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Front-End Decision-Making in Airport Expansion Programmes ⁎ Pierpaolo Avanzi, Vedran Zerjav

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Front-End Decision-Making in Airport Expansion Programmes ⁎ Pierpaolo Avanzi, Vedran Zerjav Transportation Research Interdisciplinary Perspectives 8 (2020) 100222 Contents lists available at ScienceDirect Transportation Research Interdisciplinary Perspectives journal homepage: https://www.journals.elsevier.com/transportation-research- interdisciplinary-perspectives Caught in a crossfire: Front-end decision-making in airport expansion programmes ⁎ Pierpaolo Avanzi, Vedran Zerjav The Bartlett Faculty of the Built Environment, University College London, UK ARTICLE INFO ABSTRACT Article history: This paper revisits the main factors and considerations that drive the decision to invest in major capital projects in air- Received 1 June 2020 port infrastructure, specifically airport expansion programmes. Received in revised form 31 August 2020 To this end, the paper explores how governments, operators and investors have navigated the project front-end consid- Accepted 12 September 2020 erations (strategic assessment, business justification, option decision, investment decision) in the planning of Available online xxxx Heathrow, Schiphol and Dublin Airport expansion programmes. Through inductive research on publicly available ma- Keywords: terial, professional conference reports, planning documentation and exploratory interviews with key personnel in- Infrastructure planning volved in the selected projects, the study compares and contrasts the three projects and contributes to the current Project front-end debates on the role that governments have into fostering economic growth whilst taking into account environmental Airport expansion programmes restriction and climate change. The goal of the study is to inform the upcoming restructuring and transformation of business models in air travel as a response to the Covid-19 crisis. 1. Introduction: the aviation sector Transport Market (2017) air traffic trends show a number of air passengers carried worldwide growing by 6.3% to 3.7 billion in 2016, in a recovery Airport organisations provide services to multiple stakeholders involved trend since the 2008 and 2009 Global Financial Crisis. in the aviation industry (Sumathi and Parthasarathi, 2018). The air trans- Since March 2020 we have seen a significant disruption of air travel due port industry which includes the aviation division (airlines, airports and to the coronavirus pandemic. Whilst it is emerging that the consequences of air navigation service providers) and the aerospace division (manufacture the economic slowdown are likely to be long-lasting and significant, there is and maintenance of aircraft and systems), operates in a fast changing envi- little clarity about the specific implications on the operational and business ronment (Kwakkel et al., 2016) which went through a process of liberaliza- models of air travel. One of the important consequences, however, is likely tion and privatisation first in the U.S.A. and some years later, in the 1990's, to be that major capital projects associated with the investment in airport in Europe (Vogel, 2006). As a result, the air transport industry has experi- infrastructure might take a different form in the future. In an effort to assist enced changes, in the form of the rise of low-cost carriers and airline alli- airports in the upcoming restructuring and transformation of their business ances (Forsyth, 2001; de Neufville & Odoni, 2013). Similarly, the aviation models, this paper will revisit the main factors and considerations that drive sector has witnessed an increasing environmental awareness, resulted in the decision to invest in airport expansion projects. more attention to externality effects such as noise and pollutants emissions. According to a Boeing research (2018 Market Outlook), the factors de- The problem of carbon emissions associated with airport traffic has been termining a region's air-travel growth are economic activities, ease of trav- emphasised in airport expansion projects as a critical issue. Research ac- elling (agreements between countries, liberalization of regulations in knowledges that the only realistic goal is to mitigate the rates of growth domestic market, business-model innovation, emerging technology and air- of negative impacts rather than eliminating them as airport capacity will line-network improvement), and local market influences. A key trend mainly shift the traffic away from more congested toward less constrained highlighted by the European Commission annual report on aviation indus- airports and affect the growth in total traffic only marginally (Schäfer & try is the consolidation of hub airports around the world (2016 European Waitz, 2014). Commission Annual Air Transport Industry Report). This strengthening Furthermore, safety and security, following the events of the 9/11, has to be attributed to the airline industry alliances. In fact, as airlines pushed the overall industry to major investment (Blalock et al., 2007). Ac- come together, they are capable to combine their operations within their cording to the European Commission Annual Analysis related to the Air hubs. This consents to offer better services and increase yields as well as ⁎ Corresponding author. E-mail address: [email protected].