Impact of Airline Alliance Terminal Co-Location on Airport Operations

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Impact of Airline Alliance Terminal Co-location on Airport Operations

Andy Lee

A Masters Thesis

Submitted in Fulfilment of the Requirements for the Award of Masters of Aviation

Management (by Research) at The University of New South Wales

March 2012

Supervisor: Dr. Cheng-Lung Wu

Co-supervisor: Mr. Rodger Robertson

School of Aviation

THE UNIVERSITY OF NEW SOUTH WALES Thesis/Dissertation Sheet

Surname or Family name: Lee

First name: Andy Other name/s:

Abbreviation for degree as given in the University calendar: MSc

School: Aviation Faculty: Science

Title: Impact of Airline Alliance Terminal Co-location on Airport Operations

Many airports worldwide have co-located or are in the process of reallocating alliance aligned carriers to their designated terminal areas, to promote flight connectivity, common user facilities and airport-airline relationships. While operational and financial benefits on the part of the airlines have been made clear by existing literatures on airline alliances, the tangible benefits to be derived for airport operators are less obvious.

In order to better understand why airport operators have supported “alliance terminal co-location” in the first place, this paper considers the cases of London Heathrow, Paris Charles de Gaulle and Tokyo Narita airports. These airports are selected primarily because of the relevance of their operating environment as alliance network hubs, and their early implementation of the concept. The qualitative case analysis on these sample airports indicates operational improvements over the utilisation of aeronautical and passenger processing resources. This in turn has positively impacted property and retail revenue. Contrary to the initial assumption, it is found that the airport operators of all three sample airports have shown just as much enthusiasm in facilitating alliance terminal co-location as their airline counterparts. In fact, it has been regarded as a long-term strategy to reinforce these airports’ status as network hubs. Nevertheless, the fluidity of airline alliances often complicates the implementation and continuity of alliance terminal co-location at these airports.

A quantitative case study on Sydney Airport – representing an airport without the implementation of the concept – reiterates that alliance terminal co-location could yield operational and financial merits for the airport operator similar to those observed at the sample airports. However, in absence of additional capacities as enjoyed by the sample airports, the concept is instead strategised to ease existing capacity constraints experienced at Sydney Airport’s International Terminal, rather than re-distributing demands to achieve more balanced asset utilisations across multiple terminals. This concludes that the implementation of this concept should not be done through a one-size-fits-all approach considering the hard-to-replicate combinations of diverse resources and stakeholders at various airports. While airline alliances remain fluid in membership, airport operators need to ensure that their facilities and services are capable of adapting to change.

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ABSTRACT

Many airports around the world have co-located or are in the process of reallocating alliance aligned carriers to their designated terminals or terminal areas, to promote flight connectivity, common user facilities and airport-airline relationships. While operational and financial benefits on the part of the airlines have been made clear by existing literatures on airline alliances and alliance-hubbing, the tangible benefits to be derived for airport operators are less obvious.

In order to better understand why airport operators have supported “alliance terminal co-location” in the first place, this paper considers the cases of London Heathrow Airport,

Paris Charles de Gaulle Airport and Tokyo Narita Airport. These airports are selected primarily because of the relevance of their operating environment as alliance network hubs, and their early implementation of alliance terminal co-location. The qualitative case analysis on these sample airports indicates operational improvements over the utilisation of aeronautical and passenger processing resources. This in turn has positively impacted property and retail revenue. Contrary to the initial assumption, it is found that the airport operators of all three sample airports have shown just as much enthusiasm in facilitating alliance terminal co-location as their airline counterparts. In fact, it has been regarded as a long-term strategy to reinforce these airports’ status as network hubs. Nevertheless, the fluidity of airline alliances often complicates the implementation and continuity of alliance terminal co-location at these sample airports.

sample airports. However, in absence of additional capacities as enjoyed by the sample airports, the concept is instead strategised to ease existing capacity constraints experienced at Sydney Airport’s International Terminal – T1, rather than re-distributing demands to achieve more balanced asset utilisations across multiple terminals. This concludes that the implementation of this concept should not be done through a one-size-fits-all approach considering the hard-to-replicate combinations of diverse resources and stakeholders at various airports. After all, airline alliances remain fluid in membership, and airport operators need to ensure that their facilities and services are capable of adapting to change.

Table of Contents

Chapter Page

1. Introduction 1 1.1 Background and Significance 1 1.2 Aims and Hypothesis 2 1.2.1 Aims 2 1.2.2 Hypothesis 2 1.3 Structure of Thesis 3

2. Literature Review 5 2.1 Airline Networking Behaviours vs. Airport Operations 5 2.1.1 Airline Traffic Types and Patterns 5 2.1.2 Airline Connectivity and Fortress Hubs 7 2.1.3 Airport Configuration and Terminal Layout 9 2.1.4 Airport Operational Capacity 11 2.2 Emergence of Strategic Airline Alliances 12 2.2.1 Historical Development 12 2.2.2 Current Structure and Dynamics of Airline Alliances 15 2.2.3 Type of Collaboration Amongst Members 17 2.3 Airline Alliance Terminal Co-location 19 2.3.1 From Fortress Hubs to Alliance Hubs 19 2.3.2 Motivations for Terminal Co-location 21 2.3.3 The “Move Under one Roof (MUoR)” Concept by Star Alliance 23 2.3.4 Initiation of Terminal Co-location – Airport or Airline Alliance Driven? 26 2.3.5 Existing Implementations 28

3. Methodological Framework 33 3.1 Qualitative Case Analysis on Sample Airports 33 3.2 Quantitative Model on Case Study Airport 35 3.2.1 Check-in Allocation 36 3.2.2 Aircraft Parking Allocation 38

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Table of Contents (continued)

Chapter Page

4. Case Analysis on Sample Airports 41 4.1 London Heathrow Airport (BAA Airports Limited) 42 4.1.1 Airport Overview 42 4.1.2 The EU-US Open Skies Agreement 45 4.1.3 Terminal Co-location at London Heathrow Airport 47 4.2 Paris Charles de Gaulle Airport (Aéroports de Paris) 53 4.2.1 Airport Overview 53 4.2.2 Star Alliance’s “Move Under one Roof (MUoR)” and T1’s Renovation 58 4.2.3 Terminal Co-location at Paris Charles de Gaulle Airport 61 4.3 Tokyo Narita Airport (Narita International Airport Corporation) 69 4.3.1 Airport Overview 69 4.3.2 Terminal Redevelopment and Narita Airport’s “Airline Relocation Program” 71 4.3.3 Terminal Co-location at Tokyo Narita Airport 76 4.3.4 Japan Airlines Financial Turnaround Plan and Hypothetical Alliance Shift 81 4.4 Comparison of Sample Airports 86 4.4.1 Terminal Co-location Initiatives 87 4.4.2 Airport Traffic, Capacity, Ownership and Service Levels 89 4.4.3 Alliance Terminal Co-location Synergies and Constraints 93

5. Case Study Airport 99 5.1 Sydney Airport (Sydney Airport Corporation Limited) 99 5.1.1 Airport Overview 99 5.2 Data Analysis 103 5.2.1 Check-in Allocation 103 5.2.2 Aircraft Parking Allocation 117 5.2.3 Sydney Airport’s Concept for Two Airline Alliance-based Precincts 125 5.3 Comparison to Sample Airports 131

Table of Contents (continued)

Chapter Page

6. Conclusions 135

Appendices 139

References 157

List of Figures

Page

Figure 2.1 Distance for aircraft to taxi to runways at Madrid Barajas Airport 28 Figure 2.2 Established and emerging airport business models 30 Figure 3.1 Types of check-in counter allocations 37 Figure 3.2 Typical passenger arrival profile at check-in at Sydney Airport T1 38 Figure 4.1 Layout of London Heathrow Airport 43 Figure 4.2 Airline alliances at London Heathrow Airport 50 Figure 4.3 Post Terminal 5 airline alliances terminal relocation 51 Figure 4.4 Growth of passenger handling capacity at Paris Charles de Gaulle Airport 55 Figure 4.5 Terminal layout of Paris Charles de Gaulle Airport 56 Figure 4.6 Runway layout of Paris Charles de Gaulle Airport 57 Figure 4.7 Layout of passenger facilities at Paris Charles de Gaulle Airport 59 Figure 4.8 Layout of Tokyo Narita Airport and its facility investment plan for 2010-2012 fiscal years 71 Figure 4.9 Arrival/departure distribution per terminal over a typical week before and after Airline Relocation Program 79 Figure 5.1 Layout of Sydney Airport 101 Figure 5.2 Sydney Airport’s recommended number of check-in counters based on aircraft types 104 Figure 5.3 Sydney Airport T1 check-in counter demands (NS11 typical week): Base Case 107 Figure 5.4 Sydney Airport T1 check-in counter demands with alliance dedicated check-in (NS11 typical week busy day – Tuesday): Scenario 1 110 Figure 5.5 oneworld T1 check-in counter demands (NS11 typical week busy day – Monday) 110 Figure 5.6 SkyTeam T1 check-in counter demands (NS11 typical week busy day – Thursday) 110 Figure 5.7 Star Alliance T1 check-in counter demands (NS11 typical week busy day – Friday) 111 Figure 5.8 Qantas T1 check-in counter demands (NS11 typical week busy day – Monday) 111 Figure 5.9 Allocation of baggage sortation rooms at Sydney Airport T1 112

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List of Figures (continued)

Page

Figure 5.10 Sydney Airport T1 check-in counter demands with alliance dedicated check-in (NS11 typical week busy day – Tuesday): Scenario 2 113 Figure 5.11 Sydney Airport T1 alliance check-in resource demands comparison 115 Figure 5.12 Sydney Airport T1 check-in counter demands with alliance dedicated check-in (NS11 typical week busy day – Tuesday): Scenario 3 116 Figure 5.13 Sydney Airport T1 check-in counter demands with alliance dedicated check-in (NS11 typical week busy day – Tuesday): Proposed Concept 127 Figure 5.14 Visualisation of future T1 130

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List of Tables

Page

Table 4.1 Passenger traffic share between alliances at Paris Charles de Gaulle Airport 68 Table 4.2 Operational characteristics and ownerships of sample airports at 2010 87 Table 5.1 Current members of oneworld, Star Alliance and SkyTeam at Sydney Airport 102 Table 5.2 Sydney Airport T1 aircraft parking demands (NS11 typical week): Base Case 119 Table 5.3 Flights between Tokyo and Buenos Aires operated by oneworld, SkyTeam and Star Alliance (December 2008 schedule) 121 Table 5.4 Comparison of irregular assignments between Base Case and Proposed Scenario 125

ACKNOWLEDGMENT

Over the past four years of my studies, there have been so many who have influenced my thoughts that it is difficult to name them all. The completion of this thesis would not have been possible without their knowledge and guidance. I would like to thank several whose assistance was invaluable, Dr. Richard CL Wu, Mr. Rodger Robertson, Professor

Jason Middleton, Dr. Ian Douglas and Dr. Tay TR Koo at the University of New South

Wales, Mr. Hideaki Tsuruoka of Narita International Airport Corporation, and Mr. Olivier

Phalippou of Aéroports de Paris. I am also indebted to my colleagues at Sydney Airport

Corporation Limited, Mr. Andre Younes and Ms. Colleen Philips, who provided ongoing support from the beginning, and Mr. Malcolm Skene, who worked with me to arrange and refine my arguments. The numerous discussions I have had with all these people on a variety of air transport topics have contributed significantly to this thesis.

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Chapter One

INTRODUCTION

1.1 Background and Significance

The notion of international airlines collaborating for their mutual benefit through the formation of strategic alliances has gained credibility in recent years (Evans, 2001).

These strategic alliances, along with a portfolio of co-ordinated synergies, are already impacting on the operations of airport infrastructure worldwide.

Being part of a multilateral alliance allows airlines to access markets and resources otherwise not attainable due to current geographical and regulatory constraints

(Gudmundsson & Lechner, 2006). In order to take advantage of each other’s network coverage, alliance hubs have emerged at major airports where member airlines’ services are heavily concentrated. As a result, implementation of the concept – alliance terminal co-location – has become a major development in recent airline alliance strategies, in order to strengthen connectivity and streamline assets by co-locating member carriers in the same terminals at hub airports. As terminal capacity becomes exhausted at many major airports and a stable pattern of alliances starts to emerge, airport operators around the world have started to be onboard with the concept and grant member airlines more logical terminal allocations.

Many papers over the years (e.g. Evans, 2001; Iatrou & Alamdari, 2005) have explored the available literature on airline alliances and alliance-hubbing to uncover the underlying motivations for their formation and the measurement of their success or 1

failure. While the benefits on the part of the airlines appear clear, the potential benefits to be derived by airport operators are less obvious. Whilst a number of studies (Dennis,

2000, 2001; Agusdinata & de Klein, 2002) have considered the impacts of concentrated alliance activities on hub airports in general, no specific discussion regarding the implications of alliance terminal co-location for terminal facilities and apron parking has been made. Yet changes to these resources generally involve substantial works and investments by airport operators. The aim of this paper is to unveil the operational and financial incentives and implications of the alliance terminal co-location strategy for hub airports.

1.2 Aims and Hypothesis

1.2.1 Aims

The aim of this research is to uncover the operational and financial incentives for airport operators to house alliance member carriers in their designated terminals, and to determine whether the concept will either minimise or exacerbate diseconomies such as excessive peaking, disproportionate terminal utilisation, poor on-time performance and extended aircraft turn-around time.

1.2.2 Hypothesis

The concept of “alliance terminal co-location” presents potential operational and financial merits for airline alliances as well as airport operators. While the strategy is universally applicable to all airports, the benefits are most obvious when implemented at hub airports with strong intra-alliance connecting traffic.

1.3 Structure of Thesis

In order to explore the underlying incentives motivating airport operators to implement the concept of alliance terminal co-location – from the stage of its inception to the measurement of its success/failure for airport operators, the analysis in this thesis will be conducted in the following sequence:

1. Literature Review – Review existing literature on airline alliances, airline hubbing,

airport capacity management, and airport operational and financial performance.

2. Case Analysis on Sample Airports – Examine the role and scope of existing

airports (i.e. London Heathrow Airport, Paris Charles de Gaulle Airport and

Tokyo Narita Airport) with alliance terminal co-location in place to identify 1) the

motivations for these airport operators to implement the concept, and 2) the

synergies achieved post-implementation.

3. Case Study Airport – Assess the compatibility of alliance terminal co-location at

other major airports (where the concept is yet to be implemented) with a case

study on Sydney Airport, by applying the practices derived from the sample

airports that are applicable to Sydney Airport’s business and operating

environment.

4. Discussion and Conclusions – Discuss the benefits derived from alliance

terminal co-location; to question the scale of attributable benefits for airport

operators; and to consider possible future developments of the concept in a

broader scope (e.g. terminal allocation based on other operational/financial

considerations).

Chapter Two

LITERATURE REVIEW

2.1 Airline Networking Behaviours vs. Airport Operations

2.1.1 Airline Traffic Types and Patterns

Airline traffic began with a basic point-to-point service to provide direct air link between two cities where demands existed. Intermediate stops were made often due to aircraft capability rather than commercial considerations. Interline connections were common as airline networks were limited by bilateral agreements on route access. The operating environment later changed as aircraft performance was improved and markets were deregulated. The intensified competition on route-level has led to legacy carriers seeking various economies that exist in their larger scale of operations (Button, 2002).

Traditionally, airline networks have been bounded by bilateral air service agreements which have resulted in legacy carriers concentrating their linear traffic at one or a small number of national gateways. Whilst the formation of these hubs may not have been by the strategic behaviour of airlines at the first place, the concentration of services provided a substantial number of indirect city pairs which subsequently created a platform for connecting traffic. In the wake of market liberalisation, many legacy carriers started realigning schedules at their hub airports to maximise the number of potential connections that can be accomplished using their own networks (Dennis, 1994; Martín

& Voltes-Dorta, 2009; Hanlon, 1989). This is particularly evident in airlines with relatively small home-grown demands. The extended networks and rationalised schedules thereby reduced the need for legacy carriers to rely on each other’s coverage (Phillips, 5

1987). Hanlon (1989) found that a key feature in all these is the substitution of intraline for interline connections. “Unlike the situation in the early days, when airlines had to make technical refuelling stops, today’s hubbing is motivated by the economic advantages of increased flight frequencies and by the economies of operating larger aircraft” (Kanafani & Ghobrial, 1985, p. 15).

The already network-dependent airline industry has since become much more so with the emergence of airline alliances (Donoghue, 1999). As Button (2002) has pointed out, the formation of airline alliances allows member carriers the market power similar to that enjoyed by the larger, hub-based airlines. This view is reiterated by Burton and Hanlon

(1994) who suggested that the most important economies of scope of an airline alliance is its ability to combine members’ networks at each other’s hub airport(s) to secure route traffic density similar to what large airlines have achieved with their hub-and-spoke networks. However, there remain some key differences between airline and alliance hubbing. For instance, airline hubbing requires the carrier to operate from its hub(s) to as many destinations as possible to create maximum intraline city pairs; alliance hubbing focuses on linking up members’ networks at existing gateways to provide connecting services for new markets (Evans, 2001). Network synergies for airline alliances stem from attracting more traffic to members’ given networks rather than expanding them to cover each others’ destinations.

Another main difference between airline and alliance hubbing is that the latter involves interline connections rather than intraline connections, which highlights the importance of connectivity and schedule co-ordination amongst member carriers at any given alliance hub. Although similar inter-airline co-ordination has been in-place (e.g. QF-BA

Joint Services Agreement since 1995) before the formation of today’s major strategic 6

alliances (Star Alliance/1997; oneworld/1999; SkyTeam/2000), the scope of alliance hubbing is far more complicated than joint business agreements between airlines as these are generally limited to specific route(s) or market sector(s). While the operational characteristics of airline hubbing have been extensively studied (e.g. Hanlon, 1989;

Dennis; 2001), the issue of connectivity for alliance hub airports has rarely been treated in detail. This will be further discussed in the next section.

2.1.2 Airline Connectivity and Fortress Hubs

As Martín and Voltes-Dorta (2009) have pointed out, it is common nowadays to observe co-existence of different network structures in the airline industry, “ranging from pure point-to-point networks of low-cost carriers to hub-and-spoke networks of full-service or legacy carriers”. The major factor which distinguishes hub-and-spoke networks from point-to-point networks is the emphasis on connectivity within or even amongst multiple carriers’ networks, where schedule co-ordination is implemented to allow maximum number of connections between flights. Whilst most low-cost carriers still concentrate their flights at particular airports, this is generally motivated to optimise aircraft utilisation and network flexibility, rather than for passenger connectivity (Malighetti, Paleari, &

Redondi, 2008).

The phenomenon of airline hubbing has intensified since market liberalisation in the aviation industry. With the advantage of their market power, conventional network carriers responded by creating fortress hubs to compete against the new market entrants as well as each other (Pels, 2009). Amongst the network carriers, more and more importance is attached to co-ordinating flight schedules at their hubs, as the competitive advantage of a complete network is no longer adequately unique to attract connecting traffic. Hanlon (1989) found that a hub will be less of a fortress if flights to 7

and from it are not well co-ordinated. This was reinforced by Doganis (1991) who identified transfer reliability and punctuality as the most important factors influencing hub quality. Similarly in recent days, airlines have opted for alliances to exploit network and schedule complementarities in foreign markets, shifting from independent airline hubbing to multi-lateral alliance hubbing.

While much existing literature has considered spatial concentrated networks as equivalent to hub-and-spoke networks, the approach may be appropriate for tracing hubbing activities on an airline-to-airline basis but fails to recognise the temporal dimension and is not suitable in an airline alliance environment. Traditionally, a network carrier would concentrate its flight activity at a hub airport into a limited number of waves per day to take advantage of economies of scale (in aircraft size, flight frequency and city-pair, etc), and to maintain high levels of aircraft utilisation (Kanafani & Ghobrial,

1985). However, some of these scheduling attributes are not necessarily as important in an alliance hubbing context. Whilst airline hubbing involves scheduling strategies which form a complete timetable concentrated around hub connection complexes (Dennis,

1994), alliance hubbing focuses on partial schedule co-ordination to ensure that member carriers’ schedules are linked in the way without sacrificing each others’ high-yielding point-to-point traffic. Alliance hubbing is represented by various scheduling contexts ranging from a wave system to pairs of schedule co-ordinated flights throughout the day at the hub airport.

Hubbing practices under airline hubbing are largely depending on the salient characteristics of hubbing: volume of connecting passengers and overall number of meaningful connections. On the other hand, alliance hubbing is concerned more with generating financial synergies through infrastructure and equipment sharing at an 8

airport regardless of the volume of connecting passengers and the overall number of meaningful connections. In addition, it is much more difficult to trace the wave system in an alliance context compared to a single airline’s schedule at its hub(s). The importance of operational synergies in alliance hubbing heightens when connecting traffic amongst member carriers at a hub becomes so substantial that it is no longer appropriate to timetable and handle each member’s flights in isolation. The success of an alliance’s connectivity at a hub depends largely on that airport’s ability to tailor its infrastructure and operations to accommodate member airlines’ demands (Donoghue, 1999).

2.1.3 Airport Configuration and Terminal Layout

Over the last two decades, network carriers around the world have developed more sophisticated hubbing strategies as part of their competitive reaction to market liberalisation. Parallel to this development of airline network model, passenger growth at many major airports is now driven by expansion of connecting traffic rather than the traditional origin-destination traffic. Whilst most major airports – with origin-destination traffic in mind – were built with decentralised passenger processing points (such as security and immigration) to minimise distances between kerb and gate; they are no longer optimal for accommodating today’s transfer traffic (Dennis, 2001). Terminal 1 at

Paris Charles de Gaulle Airport is a good example of this. The terminal is comprised of a cylindrical central building for passenger processing surrounded by seven satellites for aircraft parking. Though this layout allows all origin-destination passengers roughly the same kerb-to-gate distances, connecting passengers are required to detour through the central building for their transfer processes even when they are arriving and departing at adjacent satellites, extending Minimum Connecting Times (MCT) at the terminal.

Dennis (2001) found that another increasing problem is that terminals at many major 9

airports are not positioned at a centralised location, which makes it difficult for airlines or alliance groupings to provide seamless linkages between flights. A similar view has been proposed by Hanlon (1989) who suggests that “the ideal kind of airport to operate as a high-capacity hub is one with a multi-runway airfield and just one large terminal building.” Whilst many network carriers prefer to wall themselves off from the rest of the airport in their dedicated terminals in order to minimise the loss of passengers to the competitors, the single terminal concept may not be realistic for hub airports to achieve.

From an airport operator’s side of effort, the development of transfer facilities should be focused on shortening gate-to-gate distances and enhancing connectivity between terminals. Besides, there are certain measures airlines can take to accelerate MCT. For instance at Copenhagen Airport, Scandinavian Airlines (SAS) allocates terminal bays to inbound flights according to the number of transfer passengers each is carrying (Hanlon,

1989).

The growth in traffic and changes in airline business models over the years have affected how airports tailor their offerings and operations to accommodate the various patterns of demand (Forsyth, 2007). Indeed, as most major airports evolve from handling primarily origin-destination passengers to being the collection-distribution centres of hub airlines, many have recently built, rebuilt or are in the process of constructing new terminals to improve capabilities in handling connecting traffic

(Socorro & Betancor, 2010). A main focus is to avoid the bussing of passengers or towing of aircraft around the apron when the aircraft arrives from one point and departs to another. As Dennis (2001, p. 54) has pointed out, “another objective of an advanced hub is to separate the land-side and airside activities so that transfer passengers can remain in the satellites or midfield terminals surrounded by the maximum number of aircraft while other activities such as check-in and baggage reclaim are segregated in a 10

separate land-side terminal.”

2.1.4 Airport Operational Capacity

The increasing imbalance between capacity and traffic has resulted in congestion and delay figures at many major airports (Madas & Zografos, 2008). This is often further exacerbated by network carriers scheduling their flights to arrive and depart in banks to synchronise connecting traffic in short spaces of time. Unlike the situation in the early days, when an airport operator managed its operational capacity simply by matching the provisions of aeronautical and terminal services; today’s airport capacity management is by far more complicated involving various commercial and operational considerations such as alliance groupings and runway movement caps. These imply potential misuse of available airport infrastructure, jeopardising the airport operator’s ability to manage scarce available capacity in peak efficiently.

For instance, the assignment of flights or airlines amongst airport terminals raises the issue of runway slot allocation. Whilst terminal activities need to be co-ordinated with those of the runways, insufficient runway access could subsequently lead to a terminal being underutilised. On the other hand, the possession of excess runway slots by a dominant carrier could also unnecessarily increase the peak load on the terminal. As no airport has unlimited peak capacity, many major hubs have the slot system in place to limit the number of aircraft movements which are permitted to access the runway(s) at busy times. Both Dennis (2001) and Forsyth (2007) agreed that an airline adding flights to a hub has to adapt to its shortage of slots by either adding the flights to the edge of existing waves or developing new waves. Much weight has been placed on rationing capacity at hub airports using the slot system in these literature but the potential mismatch between runway access and terminal capacities was not addressed. 11

Button (2002) found that the issue of growing mismatch between airport capacity and traffic is not about whether there should be no congestion at all, but rather of what is an optimal level of congestion. It would simply be wasteful of airport capacity and airline resources if congestion was zero. Whilst terminal capacity also can be rationed by slots or prices, Button (2002) argued that airport operators tend to use the pricing system as a revenue-collecting device rather than to allocate terminal facilities. As a result, there will be excessive use of the terminal infrastructure because: firstly, users (i.e. airlines) do not allow for the effects of their actions on other users; and secondly, this maximises revenue and is encouraged by the airport operators. At a terminal where one carrier has the dominant traffic, the congestion costs it generates are inevitably passed-on to other carriers’ operations and passengers.

Despite their inter-depending roles in airport operational capacity, terminals are different from runways in two important respects as pointed out by Forsyth (2007, p. 47). “The capacity constraints in terminals are less rigid, since it is usually possible to squeeze more passengers through at a cost in terms of crowding and congestion. Also, the timescale of terminal expansion is usually much less than that for runway expansion.”

These fundamental differences provided a good indication as to why most airports have opted to shuffle traffic amongst their terminals rather than their slot systems to cope with the short term demand increases.

2.2 Emergence of Strategic Airline Alliances

2.2.1 Historical Development

An airline alliance is a collaborative arrangement between two or more carriers ranging 12

from simple code-sharing as a GDS (Global Distribution Systems) strategy to comprehensive strategic tie-up. The latter form of airline alliances first took shape on a global scale in the late 1980s, many of them have since consolidated and evolved into enduring industry dominance despite a history of instability and failure (Morrish &

Hamilton, 2002). Pioneered by KLM and Northwest Airlines, strategic airline alliances are characterised by joint marketing entities, reciprocal frequent flyer program recognition, and network-wide schedule and fare co-ordination (Fan et al., 2001). To date, the airline industry is currently dominated by three major global strategic airline alliances, namely Star Alliance, oneworld and SkyTeam (established in 1997, 1999 and

2000).

The KLM-Northwest alliance first emerged in 1989. It was one of the earliest transnational strategic airline alliances that extended beyond code-sharing to cover joint schedule co-ordination, sales and marketing, and reciprocal ground handling. A 60-40 spilt (and later 50-50) in capacity contribution and revenue sharing between KLM and

Northwest was established as part of the alliance agreement (Wahyuni, 2003). Whilst the two carriers had co-operated closely with each other, Fan et al. (2001) found that the alliance was lacking the sophisticated back-office and revenue sharing structure exist in today’s strategic airline alliances. The formation of the Star Alliance in 1997 led by

Lufthansa and United Airlines represented a new direction for strategic airline alliance.

