point for the lowcost services. In these instances, consistency in routes and personnel exists. As can be seen in Fig. 1, there are differences related to high airport competition, spare airport capacity and high airline competition. Airport competition is viewed as somewhat unimportant to the
ARTICLE IN PRESS D. Warnock-Smith, A. Potter / Journal of Air Transport Management 11 (2005) 388–392
start up carriers but quite important to converted airlines. One reason for this could be the converted LCC looking to leverage a better deal from the airports they currently serve. By contrast, start up carriers place a greater importance on the provision of spare airport capacity. Given that conversions often retain their previous operations, this is unsurprising and is also reflected through a slightly lower requirement for convenient slot times, on the basis that they already have slots allocated to them. The final difference relates to airline competition. Again, start up LCCs rate this factor more highly. These airlines look to take market share from FSCs with whom they compete, as well as creating new markets through reducing the cost of air travel. Equally, the presence of competitors indicates that a market exists for air services. Conversions already have a market share that they want to maintain. The presence of competitors may see current customers defer to other airlines—the lowest cost passengers to other LCCs and those wanting more than a no-frills service to alternative FSCs. 5.2. Comparison of airline size In comparing the sizes of airlines the sample contained two clear clusters of airlines; those with fewer than 15 aircraft and those with over 30. Four factors display major differences in average values (Fig. 2), namely good experience of LCCs, good non-aeronautical revenues, high level of airline competition and good surface access. Of these, only airline competition receives a higher ranking from the larger airlines. The findings indicate that smaller LCCs are less risk averse when it comes to making decisions as to which airports to service. They choose locations with a good experience
High demand for LCC services Quick and efficient turnaround facilities Convenient slot times Good aeronautical discounts Positive forecasts for business and tourism Cost conscious airport management High airport competition Good surface access Spare airport capacity Good environmental policy Ambitious expansion plans Privatised, deregulated airport Good non-aeronautical revenues Good experience of LCCs High level of airline competition
391
of LCCs, as this helps to guarantee passengers for the services they provide. They prefer airports with good non-aeronautical revenues to reduce the risk of an increase in aeronautical charges. Finally, being smaller means their brand may be less well known. If passengers can get to an airport easily, they may be more likely to use the small carrier. 5.3. Comparison of date of entry to market The final comparison relates to the date of entry of the airline into the LCC market place. In developing clusters, the year 2000 was selected as this represents five years since the introduction of the Third Package of liberalisation in European air transport. The results for these two clusters can be found in Fig. 3. There are four factors that are of particular interest—high demand for LCC services, high airline competition, quick and efficient turnarounds and convenient slot times. Good aeronautical discounts are not included as the data spread for early entrants is high. The literature suggests that the first movers in the low-cost sector gain some advantages (Francis et al., 2003) and the above differences appear to confirm this. LCCs entering the market before 2000 were effectively ‘market making’ airlines, challenging the conventional thinking for air transport. Therefore, they sought airports with a high demand for their services and quick turnarounds. Airline competition was not an issue because of the different product being offered. Those LCCs established after 2000 are a reaction to the changing market. Consumers are now more aware of low-cost airlines, reducing the need for targeting particularly large areas of demand, while quicker turnarounds have become an accepted norm. Further, these newer airlines are more averse to airline competition as they are not as well established. This
High demand for LCC services Quick and efficient turnaround facilities Convenient slot times Good aeronautical discounts Positive forecasts for business and tourism Cost conscious airport management High airport competition Good surface access Spare airport capacity Good environmental policy Ambitious expansion plans Privatised, deregulated airport Good non-aeronautical revenues Good experience of LCCs High level of airline competition
1
1
2
3 4 Average Ranking
Large (>30 aircraft)
5
6
2
3 4 5 Average Ranking Pre 2000
6
Post 2000
Small (<15 aircraft)
Fig. 2. Impact of airline size on airport choice factors.
Fig. 3. Impact of date of entry to low-cost market on airport choice factors.
ARTICLE IN PRESS 392
D. Warnock-Smith, A. Potter / Journal of Air Transport Management 11 (2005) 388–392
competition may arise either from FSCs or other LCCs. These airlines also find it harder to secure convenient slot times as the early growth in LCCs has resulted in capacity constraints.
any marketing exercise is tailored towards the specific airline.
