"Rise of the two-tier airport"

Friday, August 22, 2003

Rise of the two-tier airport
By Kevin Rozario 
Jane's Airport Review


In future there will not be as many hubs in Europe as now. Interconnecting
business is oversubscribed." This was the stark reality predicted by British
Airways chief executive Rod Eddington at June's ACI Europe Congress in June.
While Eddington believes hubs have a future, he says it is the market that
will decide exactly how many will survive. 

That market has changed dramatically within just a few years. By mid-2003
Ryanair had a market capitalisation bigger than British Airways, Iberia,
Finnair and SAS combined. The rapid rise of low-cost carriers, which now
account for 9% of all European traffic, has put the brakes on the
hub-and-spoke model as airport executives have scrambled to find ways of
accommodating the new type of 'no-frills' but profitable carriers - which
today have margins as high as 28%. 

"Clearly there has been a diversion from hubs in the new, more commercial
aviation environment," says Mark Call, managing director of the London-based
aviation consultancy Newport Group. "Low-cost carriers have put regional
airports on the map and are allowing them to punch above their weight." 

This is evident in locations such as the central UK, where the once
unrivalled Manchester Airport is now seeing business being clawed back by
Liverpool's John Lennon airport, 35 miles away. "We have gone from 0.5
million passengers in 1998 to 3 million today and it took the arrival of the
low-cost carrier market to do this," says John Lennon airport's managing
director Neil Pakey. The airport's anchor tenant is easyJet. 

Airports such as Liverpool's John Lennon are the preferred choice of such
carriers because in most cases, they are not compatible with hubs. We have
heard the arguments: carriers do not want to pay for expensive airport
infrastructure they claim they do not need, while airport authorities at
larger hubs say that if they won't pay up they can't have access to the
gateways serving the main European cities. 

But this is not the whole story. Airport authorities, of course, want a
slice of the business that the low-cost carriers are undoubtedly getting,
and which their previous prize tenants, in the form of 'dinosaur' flag
carriers, in plenty of cases, are not. 

Likewise, low-cost carriers want to fly into key airports that give them
more credibility than the sometimes makeshift airports that they currently
use, often situated miles from anywhere. It looks increasingly like the
solution will amount to a two-tier (or more) infrastructure system. 

The point-to-point versus hub debate will undoubtedly continue. What is
certain is that larger airports will want a slice of both pies. Whether they
set aside a separate low-cost infrastructure terminal or an entire airport
for low-cost carriers depends on their individual situation and their client
needs. What is certain is that if they do not, they will lose out to the
increasing number of regional airports have already seized on the
opportunity of providing the services that low-cost carriers want. 


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