With the alliance being a partnership of airlines without equity exchanges, a joint but independent management company called the “Star Alliance Services GmbH” was established to co-ordinate a portfolio of alliance products and services using an agreed process. The creation of Star Alliance was a milestone in airline alliance history because of its scale and scope of collaboration amongst member carriers. In addition, the alliance’s lack of equity commitment may in fact have helped foster a sense of 13

democracy among member carriers and subsequently improved its stability (Fan,

Vigeant-Langlois, Geissler, Bosler, & Wilmking, 2001). The continued recruitment of

Star Alliance combined with a limited number of suitable carriers for alliance memberships sparked the formation of rivals, notably oneworld in 1999 and SkyTeam in

2000. Similar to the “Star Alliance Services GmbH”, both oneworld and SkyTeam are structured with a centralised management team named the “oneworld Management

Company” and “SkyTeam Central” respectively.

Gudmundsson and Lechner (2006) found that dyadic and multilateral alliances have blurred the borders between airline companies worldwide over the past decades. A similar view is held by Evans (2001) who has observed a shift of trend in airline co-operation from equity acquisitions towards collaborative arrangements to overcome regulatory constraint on cross-border operational and marketing co-operation. Indeed, today’s alliance-owned centralised management companies have created a platform for virtual merger of their respective members, which allow member airlines greater negotiation power in bulk buying and cost reduction in alliance-wide sourcing. The integration of airport and office functions has derived a range of operational and financial synergies including joint airport facilities as well as common IT platform (Star

Alliance Services GmbH, 2009). Prior to the emergence of modern strategic alliance groupings, airline alliance strategy has been characterised as primarily focused on additional market power and revenue through co-ordinated schedule planning and cross-selling opportunities, with the consolidation of back-office functions merely as a secondary focus (Fan et al., 2001). It should be noted that progress on both focuses has been made hand-in-hand throughout the development of today’s major strategic airline alliances, namely oneworld, SkyTeam and Star Alliance.

2.2.2 Current Structure and Dynamics of Airline Alliances

Generally speaking, an airline alliance is a co-operative agreement between two or more airlines. With different strategic drivers behind individual airline alliances formation, the types of collaborative activities involved in each of them also tend to vary. These range from the simple code sharing and block-space to more complicated joint management and equity acquisition (Gudmundsson & Rhoades, 2001). As stated in the previous section, there are three major airline alliances – oneworld, SkyTeam and Star

Alliance – that dominate the current air transport industry with most of the mega carriers belonging to one of these three alliance groupings. Different to the traditional dyadic alliance which can be formulated or dissolved over a short period of time, these multilateral alliances are enduring inter-firm co-operations that include governance structures.

Gudmundsson and Rhoades (2001) have cited resource commitment and complexity of arrangement as the two factors which affect the duration or survival rate of alliance arrangements the most. The authors believe high levels of resource commitment create barriers to exit and hence increase the duration or survival rate of an alliance; whereas complex alliance arrangements create problems relating to incompatible systems, procedures, training and organisational or national culture which lead to higher levels of instability and failure of an alliance. Whilst today’s multilateral airline alliances such as oneworld, SkyTeam and Star Alliance are resource intensive and complex in arrangements, higher levels of integration and co-ordination are in-place with the intention to increase the interaction and trust amongst member airlines as well as the permanence of the alliance. For instance, the joining process of oneworld’s Mexicana took 19 months to complete as the airline was required to meet a list of pre-joining requirements with the assistance of fellow members Iberia and American Airlines. The 15

alliance implementation programme involved adapting Mexicana’s key internal processes into line with oneworld requirements, linking Mexicana’s IT systems to those of its oneworld partner airlines, and conducting employee training on oneworld’s customer services and benefits (oneworld, 2008). The aim is to streamline any potential incompatibilities in systems, procedures, training and inter-organisational culture to ensure that the benefits of resource and knowledge sharing outweigh the complexity of alliance arrangement. However, it is important to note that today’s multilateral airline alliances have retained the strategic flexibility to exploit various dyadic ties enabled by each partner’s uniqueness rather than partners’ full cohesion through control and centrally dictated standards (Gudmundsson & Lechner, 2006). Star Alliance members, for instance, are not required to participate in all alliance products and services such as the “Star Alliance Upgrade Awards (the ability to use one’s miles to upgrade when travelling with other Star Alliance carriers)”. This dynamic ‘co-opetition’ nature, among other factors, explains the success of large multilateral strategic alliances like oneworld,

SkyTeam and Star Alliance.

Apart from resource commitment and structural cohesion, equal focus has also been placed on operational activities such as schedule collaboration and network co-ordination to minimise the risk of early alliance termination. As Gomes-Cassares

(1994) has found, competition within today’s airline industry is less a matter of individual firms competing against individual firms but of airline groups against airline groups, or to be more precise – networks against networks. Being part of a multilateral alliance allows airlines to exploit resources across geographical boundaries and access destinations otherwise not attainable (Gudmundsson & Lechner, 2006). Whilst airlines are competing on some routes and co-operating on other, most of these activities are co-ordinated through the existing hub airports of member airlines. Such development highlights the 16

importance of seamless transfers at these established gateways.

2.2.3 Type of Collaboration Amongst Members

Burton and Hanlon (1994) identified the formation of airline alliances, alongside airline privatisation and market liberalisation, as the three contemporary developments that have the most profound effect upon contemporary airline industry’s structure and behaviour. The authors believe all three forces are part of “a general trend towards

‘economic disengagement’ by governments in many parts of the world”, allowing airlines to break free from the constraints over pricing, route entry and foreign ownership imposed by the old bilateral system. Conscious of increased competition brought by privatisation and liberalisation, airlines have been teaming up with each other to form various types of alliances.

Based on Airline Business magazine’s (Mills, 2009) most recent survey on airline alliances, there are currently over 700 separate alliances involving approximately 150 airlines. Most partnerships tend to involve just two airlines with code-sharing arrangements in-place with each other. The emergence of strategic airline alliances, such as the KLM-Northwest alliance, later expanded the scope of collaboration between airlines to include joint marketing, frequent flyer programs tie-up, technical procurement, revenue pooling, and in some cases, cross-equity investment.

Hagedoorn (1993) suggested that a long-term strategic alliance requires strong modes of inter-firm governance to collaborate members’ objectives, which explains why central management companies have been co-founded by the member airlines of oneworld,

SkyTeam and Star Alliance respectively. Apart from the conventional forms of co-operation as mentioned above, innovative alliance-specific products and services 17

have been derived by these central management companies to generate operational and financial synergies beyond individual members’ capabilities. Some of these include:

- Common IT platform;

- Joint airport facilities (e.g. lounges, check-in kiosks, and baggage service

facilities);

- Joint products and services planning and management (e.g. fares and aircraft

seats);

- Joint purchasing (e.g. fuel and aircraft parts);

- Schedule, network and fleet co-ordination, and;

- Terminal co-location at alliance hub airports (Star Alliance Services GmbH,

2009).

Evans (2001) argued that the benefits of strategic airline alliances can probably be achieved more completely and effectively through mergers. To some degree, alliance formation has been perceived as a viable market entry mechanism prior to airline industry’s consolidation. Whilst the current granting of international air traffic rights is largely confined to specific carriers substantially owned by a country, Oum, Yu, and

Zhang (2001) view strategic airline alliances as an effective compromise for international carriers to co-ordinate their operations as well as to increase their joint market power. As the role and characteristics of strategic airline alliances continue to evolve, the lead-lag relationship between alliance formation and airline cross-shareholdings have since changed. As Airline Business (1997) put it, “It used to be fashionable to go out and buy another carrier, and then think about possible synergies to justify the investment, nowadays, market needs are considered first.” The recent Air France – KLM (SkyTeam), British Airways – Iberia (oneworld) and

Continental – United (Star Alliance) mergers are examples of airlines taking advantage 18

of existing alliance operational and financial consolidation to form mega-carriers within their respective alliances. However, it is important to note that the stability of today’s multilateral strategic airline alliances relies heavily on the free of dominance amongst member airlines (Mockler, 1999; Saunders, 2006). The Star Alliance, for instance, has improved the flexibility and efficiency of its decision making by evolving from governing by consensus across the board for every alliance initiative, to basing projects around participating member airlines without waiting for all to join (O’Toole, 2002). Whilst the formation of mega-carriers within an alliance can be considered as the ultimate collaboration between member airlines, it has resulted in negative effects such as premature exit of partners from the same geographic location. The 2009 alliance re-alignment of Continental Airlines from SkyTeam to Star Alliance is said to be fostered by the Delta – Northwest merger. In SkyTeam, Continental had significant network overlap with the merged Delta Air Lines (Ranson, 2009).

2.3 Airline Alliance Terminal Co-location

2.3.1 From Fortress Hubs to Alliance Hubs

Whilst today’s international aviation market is still subject to regulation, many airlines have extended their networks to foreign countries by entering an alliance agreement with a foreign airline. Pels (2001) found that “the emergence of alliances is a continuation of the process of concentration and consolidation that was first characterised by the emergence of hub-and-spoke networks”. Three major incentives mentioned in Pels’ (2001) literature explaining the emergence of hub-and-spoke networks are cost factors, demand factors and entry deterrence. Similarly, participation in an alliance allows airlines to increase market densities and simultaneously reduce 19

fixed costs in the markets. Not only does the combined hub-and-spoke network extend beyond individual members’ network coverage, the access to each other’s feeder traffic also indirectly increases individual members’ market shares in their own spoke markets.

Moreover, the fixed costs of operating airport facilities and ground handling equipments can be spread over more carriers.

Different to fortress hubs which are dominated by a single carrier, today’s alliance hubs are, although predominantly extended from the fortress hubs of member airlines, airports simultaneously served by multiple member airlines with considerable connecting traffic and/or dominant passenger or aircraft movement shares. The first type of alliance hubs, with transfer traffic accounting for large shares of all passengers handled at these airports, are more likely to have obvious effects on airport operations.

Apart from rearrangements in aircraft parking, use of terminal space and allocation of passenger processing resources, the vast network feed provided by present alliance members at these airports is also more likely to attract new traffic from other member airlines. A good example of this is Thai Airways’ recent decision to re-launch non-stop services to New York. While the Star Alliance carrier previous operated the service out of New York JFK Airport, this time the airline has chosen to re-locate its operations to

Newark Liberty Airport – which is fast becoming Star Alliance’s airport of choice for New

York following local hub operator Continental’s membership realignment from SkyTeam

(Kuhlmann, 2010). The latter type of alliance hubs, whose passenger and/or aircraft traffic are dominated by the alliance but with no or very little intra-alliance transfer traffic, tend to have less airline hubbing-like operational effects by alliance affiliation.

While the primarily focus of fortress hub operations is on maximising a single carrier’s market power and revenue through increased network coverage, schedule connectivity 20

and intraline transfers (Dennis, 2001), the definition of an alliance hub is not necessarily bounded by all those features. Apart from enhancing connectivity between members’ networks, today’s global strategic airline alliances are also focused on generating operational and financial synergies through shared facilities and common processes.

Hence the role of an alliance hub is not limited to co-ordinating network and interline connections, but facilitating the consolidation of back-office functions.

2.3.2 Motivations for Terminal Co-location

There was a time when airports, especially those in the US, were divided into discrete areas to dedicated carriers. This practice was particularly evident at New York JFK

Airport in the late 1950s and early 1960s when airlines – such as Pan Am and TWA – created showcase terminals as monuments to their brands (“Ever changing world,”

2010). Whilst airline-dedicated terminals were originally designed to promote individual airlines’ brands, identities and global dominance, it was the development of hub-and-spoke network post airline deregulation that helped airlines (particularly the US carriers) realise the full potential of these designated terminal facilities.

Under hub-and-spoke operations, a hub’s connectivity is often measured by the number of meaningful connections generated during each schedule wave (Goedeking & Sala,

2004). Whilst shorter connecting times would create a greater number of flight-pairs during each schedule wave without having to extend its duration, a key benefit of airline-dedicated facilities is that they increase the likelihood of intraline connections by making it easier and faster for passengers to transfer to another flight within the same terminal or terminal area (Phillips, 1987). In addition, intra-airline transfers in an airline dedicated terminal are generally not required to leave the airside environment and therefore will not make use of facilities such as check-in counters and baggage reclaims 21

(De Barros et al., 2007), thus reduces the airline’s burden on terminal facility development.

Today’s airline alliance terminal co-location is basically an extension of the concept of airline-dedicated terminal. A survey of airlines participating in the alliances was carried out by Iatrou and Alamdari (2005) to examine which types of route have received the most positive impact on traffic from co-operation among member carriers. The results show that the greatest increase in passenger traffic was observed primarily on hub-to-hub routes, and secondarily on hub-to-non-hub routes. In other words, the provision of seamless connections through hub airports has played an important role in the upsurge of alliance traffic. Whilst domestic and regional (e.g. intra-EU or US-Canada) operations at most hub airports around the world are already consolidated at airline-dedicated terminals, international flights remain scattered across common-user terminals due to visa and border security arrangements. At many multi-terminal airports such as London Heathrow prior to the alliance terminal co-location exercise, the allocation of facilities was made with little attempt to minimise the number of inter-terminal transfers required. Instead, sectorisation of services between terminals was determined in such a way that routes serving a similar geographical region leave from the same location (Hanlon, 1989). In order to achieve the operational and financial synergies similar to those derived from airline-dedicated terminal facilities in a common-user terminal environment, all three global strategic airline alliances – oneworld, SkyTeam and Star Alliance – have negotiated or are in the process of negotiating alliance terminal co-location at their respective hub airports. In a study on the impact of airline hubbing on airline economics in the US, Kanafani and Ghobrial

(1984) found that much of the available evidence concerning station costs suggests that average costs per passenger do not decline with passenger volume at an airport. Whilst 22

it was concluded that the economies of scale of airline hubbing do not apply to station costs, the result may be different in today’s alliance hubbing context where station equipments and passenger facilities are more commonly shared.

2.3.3 The “Move Under one Roof (MUoR)” Concept by Star Alliance

A majority of airline alliances is route based, which allows member carriers access to each other’s route network and defence of current markets through traffic feed into established gateways (Morrish & Hamilton, 2002). Hub airports with multi-terminal operations often create a major bottleneck to efficient passenger transfers and ground handling for airline alliances. Dennis (2000) observed that “many airports were designed to meet the needs of airline services at a historic point in time and are hence ill-equipped to accommodate the requirements of the new alliance groupings.” However, options towards reducing or removing multi-terminal operations through the expansion of existing or building of new terminals address only the supply-side of the airport congestion problem. As capacity becomes exhausted at these airports, most global alliances have negotiated terminal consolidation with their airport partners – as a demand-side effort – to create synergies in two aspects. One is to improve connectivity and MCT (Minimum Connecting Times) amongst their affiliates’ hub-and-spoke networks; the other is to eliminate redundant station costs by providing common processing and representation through joint airport equipments and facilities.

Star Alliance has long incorporated the “Move Under one Roof (MUoR)” concept as a part of its key alliance strategy. Whilst the alliance has developed the concept with both the alliance’s connectivity and the bottom line of member airlines in mind, the result is different to traditional airline hubbing which places much of its focus on flight co-ordination and MCT. The objective of the MUoR concept is to develop exclusive Star 23

Alliance terminals or terminal areas at hub airports to operate airport infrastructure (e.g. check-in counters and ticketing office spaces) as well as member airlines’ resources

(e.g. lounges and ground handling equipments) more efficiently. The key benefits of common representation of member airlines are outlined by the Star Alliance CEO, Jaan

Albrecht, as the following:

- Provide harmonised airport services to passengers;

- Fast-track connections for passengers and baggage;

- Simplify orientation for the passengers at an airport, and;

- Reduce duplications of capital investments for airlines (Albrecht, 2005).

Whilst the idea of co-locating members’ terminal activities and aircraft operations nearby each other at an airport is merely a mirrored practice of most network carriers’ hub operations, it is by far more complicated in reality considering the number of carriers and set of procedures involved, not to mention the hurdle of winning the airport operator’s support. As Manataki and Zografos (2010) have pointed out, multiple stakeholders represent multiple and often conflicting operational objectives. The “Alcazar” alliance involving SAS, Swissair, Austrian Airlines and KLM in the early 1990s failed because the airlines were involved with various American partners and were affiliated to different computer reservation systems (Evans, 2001). Medcof (1997) proposed four criteria for the successful implementation of strategic alliances, with the second criterion relating to the compatibility of partners in operational terms, and the third relating to the commitment of resources and managerial effort to the alliance. In order to address the complication of conflicting operational objectives in realising terminal co-location at various hub airports, a phased approach has been adopted by Star Alliance.

The first phase is to standardise the passenger processing procedures amongst 24

member airlines by the introduction of a common IT platform, business rules and message standards for electronic ticketing (Saunders, 2006). The standardisation of IT solutions and electronic tickets allows the development of joint airport equipments and facilities such as self-service check-in kiosks and “Zonal Check-in”, in which the check-in area for Star Alliance’s member carriers are divided into zones according to class of travel rather than by individual flights (Star Alliance Services GmbH, 2006b).

The second phase is to work with the airport operator in identifying both parties’ common interests in terms of terminal products and services and ensure that these defined expectations are met following an agreement on quality of service. The maintenance of service quality is carried out based on four established steps:

1. Close co-operation using various means of communication;

2. Define Service Level Agreements amongst both parties;

3. Measure performance results regularly, and;

4. Maintain an action log to keep track of ongoing agenda (Pokasem, 2005).

The case of Tom Bradley International Terminal at Los Angeles Airport is an example of how common interests are achieved through the appropriate alignment of an airport-driven decision and airline alliances demands. The space constrained common-user international terminal, which has long been experiencing difficulties to accommodate as many individual lounge facilities as were requested, now has three alliance lounges (dedicated to oneworld, SkyTeam and Star Alliance) and another for unaligned carriers. Being an alliance hub brings a whole new reality to an airport in terms of aircraft operations as well as the use of terminal space and allocation of passenger processing resources (Kuhlmann, 2010). Although it may not necessarily mean more flights or passengers initially, Donoghue (1999) suggested that airports look at alliances on a network basis to determine how traffic flows will change as groupings 25

become more solidified.

2.3.4 Initiation of Terminal Co-location – Airport or Airline Alliance Driven?

As the airline industry continues to grow and evolve, many airports around the world have recently built, rebuilt, or are in the process of constructing new terminals to accommodate the traffic expansion of their incumbent airlines and new entrants. Whilst the capacities of new(er) terminals are limited, airline tenants must be allocated in a mix of the old and new terminal facilities. Different to the old days when national or home-based carriers were almost always prioritised with their terminal preferences, terminal allocation today is done more by taking into account airlines’ traffic nature, network configuration, and more recently their competition and alliance groupings

(Socorro & Betancor, 2010; Kuhlmann, 2010).

Although the increased dominance of airline alliances at an airport may not necessarily mean more passengers or flights, it has stimulated the evolution of the relationship between the airport and its airline operators (Kuhlmann, 2010). Donoghue (1999) pointed out that “airports in the era of the airline alliance must be virtually concerned not only about attracting alliance business but about the manner in which they tailor their offerings and operations to accommodate alliance demands”. However not all airport operators, especially the ones that are currently experiencing terminal capacity constraint, are keen to reshuffle their airline terminal allocations just to increase the connectivity and competitiveness of a number of alliance-aligned airlines without any obvious benefits to the airport operator’s own operational and financial positions. In an environment of increasing regulatory scrutiny for competition and fair trade, airport operators tend to avoid re-allocating airline customers between terminals due to airport access protocols, particularly when there is an apparent disparity of service levels 26

between the terminals (Socorro & Betancor, 2010). A case in point being the Spanish airport operator AENA (Aeropuertos Españoles y Navegación Aérea), which was accused by the country’s second largest carrier Spanair of favouring Iberia when Madrid

Barajas Airport’s new Terminal 4 was allocated to the Spanish flag-carrier. Apart from the disparity in terminal service levels, Spanair also argued that the location of T4 is much closer to Barajas Airport’s four runways (Figure 2.1), allowing Iberia the advantage of shorter aircraft taxi distances and times (Spanair, 2005). Kanafani and

Ghobrial (1985) have long argued that airline hubbing would appear both to pose problems and to offer opportunities seen from the perspective of airport economics. The problems are due to the added traffic volumes and the nature of the traffic brought to the airport; whereas the opportunities arise from the realisation of airports sharing the economic benefits of hubbing already enjoyed by both airlines and passengers.

On the other hand, many alliance partners in some cases continue to operate in separate terminals at an airport where airline-dedicated space remains more common.

Whilst it may be beneficial to both the airport and airline passengers to have the alliance members’ activities co-located in the same terminal, the move is operationally and/or commercially unattractive to the airlines. An example was given by Kuhlmann (2010) who indicated that Star Alliance members United Airlines and US Airways operate code-share flights from their respective terminals on opposite sides of San Francisco

Airport. For the above reasons, the strategic concept of consolidating the airport operations of alliance member airlines in a dedicated terminal or terminal area has been initiated in two distinct directions – either driven by the airline alliance(s) or the airport.

Fig. 2.1. Distance for aircraft to taxi to runways at Madrid Barajas Airport (Spanair, 2005).

2.3.5 Existing Implementations

By 2010, almost all of the world’s major network carriers are integrated with, or being sought by, one of the three multilateral strategic airline alliances (oneworld, SkyTeam and Star Alliance). Even Qatar Airways, one of the Middle East’s largest network carriers, is rumoured to be in talks with oneworld for a potential membership

(“oneworld’s BA,” 2012). The strategic importance of their network coverage and

connectivity are amply demonstrated in all three alliances working closely with the airport operators of their respective hubs to achieve terminal co-location of member airlines (Kuhlmann, 2010). On the other hand, today’s airport business involves challenges such as saturated traffic growth, retrenched market shares, as well as stiffened competition between hub airports. Diversification, differentiation and innovation are the three crucial tenets for airport strategies to reflect changing dynamics in the airline industry. In a list of established and emerging airport business models (Figure 2.2) prepared by Feldman (2009), the author highlighted the strategy of being “alliance anchor hubs” as a successfully established business model for airports around the world.

With both parties having the intention of strengthening airports’ role as alliance hubs, airport operators and airlines need to work together to ensure that their facilities and services are capable of adapting to today’s competitive and economic environment.

Pokasem from Star Alliance also believed the quality of products and services offered at international airport terminals would determine how well the airlines, alliances and airport operators achieve their common interests in:

- Seamless travel experience;

- Long-term traffic development;

- Easy, smooth and efficient processes;

- Customer satisfaction and retention;

- Economical use of capital expenditures;

- Generating additional revenue by creating synergies;

- Easy connections for passengers and baggage, and;

- Ease of communications between all parties (Pokasem, 2005).

Fig. 2.2. Established and emerging airport business models (Feldman, 2009).

London Heathrow Airport is currently undergoing a massive transfer of airlines between terminals as the new T5 has come online since March 2008. Similarly, Tokyo Narita

Airport has just carried out airline relocation exercises to house the three major airline groups in their dedicated terminal locations. The tendency of alliances to encourage airport operators to consolidate their members’ terminal allocation is accompanied by two advantages. In the first place, there will be less duplication of capital investment in the fixed costs associated with stations, lounges and ground equipments; while in the second place, reduced MCT and combined hub-and spoke networks will guarantee even higher traffic density at these hub airports (Agusdinata and Klein, 2002).

While it’s evident that alliance terminal co-location presents multiple benefits to airline alliance members, the concentrated wave activity emanating from hub-and-spoke strategies could subsequently place increase demand on airport infrastructure and runway slots to meet artificially created peak requirements (Dennis, 2000). The excessive peaking and ever-changing airline alliance groupings could also mislead airport operators in turns of capacity planning and competitive balance amongst dominant alliances and non-allied airlines. In order to win agreement to terminal 30

co-location at Paris Charles de Gaulle Airport (CDG) from the airport operator Aéroports de Paris, Star Alliance had guaranteed that it would bring significant traffic growth to the airport to make maximum use of the terminal space (O’Toole, 2002). Whilst in 2002 the alliance itself projected a traffic growth at Paris CDG to 7.5 million passengers by 2005, in reality it only achieved 4.7 million passengers in 2005 (O’Toole, 2002; Aéroports de

Paris, 2005). Many available literature on airline alliances also suggest that the development of strategic airline alliances as inherently unstable and are likely to break up under commercial pressure (Porter, 1990; Hamel, 1991).

While it’s true that global airline alliance groupings remain volatile and some airlines over the years have changed their partners as they have become more sophisticated at identifying the potential 'strategic fit' between partners; the structure and characteristics of airline alliances have also evolved to reduce the risks of incompatibility and termination. It is not until recent years that airline alliances have become more resource intensive with the formation of multi-lateral global strategic airline alliances such as oneworld, SkyTeam and Star Alliance. With higher levels of resource integration and network coordination, it is argued, strategic airline alliances and their complementary business strategies are not a transitory feature of the international airline industry but long-term inter-organisational forms and key future trends in their development (Evans,

2001). This reassures airport operators when measuring up the stability and durability borne by alliance induced strategies such as the concept of alliance terminal co-location.

On the other hand, certain operational benefits of alliance terminal co-location for airport operators are beginning to become apparent at areas where the concept has been embraced at an earlier stage. Tokyo Narita Airport’s recent terminal reorganisation 31

programme has not only successfully co-located all three major alliances’ operations in their respective areas, but also reduced disproportionate traffic volume at its two terminals (Narita International Airport Corporation, 2007a). With increasing competition amongst major hub airports, attracting multiple airline alliances to establish hub-and-spoke operations also allows an airport to balance the turbulence of traffic downturn by diminishing dependency1 on one dominant carrier or a particular alliance

(Dennis, 2005). The implementation of alliance terminal co-location can thus be utilised as a useful negotiation tool for airports to secure long-term commitments from multiple airline alliances.

Whilst Feldman (2009) considered that the business model of being an “alliance anchor hub” is more relevant to airports that can attract high volume of passengers each year, he has failed to notice that the context of today’s alliance hubbing is not limited to co-ordinating network and attracting connecting passengers, but also facilitating the consolidation of back-office functions and sharing of airside operations management.

Hence the aim of this paper is to determine if the alliance terminal co-location strategy is universally applicable to all airports – even at locations with low volumes of connecting traffic, apart from identifying the operational and financial incentives and implications for hub airports to implement the strategy.

1 The terrorist attacks of 11 September 2001 and the coincidental collapse of Australia’s second major domestic airline, Ansett, led to significant changes in traffic and aeronautical revenue, to which many Australian major airports were unable to respond under their price caps imposed by government’s price regulation (Schuster, 2009).

Chapter Three

METHODOLOGICAL FRAMEWORK

3.1 Qualitative Case Analysis on Sample Airports

The underlying reasons motivating airport operators to implement the concept of alliance terminal co-location are varied and complex. Some are directly related to the strategic development of global airline alliances, whilst others are concerned with the operational characteristics and financial structure of the airport operators themselves.

Different types of airports exhibit different traffic characteristics and terminal settings, have different objectives and constraints, and therefore, require different demand or preference management approaches for the allocation of terminals.

To further explore the implementation of alliance terminal co-location at airports worldwide – from the stage of its inception to the measurement of its success/failure for airport operators – a population of three sample airports was deemed appropriate for the qualitative case analysis of this paper. Although it had been established that each sample airport has to be: 1) a network hub for at least two of the three major airline alliances (i.e. oneworld, SkyTeam and Star Alliance), and 2) with alliance terminal co-location already implemented, new airports that were recently constructed and commissioned have been excluded from the selection. This decision was made under the consideration that new hub airports – such as Bangkok Suvarnabhumi Airport

(opened in 2006) and Shanghai Pudong Airport (opened in 1999) – would have taken the development of global airline alliances into account at the planning and/or construction phase of their airport infrastructure, creating bias to these airport operators’ 33

attitude and ability to accommodate alliance terminal co-location at their airports. Based on the above selection criteria, London Heathrow Airport, Paris Charles de Gaulle

Airport and Tokyo Narita Airport were chosen as the sample airports. Each was nominated for the following specific reasons:

1. London Heathrow Airport – Its network significance to all three strategic airline

alliances, and the complexity of its airline terminal relocation program due to the

scale of its flight and passenger operations.

