Perceptions of Privatisation and Corporate Performance: A Study of Stakeholders

Dorothea Maria Zakrzewski

A thesis presented to the University of Western Sydney in partial fulfilment of the requirements for the degree of Doctor of Philosophy

February 2009

1 Dedication

I dedicate this thesis to my parents; my mother Danuta-Anna Werner Zakrzewski and my father Kris Zakrzewski, who have always supported me along the way.

2 Acknowledgements

I would like to acknowledge the advice, support and assistance of many people, but will restrict myself to the key contributors.

Most importantly I would like to offer my deepest thanks to Jim and Glenda Davis who have shared their passion for the aviation industry with me. Jim’s network in the aviation industry enabled the data collection for this project to be of the highest standard. Glenda’s extraordinary friendship, support and her patience have made my PhD journey truly worthwhile.

I am also deeply grateful to my supervisors, Professor Ross Chapman, Professor Roger Juchau and Dr Anneke Fitzgerald who provided support, encouragement and friendship as well as challenging supervision. Their invaluable guidance, commentary and insights along the way have helped shape this thesis.

I would also like to thank my family for the endless support that I have received with the ‘ups and downs’ throughout the PhD journey: my sister Anna, who was always eager to hear about the project, and my mother Danuta and my father Kris, who encouraged me not to give up but to continuously strive towards completion whilst recognising that a PhD is a milestone for my career and future undertakings.

Finally, having received a competitive grant provided by the Institute of Management Accountants (IMA) Foundation for Applied Research, I would like to acknowledge their financial support

3 Statement of Authentication

The work presented in this thesis is, to the best of my knowledge and belief, original except as acknowledged in the text. I hereby declare that I have not submitted this material, either in whole or in part, for a degree at this or any other institution.

……………………………………………… Dorothea Maria Zakrzewski

February 2009

4

Table of Contents

DEDICATION 2

ACKNOWLEDGEMENTS 3

STATEMENT OF AUTHENTICATION 4

TABLE OF CONTENTS 5

LIST OF FIGURES 10

LIST OF TABLES 11

LIST OF APPENDICES 12

ABBREVIATIONS 13

GLOSSARY 15

ABSTRACT 25

CHAPTER 1 28

1 Introduction 1.1 Relevance of the Study 28 1.2 Statement of the Problem 30 1.3 Purpose & Objectives of the Study 30 1.4 Research Questions 32 1.5 Significance of the Study 33 1.6 Research Methodology 35 1.7 Organization of the Study 36 1.8 Delimitations of the study 38 1.9 Definition of terms 39 1.10 Chapter Conclusion 39

5 CHAPTER 2 40

2 Background to the Privatisation Phenomenon 2.1 Introduction 40 2.2 The Rationale of Privatisation 40 2.3 The Origin and Ideology of Privatisation 42 2.4 Implications of Ownership and Management Changes on Efficiency Gains 45 2.4.1 Reported Privatisation Outcomes 48 2.5 Implementing Privatisation Reforms – Who does benefit? 52 2.6 Chapter Conclusion 55

CHAPTER 3 57

3 Insight into Privatising the Air Transport Industry: Airport Privatisation 3.1 Introduction 57 3.2 The drivers behind Airport Privatisation 57 3.2.1 Airport Privatisation Concerns 59 3.2.2 Airport Privatisation Methods & Deals 61 3.3 Ownership, Management and Control: Comparative Airport Privatisation Experiences in the US, UK and Australia 65 3.3.1 The US Experience 66 3.3.2 The UK Experience 67 3.3.3 The Australian Experience 67 3.4 Emergence of Airport Stakeholders 71 3.4.1 Effect on Stakeholder Operations in Australia 72 3.4.2 Future Outlook of the Privatised Air Transport Industry 75 3.5 Chapter Conclusion 77

CHAPTER 4 79

4 Performance Measurement, Stakeholder Theory & The Conceptual Framework 4.1 Introduction 79 4.2 Significance of Performance Measurement 79 4.3 Difficulties when Assessing Privatisation Outcomes 83 4.3.1 The Challenge with Performance Measurement at Privatised Airports 87

6 4.4 The Conceptual Framework for this Study 89 4.4.1 Relevance of Stakeholder Theory to Performance Measurement 92 4.4.2 Airport Stakeholder Identification 94 4.4.3 Applying the Balanced Scorecard Rationale to Airport Performance Assessment 98 4.4.4 The ‘Experimental’ Stakeholder Airport Performance Assessment Tool 102 4.5 Chapter Conclusion 108

CHAPTER 5 109

5 Research Methodology & Design 5.1 Introduction 109 5.2 Research Process 109 5.3 Step 1: Justification of Theoretical Paradigm & Research Perspective 112 5.4 Step 2: Research Strategy – A Qualitative Approach using Case Research 5.5 Limitation of the Methodology 119 5.6 Step 3: Designing the Research 120 5.6.1 Case Setting Groundwork 121 5.6.2 Sampling 124 5.6.3 Interview Preparation 126 5.6.4 Open Ended & Theory Driven Interview Questions 128 5.6.5 Ethical Considerations prior to Interviewing 129 5.7 Step 4 : Conducting the Research 130 5.7.1 Field Research: Semi Structured Interviews 130 5.7.2 Data Processing 131 5.7.3 The Researcher as Key variable 131 5.8 Step 5: Analysing the Data 132 5.8.1 Content Analysis 132 5.8.2 Leximancer 134 5.8.3 Nvivo Version 7 137 5.8.4 Data Triangulation 138 5.8.5 Reliability and Validity of this Study 139 5.9 Step 6: Reporting the Research 140 5.9.1 Overall Concept Detection of this Study 142 5.9.2 Vocabulary Definitions making up the Concepts for this Study 145 5.9.3 Relatedness of the Concepts explored in this study 147 5.9.4 Concept Mapping 149 5.10 Chapter Summary 152

7 CHAPTER 6 154

6 Introducing Sydney Airport at a Glance 6.1 Introduction 154 6.2 Overview of Sydney Airport 154 6.3 Snapshot of the Performance of Sydney Airport 160 6.4 Chapter Conclusion 166

CHAPTER 7 167

7 The Stakeholders and their Views on Privatising Sydney Airport 7.1 Introduction 167 7.2 Sydney Airport Stakeholder Identification and Confirmation 168 7.2.1 Stakeholder Roles 171 7.2.2 Stakeholder Power and Control over Airport Operations 174 7.2.3 Summary of Stakeholder Identification Results 179 7.3 Stakeholder views on privatising Sydney Airport 180 7.3.1 The Privatisation process 183 7.3.2 Privatisation Objectives 185 7.3.3 Comparison of Stakeholder Views vs Government Objectives on privatising Sydney Airport 192 7.4 Chapter Conclusion 195

CHAPTER 8 197

8 Impact and Privatisation Consequences from Stakeholder Views 8.1 Introduction 197 8.2 Overall Reflections on the Privatisation Outcomes at Sydney Airport 198 8.2.1 Airport land development & capacity issues 201 8.2.2 Transparency, Accountability and the Commercial Negotiation Process 205 8.2.3 Unexpected Consequences 213 8.2.4 Summary Section 8.2 – Perceptions of the overall Privatisation Impact on Stakeholders 218 8.3 Privatisation Outcomes on Individual Stakeholders 218 8.3.1 Stakeholder Perspective 219 8.3.2 Investor Stakeholder Perception 225 8.3.3 Airport Operator Stakeholder Perspective 231

8 8.3.4 Community and Government Perspective 234 8.3.5 Others – Infrastructure Support Providers 239 8.3.6 Summary Section 8.3 241 8.4 Chapter Conclusion 241

CHAPTER 9 242

9 Stakeholder Airport Performance Assessment Model (SAPAM) 9.1 Introduction 242 9.2 SAPAM Development 244 9.2.1 A Review of the Findings justifying the model 244 9.2.2 The Conceptual Framework and the “Experimental” Model 246 9.3 Modifications to the “Experimental” Model 252 9.3.1 Model Section 1: Operational Perspective 254 9.3.2 Model Section 2: Financial Perspective Indicators 265 9.3.3 Model Section 3: Social and Environmental Perspective Indicators 269 9.4 The SAPAM Model 276 9.5 Chapter Conclusion 279

CHAPTER 10 281

10 Final Discussion and Conclusion Chapter 10.1 Introduction 281 10.2 Key Findings & Discussion 286 10.2.1 Rationale for Privatising Sydney Airport (RQ 1 Outcomes) 287 10.2.2 Impact of Privatisation on Stakeholder Operations (RQ 2 Outcomes) 291 10.2.3 Performance Measurement of privatised airport operations (RQ 3 and RQ 4 Outcomes) 297 10.3 Implications of Research Outcomes for Theory 301 10.4 Implication of Findings for Practice 306 10.5 Limitations 307 10.6 Areas of Future Research 308 10.7 Chapter Conclusion 310

REFERENCES 311

APPENDICES 325

9 List of Figures

Figure 1-1: Privatisation Impact & Airport Stakeholders ...... 32 Figure 1-2: Target of the Theoretical Framework...... 34 Figure 1-3: Applied Research Design Attributes ...... 36 Figure 3-1: Productivity Commission Problem Identification...... 73 Figure 4-1: The Linkage between Theories ...... 91 Figure 4-2: Research Focus illustrated with a Venn diagram ...... 92 Figure 4-3: Stakeholder Classification ...... 95 Figure 4-4: Perspectives for Airport Performance Assessment ...... 105 Figure 4-5: The Experimental Stakeholder Airport Performance Assessment Model ...... 107 Figure 5-1: Overview of the Research Process ...... 110 Figure 5-2: Case Research Framework ...... 119 Figure 5-3: Pilot Testing...... 128 Figure 5-4: Data Triangulation ...... 139 Figure 5-5: Initial Conceptual Map & Connectivity of Concept 'Airport'...... 149 Figure 5-6: Central themes with connectivity of the “Privatisation” concept...... 151 Figure 6-1: SACL Ownership Structure...... 155 Figure 6-2: Traditional vs. Contemporary Focus of Sydney Airport Operations.....159 Figure 6-3: Revenue Split at Sydney Airport from 1999- 2006 ...... 161 Figure 6-4: Sydney Airport Revenue Streams per Passenger from 1999- 2006...... 162 Figure 6-5: Sydney Airport Operating Expenses from 1999- 2006 ...... 163 Figure 6-6: Operating Profit vs. Net Profit at Sydney Airport ...... 164 Figure 7-1: Identified Interdependence of Airport Stakeholders...... 170 Figure 7-2: Conceptual Mapping of Stakeholders...... 173 Figure 7-3: Conceptual Mapping pointing out “Privatisation Objectives” ...... 181 Figure 8-1: Themes and Concepts related to Privatisation Outcomes...... 201 Figure 8-2: Conceptual Mapping of Airline Stakeholder Perceptions...... 219 Figure 8-3: Conceptual Mapping of Investor Stakeholder Perceptions...... 226 Figure 8-4: Conceptual Mapping of Airport Operator Perceptions ...... 232 Figure 8-5 Conceptual Mapping of Community and Government Perceptions...... 235 Figure 8-6: Conceptual Mapping of Infrastructure Support Providers Perceptions..240 Figure 9-1: Factors relevant for Airport Performance Analysis ...... 249 Figure 9-2: The SAPAM development process...... 251

10

List of Tables

Table 2-1 : Ownership / Management Control Scenarios ...... 48 Table 3-1: Methods of Airport Privatisation ...... 62 Table 3-2: Airport Privatisation Deals...... 64 Table 3-3: Ownership and Control Pre and Post Privatisation...... 66 Table 4-1: Airport Stakeholder Identification ...... 97 Table 5-1: Approaches to Social Science Research...... 113 Table 5-2: Recap of Research Questions ...... 116 Table 5-3: Secondary Data Sources used in Case Preparation ...... 123 Table 5-4: Sampling method for each stakeholder ...... 125 Table 5-5: Leximancer 3 Level Approach ...... 136 Table 5-6: Overview of Key Concepts...... 143 Table 5-7: Connectivity of concept 'Airport'...... 148 Table 6-1: Data on Passenger & Aircraft Movement Sydney Airport ...... 157 Table 7-1 Stakeholder Concept Identification ...... 169 Table 7-2: Connectivity of concept “power”...... 174 Table 7-3: Identified Concepts related to Privatisation Objectives...... 181 Table 7-4: Identified Financial and Economic driven Privatisation Objectives ...... 183 Table 7-5: Comparison & Summary of Stakeholder vs. Government Objectives ..194 Table 8-1 Concepts related to Privatisation Outcomes...... 199 Table 9-1: Grouping of Stakeholders into Model Perspectives ...... 248 Table 9-2: Financial Airport Performance Measures – Past and Present ...... 267 Table 10-1: Privatisation Consequences on Individual Airport Stakeholders...... 294 Table 10-2a: Relatedness of Research Question 1 Findings to Theory ...... 303 Table 10-2b: Relatedness of Research Question 2 Findings to Theory ...... 304 Table 10-2c: Relatedness of Research Question 3 Findings to Theory...... 305

11 List of Appendices

A 1- Feedback from Pilot Interviews ...... 326 A 1. 1 - Comments on Interview Questions...... 326 A 1. 2 - Comments on Information Sheet / Consent Form ...... 327 A 2 - Final Interview Questions ...... 329 A 3 - Information sent to Participants...... 334 A 3. 1 - Participant Consent Form...... 334 A 3. 2 - Information Sheet ...... 335 A 4 De-Identification of Research Participants...... 337 A 5– Interview Log Book (Date, Time and Location of Interviews) ...... 338 A 6 - Transcription Letter send to Participants for Verification Purposes...... 340 A 7– Nvivo v.7 Tree-Nodes ...... 341 A 8– Leximancer ...... 344 A 8. 1: Vocabulary associated with the 15 key concepts ...... 344 High Frequency Concepts...... 345 Medium Frequency Concepts ...... 347 Low Frequency Concepts ...... 349 A 9 - List of Publications & Recognition to date ...... 353

12

Abbreviations

ACCC Australian Consumer and Competition Commission

ACSA Airports Company South Africa

ALOP Aerodrome Local Ownership Program

ATRS Air Transport Research Society

AUD Australian Dollar

BAA British Airport Authority

BAA British Airport Authority

BITRE Bureau of Infrastructure, Transport and Regional Economics

BP British Petroleum

BT British Telecom

CAA Civil Aviation Authority

CEDA Committee for Economic Development of Australia

CRQ Central Research Question

DEA Data Envelopment Analysis DEA Data Envelopment Study Deutsche Telekom AG German Telecommunication

DM Deutsch Marks (German Currency before introduction of the EURO)

EBIT Earnings before Interest and Tax

EBITDA Earnings before Interest and Tax Depreciation and Amortisation

FLAP The Frankfurt, London, Amsterdam, Paris Group of Airports

GDP Gross Domestic Product

13 IPO Initial Public Offering

IRR Internal Rate of Return

KPI Key Performance Indicators

NSW

PC Productivity Commission

RAAA Association of Australia

Rex Rex (Regional Express Australia)

ROA Return on Asset

ROE Return on Equity

RQ Research Question

SACL Sydney Airport Corporation Limited

SAPAM Stakeholder Airport Performance Assessment Model

SCACH Southern Cross Airports Corporation Holdings Limited

SQ Sub Question STAR State of the Art Project

T 1 Terminal 1

T 2 Terminal 2

TBI The owner of Cardiff, Luton, Belfast and other airports. TFP Total Factor Productivity TJE Total Journey Experience

TQM Total Quality Management

UK United Kingdom

USA United States of America

WLU Weight Load Unit

YVRAS Vancouver Airport Services Ltd

14

Glossary

Accountability & At Sydney airport, due to private sector involvement in airport Transparency operation and the investor having its own money invested, the accountability and transparency of airport operations assists in stakeholder relationship building. The noted increased accountability of airport operations post privatisation supports Pfeffer et al. (1978) resource dependency theory and Mitchell’s (1997) acknowledgment of stakeholder group importance in an organization. Companies also publish annual accounting reports to inform and communicate with stakeholders.

Aeronautical Revenue Aeronautical revenues comprise landing fees, passenger fees, aircraft parking fees, and other aeronautical fees such as air traffic control, lighting, and air bridges.

Affect Analysis Affect analysis, which deals with the specific meaning of the relationship, must be determined by the researcher examining the text.

Aim of this Qualitative This research attempts to identify the nature and underlying study meanings of whether and how the two constructs of privatisation and performance measurement in the context of the airport industry are linked. If these constructs are linked, the stakeholder reactions to these implemented reforms at Sydney airport require investigation. The aim is to discover the meanings and beliefs of stakeholder reactions at Sydney airport. The researcher seeks to uncover the meaning and understand in the hermeneutic tradition the deeper implications revealed in data about people and the case object.

Airlines’ “role in airport the airlines make it possible to provide passenger facilitation / operations” transport services;

Airport operator Airport operators manage the facilities where aircrafts can take off and land. Apart from these, an airport may have a variety of facilities and infrastructure, including fixed base operator services, air traffic control, passenger facilities such as restaurants and lounges, and emergency services (Graham 2003). For Sydney Airport the airport operator is SACL.

Airport Operator “role in the private airport operator acts on behalf of the investors, runs airport operations” the airport’s day to day business operations, and provides airport stakeholders with what they require to operate within the complexity of airport activities. The airport operator also aims to act in partnership with the local community. It is after all

15 the community that that would seem to have little to gain from proximity to airport operations and perhaps much to lose in welfare and quality of life from the additional noise, traffic activity and air pollution that an airport generates;

Airport Pre-Privatisation pre-privatisation concerns expressed by interviewees included: Concerns a) the incentives of a private owner to cut back on service quality to maximize profit ; b) the fairness and equitableness of the airport price. The pricing issue was the prime concern for airlines as they could land almost for no cost under government ownership; c) the September 11 terrorist attack in the United States. Due to the volatility in the aviation sector there was concern about obtaining the desired sales price for Sydney Airport; d) the possibility of overwhelming potential investors with potential investments if all airports were privatised at the same time; and e) the community backlash regarding the aircraft noise problems, which were diluted by 2002 with the introduction of the ‘fair share’ concept.

Case Research Design Case research aims particularly at systematically gathering data about a single instance (McMurray, Pace et al. 2004), an individual or an entire organization (Yin 2003). In this study Sydney airport, as the largest and most recent airport privatisation in Australia, was chosen as the case object. . In accordance with Yin (2003), the chosen design focused on “how” and “what” research questions to answer the central research question (see table 5.2). It is said that case studies of contemporary phenomena are often used to discover potential relationships in qualitative contexts through empirical inquiry, especially when the boundaries between phenomena and context are unclear.

Coding Qualitative coding is defined by Lewins and Silver (2007 p.81) as a process by which segments of data are identified as relating to, or being an example of, a more general idea, instance, theme or category. This process helped the researcher to organize, categorize and build ideas around the data. This was done by carefully reading the interviews, then reflecting upon the meaning of each sentence and paragraph and assigning a key word (code), to describe, and later define, the underlying concept.

Commercial Growth / Commercial growth aspect of Sydney airport privatisation , Airport Land evident in the form of major retail development in terminals, Development commercial operations of car parks, and other non-aeronautical type-activities in and around the airport site, was emphasized by the respondents. Other examples of the commercial orientation at privatised airports in Australia include the development of DFO retail outlet centres on airport grounds at

16 Brisbane and Canberra airports, and the forecast of expansion of office space, new retail and accommodation facilities as well as the enlargement of the car park at Sydney airport.

Commercial negotiation The commercial negotiation process was identified in this study process as one of the key privatisation objectives. The findings have shown that most stakeholders seemed to have gained an understanding and appreciation of the character and compromise of commercial negotiations under a privatised airport.

Commercial partnership The government philosophy in Australia as emphasized by among stakeholders Sharp (1996) was to withdraw from detailed involvement and to provide a framework in which airport operators and customers seek to negotiate prices rather than involve the government of the day. This philosophy supports stakeholder theory in that firms are not seen as purely private institutions solely responsible to their shareholders, but instead as social institutions responsible and accountable to all their stakeholders (Carroll 1979; Balabanis, Phillips et al. 1998; Harrison and Freeman 1999).

Community “role in the community surrounding the airport voices its concerns about airport operations” undesirable social effects of airport operations and accepts the desirable effects such as work opportunities.

Conceptual Analysis Conceptual analysis involves the discovery of the presence and frequency of concepts; relational analysis measures how concepts that exist within the text being examined are related to each other within the text (Weber 1990; Smith 2000). Conceptual analysis is the most common form of content analysis.

Content Analysis There are generally two types of content analysis that a researcher can conduct – conceptual (thematic) and relational (semantic) (Leximancer 2007). Content analysis was used to determine the presence of words or concepts within a group of documents.

Convenience Sampling In the literature convenience sampling is referred to as a sampling method that relies on and uses convenient elements such as connections or previously established access (Hair, Babin et al. 2003; Zikmund 2003). The method of convenience sampling was applied to most of the sample in this study due to the political nature of the air transport industry.

17 Data Triangulation According to Denzin (1978) there exist four types of triangulation: a) source triangulation using different data sources; b) investigator triangulation, using more than one researcher, c) theory triangulation, interpreting the data with different perspectives; and d) methodological triangulation, using several different data gathering techniques. In this study source triangulation was used. The triangulation of the interview data; the researcher’s knowledge at hand and data interpretation led to an understanding of the themes that emerged in gaining a more in depth view of the privatisation phenomenon at Sydney airport.

Economic Growth An increase in the production possibilities that results from an increase in resources supplies or an improvement in technology. Also referred to in terms of an increase in real GDP or real GDP per capita that occurs over the long term (Jackson 2000)

Economic Theory Deriving economic principles from relevant economic facts; an economic principle. In this study privatisation reforms are principles linked to economic theory (Jackson 2000).

Efficiency The result of using or administrating scarce resources to produce the maximum amount of desired goods and services, thereby achieving the greatest possible fulfilment of society’s wants (Jackson 2000).

Federal Airport FAC controlled 22 distinctly different international, regional and Cooperation (FAC) general aviation airports, with varying levels of passenger movements.

Federal Government the federal government in Australia controls,border security “role in airport issues, noise and environmental aspects of the air transport operations” industry ;

FLAP Airport Performance Indicators named after the Frankfurt, London, Amsterdam, Paris Group of Airports

Global Standard The expression ‘global standards’ used in this thesis refer to airports having become unique locations for shopping and other commercial facilities that the passengers and other airport users demand on a global scale.

Hermeneutics As defined by Brown and Heggs (cited in Somekh (2006 p.293)) hermeneutics is understood to be the process of interpretation. Furthermore it was suggested by Gallagher (1992) that phenomenology is often combined with the meaning of ‘the

18 world as experienced’.

In the original Balanced measures how the organization has performed in terms of Scorecard the learning people, systems and organizational procedures. This and growth perspective perspective is concerned with actions to improve and create value if it is to make its vision become reality.

In the original Balanced It considers how the firm wishes to be viewed by the customers. Scorecard: the customer perspective In the original Balanced It measures the attainment of a company’s financial objectives Scorecard: the financial and considers how the firm looks to shareholders. perspective In the original Balanced It is concerned with what the firm must excel at. It measures Scorecard: the internal how the organization has performed in creating value to business process customers and lowering costs to achieve financial performance perspective outcome.