(V.Zerjav). http://dx.doi.org/10.1016/j.trip.2020.100222 2590-1982/© 2020 The Authors. PublishedbyElsevierLtd.ThisisanopenaccessarticleundertheCCBY-NC-NDlicense(http://creativecommons.org/licenses/by-nc-nd/4.0/). P. Avanzi, V. Zerjav / Transportation Research Interdisciplinary Perspectives 8 (2020) 100222 profitability. As a result, the implication of connecting passengers has heterogeneity of investment programmes, the variation in input and output pushed airlines to target services to passengers choosing the airport hubs mix, and the lumpy and cyclical investment with no synchronous cycles as a stopover. (Starkie, 2006). Essential in understanding the different governance structure of airport This complex mix of market trends and forecasts, regulatory environ- infrastructure, is to frame the ownership models which in the last decades ment and finance conditions will determine the investment in airport infra- have determined a substantial change in the delivery and organisation of structure upgrades. airport infrastructures. The evolution of airport governance has seen the Specifically, in this paper, we will reconsider the common factors and move either to full private ownership or partial privatisation from a tradi- considerations that have led to the decisions about expansion of airport in- tional public control. According to Gillen (2011), there are different possi- frastructure, considering both airside projects aiming to increase the capac- ble ownership/governance structures can be currently applied to major ity of the airport to handle aircraft movements, and landside projects, international airport. intended to expand the capacity to handle passenger and freight. Improved A key difference between public and private airports, shown by Vasigh airside capacity enables growth in the rate of departure and variety of flight and Gorjidooz (2006) and Francis et al. (2002), is the ability of private air- routes from the airport, thus reducing the frequency of delays and the cost ports to pursue financial return whilst public airports are output- of transport (Santos & Robin, 2010). Investment in landside capacity in- maximisers. Oum et al. (2008) show that complete private or publicly stead, helps to avoid terminal congestion and to improve surface access owned airports are more cost efficient than mixed public-private organisa- conditions in term of sustainability and congestion (Doramas & Rus, tions because the homogeneousness of ownership and fewer conflicting ob- 2004). Whilst it has been demonstrated that airport expansion is important jectives drive cost efficiencies. Likewise, Vogel (2006), examining financial and relevant to both government, owners and users, and it require large performance of privatised European airports, found that efficiency is driven capital investment (land and property acquisition, compensation costs by a better operating management, asset utilization and capital structure. and construction costs) and operating costs, yet there is currently surpris- When regulators see airports holding substantial market power, they typi- ingly little understanding as to how the decision to expand the existing in- cally subject them to regulation (Guiomard, 2018). Otherwise, as shown frastructure takes place. This is specifically relevant during the Covid-19 by Basso (2008), unregulated profit-maximising airports would overcharge crisis and in its repercussion when airport operators will be faced with for the congestion externalities (Zuidberg, 2017). For instance, in the UK, the challenge to either continue or abolish capital investment and expan- the airport return is calculated with the Regulated Asset Base (RAB) mech- sion plans. If on the one hand airport investment might suffer a slower re- anism (Fig. 1) that limits the amount of airport charges that can be imposed turn to stability compared to other transport projects post-Covid-19, the per passenger over the price control period resembling the incentives gen- compensation effect (Colonna and Intini, 2020), which is caused by the erated by competitive markets (Makovek & Veryyard, 2016; Stern, 2013; trade-offs between social costs caused by Covid-19 and saved costs from Helm, 2009). Nonetheless, it should be noted that between the manager the reduction in traffic, could potentially open to opportunities due to less and the regulator exists an information asymmetry problem, as the regula-
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