2. Paris Charles de Gaulle Airport – The earliest media documentation of

negotiations between the airline alliances and an airport operator on alliance

terminal co-location, as well as the airport’s unique intermodal transport of

high-speed rail link.

3. Tokyo Narita Airport – Its high level of alliance collaboration in terms of

aircraft/passenger processing and terminal facilities in a primarily

origin-destination traffic environment.

Prior to engaging the airport operators of the above sample airports, secondary data concerning each airport’s airline activities, alliance initiatives, operational statistics as well as financial characteristics were gathered, to formulate an understanding of how each sample airport exercises the concept of alliance terminal co-location in its unique business environment. Once the contact with each sample airport was established and the intentions of the case analysis were communicated, a meeting request was sent to its airport operator accompanied by a comprehensive questionnaire to outline the proposed discussion items (as shown in Appendix A). In assessing each airport operator’s role throughout the implementation of alliance terminal co-location, the following criteria were taken into account in the questionnaire:

- Airport planning; 34

- Airport-airline joint planning, and;

- Implementation and evaluation.

Two of the three airport operators, namely Aéroports de Paris (ADP) and Narita

International Airport Corporation (NAA), have responded and agreed to the meeting.

The meeting with each airport operator of the sample airports was carried out in two parts – first an interview to discuss the questionnaire items and then a site visit to visualise the operational environment and processes of the airport. This was to collect primary data for confirmation of hypotheses such as which party (airport or alliance) initiated alliance terminal co-location at each sample airport. The meeting also presented a unique opportunity to observe and document the specific airline/airport constraints or merits experienced at each sample airport as a result of implementing the concept, which could later be modelled and tested on the case study airport.

3.2 Quantitative Model on Case Study Airport

The case analysis findings revealed that alliance terminal co-location has presented various operational and financial merits to the sample airports in key areas such as the utilisations of terminal facilities and aircraft parking. To assess the universal applicability of alliance terminal co-location, the concept was applied to Sydney Airport as a case study to evaluate the validity of attributable merits observed at the sample airports. As international passenger and airline traffic at Sydney Airport have both increased significantly since its privatisation in 2002, the airport’s International Terminal (Terminal

1) is under considerable pressure to facilitate the passenger and aircraft demands during the terminal’s busy periods. Passenger check-in facilities and terminal aircraft parking positions have been regularly identified as two of the most capacity constrained 35

resources at T1. In contrast, changes in allocation strategies following the implementation of alliance terminal co-location at the sample airports have resulted in improvements in utilisation and congestion levels around the same resources. As a concept compatibility assessment, alliance-driven allocation was applied to the assignment of check-in and aircraft parking at Sydney Airport’s T1, to determine if: 1) these existing facilities have sufficient capacity to incorporate alliance check-in and aircraft parking co-location, and 2) the concept would yield similar benefits observed at the sample airports. For the purpose of this study, a typical week schedule of the current

Northern Summer 2011 (NS11) season was applied to reflect the real-life passenger and aircraft demands at T1.

3.2.1 Check-in Allocation

Check-in facilities are typically allocated in two different ways, namely block or profiled allocations. With block allocation, each flight is assigned with a dedicated number of check-in counters all having identical open and close times; whereas with profiled allocation, each flight is also assigned with a number of counters but profiled to open and close at different times to meet check-in counter demand at various times prior to the flight’s departure (as demonstrated in Figure 3.1). Normally a group of check-in counters are assigned to service passengers from a single flight. However, observation at sample airports has shown airline alliances grouping their flights together to form their own common check-in areas, with the counters in those areas shared amongst all the flights within individual alliances. As a result, extended block/profiled allocations have formed based on a combination of individual flights’ check-in requirements.

Fig. 3.1. Types of check-in counter allocations (Chun & Mak, 1999).

For the purpose of assessing the operational and financial impact of the alliance-driven common check-in concept at Sydney Airport, the model was conducted in two phases:

1. Existing allocations over the NS11 typical week were documented as the base

case, and;

2. In the proposed scenario, alliance-driven common allocations were applied to

airlines of oneworld, SkyTeam and Star Alliance; while the remaining

non-aligned carriers adopted their existing block allocations.

Considering that airline requests partake a significant role in determining the demands for check-in facilities at the terminal, the Sydney Airport Corporation Limited (SACL)

“Licence To Use Check-In Counter Equipment At Sydney International Terminal” was used as a guideline for T1 check-in allocation procedures. In order to calculate each alliance’s check-in counter demands under the common allocation principle, other parameters collated for the proposed scenario of this model include:

- Typical passenger arrival profile at check-in (refer to Figure 3.2);

- Typical passenger transaction time at check-in (2.5 min/pax);

- Typical check-in window relative to flight departure time (180 to 30 min before

scheduled time of departure/STD), and;

- Current check-in charge ($21.15 per check-in counter per hour effective 1 July

2011). 37

In addition, airline pier preferences were also taken into account as not all check-in islands are linked to the baggage systems at both terminal piers. These parameters were documented based on the airport operator’s typical analytical assumptions.

20%

15%

10%

5% Percentages

81 51 41 21 11 71 61 31

------

171 151 141 121 111 161 131 101

------

90 to 90 to 60 to 50 to 30 to 20 80 to 80 to 70 to 40

------

100 to 100 10 to STD to 10

180 to 180 to 160 to 150 to 130 to 120 170 to 170 to 140 to 110

------

Minutes to STD

Fig. 3.2. Typical passenger arrival profile at check-in at Sydney Airport T1.

3.2.2 Aircraft Parking Allocation

An objective for alliance terminal co-location is to minimise passenger/baggage connecting times by allocating aircraft of member airlines to concentrated parking positions at a specific terminal or terminal location (Buyck, 2000). In order to assess the operational impact of the alliance-driven terminal aircraft parking allocation, the model was conducted in two phases:

1. Existing allocations over the NS11 typical week were documented as the base

case, and;

2. In the proposed scenario, the allocation of terminal aircraft parking positions was

prioritised to flights operated by airlines of oneworld, SkyTeam and Star Alliance;

while flights operated by non-aligned carriers were assigned to the terminal

parking positions wherever possible, otherwise to the remote parking positions.

In the proposed scenario, SACL’s “Apron Operational Procedures” and “T1 Common 38

Use Aircraft Bay & Gate Allocation Procedures” were used as a guideline for T1 aircraft parking allocation criteria and priorities. Citing a lack of code-share activities and physical lounge operations amongst SkyTeam carriers at Sydney Airport, oneworld’s and Star Alliance’s pier preferences of Pier B and Pier C were prioritised in this analysis.

A key indicator to determine the operational efficiency of the alliance-driven terminal aircraft parking allocation was the number of flights ended up requiring bussing operations.

Chapter 4

CASE ANALYSIS ON SAMPLE AIRPORTS

While the current airline alliance groupings might serve as the backdrop to an airport operator’s decision to implement the “alliance under one roof” concept, airports will only embrace the idea when their internal circumstances make this the correct operational and/or financial move. For the purpose of validating the hypothetical driving forces for airport operators to adopt the strategic arrangement of alliance terminal co-location, three global hub airports – London Heathrow Airport (LHR); Paris Charles de Gaulle

Airport (CDG); Tokyo Narita Airport (NRT) – with the concept currently in place are selected as the sample airports for this paper’s case analysis.

The analytical process for each case airport involves:

1. Identify initial set of descriptive airport operational/financial characteristics and

variables;

2. Determine the typology of airport’s traffic (i.e. connecting hubs or

originating/terminating ports);

3. Determine the typology of airport’s implementation (i.e. terminal co-location

initiated by airline alliances and/or airport operators);

4. Collect data of sample airports ranging from the conceptualisation, inception to

implementation of the alliance terminal co-location project, and;

5. Assess the operational/financial benefits and diseconomies brought about by

alliance terminal co-location at airports analysed.

Each of these sample airports will also be briefly considered in the conceptual model of alliance terminal co-location case analysis/study (Appendix B). 41

4.1 London Heathrow Airport (BAA Airports Limited)

4.1.1 Airport Overview

London Heathrow Airport (IATA code: LHR) commenced civilian operations in 1946 with the name London Airport. By 1947, Heathrow had three runways in a triangle pattern, while another three were under construction. The additional runways were completed in the early 1950s to form a star pattern in which two runways would always be within 30 degree angle of the wind direction. The early passenger terminals were ex‑military marquees which formed a tented village. It was not until 1955 when the first permanent passenger terminal, the Europa Building, was completed in the middle of the star pattern of runways.

As traffic boomed, Heathrow Airport found itself with an ever-increasing demand for passenger facilities. The Oceanic Terminal, designed to handle long-haul flights, was inaugurated in 1961. Shortly after, the Europa Terminal and Oceanic Terminal were renamed Terminal 2 and Terminal 3 respectively when the new Terminal 1 joined them in 1968. This subsequently created the cluster of terminal buildings central to the airport as seen today. While these were built with the intention of easy access for the aircraft to all the runways, the location of the original terminals at the centre of the site has since become a constraint on expansion. At this point, London Heathrow Airport was handling

14 million passengers annually. With growth in the required length of runways in the

1970s, Heathrow’s two main runways – Runway 09L/27R and 09R/27L, were extended to their current lengths (3,902m and 3,658m) to accommodate new wide-body jets such as the Boeing 747. Progressively the other runways were decommissioned in order to facilitate the extensions of these parallel runways as well as subsequent terminal expansions at the Central Terminal Area (CTA). The only exception was Runway 05/23, 42

which was preserved for crosswind landings until 2002. As the decade (1970s) drew to a close, the annual passenger numbers at Heathrow had grown to 27 million per year

(BAA Heathrow, n.d.a).

Fig. 4.1. Layout of London Heathrow Airport (BAA Heathrow, 2005c).

As demand for air travel continued to create the need for more apron and terminal capacities, Terminal 4 was opened in 1986 to be the dedicated terminal for the newly privatised home-based carrier British Airways. Due to space constraints at the central terminal site, Terminal 4 was constructed to the south of the southern runway (Runway

09R/27L) next to the existing Cargo Terminal. It was the first terminal at Heathrow

Airport to have total separation of arrival and departure passengers on different floors. A year after the opening of Terminal 4, the UK government privatised the British Airports

Authority (now BAA Airports Limited) which controls London Heathrow Airport. Since privatisation, BAA has expanded the proportion of terminal space allocated to retailing activities and has invested in the development of retail activity (“The man,” 2007). In order to bring the other three terminals in-line with this strategy whilst improving their service levels, they were upgraded and refurbished along with the construction of the new Terminal 5. For instance, redevelopment work to Terminal 1 in 2005 saw a doubling 43

in the size of the terminal lounge and 20% extra retail space added, while a brand new

£106 million glass fronted Pier 6 at Terminal 3 was constructed in 2006 with four new aircraft parking positions able to accommodate the Airbus A380s. When Terminal 5 was commissioned in 2008, a complex airline terminal re-allocation program has been subsequently implemented. This has seen many airlines moved so as to be grouped in terminals based on alliance alignment. As the sole airline occupant of Terminal 5, British

Airways was able to consolidate its operations – previously spread across Terminal 1, 3 and 4 – to just Terminal 5 and its neighbouring Terminal 3 (refer to Figure 4.1 for

Heathrow’s existing airport layout). Details of this so-called “Post T5 Musical Chairs” airline terminal re-allocation program will be further discussed in the following sections.

In 2010, London Heathrow Airport handled a total of approximately 65.7 million passengers with 35% (or 23.3 million) being connecting passengers (BAA Heathrow, n.d.b). The airport is currently served by around 90 airlines, and is the primary hub of

British Airways and British Midland Airways (BMI), and is the base for Virgin Atlantic

Airways. The respective membership of British Airways and BMI in oneworld and Star

Alliance make the airport one of the few European hubs with two competing alliance-aligned home-based carriers. While SkyTeam is the only major airline alliance without a local member in the UK, London Heathrow Airport, with the high concentration of connecting traffic and airline operators, remains regarded by all three major alliances

(oneworld, SkyTeam and Star Alliance) as a hub city in their respective networks.

According to the airport operator, there are three principal reasons why airline alliances view Heathrow as being so important to their businesses:

1. Strong local demand – In 2004 some 53% of Heathrow’s O&D (origin and

destination) passengers travelled to/from inner and outer London locations.

2. Strong route network – The presence of strong local demand enables the 44

airlines to provide an extensive network of domestic, short-haul European and

long-haul routes.

3. High number of connections – A high number of flight frequencies across the day

combined with a strong route network combined, these afford passengers a

good choice of connecting flights (BAA Heathrow, 2005a).

4.1.2 The EU-US Open Skies Agreement

The first stage of the European Union (EU) and the United States (US) air transport agreement (also known as the EU-US Open Skies agreement) was signed in April 2007.

This agreement effectively replaced the bilateral air services agreements (ASAs) between the US and each of the 27 EU member states providing more liberalised air traffic rights for carriers from both parties. While the second stage negotiations began on 15 May 2008 and are still underway, the significance of the first stage agreement is that it granted the right for any licensed EU carrier to fly between any EU airport and any

US airport (Humphreys & Morrell, 2009). Previously, the US government had the right to refuse the designation of a European airline not operating from its own country. As a result, the first stage removed the limit on competing EU network carriers launching trans-Atlantic services from each other’s European hubs.

International airline alliances involving trans-Atlantic services began to emerge in the late 1980s as carriers sought to create the economies of scope and density on the cost side and market presence on the revenue side. For many EU network carriers, these were being enjoyed in domestic markets, but because of traffic right constraints of the traditional ASAs could not replicate this on non-European international routes from another EU country. The restrictive characteristics of the prevailing bilateral ASAs effectively forced the airlines to move to a second-best alliance approach to squeeze 45

out synergies from their various operations (Button, 2009). After the first stage of the

EU-US Open Skies took effect in late 2007, some airlines were quick to take advantage the new agreement. British Airways launched services between Paris and New York

(ORY – JFK) under its Open Skies brand; while Air France introduced a daily London –

Los Angeles (LHR – LAX) service jointly marketed with its SkyTeam partner Delta’s flights on the route. Although the creation of a Single European Market in the 1990s allows EU designated carriers to operate any intra-Union services, very little EU network carriers have since established hub operations outside of their home countries. For these airlines to launch trans-Atlantic services from a competing EU network carrier’s hub under the new EU-US agreement, this would require their alliance partners to have a strong market presence and dense intra-Europe traffic feed at this airport. Hence schedule rationalisation and connectivity enhancement become the main priorities for global airline alliances to achieve at their European hubs in this instance.

As Dennis (2001) suggested, major improvements in network coverage and scheduling need to go hand-in-hand with the developments of airport infrastructure to further increase the effectiveness of hubbing activities at major European airports. In order to better synchronise connecting traffic in a short space of time at hub airports, many global airline alliances, such as Star Alliance, have requested to consolidate their members’ operations out of a single terminal whenever the opportunity of terminal reshuffle arises (e.g. when excess capacity becomes available after a major terminal development). This trend is particularly obvious at London Heathrow Airport with the compound effect of EU-US Open Skies and Terminal 5’s inauguration intensifying competition for market share amongst the three major airline alliances – oneworld,

SkyTeam and Star Alliance. While the previous UK-US bilateral (so-called Bermuda II constraints) limited Heathrow’s access by competing carriers at two from each country, 46

this restriction was lifted in the first stage EU-US agreement (Humphreys & Morrell,

2009). As a result, US carriers such as Continental, Delta, Northwest and US Airways have all since acquired or leased slot pairs at Heathrow from their respective SkyTeam and Star Alliance partners (Sobie, 2008). The slot trade came as both airline alliances were keen to increase member airline representation at the airport (Sobie, 2007). In

SkyTeam’s case, 7 of Air France-KLM’s 27 slot pairs at London Heathrow Airport were leased to their US partners (namely Continental, Delta and Northwest at the time) following a major reshuffling of its Heathrow slots to support transatlantic flight times

(Sobie, 2008). According to Humphreys and Morrell (2009), it has long been evident that some European carriers, such as Air France and KLM, continued to operate certain thin routes to Heathrow with small aircraft which were highly unlikely to be profitable, or maintained a higher than necessary frequency on thicker routes. The growing success of the Eurostar rail service between London and continental Europe also meant that airlines were able to reduce frequencies on some routes to make slots at Heathrow

Airport available to US alliance partners.

Apart from the reshuffling of their slots at Heathrow, these three alliances also entered separate negotiations with the airport’s operator BAA for terminal co-location in sight of

British Airways relocating its entire Heathrow operations to Terminal 3 and the brand new Terminal 5. The aim is internally to achieve cost savings through sharing processes and economies of scale; and externally to maintain competitive service level and connectivity against rival alliances as connecting traffic accounts for approximately one-third of Heathrow’s total passenger throughput (Humphreys & Morrell, 2009).

4.1.3 Terminal Co-location at London Heathrow Airport

It was estimated that the new Terminal 5 would provide Heathrow with an additional 47

passenger handling capacity of up to 35 million passengers per annum (BAA Heathrow,

2005b). In order to fulfil its long-term strategy of reinforcing its status as a leading international network hub airport, London Heathrow Airport’s airline terminal re-allocation plan was drafted under the approach of:

1. Making the best use of the airport facilities, and;

2. Satisfying alliance aspirations by co-locating airline alliances in different parts

of the airport (BAA Heathrow, 2005a).

Initially, discussions on how to reshuffle Heathrow’s airline operators following the completion of T5 Phase I were conducted between the airport operator and its five main alliances/airlines – namely British Airways, oneworld, SkyTeam, Star Alliance and Virgin

Atlantic Airways. Preliminary talks with other non-aligned airlines at Heathrow were also held. These discussions, and the subsequent memoranda of understanding (MOUs), have focused on how BAA Heathrow as an airport operator can provide airline customers with a competitive product in terms of improved facilities, over a three year period from the opening of Terminal 5 Phase I in March 2008 to the opening of Terminal

5 Phase II in spring 2011. The keystone of the proposed allocation plan was the assignment of home carrier British Airways to the new Terminal 5, in a bid to house the airline’s entire operations in one single terminal. However, citing that T5 Phase II would not be completed until spring 2011, the adjacent Terminal 3 was chosen to host those

BA flights that can't yet be accommodated at Terminal 5. Around the same time, UK carrier Virgin Atlantic was granted its request to remain in Terminal 3.

The first alliance grouping to come to agreement with BAA Heathrow for terminal co-location was the Star Alliance, and the two parties signed the memorandum of understanding (MoU) in late 2004. The decision by British Airways to relocate its

Heathrow operations at T1 into T5 during the initial phase in 2008 had allowed all Star 48

Alliance to co-locate at T1 rather than the alliance’s original plan to occupy both T1 and

T3. Consequently, this eliminated the need for BAA Heathrow to build a £0.5 – 1 billion mini-terminal between Terminal 1 and 3 to support Star Alliance’s short-haul operations.

At the end, the alliance agreed to consolidate its members operations at Heathrow’s

Terminal 1 based on four key objectives: 1) co-location of all Star Alliance carriers, 2) an integrated baggage handling system, 3) a MCT between Star Alliance carriers of 45 minutes (used to be 60 – 90 minutes in the CTA), and 4) comparable facilities with

Terminal 5 (Pilling, 2004). For the airport operator, the Star Alliance carriers were deemed the most logical occupiers of Terminal 1 as the alliance has been nominated as the eventual resident of the planned Heathrow East Terminal development, which will cover the existing sites of Terminal 1 and 2 (BAA Heathrow, 2005c). However, not all

Star Alliance members are currently housed in Terminal 1. Singapore Airlines, for instance, remains at Terminal 3 as Terminal 1 is not capable of handling the airline’s

Airbus A380 operations.

Shortly after the BAA – Star agreement was secured, the member airlines of the oneworld alliance and BAA Heathrow signed their MoU for terminal co-location on 13

March 2006. The alliance, headed by home-based British Airways, at that time accounted for more than 50% of Heathrow’s traffic equivalent to approximately 35 million passengers a year (BAA Heathrow, 2006). While Terminal 3 – the closest of the existing terminals to the new terminal – has previously been negotiated as BA’s overflow facility for 30% of its operations before Terminal 5 Phase II is completed, it was therefore chosen as the terminal for other oneworld carriers to co-locate their operations at Heathrow (BAA Heathrow, 2005c, 2006; Preece, 2008). For BA, vacating Terminal 4 meant delays caused by its own aircraft towing to and from the Central Terminal Area

(CTA) would be eliminated. With the southern runway (Runway 09R/27L) constantly 49

operating at maximum capacity, runway crossing between Terminal 4 and the CTA had been a time-consuming process for the home-based carrier; and appreciable loss in runway capacity for the airport operator (British Airways, 2008). For oneworld, this effectively reduced the alliance’s presence at the airport from four to two terminals. As a part of BAA Heathrow’s £6 billion airport-wide terminal modernisation, an underground tunnel between Terminal 3 and 5 was incorporated in the airport’s integrated baggage system project. The tunnel provides a vital link between all of the terminals at Heathrow

Airport to facilitate inter-terminal connections such as between oneworld flights in

Terminal 3 and 5.

Fig. 4.2. Airline alliances at London Heathrow Airport (BAA Heathrow, 2005a).

The last alliance grouping to come to agreement with BAA Heathrow was SkyTeam. On

12 June 2006, the two parties agreed in their MoU to eventually co-locate the SkyTeam operators at Heathrow’s Terminal 4. Whilst SkyTeam at that time carried the least

passengers at Heathrow Airport amongst the three major airline alliances, the spare capacity at T4 was therefore designated to host Heathrow’s non-alliance aligned airlines

(Figure 4.2). However, Terminal 4’s occupancy strategy, after Terminal 5 opened in

2008, could not be materialised without the extensive refurbishment performed on

Terminal 4’s passenger processing facilities such as check-in counters, departure lounges and baggage reclaims. Prior to BA vacating the terminal in 2008, the airline’s operations (predominately long-haul) accounted for 82% of the total passengers in

Terminal 4, with around 40% of those passengers transferred aircraft at Heathrow.

Whilst these transfer passengers did not require accessing the check-in and reclaim facilities in Terminal 4, it was anticipated that the new terminal occupancy strategy involving SkyTeam carriers and other non-aligned airlines would lower the numbers of transfer passengers, and subsequently lead to a higher demand for passenger processing facilities related to O&D passengers (BAA Heathrow, 2005a).

Fig. 4.3. Post Terminal 5 airline alliances terminal relocation (BAA Heathrow, 2005c).

Notably, Terminal 2 has been intentionally left out of the so-called “Post T5 Musical 51

Chairs” airline terminal relocation program (refer to Figure 4.3) as the airport operator has previously outlined its proposal to replace the existing Terminal 1 and 2 with a single Heathrow East Terminal capable of handling up to 30 million passengers per annum (BAA Heathrow, 2005c). The plan was first put forward in November 2005, ahead of the completion of Terminal 5. The additional passenger handling capacity provided by the new Terminal 5 presented an opportunity to redevelop Terminal 2 – the oldest terminal at Heathrow Airport, which would otherwise be under-utilised beyond the completion of Terminal 5. To minimise disruptions to passengers and airline customers, construction is taking place in two phases. The first stage will see the creation of a terminal building on the site of the existing Terminal 2 and Queen's Building, due for completion in 2013. Phase two is scheduled to run consecutively and will extend the new Heathrow East Terminal into the existing Terminal 1 site. Terminal 1 will remain operational until phase two is complete in 2019 (BAA Heathrow, 2009).

Commenced from the date that Terminal 5 opened on 27 March 2008, the Heathrow alliance terminal co-location exercise remains underway and will not be fully realised until the Heathrow East Terminal is completed for the Star Alliance carriers in Terminal

3 to implement the last stage of the “Move Under one Roof” strategy. However, not everything had gone according to plan for the airlines and the airport operator alike from

Day 1. As soon as Terminal 5 was commissioned, the sole user of the new terminal –

British Airways, was immediately exposed to a serious of teething problems mostly related the baggage handling system (BHS). The airline ended up cancelling more than

600 flights in the first 12 days of operations at Terminal 5. To avoid overloading the already problematic BHS and staff familiarisation issues, BA made a decision to defer its second stage relocation from 30 April to 5 June 2008. The postponement of BA long-haul flights vacating Terminal 4 had resulted in a knock-on impact on many other 52

airlines at Heathrow, whose own moves between terminals depended on BA vacating its old premises (Broadbent, 2008a; Alloway, 2008). The delay of BA's second stage move to Terminal 5, and the planned closure of Terminal 2 in preparation for the

Heathrow East Terminal project, led to BAA Heathrow undertaking a major reconfiguration of airlines’ disrupted terminal relocation schedules. Airlines such as

Lufthansa faced up to 12-month delay under the revised schedules. Shortly after the postponement was confirmed, Lufthansa informed BAA Heathrow that it would seek compensation from the airport operator of £200,000 for each month the airline was to be delayed (Broadbent, 2008b). While it remains unclear whether the German airline was financially compensated by BAA Heathrow at the end, this example demonstrated the challenges and risks that an airport operator – such as BAA Heathrow in this instance – could be exposed to during the implementation of alliance terminal co-location.

4.2 Paris Charles de Gaulle Airport (Aéroports de Paris)

4.2.1 Airport Overview

The planning of Paris Charles de Gaulle Airport (IATA code: CDG) began in the 1950s, when the handling capacities of existing facilities at Paris Le Bourget and Orly Airport

(IATA code: LBG and ORY) – then as the main airports of Paris – were becoming inadequate. The construction phase of Charles de Gaulle Airport took 8 years to complete before it was officially inaugurated on 8 March 1974. The initial stage of the airport consisted of one terminal structure (currently known as Terminal 1) and two parallel runways – each to the north (4,200m Runway 1 or 09R/27L) and south (4,215m

Runway 2 or 08L/26R) of Terminal 1 (Aéroports de Paris, 2009a). Located approximately 25km to the north-east of Paris, the airport currently serves as the 53

principal hub for home-based carrier Air France and is a European hub for Air France’s

SkyTeam partner Delta Air Lines. In 2009, connecting passengers represented 32% of the total passenger traffic at Paris Charles de Gaulle Airport, compared to 50% of Air

France’s overall passenger traffic at the airport (O. Phalippou, meeting, July 6, 2010).

Terminal 1 was built with a cylindrical central terminal building for passenger processing

(i.e. check-in, security and customs, etc.) and seven radiating satellites for passenger

(dis)embarkation. When the terminal was commissioned in 1974, its declared capacity was 10 million passengers per year. However, passenger growth to the Paris area exceeded expectations with the arrival of jet age and wide-body aircraft (such as the

Boeing 747), the overall passenger volume to Paris through CDG, LBG and ORY exceeded 20 million by 1976. The plans to transfer airlines from Le Bourget to Charles de Gaulle following Le Bourget Airport’s conversion to a pure general aviation airport in late 1970s also prompted the Parisian airport operator, Aéroports de Paris (ADP), to commence the design works and construction of a second terminal (currently known as

Terminal 2) in 1973, a year ahead of Terminal 1’s inauguration (Aéroports de Paris, n.d.). Terminal 2 was designed and constructed on a linear basis borne by a central road corridor to allow future expansion. The first sub-terminals comprised of Terminal

2B and 2A were completed in November 1981 and March 1982 respectively. More terminal facilities including Terminals 2D, 9 (currently known as Terminal 3), 2C and 2F were added in the 1990s, in order to support the substantial expansion of Charles de

Gaulle Airport. Since its inauguration, Terminal 2C has been reserved entirely for non-Schengen international traffic, with an automated baggage handling system (BHS) built to differentiate the local and connecting bags (for baggage with 60 – 90 minutes connecting times). Quick Transfer Units (QTU) for baggage with short connecting times

(45 – 60 minutes) and Long-term Storage System for baggage with long connecting 54

times (>90 minutes) were later installed between Terminal 2C and adjacent Terminal 2E

(initially opened in 2003 and reopened2 in 2008), as both terminal areas are designated to handle non-Schengen international traffic with large portion of connecting passengers and bags (Goldnadel, 2007).