Influence The effect a person or a thing [privatisation reforms] has on another [Sydney airport performance and corporate stakeholders] (Pearsall and Trumble 1995)

Interpretative Paradigm Due to the interpretive and structured nature of this study, data was collected from a variety of sources, namely the interviews and the researcher’s interpretative thoughts and comprehension of the publicly available data of the case. The methodological framework of this exploratory study enabled the researcher to engage in interpretative analysis whilst being in the centre of the investigation.

Investor “role in airport the investors exhibit significant influence and control over operations” airport development and operations;

Key Performance Key performance measures/indicators are defined as Indicators (KPI) performing three core functions according to Neely (1998) a) assisting the businesses to comply with regulatory obligation (financial measures/ data in annual reports), b) assisting management to check financial and non-financial health of the business and c) supporting the strategic direction and vision of the business.

Kingsford Smith Kingsford Smith International Airport, also known and hereafter International Airport referred to as Sydney Airport, is argued to be the largest and most important domestic, as well as the busiest international airport in Australia.

Leximancer It is a data mining software that assists with the analysis of qualitative data i.e. interviews

19 For the purpose of this study, this software has assisted with the content and thematic analysis of the interview data

Limitations of Case Case research is criticized as having limitations associated with research lack of rigor, bias, not providing a basis for scientific generalization and being time-consuming because the lack of clear rules increases the possibility of a drift away from the core focus of the study (Creswell 1994; Zikmund 2003; Flyvbjerg 2004; McMurray, Pace et al. 2004).

Market power In exploring the arguments of Sydney airport’s use of its proclaimed monopolistic powers, the analysis identifies that although the operator acknowledges that it does have market power it perceives it as limited in relation to some stakeholders due to their countervailing powers.

Noise Dilemma The noise dilemma has prevailed at Sydney airport since its inception as it is an airport located within the city with neighbours surrounding it and with the neighbouring councils and communities complaining strongly about the aircraft noise.. The noise issue was previously and pre-privatisation dealt with by the government through the Curfew Act and a noise sharing arrangement. As the aircraft noise dilemma was present pre- privatisation, it does not form a central argument for this study as it is not a direct consequence of privatisation.

Non-Aeronautical Non-aeronautical revenue streams refer to concessions, rents, direct sales, car parking, charges for utilities and other. as Revenue indicated by Mather (2004 p.23); 50 percent of revenue is aeronautical and the other half is non-aeronautical, which is comprised of roughly 25 percent retail, 10 percent commercial (i.e car parking), with property revenue making up the balance.

Nvivo It is a data mining software that assists with the analysis of qualitative data i.e. interviews

For the purpose of this study, this software assisted with the coding of the interview transcripts before the content and thematic analysis.

Perception An interpretation or impression based on one’s understanding of something (Pearsall and Trumble 1995).

Performance Typically it is the goals of past activities comprising the costs and benefits of a particular department, division of a company that are measured when performance is evaluated (Pryke 1983; Parker 1995; Epstein 2004),

Performance ‘What gets measured gets done’ - Performance measurement measurement and control are tools used to improve organizational

20 performance. Organizational theory suggests that the internal environment [being the organizational structure] has to adapt to the changes in the external environment that is driven by consumers, politics and various economic factors (Neely 1998; Walsh, Lok et al. 2005).

Positivist Paradigm The positivist approach identifies relationships with the assumption that knowledge and truth is discovered through observation and measurement and analysis of data. This paradigm is, according to Guba and Lincoln (2005), often associated with quantitative methodologies. It is, however, appropriate to this study as this case research comprises a classical investigation using a structured approach aimed at answering proposed research questions.

Privatisation Is the process of transferring property from public ownership to private ownership and/or transferring the management of a service or activity from the government to the private sector (Schipke 2001).

Productive or When goods or services are produced using the lowest-cost operational efficiency production methods; employing the minimum quantity of resources needed to produce a given output and producing the output at which average total cost is a minimum (Jackson 2000)

Productivity A measure of the relationship between the quantity of output produced and the quantity of inputs required in the production process (Jackson 2000)

Productivity Commission The authority charged with the responsibility of performance monitoring and benchmarking of economic infrastructure and the efficiency of government provision of services; and reviewing the impact and costs of government regulation (Jackson 2000)

Qualitative Research Qualitative research focuses on context and is fundamentally interpretive. It is also said that it conveys depth, diversity, subtlety and complexity and that it is carried out to understand meaning, to describe and understand experience, ideas, beliefs and values (Wisker 2001; Flick 2006). The qualitative approach is most appropriate for investigating the highly contemporary nature of airport privatisation and answering the research questions.

Reasons for Privatising According to Francis, Lawrence et. Al. (2006) the air transport Airports industry required private sector input due to existing pressures arising from: a) expected investment of $500 billion needed to fund airport expansion between 1999-2019 to accommodate the traffic growth as estimated by the Airport Council International (ACI); b) the fiscal burden imposed on government by expansion of air transport infrastructure; c) the lack of funds

21 for infrastructure development; d) free market forces; e) globalization; f) improved efficiency; g) congested infrastructure; and h) new larger aircrafts.

Relational Analysis Relational analysis, which involves the examination of the relationship between concepts, has three components: a) affect analysis, b) proximity analysis and c) cognitive mapping. Leximancer assists in the analysis of both proximity and cognitive analysis through the production matrix of the proximity of concepts and the two dimensional map generated.

Reliability According to Moisander and Valtonen (2006) reliability in qualitative studies is achieved by illustration of a transparent research process based on a conceptual framework of the study. Thus, reliability in this study was achieved through write- up of its comprehensive methodology chapter, by detailed transcription of the interviews and transcript verification. It was also achieved through the use of Leximancer’s objectivity in text analysis.

Research According to Powers (1995) research is a systematic process of investigation with the purpose of contributing to the body of knowledge that shapes and guides academic and practice disciplines.

Resource dependence According to Pfeffer and Salancik (1978) and Frooman (1999), theory power lies with those stakeholders who control resources that are valuable to the firm and needed for the firm’s day to day operations. This holds true, as the operations of these stakeholders are interdependent.

Respondent Validation Respondent validation was achieved by sending the transcripts to each participant for verification (Silverman, 2006 p.290).

Revenue Total number of revenues received by a firm from the sale of a product or services (Jackson 2000)

SCACH Consortium The SCACH consortium, consisting of Macquarie Airports and Managed Funds (62.79%), Ferrovial Aeropuertos (20.68%), Hochtief Airport (11.57%) and Ontarios Teachers Trust (4.6%), paid 5.6 billion dollars for Sydney Airport.

Snowball Sampling Snowball sampling, or in other terms access to and selection of additional respondents through identification by respondents in the original target population (McMurray, Pace et al. 2004 p. 84), was also used in this study.

Stakeholder Concept The stakeholder concept recognizes that there are multiple other parties who have a legitimate interest or stake in the

22 business (Atrill, McLaney et al. 2006). Stakeholders are vital to strategy definition (Ansoff 1965); for this research airport stakeholders include the airport operator, the airlines, the investor, the government, the community and other infrastructure asset providers.

Stakeholder Importance Privatisation reforms, in accordance with contingency theory, has resulted in the various stakeholders’ roles becoming even more important in the complex business of operating an airport, particularly as their roles are interdependent. Therefore this study proposes that stakeholder views need to be considered in evaluating the aftermath and outcomes of privatisation and in assessing privatised airport performance.

Stakeholder legitimacy Noted as a perception or assumption that the actions of an with the firm entity are desirable, proper, or appropriate with some socially constructed system of norms, values and beliefs, proposed to have an impact on the organization and

Stakeholder power to Defined as a relationship among different social actors enticing influence a firm one actor to act in a desired way (Weber 1947; Dahl 1957; Pfeffer 1981)

Stakeholder Scorecard The term ‘stakeholder scorecard’ refers to measures that are of interest to various stakeholder groups (p. 3.17) (CPA 2007).

Stakeholder urgency to Related to the degree to which stakeholder claims call for claims on the firm immediate attention (timely response) from management and criticality (Hill and Jones 1992; Wartick and Mahon 1994)

Sydney Airport Sydney Airport Corporation Limited (hereafter referred to as Corporation Limited SACL) is the private operator of Sydney Airport. The Federal Government sold the management authority of Sydney Airport in 2002 to the Southern Cross Airports Corporation Holdings Limited (SCACH) which is the ultimate parent company of SACL.

The Airport traditional Traditional paradigm views an airport as essentially a public Paradigm service whose objectives ought to be simply to enable aircraft and their users to arrive and depart while just covering costs. (Poole 1994)

The airport-as-an- The airport-as-an-enterprise paradigm views an airport as an enterprise paradigm entrepreneurial business, whose objectives are to meet the needs of its diverse clientele, being the airlines, investors, passengers, meeters-and-greeters, staff, neighbourhood communities, airport tenants and others.

The Balanced Scorecard The Balanced Scorecard measures a firm’s total performance in framework dimensions beyond revenue, expenses and profits (standard financial measures). It measures its relational performance

23 (client, customer, employee, supplier channel relationships), its intellectual performance (innovative processes) and its cultural performance (alignment of individual values with cultural values); together it can provide direction that no longer just focuses on operational and financial data, but elevates it to a strategic level (Lok, Walsh, Jones, 2005).

The stakeholder airport The developed model as part of this study, “the stakeholder performance airport performance assessment model (SAPAM)”, is based on assessment model stakeholder specific attributes to assess privatised airport (SAPAM) performance. The model takes into account a new paradigm that portrays an airport as a cluster of commercial activities with a focus on meeting the demands set by various stakeholders, rather than as a core business that facilitates passenger movements.

Unexpected Unexpected outcomes relate to the investors and controlling Consequences shareholder having control over so many aspects of the life of the airport and being able to exploit Sydney airport as a toll gate for increased economic returns. Results have shown that Sydney airport privatisation has resulted in certain outcomes that the government did not anticipate. One unexpected outcome is the large increase in airport revenues due to expanding the income earning potential of privatised airports.

Validity Validity, as defined by Hammersley (1990 p.57), refers to the extent to which an account represents the social phenomena to which it refers. In this qualitative study validity was achieved through its use of multiple sources of data and respondent validation. These also allowed the researcher to complete the picture and understand the impact of privatisation on Sydney airport stakeholders.

WLU Traditionally, the main indicator used for assessing the output (productivity) of publicly owned airports was based on the work- load unit (WLU), defined by Doganis (1992) as one passenger processed or 100kg of freight handled.

24 Abstract

Privatisation reforms have been embraced by different nations and implemented in various industry sectors since the 1980’s. Airports have been privatised with airport operators taking a more commercial positioning into account whilst catering for individual stakeholders. It is claimed that airport privatisation has led to the emergence of new industry players enabling these airport operators to raise additional capital, improve efficiency, reduce costs, generate new revenue streams and engage in new commercial airport investments in the market economy. It is claimed that the transfer of ownership and management of airport enterprises into private hands generated more value and efficiencies. A question remains however about the actual impact of airport privatisation on stakeholder groups.

This study aims to provide insight to the affirmation that airport privatisation has not only led to a change of the airport business in general but to explore the perceptions of key stakeholders and whether they have benefited from privatised airport operations. The undertaken study therefore consisted of two parts:

Firstly, the existing claims and theories sympathetic with the privatisation reforms were explored. This entailed a thorough investigation as to who the key stakeholder groups of Sydney are which was followed by exploring the airport privatisation objectives as perceived by the key stakeholders of Sydney airport five years post privatisation.

Secondly, a theoretical model referred to as the Stakeholder Airport Performance Assessment Model (SAPAM) that examines airport performance from stakeholders’ perspectives, was proposed. In particular as airport performance is frequently assessed by focusing on financial performance and little attention is given to combining an analysis of financial measures together with non financial measures; especially when airports are complex entities exhibiting monopolistic attributes and having extensive social responsibilities.

25 The airport performance assessment tool was based on the thoughts of Kaplan and Norton (1992) Balanced Scorecard idea. Stakeholder airport performance attributes were derived for assessing privatised airport performance from the service quality as well as the financial and environmental perspective of airport users is discussed.

The findings were derived using a qualitative paradigm by combining interviews and archival content analysis whilst analysing the impact of Sydney airport privatisation on its stakeholders. The Leximancer qualitative research software together with Nvivo v7 assisted the data analysis.

The research findings emphasise that the privatisation of Sydney Airport has led to airport operations being primarily driven by the ‘bottom line’ of profitability. The commercial orientation of Sydney Airport, its overall business growth and the ongoing airport land development, although criticized to an extent, were perceived to be the most notable outcomes of the Sydney Airport privatisation; each having an impact on stakeholder operations.

In addition, the outcomes of this study are relevant to stakeholder theory, resource-based theory and contingency theory. The results demonstrate the importance of stakeholder recognition by corporations, thus linking it to performance management. The results can be seen as contemporary contributions to the global privatisation debates, as indicative in the literature review there is no privatisation theory as such. The privatisation debate is thus set to continue on the more ideological grounds of competition, free-markets and other relevant factors.

The findings emphasise further that privatised airports have become considerably more accountable to the public and its stakeholders. The developed Stakeholder Airport Performance Assessment Model (SAPAM) proposes that the impact of privatisation reforms on society should be validated by assessing privatised airport performance through the eyes of stakeholders in line with the framework of the Balanced Scorecard and stakeholder theory.

26 Overall, this study has made significant contributions in terms of adding to the body of knowledge valuable information for both private and public sector industries and firms in determining relevant measures and models for performance assessment as a result of privatisation.

The need expressed in the literature for more studies on the Australian privatisation experience and in particular the air transport industry and the benefits to its stakeholders was the driver behind this doctoral study on airport privatisation.

27 Chapter 1

1 Introduction

1.1 Relevance of the Study Privatisation, economic and institutional reform of public enterprises with the aim of exposing organizations to market forces, is perceived as an optimal means of dealing with the constraint of governments’ budgets. Gains in efficiency achieved through the transfer of ownership and management of state-owned enterprises into private hands are claimed in the literature to be the ultimate objective of privatisation reforms, as private enterprises operate more efficiently being driven by the ‘bottom line’ of profitability .

In Australia, ever since the airport privatisation program began in 1996, privatised airport operators claim that, to date and as illustrated later in this study, the privatisation reforms of the air transport industry have added value to international airport operations and have contributed to the growth of the Australian economy. It is asserted that air travellers obtain a higher level of service, airport operators profit from commercial revenue streams and industry players have emerged and established their niche in the market. According to Booth (2008) and Mather (2004) the airport business has become more competitive with substantially increased returns and performance. However, major aspects of airport operations, such as price control, charges, noise and pollution, remain under government control to protect the public from monopolistic abuse.

This study aims to provide not only insight into how airport privatisation has led to changes in airport business in general, but also an investigation of whether key stakeholders perceive they have benefited from privatised airport operations. The airport stakeholders referred to in this study consist of the airlines, the airport operator, the investor, the government (federal, state and local) and other infrastructure asset providers (see table 5-4 for details on

28 stakeholder identification and sampling). Airports belong to a nation’s most key strategic assets. The key objective of this study is to examine the effect of privatisation reforms on key stakeholder groups at an airport, in this case Sydney Airport, that has become more commercial and profit-oriented.

This study therefore focuses on the development of a multidimensional ‘Stakeholder Airport Performance Assessment Model’, referred to later in this study as SAPAM and demonstrated in Chapter 9, as an approach to assess overall privatised airport performance from key stakeholders’ perspectives. Airport performance is frequently assessed by focusing on financial outcomes. Although airports are complex entities exhibiting monopolistic attributes, little attention is given to combining financial measures with an analysis and evaluation of other non-financial measures reflecting service quality, environmental effects and other factors of importance to stakeholders. Overall airport performance is difficult to assess due to airports being such complex entities, so the airport performance assessment tool developed in this paper combines a number of elements important to different stakeholders. It is based on the balanced scorecard idea of Kaplan and Norton (1996, 2001), and takes into account key performance indicators and measures that each stakeholder group considers vital. A stakeholder scorecard1 is developed for Sydney Airport. This is in line with Tsamenyi et. al (2008), who claim a need for performance analysis of privatisation outcomes beyond financial analysis at the myopic macro-level, which has been widely adopted by the international financial community and policy makers, and a need to explain performance using multi-dimensional approaches such as a balanced scorecard.

This social science research project aims to highlight the reason that privatisation reforms were embraced on an international scale and to investigate this phenomenon in the context of airport privatisation. Yin’s (2003) case analytical framework is used to explore the contemporary nature of the privatisation phenomenon at Sydney Airport which was privatised in

1 The term ‘stakeholder scorecard’ refers to measures that are of interest to various stakeholder groups (p. 3.17). CPA, Ed. (2007). Strategic Management Accounting Unit - CPA program. Geelong, Victoria, Deakin University.

29 2002. This study uses an interpretive and positivist paradigm as illustrated in Chapter 5 to answer the research questions.

1.2 Statement of the Problem Relevant literature and theories suggest that privatisation leads to greater efficiency in the production of public sector goods and services. Privatisation reforms have been embraced by different nations and implemented in various industry sectors since the 1980’s. There is, however, little evidence of: a) the opinions and perceptions of stakeholders on the implemented privatisation reforms of privatised entities; and b) whether the underpinning reasoning and philosophical claims of privatisation such as increased efficiency, profitability and commercialization are correct. The reason for this study is the need for research into the benefits to stakeholders arising out of the Australian privatisation experience and, in particular, the air transport industry.

To date, no comprehensive study considering stakeholders’ views when determining relevant indicators and measures for privatised airport performance assessment has been undertaken. As reported by Tsamenyi et al. (2008) and others (DeNeufville 1999; Parker 2003; Fafaliou 2007), most of the research on the outcome of privatisation programs has tended to be at the financial-macro-level of examining the impacts of privatisation on the economy in terms of GDP and government revenue. The problem is that this approach does not explain the full impacts of privatisation, especially at the firm and stakeholder levels.

Also, as airports play a unique role in society, it is suggested that privatised airports should become publicly accountable to their stakeholders. After all, airports were initially established with the objective of serving the interests of the community and society.

1.3 Purpose & Objectives of the Study Therefore, to verify the benefits, if any, gained from privatisation reforms for stakeholders, this study investigates airport stakeholder views on the recently

30 privatised Sydney Airport and develops a model of how privatised airports can be assessed from stakeholders’ perspectives. Airport privatisation has been chosen as the focal point of this study since the complex nature of airports is characterized by multiple stakeholder groups and the trend of privatising airports continues on a global scale. Kingsford Smith International Airport, also known and hereafter referred to as Sydney Airport, is argued to be the largest, busiest and most important domestic and international airport in Australia. Sydney Airport in particular was chosen for this study for the following reasons: a) it was the largest and most controversial privatisation of an Australian airport and there is ongoing contention over its commercial orientation; and b) proximity and access for the researcher to conduct this study.

The objectives of this study are as follows:

1. To explore the existing claims and theories sympathetic with privatisation reforms. 2. To investigate the field of airport privatisation and determine the key stakeholder groups of privatised airports, as airports are perceived to be nationally critical infrastructure. 3. To understand the airport privatisation objectives as perceived by the key stakeholders of Sydney Airport. 4. To investigate the impact of the privatisation reforms on stakeholder operations. 5. To develop a model, the “Stakeholder Airport Performance Assessment Model (SAPAM)”, that is based on stakeholder specific attributes (indicators and measures) to assess privatised airport performance. The model takes into account a new paradigm that portrays an airport as a cluster of commercial activities with the focus on meeting the demands set by various stakeholders, rather than as a core business that facilitates passenger movements. 6. To review the model. 7. To add to the body of knowledge: a) the findings of existing perceptions of Sydney Airport stakeholder groups on privatisation reforms and their

31 implications; b) a model that encapsulates the attributes in the form of indicators and measures relevant to assessing Sydney Airport post privatisation.

Figure 1-1 is a graphical representation of the concepts underpinning this research.

Privatisation Impact & Airport Stakeholders

Privatization

Efficiency Gains Free Market Innovation & Empowerment Reporting Negative through Economies Organisational of Management requirements & consequences Productivity & & competition Change Transparency customer focus

Impact on future strategy; sustaining competitive advantage & public welfare

Sydney Airport (Airport Operator)

Key Stakeholder Groups

Community Passengers Airlines Regulator Investors Other Infrastructure Support providers

Privatisation objectives as perceived by the stakeholders? Impact of privatization on key stakeholder of Sydney airport ? Airport performance assessment post privatisation?

Figure 1-1: Privatisation Impact & Airport Stakeholders

1.4 Research Questions This social science field research is designed to explore the perceptions of stakeholder groups on the privatisation of Sydney Airport. This research aims to answer the following two central research questions:

32

What has been the impact of Sydney Airport privatisation on key airport stakeholders?

How can privatised airport performance be measured from stakeholder viewpoints?

The following research questions (RQ) and sub questions (SQ) guide this research and will be examined in subsequent chapters of the thesis:

RQ 1. What were the reasons for SQ 1 A. Who are the key stakeholders of Sydney the privatisation of Sydney Airport? Airport? SQ 1B. What were the objectives of privatising Sydney Airport as perceived by the stakeholders?

RQ 2. What was the impact of SQ 2 A. How did privatisation reforms impact the Sydney Airport privatisation on key key stakeholders? airport stakeholders?

RQ 3. What are the key attributes SQ 3 A Why is performance measurement of of airport performance from the airports important? various stakeholder perspectives? SQ 3 B. How has airport performance been assessed pre-privatisation?

RQ 4. How can these attributes be SQ 4 A. What indicators should be used that measured to provide information reflect airport stakeholders needs when assessing on airport performance? privatised airport performance?

SQ 4 B. How can these be measured?

1.5 Significance of the Study Australia and other nations are subject to ongoing privatisation reforms which generally have come to be accepted by the public. Literature indicates that challenges exist in measuring the outcomes of privatisation, as welfare gains from privatisation need to address the distribution of economic, political and business benefits among all consumers and investors (DeNeufville 1999;

33 Barton 2000; Crozier 2001; 2003; Sheshinski 2003; Rochfort 2005; Fafaliou 2007). It is claimed that adverse consequences arising from privatisation are experienced by more frequent users or end-consumers of public services and by ‘small’ employees affected by restructuring of the privatised entity in order to reduce costs and implement more customer oriented strategies. Therefore it is proposed to explore the outcomes of these privatisation reforms through analysis of the perceptions of the stakeholders and the actual impact on stakeholder groups of privatised entities.

This research is believed to be valuable as it investigates a contemporary, highly debatable topic in society. It explores the underpinning assumptions of privatisation reforms and reinforces the significance of stakeholder theory in conjunction with the difficulties encountered in corporate performance measurement when an entity is subject to organizational changes triggered by policy reforms. See Figure 1-2 for the theoretical framework developed for this study. Theoretical Framework

Impact of Privatisation on Stakeholder & Corporate Performance Airport Privatisation Privatisation

Figure 1-2: Target of the Theoretical Framework Privatisation reforms have resulted in less concentration on pure airport functions and a clustering of different commercial activities. The measurement of the impact of these policy reforms on airport performance according to the perceptions of individual key stakeholders by means of an airport performance assessment model makes a positive contribution to the literature. The

34 implications of the findings from this research on theory and on practice are discussed in Chapter 10.