References 6. Managerial implications and conclusions Overall, the analysis of the results has not only highlighted the importance of demand and efficiency from the airports chosen by LCCs, but also that there are a number of differences between clusters of LCCs. This has a number of implications for airport managers. Firstly, the survey has identified that cost is not necessarily the first choice for LCCs when selecting an airport. The primary concern is that there is sufficient demand to justify the provision of services. Airport managers, in looking to attract LCC services, need to ensure their marketing approach reflects this, with an emphasis on demand, turnaround facilities and slot availability as well as cost. Evidence in Francis et al. (2004) indicates that airport managers view cost as the most important factor. The findings of this paper therefore challenges this view. In addition, managers should be aware that although there is some uniformity of opinion between the different LCC clusters, there is not one standard lowcost airline model, with each having different requirements. This appears to particularly apply when the length of time the carrier has been in the low-cost market is taken into consideration. Not only were there the greatest number of differences in rankings found through this segmentation, but the order of importance also changed. Therefore, managers need to ensure that
Anon., 2003. Low cost airlines. Airliner World, October, 38–75. Anon., 2004. Failures raise prospect of consolidation. Airline Business June, 23. Barrett, S.D., 2004. How do the demands for airport services differ between full-service carriers and low-cost carriers? Journal of Air Transport Management 10, 33–39. Calder, S., 2003. No Frills—The Truth Behind the Low-Cost Revolution in the Skies, second ed. Virgin, London. Doganis, R., 2001. The Airline Business in the 21st Century. Routledge, London. Doganis, R., 2002. Consultancy advice on aviation issues for the Department of Taoiseach. Department of Public Enterprise, Dublin. Francis, G., Humphreys, I., 2002. Policy issues and planning of UK regional airports. Journal of Transport Geography 10, 249–258. Francis, G., Fidato, A., Humphreys, I., 2003. Airport-airline interaction: the impact of low-cost carriers on two European airports. Journal of Air Transport Management 9, 267–273. Francis, G., Humphreys, I., Ison, S., 2004. Airports’ perspectives on the growth of low-cost airlines and the remodeling of the airportairline relationship. Tourism Management 25, 507–514. Gillen, D., Lall, A., 2004. Competitive advantage of low-cost carriers: some implications for airports. Journal of Air Transport Management 10, 41–50. Gillen, D., Morrison, W., 2003. Bundling, integration and the delivered price of air travel: are low cost carriers full service competitors? Journal of Air Transport Management 9, 15–23. Lawton, T.C., 2002. Cleared for Take-Off—Structure and Strategy in the Low Fare Airline Business. Ashgate, Aldershot. Scheers, J., 2001. Attracting investors to European regional airports: what are the prerequisites? International Airport Review 5 (4), 55–63.
Journal of Air Transport Management 11 (2005) 388–392 www.elsevier.com/locate/jairtraman
An exploratory study into airport choice factors for European low-cost airlines David Warnock-Smith, Andrew Potter Cardiff Business School, Cardiff University, Aberconway Building, Colum Drive, Cardiff CF10 3EU, UK
Abstract Low-cost carriers are an increasingly important part of the European aviation industry. Airport choice is a crucial factor in determining their success or failure. While research has been conducted into airport choice factors, their relative rankings have not previously been investigated. This paper addresses this through an exploratory survey of eight European low-cost airlines. The paper finds that demand for low-cost services is the most important choice factor, with aeronautical charges ranked fourth. Further analysis reveals different requirements depending upon airline characteristics. This implies that airport managers need to tailor their service offering to individual low-cost airlines rather than treating the sector uniformly. r 2005 Elsevier Ltd. All rights reserved. Keywords: Low-cost airlines; Airport choice factors; Europe aviation markets
1. Introduction Within Europe, there has been a significant growth in the number of low-cost carriers (LCCs) operating. One feature of the low-cost model is the use of secondary or regional airports. These airports compete with each other to secure the services of LCCs, a situation exploited by the airlines to reduce their costs as much as possible. Given airport charges can represent around 12% of LCCs’ costs (Doganis, 2001), this focus is understandable. Airport choice, however, reflects more than just the cost factor. Therefore, it is important for airport management to understand the relative importance of these factors to offer the service required by the airline. Through an exploratory survey of LCCs in Europe, this paper aims to identify the relative importance of a number of airport choice factors. Further, it looks to ascertain whether differences exist between different clusters of airlines. From this information, it should be Corresponding author. Tel.: +44 2920876915; fax: +44 2920874301. E-mail address: [email protected] (A. Potter).
