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An 'Open Sky' Scenario for Hamburg Airport and Germany

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An 'Open Sky' Scenario for Hamburg Airport and Germany 3RD HAMBURG AVIATION CONFERENCE 2000: “OPEN SKIES?” HAMBURG, FEBRUARY 2000 An ‘Open Sky’ Scenario for Hamburg Airport and Germany Benedikt N. Mandel Oliver Schnell MKmetric Gesellschaft für Systemplanung mbH, Durlacher Allee 49, 76131 Karlsruhe, FRG email: [email protected] and [email protected] Abstract After explaining the background of this paper and the underlying basic modelling task a short description of the working procedure and the ‘Open Sky’ scenario results are shown in detail for Hamburg Airport and in general for Germany. Finally some conclusions and remarks can be found in the last chapter. Hamburg Airport can expect to gain passengers as a result of the new inaugurated services. These services will be more international than intra- European, therefore the mix of aircraft movements will significantly change to more wide-body aircraft. This will affect airports revenues, ground handling and the airport infrastructure as well as noise exposure of the surrounding residents. For Germany in total Open Sky will increase the overall volume of passengers although not all airports will be winners. In particular, international airports in highly populated areas will gain while smaller airports will lose due to decreasing feeder activities. The aircraft movements in Germany will decrease due to less hubbing and feeder services and the movement to somewhat larger aircraft. One limitation of the study was that it was not possible to consider passenger flows from outside Germany hubbing outside Germany as well as all other potential markets due to both data and time constraints. Obviously, we expect that some of these flows will be redirected towards German airports due to the new services so that the overall passenger gain will be higher than shown in the results. Of course this will effect aircraft movements as well. Keywords Air transport, transport policy, ‘Open Sky’, strategic simulation, system approach, travel demand, aircraft movements, Hamburg Airport, Germany. 1 An Open Sky Scenario for Hamburg Airport and Germany 2 TABLE OF CONTENTS 1. Background 3 2. Simulation procedure 9 3. ‘Open Sky’ results 13 3.1 Results for Hamburg Airport 15 3.2 Results for Germany in total 26 4. Conclusions and remarks 30 Acknowledgements 32 References 32 TABLE OF FIGURES Fig. 1. Airport choice from Bielefeld to Hong Kong, full fare business class, 1994 7 Fig. 2. Procedure 9 Fig. 3. Changes in passenger demand by trip purpose for Hamburg Airport 17 Fig. 4. Changes by ‘Open Sky’ in the catchment area of Hamburg Airport 19 Fig. 5. Changes by ‘Open Sky’ on aircraft movements (Strategy I) 24 Fig. 6. Changes by ‘Open Sky’ on aircraft movements (Strategy II) 25 Fig. 7. Former airports used by new embarking / disembarking passengers in Germany 28 Fig. 8. Origin of new embarking / disembarking passengers in Germany 28 TABLES Table 1. Airport choice from Bielefeld to Hong Kong, full fare business class, 1994 8 Table 2. International airports in Germany 11 Table 3. Considered markets and their representative airports 11 Table 4. Induced transport rates through ‘Open Sky’ in 1997 by country 12 Table 5. Changes through ‘Open Sky’ in 1997 at Hamburg Airport by route destinations 17 Table 6. Total passenger numbers for Hamburg Airport, Ex post and ‘Open Sky’ in 1997 by route destinations 18 Table 7. Class of aircraft used on routes to the considered markets 21 Table 8. Aircraft classes and their Hamburg specific representatives 22 Table 9. Total numbers of aircraft movements for Hamburg Airport, Ex post and ‘Open Sky’ in 1997 by route destinations 24 Table 10. Change in passenger demand on German airports 27 Table 11. Change in demand for Germany in total by routes 29 An Open Sky Scenario for Hamburg Airport and Germany 3 1. BACKGROUND This paper is part of a study called ‘The Impact of Liberalizing International Aviation Bilaterals on the Northern German Region’, as shortcut ‘Open Sky’ is used, funded by the Free and Hanseatic City of Hamburg. The total project deals with four tasks: 1. Determine the Impacts of Changes to Bilateral Agreements on the German Economy 2. Assess Bilateral Agreements in Liberalized EU Aviation Market 3. Evaluate Qualitative and Quantitative Impacts of Liberalizing International Aviation ASAs 4. Provide Policy Recommendations The focus of this paper is on the qualitative and quantitative impacts of liberalizing International Aviation ASAs on Germany and Hamburg Airport in particular. The outcomes of an ‘Open Sky’ strategy for the various players can be summarized as follows. Airlines: Airlines will be more flexible in developing new demand oriented services, setting new fares and adjusting frequencies. But they also will be facing more competition as market access for new airlines is easier and the chances of diversification of existing products / services for competitors are higher (incl. bypassing