1.6 Research Methodology This study is of a qualitative nature applying an interpretive and positivist paradigm (see Chapter 5). This study was conducted in a case-like manner, following a social science field research approach utilizing Yin (2003) case analytical framework. Twenty semi-structured interviews, the primary data collection techniques in this study, were conducted with senior level representatives of the identified key stakeholder groups. Stakeholder sampling included the airlines, the airport operator, the community, the investors and other infrastructure support providers. The passengers were not examined as separate stakeholders but were included in the examination of the airline perspective. After all it is the airline that deals with the airport operator acting on behalf of its passengers. Published literature was used to develop the ‘pro-forma’ experimental model for assessing privatised airport performance based on literature that was then discussed with the participants in interviews. Thereafter the experimental model was modified according to the findings from the interviews and the Stakeholder Airport Performance Assessment Model was developed. Qualitative research software applications, namely Leximancer and Nvivo, were used in the data analysis. The aim of undertaking this content analysis was to understand the meaning of the themes obtained from the interviews and the deeper, underlying meanings behind the relationships of the identified concepts and themes.

Figure 1-3 points out the attributes that were considered in the design and conduct of this case research.

35 Research design attributes applied to this study

Conceptual Framework & Theoretical Model Development based on Combination of Study & Knowledge the underpinning theories of Privatization, Performance Measurement and Stakeholder Theory

Complexity of Research Problem, Research Question, chosen Rationale for chosen Paradigm Research Design appropriate for examining real life occurrence gathering data from various sources and perspectives; direct involvement of researcher

Interviews: Convenience Sampling followed by snowball affect used due to complexity of the airport business and difficulty in gaining access. Sampling Approach & Access to Sources Secondary Data- Content Analysis: Texts sorted in Tier 1 and Tier 2 sources emphasizing the relationship and direct vs. indirect reporting on the ‘case object’ (Sydney airport)

Semi-Structured Interviews: Open-Ended Questions Methods for Data collection Pilot Testing Ethical Consideration & Confidentiality

Leximancer and Nvivo (Data Mining Tools) Choice of Analytical Tools Content Analysis (Thematic Analysis) Data Triangulation

QualityBases Case Research Attributes Findings & Discussion Results are discussed in light of answering the research question

Future Implications & Significance of Research Conclusion & Implications for future industry based research

Figure 1-3: Applied Research Design Attributes

1.7 Organization of the Study This study is organized into ten chapters, followed by a list of references, bibliography and appendices that contain the definitions and a few graphical charts from the analysis section:

Chapter 1 presents the Problem, Purpose & Objectives of Study, and the Significance of the Study. The limitations of the study, the research questions and the organization of the study are discussed.

36 Chapter 2 focuses on the literature review. The theory of privatisation from its inception in the UK in the 1980’s until the present and the lessons learned from various international scale privatisation processes are discussed.

The implications of reforms on stakeholder groups of privatised entities, as well as various post privatisation organizational changes faced by management, are covered in the discussion of the research conducted to date on the impacts of privatisation.

Chapter 3 is a context chapter on airport privatisation. The rationale behind privatising airports, and with it the growing importance of key stakeholders involved in the airport business, is discussed and linked to the research questions from Chapter 1. The focus is on airport privatisation in Australia.

Chapter 4 is regarded as a second context chapter as it outlines the importance of performance measurement and stakeholder theory in the context of airport privatisation. It lays the theoretical groundwork by introducing an experimental model upon which the post privatisation assessment model (SAPAM) for privatised airports from stakeholder perspectives is based.

Chapter 5 focuses on the research paradigm, process and methods used in this study. The procedures used in the administration and data collection process of this study are stated. The process for analysing the data using data mining tools is provided. This is followed by an explanation of how the research is reported.

Chapter 6 introduces Sydney airport and its longitudinal corporate performance from 1999.

Chapter 7 is the first of three findings and discussion chapters. It provides the background on the privatisation process, confirms the identity of the airport stakeholders and explores the privatisation objectives as perceived by the stakeholders five years post privatisation. It concludes by comparing the original government based airport privatisation objectives with those identified by the stakeholders.

Chapter 8 discusses the privatisation impacts on the identified stakeholder groups

37 Chapter 9 introduces the Stakeholder Airport Performance Assessment Model (SAPAM). The theoretical framework underpinning the model is reported. This is followed by an in-depth discussion of the attributes and indicators useful in assessing privatised airport performance.

Chapter 10 is the concluding chapter. Implications for theory as well as practice are provided. Ideas for follow-up research are presented, such as implementing the model and conducting a benchmark comparison of Sydney Airport to the first-stage airport privatisation (1996) in Australia.

1.8 Delimitations of the study The following limitations apply to this study:

 Limitations apply to the fieldwork and the access to information that was granted to the researcher. The study was limited to convenience and snow-ball sampling that was used in accessing the sample due to the political nature of the industry. The data was restricted to the views of professionals who were either directly involved in the implementation of the privatisation reforms or who have high decision-making authorities in the air transport industry.

 The focus of this single case-study is Sydney Airport. A field study at all the major airports in Australia would have provided better insights and more accurate details for the development of an airport performance assessment tool.

 This study involves a recent privatisation as Sydney Airport was privatised in 2002. A time factor limitation is that the effects of privatisation may not be fully apparent in this short period.

 The widely acknowledged criticism of case based qualitative research applies to this study. The researcher is a key variable in this study, having used an interpretive and positivist paradigm.

38 1.9 Definition of terms Many terms used in this study are listed and defined in the Glossary section (p.17). However, to help the reader better understand the context in which these terms are used, they are explained in-text as they are introduced. Other common terms in this study are used based on an assumption of general knowledge.

1.10 Chapter Conclusion This chapter presented the topic, the problem, the purpose and the research questions of the study. In comparing the present infrastructure and service offerings available at airports to the pre-privatisation era it is apparent that airport operators whilst catering for their individual stakeholders have taken a more commercial approach. The argument, that it is important to assess the privatised entities’ stakeholder views in evaluating the aftermath of privatisation reforms in the context of airport privatisation, was presented. The following chapter (Chapter 2) provides a literature review on privatisation.

39 Chapter 2

2 Background to the Privatisation Phenomenon

2.1 Introduction The aim of this chapter is to introduce the concept of privatisation for the discussion of airport privatisation in the next chapter. The origin of privatisation and global lessons learned from privatisation experiences are stated. Privatisation, in dealing with changes in public ownership, needs to cater for the demands of the public and the expectations of society. Privatisation portrayed in this chapter, in line with Parker (2003b) and Fafaliou (2007), is not presented as the solution to government deficits and public sector inefficiencies, but as an ideology relating to public attitudes towards economic responsibility and corporate accountability.

2.2 The Rationale of Privatisation Privatisation, the dominant economic trend of neo-liberal policies primarily influenced by political leaders such as US President Ronald Reagan and UK Prime Minister Margaret Thatcher, became a world phenomenon during the 1980’s and has been a significant policy of many governments since (Wright 2000; Warner 2004). As pointed out by Schipke (2001 p. 17) and Parker (2003) privatisation involves a transfer of ownership associated with circumstances in which a function that was carried out by government is transferred to a non-governmental body. Public transport, telecommunication, mining, manufacturing, water, electricity and various other state-owned utility services and assets have been privatised over the years. It is argued in the literature that governments have few incentives to concentrate on efficiently running state-owned enterprises in an era of increased competition (Daniel 1986; Abelson 1987; Vickers and Yarrow 1995; Boycko, shleifer et al. 1996; Emmons 2000; Funnell 2001). The argument is that private owners, who are being driven by profit and monetary incentives, are motivated to cater for

40 customers’ demands and manage businesses in better ways than the public enterprises.

The Committee for Economic Development of Australia (CEDA) argues that privatisation is about designing an optimal mix of ownership and regulation to achieve the best outcomes for society. Growth 502 reports that private ownership with regulation is one option; in other cases government ownership may better achieve society’s objectives. But neither option is perfect – this is the fundamental privatisation trade-off (Mead and Glenn 2002). Studies reporting on privatisation outcomes report mixed political results of reducing state deficits and pursuing economic efficiencies through deregulation and private sector empowerment (discussed in section 2.4). Parker (2003b) and Fafaliou (2007) suggest that privatisation should no longer be regarded as rescue reforms but as transformation processes of public attitudes towards economic responsibility, customer orientation, and corporate as well as individual accountability to the economy as a whole, particularly since Sheshinski and Lopez-Calva (2003) state that evidence exists that privatisation increases profitability and efficiency in both competitive and monopolistic sectors.

From the 1980’s to date, public and private sectors have embraced privatisation worldwide. It is therefore no longer about whether to privatize public entities, but how to privatize assets to generate the best possible outcomes for society, government budgets and the entity itself. As supported by Keating (2005 p. 21) privatisation is not about less government but it is about a different government, - a more ‘marketised’ government.

Before analysing the consequences of the neo-liberal reform of privatisation on enterprise performance, it is informative to examine the early policies of the United Kingdom (UK), where the reforms began and which went on to trigger and influence changes in political and economic reform policies around the world.

2 Growth 50 report contains the views of Australia’s leading economists, policy advisors and public commentators on the effectiveness of privatisation programs in Australia.

41 2.3 The Origin and Ideology of Privatisation Goodman and Loveman (1991), as well as Marsh (1991), highlighted that Post World War II nationalization of state utilities marked the beginning of the privatisation era. The Thatcher government transformed Britain from a mixed economy to a market economy following public discontent regarding the efficiency and service delivery of public sector utilities in the 1980’s. According to Parker (2003) Britain’s public utilities had negative return on capital, low productivity, high costs, high prices, inefficient use of resources and unsatisfactory service to customers. Moore (1992) argued further that these inefficiencies arose due to democratic state ownership which ignored self- interest in the human nature as a motivating force. As pointed out by Margaret Thatcher (cited in Thatcher 1993 p. 676; Parker 2003):

“Privatisation…was fundamental to improving Britain’s economic performance…. Just as nationalisation was at the heart of the collectivist programme by which Labour government sought to remodel British society, so privatisation is at the centre of any programme of reclaiming territory for freedom.

According to Miller (1995) the UK reforms focused on improving efficiency, reducing government involvement and control in industry operations, reducing subsidies to the public sector, lowering the financial burden (deficit), freeing some government funds for other sectors thus providing better access to private investment, widening share ownership and introducing a commercially focused management philosophy into state-owned enterprises. Parker (2003) suggested further that Margaret Thatcher’s view on the freedom of enterprises and markets, was in line with the thoughts of the father of economics, Adam Smith, who according to Angresano (1996) and Krugman and Obstfeld (1997), promoted a model of economic growth based on freedom and self- interest in making decisions such as what to produce, how to produce, and how much to produce.

Initially privatisation in the UK was introduced to cope with the loss-making public sector industries, but as the deficit disappeared privatisation continued to be pursued by the UK government as an ideology of ‘enterprise freedom’.

42 Moore (1992) states that the borrowings and losses of UK owned enterprises ran at three billion pounds in 1979 and due to privatisation there was a surplus of two million pounds from 1989 to 1990. As a consequence the reforms that stimulated this surplus were embraced by the public, reinforcing acceptance of the privatisation philosophy.

In recent years, it has been observed world-wide that government has shifted from the role of regulator to watchdog, enabling private enterprises to manage and account for their own productivity and growth. The government over recent years has demonstrated its belief in the efficiency of private enterprise and that market forces can reduce the need for total government control through its privatisation programs. However public welfare cannot be ignored in privatising state-owned assets. Therefore the government ensures a continuing presence by monitoring the commercially driven approach and operational outcomes of private interests and is undertaking the role of 'watchdog' over public and social interests.

Balladour (1997) and others (Thatcher 1986; Marsh 1991; Balladour 1997; Emmons 2000; Parker 2003), have commented that the state has simply no legitimate grounds for assuming control over business in the competitive sectors of the economy. Privatisation reforms have been embraced by many nations, the Western, more developed, nations as well as the developing countries of Africa, Latin America, and Eastern Europe – nations known for their political and economical instability. The underlying assumption is that the whole economy benefits from efficiency gains internal to privatised organizations. Wiltshire (1987) and others (Wiltshire 1987; Vickers and Yarrow 1995; Parker 2003) support this view and further argue that taxpayers are no longer financing the unprofitable government enterprises where service delivery is questionable. Fafaliou and Donaldson (2007) in examining the nature of the privatisation debate concluded that there is no well-formed theory of privatisation and no-well-formed opposing view. Due to the lack of a convincing theory, the privatisation argument continues on the grounds of competition, free-markets and other factors that seem relevant. Parker and Kirkpatrick (2005) as well as Drakic (2007) demonstrate that successful

43 privatisation needs to be complemented by policies that promote competition and effective state regulation. They state further that privatisation works best in developing countries when it is integrated into a broader process of structural reforms. In Australia and elsewhere in the Asia-Pacific the privatisation movement is politically prominent.

As suggested above, privatised industries have become self-sufficient when in control of pursuing their competitive advantage. Quiggin (1995), however, argues that privatisation, in general and specifically in the UK, has not been beneficial. He believes that productivity improvements and reforms, including the introduction of competition and elimination of restrictive work rules, could have been effected without privatisation. Furthermore, he argues that to facilitate privatisation and to boost the sale of assets and to make them more attractive; governments have sold shares at prices that are too low. This reduces the compensation to the state and therefore to society of potential cuts in other services or tax increases.

Theoretical and empirical studies question the relationship between ownership (private or public), increased economic performance and efficiency (Pryke 1983; Kay and Thompson 1986; Beesley 1992; Vickers and Yarrow 1995). Parker (2003) argues that changes in ownership can lead to performance improvements as long as there are appropriate changes in the competitive or regulatory environments. To date, several studies have been conducted on measuring the economic efficiency gains of privatisation. At present it is still debatable what the benefits to particular stakeholders are, especially as the success of privatised entities is no longer dependent upon favours from the government, but upon operating successfully in regulated and increasingly competitive markets (Pryke 1983; Kay and Thompson 1986; Baumol 1993; Vickers and Yarrow 1995; Boycko, shleifer et al. 1996; DeNeufville 1999; Parker 2003; Fafaliou 2007).

Given this debate, the level of competition experienced by Sydney Airport may be an important aspect, along with an understanding of the post-privatisation

44 roles of stakeholder groups, to be considered in a study of the consequences of airport privatisation on stakeholders.

Multiple economic and social studies have been conducted on the UK privatisation experience as it took the lead in utility privatisation and was the first country to implement reforms. The impact of British ownership changes on management as well as on stakeholders is detailed below.

2.4 Implications of Ownership and Management Changes on Efficiency Gains Sheshinski (2003) as well as Fafaliou and Donaldsom (2007) point out that government has changed from owner/operator to regulator, with the power of the so-called golden share, to intervene in the public interest if necessary. A visible achievement post privatisation is that public subsidization of national industries is reduced, which suggests that ownership and management changes have led to greater efficiency. Parker (2003) also claims that besides privatisation, the deregulation of the financial market led to increased private investment. Capitalism has been promoted through wider share ownership, which allowed the build up of the international financial market.

Marsh (1991), Quiggin (1995), and Kay &Thompson (1986), however, argue that privatisation does not increase efficiency; given there is no rationale behind the privatisation reforms and the implementation of effective measurement techniques. Similarly, De Fraja (1993) points out that public ownership would have resulted in higher productive efficiency if the principal- agent model that takes into account the influences of technology, government and management was employed and if the appropriate management incentives were in place.

A study analysing 24 privatised entities reveals that most of the objectives of the UK privatisation program have been met in various industries (Miller 1995). In terms of efficiency gains, to name a few examples, Moore (1992) found that post privatisation at British Airways and British Gas the productivity

45 of employees had risen by 20%; and that at British Telecom (BT) there were no more waiting lists for phone line installations, public phones were more accessible and labour disruptions in the form of strikes had virtually disappeared.

The literature review indicates that privatisation, competition and regulation forced management to consider how best to manage businesses. Patrick Jenkin, UK Secretary of State for Industry (Nov. 29th 1982), emphasises

……“any growing business, such as British Telekom, needs the discipline of the market place to meet the needs of its customers effectively. It needs the right to raise its own finance, the freedom to invest and the freedom to manage its own business” (BT Archives and Historical Information 1984)

DeNeufville (1999) and others (Vickers and Yarrow 1995; Emmons 2000; Parker 2003) argue further that ownership defines control, that is when ownership changes so does the control of all managerial and strategic issues. As claimed in the literature these ownership changes exposed managers to the hostility of free-markets, held them accountable to regulators and new legislative processes, and required that privatised firms introduce competencies including innovation, financial and marketing capabilities. According to Fafaliou and Donaldson (2007), the general case for privatisation has been in terms of competition, freedom and efficiency. Therefore it can be argued that successful implementation of privatisation reforms results in entities performing well due to corporate control, ownership and changes in strategic direction that lead to increased efficiencies.

DeNeufville (1999), however, claims that shared control is the most appropriate form of management control due to the social and welfare standing of airport infrastructure. Table 2-1, summarizes the implications of public to private ownership rights and management control scenarios according to DeNeufville (1999). Post privatisation efficiency gains are thus not only related to ownership (who owns the asset), but the private sector behaviour of profit maximisation and cost minimisation, whilst striving to operate in an efficient manner.

46

47 Table 2-1 : Ownership / Management Control Scenarios Ownership Government Private Fully Regulated Government Government: Control: Complete control Unilateral, Management by government centralized authorities and control by via politics government Shared Control: Fully Private: Private Sector Government sets Complete control policies as owner by the private and acts as a sector; no “watchdog”, government private parties involvement at all implement Source: Modified from (DeNeufville 1999)

As referred to in Chapter 1 this study supports the argument of Tsamenyi et. al (2008) that there is a need to explain the performance of privatised firms, using multi-dimensional approaches beyond the myopic macro-level and financial analysis which has been widely adopted by the international financial community and policy makers. For the purpose of this study an assessment of the privatisation impact on stakeholders and airport performance needs to consider the effects on Sydney Airport in the face of external competitive forces experienced by the air transport industry and the ownership and control aspects of post privatisation organizational changes.

The next section provides examples of privatisation studies that have previously been conducted.

2.4.1 Reported Privatisation Outcomes

According to McFetridge (1997) the literature reporting privatisation experiences can be classified into two classes of studies: a) cross-sectional comparisons between private and state-owned enterprises; and b) the before and after privatisation studies. The latter are said to be increasing in popularity

48 as they enable an examination of the consequences of the ongoing privatisation movement and the lessons learned. This case study on Sydney Airport falls into the ‘before and after’ privatisation category.

The aim of the following section is to provide a general view of privatisation experiences in various industries, so key findings only are covered.

2.4.1.1 Cross-sectional Comparisons between Private and State-Owned Enterprises Studies comparing the performance of private and state-owned enterprises in terms of productivity, profitability and efficiency include global and national scale analyses on the railways, electric power, water and gas utilities, ports and the air transport industry. Large numbers of studies compare the efficiency of private and government owned utilities and industries, with the following mixed results:

 Increases in profitability, operating efficiency and overall improvements in firm performance were reported by Matur and Banchuenvijit (Mathur 2007) and others (Boubakri 2005; D'Souza 2005; Tsamenyi 2008) who analysed the effects of privatisation on firm performance through empirical studies in developed and emerging markets.

 Privatised utilities are less efficient than state-owned due to higher variable costs and over-usage of labour activities (Bhattacharyya, Parker et al. 1995; Shaoul 1997; Saal and Parker 2001).

 A decline in relative performance after privatisation and an increase in redundancies was related to the UK steel industry when comparing steel producers in six other countries (Wu and Parker 1998).

 Statistical and qualitative studies on electricity and distribution utilities generation in the UK and the US (Peters 1993; Bishop 1995; Pollitt 1996) reveal that there is no real difference in productivity and efficiency gains between government and investor-owned plants if costly technological advances and investments are not considered.

 Privatisation reduced the costs of electricity generation in the long run, but not in the short-term, as better investment planning led to lower

49 operating costs. In terms of electricity supply the findings reveal that the biggest gains are through internal management in terms of restructuring and better management of electricity assets,(Pollitt 1995; Pollitt 1996).

 The greatest scope for efficiency gains occurred in utility industries that exhibited monopolistic behaviour, rather than in state industries operating in competitive markets in which there was less scope to make large efficiency gains after privatisation (Parker 2003)

 Studies on private and government operated ports in the UK reveal no difference in productivity when ownership rights are considered (Liu 1995; Saundry and Turnbull 1997).

Miller (1995) reviewed 25 studies of privatisation effects in the UK and found that the majority of enterprises involved profited from efficiency gains. Similarly Hutchinson (1991) determined that of seventeen UK firms from several industrial groupings, privately owned firms outperformed state-owned firms in the 1970’s and 1980’s.

2.4.1.2 Pre and Post Privatisation Studies The pre and post privatisation studies compare the performance and efficiency gains as a result of the reforms. The first major utility that was sold in the UK was British Telecom (BT) in 1984, followed by British Gas in 1986, the British Airport (BAA plc.) in 1987, electricity in 1990/91 and the railways in 1995 and 1997, followed by other international privatisations (Parker 2003).

 Studies on the privatisation of British Telecom (1984) and British Airways (1987) concluded that privatisation in both cases resulted in welfare gains to consumers, shareholders and the government (Parker 1994; McFetridge 1997).

 The pre and post privatisation analysis of the UK gas industry reports a post privatisation productivity growth of 5-6 percent using statistical modelling (Waddams Price and Weyman -Jones 1996); on the other

50 hand when tracking the performance of British Airport Authority3 over time (BAA plc.) using a Data Envelopment Analysis technique (hereafter referred to as DEA), there was no evidence that privatisation had a significant effect (Parker 1999).

 An event-study on the effect of the announcement of British Airways pre-privatisation (1986) and issue of prospectus (1987) resulted in negative effects on the return of competing airlines. The stock market expected British Airways to be more efficient and a competitive threat to rivals after privatisation (Eckel, Eckel et al. 1997). Such results have been reaffirmed in a study on public sector airlines’ relative under- performance compared to private sector airlines (Backx, Carney et al. 2002).

 Privatisation in the telecommunication industry (triggered by technological changes) led to a reduction in natural monopoly characteristics. Privatisation of Telecom New Zealand in 1990 benefited end consumers through productivity gains realized by telecom being passed on and shareholders also gained as share prices rose after privatisation (Boles de Boer and Evans 1996). The privatisation of British Telecom, the largest single flotation in market history, was successful with the IPO being oversubscribed due to marketing campaigns arousing the interest of institutional and small investors

 An investigation of the performance of privatised initial public offerings and their effects on the New Zealand and Australian share market, revealed that privatisation has increased share market capitalisation and has had an impact on market liquidity (Kerr 2008).

 An investigation into whether state-owned airlines exhibit poorer service levels than privately owned airlines has shown that state-owned airlines offer lower satisfaction levels than private airlines and mixed ownership carriers. The factors examined were check-in, information service, courtesy, seat space, comfort, food service, on board

3 More details in the discussion of Airport performance in Chapter 4

51 entertainment, delays, overbooking and communication (Lopez-Bonilla 2008).

 An analysis of 61 global privatisations before 1990 examining the effects of profitability, productivity, capital investment, output and employment reveals increases in operating efficiency and profitability for fully privatised firms that are operating in competitive industries (Haskel and Szymanski 1993; Megginson, Nash et al. 1994).

 Galal and Shirley (1994 cited in (McFetridge 1997) in summarizing the results of pre and post privatisation studies of enterprises in Chile, Mexico, Malaysia and the UK conclude that not a single divesture made workers worse off and highly skilled workers profited from higher wages or share ownership in the privatised companies.