0969-6997/$ - see front matter r 2005 Elsevier Ltd. All rights reserved. doi:10.1016/j.jairtraman.2005.05.003
possible for airport management to provide services more tailored to the demands of particular airlines. This ranking of airport choice factors represents the main contribution of this paper. The paper proceeds by firstly considering the previous research on airport choice factors for LCCs. The survey method is then detailed and followed by an analysis of the results. In doing so, the responses of the whole sample are considered before breaking the results into smaller groups to compare findings between them. Finally, the implications for airport managers are outlined.
2. LCC airport choice factors In deciding which airports to operate from, a number of different factors are considered by LCCs. For Ryanair, airport choice factors include low airport charges, quick turnarounds, simple terminals, rapid check-in facilities, good passenger facilities and accessability (Barrett, 2004). Ryanair, as with many other LCCs, can be regarded as a ‘market making’ airline,
ARTICLE IN PRESS D. Warnock-Smith, A. Potter / Journal of Air Transport Management 11 (2005) 388–392
using low prices to be attractive to passengers who would never have considered flying before (Gillen and Morrison, 2003). However, this does not apply to all LCCs and therefore it is important that an airport has either a high demand for LCC traffic or a positive economic forecast to increase demand for point-to-point traffic (Scheers, 2001). Additionally, passengers are willing to travel further to access cheaper flights thus placing a lesser emphasis on an airport’s current catchment area and more on accessibility (Francis and Humphreys, 2002). Demand can also be increased by having convenient slot times, along with spare airport capacity, enabling the servicing of both the business and leisure markets. This also improves operational efficiency by increasing the utilisation of aircraft (Calder, 2003). An additional factor is competition between both airports and airlines. Some airlines in Europe take advantage of strong airport competition and negotiate with as many as five airports, despite having the stated intention of introducing a lesser number of routes (Gillen and Lall, 2004). This exploits the increasing commercial focus of airports in Europe, which has resulted in a desire to attract new routes and airlines at almost any cost (Francis and Humphreys, 2002). With airline competition, the growth in the number of LCCs has resulted in greater competition between them, as well as an increasing number of bankruptcies (Anon, 2004). This implies that airline competition may also be a factor affecting airport choice.
3. Method To provide a ranking as to the most important airport choice factors for LCCs, a postal survey was carried out. This was chosen in preference to an interview-based approach due to the geographical spread of airlines to be contacted. The survey design was based around 15 factors affecting airport choice determined through the literature review process. The respondents were asked to rank the importance of each factor on a Likert scale running from 1 to 6. The LCCs were selected on the basis of information provided by both Anon (2003) and the Internet. Only true LCCs were included—charter airlines that offer ‘seat only’ packages were excluded. The list was further refined by only including airlines, that offer services to the UK. This does not significantly restrict the generalisability of the findings as most major European low-cost airlines do provide services to the UK. Twenty-three surveys were sent to 10 UK based and 13 European Union (EU) based LCCs. Nine responses were received, from 6 UK to 3 EU based LCCs, and of these, one was from a UK airline that had yet to start operations and was therefore removed from the sample
389
as the focus was on airlines that were currently operating air services. Subsequently, this airline filed for bankruptcy before operating a single service. The final sample size was 8, giving a 34.7% response rate.