Fig. 4.4. Growth of passenger handling capacity at Paris Charles de Gaulle Airport (Aéroports de Paris, 2008a).

In anticipation of future growth in aircraft and passenger traffic, the new Satellite 3 (S3) was added in 2007 to provide Terminal 2E with overflow capacities, while an additional

Satellite 4 (S4) is scheduled to be opened in 2012 (Figure 4.4). With the rapid expansion of Terminal 2 in recent years, designations of Schengen and non-Schengen traffic to various sections of the terminal have subsequently evolved. The latest example involves the upcoming conversion of Terminal 2F (currently shared amongst the two traffic

2 A portion of Terminal 2E's ceiling collapsed on 23 May 2004, not long after its inauguration in 2003. The airport operator ADP later decided to tear down and rebuild the entire boarding lounge of Terminal 2E which took the next three years to construct before the terminal was reopened completely on 30 March 2008.

modes) to a full Schengen terminal area following the completion of Terminal 2E

Satellite 4 (which will be dedicated to long-haul non-Schengen traffic). Other than creating new aircraft and passenger handling capacities, facility modernisation is another key focus for ADP. Renovation works for the aging Terminal 1 commenced in

2004 to align its level of service with the newer Terminal 2. Reconstruction of the central terminal area was completed in 2009 which brought Terminal1’s handling capacity to 11 million passengers per year (Aéroports de Paris, 2009a). In the same year, ADP also inaugurated Terminal 2G – a stand-along terminal dedicated to regional flights within the

Schengen area – to minimise utilising Terminal 2’s short/long-haul infrastructure for regional aircraft and passenger movements (Aéroports de Paris, 2008a). The most up-to-date layout of Charles de Gaulle Airport’s terminals can be found in Figure 4.5.

Fig. 4.5. Terminal layout of Paris Charles de Gaulle Airport (Aéroports de Paris, 2009a).

Fig. 4.6. Runway layout of Paris Charles de Gaulle Airport (Aéroports de Paris, 2008a).

Apart from apron and terminal infrastructure, runway capacity at Charles de Gaulle

Airport was also increased with the addition of two more runways. As originally intended in the Master Plan (or “pilot study”), 2,700m Runway 3 and 4 (or 09L/27R and 08R/26L) were each built parallel to the exiting Runway 1 and 2 to form two independent runway pairs, one to the north and the other located to the south of the terminals (Aéroports de

Paris, 2009a). Runway 4 and 3 were commissioned in November 1998 and September

2000 respectively. In the interim, these two runways have been built shorter in lengths as they are intended mostly for landing aircraft (Figure 4.6). This has brought Charles de

Gaulle Airport’s runway capacity to 114 aircraft movements per hour in 2010, which is expected to be increased to 120 aircraft movements per hour in 2012 (Aéroports de

Paris, 2008a, 2010a). In addition to passenger and aircraft handling facilities, one of the most important developments to Charles de Gaulle Airport’s accessibility was the agreement signed between ADP and SNCF-French National Railway in 1990 to construct a high-speed TGV railway station at Terminal 2. The railway station, located underground at the centre of Terminal 2, was completed in 1994 providing direct access to the rest of France and Continental Europe with the high-speed TGV services as well to downtown Paris with the RER trains. Today, Charles de Gaulle Airport leads 57

intermodal transport between aircraft and train. Many airlines have formed code-share relationship with SNCF-French National Railway in recent years to gain access to the

French domestic and north-western European regional markets which have long been dominated by Air France and other French carriers (“SNCF’s High-Speed,” 1999).

4.2.2 Star Alliance’s “Move Under one Roof (MUoR)” and T1’s Renovation

Star Alliance’s intention to implement its “Move Under one Roof (MUoR)” strategy at

Paris Charles de Gaulle Airport emerged as early as in 1999. The main objective of

MUoR is to develop an exclusive Star Alliance terminal or terminal area at Charles de

Gaulle Airport providing joint airport facilities (e.g. administrative offices and lounges) for its member airlines. The airport has been characterised by the airline grouping as its largest non-home market airport in the network. When the terminal co-location agreement was signed between Star Alliance and the airport operator ADP in 2005, 14

Star Alliance member carriers serve Charles de Gaulle Airport with some 85 daily flights to 38 destinations and in 23 countries (Albrecht, 2005).

When Star Alliance first approached ADP to secure a terminal location to centre its member airlines’ operations at Charles de Gaulle Airport, its member carriers were distributed primarily in Terminal 1 with others across the sub-terminals of Terminal 2. In order to take on Air France in its own market, the alliance initially sought to centre the facilities of all its member airlines in Terminal 2A. The strategic importance of Terminal

2A to Star Alliance’s presence at Charles de Gaulle Airport was identified through two main aspects. Firstly, having all members in the same terminal would allow customers travelling on alliance flights to make smooth connections between its airlines and cut down costs associated with operating out of two terminals. Second of all, Terminal 2A would also offer direct access to the French national train system, including the popular 58

high-speed train network known as the TGV (Figure 4.7). In other words, gaining access to French provincial markets via rail to compete against Air France’s domestic network.

“This access would lead to new business from travellers who live outside of Paris and allow Star Alliance members to compete better with Air France” (Barkin, 1999).

Fig. 4.7. Layout of passenger facilities at Paris Charles de Gaulle Airport (Goldnadel, 2007).

Whilst an independent study was contracted by Star Alliance to demonstrate that such a move was operationally feasible, the alliance’s efforts were denied by ADP on the grounds that 1) Terminal 2A did not have the adequate capacity and space to accommodate all its member airlines as well as the 3 million Star Alliance passengers per year, and 2) the vast majority of Star Alliance members were already operating from

Terminal 1. Instead, Aéroports de Paris put forward a proposal to co-locate the airline grouping's operations in Terminal 1 following the completion of a €280 million terminal refurbishment and modernisation (Barkin, 1999; Aéroports de Paris, 2009a). The

renovation program of Terminal 1 was launched in 2004 with a dual objective:

1. To increase the annual passenger handling capacity in response to traffic

growth, and;

2. To enhance the level of service comparable to Terminal 2E and 2F – currently

occupied by Air France and its SkyTeam counterparts.

To achieve the above objectives, a major reorganisation of terminal spaces was necessary to enhance the facilitation of passenger way-finding and transit baggage flow within the terminal. At check-in, the layout of counters was redrawn from radial check-in islands to a bank of frontal check-in desks around the circular departure hall. The loss of check-in capacity in the new frontal layout is made up by spreading check-in to a portion of the underground level as well as the addition of check-in kiosks. With 124 check-in counters and 15 self-service kiosks spread over 2 levels, this rearrangement effectively improved passenger queuing and circulation in the departure hall. On the other hand, the overhaul of the automated baggage sorting system has resulted in a complete reorganisation of the baggage circuits. This enables all check-in counters complete accessibility to any baggage loading point in the system, and thus creates a common-use environment at check-in. The reconstruction of the cylindrical central terminal building took 5 years, during which the terminal remained operational to handle approximately 7.5 million passengers per year. This was made possible as the renovation was limited to a quarter of the terminal building at a time (Aéroports de Paris,

2009a). On top of the renovation of Terminal 1 itself, public transport to the terminal has been considerably improved with the addition of CDGVAL since April 2007. This automated train system between Terminal 1 and 2 fundamentally resolved some airlines’ concern over Terminal 1’s competitive disadvantage in a lack of accessibility to the SNCF-TGV railway station at Terminal 2. 60

In hindsight, the renovation of Terminal 1 was intended to “demonstrate the desire of

Aéroports de Paris to provide handling conditions that appeal to airlines, so that these airlines will choose Terminal 1 to set up their French hub” (Aéroports de Paris, 2009a).

This was realised when the two parties signed a Memorandum of Understanding (MoU) on 8 March 2005, to formalise Star Alliance’s ambition to build a mini-hub at Charles de

Gaulle Airport's Terminal 1. Star Alliance CEO Jaan Albrecht pointed out that the strategic importance of building a mini-hub is to establish Star Alliance as an alternative to SkyTeam at Paris Charles de Gaulle Airport (Hofmann, 2005). To ensure the quality of service offered to Star Alliance carriers and their passengers at Terminal 1, both parties agreed the following service level indicators:

1. Rate of pier-served parking stands;

2. Availability of gangways;

3. Availability of passenger transport systems;

4. Rate of check-in counters availability;

5. Rate of baggage systems availability, and;

6. Availability of baggage reconciliation and tracing systems (Star Alliance Services

GmbH, 2005a).

4.2.3 Terminal Co-location at Paris Charles de Gaulle Airport

Terminal allocation at Paris Charles de Gaulle Airport is co-ordinated by Aéroports de

Paris based on the following principles:

1. Airline preference, alliance alignment and code-share arrangement;

2. Aircraft and traffic type(s) (i.e. International and/or Schengen);

3. Availability of airport resources within the terminal, and;

4. Balance of traffic amongst the terminals.

In addition, an airline’s choice of passenger and aircraft handling providers is limited to 61

the companies that are authorised to operate at each specific terminal by Aéroports de

Paris (Appendix C). Should an airline decide to relocate to another terminal, the operator is required to present legitimate explanations for the relocation in terms of operational, commercial and administrative premises to Aéroports de Paris (Aéroports de Paris, 2010a; O. Phalippou, meeting, July 6, 2010).

The current terminal location at which members of the three major airline alliances (i.e. oneworld, SkyTeam and Star Alliance) are co-located at Charles de Gaulle Airport was physically formed during 2005 – 2009. In 2006, Aéroports de Paris has engaged with Air

France in the “Réussir Ensemble” (Succeeding Together) co-operative initiative evolving their partnership beyond day-to-day operational matters to long-term strategic affiliation. An agreement on the future development of Terminal 2E Satellite 4 was signed by both parties in March 2008. It was the first major construction project that the airport operator (ADP) has allowed an airline to participate from the designing stage.

“This allows us to assess the client’s needs more precisely, to determine the necessary investment amounts and the delivery calendar,” said the CEO of Aéroports de Paris,

Pierre Graff (“ADP strives,” 2008). Under the framework of this partnership, Air France and its SkyTeam partners have been assigned to the newer sub-terminals of Terminal 2, including Terminal 2C, 2D, 2E, 2F and 2G. There is a mutual understanding between

Aéroports de Paris and Air France that Terminal 2E and 2F are particularly out of bounds to non-SkyTeam carriers unless they have code-share arrangements in-place with Air France (O. Phalippou, meeting, July 6, 2010). While the “Réussir Ensemble” agreement aims to optimise operational processes as much as to harmonise management of projects for infrastructure used by Air France, Aéroports de Paris has contracted out to Air France the allocation of aircraft parking and check-in facilities, particularly at terminals accessed by Air France and its SkyTeam partners (Aéroports 62

de Paris, 2008b). Currently, the functions of aircraft parking and check-in allocation at various aprons/terminals at Charles de Gaulle Airport are conducted by:

Aircraft Parking Allocation

1. Aéroports de Paris: Terminal 1, Terminal 3 and Freight Aprons.

2. Air France: Terminal 2A, 2B, 2C, 2D, 2E and 2F.

Check-in Allocation

1. Aéroports de Paris: Terminal 1, Terminal 2A, 2B, 2C and 2D, and Terminal 3.

2. Air France: Terminal 2E and 2F (O. Phalippou, meeting, July 6,

2010).

Notably, a dedicated check-in lounge has been set up by Air France in Terminal 2E to process its First Class (or La Première) passengers regardless of their destinations.

The next alliance to have completed its current terminal co-location was oneworld, with

British Airways and Royal Jordanian relocated from Terminal 2B to 2A alongside those of their oneworld partners American Airlines and Cathay Pacific in 2009. This leaves

Japan Airlines as the only non-Schengen oneworld carrier serving the airport outside of

Terminal 2A, the Japanese carrier currently operates out of Terminal 2E alongside its code-share partner Air France. Similarly, the other oneworld members Finnair and

Malév Hungarian Airlines have been allocated to Air France’s Schengen-equipped

Terminal 2D also due to their code-share arrangements with the home-based carrier.

Notably, a Service Level Agreement has been consulted and signed between Aéroports de Paris and oneworld airlines as early as 10 February 2006. The agreement covers two main areas: operational support and passenger satisfaction. Key performance indicators, include availability of electro-mechanical equipment, such as elevators, aerobridges and baggage systems. Passenger satisfaction is also assessed based on quarterly interviews of passengers, covering such aspects as the cleanliness of airport 63

environment, availability of flight information, signage and serviceability of baggage trolleys (oneworld, 2006).

While Star Alliance had negotiated terminal co-location at Charles de Gaulle Airport with

Aéroports de Paris in 2005, the physical terminal relocation of Star Alliance member carriers was held out by the renovation of Terminal 1. This first commenced when regional member Adria Airways moved from Terminal 2 to Terminal 1 on 27 March 2005

(Star Alliance Services GmbH, 2005a). Citing the capacity constraint caused by

Terminal 1’s ongoing refurbishment, a staged approach was adopted by Star Alliance with the overall relocation project planned to finish by 2008 following the completion of

Terminal 1’s renovation work. However, the progress was delayed due to an airport-wide terminal capacity disruption affected by the collapse of a part of Terminal

2E in 2004 and its subsequent reconstruction during 2005 – 2008. By the Northern

Summer 2010 (NS10) airline operating season, 20 out of the 22 Star Alliance carriers operating at Paris Charles de Gaulle Airport were co-located at Terminal 1, leaving Air

Canada and Austrian Airlines as the only exceptions (Aéroports de Paris, 2010b). Air

Canada prefers to stay at Terminal 2A for its superior access to the SNCF railway station as most of its connecting passengers are from the TGV high speed trains instead of Star Alliance partners flights; whereas Austrian Airlines has decided to remain at Terminal 2D due to its code-share arrangement with Air France between

Paris and Vienna (O. Phalippou, meeting, July 6, 2010).

At Terminal 1, an initial 24 check-in counters in Check-in Hall 4 have been dedicated to

Star Alliance carriers since February 2006. While each carrier continue to assign specific desks for their flights within Check-in Hall 4, by sharing the check-in counters the Star Alliance members can better internalise congestion at check-in queues by 64

tailoring the number of counters amongst each other’s passenger demands (Star

Alliance Services GmbH, 2006a). Additionally, a wide range of Star Alliance co-branded facilities were introduced in Terminal 1, including:

1. Joint ticketing desks in Check-in Hall 4 (February 2006);

2. Common baggage office (July 2008), and;

3. Star Alliance First and Business Class Lounge (December 2008).

The Star Alliance’s initial estimates in late 2005 indicated that the “Move Under one

Roof” strategy and the Check-in Hall 4 co-location have saved more than €2 million a year collectively for the participating carriers in Terminal 1.

While passenger growth at many of Europe’s major airports is being driven by expansion of connecting traffic, hubbing remains a crucial competitive tactic for major alliances at these airports (Dennis, 2001). In order to stay ahead of the competition, a

Joint Operations Control Centre (JOCC) was established by Star Alliance to monitor member carriers’ airside operations at Charles de Gaulle Airport. Its main functionalities include:

1. Improve flight punctuality and connectivity;

2. Minimise duplication of information gathering and resource deployment;

3. Harmonise flight turnaround management and reporting amongst member

airlines, and;

4. Pre-empt regulatory mandate for collaborative decision making.

The principle objective of this initiative is cost reduction. According to Star Alliance in

2004, the departure delays at Charles de Gaulle Airport were costing the Star Alliance member airlines approximately €9.5 million per annum. This was calculated based on an average departure delay of 11 minutes per Star Alliance flight at CDG and an estimated departure delay cost of €58 per minute (Jerrard, 2004). While a delayed 65

departure can be the result of mechanical problems or poor weather conditions, it can also arise due to passenger/baggage misconnections and bussing of passengers

(Dennis, 2001; AhmadBeygi et al., 2008). At Charles de Gaulle Airport, the latter delays have incurred costs of €150,000 and €600,000 per annum for the Star Alliance carriers

(Jerrard, 2004). With Aéroports de Paris (ADP) the administer of bay allocation at

Terminal 1, collaboration between Star Alliance’s JOCC and ADP was launched to improve flight punctuality and connectivity through more flexible aircraft parking assignment. This is made possible with Star Alliance’s JOCC providing regular updates of aircraft turnaround status to ADP, in order for the aircraft parking co-ordinators to consolidate the alliance’s flights to the same or neighbouring satellites at Terminal 1 to minimise travelling distance for connecting passengers and baggage. As a result, the minimum connecting time (MCT) between Star Alliance partners at Terminal 1 has since been reduced from 75 to 60 minutes (Star Alliance Services GmbH, 2005b; Hofmann,

2005). The other important constraint on the schedule is the time window for flight arrival and departure at Charles de Gaulle Airport, and this is overcome with Star

Alliance’s JOCC co-ordinating and swapping aircraft runway slots amongst member airlines (Jerrard, 2004).

Although it has been demonstrated that the concept of alliance terminal co-location presents numerous benefits for member airlines ranging from shared ground facilities to enhanced connectivity, the incentives for the airport operator – ADP – to implement such an airline-oriented project is yet to be discussed. One of the rationales was discussed in O’Toole’s (2002) article reporting Star Alliance’s efforts to secure terminal co-location at Paris Charles de Gaulle Airport’s Terminal 1 with Aéroports de Paris. The chief executive of the alliance, Jaan Albrecht, confirmed that “in order to win agreement from the airport operator, Star had to guarantee that it will bring significant traffic growth 66

to the airport in order to make maximum use of the terminal space” (O’Toole, 2002).

According to Albrecht, he predicted the Star Alliance traffic at CDG to increase from approximately 5.5 million passengers in 2000 to 7.5 million by 2005. In reality, passenger figures published in Aéroports de Paris’ annual reports (Table 4.1) showed that the Star Alliance carriers have only brought 4.7 million passengers to Charles de

Gaulle Airport in 2005 and risen slightly to 5.2 million in 2010. The underperformance of

Star Alliance’s passenger traffic at CDG certainly doesn’t justify the €280 million investments by Aéroports de Paris to modernise Terminal 1, which includes €107.7 million renovation in accordance to the alliance’s specification (Aéroports de Paris, 2006,

2009a). However, the airport operator ADP’s ownership structure provides a clue to justify the airport operator’s co-operative approach in meeting airline alliances’ demands.

Aéroports de Paris was originally created as a government-owned corporation in 1945.

While it later became a public company (known in France as a société anonyme) on 20

April 2005, the majority of its ownership remained under the French Government. As a semi-government controlled corporation with France’s national interests in mind,

Aéroports de Paris has placed long-term growth, quality of service, and airport-airline relationships at the centre of its strategy.

A similar vision is stated in its Corporate Social Responsibility Report that “maintaining competitiveness in the air transport sector in the current climate depends on what happens on the ground” (Aéroports de Paris, 2008b). To maintain France’s competitiveness in the European air transport sector, the Economic Regulation Contract

(CRE) was signed between Aéroports de Paris and the French Government in 2006 to regulate the company’s level of airport charges and financial commitment in 67

investments between 2006 and 2010 (“ADP strives,” 2008; Aéroports de Paris, 2008b;

O. Phalippou, meeting, July 6, 2010). In Terminal 1’s case, the co-location of Star

Alliance members is merely a by-product of ADP’s desire to bring the aging terminal in-line with its current development attributes (long-term growth, quality of service, and airport-airline relationships) as outlined above. To maintain the balance of traffic across all terminals, the capacity gain (additional 3.5 million passengers per year) realised from

Terminal 1’s renovation was therefore allocated to meet the outlook of Star Alliance’s traffic growth at Charles de Gaulle Airport.

Table 4.1 Passenger traffic share between alliances at Paris Charles de Gaulle Airport (Aéroports de Paris, 2005, 2006, 2007, 2008c, 2009b, 2010c).

Year SkyTeam Star Alliance oneworld Total Pax Traffic (CDG)

Pax number (million) 33.6 4.7 3.1 53.8 2005 Market share 62.5% 8.7% 5.7% 100.0%

Pax number (million) 35.5 5.1 3.1 56.8 2006 Market share 62.4% 9.0% 5.5% 100.0%

Pax number (million) 36.5 5.3 3.2 59.9 2007 Market share 61.2% 8.9% 5.4% 100.0%

Pax number (million) 37.3 5.3 3.0 60.9 2008 Market share 61.2% 8.7% 4.9% 100.0%

Pax number (million) 35.7 5.4 2.6 57.9 2009 Market share 61.8% 9.4% 4.4% 100.0%

Pax number (million) 35.1 5.2 2.4 58.2 2010 Market share 60.3% 8.9% 4.1% 100.0%

4.3 Tokyo Narita Airport (Narita International Airport Corporation)

4.3.1 Airport Overview

Tokyo Narita Airport (IATA code: NRT) was commissioned on 20 May 1978 to replace

Tokyo Haneda Airport as the prime international gateway to the city. The airport commenced operations with a single terminal structure (currently known as Terminal 1) and a 4,000m runway (Runway A or 16R/34L), originally designed to handle 13 million passengers per year (Feldhoff, 2003). Today, it serves as the main international hub of

Japan’s flag carrier Japan Airlines (JAL) and All Nippon Airways (ANA), as well as an

Asian hub for US based carriers Delta Air Lines and United Airlines. This makes Narita

Airport a major connecting point for air traffic between Asia and the Americas.

In the late 1980s, Japan’s rapid economic growth and overseas travel boom resulted in passenger numbers exceeding the forecasted figures at Narita Airport. Although there had been impacts on passenger traffic demand, such as the outbreak of Gulf War and economic stagnation in Japan, the passenger numbers steadily increased surpassing the appropriate capacity of Terminal 1. A total of 13,627,111 passengers were processed at Narita Airport in 1985, exceeding the 13 million design capacity (Narita

International Airport Corporation, 2010a). This had prompted New Tokyo International

Airport Authority (currently known as Narita International Airport Corporation or NAA) to begin construction of Terminal 2 to expand its terminal capacity to meet future passenger traffic demand.

When Terminal 2 was completed in December 1992, the Japanese carriers including

JAL, ANA and Japan Air System (JAS) took the occasion and moved into the new terminal together with those foreign carriers that were ground handled by them. The 69

new terminal had approximately 1.5 times the space of Terminal 1, but for a while its anti-congestion benefits were compromised because of two major factors. One being the airport's land situation meant that the taxiway to the new terminal was one-way for much of its length; and the other being that taxi times between the terminal and existing runway (Runway A) were up to 30 minutes (“New $1.36,” 1992). Whilst the former constraint was later resolved by the construction of new parallel taxiway following further land acquisition, the volume of aircraft movements has been more or less stagnated since the beginning of the 1990s due to Narita Airport’s single runway configuration (Feldhoff, 2003). The only way for airlines to achieve higher passenger volumes has been to resort to more wide-body aircraft operations. The combined effect of inadequate capacity as well as increasing competition from the hub airports of neighbouring Asian countries has temporarily made Narita Airport more of an origin-destination airport rather than a hub airport (Ihashi, 1997).

The situation started to improve when an interim parallel runway (Runway B or 16L/34R) with a length of 2,180m was commissioned on 18 April 2002 after years of land acquisition resistance. It was later extended to its planned length of 2,500m on 23

October 2009. The extension not only allows all ICAO (International Civil Aviation

Organisation) Code E aircraft to access Runway B without any weight restrictions, it also boosted Narita Airport’s annual flight slots from 200,000 to 220,000 aircraft movements per year as of March 2010. Carriers such as Vietnam Airlines and Emirates, which have long planned to start-up their own operations to Tokyo, were granted their respective rights during the 2002 and 2010 slot increases at Narita Airport.

Parallel to the expansion of runway capacity, additional terminal capacity has also been made available following the completion of a 12-year redevelopment program at 70

Terminal 1 on 2 June 2006 (refer to Figure 4.8 for Narita’s existing airport layout). Citing the rapid growth of airline operators and passenger traffic after the increase in operational capacity, a plan to reshuffle airlines between the two terminals was implemented to re-distribute aircraft and passenger traffic, and to co-locate alliance partner airlines in the same terminal (Narita International Airport Corporation, 2007b).

Details of this so-called “Airline Relocation Program” will be further discussed in the following sections.

Fig. 4.8. Layout of Tokyo Narita Airport and its facility investment plan for 2010-2012 fiscal years (Narita International Airport Corporation, 2010b).

4.3.2 Terminal Redevelopment and Narita Airport’s “Airline Relocation Program”

Additional terminal capacity for passenger handling was made available upon the completion and commission of Terminal 2 in 1992. To achieve a balance of passenger volume handled at both terminals, Japanese carriers were allocated to the new terminal together with the foreign carriers ground handled by them, while Terminal 1 remained occupied mainly by existing carriers in the South Wing (Narita International Airport

Corporation, 2009a). As congestion at Terminal 1 was temporarily alleviated, NAA took advantage of this opportunity and commenced the reconstruction of Terminal 1. The

reconstruction of Terminal 1 was primarily for the purpose of:

1. Retrofitting the fire prevention facilities to meet the revised building standard

codes;

2. Complete separation of arrival and departure passengers to enhance aviation

security standards, and;

3. Rectifying the disparity of passenger service levels at Terminal 1 and 2 (Narita

International Airport Corporation, 2007b).

In order to keep Terminal 1 operational during the reconstruction period, the IATA

(International Air Transport Association) Airport Consultative Committee (ACC) had recommended redeveloping the terminal in stages. The master plan was concluded at the end of March 1992 with the following key facility improvements listed:

1. Renovate the existing terminal structure of the North Wing, South Wing, Main

Central Building, and Satellite 1and 2;

2. Reconstruct Satellite 3 and 4, and;

3. Build an additional Satellite 5 (Narita International Airport Corporation, 2007b).

It was decided that the reconstruction work would be carried out in two phases, commencing in 1995 from the North Wing, to minimise disruptions to the continuation of airline operations in the South Wing. The first phase covered the redevelopment of

Terminal 1’s North Wing, its two satellites (Satellite 1 and 2), and an extension to the

Main Central Building. Whilst Phase 1 was not fully completed until Satellite 2 was opened for service in July 2000, airlines were re-allocated in advance from the terminal’s South Wing to the revamped North Wing in March 1999 in preparation for

Phase 2 reconstruction. Different to Phase 1 which involved mainly the renovation of existing terminal structures to retain the architectural specificity of the terminal, most 72

major overhaul were engaged in Phase 2 including extending Terminal 1’s South Wing, reconstructing Satellite 3 and 4, and the Main Central Building, as well as building the new Satellite 5. The 12-year Terminal 1 reconstruction project was officially concluded on 2 June 2006, when work on the last stage of the project – the South Wing and

Satellite 5 – was completed and commissioned. Terminal 1’s reconstruction sequence can be found in Appendix D.

The refurbished Terminal 1 has around 2.4 times the previous floor space at approximately 451,000m2, exceeding that of Terminal 2 at approximately 339,000m2.

Meanwhile, the number of contact bays at Terminal 1 has also increased from 28 to 37, surpassing the 30 aircraft contact bays at Terminal 2. Passenger processing capacities at various terminal facilities, such as the inbound/outbound passport control and baggage reclaim areas, were also expanded in anticipation of greater passenger volume at Terminal 1. The implementation of in-line baggage screening system combined with a greater floor area in the departure halls also allowed an additional 182 check-in counters (340 in total) to be installed at Terminal 1. These facility improvements raised the annual passenger handling capacity of Terminal 1 to 30 million, which is roughly equivalent to the current passenger throughput at Narita Airport each year (Narita International Airport Corporation, 2006, 2009b). With the additional capacity at Terminal 1, a plan to reshuffle airlines between the two terminals was implemented in the same month.