 Haskel and Szymanski realized that although productivity grew faster in privatised firms including BT, in gas, water and electricity supply; competition is the significant causal factor (Haskel and Szymanski 1993).

2.5 Implementing Privatisation Reforms – Who does benefit? Several ways of privatising state-owned assets exist and it is not possible to state the method best suited for a particular state-owned enterprise in an industry sector or apply such a method in all circumstances. Research conducted by Clarke (1994) and Farazmand (2001) indicates that Australia favours the sale of an asset to an established private organization or public flotation of stock exchange listed shares.

Sheshiniski (2003), Parker (2003) and DeNeufville (1999) point towards a challenge to define the actual winners and losers of privatisation, as welfare gains from privatisation need to address the distribution of economic benefits between consumers and investors. It is said that management benefits from privatisation as incentives and reward packages are linked to company performance and that small shareholders benefit through capital gains in their shareholdings. Parker (2003) states that because shares may float at attractive prices and because of volatile profitability in privatised utilities in the

52 early years after privatisation, investors can benefit from large, sometimes spectacular rises in share values. Senior management stands to also gain from privatisation with the introduction of stock options and profit related bonuses.. Kerr et.al (2008) state further that in general anyone investing in privatised companies’ portfolios received significantly higher returns than in an aggregate market portfolio.

Moore (1992) states that when people have a personal stake in something, they think about it, care about it, and work to make it prosper. Privatisation therefore can lead to increased efficiency in organizations as long as performance is linked to appropriate rewards and those involved in making it work are the beneficiaries. A prevailing controversy however, as pointed out by Parker (2003), exists in that neither public nor private managers necessarily act in the best interest of shareholders. This means that privatisation will and can only be effective if managers have incentives to act in the public interest, which would include incentives to improve operational and organizational efficiency.

According to Emmons (2000 p. 21) and others (Parker 2003, Sheshinski and Calva 2003, Schipke 2001, DeNeufville 1999), the driving motive of a private company is profit, not service to communities. Privatisation leads to the sacrifice of public welfare whilst companies witness an increase in profitability. Cohen (2005) states that many failures and scandals were reported on privatisation processes. It is alleged that it is the more frequent users of public services, namely the end-consumers, who may experience the adverse consequences arising from privatisation; that it is the employees who may be adversely affected by entity reorientation strategies and cost saving measures. End consumers may not receive the promised services. Privatisation can result in job losses, as privatised firms seek to increase productivity and long-term efficiency via restructuring initiatives. A few renowned negative consequences of privatisation reforms in Australia and Europe are given below, prior to concluding this introductory chapter on what privatisation entails.

53 2.5.1.1 Negative Privatisation Consequences According to Rochfort (2005) the privatisation of resulted in its workforce being reduced by 20% over five years and restructure of the workforce and the outsourcing of business functions continues to be a phenomenon. Fairbrother, Paddon et. al (2002 p. 45) argue further that the Qantas privatisation allowed management to focus on reorganization and strategic repositioning of the airline to meet the commercial focus despite the so-called labour dilemma. Telstra provides a further example of workforce redundancy resulting from privatisation of its business through outright sale of assets, outsourcing and joint venture commercialization. The deflated share- price of Telstra shares, the publicly criticized unprofitable expansion of Telstra in Hong Kong, employee redundancies and controversy surrounding provision of telecommunication services in rural areas have been claimed as side effects of this privatisation (Barton 2000; Fairbrother, Paddon et al. 2002; Gittins 2005; Kerr and Probyn 2005). Some further examples of negative privatisation experiences in Australia are power failures (blackouts); reduced service reliability after the divestment of the energy utilities in Victoria (Cahill 2005) and longer patient waiting lists, poor surgery performance and nursing staff lay-offs after privatisation of hospitals or outsourcing in the health sector (King 2000; Young 2005; Pollock, Shaoul et al. 2001)

The UK railway system provides a renowned example of privatisation failure. Crozier (2001) claims this was due to the state remaining partially involved in its operations. In the mid 1990s the British railway system was divided into numerous businesses and specialized activities, resulting in the disintegration of a monopoly by establishing a large number of legal contracts with independent businesses. It is claimed that the fragmentation and involvement of multiple stakeholders in the railway operations meant that catering for passenger needs was neglected. Although the train operators have been successful in raising passenger numbers there are problems with train overcrowding, punctuality, maintenance, employee dissatisfaction. The UK experience of rail privatisation damaged the reputation of privatisation in general within the UK.

54

According to McFertridge (1997) Germany so far has failed in two privatisations, its federal railway system and its telecommunication sector. Whilst the federal railway privatisation saw sales increased4 and its total labour cost cut by DM (Deutsch Marks) 4.4 billion, its workforce was cut by 120,000 employees resulting in similar operating problems as the British railway and destruction of employee morale. The initial public offering of German telecommunication (Deutsche Telekom AG) raised US 13.3 billion in 1996. According to Hyde (2003) the privatisation experience of Telekom AG was similar to that of Telstra in Australia. The share price was deflated after a media campaign urging people to invest in profitable telecommunication infrastructure and the workforce was restructured with many redundancies in the early years post privatisation.

Moore (1992) refers to the initial stage of the privatisation era as the private sector robbing the family silver, implying that the public is robbed of something they already own. A decade after the first privatisation in the UK, privatisation reforms are ongoing. The experiences reported in the literature suggest that there are potential adverse by-products to be expected, notably that some players benefit more than others, in line with the concept of the survival of the fittest in free markets. Private operators, governments and the public should be aware of pitfalls and deal with them in advance. Still, an indicator that the benefits of privatisation generally outweigh the costs may rest in society’s continued acceptance of privatisation of public assets.

2.6 Chapter Conclusion This chapter introduced the privatisation concept for subsequent discussion linking it to the air transport industry. An in-depth view on privatisation from its inception until the present was given. The argument was advanced that privatisation, when accompanied by dynamic management style, employee empowerment and competition, can raise efficiency and benefits to

4 European Industrial relations observatory - "Report on personnel and social issues 1994-1998 at Deutsche Bahn AG"

55 consumers. Cross sectional and pre and post privatisation studies were discussed. This was followed by a review of trade-offs of privatisation consequences, positive and negative consequences for different players, and clarification that there is no standard rule to determine governments’ selling off strategies for different industry assets. Negative consequences associated with renowned failures of privatisation of state owned assets were provided to illustrate that privatisation is fraught with difficulties and the net benefits for society may not be easy to establish.

56 Chapter 3

3 Insight into Privatising the Air Transport Industry: Airport Privatisation

3.1 Introduction This chapter focuses on the air transport industry and specifies the reasons for airport privatisation. Examples of airport privatisation in the UK, US and Australia are given. The airport stakeholders are introduced, followed by an overview of changes that have occurred in the Australian air transport industry. A synopsis of the possible future outlook for the air transport industry sector concludes this chapter.

3.2 The drivers behind Airport Privatisation According to Graham (2003) the globalization and deregulation of the air transport industry and the increasing demand for air transport resulted in the need of a) new infrastructure and b) the adoption of a more business-like philosophy of airport operations. Reports by the Civil Aviation Authority (CAA 1997) indicated that air travel in the UK increased from two million terminal passengers per annum in 1950 to 86 million in 1986 and to 135 million in 1996. Schneiderbauer and Feldman (1998) state that investment programs for airport related infrastructure of an estimated $250 billion - $350 billion worldwide were forecast through to 2005 to keep pace with the projected growth in air travel demand. It is argued that such increased demand is the result of the airlines undergoing liberalization, consolidation and being subject to increased competition. The potential costs of airport expansion are said to have been the driver to seek private sector input to airport development (Doganis 1992; Graham 2003). The aftermath of deregulating the air transport sector in the 1980’s was: airport commercialization, the introduction of commercial activities in publicly owned enterprises; airport corporatization, the setting up of airport companies with public shareholders in which government

57 retained control; and airport privatisation, the transfer of state-owned assets to the ownership of private investors. This study focuses on airport privatisation (Be consistent – no need for italics here when you do not use them in other lists) In line with the changing economic environment and according to Humphreys and Francis (2002), successful airport operators required adequate terminal space to facilitate the movement of passengers, safe operations of airplanes, good relationships with privatised airlines and commercial focus of operational activities. Traditionally, as pointed out by Doganis (1992 p.8), airports were seen as publicly owned utilities, operated and subsidized by the government with the primary objective of facilitating the movement of passengers to serve the public good, rather than as entities engaging profit- driven and customer-oriented commercial activities. Graham (2003 p. 37) suggests that commercial thinking and financial management practices were of no importance and of no priority to airport management until the 1980’s. Prior to the 1980’s governments funded most airport operations and management of airports was controlled and held accountable to state- authorities, which were the major stakeholders. Airport management was dependent upon the amount of capital investment available from the public sector to foster airport growth. As argued by Humphreys and Francis (2002) public sector funds became scarce for airport expansion due to government focus on more political targets such as education and health. As a result direct control of government in airport management was loosened with independent airport authorities being set up, firstly in the UK. The literature claims that airport privatisation became unavoidable in the long run. For instance, a recent study by Lipovich (2008) on the privatisation of Argentine airports emphasises that due to increase in air traffic in Argentina privatisation was seen as the sole solution to upgrade the country’s airport infrastructure.

The arguments as identified by Vasigh et al. (1996), Graham (2003 p.13) and Humphreys and Francis (2002) in support of the rationale for airport privatisation were that; a) a government’s disposal of assets, lowers the budget deficit and promotes investment into other sectors to foster economic growth and development; b) the airlines and the general public profit from a

58 wide range of commercial services; c) the airport operator (once in the private sector) generates more return on investment dependent on long-term plans and expansion strategies and d) that the overall airport business is run as a profitable business.

Parker (2003) and Boycko, Shleifer et al. (1996) argue that, because the driving motive of a private company is profit, not service, privatisation can lead to the sacrifice of public welfare for an increase in corporate profitability. Privatised firms seek increased productivity and long-term efficiency via restructuring initiatives. As stated in Chapter 2, privatisation can lead to increased efficiency in organizations if performance is linked to appropriate rewards for those instrumental in making the efficiency gains. Privatised airport operations, as argued by Graham (2003 p. 49), and Schneiderbauer and Feldman (1998), were to be adding value to society by providing employment opportunities and widening the industry sector through enabling new niche players to enter the market. Controversy surrounds the issue of whether public or private managers act in the best interests of stakeholders (Fairbrother, Paddon et al. 2002; Rochfort 2005). De Neufville (1999) also argues that it is debatable whether all activities, especially those that are central to a community’s’ welfare and open to monopolistic exploitation of the public, such as airports, should be privatised. As there is public interest in an airport operation (service offerings, price and accessibility of the service) full airport privatisation is never going to be appropriate. It is argued that the government should always5 remain as a major stakeholder through regulation and participate in the control of an airport and be accountable to the public. A recent study by Hooper (2002) pointed out that most privatised airports in Asia are under a degree of government control. The next section discusses the identified concerns related to privatising airports.

3.2.1 Airport Privatisation Concerns It is asserted by Graham (2003 p.12) that deregulation of the air transport industry enhanced freedom, a more commercial attitude and produced a more

5 The exception is BAA Plc. – it has been fully privatised; there is no direct government ownership – however the operations are controlled by aviation regulation authorities

59 balanced public- private sector relationship. However, opponents of neo- capitalism policies doubt the ‘new role’ of airports in society. Schneiderbauer and Feldman (1998) point out that only a few observers believed airports could be privatised and even fewer predicted their success. Accountability and public welfare were, according to Vasigh et al. (1996) and DeNeufville (1999), the pre-privatisation prime concerns. Other concerns related to private operators not improving infrastructure and services. The concerns raised by DeNeufville (1999) include the commercial orientation of airports and the acceptability of public utilities with public service obligations being profit driven. Further doubts relate to airport security, incentives of the private sector for long-term investments and corporate strategy driven by the bottom line.

Airports have become attractive and lucrative investment opportunities offering high returns with moderate risk (Schneiderbauer and Feldman 1998; Francis, Fry et al. 2001; Ferguson 2005; Myer 2005; Booth 2008). An example is Sydney Airport owned by Australian-based Macquarie Airports, which outperformed the market three years post privatisation due to its aggressive international expansion and acquisition strategies (Ferguson 2005; Rochfort 2005; Booth 2008). According to Humphreys and Francis (2002) only two percent of the world’s commercial airports were owned by the private sector in 1998. By the year 2000 more than one hundred airports in more than thirty countries were privatised and more than eighty countries had introduced some form of privatisation or commercialization to airports (Enright and Ng 2001; Humphreys and Francis 2002).

There is, however, evidence in the privatisation literature of doubt that private sector ownership is more efficient than public sector ownership6 once the regulatory barriers are removed and competition is enhanced (Forsyth 1984; Parker 1994; Caves and Gosling 1999; Parker 1999). Page (1994) claims that the removal of government restrictions on publicly owned airports acquiring finance for expansion could have been an alternative to the privatisation movement. This study does not debate whether airports and

6 Refer to Chapter 2 – Discussion of various academic studies conducted on the effects of privatisation

60 other state owned assets should have been privatised, but accepts that privatisation has occurred. The focus of this study, whilst acknowledging criticisms of and alternatives to privatisation, is on assessing post privatisation impacts and consequences at Sydney Airport.

As previously discussed, there is no one-size fits all approach to privatising state-owned assets. The next section illustrates the different approaches taken in privatising airports.

3.2.2 Airport Privatisation Methods & Deals Multiple economic and political variables are driving the decision-making of governments in privatising state owned entities (Snyder and Poole 1993). The literature review (Vickers and Yarrow 1995; Humphreys and Francis 2002; Wolf 2003) indicates that privatising airports is evident in outsourcing of facility management activities, initiating public/ private joint ventures, project financing, long-term management contracts and outright equity offerings (also known as share flotation). Table 3-1 below summarizes the various approaches to airport privatisation. Table 3-2 which follows shows the largest airport privatisation deals since 1987 and illustrates that airport privatisation has become an international movement.

61 Table 3-1: Methods of Airport Privatisation

Share flotation – share capital being issued A consortium or an airport operator and traded on the stock market. The only purchasing a 20-30 year lease to operate outright 100% share flotation that took place the airport concession. The lease and was BAA in 1987; other partially floated financial terms do vary, however the airport companies were Vienna airport, government receives an initial payment and Copenhagen, Zurich, Malaysia airports. In annual fees. The concessionaire has full order to float on the stock exchange, the responsibility of the operations and future airport company is required to issue a investments. prospectus of profits to make the airport attractive to investors. The same rules apply as to the other companies that are listed on the exchange.

Trade sale (in this study also referred to as Project Finance – a company builds, lease) occurs when all of the airport is sold redevelops and operates the airport or part to a trade partner or consortium. At least one thereof for a certain length of time. The of the partners has the expertise in airport government will receive no upfront operation. Australia and many other nations payment, but the private operator will pay favour the trade sale. The Commonwealth for all necessary investment and retains the government has sold the airports on a 50 revenues over the length of its ownership; year lease (with certain rights to operate the before the rights are returned to the airport) with an option to extend the lease for government. Models of project finances are 49 more years. It did not engage in the as follows: BOT – Build –Operate-Transfer; outright equity sale of the assets, as the BT – Built –Transfer; DCMF –design- Australian government did not want to construct-manage-finance and various dispose of key strategic assets indefinitely. others do exist. A prominent example of The first phase privatisations of the project finance is the Athens airport in Brisbane, Perth and Melbourne airports in Greece, with the contractors being 55% the 1996, as well as the sale of 15 other regional Greek government and the German Australian airports in 1998, together with the construction company Hochtief consortium sale of Sydney Airport to the Macquarie/ holding 45%. The US, the most privatised Hochtief consortium, have been carried out airport industry, follows this line of as a trade sale. In Australia In order to privatisation together with the concession. promote competition, restrictions were imposed on not having the same consortium owning a number of large airports.

Management contract – ownership remains with the government and the contractor pays an annual operating fee and operates the airport on behalf of the government. Investments and long-term strategic decisions are made by the government. Source: Modified and Collated from (Schneiderbauer and Feldman 1998; Aviation-Strategy 1999; Graham 2003)

62 Airports are core strategic assets of nations and tend to be monopolistic. Hooper (2002) points out that their privatisation remains high on the agenda of public policy with greatest successes being reported in situations where the institutional framework for privatisation has been well developed and where the political risk factor is reduced. According to Schneiderbauer and Feldman (1998) airport privatisation through either a trade sale or flotation impacts on the stock market. The trade sale was the privatisation method chosen in Australia. As shown in Table 3 most developed nations have privatised their largest airports, depending upon the nation’s political and economical stability, through an IPO (Initial Public Offering), trade sale, project finance or airport concession (Doganis 1992; Poole 1994; DeNeufville 1999; Pfahler, Niemeier et al. 1999).

63 Table 3-2: Airport Privatisation Deals

Year Airport Reason & Form of Privatisation Deal (Dollar value) if available OR main parties involved 1987 BAA 100% IPO 1992 Vienna (I) 27% IPO 1993 Copenhagen 255 IPO East Midlands Trade Sale (100%); Access to finance for Pound 40 million / National Express expansion 1995 Vienna (II) 25% IPO Birmingham Trade Sale (51%) Aer Rinta/ Nawest Ventures (40%) 1996 Athens Project Finance (30years) Greek government (55%) and Copenhagen (II) 24% IPO 2nd offering Hochtief (45%) JFK IAT Project Finance (20 years) Schiphol consortium Toronto Project Finance (from 1987; terminated) Lockheed Consortium Bolivia Concession Agreement 25 years AGI (now TBI) 1997 Rome 45.5% IPO Aeroport de Montreal consortium Hungary: Budapest Project Finance (12 years) AUD: Brisbane 1.397 million Australia (I) Trade Sale (50 year lease) Melbourne 1.307 million Perth 639 million UK: Luton Concession Agreement 25 years AGI now TBI Naples Trade Sale (65 %) BAA 1998 Argentina Concession Agreement 33 years Aeropuertos Argentina Consortium Australia (II) Trade Sale (50 year lease) AUD: Adelaide 365 million; Alice Springs/ Darwin 110 million; Archerfield 3 million; Canberra 66 million; Coolangatta 104 million; 36 million; Jandakot 7 million; Launceston 17 million; Moorabbin 8 million; Townsville/ Mt. Isa 16 million Santiago de Chile Concession Agreement 15 years Stockholm Trade Sale (90%) YVRAS consortium South Africa Trade Sale (20%) TBI Stewart, NY, USA Trade Sale (100%) ADRI Southafrica consortium Auckland, (NZ) 51.6 % IPO National Express 1999 Costa Rica: San Jose Concession Agreement 20 years TBI Uruguay: Montevideo Concession Agreement 20 years YVRAS consortium Philippines: Manila Project Finance (25 years) Fraport Consortium Malaysia Airports (org. 18% IPO owning 37 airports) 2000 Copenhagen 17% IPO – 3rd offering (incl. share buyback & government control amounting back to 40%)

Zurich (Switzerland) 22% IPO and 28% 2nd offering Leonardo Consortium 39% IPO Benetton Group consortium Florence (Italy) Trade Sale (51%) Hochtief and Aer Rinta consortium Rome (Italy) Trade Sale (41%) Turin (Italy) Trade Sale (36%) Germany: Hamburg 2001 Germany: Fraport 29% IPO UK: Newcastle Trade Sale (49%) Copenhagen airport Egypt: Sharm El Sheik Project Finance (25 years) YVRAS consortium Trade Sale 2002 Sydney (Kingsford Smith) Trade Sale SCACH Airport 2007 Hobart Airport Trade Sale Private Consortium (Macquarie Capital & The Retirements Benefits Fund)

Source: Compiled data from Mercer Consulting Analysis (1998); Graham (2003) – Airport Privatisation through share flotation/ trade sale/ concession agreements.

64 3.3 Ownership, Management and Control: Comparative Airport Privatisation Experiences in the US, UK and Australia

In line with DeNeufville (1999) full privatisation of airports is not acceptable, as public interest and social welfare need to be protected. To date most privatised airports are still partly under government control. Governments remain involved either through share partnership or regulation of airports. An understanding of changes in ownership and associated management and control aspects of airport operations is relevant to the theoretical framework and discussion of findings in this study. As discussed in Chapter 2 ownership changes affect the management and control of privatised state-owned entities. Table 3-3 sums up the pre and post privatisation ownership changes and elements of control for airport operators in Australia, the UK and the US. This summary is followed by a discussion of airport privatisation experiences in these three countries.

65 Table 3-3: Ownership and Control Pre and Post Privatisation Country Element of Fully Shared Regulated Fully Control Government Control Control Private Ownership x Planning x USA Design x Finance x Operation x Pricing x Access x Ownership B P Planning B P Design B P UK Finance B P (BAA) Operation B P Pricing B P Access B P Ownership B P Planning B P Design B P P Australia Finance B P Operation B P Pricing B P Access B P

B= Before privatisation; P= Post privatisation; X= Situation in the US where privatisation reforms were never needed for the creation of an open-market Source: (DeNeufville 1999)

3.3.1 The US Experience The US airport sector differs from that in other parts of the world as privatised airports outside the US are still subject to some national government control. Airports in the US are commercial individual entities owned and operated by municipalities independent of national governmental control. According to DeNeufville (1999) airports in the US have always operated in a competitive environment because airlines have bargaining power; they can influence decisions in airport development and management, through their veto rights as defined by their stakeholding in airport lease agreements. Airport operators in the US also control all aspects of airport design, financial planning, operations, pricing and access (Snyder and Poole 1993; Poole 1994; DeNeufville 1999).

66

3.3.2 The UK Experience According to Graham (2003 p.28) the objectives behind UK airport commercialization and privatisation reforms were to encourage efficiency in airport operations through private investment of capital. The UK was the first and only country to fully privatize and commercialize one of its airports. Schneiderbauer and Feldman (1998) report that ownership of the British Airport Authority (BAA plc) with all its seven airports, namely Heathrow, Gatwick, Stansted, Prestwick, Aberdeen, Edinburgh and Glasgow, was transferred from government to a private company and listed on the stock exchange in April 1987. Each of the seven airports became a subsidiary company of BAA plc., responsible for its own financing, expansion and accountability to shareholders.

The other 16 airports of local authorities have been turned into limited companies under the 1986 Airports Act with the objective of transferring the economic burden of airports from the public sector to the private sector. According to Humphreys (1999), the aim was to make airports financially self- sufficient. By 1992 the majority of UK-based airports had created marketing departments, were engaged in market research and promotional campaigns aimed at airport users, and were monitoring customer satisfaction. Humphreys (1999, 2002) and Graham (2003) claim that it is not only the airport sector that has profited from privatisation; the financial markets, marketing agencies and various other stakeholders have benefited in the aftermath of commercial expansion of airports in the UK.

3.3.3 The Australian Experience Airports in Australia, according to Forsyth (2001) and Hooper et al. (2000), do exhibit monopolistic market power due to great geographic distances and lack of close substitutes for the services offered. They have a constant need of capital investment to meet the domestic and international demand and are seen as major tourism and trading gateways to large economic regions.