slot problems at hub airports due to capacity constraints and existing grandfather rights which block the hub access – the latter one is still an unsolved key problem and a stumble stone in the process of real liberalisation, therefore any action into the direction of slot trading would be beneficial). This will effect the whole air network including the airline alliances network optimization and strategic policy initiatives. Incumbent airlines can defend their markets through a number of means including, for example, aggressive pricing and capacity strategies so that entry of a new route by a new airline is very risky. As an example of this complex situation, one can refer to the Delta service in Hamburg which was stopped in January of 2000 despite having high load factors in all classes (business class up to 60% incl. upgrades). The reason for withdrawing from the Atlanta - Hamburg market can be found in the aggressive price competition with Star alliance, the rising exchange rate DM / EURO to the US$ and the change of Delta’s alliance from Swiss Air / Sabena to Air France. If we considered an ‘Open Sky’ strategy for all markets, it will be nearly impossible for airlines to protect all markets by invoking a strategy An Open Sky Scenario for Hamburg Airport and Germany 4 such as Star Alliance’s. Rather they would have to concentrate on just one or two long haul hubs. Furthermore, the airlines would be forced to change their hub-and-spoke strategy and consider Introducing more point to point service to meet consumer needs in a highly competitive liberalized marketplace. Airports: From the perspective of most airports, there will be more opportunities to develop their aviation business by approaching airlines to develop the existing destination mix at the airport, which can be tailored for their dominant catchment area. As this opportunity arises for all airports, competition among airports will likely increase as well. The services offered at an airport determine the catchment area and therefore it will turn out that some airports will lose connections because other airports are successfully enlarging their area of influence.1 Furthermore, one should keep in mind that due to the changes of the air network, the structure of aircraft movements as well as the airports’ economy (aviation and non-aviation side) will be affected. Along with the institutional change taking place with international regulation of markets, there will have to be some change in airport owner ship and management. The process of liberalisation and privatization as a general government policy provides such an opportunity. The government is driving forward the idea of liberalisation and therefore withdraws from business which can be managed by private companies. Airports, as shown in other countries, are excellent candidates for setting their own prices and managing resources as they see fit. So the existing rules of defining landing fees and passenger charges may be replaced within a competitive environment that is driven by the market forces of demand and supply. At the same time that airports should be encouraged to be more market oriented, any potential abuses of monopoly power need to be prevented. The regulation which should be installed concerns monopoly rents which can be obtained if the airport has a monopoly on services (e. g. due to bilateral agreements including landing points or if the airport is the only alternative for day trips). One could think here a form of price cap regulation which determines the revenue per passenger on an airport for the aviation side. The control and evaluation of this problem can be assigned to an independent anti-trust institution so that the general idea of free competition is not influenced by local transport policy and a fair market can develop. If there is a need for policy actions to deal with externalities such as noise or congestion, then the [local] certificate to run an airport can be supplemented by appropriate rules that in principle have to be in line with anti-trust regulations. 1 Services with a high rate of transfer passengers will be especially affected. An Open Sky Scenario for Hamburg Airport and Germany 5 Allowing airports to define their own pricing strategy will give them additional freedom to compete with each other and to use this instrument2 to attract new services to new destinations in a non-discriminating way. In addition they are able to compete on the non-aviation side by offering a variety of other consumer friendly services. This will enhance non-aviation revenues and permit the airport to cross-subsidize from aviation to non- aviation if it saw fit. Furthermore, there is no reason the non-aviation side should be regulated.3 Region and Consumer: For the regions the advantages of an Open Sky policy arises from the potential air network that can be developed, tailor- made on an economic base to increase the regions’ attractiveness. As the accessibility of the region increases the local economy will be positively affected.
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