Narita Airport’s “Airline Relocation Program” first emerged when the airport operator

(NAA; then Narita Airport Authority) communicated its intention of reshuffling airlines across the terminals to the AOC (Airline Operators Committee) on 18 October 2000. In order to attain the understanding and consensus of key operating carriers (in terms of 73

aircraft movements) prior to the AOC level consultations, NAA had individually approached JAL, ANA, American Airlines, Northwest Airlines and United Airlines regarding their terminal preferences (Narita International Airport Corporation, 2008a). A drafted airline re-allocation plan was subsequently put forward to the 49 operating carriers at Narita Airport on 22 May 2001. Similar to the airline re-allocation exercise carried out in the 1990s when Terminal 2 was first opened, the objective of the latest

“Airline Relocation Program” was also to maximise utilisation of terminal assets through balancing aircraft and passenger traffic at the two terminals. Whilst ANA has since then become the second largest operator at Narita Airport, it was essential to separate the two Japanese carriers (i.e. JAL and ANA) along with their respective ground handling client airlines in different terminals to rectify the imbalance of aircraft and passenger traffic between Terminal 1 and 2. Additional considerations around the current airline alliance groupings were also taken into account to improve connections for transfer passengers at Narita Airport.

Since the commencement of Terminal 1’s reconstruction, Terminal 2 has been exposed to overwhelming growth in aircraft and passenger traffic, as well as airline numbers.

This has caused a number of operational issues such as:

1. There were 16 and 44 airlines housed in Terminal 1 and 2 before the “Airline

Relocation Program” was launched in June 2006. The concentration of

Japanese carriers together with their ground handling airline clients in Terminal

2 meant approximately 66% of Narita Airport’s aircraft/passenger traffic were

processed at the terminal; while the remaining 34% in Terminal 1.

2. Airlines with similar operating schedule were allocated in the same terminal. For

instance, departure times at Terminal 1 were concentrated between the 1700

and 1900 hour; and between the 1000 and 1200 hour at Terminal 2. This had 74

created excessive peaking of aircraft and passenger traffic, and inefficient use of

passenger processing facilities at both terminals.

3. At September 2003, 36% of the passenger flights in Terminal 1 and 2

code-shared with other operators at Narita Airport, almost 66% of these flights

were operated in a different terminal from their code-share partner airlines

(Narita International Airport Corporation, 2006).

The airline reshuffle plan was intended to overcome these problems and co-locate alliance member airlines in their respective terminal areas. Approximately 31 million passengers were processed at Narita Airport in 2005 (Narita International Airport

Corporation, 2006). Whilst Terminal 1’s redevelopment project has lifted its annual passenger handling capacity to 30 million per year, the facility alone is almost capable of handling all passenger traffic at the airport. Discussion with Narita International

Airport Corporation (2008a) confirmed that the “Airline Relocation Program” was made possible primarily because of the additional aircraft and passenger processing capacities made available through Terminal 1’s reconstruction. The ratio of flights operated by each alliance grouping at Narita Airport was used as a primary consideration in determining the final allocation of each group. This was the case mainly because nearly all of the contact aircraft parking positions are capable of accommodating up to ICAO Code E aircraft, hence removing the need to assess alliance traffic by aircraft types. Furthermore, with Star Alliance’s ambition to “Move

Under one Roof” at all hubs and ANA being the home carrier at Narita Airport, ANA had nominated itself to be relocated to Terminal 1 accompanied by most of its Star Alliance partners (Narita International Airport Corporation, 2008a). The relocation plan was finalised and presented to the AOC on 25 March 2004, both parties agreed in principal the airline members of SkyTeam, Star Alliance and oneworld would be co-located at 75

Terminal 1 North Wing, South Wing and Terminal 2 respectively (Narita International

Airport Corporation, 2008b).

Apart from operational considerations, financial arrangements were also negotiated between the airport authority and the AOC. It was established that costs incurred to airlines throughout the “Airline Relocation Program” will be settled according to the following principles:

1. All expenses for physical relocation to be borne by respective airlines;

2. NAA to pay compensation based on the book value (i.e. undepreciated value) of

items in the office or lounge which could not be re-located, and;

3. NAA to waive restoration requirements when airlines vacating their office and

lounges (Narita International Airport Corporation, 2008a).

4.3.3 Terminal Co-location at Tokyo Narita Airport

The physical airline terminal relocation commenced on 2 June 2006, following the ultimate completion of Terminal 1’s reconstruction work. The execution of Narita

Airport’s “Airline Relocation Program” was carried out in three phases; with airlines re-allocated in the sequence below:

1. ANA, and its Star Alliance partners and ground handling client airlines moved

from Terminal 2 to Terminal 1 South Wing on 2 June 2006. The remaining Star

Alliance members at Terminal 1 North Wing also re-located to Terminal 1 South

Wing on the same date.

2. After ANA and partner/customer airlines have completely vacated Terminal 2,

oneworld members at Terminal 1 North Wing (i.e. American Airlines, Cathay

Pacific and Finnair) were co-located with JAL and Qantas at Terminal 2 during

the first quarter of 2007. 76

3. Once the relocation of oneworld members were completed, SkyTeam members

at Terminal 2 (i.e. Continental Airlines and Delta Air Lines) moved into their final

location of Terminal 1 North Wing during the second quarter of 2007 (Narita

International Airport Corporation, 2007a).

The alliance-driven airline allocation had substantially alleviated the disproportionate distribution of passenger airlines across the two terminals. When the “Airline Relocation

Program” was initially completed in April 2007, there were 31 (12 in the North Wing and

19 in the South Wing) and 30 operating carriers housed in Terminal 1 and 2, as opposed to the previous 16 and 44 carriers. Notably, airlines such as Air New Zealand

(Star Alliance) and British Airways (oneworld) have declined to be co-located alongside their alliance partners, and instead preferred to remain at their existing terminal locations for commercial and operational reasons. Air New Zealand had decided to remain at Terminal 2 due to its code-share and ground handling arrangements with JAL; whereas British Airways preferred to stay at Terminal 1 North Wing since the airline carries mostly point-to-point traffic to/from Tokyo and that Terminal 1 is closer to

Runway A for its Boeing 747 operations. However, British Airways eventually transferred its operations to Terminal 2 on 31 October 2010, following the extension of

Runway B (neighbouring Terminal 2) in late 2009.

With the re-distribution of airline operators across Terminal 1 and 2, this initial implementation of the “Airline Relocation Program” has resulted in a 52%-48% aircraft movement split (Appendix E) across the two terminals under the Northern Summer

2005 (NS05) schedule. Not only an improvement from the previous 34%-66% split, but more proportional to the number of aircraft parking positions available at each terminal

(37 vs. 30 terminal contact positions; or 55%-45% split). This has subsequently 77

improved the aircraft contact rates (i.e. percentage of aircraft being assigned to terminal contact positions) at both terminals. With the arrival and departure peaks distributed more evenly across Terminal 1 North Wing, South Wing, and Terminal 2, thus enables more efficient utilisation of passenger processing facilities, and residual passenger handling capacities at both terminals. For instance, Terminal 2 had 21 departure flights during the 1000 (i.e. 10am) busy hour prior to the “Airline Relocation Program”, this peak was reduced to 12 departures after the initial completion of the program (Figure

4.9). Notably, the planning functionality of bay allocation has been divided into three terminal areas following the implementation of the “Airline Relocation Program”. Bay planning up to the day before operation at Terminal 1 North Wing, South Wing and

Terminal 2 are currently co-ordinated by NAA, ANA and JAL respectively. The airport operator (NAA) then provides daily “Ramp Control” services from its Central Operation

Room based on the bay assignment plans pre-submitted by the three terminal areas

(Narita International Airport Corporation, 2008a). While an aircraft’s arrival and departure times are generally dictated by the dual dependency of slot and bay availability (Caves, 1994), having JAL and ANA to co-ordinate bay planning for their respective alliance partners presents merits in matching passenger connection windows more closely to aircraft turnaround times. In addition, this enables more efficient ground handling planning for JAL and ANA as most of the carriers at these two terminals, alliance partners and non-aligned carriers alike, are ground handled by their respective terminal hosts.

Fig. 4.9. Arrival/departure distribution per terminal over a typical week before and after Airline Relocation Program (Narita International Airport Corporation, 2007a).

As stated previously, the airline terminal relocation plan was principally drafted in accordance to current airline alliance groupings and code-share arrangements, in order to minimise inter-terminal connections and code-share operations. According to NAA’s experience after the program was implemented for a full year, there was far less incidence of passengers, and meters and greeters going to the wrong terminal.

Connections between alliance partner airlines or between international and domestic flights are much simpler and faster because they are housed in the same terminal

(Narita International Airport Corporation, 2007a). For instance, MCT (minimum connecting times) between Star Alliance carriers have been reduced from 110 to 45 minutes for international flights; from 130 to 45 minutes for domestic to international flights; and from 110 to 75 minutes for international to domestic flights under the new terminal co-location at Terminal 1 South Wing (Star Alliance Services GmbH, 2006b,

2008). In a first in the airline industry, the check-in counters dedicated to Star Alliance 79

member carriers in Terminal 1 South Wing have been arranged in zones according to class of travel. Passengers of participating carriers are able to take advantage of “Zonal

Check-in” irrespective of carrier of travel (Star Alliance Services GmbH, 2006b). This is primarily made possible as all of these carriers share a common IT platform and are ground handled by their local Star Alliance partner – ANA. This initiative by Star Alliance demonstrated how residual capacity at check-in can potentially be created by consolidating the check-in processes of alliance-aligned carriers in their respective check-in counters/areas.

Apart from the operational improvements demonstrated above, Narita Airport’s “Airline

Relocation Program” also posed several financial and property merits to both the airport operator and airlines alike. With alliance partners co-located in their respective terminals, airlines are able to reduce capital investments and running costs on ticketing office and lounges by sharing these facilities. Consequently, the problem of having limited terminal space to accommodate other airline clients and service aspects was alleviated (Narita International Airport Corporation, 2006). Retail business has continued to consolidate itself as one of NAA’s mainstay operations following the airport’s privatisation in 2004. The duty-free areas in Terminal 1 and 2 were respectively expanded in 2006 and 2007 to encourage passengers to arrive early and enjoy their pre-flight shopping experience (Narita International Airport Corporation, 2006, 2008c,

2009b). NAA’s 2007/08 Annual Report suggests that the company’s retail revenue from sales of merchandise, food and beverage has increased sharply by 73.8% from a year ago with Terminal 1’s and 2’s expanded duty-free areas completed their first full year of trading since June 2006 and April 2007 (Narita International Airport Corporation, 2008c).

Between 2006 and 2008, 13 lounges at Narita Airport were either newly opened or renovated as part of the relocation plan (“Northwest Airlines,” 2008). Space was made 80

available to airlines (such as China Airlines in January 2007) that were previously unable to open their own dedicated lounges. As a result, NAA’s facility leasing revenue in 2007/08 financial year rose by 1.4% compared to 2006/07 due to increased leasing area in airline lounges and other rental space. However, the growth in retail and facility leasing profits were both slightly compromised by a rise in construction and maintenance costs (Narita International Airport Corporation, 2008c).

In the post-relocation stage, the expenses incurred to airlines throughout the “Airline

Relocation Program” were settled based on the previous agreements (refer to Section

4.3.2) between NAA and the AOC. The airport operator arranged for a financial consulting firm to calculate the total undepreciated value of assets which airlines could not physically re-locate, and reimbursed individual airlines accordingly (Narita

International Airport Corporation, 2008a).

4.3.4 Japan Airlines Financial Turnaround Plan and Hypothetical Alliance Shift

Background

Japan Airlines (JAL) posted a ¥99 billion net loss in the three months to 30 June 09, up from a loss of ¥3.4 billion in the corresponding period last year. Compounded by JAL’s premium passenger oriented strategy3, operating revenue in the same period fell 32% from last year to ¥334.8 billion due to adverse international passenger and freight traffic in the recent global financial crisis (Japan Airlines, 2009a). With Japan's new

3 As a part of JAL’s Medium Term Revival Plan for FY2008-10 (issued in February 08), the airline has launched a revenue maximisation campaign called the “Premium Strategy” – slated to improve the airline’s yields by increasing the proportion of premium cabins throughout its fleet (Japan Airlines, 2009b). This is particularly evident in the cabin layout of the airline’s Boeing 777-300ER flagship – configured with 8 first, 77 business, 46 premium economy and 115 economy class seats – a ratio of 53% to 47% between premium and economy seat numbers.

government (in power as of 2009) signalled an end to the state funds that have helped to prop up the carrier for years, JAL commenced a search to tie-up with a single partner to improve efficiency through operational collaboration (Ranson & Govindasamy, 2009).

US carriers American Airlines and Delta Air Lines were identified as the forerunning candidates (Waldron, 2009).

JAL joined oneworld in 2007 and code-shares with alliance partner American Airlines on trans-Pacific services. While American has offered an equity injection to keep JAL afloat, its US rival Delta also proposed to inject up to ¥50 billion ($629 million) of equity into

JAL on condition it switches to the SkyTeam alliance (Creedy & Alford, 2009). The financing packages from both US carriers were later increased to $1.4 billion (American) and $1 billion (Delta) as competition between the two carriers intensified (Francis,

2010a; Yeo, 2009). Delta already has a major presence in Japan following its acquisition of Northwest Airlines – the largest foreign passenger operator at Tokyo

Narita Airport prior to the merger. A link-up between Delta and JAL would give them over 50% capacity share on US-Japan services, which would be likely to face regulatory scrutiny on competition grounds, whereas a JAL-American link would be about the same size as Delta, which has 30% of capacity (Ranson & Govindasamy, 2009). Apart from the US-Japan market, a successful equity alliance with JAL may also boost the US carriers’ access to China, Asia’s biggest air traffic market (Cooper & Matsuda, 2009).

This potential tie-up could shift both American and Delta’s China strategy from the current point-to-point niche to hub-and-spoke via their well-established networks to

Japan, once again highlighting Tokyo’s role as a major connecting point for air traffic between Asia and the Americas.

Industry observers unanimously believe that American Airlines has more to lose if JAL 82

had decided to realign itself with Delta and the SkyTeam alliance. This will effectively leave the American-led oneworld alliance with a strategic gap in Asia with Cathay

Pacific as its only member in the region (“American and,” 2010). A similar view has also been concluded in Gudmundsson and Lechner’s (2006) studies of multilateral airline alliances, which suggests that “the departure of an individual partner in a small (large) multicenter alliance is more (less) likely to threaten the existence of the alliance itself or the remaining partner(s) if compared to an alliance composed of more (fewer) members.”

Financial Turnaround Plan

As a part of its restructuring plan, JAL had applied to the state-backed Enterprise

Turnaround Initiative Corporation (ETIC) for a bail-out. However, the ETIC was in favour of JAL entering bankruptcy and would only endorse JAL to form a strategic rather than equity tie-up with either American Airlines or Delta Air Lines. The ETIC rejected the proposals from American and Delta on the grounds that its top priority was to install a new management team at JAL and restructure its business (Francis, 2010b). Crippled by debts, the airline filed for bankruptcy protection at the Tokyo District Court on 19

January 2010 before concluding a strategic tie-up with either American or Delta. For the next few months, the ETIC was reportedly in favour of an alliance with Delta. Media sources suggested that the government-run body intended to include a strategic tie-up between JAL and Delta in its rehabilitation plan and have the struggling carrier switch to the SkyTeam alliance in April 2011 (“Rehab body,” 2010). Whilst industry observers have warned that a Delta-JAL tie-up would increase SkyTeam’s market share in the

US-Japan sector to 62% (leaving oneworld’s market share to plunge from 35% to 6%) and hence too dominant to grant the alliance anti-trust immunity that JAL badly needs to slash costs, JAL would expect to drastically reduce competition and operating costs if it 83

partnered with Delta as they have many overlapping US-Japan and Asia-Japan flights

(Nagata, 2010).

On 10 February 2010, JAL announced its intention to remain in oneworld and jointly apply for anti-trust immunity on transpacific routes with partner American Airlines. The decision was made as the carrier concluded that the near-term stability gained from sticking with oneworld outweighed the potential long-term benefits of jumping to

SkyTeam (Thomas & Karp, 2010). Although JAL had chosen to maintain its alliance with American and oneworld in this instance to avoid incurring a loss from making a switch, this development provided an opportunity to assess the flexibility of Tokyo Narita

Airport’s “Airline Relocation Program” when a major carrier needs to change its terminal allocation due to alliance re-alignment.

JAL’s Hypothetical Alliance Shift and Narita Airport’s Airline Relocation Program

Tokyo Narita Airport initially completed its “Airline Relocation Program” in April 2007 to co-locate alliance aligned operators at their designated terminal areas in order to 1) remove uneven distribution of passenger and aircraft traffic amongst its two terminals, and 2) boost intra-alliance connectivity. As a result, members of oneworld, SkyTeam and Star Alliance have been co-located at Terminal 2, Terminal 1 North and Terminal 1

South respectively. Whilst the current terminal allocation was concluded based on alliance groupings back at the planning stage, many of these alliance alignments have since changed. For instance, Continental (CO) has switched from SkyTeam (at

Terminal 1 North) to Star Alliance (at Terminal 1 South) in October 2009; whereas

Vietnam Airlines (VN) at Terminal 2 has recently joined SkyTeam in June 2010. While the airport operator (NAA) is well-aware of the prevailing volatility of the airline industry and alliance dynamics, it has facilitated at least six airline terminal changes to 84

accommodate recent alliance-(re)alignment since the initial completion of the “Airline

Relocation Program” (Appendix F). The latest terminal move took place on 30 October

2011 when Vietnam Airlines (VN) relocated from Terminal 2 to Terminal 1 North Wing to be alongside its SkyTeam partners. Despite the ongoing minor adjustments, JAL’s hypothetical alliance shift poses the biggest challenge to Narita Airport’s ability to juggle between its objectives of balancing terminal traffic and alliance co-location.

Narita Airport’s traffic data from 2009 (based on NS09 schedule) indicates that JAL contributed to approximately 28% (or 878) of the airport’s 3,128 weekly passenger aircraft movements, whereas traffic of SkyTeam members (excluding CO) and JAL’s current oneworld counterparts represented 18% (or 564) and 6% (or 196) of Narita’s weekly passenger aircraft movements respectively (Appendix G). While one of the main objectives of Narita Airport’s “Airline Relocation Program” is to separate JAL and ANA in different terminals in order to avoid simultaneous concentration of airlines ground handled by JAL or ANA at the same terminal, the two Japanese carriers have been allocated to Terminal 2 and Terminal 1 South Wing respectively in the “Airline

Relocation Program”. With the assumption of JAL to remain at Terminal 2, the only feasible option to co-locate JAL alongside its new SkyTeam partners – without disrupting the balance of traffic volumes amongst the two terminals – is to swap the terminal allocations of oneworld (along with part of the non-aligned carriers at Terminal

2) and SkyTeam members around. However, a major obstacle in this terminal relocation exercise is the facilitation of ground handling activities for these affected carriers, which would require the airport operator to resolve prior to gaining support from these airlines.

4.4 Comparison of Sample Airports

The case analyses established over the three sample airports here provides an insight into how the decision of alliance terminal co-location was formulated, negotiated and implemented at various alliance hub airports around the world. As Kuhlmann (2010) has pointed out, being an alliance hub brings a whole new reality to an airport operator in terms of aircraft operations, use of terminal space, and allocation of passenger processing resources. However, not all airport operators react to or are affected by today’s alliance affiliation the same way, hence the sample airports were analysed to provide a platform comparing how the airport operators have affirmed the implementation of alliance terminal co-location within their respective operational and financial environments. Some specific issues encountered by these sample airports include:

1. London Heathrow Airport – The airport operator and airline alliances being

exposed to disrupted terminal relocation schedules when the availabilities of

capacity at various terminals were delayed.

2. Paris Charles de Gaulle Airport – The airline alliances competing for terminals

that foster seamless flight connectivity as well as intermodal transport

accessibility between aircraft and high speed rail.

3. Tokyo Narita Airport – The ideal situation for alliance terminal co-location

created by the ground handling arrangements.

Although a lack of point of contact at BAA Heathrow has limited the depth of the analysis on London Heathrow Airport’s terminal co-location exercise, it has been kept as a part of this paper to demonstrate the complexity of implementing this strategy at a five-terminal alliance hub airport. Based on the information and results gathered in regards to the sample airports, the ultimate implementation of alliance terminal 86

co-location seems to depend on three core factors that are related to the airport operator and their airline customers:

1. Terminal Co-location Initiatives;

2. Airport Traffic, Capacity, Ownership and Service Levels, and;

3. Alliance Terminal Co-location Synergies and Constraints.

Table 4.2 below provides a high level comparison of the operational characteristics and ownerships of the sample airports. The details of how these attributes have influenced the implementation of alliance terminal co-location at each sample airport will be discussed in the following sections.

Table 4.2 Operational characteristics and ownerships of sample airports at 2010.

London Heathrow Airport Paris Charles de Gaulle Tokyo Narita Airport Attributes (LHR) Airport (CDG) (NRT)

No. of passenger terminals 5 3 2

Terminal 5 Terminal 2G Terminal 1 South Wing Latest terminal addition (Date) (2008) (2009) (2006)

Connecting passenger share 35% 30% 18%

Ownership (Privatisation date) Privatised (1987) Privatised (2005) Privatised (2004)

Alliance terminal co-location

Commencement date 2008 2005 2006

Owner of initiative Airport operator (BAA) Airlines (Star Alliance) Airport operator (NAA)

Check-in co-location Yes Yes Yes

Lounge co-location Yes Yes No

Aircraft parking co-location Yes Yes Yes

4.4.1 Terminal Co-location Initiatives

Regardless of the methodology employed, the life cycle of a project generally begins with the initiation phase, in which the sponsor engages all the stakeholders to jointly define the project’s objectives, scope, purpose and deliverables to be produced. For

alliance terminal co-location, the initiating sponsor is typically the airline alliance(s) or the airport operator. Prior to the case analyses, it was assumed that, in most cases, implementation of the concept at most airports would be pursued under the initiative of the airline alliance(s) rather than the airport operators for the following reasons:

1. Alliance terminal co-location is a strategic concept established by the airline

alliances (more specifically by the Star Alliance – “Move Under one Roof”), and;

2. Airport operators tend to avoid re-allocating airline customers between terminals

due to airlines competition and airport access protocols, particularly when there

is an apparent disparity of service levels between the terminals (Socorro &

Betancor, 2010). Another contributing factor is the fluidity of airlines’ alliance

affiliations, which requires the airport operators to incorporate contingencies for

these alliances’ potential dissolution (Donoghue, 1999).

However, it was found that the airport operators of the three sample airports have been just as proactive as their airline alliance counterparts in facilitating alliance terminal co-location, in some cases surpassing the enthusiasm of the airline customers. As strategic alliances continue to be a dominant feature of business strategy within the international airline industry, many hub airports – such as the sample airports in this paper – have become more sophisticated in attracting alliance business by tailoring their offerings and operations to accommodate alliance demands (Donoghue, 1999;

Evans, 2001). While the alliance member airlines are offered preferred treatment, the airport can also benefit from a safeguard for long-term traffic development (Albers et al.,

2005).

Tokyo Narita Airport’s terminal co-location exercise is distinctively different to the other case analyses in two ways. One is that the Airline Relocation Project was initiated by 88

the airport operator rather than its airline customers; and second is that the primary objective of this project was to separate home-based carriers JAL and ANA in different terminals to reduce concentrated congestions at Terminal 2 compounded by JAL, ANA and their ground handling client airlines. The result of alliance terminal co-location is merely a by-product materialised by the fact that JAL and ANA ground handle majority of their respective alliance partners at Narita Airport. Furthermore, discussion with

Narita International Airport Corporation (2008a) revealed that the airport operator has arranged financial incentives to the airlines in order to gain support and final consent for the terminal relocation exercise. For instance, NAA waived the restoration requirements when re-located airlines vacated their offices and lounges, and reimbursed them for the fixed assets that were left behind. On the other hand, the Star Alliance’s request to

“Move Under one Roof” and create a mini-hub at Paris Charles de Gaulle Airport has prompted the airport operator, Aéroports de Paris, to replicate alliance terminal co-location for oneworld and SkyTeam in order for the airport to maintain its network importance as a European hub for airlines and their alliances. Similarly, the “Post T5

Musical Chairs” airline terminal re-allocation program facilitated by BAA Heathrow has also been implemented as a long-term strategy to reinforce London Heathrow Airport’s status as a European network hub which can compete with Paris, Frankfurt and

Amsterdam (BAA Heathrow, 2005a). The background to these airport operators’ co-operation in implementing alliance terminal co-location will be discussed in further details in the next sections.

4.4.2 Airport Traffic, Capacity, Ownership and Service Levels

The increased dominance of strategic airline alliances has brought about a new reality to airports in terms of aircraft operations, the use of resources, and the allocation of facilities. While not all airports’ operational and financial environments have been 89

affected by alliances the same way, their interactions with customer airlines’ alliance affiliations and demands are therefore different as well.

Traffic Nature

Both London Heathrow Airport and Paris Charles de Gaulle Airport are regarded as two of Europe’s most important network hubs, with connecting passengers accounted for approximately 35% and 30% of their respective passenger traffic in 2010 – the majority of this carried by the three airline alliances (Aéroports de Paris, 2010c; BAA Heathrow, n.d.b). In this context, these airports play an essential role in providing purpose-built facilities to ensure there is effective connectivity across the terminals. The increasing presence of alliance connecting traffic at both Heathrow and Charles de Gaulle Airport has convinced not only the airline alliances but the airport operators to affirm that alliance affiliation has been beneficial to all parties, and that alliance terminal co-location has the potential to stimulate further traffic growth. On the other hand, the concept was a less urgent agenda for the airline alliances at Tokyo Narita Airport, where substantial volume of origin-destination traffic has long dominated the airport’s passenger throughputs. In 2010, connecting traffic represented less than 18% of the total passengers at Narita Airport (Narita International Airport Corporation, 2011). Previous discussion with the airport operator (NAA) also revealed that around 90% the connecting traffic is traditionally generated by JAL, ANA, Delta (previously Northwest) and United’s online connections (Narita International Airport Corporation, 2008a). The small volume of inter-terminal connections at the airport indicated that traffic nature was not the determining factor that persuaded the airport operator to initiate its “Airline

Relocation Project”. In fact, the project serves primarily as a strategy to balance the passenger volume and aircraft movements at the airport’s two terminals.

Terminal Capacity

The previous section showed that all three sample airports handle different mix of passenger traffic. Functional separations within or between terminals are in place to accommodate various passenger demands. However, this sometimes creates bottleneck for flexible utilisation of terminal capacity at these airports. Although London

Heathrow and Paris CDG Airport are both regarded as the intercontinental hubs for

Europe, one distinct difference between their passenger traffic is that all intra-Europe flights to/from the UK are considered as non-Schengen traffic. This means the typical terminal separation for international Schengen and non-Schengen traffic found at most

European airports does not apply to London Heathrow Airport, creating a more straight forward airline terminal allocation principle compared to that of Paris CDG Airport.

Nonetheless, similar functional separation between international and domestic traffic also exists in the terminals at Heathrow and Narita Airport. Regardless of how the terminals at these sample airports are allocated to handle various types of passenger traffic, none of the three airports have implemented the concept of alliance terminal co-location without the presence of additional terminal capacity. London Heathrow’s

“Post T5 Musical Chairs” commenced upon the completion of the new Terminal 5; Paris

Charles de Gaulle’s airline reshuffle took place alongside Terminal 1’s renovation and

Terminal 2’s expansion; and Tokyo Narita’s “Airline Relocation Project” implemented following the completion of Terminal 1’s refurbishment and extension. In Narita Airport’s case, the airport operator confirmed that the project was only made possible with the extra terminal capacity gained from Terminal 1’s reconstruction (Narita International

Airport Corporation, 2008a). While solutions differ, these new constructions and major renovations have all been contemplated with alliance affiliations and proximity needs as major considerations (Kuhlmann, 2010).