67 The Australian government decided to privatize all 22 airports of the Federal Airport Corporation (FAC)7 (Murphy 1996). The rationale for privatising Australian airports from the government view (Sharp 1996) included:

 long-term facilitation of innovative management and greater local involvement and input to decisions on their operation and development,

 continuation of provision of quality airport services under Australia’s international obligations and consistent with the sound development of civil ,

 promotion by the airport lessees of the economic development of the leased airports – in a way that is responsive to the interests of users, the environment and the region in which they are located,

 adoption of a pricing policy by each airport to be supportive of investments necessary to serve the interests of the Commonwealth government, and of the aim of protecting airport users from potential abuse of market power by airport operators.

According to Knibb (1999) Australia was the third country in the world to privatize its airports. Triggered by the country’s discovered potential as a tourist destination and pressure from global liberalization reforms in the aviation industry, Federal and State Governments in Australia decided to privatize Melbourne, Perth and Brisbane Airports in 1996, fifteen other regional airports in 1997, and Sydney Airport in 2002 (Cousins 1996; Dinnison 1996; Knibb 1999). It was argued that the amount of investment needed for these core state-owned assets to achieve international standards and maintain their competitiveness imposed financial barriers for the government to run the airports efficiently (McGhee 1996; Sharp 1996; Hooper 2000). The federal airports were leased via a trade sale for 50 years with an extension of 29 more years, with foreign ownership limited to 49% as airports are strategic assets in nature and airline ownership was limited to 5% to protect the independence of hubs (Ashford, Stanton et al. 1997; Knibb 1999; Graham 2003).

7 The FAC was the owner and operator of 22 airports around Australia with 57 million passenger movement a year, 1200 employees, $ 2.3 billion in assets (as of June 1997) with its mission statement: To provide and Operate world-class airport facilities and build maximum value at each Federal airport in Australia consistent with Government Policy

68

In Australia the reasons for the government’s choice to lease the airports rather than sell them under freehold title included, according to Ross Smith (1996) (Chairman of the Airport Sales Taskforce): a) the need to maintain the power of the Commonwealth to provide Constitutional legal support to some of the regulatory provisions in the Airports Bill 1996; and b) the wider public presentation and perception benefits associated with leasing rather than selling national strategic assets. Further,he highlighted that the regulatory framework of the airports post leasing was to achieve two principal outcomes:

 First, it must allow the private airport operators to provide the necessary services on a commercial basis

 Second, it must ensure that the public interest is protected

According to Sharp (1996) and Smith (1996) in Australia “leasing” was also chosen as the privatisation mechanism as this option allowed for:

 Retaining of flexibility in the “sale” strategy to the extent that it would not preclude subsequent decisions by government to float or partially float the larger airports, should that be desirable in light of market or other developments

 Diversity of ownership in airports to improve the efficiency of airport investment and operations

 Ensuring that airports remain Commonwealth places. The Commonwealth could continue to subject airport operations to the full range of the Commonwealth’s regulatory powers

Sharp (1996) also indicated that leasing the airports was a pragmatic decision as the government wanted to protect the interests of users involved in airport operations, by ensuring that the regulatory safeguards could be maintained in the future (p. 7). Thus, leasing of the airports has not changed the role of Civil Aviation Safety Authority in the setting and enforcement of compliance with safety standards, nor the government’s role in enforcing aviation security standards. The Commonwealth’s environment impact assessment policy also continued to apply to leased airports with each airport operator being required

69 to submit, for ministerial approval, five-year strategies for managing environmental issues.

The simultaneous sales of seven major Australian airports, excluding Sydney Airport, were also considered superior to sequential sales, as according to Sharp (1996) :

 Maximum bidding pressure was likely to be maintained thereby maximizing sales proceeds,

 They enabled comparisons of bids for groups of airports with those for individual airports; and

 They maximized the bidding pressure as successful bidders would not be precluded from bidding for other airports by cross ownership restrictions, as may occur with sequential sales

It is apparent from the above that the original government intentions and arguments for privatisation and associated views of some stakeholders, were mainly of an economic and financial nature (see discussion in section 7.3.2). The privatisation of Sydney Airport, arguably Australia’s most important airport, was politically controversial due to the airport’s physical constraints and environmental and congestion problems (Ballantyne 1997; Feldman 2001). However, it is argued by Baird (1996) that if Sydney Airport had not been privatised it would have become the greatest ‘white elephant’ that NSW taxpayers had to fund.

Smaller regional and local airports owned by the Australian government were transferred to the ownership and responsibility of local authorities, usually local government Councils, in the mid 1980s. The Federal Labor Government gifted local airports to 243 local councils in Australia under the Aerodrome Local Ownership Program (referred to as ALOP) from the late eighties to the early nineties (Hooper 2000). The gifting of these key infrastructure assets was usually accompanied by large capital grants to offset future maintenance costs. The reasons behind the gifting were to:: a) free the Commonwealth of the ongoing cost of maintaining and operating many small airports; b) provide the right to local communities to control and manage matters impacting on

70 their towns’ characters and personalities as reflected in the experiences of visitors; and c) allow councils to operate airports for the benefit of local communities.

3.4 Emergence of Airport Stakeholders The air transport industry is a key element in every nation’s economy. It is claimed that this particular industry contributes to public well-being, by improving the quality of life through assisting in community development, providing job prospects and a platform enabling people from all parts of the world to come together (ACI 2005). A recent report issued by the High Level Group for the future European Aviation Regulatory Framework (2007) comments on the changes that have occurred in the aviation industry. It points out that states have stepped back from direct involvement in aspects of service delivery and infrastructure operations and that a consumer driven focus has replaced the traditional producer driven focus (p.10). Privatisation in the air transport industry is said to have led to the emergence of new industry players enabling the airport operators to raise additional capital, improve efficiency, reduce costs, seek new revenue streams, engage in market- oriented investments, enhance competition among airlines and become accountable to the public (Poole 1994; ACI 2003 a).

Involvement of private firms in building and operating airports relieves the public sector of huge financial burdens. It is argued that the initial public pre- privatisation concerns of airport privatisation became non-existent once the commercial development and expansion of airports brought revenue to shareholders, more jobs to the public and greater number of airport links ,including increased public transport for the community (Humphreys and Francis 2002). Applying Michael Porters (1980) model to the air transport industry, the barriers of entry have been reduced on an international scale, and customers and the various suppliers have increased their bargaining power (Doganis 1992; Schneiderbauer and Feldman 1998; Graham 2003; Park 2003)

71 Leading airport operator groups have realised the potential of the privatised airport business success in the domestic market and on a global scale since the 1990’s. According to Schneiderbauer and Feldman (1998) and Booth (2008), entrants into the emergent business of airports such as Macquarie Bank and Lehman Brothers and property developers such as Canadian based Trizec Hahn or German based Hochtief have realized the potential of airport property redevelopment worldwide. It is asserted that other businesses such as airport concessionaries providing retail, catering, transport and handling services have also benefited from airport privatisation.

Airport privatisation has led to private companies gaining more of an input in airport site development, including the provision of employment opportunities. Therefore, as pointed out by Humphreys and Francis (2002) and Graham (2003 p.37), the involvement of more stakeholders made the airport business more complex, with stakes and risks being driven higher.

Details on stakeholder identification relevant to this study are provided in Chapter 4.

3.4.1 Effect on Stakeholder Operations in Australia In Australia the current political climate supports the free market philosophy of privatisation and user-pay principles. It can be asserted that this philosophy in relation to the air transport industry has resulted in increased efficiencies and improved services for consumers in metropolitan and regional areas.

In July 2002 (post Sydney Airport privatisation) a light-handed regulation regime was introduced to prevent unwarranted price increases for aeronautical services at the seven major Australian airports. The intention was to encourage mutually acceptable commercial agreements between airports and airlines. This price monitoring regime handed the responsibility of monitoring prices at these airports to the Australian Consumer and Competition Commission (ACCC).

72 An inquiry by Australia’s Productivity Commission (hereinafter referred to as PC) into the light-handed regime was conducted in 2006. Airlines and others affected by airport operations submitted that: airport charges were excessive, particularly in areas not captured by the definition of aeronautical (versus non- aeronautical) charges; airport asset valuations used to argue for increased returns on investment were unrealistic; and airports as monopolies have no intention of engaging in commercially constructive way with airport users (ACCC 2006; Qantas 2006; Rex 2006) Figure 3-1 below presents graphically the issues raised by major airport users as identified in the PC submissions.

Problem Identification by the Productivity Commission Inquiry 2006

Commercial Negotiation Difficulties

Uneven Stakeholder Lack of Power Distribution Transparency and i.e. Airport Operator Confidentiality = Monopoly (?)

Problems with the “Light-Handed” Price Monitoring Regime Classification Dilemma Disputable of Aeronautical Valuation Practices vs Non-aeronautical Services Increased Airport Charges & additional Hidden Costs for Airlines

Figure 3-1: Productivity Commission Problem Identification Adapted from co-authored paper “Challenges for Regional Aviation in Australia – A Case Study on Rex Airlines “with Glenda Davis; presented at the ATRS (Air Transport Research Society) conference in Berkeley, USA July 2007

In reviewing the submissions to the Productivity Commissions Inquiry 2006 it was identified that the interests of airlines and airport operators do differ. Airport operators profit from both aeronautical (operation related) and non- aeronautical (commercial related) revenues, and increasing airport charges in

73 both areas led to negative stakeholder perceptions of the airport privatisation reforms. According to Graham (2003 p. 56) examples of aeronautical revenue streams are as follows: landing fees; passenger fees; aircraft parking fees; and other aeronautical fees such as air traffic control; lighting; and air bridges .Non-aeronautical revenue streams refer to concessions, rents, direct sales, car parking, charges for utilities and other. This differentiation between aeronautical and non aeronautical or “commercial” revenue streams is adopted for the purpose of this study; particularly in Chapter 6 when illustrating the longitudinal revenue streams from 1999-2006 at Sydney Airport.

Aeronautical services over which airports in Australia were considered to have market power were defined as aircraft movement facilities and passenger processing activities. In relation to aeronautical and non-aeronautical definition problems, the ACCC (2006) argued that the whole bundle of services that airport users require should be included in future regulatory arrangements. The revenues from the seven8 price monitored airports have grown since 2001 and it is said that more than half of revenues are generated from the provision of non –aeronautical services (ACCC 2008). It seems that clear control and guidance of the pursuit of non –aeronautical revenue is lacking and it is asserted that Australian airports pursue excessive non- aeronautical use of airport land (Watkins 2006). An example was provided by Rex Airlines (2006) that believes that Sydney Airport is adopting the approach of real estate developers rather than behaving as an airport (p. 14).

A further problem commonly identified in submissions was the reluctance of Australian airport operators to engage in financial transparency (Airlines 2006; Qantas 2006; RAAA 2006). Other airport users have also expressed dissatisfaction with the current dual till approach which does not require disclosure of non-aeronautical prices. Airport users such as airlines and even the ACCC (2006) believe that the current regime does not provide information about whether monopoly profit is being generated in the longer term by airport

8 Sydney, Melbourne, Adelaide, Perth, Brisbane, Darwin, Cairns

74 operators. Airport users also claimed that airport operators fail to negotiate reasonable terms and conditions in terms of slots, hubs, or fuel throughput charges relating to their day to day business operations (BP 2006; Qantas 2006; RAAA 2006; Rex 2006; Shell 2006; VirginBlue 2006). On the other hand airport operators argue that the existing flexible pricing regime assists in dealing with resource constraints and enhances commercial relationships with airlines (Schuster 2006).

3.4.2 Future Outlook of the Privatised Air Transport Industry As mentioned by Kain and Webb (2003 p.29) the Australian government’s stated rationale for privatisation was to improve the efficiency of airport investment and operations in the interests of users and the general community, and to facilitate innovative management. The air transport industry is maturing and is growing as travel and the demand for accompanying air transport services have become a commodity (Pfahler, Niemeier et al. 1999; Graham 2003; Thomson 2005). A recent study by the Bureau of Infrastructure, Transport and Regional Economics (BITRE (2008)) demonstrates that the total number of passenger movements in Australia at all major airports increased by an average of 5.2 per cent a year in the last fourteen years, from 51.6 million in 1991-1992 to 104.9 million in 2005-6. Despite the maturation of the influence of the low-cost carriers and the expected slowing of the Australian economy, passenger movements are forecast by the BITRE (2008) to increase by 4 per cent a year over the next 20 years to 227.9 million in 2025-26 (p.xxxiii). Competition among the airport operators has shifted from focusing on travel demand to providing better service quality and managing expansion strategies. It is envisaged that the airport industry will experience the globalization trends of various other industries. It is predicted that privatisation will continue to be pursued internationally, but with increasing economic regulation and control imposed by authorities over price, safety and environmental matters (ACI 2005). Aviation experts forecast an increase in international ownership of airport operators by major airport companies or consortia (Francis, Fry et al. 2001; Humphreys and Francis 2002; Graham 2003). It is further claimed that abuse of market power will be prevented by the authorities if airport operators

75 become too driven and directed by the bottom line. Further cost reductions will be achieved through airport alliances or takeovers, resulting in one single head office with centralized functions, joint training, insurance and marketing as well as access to capital and aviation ground services (Pfahler, Niemeier et al. 1999; Graham 2003).

In the future the large global airport management companies may revamp, using franchising concepts, the design of airports under their control – all airports would have identical layout, internal design, service, and hopefully the same airport charges (Doganis in (Pfahler, Niemeier et al. 1999)). The chances of merger and acquisitions of regional and national as well as international airports by the few largest airport operators, it is said, can become a reality in the future. According to Cousins (1996) a collision of interests of consortia owning the leases to major airports in Australia is unlikely as no one interest is allowed to lease more than one of the big five airports, Brisbane, Perth, Melbourne, Adelaide, Sydney.

In Australia the principal impact of privatisation appears to be related to growth in non-aviation commercial activities at airports in pursuit of company performance and shareholder wealth maximisation, rather than traffic growth and satisfaction of airport stakeholders. This growth in non-aviation activities is highlighted by the development of a retail outlet centre on airport grounds at and by ongoing debates about planned expansion of extra office space, new retail and accommodation facilities as well as enlargement of car parks at Sydney Airport (Guardian 2005; Thomson 2005). Such a commercially oriented approach at airports, it is said, attracts traffic movements, increases congestion and pollution, and encourages expansion of business activity in the surrounding environment. Although the Australian government oversees noise and pollution as well as airport charges (price regulation), airports are not subject to social responsibility reporting requirements or other regulatory provisions. In developing a performance assessment model for privatised airport operations as part of this study the attributes relevant to the various stakeholder groups, as well as the direct and indirect controls placed on airport operators, need to be taken into account.

76 Such an assessment model should determine whether the strategies and operations of privatised airports are socially acceptable or whether they reflect socially unacceptable monopolistic behaviour from key stakeholders’ viewpoints.

Having reviewed the literature on airport privatisation, particularly that relating to Australia, we address the issue of the perceptions of stakeholders about the impacts they have experienced due to the privatisation reforms. This study’s investigation of the privatisation impact on stakeholders begins with the post privatisation concerns expressed in submissions made by airlines, other airport users and their representatives to the 2006 PC inquiry into the current arrangements for the price regulation of airport services. It is argued by airport users that airport operators have become monopolies controlled by private interests with little regard for the welfare of airport users and communities.

Furthermore, if indeed the airports do possess the capacity to abuse their monopoly positions it is important to assess privatisation outcomes based on attributes and indicators that are relevant to the key stakeholders involved in airport operations. It is suggested that such a model needs to take into account that airports are not only responsible for their cost/revenue structure and the traditional core competency of facilitating movements of passengers, but that the focus is also on the provision of customer services in the air, on the ground and accountability to the stakeholders.

3.5 Chapter Conclusion This chapter explained the context of airport privatisation and the government’s rationale behind involving market forces in the decision-making of running airports. The reasons for airport privatisation, such as the constant need of capital investment and the changes that occurred post privatisation ,were explained. Airports have become attractive and lucrative investment opportunities offering high returns with moderate risk. Airport privatisation has led to the emergence of additional stakeholders and critical issues, most

77 notably the investors and the importance of their financial interests on the commercialisation of airport operations, have become apparent. Arguments were provided against full airport privatisation as there is strong public interest in an airport operation. Accountability and public welfare were identified as the pre-privatisation prime concerns, and the argument was raised that government should always remain as a major stakeholder through regulation ,participation in the control of an airport and accountablility to the public.

Privatisation examples from the UK, Australia and the US were provided. It was stated that, particularly in Australia, airports exhibit monopolistic market power due to great geographic distances and lack of close substitutes for the services offered. This was followed by discussion of the outcomes of airport privatisation in Australia and how these will be investigated through stakeholder eyes in this study. In the next chapter, performance measurement and stakeholder theory is discussed to illustrate the conceptual framework for this study. An understanding of changes in ownership and associated management and control aspects of airport operations is relevant to the theoretical framework and discussion of findings in this study.

78 Chapter 4

4 Performance Measurement, Stakeholder Theory & The Conceptual Framework

4.1 Introduction Assessing corporate performance and the need for extending organizational performance measures beyond the traditional financial indicators is recognized in the literature. This chapter links the relevance of stakeholders in performance assessment to the conceptual framework of this study. In the previous chapters it was proposed that privatised airports have experienced an increase in efficiency due to the change in ownership rights, intensified competition and the emergence and involvement of new stakeholders such as investors. The underpinning assumptions for developing the ‘experimental’ literature-based theoretical model for assessing privatised airport performance from stakeholder perspectives are discussed. Thereafter the experimental model is presented. This model was subjected to comments from the interviewees and in light of the comments was modified as the Stakeholder Airport Performance Assessment Model (SAPAM). SAPAM is introduced and discussed in chapter 9.

4.2 Significance of Performance Measurement According to the Boston Consulting Group (2000) successful organizations strive to outperform one another in competing for customers (p.85). An aftermath of globalization and increased competition is that most organizations adapt the Darwinian theory of ‘survival of the fittest’ in their business undertakings. Literature in the field of performance indicates that performance measurement and control are critical to improving organizational performance. Organizational theory suggests that the internal environment (being the organizational structure) must adapt to the changes in the external environment that is driven by consumers, politics (such as reforms) and economic factors (Pryke 1983; Parker 1995; Epstein 2004). According to

79 Walsh (2005) corporate performance is evaluated by utilizing key performance indicators (KPI) in the form of objective as well as subjective measures, depending on what is to be measured (p. 76). The difficulty, however, lies in the identification process of what needs to be measured and how to measure it. Due to the complexity involved in measuring performance outcomes this task is perceived by Mintzberg (1996) as an ideology expressed in either quantitative or qualitative terms.

Emphasizing the importance of carrying out performance analysis, Cain (2004) asks how an organisation would know it is doing well if it does not know how well it is doing. Performance measurement is thus important because it assesses and provides indicators to steer the company in the right direction. Epright (2004) and other researchers (Bantel and Osborn 1995; Kotter and Heskett 1996; Kaplan and Norton 2001; Manzoni 2004) maintain that organizational performance is measured by focusing on appropriate performance measures of inputs, processes, outputs, outcomes as well as the environment and institutional strategy. The most timely and appropriate measures for the information requirements of particular stakeholders, such as community, passengers and airlines, may be non-financial. It is well recognised in the literature that organizational performance measures (as further emphasized below) need to extend beyond traditional financial indicators (Brignall 1996; Kaplan and Norton 1996; Brignall and Modell 2000; Johnson 2001).

Key performance measures are defined as performing three core functions according to Neely (1998): a) assisting the businesses to comply with regulatory obligation (financial measures/ data in annual reports); b) assisting management to check financial and non-financial health of the business; and c) supporting the strategic direction and vision of the business. Empirical studies on performance measurement in organizations utilizing key performance indicators form a large field in academic and industry research. This field of research is widely accepted but also criticized due to the underlying argument about whether an organization's success can be indicated by a few tangible measures (Peters 2001; Epstein 2004; Walsh, Lok

80 et al. 2005). Thus it is argued that traditional financial measures should not be the sole focus of performance measurement at many organizational levels (Peters and Waterman 1982; Watson 1993; Niven 2002). Although accounting and finance literature points toward multiple generic measures9 that can be compared and benchmarked against competitors and industry averages, these standard measures cannot be applied to all industries due to the nature of the various entities. Measuring overall business performance is perceived by experts as a complex task. The challenge lies in aligning performance indicators with the strategic direction of the entity which for the airport is to meet the demands of stakeholders, including consumers, investors, suppliers and regulators. It is argued in Chapter 8 that value captured from privatised airport operations at Sydney Airport has resulted in increased profits per arriving passenger, departing passengers and airline movements.

After all, it is the airport operator and management that has an active role of driving the airport business as it has a clear value capture role post privatisation. The airlines as well as the airport operator and other infrastructure asset providers have taken on the role of implementers and value creators, whilst the value is captured again by and for the passengers and the investors. Pre-privatisation the value creator was the government and capturers were the airlines as well as the passengers who profited from the ‘traditional’ focused airport business. The value creator and value capture definitions used in this study are derived from the business model of Chesborough’s (2007) which incorporates two key functions: (i) value creation – a series of activities which yield new products and services in such a way that net value is created; and (ii) value capture – profiting from a portion of those activities for the organisation developing and operating it.

Strategy as defined by Ansoff (1965) and Andrews (1971) is a viable, rational planned response of senior management to what is happening in the external environment. The strategic response achieves superior financial performance,

9 Popular measures analysts use are the P/E ratio, EPS, ROE, turnover, leverage, ROA and many others, depending upon the focus of the business analysis Rappaport, A. (1986). Creating Shareholder Value - the new standard for business performance. New York, The Free Press, Viney, C. (2004). Financial Institutions, Instruments and Markets. Sydney, McGraw Hill.

81 success and value through carrying out action steps and benchmarking (Ansoff 1965; Andrews 1971; Porter 1990; Watson 1993). Kaplan and Norton (1996, 2001 and 2004) argue that the balanced scorecard is a framework that assists in developing measures that translate strategy into action and track progress over time. The theoretical model for assessing privatised airports has been developed by adapting the conceptual idea of the Balanced Scorecard to encompass key performance indicators that stakeholders in the privatised airport consider to be critical from their perspectives. Taking individual stakeholder perspectives into account when assessing privatised airport operations is proposed to be in line with the strategic direction of an airport in meeting demands of key airport stakeholders. This is discussed later in the chapter (section 4.4.2).

This research project does not aim to define performance measurement or to debate it from different perspectives. It acknowledges that airports are complex entities made up of multiple stakeholders with different perspectives on performance areas that they consider important. The project aims rather to derive a performance assessment model that is acceptable to different stakeholders by providing each with relevant measures of post-privatisation airport performance. The preceding discussion raises the following points in support of the stakeholder approach to performance measurement:

 performance measurement is critical for management decision-making of firms operating in a competitive environment,

 performance measurement, as the literature points out, does have pitfalls and difficulties,

 performance measurement needs to include the perspectives (measures) of key stakeholders involved in operations to ensure stakeholder specific attributes are considered that take into account the new paradigm that portrays an airport as a cluster of commercial activities with a focus on meeting the demands set by various stakeholders, rather than as a core business that facilitates passenger movements

82  performance measurement is not straight-forward because the factors that need to be considered for measurement purposes differ among entities; there is no ‘one-size fits all’ measurement concept that can be applied to organizations.

If the argument is to prevail that privatisation reforms lead to overall beneficial outcomes for society, the claimed value creation gains need to be measured in order to confirm this and ensure these reforms are acceptable to the public. As airports are essentially public infrastructures that serve the public interests these measures of benefit to society are particularly important in the context of airport privatisation.

The next section examines the difficulties of assessing privatised outcomes, and in particular the challenges of measuring airport performance.

