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  Official magazine of ACI
Friday, 26 February 2010 08:58

Ever changing world

Written by  Ron Kuhlmann

everchangingworld

Ron Kuhlmann considers the impact airline alliances have had on airports and how the relationship between the two continues to evolve.

There was a time not so long ago when airports, especially those in the US, were divided into discrete areas used by and dedicated to a single carrier.

The apogee of this practice was evident at New York JFK – then known as Idlewild Airport – in the late 1950s and early 1960s when airlines created showcase terminals as monuments to their brands.

This was a time long before deregulation was even contemplated, when the massive egos that created the US carriers remained at the helm and saw these constructs as extensions of their aspirations and proof of their global dominance.

And airports far beyond New York JFK worked with carriers to promote the singular brands and identities that carriers wished to create.

Things change, of course, and by the 1990s many terminals were occupied by new residents, their builders gone. The casualties at JFK, for example, included US giants Pan American World Airways (Pan Am) and Eastern Air Lines.

Additionally, the international carrier presence at JFK had greatly expanded, as foreign services were increasingly deregulated as well. But alliances, as we know them today, were nowhere to be found.

Consequently, when JFK’s Eastern Terminal was demolished, a new terminal was constructed by the Terminal One Group, composed of the now-unlikely partners Air France, Japan Airlines, Korean Air, and Lufthansa and opened in 1998. In the present alliance-dominated environment, it is difficult to envisage this group of carriers aligning on such a project today.

In 2010, of course, almost all of the world’s major network carriers are integrated with – or are being sought by – one of the three alliances. The strategic importance of these groups (Star, oneworld and SkyTeam) was amply demonstrated by the long battle for JAL’s allegiance, with both American and Delta at one point pledging over $1 billion in support simply to have JAL in their camp.

In terms of how airline alliances have impacted and continue to impact on New York, Continental’s move from SkyTeam to Star has resulted in enhanced service to Newark Liberty.

Newark has also benefited from Thai Airways’ decision to re-launch non-stop services between New York and Bangkok from the gateway because of the vast network feed provided by alliance partner Continental. It previously operated the service out of JFK.

The decisions mean that Newark, rather than JFK, is fast becoming the Star airport of choice for New York with TAP and SAS exclusively serving the gateway and Lufthansa, Swiss, Air Canada and LOT Polish Airlines all having some presence at the airport.

Should United, ANA and Continental achieve antitrust immunity across the Pacific, one wonders if ANA will join in the party and reposition its Narita service to Newark as well.

The increased dominance of alliances has obviously affected numerous other stakeholders as well, but perhaps none as much as airports.

Being an alliance hub, of course, brings a whole new reality to an airport in terms of aircraft operations and the use of space and allocation of resources, although it may not necessarily mean more flights.

But not all airports have been massively impacted by alliances. Indeed, for many airports the alliance affiliation has resulted in little more than some gate rearrangement.

Certainly the relationship between Fraport and Lufthansa was not substantively changed by Star and Delta’s dominance at Hartsfield-Jackson Atlanta – it accounts for 75% of the airport’s domestic capacity and nearly 80% of all international traffic – effectively means that little has changed.

Despite its size Atlanta remains primarily a domestic airport with international traffic accounting for just 11% of the uplift. Delta’s share of the international market rises to 93% with the added capacity of its SkyTeam partners, a share that is virtually unprecedented.

Similarly, in the US, where dedicated space remains more common, many alliance partners continue to operate separately. In San Francisco, for instance, Star partners United and US Airways operate ‘joint services’ from locations on opposite sides of the airport.

But there are instances where alliance membership has led to big changes for both the airport and airline. A case in point being Cairo International Airport (CAI) in Egypt, which has been hugely impacted by hub carrier Egyptair’s decision to join Star.

How so? Well, back in 2000, although Egyptair already enjoyed the status of being one of Africa’s largest airlines, it was far from a typical network carrier due to the infrequency of its flights to destinations as diverse as Los Angeles (via JFK) and Sydney (via Singapore).

Indeed, of the 60-plus international destinations served from Cairo back then, 18 were served just once weekly and another 21 twice weekly. Only six destinations had seven or more flights per week and this did not necessarily equate to daily service.

This is not a hub carrier schedule, designed to feed connections at Cairo, but rather a point-to-point operation.

The chairman and CEO of Cairo International Airport, Hassan Mahmoud Rahed, recently revealed that pre-alliance Egyptair did “everything, everywhere”, noting that the lack of timetable standardisation made the airport’s job far more complex and deprived it of the traffic generated by a more integrated hub schedule.