Airport Ownership

While all three sample airports are operated in the ownership of private corporations today, the timings of their privatisation have resulted in very different responses to the concept of alliance terminal co-location. The earliest of the three was London Heathrow

Airport, with BAA Heathrow privatised in 1987 as a part of Margaret Thatcher's moves to privatise government owned assets. On the other hand, Tokyo Narita Airport and Paris

Charles de Gaulle Airport did not move away from government control until 2004 and

2005 respectively. Under government ownership, airport policies and developments are regulated and funded by the government itself. Governments often seek to influence decisions and encourage major investments to secure national environmental and tourism interests (Forsyth, 2006). As semi-government controlled corporations prior to their privatisation, Aéroports de Paris and Narita International Airport Corporation have placed quality of service and airport-airline relationships at the centre of their strategies for long-term growth, which suggests why the airport operator has been open-minded to accommodating alliance demands. With Aéroports de Paris being one of the first airport operators to be approached by the airline alliances to facilitate terminal co-location, a lack of industry precedent could have also led to the airport operator taking a co-operative role in the project. In the private, regulated environment, airport strategies and investments depend on the firm’s objectives, the extent of cost recovery, the regulatory structure, and the pressures from competition (Forsyth, 2006). This could be why the implementation of alliance terminal co-location at London Heathrow Airport was realised later than the other two sample airports. The availability of additional terminal capacity and completions from other European hub airports have persuaded BAA

Heathrow to pursue a non-profit strategy like this.

Terminal Service Levels

As mentioned in the previous section, being government-owned corporations until early

2000s, both Tokyo Narita Airport and Paris Charles de Gaulle Airport continue to place great importance on their airport-airline relationships as well as the service levels of their terminal infrastructures. In CDG’s case, the Star Alliance’s ambition to “Move

Under one Roof” and create a mini-hub at the Parisian airport has sparked an airport-wide terminal modernisation by the airport operator, Aéroports de Paris. The airline alliance first engaged Aéroports de Paris in 1999 regarding terminal co-location but had rejected the airport operator’s offer to centre the facilities of all its member airlines in old Terminal 1. Terminal renovations were carried out in phases to demonstrate Aéroports de Paris’s desire to provide operationally appealing facilities to its airline customers (Aéroports de Paris, 2009a). Complemented by the eventual assignment of Star Alliance carriers to Terminal 1, the airport operator was prompted to reshuffle its other airline customers to replicate alliance terminal co-location for oneworld and SkyTeam in order for Charles de Gaulle Airport to maintain its competitive position as a hub for airlines and their alliances. Similarly at Narita Airport, the priority of

Terminal 1’s reconstruction was also to fill the gap of passenger service levels between

Terminal 1 and 2 (Narita International Airport Corporation, 2008a). While London

Heathrow Airport’s various terminal renovation and reconstruction projects have been implemented also for the purpose of realigning other terminal’s service levels to match the new Terminal 5, this has been regarded by its non-BA airline customers as a passive effort to accept BAA Heathrow’s proposal to co-locate at terminals inferior to

Terminal 5 (Pilling, 2004; Broadbent, 2008b).

4.4.3 Alliance Terminal Co-location Synergies and Constraints

Regardless of the backgrounds of their alliance terminal co-location projects, the 93

reorganisation of airline terminal allocations at all three sample airports has brought new operational practices and financial opportunities to the airport operators and their airline clients alike. Airlines shifting their use of these airports further to hubs than O&D (origin and destination) points pose a significant effect on airport planning and facilities, including aircraft parking, baggage handling and passenger facilitation. However, the planning and execution of these changes generate both new synergies and constraints.

Synergies

The major sources of alliance synergies for member airlines at an airport come from complementary networks, sharing of common facilities and handling agents, as well as joint operations control. By co-operating in such a way, alliance partners can ensure common procedures and standards to make the goal of seamless travel more achievable (Kuhlmann, 2010). While all of the above initiatives have been implemented at the sample airports, the realignment of airport facilities, ground handling contracts and flight operations co-ordination has proven to be the most complex but yet most desirable forms of alliance collaboration for both the airlines and the airport operators.

For Narita Airport, the problem of having limited terminal floor space to accommodate individual airline lounges and additional retail activities was alleviated by alliance partners sharing facilities at their respective terminals or terminal areas. The concept of alliance partners engaging a common handling agent to co-ordinate ramp activities at

Charles de Gaulle Airport was made possible by alliance terminal co-location, as an airline’s choice of handling providers is limited to the companies that are authorised to operate at each specific terminal by Aéroports de Paris. Similarly, Star Alliance’s common handling agent arrangement at Narita Airport has enabled its member airlines to jointly check-in passengers according to class of travel, reducing the requirements for airline/handler staffing and airport check-in facilities. 94

The most comprehensive type of collaboration – joint operations control – is practiced at both Paris Charles de Gaulle and Tokyo Narita, where the planning aspects of aircraft slot and/or bay allocations are facilitated by their home carriers or the airline alliances.

The airport operators are therefore only responsible for monitoring and co-ordinating aircraft activities on the day-of-operation. As Forsyth suggests (2007), legacy airlines do well out of the slot system, since they possess most of the slots at these busy airports. A desirable aspect of this is that these airlines have a strong incentive to allocate the slots internally as effectively as possible.

Constraints

While the implementation of alliance terminal co-location has derived various operational and financial merits for the airport operators and airlines, a number of constraints were also experienced at the sample airports. These limitations include terminal capacities and functional separations, runway configurations, airline ground handling arrangements, and the fluidity of alliance memberships, etc. However, the most common issue observed at the sample airports is the collaboration between alliance partners being overshadowed by individual member airlines’ code-share/commercial agreements with carriers outside of their own alliances. Under the structure of today’s strategic airline alliances, member airlines remain free to engage in bilateral code-share and/or commercial agreements with airlines that are either non-aligned or belong to another alliance (Fan et al., 2001). Notably, these co-operative arrangements are sometimes extended to other forms of transport, creating intermodal transport partnership. This is particularly evident at Tokyo Narita

Airport and Paris Charles de Gaulle Airport, with the terminal allocation exceptions at these airports more apparent as airline terminal preferences have solidified from earlier implementation of alliance terminal co-location at these two airports. For instance, Air 95

New Zealand continues to operate in Terminal 2 at Narita Airport, away from the rest of its Star Alliance partners in Terminal 1 South, due to its code-share agreement with oneworld member JAL. At Paris CDG, Air Canada has chosen to remain in Terminal 2A rather than relocating to Terminal 1 – dedicated to Star Alliance, in favour of better accessibility to the French TGV high speed rail station. Apart from code-share agreements, other factors include the relative distances between terminals and runways, and commercial arrangements in ground handling contracts. Bounded by these ad-hoc airline preferences, the full extent of alliance terminal co-location cannot be realised.

This is further complicated by the fluidity of alliance memberships.

Under the alliance terminal co-location principle, airlines at the sample airports have been allocated to terminals or terminal locations based on their alliance memberships at the planning stage. With airlines continue to exit, enter or switch alliances during or after the implementation stage, the airport operators are often requested to re-align their airline terminal allocations, occasionally conflicted by the terminal capacity previously assigned to specific alliances. Tokyo Narita Airport was exposed to the greatest risk of this kind, when its largest airline customer – JAL, at one stage was contemplating of switching from oneworld to SkyTeam due to a takeover bid from SkyTeam’s Delta Air

Lines. Although JAL’s rumoured alliance shift did not eventuate, the possibility of having to relocate the airline’s 28% strong presence (in terms of passenger aircraft movements) at Narita Airport has prompted the airport operator to assess the potential effects this would have on its post-Airline Relocation Program airline allocations and terminal capacities. A typical example of terminal capacity limiting both the alliance and airport operator’s desire to achieve alliance terminal co-location is oneworld at London

Heathrow Airport, where the alliance members’ activities are split between Terminal 3 and 5 with the new T5 lacks the capacity to accommodate oneworld’s entire operations. 96

In addition to the constraints described, the vast presence of alliance branding throughout common-use terminals could also restrict airport operators’ flexibility to allocate their terminal resources, with non-aligned airlines perceiving the arrangements as unwelcomed favouritism and anti-competitive dominance. As mentioned in the earlier parts of the paper, the concept of alliance dedicated terminals or terminal areas was only realised at the sample airports as all three airports have recently granted additional terminal capacities through terminal reconstruction and expansion projects.

Chapter Five

CASE STUDY AIRPORT

In this instance, Sydney Airport has been used as a separate case study representing airports currently with no implementation of alliance terminal co-location and to examine if the application of such concept can potentially improve its operational and financial performance.

5.1 Sydney Airport (managed by Sydney Airport Corporation Limited)

5.1.1 Airport Overview

As one of the oldest continually operated airports in the world, Sydney Airport (IATA code: SYD) was first established as a private aerodrome in 1920 under a three-year lease. The land was later acquired by the Federal Government to create a public airfield in the Sydney area, with the first regular flights began in 1924 (Sydney Airport

Corporation Limited, 2005). The first paved runway was the east-west Runway 07/25, followed by the construction of the main north-south Runway 16/34 (now Runway

16R/34L). Up until 1970, what is now the current domestic precinct served as the main access to the airport, with facilities for both domestic and international traffic located at the eastern side of the airport.

In the 1950s, a study conducted by the then Department of Civil Aviation and the

Department of Works concluded that no alternative airport locations to Mascot in the

Sydney area existed closer than Richmond. This confirmation has resulted in large developments at Sydney Airport, including the extension of the main north-south 99

runway jutting into Botany Bay in preparation for the jet age. While land shortage has long been identified as a major problem for the development of Sydney Airport, land reclamation from the bay became a regular pattern during the airport’s various expansion projects since the 1950s. “In 1965 the Government announced plans for the construction of a new, enlarged international terminal on the western side of the airport – at last relieving the massive traffic pressure that had built up in the old international terminal on the eastern side of the airport” (Sydney Airport Corporation

Limited, 2005). The new international terminal (later known as Terminal 1) was officially opened on 3 May 1970, coinciding the commencement of the Boeing 747 operations to the airport later that year. “The decision to build an international terminal on the western side of the airport led to other changes. Up until then it had been government policy to provide terminal facilities for the domestic airlines, and the plans for the new international terminal had taken into account extensions that might be required by the domestic airlines. However, a change in government policy resulted in the domestic airlines having to provide their own terminals. As a result, Ansett and Trans Australia

Airlines (now Qantas Domestic) decided to extend their domestic terminals (now

Terminal 2 and 3) on the eastern site, where they remain today” (Sydney Airport

Corporation Limited, 2005). The current layout of Sydney Airport can be found in Figure

5.1 and Appendix H.

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Fig. 5.1. Layout of Sydney Airport (Sydney Airport Community Forum, 2011).

In 1989, the limitations of having only two runways that crossed each other had become apparent so the Federal Government announced its decision to build a third runway at

Sydney Airport. The third runway (Runway 16L/34R) was built parallel to the existing main north-south runway entirely on reclaimed land from Botany Bay, and it was completed in 1994. In order to minimise the impact of aircraft noise on the community surrounding the airport, a slot management regime was introduced in 1996 enforcing a limit on Sydney Airport’s runway activities to 80 aircraft movements per hour. Apart from additional runway capacity, a major extension to the international terminal (T1), Pier C, was commissioned in December 1992, eventually providing 12 new aircraft parking positions at the terminal. Since then, T1 has undergone several expansions and refurbishments to provide adequate passenger, baggage and aircraft handling capacities for all the airline operators at the terminal. T1 handled a total of 11.3 million passengers in 2010 – up from 8.0 million when the airport was privatised in 2002 101

(Sydney Airport Corporation Limited, 2002; 2010). As a common-user terminal, the allocation of terminal facilities at T1, such as check-in counters and aircraft parking positions, remains under the planning and co-ordination by the airport operator –

Sydney Airport Corporation Limited (SACL).

Today, Sydney Airport serves as the principal hub of Australian carriers Qantas Airways,

Jetstar Airways and Virgin Australia (group of airlines), as well as a common destination of airlines from the three major strategic alliances. Recent observations at Sydney

Airport have shown a trend of alliance member airlines concentrating at certain piers of

T1 (Table 5.1) to operate alongside their partners. Activities such as terminal facilities sharing (e.g. lounges) are also noticed. Passenger traffic to and from the airport is predominantly point-to-point, with the international-to-international transfer/transit traffic mainly connecting onwards to neighbouring countries in the Pacific (including New

Zealand). In 2010, international-to-international transfer/transit passengers accounted for less than 10% of Sydney Airport’s 35.6 million annual passenger throughput (Sydney

Airport Corporation Limited, 2010).

Table 5.1 Current members of oneworld, Star Alliance and SkyTeam at Sydney Airport.

T1 oneworld Star Alliance SkyTeam Airline Code Pier Airline Code Pier Airline Code Pier 1 British Airways BA B Air Canada AC C China Airlines CI B 2 Cathay Pacific CX B Air China CA C China Eastern MU B 3 Japan Airlines JL B Air New Zealand NZ C China Southern CZ C 4 LAN Airlines LA B Asiana Airlines OZ C Korean Air KE C 5 Qantas Airways QF B Singapore Airlines SQ C Delta Air Lines DL C 6 Thai Airways TG C Vietnam Airlines VN B 7 United Airlines UA C Future/Potential Members* 1 Malaysia Airlines MH C Aerolineas Argentinas AR B 2 Garuda Indonesia GA B NOTE: 1. Only airlines that currently operate regular schedule services at SYD are displayed in this table. 2. This table does not include airlines that code-share on other carriers to SYD. 3. *This includes only airlines that have announced their intention to join publicly.  Aerolineas Argentinas (AR) and Garuda Indonesia (GA) are scheduled to join SkyTeam in 2012 and 2013.  Malaysia Airlines (MH) is scheduled to join oneworld in 2012.

102

5.2 Data Analysis

As discussed in Section 4.4, the reorganisation of airline terminal allocations at all three sample airports has brought a wide range of new operational practices and financial opportunities to the airport operators and their airline clients. A revision on Sydney

Airport’s current operating environment has shown that:

1. check-in facilities, and;

2. terminal aircraft parking positions; are the two scarcest passenger and aircraft handling resources at its international terminal (T1). Quantitative tests, based on sample airports’ existing practices around these resources, are to be applied to determine if the implementation of alliance terminal co-location can bring operational and financial merits to these existing bottlenecks at Sydney Airport.

5.2.1 Check-in Allocation

Base Case – Current Practices and Challenges

At Sydney Airport, airlines submit their check-in counter requests in the form of a flight schedule containing the number of check-in counters required and their opening and closing times for each flight or flight group. Based on the requests submitted by airlines at the start of each scheduling season, the 192 check-in counters at T1 are assigned in block or demand-based profiled allocations. The procedure starts by allocating airlines with the most frequent and consistent flight schedules. Airlines with the least rationalised schedules – in terms of flight departure times, frequencies and aircraft types, are less likely to be allocated with a consistent check-in location across a week due to resource conflicts with more dominant carriers. Qantas and Air New Zealand, with their flights departing regularly throughout the day, are the exceptions that occupy 103

permanent check-in areas to process their respective passengers. This procedure continues until all the airlines’ check-in counter requests have been allocated. Existing allocations over a NS11 typical week (22 – 28 August 2011) were documented as Base

Case to:

1. Map the current counter demands;

2. Identify the busy day(s) of the week and limitations of the current process, and;

3. Provide a benchmark for the proposed changes in the scenario simulation.

Fig. 5.2. Sydney Airport’s recommended number of check-in counters based on aircraft types (Sydney Airport Corporation Limited, 2011a).

Base Case results showed Friday and Saturday as the busy days in terms of aircraft movements, each with 87 departure flights throughout the day. However, the busy day in terms of check-in counters took place on Tuesday with a peak demand of 185 positions at 0830, as a result of more concentrated morning departures than the rest of the week. While block allocation dominated amongst airlines’ requests, existing 9- or

12-aside island layout appeared far from desirable for an efficient use of T1’s check-in resources, as not all flights require up to 9 or 12 counters for their check-in operations

(refer to Figure 5.2). This often resulted in residual capacities at these check-in islands which cannot otherwise be allocated to another flight during the terminal’s peak periods.

This explained why peak demands in the 0800 hour never reached the full capacity throughout the sampled week (Figure 5.3), even when tight flight departure times have 104

led to overlapping check-in windows in many instances. Instead, these resource conflicts are resolved through SACL initiating verbal negotiations with the affected carrier(s) to:

1. Internalise an airline’s own overlaps by grouping its individual check-in profiles

into a larger block, or;

2. Offset the overlaps between two airlines by obtaining consents from both

carriers to either share or reduce their check-in profiles.

The most comprehensive allocations were noted at Counter D (-North and -South) and

Counter E-North, where majority of the counters have been assigned to Qantas from

0400 to 2200 hour to process the airline’s regular departures, leaving minimal residual capacities at these check-in areas. This airline-oriented common check-in concept presents very different characteristics to single-flight check-in. The overlapped check-in windows and combined passenger arrival profiles can result in a more constant demand of counters over a long period of time, which is not sustainable for a single flight (Chun

& Mak, 1999). At T1 where check-in counters are scarce during the morning peaks, similar common check-in arrangements could be extended to alliance member airlines to co-locate and consolidate existing flight-driven counter allocations and free up check-in capacities.

T1 check-in counter demands at 10-min interval (NS11 Typical Monday) 200

150

100 NZ - Mon

Others

50 Demands (allocated) Demands (by a/c type)

Cap (192)

6:00 4:00 5:00 7:00 8:00 9:00

10:00 11:00 15:00 16:00 19:00 20:00 13:00 14:00 17:00 18:00 21:00 22:00 12:00

105

T1 check-in counter demands at 10-min interval (NS11 Typical Tuesday) 200

150

100 NZ - Tue

Others

50 Demands (allocated) Demands (by a/c type)

Cap (192)

6:00 4:00 5:00 7:00 8:00 9:00

10:00 11:00 15:00 16:00 19:00 20:00 13:00 14:00 17:00 18:00 21:00 22:00 12:00

T1 check-in counter demands at 10-min interval (NS11 Typical Wednesday) 200

150

100 NZ - Wed

Others

Demands (allocated) 50 Demands (by a/c type)

Cap (192)

6:00 4:00 5:00 7:00 8:00 9:00

10:00 11:00 15:00 16:00 19:00 20:00 13:00 14:00 17:00 18:00 21:00 22:00 12:00 T1 check-in counter demands at 10-min interval (NS11 Typical Thursday) 200

150

100 NZ - Thu

Others

50 Demands (allocated) Demands (by a/c type)

Cap (192)

6:00 4:00 5:00 7:00 8:00 9:00

10:00 11:00 15:00 16:00 19:00 20:00 13:00 14:00 17:00 18:00 21:00 22:00 12:00

T1 check-in counter demands at 10-min interval (NS11 Typical Friday) 200

150

100 NZ - Fri

Others

50 Demands (allocated) Demands (by a/c type)

Cap (192)

6:00 4:00 5:00 7:00 8:00 9:00

10:00 11:00 15:00 16:00 19:00 20:00 13:00 14:00 17:00 18:00 21:00 22:00 12:00

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T1 check-in counter demands at 10-min interval (NS11 Typical Saturday) 200

150

100 NZ - Sat

Others

50 Demands (allocated) Demands (by a/c type)

Cap (192)

6:00 4:00 5:00 7:00 8:00 9:00

10:00 11:00 15:00 16:00 19:00 20:00 13:00 14:00 17:00 18:00 21:00 22:00 12:00

T1 check-in counter demands at 10-min interval (NS11 Typical Sunday) 200

150

100 NZ - Sun

Others

50 Demands (allocated) Demands (by a/c type)

Cap (192)

6:00 4:00 5:00 7:00 8:00 9:00

10:00 11:00 15:00 16:00 19:00 20:00 13:00 14:00 17:00 18:00 21:00 22:00 12:00 Fig. 5.3. Sydney Airport T1 check-in counter demands (NS11 typical week): Base Case.

Proposed Scenarios under the Alliance Terminal Co-location Concept

From an airline’s point of view, the main difference between block and demand-based profiled allocations is that one is service-oriented whereas the other is financial-driven.

Block counter request is generally made by an airline to promote branding as well as to provide a consistent check-in service to customers. However, the desired need is usually much larger than the real need. In reality, the number of required check-in counters varies at different times relative to a flight’s departure time. Whilst profiled allocation is derived based on passengers’ arrival rate to check-in, airlines can potentially generate savings by mapping their check-in counter requests in accordance to their counter demands rather than booking the whole bank of counters throughout the entire check-in window (Chun & Mak, 1999). Alliance check-in co-location is derived from such principle, as it allows airlines, as well as airports, to take advantage of the resource savings presented by a combined passenger arrival profile at check-in. Each

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alliance is regarded as a single operator with check-in counters allocated in block or profiled allocations to cover the group’s departures throughout the day. The consolidation and strengthening of alliance groupings over the recent years have resulted in increased collaboration amongst member airlines including joint promoting their brands under the alliance banner, allowing the initiative to take place without compromising the branding and passenger service levels of individual airlines.

The aims of the scenario studies were to validate that alliance check-in co-location would reduce the excess demands for check-in counters at Sydney Airport’s T1, and to assess if a combination of operational changes (i.e. check-in allocation methods) and addition of self-service kiosks could further reduce demands for existing check-in counters. Based on the busy day (Tuesday) schedule of the same NS11 typical week as sampled in Base Case, the following three different scenarios were modelled:

1. Real-time demand-driven (profiled) allocations for the alliances + block

allocations for non-aligned carriers;

2. Block allocations (based on peak real-time demands) for the alliances + block

allocations for non-aligned carriers, and;

3. Kiosks and block allocations (based on reduced peak real-time demands) for the

alliances + block allocations for non-aligned carriers.

Scenario 1

Resource simulation of T1’s check-in counter demands was conducted using Microsoft

Excel. Each alliance’s real-time counter demands were calculated by applying the same seat factor (100%), and passenger arrival profile (bell-shaped normal distribution) and processing rate at check-in (2.5 min/pax) to all alliance operated departure flights; whereas non-aligned carriers’ block counter demands were documented from each 108

airline’s request submitted to SACL containing the number of check-in counters required and their opening and closing times for each flight or flight group. The two components (i.e. alliances and non-aligned carriers) combined provided T1’s overall check-in counter demands. In Scenario 1, modelling results of typical busy day

(Tuesday) showed the overall (three alliance groupings + non-aligned carriers) check-in demands not only capped under the 192-counter capacity but lowered from the current levels across the day. Peak demand of the day was reduced from 185 to 171 counters

(Figure 5.4). Results of individual alliances’ counter requirements also demonstrated resource synergies on their respective busy days (Figure 5.5, 5.6 and 5.7). Out of the three alliances, the co-location of SkyTeam carriers presented the most obvious resource savings during the 0800 terminal busy hour, when the check-in windows of its member carriers traditionally overlapped. While statistical analysis in Scenario 1 has demonstrated the merits of alliance common check-in in streamlining overall check-in demands at Terminal 1, demand-based profiled allocations are often complicated and difficult for the airport operator to plan and manage, let alone the check-in revenue leakage moving away from existing block allocations. In this proposed scenario, the variance in revenue on the typical busy day (Tuesday) equates to more than $12,300 based on the current check-in charge ($21.15 per counter per hour). This is approximately the check-in revenue from 26 additional flights (each with 9 counters in block profile of 2.5 hours), which is an amount of traffic difficult for an airport operator to attract in reality. A block allocation option was therefore investigated in Scenario 2, to determine whether reductions can still be materialised (and by how much), when dedicated check-in locations were assigned to the alliance groupings as an attempt to secure demands for T1’s check-in resources.

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T1 check-in counter demands at 10-min interval (NS11 Typical Tuesday) 200

150

oneworld

100 SkyTeam Star Alliance Others 50 Demands (proposed) Demands (current) Cap (192)

6:00 4:00 5:00 7:00 8:00 9:00

10:00 11:00 15:00 16:00 19:00 20:00 13:00 14:00 17:00 18:00 21:00 22:00 12:00 Fig. 5.4. Sydney Airport T1 check-in counter demands with alliance dedicated check-in (NS11 typical week busy day – Tuesday): Scenario 1.

T1 oneworld check-in counter demands at 10-min interval (NS11 Typical Monday) 80 BA

58 CX 60 JL

LA 40 MH

QF 20 Demands (current)

Demands (co-located)

4:00 5:00 6:00 7:00 8:00 9:00

11:00 12:00 13:00 14:00 15:00 16:00 17:00 18:00 19:00 20:00 21:00 22:00 10:00 Fig. 5.5. oneworld T1 check-in counter demands (NS11 typical week busy day – Monday).

T1 SkyTeam check-in counter demands at 10-min interval (NS11 Typical Thursday) 60 AR CI 45 CZ 37 DL GA 30 KE MU 15 VN Demands (current) Demands (co-located)

4:00 5:00 6:00 7:00 8:00 9:00

11:00 12:00 13:00 14:00 15:00 16:00 17:00 18:00 19:00 20:00 21:00 22:00 10:00 Fig. 5.6. SkyTeam T1 check-in counter demands (NS11 typical week busy day – Thursday).

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T1 Star Alliance check-in counter demands at 10-min interval (NS11 Typical Friday) 60 55 AC CA 45 NZ OZ 30 SQ TG

15 UA Demands (current) Demands (co-located)

4:00 7:00 8:00 5:00 6:00 9:00

11:00 14:00 15:00 18:00 21:00 22:00 12:00 13:00 16:00 17:00 19:00 20:00 10:00 Fig. 5.7. Star Alliance T1 check-in counter demands (NS11 typical week busy day – Friday).

T1 Qantas check-in counter demands at 10-min interval (NS11 Typical Monday) 80

60 QF 47 Demands (allocated) 40 35 Demands (by a/c type)

Demands (real-time) 20

4:00 6:00 8:00 5:00 7:00 9:00

10:00 12:00 14:00 16:00 18:00 20:00 22:00 13:00 15:00 17:00 19:00 21:00 11:00 Fig. 5.8. Qantas T1 check-in counter demands (NS11 typical week busy day – Monday).

Scenario 2

Resource simulation of T1’s check-in counter demands in Scenario 2 was also conducted using Microsoft Excel. Different to Scenario 1 where the application of block allocations was limited to the non-alliance aligned carriers, block allocations were applied to both the alliances and the non-aligned carriers in Scenario 2. The block counter demands of non-aligned carriers remained under the same parameters (as

Scenario 1); while the alliances’ counter requirements for block allocations were determined based on the peak demands of their respective busy days (Figure 5.5, 5.6 and 5.7). While the results suggested real-time peak demands of 58, 37 and 55 counters for oneworld, SkyTeam and Star Alliance, operational experience with

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Qantas’s permanent check-in showed that approximately 69% (afternoon peak; i.e.

24/35) to 77% (morning peak; i.e. 36/47) of those requirements were sufficient to process the check-in passengers throughout the day after queuing was factored in

(Figure 5.8). Consequently, the co-located counter requirements for the three alliances

(oneworld, SkyTeam and Star Alliance) were revised to 45, 30 and 45 counter positions.