4.3 Difficulties when Assessing Privatisation Outcomes As discussed in the previous chapters, privatisation ideology is based on a belief in efficiency gains through changes of ownership, regulation and competition. Assessing the outcomes of privatisation is a challenge because approaches to privatising state-owned assets differ throughout the world. Popular initial measures were to assess the number of privatisations in terms of overall monetary value or to simply measure the number of state-owned enterprises sold (McFetridge 1997; Mead and Glenn 2002; Parker 2003). Therefore countries that managed to sell-off their state assets for the highest prices could claim to be the most profitable; countries that sold off the greatest number of state-owned assets could claim to be most efficient as their privatised assets outperformed the public sector assets of other nations. Tsamenyi et al. (2008) and others (DeNeufville 1999; Parker 2003; Fafaliou 2007) report that most of the research on the outcomes of privatisation programs tends to be at the financial-macro-level of examining the impacts of privatisation on the economy in terms of GDP and government revenue. DeNeufville (1999) emphasizes further that analysing the proceeds of privatisation only offers a gross flow measure; it does not show the change in value and/or the efficiency gains of the ownership change of government

83 enterprises. A study by Megginson and Bouchkoua (Megginson 1999) on behalf of the Organization of Economic Cooperation and Development (OECD) used economic indicators to evaluate the outcome of privatisation programs in fifteen countries. The problem is that this approach does not explain the full impacts of privatisation, especially at the firm level. In addition the World Bank (2000) and Prizzia (2001) identifiy the need to refocus post- privatisation performance measures from the existing short-term financial orientation to that of long-term qualitative orientation which focuses on human, social and environmentally sustainable development.; others support this view for measures of performance of economic and social nature.

By focusing only on financial indicators the success or failure of privatisation programs is viewed, as described by Tsamenyi et al. (2008), through one lens. Performance measurement literature supports the proposition that the inherent differences and shortcomings of analyses of privatisation outcomes lie in the approach of utilizing single categories of measures. Affanfi (as cited in (Tambunan 1990)) points out that it is inappropriate to seek one single performance measure that is applicable to all types of public and also private enterprises that are conducting various business functions. Miller (1995) found that the most common measures used in international performance studies were financial. According to Maniatis (1970) profitability is the ultimate test as it is objective and dependable, being a one dimensional and encompassing measurement of the effect of the entire spectrum of the determinants of efficiency. Profit is the bottom line of corporate performance assessment. Niven (2002) and Parker (2003), on the other hand, argue that focusing solely on traditional financial measures for performance measurement does have limitations, one of which is their lack of decision-making relevance at the many organizational levels that are not directly dealing with the numbers underlying profit. The argument against profit being a valid indicator for privatised entities is that they may exhibit some monopolistic characteristics. Whilst profit may be a useful measure of efficiency in competitive markets, it is more problematic in imperfectly competitive conditions because profits may reflect monopolistically higher prices rather than more efficient production practices.

84 This is especially pertinent when assessing the performance of privatised national infrastructure, including airports,

Many cross-national and longitudinal empirical studies (Fraja 1993; Megginson, Nash et al. 1994; Miller 1995; Parker 1995; Pollitt 1995; Eckel, Eckel et al. 1997; Parker 2003) have proven allocative, productive and/or economic efficiency gains from privatised operations. Most of these studies utilize a quantitative approach which does not take into account stakeholder perceptions of the implemented reforms. Examples of the factors and variables examined in these studies are: competition and regulatory and internal management changes (Parker 1995); the impact of the agency theory upon leadership changes with the focus on the bottom line (Andrews and Dowling 1998); increased performance with dividend payouts and changes in capital structure but without employment sacrifice (Megginson, Nash et al. 1994); and share price increase after privatisation announcement (Eckel, Eckel et al. 1997).

Bantel and Osborn (1995) argue further that high performing private firms do pursue industry-specific strategies and a linkage exists between institutional identifiability and performance. Pryke (1983) in analysing public enterprises found that most public enterprises in the UK performed poorly in terms of their competitive positioning, strategic objectives and profitability due to inefficient use of labour and capital.

As stated in the literature, productivity and cost calculations are the preferred options when assessing performance in public utilities pre and post privatisation (Vickers and Yarrow 1995; Fairbrother, Paddon et al. 2002; Parker 2003). The term productivity in this context refers to the ratio between the goods and services produced and the quantity of production resources consumed (or costs). Mathematical models such as the DEA (Data Envelopment Analysis) and TFP (Total Factor Productivity) concentrate on the multiple inputs that make up productivity. However, the literature suggests that statistical modelling such as TFP, with productivity gains as a residual, presents reliability problems, as capital input is difficult to measure (Hensher

85 1993; Parker 1999). Other quantitative measures used to examine the effects of privatisation are changes in prices, productivity, profits, service quality and environmental compliance. The latter two measures particularly emphasise, as claimed by McFetridge (1997), that it is a net public welfare approach that is appropriate because it is society that is meant to benefit from privatisation.

According to Walsh (2005) private, public and not for profit organizations have embraced the so-called ideology of performance measurement (p.87). Literature on performance measurement emphasizes that financial measures need to address and relate to an assessment of stakeholders’ objectives to help companies create competitive advantages ((Fitzgerald, Johnston et al. 1991; BCG 2000; Brignall and Modell 2000; Vasconcellos 2005). It is suggested by Parker (2003) and others (WorldBank 2000; Prizzia 2001) that to measure the effects of privatisation, privatised entities need to be evaluated based on multiple measures that indicate efficiency improvements, as well as a balance of economic and social measures of performance.

In order to determine what these multiple measures should be it is proposed to establish, through interviews, airport stakeholder views on how the performance of the recently privatised Sydney airport can be assessed from their perspectives. To facilitate this process the stakeholders will be provided with a model of performance measures derived from the literature and asked to comment, particularly on how well the model could verify any benefits from their perspectives gained from privatisation reforms. The results of this process will be incorporated to develop a model of how privatised airports can be assessed from stakeholders’ perspectives. The model will be an integrated performance assessment tool for privatised airports adapted from and based on the Kaplan and Norton (1996) framework of the Balanced Scorecard (discussed in this chapter). Although the performance assessment model developed for this study is grounded on the balanced scorecard principle it has been modified and takes on a more external orientation. In other words a

86 stakeholder scorecard10 is developed for Sydney Airport. There are difficulties in overall assessment of complex entities like airports so the airport performance assessment tool aims to combine a number of elements important to different stakeholders. After all, it is proposed that privatised airports are key national infrastructure assets accountable to their stakeholders, The model therefore takes into account strategic key performance indicators that each stakeholder group considers vital.

This approach corresponds with that of Tsamenyi et. al (2008) who claims that there is a need to explain the performance of privatised firms by using multi- dimensional approaches such as a balanced scorecard. Thus, the aim is to derive a performance assessment model beyond financial analysis and the myopic macro-level which has been widely adopted by the international financial community and policy makers when investigating privatisation outcomes.

The next section discusses the existing challenges when assessing airport performance.

4.3.1 The Challenge with Performance Measurement at Privatised Airports Performance measurement of airports is not an easy task; tracking performance changes over a period of time when ownership rights have affected business performance is especially difficult. Experts in this field (Humphreys and Francis 2002; Graham 2003) argue that airport performance measurement is viewed as a mysterious task with the solution being subjective to the chosen indicators. DeNeufville (1999) claims privatisation, in particular airport privatisation, deals with economic and political issues as well as business issues. As there is little empirical evidence it is debatable whether privatisation has improved overall airport performance. As discussed previously privatised airports have improved their productivity levels and have

10 The term ‘stakeholder scorecard’ refers to measures that are of interest to various stakeholder groups (p. 3.17). CPA, Ed. (2007). Strategic Management Accounting Unit - CPA program. Geelong, Victoria, Deakin University.

87 become more commercially oriented; but there remain questions of whether overall airport performance has improved and how post privatisation airport performance can be measured whilst acknowledging a variety of stakeholders. As demonstrated by Graham (2003), before corporatization and privatisation, assessment of the financial performance of airports was difficult due to public accounting practices. Some airports were not considered independent units in the government books and costs and revenues were not segmented within the reports of overall financial results of government departments. Therefore this study considers stakeholders’ views on the reform implications to accountability and financial transparency of airport operators post privatisation.

It is argued that comparing overall airport business performance is quite complex due to multiple facets and players that make up the diverse profiles at each airport (Francis, Humphreys et al. 2002; Graham 2003). Complications arise due to variation in airport size, nature of traffic, finance/accounting methods used, ownership, activities performed and regulations that differ from country to country. Nevertheless, as found by Francis and Fry (2001) who conducted an international survey on airport performance measurement, best practice benchmarking is one of the most popular techniques of quantitative airport performance assessment. Furthermore the research found that airport operators post privatisation have become advocates of quality improvement programs and cost control and have themselves adopted quality improvements techniques such as Total Quality Management (TQM) and financial tools such as Activity Based Costing (ABC) over the years.

Many quantitative studies have also sought to measure airport productivity in terms of inputs in relation to outputs of airports (Lin 2006; Barros 2007). The best known are the Data Envelopment Study (DEA) on BAA by Parker (1999) and the Total Factor Productivity (TFP) on airports in Australia pre privatisation by Hensher (1993; 2001). Most of the studies on the efficiency of airports have been confined to a particular geographical area. Lin (2006) is the first study to extend research into operational performance of airports

88 across international borders. However, it is argued here that the results of these quantitative studies have limited applicability and generalisability for other airports due to the complexity of the airport sector. Qualitative research into stakeholder views is necessary to explore the benefits for society on a case by case basis.

4.4 The Conceptual Framework for this Study The conceptual framework for this study is designed to answer the research questions that: a) verify the benefits, if any, gained from privatisation reforms for airport stakeholders, whose views on the recently privatised Sydney Airport need to be investigated; and b) help derive a model to assess privatised airport performance based on attributes and measures relevant to airport stakeholders. As discussed previously the suggestion is that efficiency gains through the transfer of ownership rights and management of state owned enterprises into private hands is the ultimate objective of privatisation reforms. This objective is based on the premise that private enterprises operate more efficiently as they are driven by the ‘bottom line’. In theoretical terms privatisation is based upon free market ideas and beliefs. The principal impact of airport privatisation is said to be related to growth in non- aeronautical and more commercial focused activities at airports, namely catering for the end consumer and satisfying investor stakeholders through increased company performance and shareholder wealth maximisation. With airport privatisation leading to the emergence of new industry players, (such as the investors, infrastructure developers and retailers (concessionaries)) and access to financial markets, airport operators are able to raise additional capital, improve efficiency, reduce costs, seek new revenue streams and engage in market-oriented investments. According to Booth (2008) and Mather (2004) the airport business has become more commercial with substantially increased returns and performance.

Airports are national infrastructure assets (discussed in section 3.2.1) and accountability and public welfare were, according to Vasigh et al. (1996) and DeNeufville (1999), the pre-privatisation prime concerns. Other concerns

89 related to lack of incentive for private operators to improve infrastructure and services. Most privatised airports are still partly under government control. Governments remain involved either through share partnership or regulation of airports. In Australia, as pointed out in section 3.3.3, the regulatory framework of the airports post leasing was intended to achieve two principal outcomes: a) to allow the private airport operators to provide the necessary services on a commercial basis; and b) to ensure protection of the public interest ..

Airports, post privatisation, consist of and rely on a symbiotic relationship of multiple stakeholders. Privatisation has had an impact on the operations of airport stakeholders due to a changed airport positioning from purely focusing on passenger facilitation towards a more commercial ‘bottom line’ approach. Airports, established with an objective of serving the public interest, play a unique role in society. In accordance with the view that they should be publicly accountable to their stakeholders and the view of Tsanemyi et al (2008) that privatised state entities need to be assessed in terms of services provided to the community, this study addresses the assessment of value being delivered to key stakeholders post privatisation.

Figure 4-1 illustrates the theoretical linkage of this study.

90 Linkages between theories

Corporate Performance Airport Privatization : Measurement: Context of The Study “Through Stakeholder Eyes”

Stakeholder Theory: Assessing Individual Impact on key stakeholders

Figure 4-1: The Linkage between Theories

The privatisation of an airport generates a radical change in the overall business model of airport operations and impacts on the experiences and operations of the stakeholders; assessment of airport performance needs to take into account the viewpoints of and indicators relevant to key stakeholders.

As discussed previously a privatised airport is required to generate a return for its investors and is characterised by an nterdependency among its stakeholders. The performance assessment model embraces the new paradigm that portrays an airport as a cluster of commercial activities with a focus on meeting the demands set by various stakeholders, rather than as a core business that facilitates passenger movements. The Venn diagram in Figure 4-2 is a graphical representation of the areas underpinning the research reported in this thesis and those previously discussed in the literature review chapters.

91 Venn Diagram showing focus of research

Accountability & Transparency Interdependence of Operations Ownership vs. Control

Competition & Airport Bargaining Power Corporate Performance Privatization

Distribution of Power Efficiency/ Productivity Gains

Research Focus

Figure 4-2: Research Focus illustrated with a Venn diagram

Specifications on the theoretical linkages of stakeholder theory and performance measurement in the context of privatised airports are provided below (sections 4.4.1- 4.4.4).

4.4.1 Relevance of Stakeholder Theory to Performance Measurement Existing research in the field of corporate performance measurement supports Freeman’s (1984) stakeholder theory in that organizations cannot be seen as purely private institutions solely responsible to their shareholders, but instead should be regarded as social institutions, claiming that a firm is accountable to all of its stakeholders who are affected by the business (Carroll 1979; Freeman and Evan 1990; Hill and Jones 1992; Clarkson 1995; Balabanis, Phillips et al. 1998; Harrison and Freeman 1999). Corporations play an increasingly important role in society, in not only supporting a nation’s

92 economic growth but as clusters of individuals who work together in the transformation process of goods and services (Ansoff 1965; Andrews 1971; Porter 1990; Watson 1993; Bantel and Osborn 1995). Over the past decade the stakeholder concept has become broadly defined by the recognition of the existence of multiple parties having a legitimate interest or stake in the business (Brenner 1995; Donaldson and Preston 1995; Nasi 1995; Donaldson 2002; Friedman and Miles 2002; Atrill, McLaney et al. 2006). Stakeholders interact and lend meaning to the corporation, place moral obligations on managers and influence their decision-making (Wicks, Gilbert et al. 1994; Jones and Wicks 1999). According to Thompson (1991) stakeholders are in a relationship with an organization. Savage (1991) together with Hill and Jones (1992) takes the notion further, arguing that stakeholders have an interest in and an ability to influence the actions of an organization as they are constituents with legitimate interests and claims that they expect to be satisfied. Clarkson (1995) and Nasi (1995) support the view that stakeholders in making an organization’s operations possible have ownership rights or interests in organizations and its activities.

Mitchell (1997) identified that stakeholders contribute resources to business operations and can affect or be affected by an organization’s actions. Although the concept of ‘stakeholders’ is embedded in management and social science literature (Donaldson 2002), there exist various identification rationales as to ‘who are or what are’ stakeholders based on normative, descriptive, instrumental or prescriptive theories (Savage, Nix et al. 1991; Donaldson and Preston 1995; Mitchell, Agle et al. 1997; Friedman and Miles 2002). Friedman and Miles (2002) critique the approach taken in Mitchell (1997) and other organization-based models of stakeholder identification and argue that the organization/stakeholder relationship is ignored. Further arguments presented relate to the question of ‘what if’ stakeholders have more than the three named attributes - power, legitimacy and urgency (discussed in section 4.4.2 below), or possess different degrees of these attributes.

93 This study does not aim to elaborate on stakeholder theory, nor on the various rationales of stakeholder identification. It does accept the Freeman (1984 p.46) definition of stakeholder as ‘being any group or individual who can affect or is affected by the achievements of the organization’s objectives’. This study therefore proposes that the interests of stakeholders is related to corporate performance. It will also demonstrate that stakeholder theory and performance measurement are interlinked and in so doing form the conceptual framework and support for the development of the model to assess privatised entities through stakeholder eyes.

4.4.2 Airport Stakeholder Identification Various studies portray stakeholder theory from an organization’s perspective. Emmons (2000) argues that privatisation shapes an entity’s relationship with the government and other related stakeholders (p.21). This study utilizes the theory of Mitchell (1997) to identify the key stakeholder groups relevant for the assessment of privatised airport operations. Mitchell’s stakeholder classification is based on the saliency of stakeholders to managers due to managers perceiving them as possessing key attributes. A list of these, including their constructs, follows:

 power to influence a firm - defined as a relationship among different social actors enticing one actor to act in a desired way (Weber 1947; Dahl 1957; Pfeffer 1981)

 legitimacy with the firm (Weber 1947) - noted as a perception or assumption that the actions of an entity are desirable, proper, or appropriate with some socially constructed system of norms, values and beliefs, proposed to have an impact on the organization and

 urgency to claims on the firm - related to the degree to which stakeholder claims call for immediate attention (timely response) from management and criticality (Hill and Jones 1992; Wartick and Mahon 1994).

94 Mitchell (1997) regards salience as the degree to which management gives priority to competing stakeholder claims; classes of stakeholders may be identified by their possession of the above attributes. Neville (2006) argues that Mitchell’s (1997) approach to salience and stakeholder identification is more relevant and provides significantly more illustrative explanations of the nature and effects of stakeholder interactions than the network approach presented by Rowley (1997).

Figure 4-3 provides an overview of the stakeholder classification as adapted from Mitchell (1997).

Classifying Stakeholders according to Mitchell (1997)

LEGITIMACY

POWER

Dormant Stakeholder Dominant Stakeholder

Discretionary Stakeholder

Definitive Stakeholder

Dangerous Stakeholder Dependent Stakeholder

Non -Stakeholder

Demanding Stakeholder

URGENCY

Source: Mitchell (1997)

Figure 4-3: Stakeholder Classification

The focus of this study is on: a) understanding the impact on the identified stakeholders of a privatised airport; and b) deriving a model to derive indicators that assess privatised airport performance through stakeholder eyes. Table 4-1 below follows Mitchell (1997) by identifying and explaining

95 stakeholder categories for privatised airports in accordance with the attributes of power, legitimacy and urgency. The confirmation of the stakeholders relevant to Sydney Airport and this study is discussed in section 7.2.

96 Table 4-1: Airport Stakeholder Identification

Stakeholder Attributes & Definition (Mitchell (1997)) Airport Type Stakeholders Dormant Possesses power to impose their will on a Regulators, Stakeholder firm – does not have a legitimate Government, relationship or urgent claim. These stakeholders have little or no interaction with the firm; however, they can become significant if they acquire legitimacy and urgency Discretionary Possesses legitimacy but have no power to Community, Council Stakeholder influence the firm and no urgent claims. Important stakeholders for corporate social responsibility and performance. Managers have no need to engage in active relationship with such stakeholders. Demanding Possesses urgency as key attribute but has Environmental Stakeholder neither power nor legitimacy. These are Groups, Unions stakeholders that appear bothersome for management until they acquire some power and legitimacy to make a claim. Dominant Possesses power and legitimacy, has Investors/ Stakeholder influence in firm. They expect and receive a Shareholders; lot of managers attention and are those Consortia members stakeholders that are claimed by scholars from the field of management to be the ‘only’ stakeholders Dangerous Possesses urgency and power, but lacks N.A. Stakeholder legitimacy. It is suggested that this group uses coercion to influence stakeholder/ management relationship and individuals. Society refuses to acknowledge the existence of this stakeholder group. Dependent Possesses urgent and legitimate claims; Others: Ambulance, , Stakeholder however there is a lack of power. These infrastructure asset stakeholders depend on other dominant providers i.e. Petrol stakeholders who have common interest providers, Concessionaries Definitive Possesses all three key attributes; most Airlines (Domestic & Stakeholder important stakeholder for any organization International), to satisfy. Passengers (as represented by the airlines), Airport Operator Source: Modified from Mitchell (1997) and used to identify Airport Stakeholders

97

4.4.3 Applying the Balanced Scorecard Rationale to Airport Performance Assessment To obtain the complete picture of an organization’s corporate performance, it is said that the measures required are of financial, customer specific and operational nature (Nanni, Dixon et al. 1992; Kaplan and Norton 1996; Walsh, Lok et al. 2005). The original concept behind the Kaplan and Norton scorecard was to assess the health of an organization. Argyris (1991) states that the scorecard facilitates double loop learning, allowing performance to be evaluated and explored across various dimensions. In the 1990’s academics argued the significance of multi-dimensional frameworks for performance measurement (Fitzgerald, Johnston et al. 1991; McNair and Leibfried 1993). The Balanced Scorecard as a performance measurement tool has evolved over time and was modified in 1996, 2001 and 2004 (Eccles 1991; Walsh, Lok et al. 2005).

Kalagnanam (2004) points out that the purpose of the scorecard is communication, coordination, evaluation and motivation to assist in achieving increased stakeholder value and implementation of internal strategy. To date the Balanced Scorecard framework as a strategic performance measurement and management tool is widley accepted and implemented in various industries. Current studies (Ax et al. 2004; Banker et al. 2004; Campbell et al. 2004; Papenhausen et al. 2006; Chang 2007) focus on the testing and validation of the assumptions underlying the Balanced Scorecard and its usefulness in decision-making in profit but also not-for-profit organisations.

Kaplan and Norton (1996) state that their original scorecard was not suited for organizations undergoing continuous dramatic change, but did serve the purpose of communication of management with employees. The second level generation of the Balanced Scorecard (2001) focused on the link between strategy and measurement; followed by the latest addition of the scorecard (2004) to focus on strategy and the importance of intangible assets. Kaplan and Norton (2001) comment on their work (as cited in Walsh, Lok, Jones (2005 p. 99) as follows:

98

…several years ago, when the Balanced Scorecard was introduced, we thought the balanced scorecard was about measurement not about strategy. We began with the premise than an exclusive reliance on financial measures in a management system was causing organizations to do the wrong thing [referring to the limitations on financial measures] ….if financial measures were causing the organizations to do the wrong things, what measures would prompt them to do the right things? The answer turned out to be obvious. Measure the strategy!

The original Balanced Scorecard addressed the financial, customer, process, and learning and growth perspectives for internal purposes, which at any point in time of measurement, could characterize the current status and future potential of organisations. These perspectives as pointed out by Papalexandris et.al (2005) foster a balance between short – and long- term objectives, between desired outcomes (lag indicators) and performance drivers of these outcomes (lead indicators) and between quantitative objective measures and qualitative subjective measures.

In the Balanced Scorecard, the financial perspective measures the attainment of a company’s financial objectives and considers how the firm looks to shareholders. The customer perspective considers how the firm wishes to be viewed by the customers. The internal business process perspective is concerned with what the firm must excel at. It measures how the organization has performed in creating value to customers and lower costs to achieve its financial performance outcome. The learning and growth perspective measures how the organization has performed in terms of people, systems and organizational procedures. This perspective is concerned with actions to improve and create value if it is to bring its vision to reality..

Kaplan and Norton (2001) argue that performance measures should be interlinked; the design of the Balanced Scorecard reflects cause and effect relationships between the objectives and measures in the various perspectives. Norreklit (2000), however, argues that the use of cause and effect relationships and linkages between the perspectives in the Balanced Scorecard requires the support of empirical evidence. The Balanced

99 Scorecard ideal is further criticized because it provides multiple measures rather than also providing a single measure of performance. Jensen (2002) argues that the Balanced Scorecard is perceived as not being a bulletproof performance measurement tool as it presents managers with a scorecard that gives no score. Jensen (2002) therefore proposes the need for a clear definition of the measures and the identification of one single dimensional score of organizational performance.