4. Choice factors for all responses The results for the full sample of airlines can be found in Table 1. The top factor is a high demand for LCC services within the airport’s catchment area. Seven out of the eight respondents cited this factor as an important consideration, with the remaining airline seeing demand as a somewhat unimportant factor. Equally, LCCs look for markets where there is a large potential demand for their particular niche of service (ranked fifth). This confirms that LCCs are market makers in many instances (Gillen and Lall, 2004). The second ranked factors are convenient slot times for take offs and landings and quick turnaround facilities, reflecting Calder (2003). Equally, availability of slots throughout the day is important in maximising fleet utilisation, another important element of the lowcost model (Doganis, 2001). If the responses are scrutinised further, it becomes clear that those LCCs based at quieter regional airports give this factor a lower ranking. This would follow when one considers that these airports have a greater amount of available capacity. The importance of quick turnaround times is again linked to the need to keep aircraft airborne as much as possible. Two of the most significant reasons for LCCs operating from secondary and regional airports are lower turnaround times and increased punctuality (Lawton, 2002). Good aeronautical discounts were the fourth ranked factor. This finding confirms the view of Doganis (2002, cited in Francis et al., 2003) that fees may not be the most significant factor in the low-cost operation of a route. Conversely, airport managers perceive aeronautical charges as the most important factor for LCCs (Francis et al., 2003). Overall, six of the eight airlines rated aeronautical discounts as important or higher. One reason why the other two airlines gave this factor a low rating may be that they are conversions from full services carriers (FSCs) and already operate from primary airports. Consequently, the cost of moving to another airport with lower costs outweighs the higher aeronautical charges. Turning to the lowest ranked factors, a high level of airline competition has the lowest average value of 2.63. The LCC market has proved volatile with a number of failures due to competition between LCCs and with FSCs (Doganis, 2001). Therefore, the airlines are less interested in competing with others to preserve their existence. The experience of the airport in dealing with LCCs is also ranked lowly in the survey. Partially, this is
ARTICLE IN PRESS D. Warnock-Smith, A. Potter / Journal of Air Transport Management 11 (2005) 388–392
390
Table 1 Ranking of airport choice factors for the full sample of LCCs Rank
Factor
Average (n ¼ 8)
Standard deviation
1 2 2 4 5 5 7 8 8 10 10 12 13 14 15
High demand for LCC services Quick and efficient turnaround facilities Convenient slot times Good aeronautical discounts Positive forecasts for business and tourism Cost conscious airport management High airport competition Good surface access Spare airport capacity Good environmental policy Ambitious expansion plans Privatised, deregulated airport Good non-aeronautical revenues Good experience of LCCs High level of airline competition
5.00 4.63 4.63 4.50 4.38 4.38 4.13 4.00 4.00 3.75 3.75 3.63 3.13 2.88 2.63
1.07 1.30 0.92 1.51 1.30 1.19 1.13 1.20 0.76 1.28 1.28 0.92 0.99 1.13 1.41
related to the issue of airline competition. Additionally, this finding confirms the view that there are first mover advantages for the LCC establishing a route, creating entry barriers for new airlines (Francis et al., 2003). In such an instance, the airport would have no experience of LCCs. Good non-aeronautical revenues for the airport are also not considered a significant factor. To some extent, this finding is quite surprising, given the potential for non-aeronautical charges to subsidise aeronautical charges. However, LCCs focus more on reducing their own costs. This is particularly illustrated through one of the case studies in Francis et al. (2004), where a lack of non-aeronautical revenues resulted in the airport seeking to increase the charge to the LCC. Consequently, the airline stopped the service.
High demand for LCC services Quick and efficient turnaround facilities Convenient slot times Good aeronautical discounts Positive forecasts for business and tourism Cost conscious airport management High airport competition Good surface access Spare airport capacity Good environmental policy Ambitious expansion plans Privatised, deregulated airport Good non-aeronautical revenues Good experience of LCCs High level of airline competition 1
2
3
4
5
6
Average Ranking Start Up
Conversion
Fig. 1. Impact of airline origin on airport choice factors.
5. Choice factors for LCC clusters There are many variations around the basic LCC model and, therefore, a number of different clusters were compared to quantify these differences:
Airline origin—In forming LCCs, two approaches have been taken. Firstly, there have been new airlines established with no previous operational experience (such as easyJet). Secondly, and often in response to the growth of these new airlines, FSCs and charter airlines have either converted themselves or part of the operations to the LCC model (e.g., Air Berlin). Airline size—Given the air transport industry benefits from economies of scale, it could be expected that airport choice factors will be influenced by the size of the airline. Date of entry to low-cost market—There appears to be first mover advantages within the LCC sector
(Francis et al., 2003). Therefore, differences between the airport choice factors may exist. The results from each of these comparisons will now be examined in more detail. Particular focus is given to the variables where there are major differences between the average values. 5.1. Comparison of airline origin Some differences between new airlines and conversions may exist because the latter often use their previous operations as the starting point for the lowcost services. In these instances, consistency in routes and personnel exists. As can be seen in Fig. 1, there are differences related to high airport competition, spare airport capacity and high airline competition. Airport competition is viewed as somewhat unimportant to the
ARTICLE IN PRESS D. Warnock-Smith, A. Potter / Journal of Air Transport Management 11 (2005) 388–392