Realising that the situation was in need of reform, in 2002 the Egyptian government created the Ministry of Civil Aviation, which established two holding companies; one for the airline and one for the airport, with various subsidiaries. This new ministry was given the task of integrating the Egyptian aviation stakeholders in a new way.

everchangingworld2

As a consequence, Egyptair slowly began to give its timetable a makeover as it modernised its fleet. Simultaneously the new airport group unveiled plans for a new terminal designed to establish the gateway as a hub for Africa.

Plans for the Egyptair-dedicated Terminal 3 were launched in 2004 and the 11mppa capacity facility opened in early 2009 – more than doubling the airport’s passenger handling capabilities overnight. However, following Egyptair’s decision to join Star it opened as an alliance terminal and the facility currently handles 65% of the traffic at Cairo International Airport.

Elsewhere, a three-year refurbishment of Terminal 2 began in February as part of the airport’s plans to raise CAI’s capacity of 27mppa. And a new third parallel runway is nearing completion and will be opened in late 2010.

The airport authority’s ambitious plans to establish CAI as a hub are certainly matched by Star, which aims to become the preeminent alliance player in the African marketplace due to the networks of member airlines such as Egyptair, South African Airways and Brussels Airlines.

In line with the goal to make CAI a hub, Egyptair has rationalised its schedules to improve the ‘connectability’ of its long-haul services with flights to other African cities in its network.

With transfer traffic currently only accounting for 5% of all passengers handled in Cairo – compared with typically 50% to 70% at many hubs – the potential to develop this sector of the market is clearly enormous.

Both the airline and the airport are quick to affirm that alliance affiliation has been beneficial to all parties and has the potential to continue to bring rewards.

Another interesting example of the impact airline alliances can have on gateways is Athens International Airport, which is busily preparing for Aegean Airlines’ June 2010 induction into the Star Alliance.

It is a totally new experience for the airport as previously dominant carrier, Olympic, wasn’t affiliated with any alliance and as a result, alliance co-location was not a primary factor in the new airport’s design.

Already larger than Olympic, Aegean is looking to grow its partnership with the airport in a new and different way as it prepares for a new, enhanced position in the marketplace.

Indeed, Aegean’s airport services manager, Panos Nicolaidis, worked with the airport on a long list of projects that will allow the airline to take full advantage of its alliance links and fulfil the requirements that Star has set for alliance members.

They included the re-configuration of check-in; security control; the baggage sorting area; transfer space; lost and found; and gate positions.

As might be expected, this was a complex process that involved the home carrier, other alliance partners and the airport authority. In the case of Athens, the realignment has moved Aegean’s alliance partners to the carrier’s already-established location at the gateway.

It also involved engaging a common handling agent so that all partners’ ramp activities would be connected through one shared handler.

The carrier benefits include reduced costs through sharing of common facilities, staff and space. By combining in such a way, it is far easier to ensure common standards and procedures that can make the goal of ‘seamlessness’ more achievable.

Nicolaidis reports that the gateway has been a full and willing participant in both the planning and execution of the changes.

Similar initiatives have proven a success at many other airports across the globe and this fact would not have passed by Athens International Airport’s management team.

The big ‘alliance-driven’ airline reshuffle at London’s Heathrow Airport (prompted by the 2008 opening of the gateway’s €5.5 billion Terminal 5), for example, has certainly proved popular with passengers.

In that complicated airline merry-go-round, British Airways moved 92% of its operation to the new showpiece facility and oneworld partners Finnair, Iberia and Qantas joined American Airlines, Cathay Pacific, Japan Airlines and Royal Jordanian in Terminal 3, while SkyTeam carriers moved to Terminal 4 and Star began a phased move to Terminal 1.

BA’s move to consolidate the bulk of its services in T5 in particular appears to have won favour with airport users, many of whom cite the additional benefit of reduced congestion and increased efficiency across the entire airport when leaving user comments on various websites.

Elsewhere, the Tom Bradley International Terminal at Los Angeles International Airport now has three alliance lounges and another for unaligned carriers. In this instance, the decision was driven by the airport, which was space constrained and unable to accommodate as many individual facilities as were requested.

Other airports segregate in other ways. At San Francisco, where Star predominates in the international service sector, its flights are all handled in the north (Terminal G) portion of the International complex while Terminal A on the south side, handles everyone else.

While solutions differ, new construction or major renovations are all being contemplated with alliance affiliations and proximity needs as major considerations.

Good thing, because alliances appear to be here to stay and the next logical step – mergers or consolidations – will be far easier if the carriers involved are already operating in close proximity.

Continental’s move from SkyTeam to Star, however, and the long period of uncertainty about the future of JAL are both reminders that alliances remain fluid in membership.

It may be impossible to predict the future, but the one certainty is that airports and airlines need to work together to ensure that their facilities and services are capable of adapting to change.

Airport World 2010 - Issue 1

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