Other researchers also indicate that although the users of a Balanced Scorecard may exhibit a preference for this tool for internal purposes, there is no evidence to associate its use with increased economic performance (Ittner, Larcker et al. 2003a; Ittner, Larcker et al. 2003b). Furthermore, no clear relationships between customer satisfaction, loyalty and financial performance are evident (Garland 2002; Smith 2005). It is argued further by Voelpel et. al (2006 p.55) that the Balanced Scorecard is often perceived as a static measurement framework and is thus beginning to jeopardize the survival of the firms and hinders business innovation; which at the end of the day affect stakeholders. He calls for research on a more systematic approach to the expansion of the Balanced Scorecard by shifting the focus from the corporation towards the socio-cultural environment.

Kaplan and Norton (1996) acknowledge that the four perspectives of the Balanced Scorecard are not decisive. Tsamenyi et al (2008) added a further perspective, namely the community perspective, in his study on measuring the outcomes of privatisation in Ghana. The community perspective is also applicable to this study and particularly important because privatised state- owned entities, established with an objective of serving the interest of the community and society (discussed in chapter 3), need to be assessed in terms of services provided to the community. This approach is supported by the argument of Graham (2003 p. 219) that a multi-perspective approach is needed to measure performance at airports; a focus on one stakeholder group or perspective is not applicable to performance measurement of complex entities like airports.

100 Literature in the field of airport performance measurement emphasizes the air transport industry’s slow embrace of measurement devices like the Balanced Scorecard for internal purposes (Francis, 2002). Francis, Graham and Fry (2001) found from their international airport performance survey that only a small percentage (23%) of respondents is using the Balanced Scorecard. Their study raises awareness of the move away from traditional performance indicators and measures by pointing out the increased ‘popularity’ of Shareholder Value Analysis models, Economic Value Added models as well as the Balanced Scorecard.

The conceptual idea underpinning this study is based on a Balanced Scorecard framework of a series of measures derived from stakeholder interviews and literature to form a performance measurement model that looks beyond traditional financial measures. Privatisation reforms had an impact on the strategic direction of the airport. The airport consists of multiple stakeholders who are involved in the day-to-day activities and rely on one another, i.e. an airport cannot operate without the airlines (discussed in section 7.2) Malmi and Brown (2007) mention three types of scorecards: a) key performance indicator (KPI) scorecards, containing large number of controllable and uncontrollable measures to support and monitor decision making; b) strategy scorecards, containing fewer measures than the KPI scorecards and used predominantly for accountability and target setting purposes; and c) stakeholder scorecards, containing measures of interest to various stakeholder groups.

Instead of developing a scorecard for the airport operator’s internal usage, this study aims to align measures of performance for all identified stakeholders who make up the airport operations and whose operations have been influenced as a result of privatisation. Thus the stakeholder scorecard approach of evaluating privatised airports from various stakeholder perspectives is used in the development of the Airport Performance Assessment Model. The perspectives chosen for this stakeholder scorecard are detailed in the next section (4.4.4).

101 Note, as it is an external stakeholder scorecard that is developed, these perspectives are different from those stipulated in the Kaplan and Norton (1996) original balanced scorecard ideal. The reader is once again reminded that in this study the Balanced Scorecard ideology only provides the arguments in support of an integrated performance measurement framework at privatised airports. Also, there are no cause and effects linkages in the developed model. Each perspective consists of stakeholder derived indicators and/ or measures.

The development of a stakeholder airport performance assessment model raises questions such as: a) who would use it; b) who would collect the data (measures); and c) who would publish it.

It is suggested that such an airport performance tool could be useful for: a) the airport operator and management, as the indicators and measures are designed to emphasise how stakeholders judge the airport’s operation; as well as b) the regulators (being the government) due to the public accountability of airport operations.

In relation to who would collect the data (measures) for SAPAM and who would publish it, the implications for practice of the SAPAM are discussed in Chapter 10 (10.4). However, it is suggested that the data should be collected and published by the government body ACCC due to the airport being an asset that has accountability towards stakeholders, including the public. The next section illustrates the assumptions that underlie the theoretical experimental tool to assess privatised airport performance derived from the literature. This experimental tool was shown to the interviewees for their comments to help derive the Stakeholder Airport Performance Assessment Model (SAPAM) discussed in Chapter 9.

4.4.4 The ‘Experimental’ Stakeholder Airport Performance Assessment Tool As stated, privatisation reforms are perceived to encourage state-owned entities to become more efficient, profit oriented and accountable to various

102 stakeholders. Stakeholders are affected by the achievements of an organization, have a stake in the organization and according to Wicks (1994) define the existence of a corporation. It is stakeholders who can impact upon or who could be impacted by an organization’s performance (Brenner 1995, p. 76). This section highlights the importance of taking stakeholder perspectives into account in an airport performance assessment tool; it proposes also the use of measures beyond the financial to reflect multi-stakeholder interests in order to assess the performance of privatised airports. These measures should reflect the needs of the key stakeholder groups. .

The aim of the model is to accommodate the post privatisation needs of Sydney Airport users to those consistent with the airport operator and investors’ own interests, as they are the drivers and implementers of the changes to the airport site.

The underpinning considerations of the model as raised in the literature review are as follows:

1. Performance measurement of airports is considered to be: a) challenging as various factors need to be considered, especially privatisation consequences; b) complex as these entities are argued to be, accountable to and influenced by multiple stakeholders; and c) the overall concept of measurement is subjective, that is, organizations measure what they want to measure.

2. It is argued that private ownership has increased stakeholder involvement, thus stakeholder demands on the airport operator increase. It is suggested that airport privatisation has not only allowed for stakeholders to acknowledge their reliance on one another, but to also become actively involved in commercial negotiations and the decision making process regarding capital investment at the airport site. Therefore, to overcome the complexity and difficulty of evaluating airport performance it is proposed that privatised airport performance need to be assessed by taking into account key attributes relevant to

103 individual stakeholder groups. Stakeholders make up the airport operations.

3. The sole focus of airport performance should not be limited to economic performance (financial measures). Internal operational as well as external factors derived from key stakeholder perspectives are proposed when assessing privatised airport operations.

Due to the interdependence among airport stakeholders’ interests, the three perspectives that are considered in the experimental model for privatised airport performance assessment are as follows: financial, operational and community (see Figure 4-4). Each consists of different stakeholders, is proposed to be equally important and each has distinct key performance measures and/or indicators supporting specific stakeholders’ viewpoints of the airport business.

 Operational perspective - service and quality indicators from the airport clients, operators and management perspective (airlines, employees, passengers).

 Financial perspective - analysis is carried out when evaluating business performance based on generic financial and airport specific international measures such as the FLAP-group indicators (Frankfurt, London, Amsterdam and Paris indicators)

 Community perspective relates to the community and environmental indicators to evaluate airport performance from the society’s viewpoint. This perspective is increasingly important in assessing airport performance due to the community’s interaction with and engagement in the airport’s business post privatisation.

Perspectives used for airport performance assessment

104

Airport Performance Measurement Perspectives

Operational Financial Perspective: Community Perspective: perspective: FLAP measures, Airlines, Passengers, shareholders/ investors Environmental groups, Airport Operators Councils

Figure 4-4: Perspectives for Airport Performance Assessment

In regards to the experimental model, the indicators and measures are derived from the literature. The operational perspective indicators are derived from the service quality measures as discussed by Graham (2003 p. 79). The financial perspective measures are based on those of Doganis (1992), and Humphreys and Francis (2000). In the pre-privatisation era when airports were public entities the performance measures were applied in the context of making the airport accountable to the government (owner). Under private ownership, the passenger has become the key variable, redirecting the performance measurement focus towards operational activities (refer to additional discussion in Chapter 9 and Table 9.3). The FLAP–group indicators are passenger-focused international measures of financial performance at airports promoted by Doganis (1992) and Graham (1999). The community perspective indicators shown in the experimental model are the Manchester UK indicators as discussed by Humpreys and Francis (2000).

Shown in Figure 4-5 is the experimental literature – derived, Stakeholder Airport Performance Assessment Model illustrating the airport specific measures and indicators for each identified perspective and stakeholder group as stipulated in the literature on airport performance. A detailed discussion of the indicators will be deferred to Chapter 9 and included in the illustration and explanation of the modified model.

105

106 The Experimental Stakeholder Airport Performance Assessment Model (SAPAM)

Model Section 1: Model Section 2: Model Section 3:

Customers/ Service / Process Financial Measures (FLAP indicators) Environment Operational Perspective Financial Perspective Community Perspective Passengers: Curb-to-gate distance/ time Service time: check in, baggage claim, waiting Revenue Cost Key Environment indicator times, variability of wait Connecting time, flight alternatives Traffic income per  Air quality  Staff cost/ employee Costs: food and drinks, departure fees, passenger   Community relations Passenger/employee connection fees, airport tax Traffic income per  (response time to complaints)  WLU per employee Comfort: crowding, sound level, noise, WLU   Energy consumption (kWh/m Staff cost per temperature, choice of things to do Traffic income per  squared floor area)  passenger turnover%  Ground transport (public Staff cost per WLU Airport Operator & Service Providers: Commercial income  transport usage)  Other direct cost per Passenger served per unit time per passenger   Noise (% of aircraft operations passenger Baggage handled per unit time Concession income per annum)  Other direct cost per Flight ground delays per passenger   Area affected by noise WLU Waste recycling (%) People accommodated per unit time  Duty & Tax free  Gate utilization income per  Waste disposal (weight) Other: Power/ fuel consumption international  Water conservation (water Security effectiveness/ crime/ theft departing passenger consumption per passenger) Profitability Property income per   Activity Airlines (Domestic & International): passenger  Baggage transfer reliability Solvency   Property income per  Passenger service times WLU Aircraft turnaround Terminal fees/ labor cost/ equipment cost/ inventory cost Control of space, design

Figure 4-5: The Experimental Stakeholder Airport Performance Assessment Model

The chosen indicators derived from the literature review were discussed during the field-research. The modified model adapted for Sydney Airport stakeholders is discussed in Chapter 9. To make SAPAM operational, the indicators for each measure are defined through field research. These measures are illustrated in section Figure 9-4.

107 4.5 Chapter Conclusion This chapter focused on performance measurement of organizations. The significance of and existing difficulties with performance measurement were stated, pointing out the challenges when measuring airport performance. The theoretical foundation for this study, based on the Balanced Scorecard and stakeholder philosophy, was illustrated. The rationale behind the model on how to assess privatised airports, when airports are complex entities that consist of multiple stakeholders, was discussed. The chapter concluded by introducing the experimental, literature-derived Stakeholder Airport Performance Assessment Model. The next chapter outlines the research methodology and design of this study.

108 Chapter 5

5 Research Methodology & Design

5.1 Introduction This chapter introduces the research process and methodological framework for this study. A step by step guide to the research design is given. The methods and procedures used in the administration and data collection process, the analysis and the reporting of the results are discussed. The findings of the conceptual analysis, using qualitative research tools such as Leximancer and Nvivo, are illustrated as they form the basis for the results and discussion chapters that follow.

5.2 Research Process According to Powers (1995) research is a systematic process of investigation with the purpose of contributing to the body of knowledge that shapes and guides academic and practice disciplines. This exploratory case research on Sydney Airport privatisation aims to provide an improved understanding of the privatisation impact on airport stakeholder operations and their perceptions of the implemented reforms. The following section provides the background to the methodological framework, design and conduct of this case research. Figure 5-1 provides an overview of the research process discussed in this chapter.

109 The Research Process

Phase 1: Theory on Privatization & Airport Theory of Performance Measurement & Literature Review (Ch. 2- 4) Privatization (Literature Review) Stakeholder Theory (Literature Review)

Step 1: Justification of Theoretical Paradigm & Research Perspective

Phase 2: Step 2: Research Strategy : Case Study Research Methodology (Ch. 5) Step 3: Research Methods: Designing the Research

Primary Analysis: Analysis of Secondary Interviews Data Sources

Obtain UWS Ethics Approval

Development of Pilot Testing of Research theoretical Model from interviews for each Problem, Literature: Airport stakeholder groups Central Performance Scorecard’ Research & possible key Question & indicators for each Sub Questions group Step 4: Conducting the Research

Lining Up of Interviews: Contact Sample & arrange for meetings Validation & Verification Transcription & Respondent Validation of Usefulness of Model

Step 5: Data Analysis Phase 3: Step 6: Reporting the Research Findings & Discussion (Ch. 6-9)

Figure 5-1: Overview of the Research Process

Existing research on privatisation compares the performance of private and state-owned enterprises in terms of productivity, profitability and efficiency, and includes global and national scale analyses of the railways, electric power, water and gas utilities, ports and air transport industries (Parker 1994; Pollitt 1995; Eckel, Eckel et al. 1997; Wu and Parker 1998; Parker 1999; Saal and Parker 2001). Aspects of airport performance measurement have also

110 been previously studied (Francis, Fry et al. 2001; Francis, Humphreys et al. 2002; Humphreys and Francis 2002). Findings for both research areas have been mainly of a quantitative nature.

Qualitative research studies aiming to explore and draw on the experiences of individuals who have been affected by privatisation consequences, are relatively rare. Furthermore, research on performance measurement at privatised institutions, such as airports, that takes into account stakeholder viewpoints on possible attributes and indicators is not widely available. The literature review reveals a lack of academic studies on Australian experiences that take into account individual perceptions of privatisation reforms. The holistic approach to conducting field research and analysis and interpretation of data in this study is believed to add to the body of knowledge.

As discussed in Chapter 1, there are two parts to this thesis: first, the examination of stakeholder perceptions on the operation of a privatised Sydney Airport; and second, the development of an airport performance assessment tool with key indicators and attributes of airport performance from the perspectives of key stakeholders. This research began with an in-depth analysis of the literature on airport privatisation, stakeholder theory and performance measurement. In the process of narrowing down the research area, the airport stakeholders relevant to this study were identified in accordance with Mitchell (1996) stakeholder categorization framework (discussed in Chapter 4).

The literature review was followed by an exploration of the methodological choices that are available to the researcher. The research paradigm and the methodological framework were identified, followed by the research strategy and design. The research problem and conceptual framework, together with the researcher capabilities, time constraints and costs, were important considerations when deciding on the research design and choice of methods. The data for both parts of this study were collected through field research (interviews). Prior to conducting the interviews ethical clearance was sought from the UWS ethics committee. Multiple interviews were conducted in the

111 timeframe of less than ten months. The interviews were transcribed and the data was analysed using qualitative research software applications such as Nvivo version 7 and Leximancer version 2.23 (discussed in this chapter). The data from the interviews and the researcher’s comprehension of the case material gained in the preparatory stages were triangulated prior to reporting the results by means of answering the research questions.

5.3 Step 1: Justification of Theoretical Paradigm & Research Perspective

The aim of this study is to advance knowledge and understanding of the privatisation phenomenon at Sydney Airport by examining stakeholder perceptions on airport privatisation. Before discussing the research design the paradigm adopted in this research needs to be highlighted. The approach taken to collect, record and analyse data depends on the methodological framework of the study and the researcher’s perspective. Somekh and Lewin (2006 p. 141) argue that the way in which the researcher understands ‘being in the world’ (known as ontology) and the philosophical questions relating to ‘the nature of knowledge and truth’ (known as epistemology) shape the research approach. Paradigms describe an approach to research and provide a unifying framework of understanding of knowledge, truth, values and the nature of being. A paradigm according to McMurray, Pace et al (2004 p.9) comprises the researcher’s assumption of what is real, true, most acceptable, what and who are most powerful, and even the very nature of people, objects and events in the world.

A number of different paradigms exist. In the methodology literature the three major approaches to social science research are positivist, interpretive and critical. Table 5-1 illustrates these alternative approaches to social science research as stipulated by Connnole (1993). The appropriateness of the paradigm adopted for this study is discussed hereafter.

112 Table 5-1: Approaches to Social Science Research

Positivist Interpretive Critical What is the Classical Historical, literary Marxist and approach investigation and existential interpretive modelled on? founded in the studies in which studies which physical sciences the subjective focus on the understandings of insights and subjects are judgments of the significant subjects What does it Reality is unitary There are multiple There are assume about and it can only be realities which multiple realities reality? understood by require multiple which are made empirical and methods for problematic analytic method understanding through distorted (scientific them communication approach) What is the Disciplines rules Meanings are the Meanings are foundation of for observation basis of data: found in data? meaning precedes language and logic and fact social behaviour and they precede logic and fact How is the Through clear, Through the Interpretive observation independent and social, linguistic methods, plus done? unambiguous and cognitive skills critical self- rules which are of the researcher reflection not modified by concerning the the setting grounds of observation What is Evidence and Knowledge which Knowledge which generated? generalizable is dependent on falls within the laws not affected the process of interpretive by contexts. discovery. The framework, but Objectivity integrity of the which also depends upon the findings depends serves the removal of error upon the quality of purposes of and bias related social and assisting to the logic of cognitive skills of personal observation and the researcher in liberation and measurement the production of understanding. data analyses and conclusions What interests Prediction and Understanding ate Interpretive are inherent? control, the level of interests and technically ordinary language those which exploitable and action. underlie other knowledge and Discovering the forms of inquiry. explanation meanings and Radically

113 beliefs underlying improving human the actions of existence. others Practical and public involvement What values are Science and Science and Science and inherent? scientific scientific knowledge are knowledge are knowledge have never value- value neutral both to be neutral: they interpreted in always present terms of values certain interests. they present Adapted from Connole (1993) cited in (Smith 2005 p. 5)

This study uses a mixed paradigm. Both the interpretive and positivist paradigms are used to answer the research questions that are restated in table 5-2. When comparing the positivist and interpretive approach, Wildemuth (1993p. 451) states that: …the positivist approach, with its goal of discerning the statistical regularity of behaviour, is oriented towards counting the occurrences and measuring the extent of the behaviour being studied. By contrast the interpretative approach, with its goal of understanding the social world from the viewpoint of the actors within it, is oriented toward detailed description of the actors’ cognitive and symbolic actions, that is the meaning associated with observable behaviours…

This research attempts to identify the nature and underlying meanings of whether and how the two constructs of privatisation and performance measurement in the context of the airport industry are linked. If these constructs are linked, the stakeholder reactions to these implemented reforms at Sydney Airport require investigation. The aim is to discover the meanings and beliefs of stakeholder reactions at Sydney Airport. The researcher seeks to uncover the meaning and understand in the hermeneutic tradition the deeper implications revealed in data about people and the case object. As defined by Brown and Heggs (cited in Somekh (2006 p.293)) hermeneutics is understood to be the process of interpretation. Furthermore, it was suggested by Gallagher (1992) that phenomenology is often combined with the meaning of the world as experienced

114 The positivist approach identifies relationships with the assumption that knowledge and truth is discovered through observation and measurement and analysis of data. This paradigm is, according to Guba and Lincoln (2005), often associated with quantitative methodologies. It is, however, appropriate to this study as this case research comprises a classical investigation using a structured approach aimed at answering proposed research questions. Also, by using data-mining software packages such as Leximancer and Nvivo the frequency of words and concept association are investigated. It is believed that both the positivist and interpretive paradigms are appropriate to help answer the specified research questions.

The questions are now restated to remind the reader of the investigations undertaken in this thesis (CRQ refers to the Central Research Question, RQ refers to the Research Question and SQ refers to Sub-Questions):

115 Table 5-2: Recap of Research Questions

RQ 1. What were the SQ 1 A. Who are the key Reasons for the stakeholders of Sydney Airport? CRQ 1: Privatisation of Sydney Airport? SQ 1B. What were the What has been the objectives of privatising Sydney impact of Sydney Airport as perceived by the Airport stakeholders? privatisation on key airport stakeholders? RQ 2. What was the SQ 2 A. How did privatisation Impact of Sydney Airport reforms impact on the key privatisation on key airport stakeholders? stakeholders?

RQ 3. What are the key SQ 3 A Why is performance CRQ 2: attributes of airport measurement of airports performance from the important? How can privatised various stakeholder airport perspectives? SQ 3 B. How has airport performance be performance been assessed pre- measured from privatisation? stakeholder viewpoints? RQ 4. How can these SQ 4 A. What indicators should attributes be measured to be used that reflect airport provide information on stakeholders’ needs when airport performance? assessing privatised airport performance?

SQ 4 B. How can these be measured?

The critical approach aims to describe how individuals are disempowered by social structures which shape how they think and act (Somekh 2006). The critical approach, said to have originated by philosophers in Germany who emphasized the importance of looking beyond the surface of what people say, write and do, is considered to be inappropriate for this study.

Due to the interpretive and structured nature of this study, data was collected from a variety of sources, namely the interviews and the researcher’s

116 interpretive thoughts and comprehension of the publicly available data of the case. The methodological framework of this exploratory study enabled the researcher to engage in interpretative analysis whilst being in the centre of the investigation. The research process enabled new knowledge creation and a better understanding of the impact of privatisation on stakeholders at Sydney Airport.

5.4 Step 2: Research Strategy – A Qualitative Approach using Case Research Qualitative research takes place in the natural world (Marshall and Rossman 2006). In reviewing the literature on research methodology it is apparent that qualitative research focuses on context and is fundamentally interpretive. It is also said that it conveys depth, diversity, subtlety and complexity and that it is carried out to understand meaning, to describe and understand experience, ideas, beliefs and values (Wisker 2001; Flick 2006). The qualitative approach is most appropriate for investigating the highly contemporary nature of airport privatisation and answering the research questions. This study supports McKinley’s (1995) view that qualitative research is most appropriate when researching socio-political relationships. Airports are highly complex entities acting in a strong socio-political context due to the existing relations among the identified stakeholders. In such circumstances, when examining complex relations, qualitative methods rather than quantitative methods lead to more relevant results. Thus, a qualitative approach to answer the research questions is well justified.

A social science field research approach was followed utilizing Yin (2003) case research framework. In accordance with Yin (2003), the chosen design focused on “how” and “what” research questions to answer the central research question (see table 5.2). It is clear that case studies of contemporary phenomena are often used to discover potential relationships in qualitative contexts through empirical inquiry, especially when the boundaries between phenomena and context are unclear. Case research aims particularly at systematically gathering data about a single instance (McMurray, Pace et al.

117 2004), an individual or an entire organization (Yin 2003). In this study Sydney Airport, as the largest and most recent airport privatisation in Australia, was chosen as the case object. It was also one of the most interesting and controversial privatisation deals in Australia (see chapter 3). Furthermore, the researcher had the resources and proximity to access the stakeholder groups at Sydney Airport. This single airport case study provided sufficient observations, collated from multiple sources, to analyse and generalize in relation to underpinning privatisation and stakeholder theories.

To clarify, the terms ”case study”, “case study research” and “case research” are interchangeably used in this thesis. Although it is argued that research using case studies remains one of the most challenging of all social science endeavours, it is nevertheless an approach widely used to contribute to knowledge of individual, group, organizational, social and related phenomena (Stake 1994; Yin 2003). In support of the qualitative case research approach, Stake (cited in Denzin and Lincoln (2005) p. 443) points out that:

….case studies are a common way to do qualitative inquiry. Case study research is neither new nor essentially qualitative. Case study is not a methodological choice but a choice of what is to be studied. If case study research is more humane or in some way transcendent, it is because the researchers are so; not because of the methods.