start up carriers but quite important to converted airlines. One reason for this could be the converted LCC looking to leverage a better deal from the airports they currently serve. By contrast, start up carriers place a greater importance on the provision of spare airport capacity. Given that conversions often retain their previous operations, this is unsurprising and is also reflected through a slightly lower requirement for convenient slot times, on the basis that they already have slots allocated to them. The final difference relates to airline competition. Again, start up LCCs rate this factor more highly. These airlines look to take market share from FSCs with whom they compete, as well as creating new markets through reducing the cost of air travel. Equally, the presence of competitors indicates that a market exists for air services. Conversions already have a market share that they want to maintain. The presence of competitors may see current customers defer to other airlines—the lowest cost passengers to other LCCs and those wanting more than a no-frills service to alternative FSCs. 5.2. Comparison of airline size In comparing the sizes of airlines the sample contained two clear clusters of airlines; those with fewer than 15 aircraft and those with over 30. Four factors display major differences in average values (Fig. 2), namely good experience of LCCs, good non-aeronautical revenues, high level of airline competition and good surface access. Of these, only airline competition receives a higher ranking from the larger airlines. The findings indicate that smaller LCCs are less risk averse when it comes to making decisions as to which airports to service. They choose locations with a good experience
High demand for LCC services Quick and efficient turnaround facilities Convenient slot times Good aeronautical discounts Positive forecasts for business and tourism Cost conscious airport management High airport competition Good surface access Spare airport capacity Good environmental policy Ambitious expansion plans Privatised, deregulated airport Good non-aeronautical revenues Good experience of LCCs High level of airline competition
391
of LCCs, as this helps to guarantee passengers for the services they provide. They prefer airports with good non-aeronautical revenues to reduce the risk of an increase in aeronautical charges. Finally, being smaller means their brand may be less well known. If passengers can get to an airport easily, they may be more likely to use the small carrier. 5.3. Comparison of date of entry to market The final comparison relates to the date of entry of the airline into the LCC market place. In developing clusters, the year 2000 was selected as this represents five years since the introduction of the Third Package of liberalisation in European air transport. The results for these two clusters can be found in Fig. 3. There are four factors that are of particular interest—high demand for LCC services, high airline competition, quick and efficient turnarounds and convenient slot times. Good aeronautical discounts are not included as the data spread for early entrants is high. The literature suggests that the first movers in the low-cost sector gain some advantages (Francis et al., 2003) and the above differences appear to confirm this. LCCs entering the market before 2000 were effectively ‘market making’ airlines, challenging the conventional thinking for air transport. Therefore, they sought airports with a high demand for their services and quick turnarounds. Airline competition was not an issue because of the different product being offered. Those LCCs established after 2000 are a reaction to the changing market. Consumers are now more aware of low-cost airlines, reducing the need for targeting particularly large areas of demand, while quicker turnarounds have become an accepted norm. Further, these newer airlines are more averse to airline competition as they are not as well established. This
High demand for LCC services Quick and efficient turnaround facilities Convenient slot times Good aeronautical discounts Positive forecasts for business and tourism Cost conscious airport management High airport competition Good surface access Spare airport capacity Good environmental policy Ambitious expansion plans Privatised, deregulated airport Good non-aeronautical revenues Good experience of LCCs High level of airline competition
1
1
2
3 4 Average Ranking
Large (>30 aircraft)
5
6
2
3 4 5 Average Ranking Pre 2000
6
Post 2000
Small (<15 aircraft)
Fig. 2. Impact of airline size on airport choice factors.
Fig. 3. Impact of date of entry to low-cost market on airport choice factors.
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competition may arise either from FSCs or other LCCs. These airlines also find it harder to secure convenient slot times as the early growth in LCCs has resulted in capacity constraints.
any marketing exercise is tailored towards the specific airline.
References 6. Managerial implications and conclusions Overall, the analysis of the results has not only highlighted the importance of demand and efficiency from the airports chosen by LCCs, but also that there are a number of differences between clusters of LCCs. This has a number of implications for airport managers. Firstly, the survey has identified that cost is not necessarily the first choice for LCCs when selecting an airport. The primary concern is that there is sufficient demand to justify the provision of services. Airport managers, in looking to attract LCC services, need to ensure their marketing approach reflects this, with an emphasis on demand, turnaround facilities and slot availability as well as cost. Evidence in Francis et al. (2004) indicates that airport managers view cost as the most important factor. The findings of this paper therefore challenges this view. In addition, managers should be aware that although there is some uniformity of opinion between the different LCC clusters, there is not one standard lowcost airline model, with each having different requirements. This appears to particularly apply when the length of time the carrier has been in the low-cost market is taken into consideration. Not only were there the greatest number of differences in rankings found through this segmentation, but the order of importance also changed. Therefore, managers need to ensure that
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