These numbers were derived from a combination of the existing 9- or 12-aside island layout at T1, whereas the basis of allocation was the current linkages between counter islands and the baggage sortation room at each T1 piers (refer to Figure 5.9). The physical check-in locations proposed for the alliances are illustrated in Appendix I:

1. oneworld – Counter C-South, D and E-North

Considered Qantas’s existing check-in allocation at Counter D and E-North, and

majority of oneworld carriers have a preference for Pier B;

2. SkyTeam – Counter E-South and F

Considered SkyTeam carriers have a mixed preference for Pier B and C, and;

3. Star Alliance – Counter H-South, J and K

Considered Air New Zealand’s existing check-in allocation at Counter J-North

and that all Star Alliance carriers have a preference for Pier C (Table 5.1).

Fig. 5.9. Allocation of baggage sortation rooms at Sydney Airport T1 (Sydney Airport Corporation Limited, 2011a).

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T1 check-in counter demands at 10-min interval (NS11 Typical Tuesday) 200

150

oneworld (45)

100 SkyTeam (30) Star Alliance (45) Others 50 Demands (proposed) Demands (current) Cap (192)

6:00 4:00 5:00 7:00 8:00 9:00

10:00 11:00 15:00 16:00 19:00 20:00 12:00 13:00 14:00 17:00 18:00 21:00 22:00 Fig. 5.10. Sydney Airport T1 check-in counter demands with alliance dedicated check-in (NS11 typical week busy day – Tuesday): Scenario 2.

The remaining 72 counters (8 banks of 9 counters) were made available for flights operated by non-aligned carriers, as well as for the alliances to overflow their check-in operations whenever possible. These allow up to 8 Code-E aircraft (i.e. Boeing 747 equivalent) to be checked-in simultaneously. Modelling results of typical busy day

(Tuesday) showed the peak demand of the day reduced from 185 to 170 counters

(Figure 5.10), providing growth opportunity for up to 2 additional Airbus A380 flights during the morning peak period. On the other hand, the constant demand of counters across the day has generated more than $21,200 additional check-in revenue compared to Base Case. However, such aggressive growth in check-in charges may not eventuate as the airline alliances are more likely to secure access to these check-in locations via commercial agreements. These include first right access and permanent branding on preferred check-in counters, and the ability to incorporate alliance IT proprietary (e.g. kiosks and FIDS) within the leased check-in areas.

Scenario 3

Citing the current practices of alliance common check-in at the sample airports, it was envisioned the alliances would seek to introduce self-service kiosks as a part of check-in co-location at T1. In order to assess the further resource savings that

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self-service kiosks would produce, the following assumptions were applied in this scenario (Scenario 3):

1. A part of the existing check-in counters would be utilised as bag drop positions

under the principle of no terminal infrastructure modification;

2. 80% of each alliance’s passengers would check-in using kiosks and bag drops;

while 20% of the passengers continued to access traditional counters (based on

the 20%-80% spilt between premium and economy class seats in the NS11

typical week schedule);

3. 1 min/pax average transaction time at kiosk;

4. 1.5 min/pax average transaction time at bag drop, and;

5. 2.5 min/pax average transaction time at traditional counter.

Same as Scenario 2, the alliances’ resource requirements for kiosks, bag drops and traditional counters were determined based on the peak demands of their respective busy days. The results of statistical analysis suggested real-time peak demands of:

1. 18 / 12 / 17 kiosks, and;

2. 39 / 24 / 37 counters (27 / 17 / 26 bag drops + 12 / 7 / 11 traditional counters), for oneworld, SkyTeam and Star Alliance respectively, demonstrating further reductions on the requirements of existing check-in counters (Figure 5.11). Same as Scenario 2, the alliance check-in locations were determined based on the check-in islands’ configuration and their linkages to baggage sortation rooms. To meet all three conditions as close as possible, the co-located counter requirements for the three alliances (oneworld, SkyTeam and Star Alliance) were revised to 42, 24 and 36 counter positions as illustrated in Appendix J:

1. oneworld – Counter C and D;

2. SkyTeam – Counter E, and; 114

3. Star Alliance – Counter J and K.

Peak Resource Requirements oneworld SkyTeam Star Alliance Scenario 1 Counter 58 37 55 Scenario 2 Counter 45 30 45 Kiosk 18 12 17 Bag Drop 27 17 26 Scenario 3 Counter 12 7 11 Counter + Bag Drop 39 24 37 Fig. 5.11. Sydney Airport T1 alliance check-in resource demands comparison.

Compared to Scenario 2, a further 18 counters (2 banks of 9 counters) were freed up to accommodate traffic growth for non-aligned carriers. Modelling results of typical busy day (Tuesday) showed the peak demand of the day reduced from 185 to 152 counters

(Figure 5.12). As a result of kiosks replacing a part of alliances’ check-in counter requirements, check-in revenue contracted by approximately $7,200 from Scenario 2, but was still approximately $14,000 more than Base Case. However, one challenge is the potential impact on the baggage handling system, in particular, on the baggage take-away belt at each check-in island. The take-away belt, which has a limited capacity due to the speed it can operate safely, would potentially become a bottleneck as passenger and baggage processing rates increase at counters now utilised as bag drop positions. For instance, assuming that each passenger check-in 1.5 bags on average, the mixed utilisation of Counter E as bag drops (17) and traditional counters (7) by

SkyTeam in Scenario 3 would have required the baggage take-away belt to move 7 more bags per minute from the previous 14 bags/min. On the other hand, should the speed of the take-away belt be accelerated, this may create downstream conveyor jams in the baggage system (Airport Cooperative Research Program Report 10, 2008).

Whilst further assessment is necessary to understand the impact of introducing kiosks and bag drops to T1’s baggage handling system, the analyses in Scenario 3 have at

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least confirmed that sufficient number of check-in counters would be released to enable allocation of additional flights as a result of these alliance-branded self-service products.

T1 check-in counter demands at 10-min interval (NS11 Typical Tuesday) 200

150

oneworld (42)

100 SkyTeam (24) Star Alliance (36) Others 50 Demands (proposed) Demands (current) Cap (192)

6:00 4:00 5:00 7:00 8:00 9:00

10:00 11:00 15:00 16:00 19:00 20:00 12:00 13:00 14:00 17:00 18:00 21:00 22:00 Fig. 5.12. Sydney Airport T1 check-in counter demands with alliance dedicated check-in (NS11 typical week busy day – Tuesday): Scenario 3.

Discussion

The outcome of the proposed scenario has shown potential benefits for Sydney

Airport’s airport operator to introduce alliance common check-in in order to: 1) relieve

T1’s check-in capacity shortfalls during the morning peak periods, and 2) delay the trigger for large scale capital investments to expand T1’s check-in facilities. For the alliance aligned carriers at the airport, the benefits include reduced costs through sharing of common facilities, staff and equipments. On that note, overseas examples

(as discussed in the Case Analyses in Section 4) have flagged the need for all participating member airlines to agree and engage a common passenger/baggage handling agent so that all partners’ check-in and ramp activities could be connected through one shared handler. In an interview with SACL, the Manager Airline

Relationships (C. Phillips, personal communication, October 5, 2011) confirmed that the airport operator has been engaged by one of the three major alliances regarding potential check-in co-location. Another challenge identified by the alliance’s local managers (of member carriers) is to channel initiatives back up the chain to receive

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head office support and legal guidance. Apart from the reality of ground handling contracts and the need for strong relationships at head office level from the customer airlines’ end, the operator of Sydney Airport also faces the justification of foregoing short-term gain in check-in revenue to 1) allow additional traffic during the morning peak periods, and 2) delay capital investments for future check-in expansions. In Scenario 1, moving the alliance groupings’ check-in allocations to a pure demand-driven approach have resulted in a revenue shortfall of more than $12,300 on a typical busy day

(Tuesday). It’s therefore essential for SACL to secure additional revenue through commercial agreements – such as first-right access (i.e. block allocation) and permanent branding – with the airline alliances.

5.2.2 Aircraft Parking Allocation

Base Case – Current Practices and Challenges

At Sydney Airport, Terminal 1 is designated to handle all international passenger arrivals and departures. Aircraft parking of all international operations are therefore facilitated at T1 aprons, utilising a mix of terminal (contact) and off-terminal/remote positions. There are currently 25 terminal aircraft parking positions at T1 – 13 at Pier B and 12 at Pier C, providing passengers with direct access to the terminal via the aerobridges or ground-level ramp. For a common-use terminal, T1’s pier finger terminal configuration has long been a barrier to allow the airport operator to randomly assign aircraft parking. The two piers are at least 450m apart in walking distance, and each have their own processing halls for transfer/transit passengers and separate premium lounges for specific airlines. There are currently five airline-operated lounges at T1, namely:

1. The Qantas Club Lounge at Pier B, and;

2. Air New Zealand Koru Club Lounge, Singapore Airlines Silver Kris Lounge, 117

Malaysia Airlines Golden Lounge, and The Emirates Lounge at Pier C.

Like most international terminals of airports around the world, the number of airline-operated lounges at T1 has been limited by: 1) the availability of terminal floor space versus the number of airline operators, and 2) most airlines lacking the flight frequency across the day to sustain the running costs of exclusive lounges. As a result, majority of the T1 airline operators have simply opted to access one of the existing airline lounges (Appendix K). Depending on the terminal locations of their lounges, over time airlines have formed preferences to arrive and depart their flights at a specific pier.

Apart from airline pier preferences (refer to Appendix L), the allocation of T1’s terminal positions is also dictated by factors such as aircraft types and airline rankings based on seasonal seat throughputs, etc.

As aircraft traffic continues to intensify during the terminal’s busy periods (0600-1000 hour), airlines have been competing for access to the terminal aircraft parking positions to avoid passenger bussing operations when their aircraft are assigned to off-terminal/remote parking positions. Apart from the criteria described in the previous paragraph, the airport operator’s decision of which aircraft to be assigned to a terminal or off-terminal parking position also depends on factors such as aircraft turnaround time and on-time performance. In addition to bussing operations, another approach adopted by SACL to overcome the capacity shortfall of T1’s terminal parking positions is to reposition aircraft with turnaround times longer than 180 minutes to off-terminal parking positions during their layover periods (Sydney Airport Corporation Limited, 2008). This includes utilising Qantas Jet Base on the opposite side of the main runway (Runway

16R/34L) for layover parking of Qantas Group (i.e. Qantas and Jetstar) aircraft.

However, aircraft towing operations has proven challenging during the morning peak, when T1 aprons are already congested with taxiing and pushback aircraft; and runway 118

crossing is regularly held back by take-off and landing aircraft traffic. Existing allocations over a NS11 typical week (22 – 28 August 2011) were documented as Base Case to:

1. Map the current aircraft parking demands to establish the busy/quiet day(s) of

the week;

2. Identify irregular assignments (i.e. cross-pier departures and bussing operations)

and aircraft towing as evidence of constraints experienced in the current process,

and;

3. Provide a benchmark for the proposed changes in the scenario simulation.

Cross-pier arrivals have not been regarded as irregular assignments in this study, as there are currently no airline-dedicated passenger or baggage processing facilities on arrival to dictate airlines’ pier preferences.

Table 5.2 Sydney Airport T1 aircraft parking demands (NS11 typical week): Base Case. Aircraft Movements Mon Tue Wed Thu Fri Sat Sun Arr 84 87 79 87 84 86 85 Dep 85 83 85 82 87 87 84 Total 169 170 164 169 171 173 169 Bussing Operations Arr 0 0 0 0 0 0 0 Dep 2 0 0 0 1 2 1 Total 2 0 0 0 1 2 1 Towing Activities Between T1 Aprons 24 23 18 18 25 26 28 To/from QF Jet Base 12 16 20 15 10 19 20 Total 36 39 38 33 35 45 48

Base Case results showed Saturday as the busy day in terms of aircraft traffic, with a total of 173 scheduled passenger movements (arrival + departure) at T1 throughout the day. Overall aircraft parking allocations for the day involved two irregular assignments

(departures with bussing operations). In addition, 45 aircraft towing activities were recorded as a result of 1) morning arrivals scheduled to layover until the afternoon turnarounds in order to cover time differences between Australia and their destinations,

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and 2) home carriers such as Qantas and Jetstar rotating aircraft for maintenance and rostering purposes (Table 5.2). The allocation chart for the day is shown in Appendix M.

On the other hand, Wednesday was identified as the quietest day of the week, with a total of 164 scheduled passenger movements throughout the day. Overall aircraft parking allocations for the day – as demonstrated in Appendix N, involved one irregular assignment (cross-pier departure), and 38 aircraft towing activities (Table 5.2). It is important to note that existing allocations of T1 aircraft parking positions (in Base Case) have not taken into account the airlines’ alliance alignments and connecting traffic between the two piers. Although Sydney has traditionally been dominated by origin and destination (O&D) passenger traffic, this should not deter the airport operator from developing Sydney Airport into a hub in the South West Pacific region. A brief study conducted in 2008 showed flights to/from Sydney offering one of the most competitive flight times between Asia and South America (refer to Table 5.3). The proposed scenario in the next section will investigate whether co-location of aircraft parking amongst alliance member airlines can be achieved without increasing the level of irregular assignments at T1.

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Table 5.3 Flights between Tokyo and Buenos Aires operated by oneworld, SkyTeam and Star Alliance (December 2008 schedule).

From: Tokyo, Japan (Narita) To: Buenos Aires, Argentina (Ministro Pistarini)

Departure Arrival Duration Stops/Via Flights Flight Time M T W T F S S Alliance 19:00 10:15 +1 26:15 1 Stop - Via DFW AA60/AA997 22:05 ● ● ● ● ● ● ● Onew orld 16:30 07:45 +1 26:15 1 Stop - Via ATL DL56/DL101 22:45 ● ● ● ● ● ● ● SkyTeam 19:25 11:30 +1 27:05 2 Stops - Via ORD-IAD UA884/UA982/UA847 23:15 ● ● ● ● ● ● ● Star 21:25 10:35 +1 24:10 1 Stop - Via SYD JL771/QF17 22:30 ● ● ● Onew orld

From: Buenos Aires, Argentina (Ministro Pistarini) To: Tokyo, Japan (Narita)

Departure Arrival Duration Stops/Via Flights Flight Time M T W T F S S Alliance 19:05 09:05 +2 27:00 1 Stop - Via CDG AF415/AF276 24:45 ● ● ● ● ● ● ● SkyTeam 22:15 13:10 +2 27:55 1 Stop - Via JFK AA956/JL47 24:55 ● ● ● Onew orld 23:05 15:00 +2 28:55 2 Stops - Via IAD-ORD UA846/UA981/NH11 25:55 ● ● ● ● ● ● ● Star 14:05 06:10 +2 29:05 1 Stop - Via SYD QF18/JL772 24:45 ● ● ● Onew orld

Proposed Scenario under the Alliance Terminal Co-location Concept

Whilst T1 is a common-use environment that facilitates all the international carriers at

Sydney Airport, this has removed the need to assess airline terminal assignments for aircraft parking under the alliance terminal co-location concept. Instead, the focus of this scenario study was to review the possibility of further concentrating the aircraft parking of alliance member airlines at some of their already-established locations at T1. The existing concentrations of oneworld and Star Alliance carriers at T1’s Pier B and Pier C were prioritised in this analysis, citing a lack of code-share activities and physical lounge tenancies amongst SkyTeam carriers at Sydney Airport. Delta Air Lines (DL) and

Vietnam Airlines (VN) are the only members that have code-share arrangements with another airline operator at Sydney Airport, but in both cases connecting traffic are generated by non-SkyTeam partners V Australia (VA) and Qantas (QF) at their respective terminal piers (i.e. DL–VA at Pier C and VN–QF at Pier B). Other than the realigned pier preferences for the alliance affiliated airlines, aircraft parking allocations in this proposed scenario were conducted entirely in accordance to SACL’s existing

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“Apron Operational Procedures” as well as “T1 Common Use Aircraft Bay & Gate

Allocation Procedures”. The key indicators to determine the operational efficiency of the alliance-driven terminal aircraft parking allocation in this scenario study were: 1) the number of irregular assignments such as cross-pier departures and remote bussing operations, and 2) the number of aircraft towing activities.

Prior to implementing the alliance co-location concept, there were four cross-pier arrivals and two cross-pier departures amongst the aircraft parking allocations for the typical busy day (Saturday). Modelling results of the proposed scenario showed:

1. oneworld and Star Alliance flights co-located at Pier B and Pier C respectively,

the gate-to-gate walking distance for connecting passengers was minimised

after dissolving the previous six cross-pier allocations;

2. The aircraft parking of SkyTeam flights concentrated at selective positions at

Pier B (Bay 25, 31, 33 and 35) and Pier C (Bay 51 and 53) for potential common

ground handling, and;

3. All non-aligned carriers’ departure flights assigned according to their individual

pier preferences, with the exception of JQ119 at Pier C Bay 55. Whilst Jetstar

prefers Pier B due to its lounge affiliation with Qantas, the impact of this

assignment is minimal as the flight is operated by a one-class (i.e. economy)

Airbus A320.

These were achieved by swapping and relocating the bay allocations of flights, particularly during the terminal’s busy periods (0600-1000 hour). Notably, a Qantas turnaround aircraft (QF22/QF7) on Bay 8 had to be re-located to an off-terminal position

(Bay 3) for layover to allow another Qantas aircraft (QF130) to access the parking position. A Pacific Blue turnaround aircraft (DJ4150/DJ4151) on Bay 50 was first re-assigned to Bay 55, followed by removing its layover portion to off-terminal Bay 12 to 122

allow the access of a Jetstar aircraft (JQ140/119). Overall, this has resulted in four additional towing activities for the day, with three of them occurring during the morning peak. However, these changes collectively have dissolved one of the two departure flights previous facilitated by bussing operations, enabling the Qantas aircraft (QF121) on Bay 12 to re-positioned to Pier B Bay 36. Based on Sydney Airport’s (2011b)

Conditions of Use, this also eliminated the $336 (168 seats at $2 per chargeable passenger) “Bussing/Stand-off position discount” the airport operator was required to reimburse Qantas, for embarking the airline’s passengers at an off-terminal bussing position. As suggested by the allocation chart of this busy day scenario (Appendix O), the co-location of alliance aircraft parking has demonstrated improvements over service delivery to airlines and their connecting passengers; while the operational efficiencies of

T1 aprons and ground handling resources (e.g. aircraft tugs) were compromised due to additional aircraft towing activities.

Similar to the busy day scenario, modelling results of the quiet day scenario also showed:

1. oneworld and Star Alliance flights co-located at Pier B and Pier C respectively,

dissolving the previous five cross-pier allocations (two arrivals and three

departures);

2. The aircraft parking of SkyTeam flights concentrated at selective positions at

Pier B (Bay 30, 32, 34 and 36) and Pier C (Bay 51 and 53) for potential common

ground handling, and;

3. All non-aligned carriers’ departure flights assigned according to their individual

pier preferences, with the exception of JQ119 at Pier C Bay 55.

The allocation chart for the day is shown in Appendix P. Different to the busy day scenario, the concentrations of SkyTeam flights at Pier B has been re-aligned from the 123

Eastern Apron (comprised of Bay 31, 33, 35 and 37) to the Southern Apron (comprised of Bay 30, 32, 34, 36, 51, 53 and 55), enabling all SkyTeam operated aircraft (at both

Pier B and Pier C) to be serviced at the same apron should the member carriers agreed on a common ground handler. In this case, the co-location of alliance aircraft parking has incurred no remote bussing operations or additional towing activities from the previous allocations in Base Case.

Discussion

The outcome of proposed scenario has shown that existing terminal aircraft parking positions at T1 have sufficient capacity to accommodate revised airline pier preferences

(i.e. to concentrate aircraft parking of individual alliances at their specific terminal locations) under the framework of current airline alliance affiliations (up to the end of

2012). Analytical results from the busy day scenario have shown improvements over service delivery to airlines and their connecting passengers, with fewer flights incurred cross-pier parking or off-terminal parking requiring bussing operations. Notably, this was achieved at the expense of increased aircraft towing activities (Table 5.4). While T1’s terminal aircraft parking allocation is currently complicated by airline preferences under the terminal’s pier finger configuration, the Proposed Scenario showed the realignment of preferences under the current airline alliance affiliations has helped to alleviate some capacity constraints experienced at both piers. For instance, the morning excess parking demands at Pier C (on both typical Busy and Quiet Days) were reduced following the relocation of future oneworld member Malaysia Airlines (MH) to Pier B. As a by-product to alliance terminal co-location, the designation of alliance aircraft parking at various terminal areas could potentially allow SACL to transfer the planning of aircraft parking assignments to its key airlines (e.g. local alliance co-ordinators), leaving the airport operator fewer stakeholders to deal with over aircraft parking co-ordination on 124

the day of operations. This practice has been noted at two (i.e. Paris Charles de Gaulle and Tokyo Narita Airport) of the three sample airports during the Case Analysis.

Table 5.4 Comparison of irregular assignments between Base Case and Proposed Scenario.

Quiet Day (Wed) Busy Day (Sat) Aircraft Movements Base Case Scenario Base Case Scenario Alliance Cross-pier Arrivals Total (Arr) 2 0 4 0 Alliance Cross-pier Departures Total (Dep) 3 0 2 0 Bussing Operations Arr 0 0 0 0 Dep 0 0 2 1 Total 0 0 2 1 Towing Activities Between T1 Aprons 18 18 26 30 To/from QF Jet Base 20 20 19 19 Total 38 38 45 49

5.2.3 Sydney Airport’s Concept for Two Airline Alliance-based Precincts

Background

On 5 December 2011, SACL announced its intention to commence broad stakeholder consultation on a new development concept for the airport. The concept sees Sydney

Airport transformed into two airline alliance-based precincts integrating international, domestic and regional services under the one roof by 2019 and requires no change to the existing operating restrictions – such as the airport curfew (2300 – 0559) and runway movement cap (80 per hour).

Under the proposal, each of the two new airline alliance-based precincts would accommodate the entire operations of one of Australia’s network airlines – Virgin

Australia and the Qantas Group, as well as their international partners. Flights operated by the Qantas Group (including Qantas, QantasLink and Jetstar) and its oneworld

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alliance partners would occur from a larger terminal located in the part of Sydney Airport now occupied by T2 and T3. Flights operated by Virgin Australia, Virgin alliance partners (i.e. Air New Zealand, Delta Air Lines, Etihad Airways, Hawaiian Airlines,

Singapore Airlines and Virgin Atlantic), and the remaining international airlines would operate from a larger terminal located in the part of Sydney Airport now occupied by T1.

The proposal also guaranteed ongoing access by regional airlines to Sydney Airport.

However, the precinct from which domestic and regional carriers such as Tiger Airways,

Regional Express, Aeropelican and Brindabella Airlines would operate will be the subject of consultation. In addition, a Memorandum of Understanding (MoU) was signed between Sydney Airport and the Qantas Group, to explore the possibilities for the airport operator to take over Qantas’s existing long-term leases on airport land, which includes Terminal 3, the Qantas Jet Base and the Qantas Freight Bays (Bay 2 and 3).

The relocation of Qantas Engineering complex away from the Qantas Jet Base will subsequently support the extension of T3 (Sydney Airport Corporation Limited, 2011c).

The forecasted benefits for this proposal include:

- Faster and easier for passengers to transfer from international to domestic or

regional flights (and vice versa);

- Reduced aircraft turnaround times and the number of towed aircraft main

runway (Runway 16R/34L) crossings;

- Make better use of existing airport facilities, provide for more aircraft

gates/parking and allow for future terminal expansion, and;

- Improved aircraft traffic flow and minimised operating disruptions within the

terminal precincts, as 75%-80% of Sydney Airport’s aircraft traffic currently arrive

and depart from the T2 and T3 precinct (Sydney Airport Corporation Limited,

2011c). 126

While the proposal is still at the concept level, further engagement and consultation with key stakeholders – including airlines, local community, airport-related businesses and government agencies – is required before the airport operator can formally proceed with this proposal. Therefore, details related to the terminals’ transition from existing traffic designations and airline allocations to the proposed arrangement are yet to be finalised.

The assumptions applied to the next section’s analyses were purely based on the information that has been made available by SACL’s media release in December 2011.

Discussion

Citing the terminal reorganisation proposed in the new development concept for Sydney

Airport, the allocations of passenger and aircraft handling resources at Terminal 1 would have to be adjusted to tailor the operating environment more suitable to accommodate

Virgin Australia (international, domestic and regional services), its international partners, and other international airlines. The purpose of this scenario study was to assess if alliance check-in and terminal aircraft parking co-location could still be exercised for

SkyTeam and Star Alliance carriers under the revised operating environment at T1. In addition, to determine if the operational and financial synergies identified in Section

5.2.1 and 5.2.2 would still be applicable to this case.

T1 check-in counter demands at 10-min interval (NS11 Typical Tuesday) 200

150 SkyTeam (30)

Star Alliance (45)

100 Virgin (Intl.) Others

50 Demands (proposed) Demands (current)

Cap (192)

6:00 4:00 5:00 7:00 8:00 9:00

10:00 11:00 15:00 16:00 19:00 20:00 13:00 14:00 17:00 18:00 21:00 22:00 12:00 Fig. 5.13. Sydney Airport T1 check-in counter demands with alliance dedicated check-in (NS11 typical week busy day – Tuesday): Proposed Concept. 127

Under the revised terminal allocation, resource simulation of T1’s check-in counter demands was conducted based on the same parameters established in Section 5.2.1 – including the schedule (NS11 typical busy day – Tuesday), seat factor (100%), and passenger arrival profile (bell-shaped normal distribution) and transaction time (2.5 min/pax) at check-in. Flights operated by the Qantas Group (i.e. QF and JQ) and its oneworld alliance partners (i.e. BA, CX, JL, LA and MH) were removed from the schedule to reflect the revised international traffic at T1 under Sydney Airport’s two airline alliance-based concept. Instead, modelling results should reflect sufficient residual capacity at check-in as Virgin Australia’s domestic and regional flights would be relocated to T1 to integrate with the airline’s existing international services at the terminal. Simulation modelling began with documenting existing check-in allocations over the NS11 typical Tuesday in Microsoft Excel as Base Case. Results showed the peak demand at 0830 was reduced from 185 to 125 counter positions with the absence of Qantas, Jetstar and oneworld carriers at T1. If alliance check-in co-location was implemented for SkyTeam and Star Alliance using block allocations (based on co-located counter requirements determined in Section 5.2.1 Scenario 2) without any kiosks synergies, the peak demand at 0830 would further decline to 116 positions

(Figure 5.13). With a total check-in capacity of 192 counters at T1, there would be a residual capacity of at least 76 positions at the terminal throughout the day, almost double the current check-in capacity at T2 (39 positions in total) where 16-17 counters are currently occupied by Virgin Australia (domestic and regional). Whilst alliance check-in co-location has been employed in Section 5.2.1 as a means to achieve resource savings under the current capacity constraints at T1; the concept could alternatively be used to secure check-in demands from airlines when there is spare capacity. At the sample airports where excess check-in capacity is present, some alliances have been requesting extra check-in spaces for “Zonal Check-in” to promote 128

branding as well as to provide a superior check-in service to premium customers by dividing check-in counters in zones according to class of travel. In this instance, financial opportunities could potentially be derived from:

1. Airline commercial agreements over check-in space leasing, first right access

and permanent branding, and;

2. Demolishing a part of existing check-in counters to introduce check-in kiosks

with airline/alliance proprietary software, etc.

In terms of terminal aircraft parking allocation, resource simulation was conducted under the assumptions that there would be no changes to Sydney Airport’s existing

“Apron Operational Procedures” and “T1 Common Use Aircraft Bay & Gate Allocation

Procedures” (as applied in Section 5.2.2). Although details released by Sydney Airport have not specified how T1 terminal aircraft parking positions would be allocated under the two airline alliance-based concept, the visualisation disclosed in its promotional brochure suggests that Virgin Australia would occupy T1 Pier C; while aircraft operated by other international carriers would be facilitated at the terminal’s Pier B (Figure 5.14).

Terminal extension and modification (e.g. swing gates) are expected in order for Pier C to house a mix of Virgin Australia’s international, domestic and regional aircraft. As details about Pier C remain unclear, resource simulation was focused on the allocation of Pier B terminal parking positions to the other international carriers. Under the NS11 typical busy day (Saturday) schedule, modelling results showed all passenger arrival and departure flights accommodated at Pier B’s terminal parking positions with no bussing operations required (Appendix Q). The departure of oneworld’s layover traffic

(to the T2 and T3 precinct) has allowed all remaining layover aircraft to be parked at the western end of the airport, thus removing 6 occasions of main runway crossings

(Runway 16R/34L). However, it was not possible to co-locate SkyTeam and Star 129

Alliance operated flights at their respective apron(s) due to the complication of aircraft types allowed at each position. Nevertheless, all of these flights were integrated under the one roof at Pier B’s terminal parking positions, meaning:

1. Enhanced connectivity (i.e. reduced MCTs) for both SkyTeam and Star Alliance,

particularly for SkyTeam carriers which could not be co-located at a single pier in

the Proposed Scenario of Section 5.2.2.

2. Improved aeronautical revenue as no “Bussing/Stand-off position discount” was

necessary to reimburse airlines for (dis)embarking their passengers at an

off-terminal bussing position.

Fig. 5.14. Visualisation of future T1 (Sydney Airport Corporation Limited, 2011d).

In conclusion, the results of this scenario study have shown: 1) alliance check-in and terminal aircraft parking co-location could still be exercised for SkyTeam and Star

Alliance carriers under the revised operating environment at T1, and 2) the operational and financial synergies identified in 5.2.2 remained relevant in this case. However, the void in check-in demands created by the departure of Qantas, Jetstar and oneworld carriers from T1, suggested that alliance check-in co-location should be employed as a means to secure airline check-in demands rather than to achieve resource savings as

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proposed in Section 5.2.1.

5.3 Comparison to Sample Airports

The case study on Sydney Airport has confirmed that the implementation of alliance terminal co-location could yield operational and financial merits for the airport operator, similar to those observed at the sample airports. However, the concept was not executed entirely the same way at Sydney Airport, as the operating environment between Sydney and those airports are fundamentally different. At all three sample airports, the implementation of alliance terminal co-location took place after the completion of major airport expansion, when new terminal capacities were made available. The situation is different at Sydney Airport, as the concept was intended in the case study to generate resource savings to ease existing terminal capacity constraints at T1. In comparison, Sydney Airport’s T1 handled roughly 1/3 the total passenger throughput at Tokyo Narita Airport in 2010 (11,289,751 vs. 33,868,682 passengers) with less than 1/3 the total check-in counter count of Narita (192 vs. 584 counters), not to mention the absence of self-service kiosks at Sydney Airport’s T1. The application of alliance check-in co-location would allow Sydney Airport to take advantage of a more streamlined and constant demand of counters over a long period of time, which is not attainable by allocating check-in resources to individual flights. On the other hand, the allocation of terminal aircraft parking cannot be overlapped, as each aircraft must be assigned to a parking position with sufficient time separation with the subsequent aircraft. Unlike the sample airports – where international traffic can be allocated to different terminals by their alliance alignments – the reshuffle of international aircraft parking at Sydney Airport was limited to the T1 precinct (to maintain existing terminal 131

traffic designation). While London Heathrow Airport has experienced benefits such as a reduced number of southern runway (Runway 09R/27L) crossings following the relocation of British Airways to Terminal 3 and 5, potential synergies to be generated by alliance terminal co-location at Sydney Airport were more limited to reduced flight bussing operations and concentrated aircraft parking for common ground handling.

This situation at Sydney Airport is expected to change when the new two airline alliance-based concept is implemented. Under the airport operator’s recent proposal,

Sydney Airport’s terminal operations would move away from the existing functional separation by international and domestic traffic, instead transformed into two airline alliance-based precincts integrating international, domestic and regional services under the one roof. This would see the Qantas Group and its oneworld partners occupying T2 and T3 at the current domestic precinct; while Virgin Australia, SkyTeam, Star Alliance and other non-aligned carriers occupying T1 at the current international precinct.

According to the press release, all three terminals would also be further developed to provide more passenger and aircraft handling capacity. These proposed changes portrayed an operating environment similar to what is seen at the sample airports.

Simulation modelling in the case study showed sufficient check-in and terminal aircraft parking capacity to accommodate the revised traffic level at T1. For check-in counters, there would be spare capacity to allow alliance check-in co-location with cabin-specific zones, as currently practiced by SkyTeam at Paris Charles de Gaulle Airport and Star

Alliance at Tokyo Narita Airport. For terminal aircraft parking, the designation of two major Australian airlines to their respective terminal precincts could potentially allow

Sydney Airport to transfer the planning of aircraft parking assignments to these airlines, leaving the airport operator fewer stakeholders to deal with over aircraft parking co-ordination on the day of operations. At Tokyo Narita Airport, the terminal hosts (as 132

co-ordinating airlines are called) also happened to be the ground handling providers at their respective terminals (i.e. JAL at T2 and ANA at T1 South Wing). The combined knowledge of airline partners’ aircraft parking and ground handling procedures has allowed better facilitation of aircraft turnaround on the day of operations.

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Chapter Six

CONCLUSIONS

In order to better understand why airport operators have supported alliance terminal co-location in the first place, this paper considers the cases of London Heathrow Airport,

Paris Charles de Gaulle Airport and Tokyo Narita Airport. These airports were selected primarily because of the relevance of their operating environment as alliance network hubs, and their early implementation of alliance terminal co-location. The qualitative case analysis on these sample airports indicates operational improvements in aircraft parking, use of terminal space, and the allocation of passenger processing resources.

This in turn has positively impacted on property and retail revenue. Contrary to the initial assumption, it was found that the airport operators of all three sample airports have shown just as much enthusiasm in facilitating alliance terminal co-location as their airline counterparts. In fact, it has been regarded as a long-term strategy to reinforce these airports’ status as network hubs. Nevertheless, the fluidity of airline alliances has often complicated the implementation and continuity of alliance terminal co-location at these sample airports.

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A quantitative case study on Sydney Airport – representing an airport without the implementation of the concept – was included in this paper to determine if alliance terminal co-location could yield operational and financial merits for the airport operator similar to those observed at the sample airports. However, in absence of additional capacities as enjoyed by the sample airports, the concept has instead been strategised to ease existing capacity constraints experienced at Sydney Airport’s International

Terminal – T1, rather than re-distributing demands to achieve more balanced asset utilisations across multiple terminals. Modelling results show that, in terms of check-in and aircraft parking, alliance-driven allocations would lead to more streamlined and constant demands at check-in, as well as greater contact rates for aircraft parking.

However, the airport operator would be exposed to short-term revenue shortfall at check-in, in exchange for sufficient resource savings to delay capital investments to expand existing facilities. Such adverse financial impact could be mitigated through attracting new traffic to utilise the relinquished capacity in peak periods and negotiating commercial packages of aeronautical and non-aeronautical terms with individual airlines.

Overall, the concept of alliance terminal co-location has presented operational and financial merits for the airport operators. However, not all airports have been significantly impacted by the emergence of airline alliances, as many continue to operate without any alliance affiliated airlines. Therefore the implementation of this concept should not be done through a one-size-fits-all approach considering the hard-to-replicate combinations of diverse resources and stakeholders at various airports.

For those network hubs exposed to multiple alliance memberships, the airport operators should carefully take their operating environment and proximity needs into account when contemplating which airport resource(s) to include when applying an 136

alliance-driven allocation. After all, airline alliances remain fluid in membership, and airport operators need to ensure that their facilities and services are capable of adapting to change.

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Appendices

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Appendix A. Sample questionnaire to Narita International Airport Corporation (NAA).

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Appendix B. Conceptualisation of the case analysis/study methodology.

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Appendix C. ADP authorised aircraft and passenger handling providers (Aéroports de Paris, 2010a).

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Appendix D. Reconstruction phases of Terminal 1 at Tokyo Narita Airport (Narita International Airport Corporation, 2008b).

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Appendix E. Flight distribution per terminal over a typical week before and after Airline Relocation Program (Narita International Airport Corporation, 2007a).

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Appendix F. Terminal allocation reshuffling of individual airlines at Narita Airport since the completion of “Airline Relocation Program”.

1 Apr 2007 Initial completion of “Airline Relocation Program”. Continental Airlines (CO) and Delta Air Lines (DL) relocated from Terminal 2 to Terminal 1 North Wing to be alongside their SkyTeam partners (Final Stage). 22 Apr 2008 Aeroflot Russian Airlines (SU) relocated from Terminal 2 to Terminal 1 North Wing to be alongside its SkyTeam partners. 1 Jul 2008 Air China (CA) relocated from Terminal 2 to Terminal 1 South Wing when the airline officially became a Star Alliance member. 1 Nov 2009 Continental Airlines (CO) relocated from Terminal 1 North Wing to Terminal 1 South Wing to coincide its alliance-shift from SkyTeam to Star Alliance. 31 Oct 2010 British Airways (BA) relocated from Terminal 1 North Wing to Terminal 2 to be alongside its oneworld partners. 2 Dec 2010 EgyptAir (MS) relocated from Terminal 2 to Terminal 1 South Wing to be alongside its Star Alliance partners. 30 Oct 2011 Vietnam Airlines (VN) relocated from Terminal 2 to Terminal 1 North Wing to be alongside its SkyTeam partners.

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Appendix G. Summary of NS09 typical week aircraft movements per carrier at Terminal 1 and 2 (Narita International Airport Corporation, 2009b).

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Appendix H. Detailed layout of Sydney Airport’s International Terminal precinct (Sydney Airport Corporation Limited, 2012).

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Appendix I. Proposed allocations of alliance-dedicated check-in at Sydney Airport T1 (Scenario 2).

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Appendix J. Proposed allocations of alliance-dedicated check-in at Sydney Airport T1 (Scenario 3).

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Appendix K. Sydney Airport T1 airlines lounge locations at August 2011 (NS11).

Pier B Pier C The Qantas Club Koru Club Lounge Silver Kris Lounge Golden Lounge Emirates Lounge (QF) (NZ) (SQ) (MH) (EK) Airline Pier Airline Pier Airline Pier Airline Pier Airline Pier QF B NZ C SQ C MH C EK C AR B AC C HU C BA B CA C CI B CZ C CX B DL C FJ B EY C GA B HA C JL B KE C JQ B OZ C LA B PR C MK B TG C MU B UA C NF B VA C PX B VS C SB B UU B VN B

Appendix L. Sydney Airport T1 airlines pier preferences at August 2011 (NS11).

Pier B Pier C Aerolineas Argentinas AR Air Canada AC Air Austral UU Air China CA Air Mauritius MK Air New Zealand NZ Air Niugini PX Asiana Airlines OZ Air Pacific FJ China Southern CZ Air Vanuatu NF Delta Air Lines DL Aircalin SB Emirates EK British Airways BA Etihad Airways EY Cathay Pacific CX Hainan Airlines HU China Airlines CI Hawaiian Airlines HA China Eastern MU Korean Air KE Garuda Indonesia GA Malaysia Airlines MH Japan Airlines JL Pacific/Polynesian Blue DJ Jetstar Airways JQ Philippine Airlines PR LAN Airlines LA Singapore Airlines SQ Our Airline N5 Thai Airways TG Qantas Airways QF United Airlines UA Vietnam Airlines VN V Australia Airlines VA Virgin Atlantic VS

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Appendix M. Sydney Airport T1 aircraft parking allocations (NS11 typical week busy day – Saturday): Base Case.

Terminal 1 5:00 6:00 7:00 8:00 9:00 10:00 11:00 12:00 13:00 14:00 15:00 16:00 17:00 18:00 19:00 20:00 21:00 22:00 Bay 8 QF2 QF22 QF7 JQ3 Bay 9 UA863 QF108 QF107 QF11 QF64 QF1 QF32 Bay 10 QF42 QF129 UU772 QF5 CX139 CX138 Bay 24 QF12 QF63 JQ36 QF11 QF88 Bay 25 VS200 QF50 QF47 MU561 MU562 QF92 QF48 QF117 Bay 31 QF6 JQ38 VN783 VN782 CI51 CI52 Pier B Bay 33 QF141 GA714 GA715 JQ28 JQ35 QF21 Bay 35 CX111 CX110 MH123 GA712 GA713 FJ911 FJ910 QF114 Bay 37 QF45 QF118 QF55 QF142 QF43 QF46 QF113 QF56 QF49 JQ120 JQ151 QF44 Bay 30 JL771 JL772 CX161 CX162 CX101 CX100 JQ37 Bay 32 BA15 LA801 LA800 JQ16 Bay 34 BA9 QF128 QF17 QF19 BA10 QF4 Bay 36 QF91 JQ140 JQ119 QF127 BA16 JQ204 JQ205 NF10 NF11 Bay 51 UA839 QF130 VA29 HA451 HA452 Bay 53 DL17 DL16 MH122 MH141 MH140 Bay 55 DJ155 DJ51 DJ88 NZ719 NZ718 DJ89 Bay 57 SQ221 SQ212 CZ325 CZ326 SQ231 SQ222 EK419 EK413 Bay 58 CA173 AC33 AC34 VS201 EY454 EY455 Bay 59 VA2 TG475 TG476 TG478 NZ823 NZ888 SQ211 Pier C Bay 60 VA30 EK418 VA1 UA840 DJ154 DJ72 TG471 Bay 61 EK412 NZ101 NZ102 SQ232 UA840 UA870 SQ241 SQ242 CZ301 CZ302 Bay 63 NZ700 NZ887 NZ832 DJ90 DJ52 QF122 NZ831 NZ842 Bay 56 KE121 KE122 NZ845 NZ820 NZ703 NZ704 CA174 Bay 54 OZ601 OZ602 PR209 PR210 PR211 PR212 Bay 50 DJ4150 DJ4151 Bay 1 PX2 FREIGHTER FLIGHTS Bay 2 FREIGHTER FLIGHTS FREIGHTER FLIGHTS Bay 3 FREIGHTER FLIGHTS Bay 4 VA30 / VA1 (LAYOVER) FREIGHTER FLIGHTS A Bay 5 MH123 / MH122 (LAYOVER) B Bay 11 FREIGHTER FLIGHTS (LAYOVER) Bay 12 QF121 DJ89 (LAYOVER) Off- Bay 71 TG478 (LAYOVER) TG471 (LAYOVER) Bay 72 SQ232 (LAYOVER) terminal Bay 73 VA2 / VA29 (LAYOVER) SQ211 (LAYOVER) Bay 74 BA15 / BA16 (LAYOVER) Bay 75 BA9 / BA10 (LAYOVER) Bay 84 VS200 / VS201 (LAYOVER) Bay 85 UA863 / UA840 (LAYOVER) Bay 98 CA173 / CA174 (LAYOVER) Bay 99 JQ38 / JQ37 (LAYOVER) Bay 93A

oneworld flights Non-aligned carriers flights SkyTeam flights Layover aircraft Star Alliance flights Freighter flights 151

Appendix N. Sydney Airport T1 aircraft parking allocations (NS11 typical week quiet day – Wednesday): Base Case.

Terminal 1 5:00 6:00 7:00 8:00 9:00 10:00 11:00 12:00 13:00 14:00 15:00 16:00 17:00 18:00 19:00 20:00 21:00 22:00 Bay 8 QF20 QF8 QF7 QF3 Bay 9 QF2 QF107 QF11 QF5 QF32 Bay 10 QF12 QF128 QF17 QF41 QF1 QF87 Bay 24 JL771 JL772 QF63 QF64 QF31 SQ211 Bay 25 VS200 QF118 QF55 QF142 QF43 QF56 QF49 JQ120 JQ151 Bay 31 QF108 CX161 CX162 CI51 CI52 Pier B Bay 33 MK943 JQ36 QF114 QF21 Bay 35 QF141 QF22 VN783 VN782 CX101 CX100 JQ4 Bay 37 QF45 JQ140 JQ119 QF127 SB140 SB141 QF122 QF48 QF117 QF44 Bay 30 CX111 CX110 QF129 JQ27 JQ37 CX139 CX138 Bay 32 BA9 MH123 MU561 MU562 FJ911 FJ910 BA10 Bay 34 BA15 GA714 GA715 BA16 Bay 36 QF6 QF6013 QF50 QF47 GA712 GA713 QF46 QF113 JQ204 JQ205 NF10 NF11 Bay 51 UA839 VA1 EY451 HA451 HA452 Bay 53 DL17 DL16 MH141 MH140 Bay 55 DJ157 (LAYOVER) NZ845 NZ832 Bay 57 SQ221 SQ212 CZ325 CZ326 SQ231 SQ222 EK419 EK413 Bay 58 VA2 TG475 TG476 NZ703 NZ704 VS201 EY454 EY455 Bay 59 UA863 AC33 AC34 TG478 NZ831 NZ842 TG471 Pier C Bay 60 EY450 EK418 DJ157 UA840 SQ241 SQ242 Bay 61 EK412 NZ101 NZ102 SQ232 UA840 UA870 CZ301 CZ302 Bay 63 DJ71 DJ155 DJ51 DJ56 NZ885 NZ880 DJ57 DJ54 DJ156 DJ93 Bay 56 KE121 KE122 CA175 CA176 MH122 NZ719 NZ718 Bay 54 OZ601 OZ602 PR209 PR210 NZ105 NZ108 Bay 50 QF121 DJ154 Bay 1 FREIGHTER FLIGHTS Bay 2 FREIGHTER FLIGHTS Bay 3 FREIGHTER FLIGHTS Bay 4 VA2 / VA1 (LAYOVER) FREIGHTER FLIGHTS FREIGHTER FLIGHTS A Bay 5 FREIGHTER FLIGHTS FREIGHTER FLIGHTS B Bay 11 Bay 12 DJ157 (LAYOVER) Off- Bay 71 TG478 (LAYOVER) Bay 72 SQ232 (LAYOVER) SQ211 (LAYOVER) terminal Bay 73 UA863 / UA840 (LAYOVER) Bay 74 BA9 / BA10 (LAYOVER) Bay 75 BA15 / BA16 (LAYOVER) Bay 84 EY450 / EY451 (LAYOVER) Bay 85 VS200 / VS201 (LAYOVER) Bay 98 Bay 99 Bay 93A MH123 / MH122 (LAYOVER)

oneworld flights Non-aligned carriers flights SkyTeam flights Layover aircraft Star Alliance flights Freighter flights 152

Appendix O. Sydney Airport T1 aircraft parking allocations with alliance co-location (NS11 typical week busy day – Saturday): Proposed Scenario.

Terminal 1 5:00 6:00 7:00 8:00 9:00 10:00 11:00 12:00 13:00 14:00 15:00 16:00 17:00 18:00 19:00 20:00 21:00 22:00 Bay 8 QF2 QF22 QF130 QF7 JQ3 Bay 9 VA30 QF108 QF107 QF11 QF64 QF1 QF32 Bay 10 QF42 QF129 UU772 QF5 CX139 CX138 Bay 24 QF12 QF63 JQ36 QF11 QF88 Bay 25 VS200 QF50 QF47 MU561 MU562 QF92 QF48 QF117 Bay 31 QF6 JQ38 VN783 VN782 CI51 CI52 Pier B Bay 33 QF141 GA714 GA715 JQ28 JQ35 QF21 Bay 35 CX111 CX110 MH123 GA712 GA713 FJ911 FJ910 QF114 Bay 37 QF45 QF118 QF55 QF142 QF43 QF46 QF113 QF56 QF49 JQ120 JQ151 QF44 Bay 30 JL771 JL772 CX161 CX162 CX101 CX100 JQ37 MH141 MH140 Bay 32 BA15 LA801 LA800 JQ16 Bay 34 BA9 QF128 QF17 QF19 BA10 QF4 Bay 36 QF91 QF121 QF127 MH122 BA16 QF122 JQ204 JQ205 NF10 NF11 Bay 51 KE121 KE122 CZ325 CZ326 VA29 HA451 HA452 Bay 53 DL17 DL16 CZ301 CZ302 Bay 55 DJ4150 JQ140 JQ119 DJ4151 NZ719 NZ718 DJ89 Bay 57 SQ221 SQ212 SQ231 SQ222 EK419 EK413 Bay 58 CA173 AC33 AC34 VS201 EY454 EY455 Bay 59 VA2 TG475 TG476 TG478 NZ823 NZ888 SQ211 Pier C Bay 60 UA863 EK418 VA1 UA840 DJ154 DJ72 TG471 Bay 61 EK412 NZ101 NZ102 SQ232 UA840 UA870 SQ241 SQ242 Bay 63 NZ700 NZ887 NZ832 DJ90 DJ52 NZ831 NZ842 Bay 56 UA839 NZ845 NZ820 NZ703 NZ704 CA174 Bay 54 OZ601 OZ602 PR209 PR210 PR211 PR212 Bay 50 DJ155 DJ51 DJ88 Bay 1 PX2 FREIGHTER FLIGHTS Bay 2 FREIGHTER FLIGHTS FREIGHTER FLIGHTS Bay 3 QF22 / QF7 (LAYOVER) FREIGHTER FLIGHTS Bay 4 VA30 / VA1 (LAYOVER) FREIGHTER FLIGHTS A Bay 5 MH123 / MH122 (LAYOVER) B Bay 11 FREIGHTER FLIGHTS (LAYOVER) Bay 12 DJ4150 / DJ4151 (LAYOVER) DJ89 (LAYOVER) Off- Bay 71 TG478 (LAYOVER) TG471 (LAYOVER) Bay 72 SQ232 (LAYOVER) terminal Bay 73 VA2 / VA29 (LAYOVER) SQ211 (LAYOVER) Bay 74 BA15 / BA16 (LAYOVER) Bay 75 BA9 / BA10 (LAYOVER) Bay 84 VS200 / VS201 (LAYOVER) Bay 85 UA863 / UA840 (LAYOVER) Bay 98 CA173 / CA174 (LAYOVER) Bay 99 JQ38 / JQ37 (LAYOVER) Bay 93A

oneworld flights Non-aligned carriers flights SkyTeam flights Layover aircraft Star Alliance flights Freighter flights

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Appendix P. Sydney Airport T1 aircraft parking allocations with alliance co-location (NS11 typical week quiet day – Wednesday): Proposed Scenario.

Terminal 1 5:00 6:00 7:00 8:00 9:00 10:00 11:00 12:00 13:00 14:00 15:00 16:00 17:00 18:00 19:00 20:00 21:00 22:00 Bay 8 QF20 QF8 QF7 QF3 Bay 9 QF2 QF107 QF11 QF5 QF32 Bay 10 QF12 QF128 QF17 QF41 QF1 QF87 Bay 24 JL771 JL772 QF63 QF64 QF31 Bay 25 VS200 QF118 QF55 QF142 QF43 QF56 QF49 JQ120 JQ151 Bay 31 QF108 CX161 CX162 JQ27 JQ37 CX139 CX138 Pier B Bay 33 MK943 JQ36 QF114 QF21 Bay 35 QF141 QF22 QF129 CX101 CX100 JQ4 Bay 37 QF45 QF121 QF127 SB140 SB141 QF122 QF48 QF117 QF44 Bay 30 CX111 CX110 VN783 VN782 CI51 CI52 Bay 32 BA9 MH123 MU561 MU562 FJ911 FJ910 BA10 Bay 34 BA15 GA714 GA715 BA16 MH141 MH140 Bay 36 QF6 QF6013 QF50 QF47 GA712 GA713 MH122 QF46 QF113 JQ204 JQ205 NF10 NF11 Bay 51 KE121 KE122 CZ325 CZ326 EY451 HA451 HA452 Bay 53 DL17 DL16 CZ301 CZ302 Bay 55 DJ157 (LAYOVER) JQ140 JQ119 DJ157 Bay 57 SQ221 SQ212 SQ231 SQ222 EK419 EK413 Bay 58 VA2 TG475 TG476 NZ703 NZ704 VS201 EY454 EY455 Bay 59 UA863 AC33 AC34 TG478 NZ831 NZ842 TG471 Pier C Bay 60 EY450 EK418 VA1 UA840 SQ241 SQ242 SQ211 Bay 61 EK412 NZ101 NZ102 SQ232 UA840 UA870 Bay 63 NZ845 NZ832 NZ885 NZ880 DJ57 DJ54 DJ156 DJ93 Bay 56 UA839 CA175 CA176 NZ719 NZ718 Bay 54 OZ601 OZ602 PR209 PR210 NZ105 NZ108 Bay 50 DJ71 DJ155 DJ51 DJ56 DJ154 Bay 1 FREIGHTER FLIGHTS Bay 2 FREIGHTER FLIGHTS Bay 3 FREIGHTER FLIGHTS Bay 4 VA2 / VA1 (LAYOVER) FREIGHTER FLIGHTS FREIGHTER FLIGHTS A Bay 5 FREIGHTER FLIGHTS FREIGHTER FLIGHTS B Bay 11 Bay 12 DJ157 (LAYOVER) Off- Bay 71 TG478 (LAYOVER) Bay 72 SQ232 (LAYOVER) SQ211 (LAYOVER) terminal Bay 73 UA863 / UA840 (LAYOVER) Bay 74 BA9 / BA10 (LAYOVER) Bay 75 BA15 / BA16 (LAYOVER) Bay 84 EY450 / EY451 (LAYOVER) Bay 85 VS200 / VS201 (LAYOVER) Bay 98 Bay 99 Bay 93A MH123 / MH122 (LAYOVER)

oneworld flights Non-aligned carriers flights SkyTeam flights Layover aircraft Star Alliance flights Freighter flights

154

Appendix Q. Sydney Airport T1 aircraft parking allocations with alliance co-location (NS11 typical week busy day – Saturday): Proposed Concept.

Terminal 1 5:00 6:00 7:00 8:00 9:00 10:00 11:00 12:00 13:00 14:00 15:00 16:00 17:00 18:00 19:00 20:00 21:00 22:00 Bay 8 PX2 DL16 HA451 HA452 Bay 9 VS200 EK418 UU772 VS201 EK419 EK413 Bay 10 EK412 VN783 VN782 FJ911 FJ910 EY454 EY455 Bay 24 SQ221 SQ212 CZ325 CZ326 SQ231 SQ222 SQ211 Bay 25 TG475 TG476 SQ232 TG478 NF10 NF11 TG471 Bay 31 DL17 GA712 GA713 CZ301 CZ302 Pier B Bay 33 GA714 GA715 CI51 CI52 Bay 35 KE121 KE122 AC33 AC34 Bay 37 NZ887 NZ832 NZ831 NZ842 Bay 30 CA173 MU561 MU562 SQ241 SQ242 CA174 Bay 32 UA863 OZ601 OZ602 PR209 PR210 UA840 PR211 PR212 Bay 34 UA839 NZ101 NZ102 UA840 UA870 Bay 36 NZ700 NZ845 NZ820 NZ703 NZ704 NZ719 NZ718 NZ823 NZ888 Bay 51 Bay 53 Bay 55 Bay 57 Bay 58 Bay 59 Pier C Bay 60 Bay 61 Bay 63 Bay 56 Bay 54 Bay 50 Bay 1 FREIGHTER FLIGHTS Bay 2 FREIGHTER FLIGHTS FREIGHTER FLIGHTS Bay 3 FREIGHTER FLIGHTS Bay 4 FREIGHTER FLIGHTS A Bay 5 DL17 / DL16 (LAYOVER) B Bay 11 FREIGHTER FLIGHTS (LAYOVER) Bay 12 Off- Bay 71 VS200 / VS201 (LAYOVER) TG471 (LAYOVER) Bay 72 TG478 (LAYOVER) terminal Bay 73 SQ232 (LAYOVER) SQ211 (LAYOVER) Bay 74 UA863 / UA840 (LAYOVER) Bay 75 CA173 / CA174 (LAYOVER) Bay 84 Bay 85 Bay 98 Bay 99 Bay 93A

SkyTeam flights Non-aligned carriers flights Star Alliance flights Layover aircraft Freighter flights

155

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