To overcome the criticisms regarding the limitations of the methodology (see section 5.5), the researcher has exercised great care in designing and conducting this case study. Figure 5-2 illustrates the dynamic research design and framework of this study.

118 Research Framework

Overarching Key Research Sydney Airport Research Question, Issues & Case Background “How”, “What” ThematicContent Analysis Analysis Research Theoretical Preparation using Sub-questions & Data TriangulationBlending Problem Framework publicly available Data Collection: Reflections sources Interviews

ConstantInterpretation Comparative and Reflections Method

Figure 5-2: Case Research Framework

A thorough understanding of the case object allowed the tailored design of research questions. The dynamic nature of a qualitative research design, according to Fitzgerald and Dadich (2006), leads to a non-static, reflective and an almost parallel development of the conceptual and methodological frameworks to address the research problem. The identified research problem dealing with stakeholder views on airport privatisation reforms and theoretical framework drove the design of this study. The research questions guided the research methods, analysis and the way in which the results were reported. Interpretation and ongoing reflections of the data and the inquiry itself were further characteristics of this qualitative case research.

5.5 Limitation of the Methodology Due to its interpretive nature, a qualitative research approach is often regarded as lacking rigour in comparison with quantitative research. The exploratory nature of this study meant, however, that quantitative design was not an appropriate choice to answer the research questions.

One limitation is that the researcher is the key factor in this qualitative study. Therefore, the specific techniques used to strengthen the quality of the

119 research included a well planned research design, advanced preparation of the case, the conduct of trial interviews, detailed transcription of data and respondent validation of interviews. (Creswell 1994; Denzin and Lincoln 2003). Furthermore, the cross usage of internationally accepted qualitative research software tools such as Leximancer and Nvivo increased the objectivity of the researcher in applying an interpretive paradigm to the data.

Similarly, case research is criticized as having limitations associated with lack of rigour, bias, not providing a basis for scientific generalization and being time-consuming because the lack of clear rules increases the possibility of drifting away from the core focus of the study (Creswell 1994; Zikmund 2003; Flyvbjerg 2004; McMurray, Pace et al. 2004). In particular, case research encounters criticism in the methodology literature (Miller and Brewer 2003; Yin 2003; Denzin and Lincoln 2005) due to its lack of objectivity and generalisability.

Although it is accurate to state that case studies lack a significant sample size for statistical testing, case studies, as pointed out by Miller and Brewer (2003), rely on analytical generalization. Analytical generalization (p. 23) refers to generalization to theory. Furthermore, as argued by Silverman (2006), generalisability can be increased by purposive sampling guided by time, resources and theoretical sampling (p. 310). In support of this thesis, case study research is also perceived as a comprehensive research strategy that comprises the logic of design, data collection techniques and data analysis (Burns 1994; Yin 2003).

Next, the justification for the selection of the qualitative case research methodology, with its limitations, is provided. This is followed by a discussion of the research methods and analytical tools used in this thesis.

5.6 Step 3: Designing the Research The two critical research questions centred around: a) ‘what’ has been the impact of the privatisation of Sydney Airport on its stakeholders; and b) how

120 can privatised airport performance be measured from stakeholder viewpoints. Interviews were selected as the primary method for this study whilst verifying relevant data from publicly available sources, if available. In accordance with Seale and Gobo (2004 p. 16) this method of data collection is most appropriate when analysing the impact of notable events, in this case privatisation reforms and associated stakeholder perceptions, because retrospective versions of past actions, experiences, feelings and thoughts are produced. In line with Sieber (1973) the multiple sources of data enabled a reliable analytical approach in this case research.

The researcher’s comprehension of the case material during the preparatory stages, the semi-structured interviews with stakeholders at senior level and her interpretation of the data (which was assisted by Leximancer and Nvivo data mining tools) allowed for multiple source data triangulation and a thorough examination of the Sydney Airport privatisation phenomenon.

5.6.1 Case Setting Groundwork In accordance with Yin (2003) case research framework, it was essential for the researcher not to rush into the investigation; thus existing literature and publicly available documents on airport privatisation experiences worldwide ,and particularly in Australia, were used for the case preparation. A thorough understanding of available background knowledge of Sydney Airport stakeholders was obtained (Creswell 1994; Seale, Gobo et al. 2004). As emphasized by Punch (2005 p. 184) the secondary data of historical and contemporary nature is a rich source of case research and also for interview preparation. The retrieved literature on airport privatisation, stakeholder theory and performance assessment framed the underpinning concepts and theories for this study (as discussed in Ch. 2 and 3). Regarding model development, the first step involved establishing an airport performance assessment tool based on reviewing the literature and gaining an in-depth understanding of the complexity of airport performance assessment. This ‘experimental’ model formed an integral part of the field study as the participants were asked to comment and provide feedback on it throughout the interviews. The ‘experimental’ airport performance model was presented in Chapter. 4;

121 changes to the stakeholder airport performance model (SAPAM) and the model itself are discussed in Chapter 9.

Financial reports, media releases, conference papers, political press releases and corporate submissions to the productivity commission dealing with the privatisation of Sydney Airport assisted in framing some of the research questions. The information collected came primarily from Australian sources because the focus of the case study is the privatisation of Sydney Airport. However, as airport privatisations have occurred in various countries and performance measurement is a widely discussed topic, international journal articles, conference proceedings, newspapers, case studies and magazines were considered in order to avoid a myopic view of the research topic. These secondary data sources also informed the design of the interview questions and provided the researcher with probing themes and topics worth investigating in this study and other spin-off studies11. Also, this enhancement of the researcher’s case - based understanding assisted the interpretation of the interview data and the development of the model.

See Table 5-3 for details of secondary data sources used.

11 Conference papers and a successful grant application were written on the regional aviation industry in Australia.

122 Table 5-3: Secondary Data Sources used in Case Preparation

TIER 1: Data Data retrieved

Sydney Airport’s Annual Report  Financial data (profit/revenue 2002-2005 & pre-privatisation statements; statement of financial government financial statements; position and cash-flow statement) for a Environmental reports (Macquarie financial trend analysis of the airport Bank 20 year plan) and customer performance. ‘service/quality/demographic’ The cost structure and revenues for reports; ACCC report  effectiveness and efficiency pre- and post privatisation comparison

Conference proceedings from the  Opinions and first line documentation Airport privatisation conference in from parties directly engaged in the first Sydney, 1996 on the privatisation of airport privatisation I.e. proposed Brisbane, Perth and Melbourne ; valuation of assets, government reports on the Sydney Airport Sale intervention, the structure of the “sale” 2002; Submissions to productivity of the airport Commission for Review of price Corporate standpoints on the price Monitoring Regime 2002 -2006  monitoring regime pre and post privatisation

TIER 2: Data Data retrieved

Australian newspaper and magazine  Airport operations in the news; overall articles information retrieved on the present airport operations and its corporate stakeholder operations

Journal Articles & Case Studies on  Prior research and case studies on airport privatisation airport privatisation – how has it been done, why has it been done, what was the outcome

 Overall economic and business information extracted from business magazines to assist in the development of the underpinning conceptual framework for this study

Airport operations textbooks &  Past and present description of the articles “airport business” – to assist with the model fitted for this research study; the proposed key performance indicators; description of past analysis of airport performance and measurement thereof; regulatory airport changes pre and post privatisation

123 Note: TIER 1 being publicly available information obtained directly from Sydney Airport and; TIER 2 data comprised public information from other sources that have reported on Sydney Airport, the individual stakeholders and aspects of performance measurement

5.6.2 Sampling In the literature convenience sampling is referred to as a sampling method that relies on and uses convenient elements such as connections or previously established access (Hair, Babin et al. 2003; Zikmund 2003). The method of convenience sampling was applied to most of the sample in this study due to the political nature of the air transport industry. Snowball sampling, or in other terms, access to and selection of additional respondents through identification by respondents in the original target population (McMurray, Pace et al. 2004 p. 84) was also used.

There are two drawbacks to this sampling approach. Firstly the generalisation of findings as pointed out by Katz (2006) and Magnani et.al (2005) is minimal. However in accordance with Brewerton (2001 p.118) and McMurray (2004 p.84 ) the type of research that relies on snowball sampling is argued to be unlikely to have generalisation to a wider population as its aim. This is applicable to this study as the aim was not to generalise the findings but to use an exploratory approach in investigating stakeholder perceptions of the privatisation phenomena at Sydney airport.

Secondly, a further limitation of snowball sampling is that the sample composition might be heavily influenced by the choice of the existing subjects who assisted in the recruitment and referral process of future research participants. Heckathorn (1997) points out that such approach could lead to biases towards favouring more cooperative research participants as opposed to randomly chosen subjects. This limitation was constrained in this study as the air-transport industry in Australia is a very small world. The careful research design and careful airport stakeholder identification followed by discussions with one director of a domestic airline who was supportive of this research project have not only assisted with the access to the participants but also excluded the biases of favouring any research participants.

124

The tabular representation (Table 5-4) below indicates the sampling method chosen for each key stakeholder group.

Airport Stakeholders Sampling # of Model Development Method Interviews Perspective Government / Environmental Convenience/ 6 Community & Groups Snowball Regulatory Perspective Investors/ Shareholder Convenience 1 Financial Perspective Other Airport Users: Convenience 2 Infrastructure Asset Providers Operational Airlines (Domestic & Convenience 8 Perspective International) in the role of also representing the passenger perspective Airport Operator Convenience/ 3 Snowball 5 Stakeholder Groups 20 Interviews Table 5-4: Sampling method for each stakeholder

As illustrated in Table 5.4 above, the key airport stakeholders, identified using Mitchell (1997), are categorized into 5 groups (see Chapter 4); they are further categorized under the three perspectives as suitable for the development of an airport performance assessment model (see conceptual framework in Chapter 4).

The government stakeholder was interviewed at federal, state and local levels. The investor interviewed was one of the key consortia members that acquired Sydney Airport. The other airport users consist of key infrastructure asset providers for airport operations. The Airline stakeholder group is comprised of domestic and international carriers, ranging from passenger to freight and regional to interstate carriers. As stated previously the airline stakeholder is a representative of the passenger sample. The Airport Operator sample is comprised of senior level personnel involved in running Sydney Airport pre and post privatisation. Owing to the confidential nature of this

125 project and the need to protect the privacy of participants no further details about the sample will be released.

The selection of the participant sample of key stakeholders was based on role, corporate and stakeholder interest and involvement in the Sydney Airport privatisation. The following demographics were considered prior to choosing the sample and deciding on the population element (Cooper and Schindler 2003). These demographics were recorded on a fact sheet before conducting the actual interview. a) the position: title, b) the position (participant’s role in the organization), c) the length of holding this position d) the length of employment.

A total of 20 interviews were conducted. The quality of interviews was considered more significant than the quantity. Due to the political nature of this project obtaining access would have been very difficult without an insider connection, particularly as the researcher’s aim was to conduct field research and to interview senior level management with decision making authority involved in the actual privatisation of the airport. Access to the sample began after preliminary discussions with one director of a domestic airline who was very interested and supportive of this research project. His initial expression of interest in this project led to an agreement to assist in the process of establishing contacts with senior level managers of relevance to this study. The air-transport industry is a very small world with everyone knowing one another at the senior level, similar to an exclusive club.

5.6.3 Interview Preparation As stated by Silverman (2006) interviews are the preferred means to examine contemporary events. Furthermore, as confirmed by Creswell (1994) and Seale, Gobo et al. (2004), face-to-face interviews yield more precise answers to questions asked than other techniques such as focus groups, surveys or questionnaires. The proposed interview questions were derived from the

126 research problem and the central research questions. Due to the nature of this study particular questions were targeted towards particular stakeholders.

The interviews were pilot tested to overcome the pitfalls of incomplete answers because of poorly formulated questions and no-responses, or because of reluctance to answer politically sensitive questions, especially by senior level managers. The questions were trialled in mock interviews with senior researchers, colleagues and an industry contact, and advice was sought on the question composition. The readability, clarity and comprehensiveness of the wording used in the cover letter and the information sheet sent out to each interviewee were also tested. Appendix A 1 contains the summary of comments received on the interview questions and cover letter.

The following pilot tests were conducted:

 Pilot Tests A - were run with supervisors, four faculty colleagues. This group was chosen based on their interest in the field of privatisation, airports, stakeholder theory and performance measurement. Both open ended and theory driven questions were appropriate for this group. All feedback was considered and questions amended accordingly.

 Pilot Tests B - were run with two colleagues from other faculties.

See the graphical representation (Figure 5-3) of the pilot testing of the interview questions.

127 Pilot Testing that was carried out

Pilot Tests Pilot Tests

Supervisor 1 Supervisor 2

Colleague 1 Colleague 1 (different Faculty) Colleague 2

Discussions & Colleague 3 Modifications

Colleague 4 Colleague 2 (different Faculty)

. Figure 5-3: Pilot Testing

5.6.4 Open Ended & Theory Driven Interview Questions According to Flick (2006) open ended ‘experiential’ and theory driven questions in semi-structured interviews reconstruct subjective theory. Subjective theory (p. 155) has been defined as interviewees possessing a complex amount of knowledge about the topic under study. Open-ended questions were used in this research to gain an understanding of the interviewee’s viewpoint on the impact of privatisation reforms. These questions were answered on the basis of the participant’s knowledge at hand and sought information on:

a) the individual’s perspective and experience of the privatisation phenomenon in today’s society, leading to “first-hand” information of experiences in dealing with the outcomes of the imposed privatisation reforms,

b) the impact of privatisation reforms on each stakeholder’s corporate operations.

On the other hand, theory driven questions were deduced by the researcher from the underpinning theories of the conceptual framework for this study, such as privatisation, stakeholder and performance measurement theories.

128

These questions asked for the participants’ a) understanding of privatisation theory and b) viewpoints on Sydney Airport’s performance i. if it is portrayed as a subset of key stakeholder operations and ii. the usefulness of an integrated performance assessment model based on industry standards and stakeholders’ perspectives

See Appendix A 2 for the final interview questions that were used to guide the various interviews undertaken.

5.6.5 Ethical Considerations prior to Interviewing As pointed out by Pollard (1999) and Kahaner (1996) the ability to influence others to provide the needed data is the basis of success in research. Especially high ethical standards were required in the conduct of this research due to its socio-political orientation. Prior to conducting the interviews, ethical clearance from the University of Western Sydney (UWS) Human Research Ethics Committee was obtained. Furthermore, the researcher ensured that every participant was made fully aware of the study and the benefits of participating in it. The package that was sent out in advance to the participant included the following: a cover letter and information sheet on the project; the interview questions; and a brief research proposal outlining the project details (see Appendix A 3). Also, a confidentiality agreement was signed by each participant and the researcher to guarantee that no raw data would be made public and that the participant will remain anonymous (see A 4 for de- identification of research participants).

The next section provides the details of how the field research was carried out.

129 5.7 Step 4 : Conducting the Research 5.7.1 Field Research: Semi Structured Interviews According to Denzin and Lincoln (2000), given their qualitative nature semi- structured interviews provide the greatest breadth of data. The semi- structured interviews centred around the central research questions: “What” was the impact of privatisation on Sydney airport stakeholders and “How” could such reforms be assessed when portraying that Sydney Airport consists of multiple stakeholders The interviews were set up in advance by appointment and were conducted face to face at the premises of the participants. As previously mentioned, all participants occupied high status, senior positions in their organizations. All were highly educated, articulate, well-known in the air transport industry and familiar with other key players in the industry, including politicians and other senior executives. The location of the interviews was selected primarily for the convenience of the participants due to their time constraints and busy schedules. Tables summarizing the time and location of all interviews are contained in Appendix A 5 (Interview log-book). Each interview was approximately 60 -80 minutes in length.

A challenge was to avert domination of the interview by the senior manager and retain focus on the research questions. Advance preparation and the use of semi-structured interviews were helpful in adapting to the particular interview situations. The sequence of questions could be changed and some questions eliminated depending on the direction of the conversation and relationship established with the participant. This approach allowed the conversation to develop and the researcher to steer it in a way of interest for both parties involved.

The interview was tape recorded following permission being granted by each interviewee. All interviews were one-on-one. According to Gillham (2000) memory helps hear what is on the tape; transcription was carried out as soon as possible after the interview by a professional transcriber. A confidentiality agreement was also signed with the transcriber due to the sensitive nature of this project. Each transcript was sent to the participant for approval to obtain

130 respondent validity (see Appendix A 6 for the transcription letter sent to each participant).

5.7.2 Data Processing Once the semi-structured interviews were transcribed from voice to word files, the files were checked for accuracy by the interviewer prior to sending them out to the interviewees for respondent validation. The participants were given three weeks to check, validate and confirm the transcripts. Thereafter Leximancer, a data-mining tool, in conjunction with another software package Nvivo v 7, was used to analyse the content of the transcripts. The Leximancer package and the Nvivo v7 software were the most suitable tools to undertake the required analysis as they were flexible enough to allow the researcher to engage with the data and be in the centre of the investigation of this exploratory study.

5.7.3 The Researcher as Key variable In writing about the role of the researcher in qualitative studies, Flick (2006p.114) indicates that the researcher, the respondent and communication competencies are the main instruments of collecting data. Field visits to conduct the interviews at the offices of the interviewees occurred during mid 2007. The data was collected first-hand, thus in line with Marshall and Rossman (2006), the researcher was an integral part of this case. Furthermore, as emphasized by the literature (Creswell 1994; Cooper and Schindler 2003; Seale, Gobo et al. 2004; Smith 2005; Flick 2006), it is the researcher who interacts with the object of study, whether this interaction assumes the form of living with or observing the informants over a prolonged time or actual collaboration. Therefore, the researcher systematically reflected on who she represented in this study by using multifaceted complex reasoning (Marshall and Rossman 2006).

It needs to be pointed out that the researcher’s personal, educational and work related experiences have influenced the interpretation of the data. The researcher tried to eliminate personal biases in this research through: a) critical self-reflection of being aware that biases might exist; and b) relying on

131 reasonably objective qualitative research tools. The research tool of Leximancer was used to identify key concepts through empirical data analysis, and then these concepts were used to derive the coding in the research Nvivo.

The next section provides details of how the data was analysed and is followed by section 5.9 which examines how the results were reported in seeking to answer the research questions.

5.8 Step 5: Analysing the Data According to Richards (2005) and Denzin and Lincoln (2003) it is common for qualitative research to include multiple data sources with the aim of bringing many perspectives to investigate the identified research problem. This section describes the qualitative data analysis that was undertaken for this study. An interpretive paradigm was applied to the analysis of the data in an attempt to understand the meanings of the major themes found in the data (20 interviews) and also the linkages between the themes. This process required careful mapping of the research questions with the collected data, in light of the conceptual and methodological framework.

In this section an explanation of the content analysis (also known as thematic analysis) undertaken is given. Then the software applications used (Leximancer and Nvivo) are detailed. The aim of the analysis is to understand the meaning of the themes obtained from the various data sources and to extend comprehension to the deeper, underlying meanings of the relationships of the data, known as conceptual linkages.

5.8.1 Content Analysis The Leximancer system performs a style of automatic content analysis. There are generally two types of content analysis that a researcher can conduct – conceptual (thematic) and relational (semantic) (Leximancer 2007). Content analysis was used to determine the presence of words or concepts within a group of documents. Conceptual analysis involves the discovery of the

132 presence and frequency of concepts, and relational analysis measures how concepts that exist within the text being examined are related to each other within the text (Weber 1990; Smith 2000). Conceptual analysis is the most common form of content analysis. Reasons for researchers using an automated system for content analysis of text include subjectivity inherent in human analysis, time limitations and influences (Smith 2002; Smith 2006).

The two software packages of Leximancer and Nvivo were used to assist with the content and relational analysis in this study. Leximancer displayed: a) the words comprising the vocabulary of the most frequent concepts used for subsequent analyses; b) the connectivity of concepts in similar contexts; and c) the connectedness between individual concepts in the form of a diagram referred to as ‘concept map’. Leximancer assisted this process through the text browser and logbook functions which allow the researcher to read, cut and highlight the document and derive quotes when online. Nvivo was used in a secondary role for data management and thematic verification purposes. The conceptual analysis for this study is illustrated in section 5.10.

Relational analysis, which involves the examination of the relationship between concepts, has three components: a) affect analysis; b) proximity analysis; and c) cognitive mapping. Leximancer assists in the analysis of both proximity and cognitive analysis through the production matrix of the proximity of concepts and the two dimensional map generated. Affect analysis, which deals with the specific meaning of the relationship, must be determined by the researcher examining the text. The findings of the relational analysis reflect the findings and results of this thesis. These are reported in Chapters 6-9.

Summing up the analysis process, data triangulation was carried out when analysing the field data and combining it with the researcher’s case knowledge, reflections and interpretation. The analysis was conducted in three parts:

133  First, a conceptual analysis was undertaken with the aim of discovering the presence, frequency, strength and definition of key concepts from all the interviews.

 Second, relational analysis was used to assess the research questions behind the objectives of the privatisation reforms and the impact of those reforms on the stakeholders by ‘drilling down’ into the data to find the meaning in, not only the relatedness of the concepts, but also in the context of airport privatisation.

 Third, parallel to the use of Leximancer, common themes were coded and grouped into tree nodes, utilising Nvivo to verify the relatedness and linkages of the identified concepts and themes in Leximancer and to allow the researcher to further reflect on and interpret the data. (see Appendix A 7 – for Nvivo tree nodes)

5.8.2 Leximancer According to Smith (2006) the goal of the Leximancer system is to allow the researcher to reflect on the global context and significance of concepts by avoiding fixation on particular anecdotal evidence, which may be atypical or erroneous. The Leximancer machine learning process addresses in a grounded fashion the main concepts in the data sets and the way they relate to each other. Leximancer was designed for tagging, mapping and mining conceptual information from large text collections by providing both automatic analysis and customized analysis using seeded concepts. The software program builds a library of concepts in the text to a set of computational criteria by extracting the most important concepts discussed in the textual documents (interviews). It identifies concepts based on ‘seed’ words as a starting point. The software then defines a concept by identifying the words that occur around these seed words and builds the concept based on seed and associated words (Leximancer Manual 2007). This is measured by how often two concepts are discussed within the same passage of text, which in this analysis was identified as two sentences within the same paragraph, proportionate to the length of the responses. In this study, Leximancer was asked to find the top concepts (automatic count) and stop words were removed automatically.

134 Leximancer is an interactive software as it allows the researcher to define, add, delete concepts that are then investigated in the data (this is disclosed for each analysis conducted). It also Identifies co-occurrences of concepts in similar contexts and reveals the strength of association between the concepts; only the data from interviewees can be used by eliminating the interviewer through the ‘kill class’ function, allowing the researcher to extract data through the text browser and the log book.

A three-level approach was used in the data analysis using Leximancer (see Table 5-5). The conceptual analysis (discussed in section 1.9) provides the key concepts, the frequency, the concept connectivity (linkages) in the form of a conceptual map derived from the complete data set comprising 20 interviews (entire transcripts) run through Leximancer. For the relational analysis, the researcher structured the analysis based on the research propositions that were examined; the data set was broken down into individual stakeholder groups and/or research questions. Answering the research questions is in line with the reporting of the results for this thesis. The Nvivo software application (discussed in section 5.8.3) and its functionality as a data management tool allowed all the individual raw data interview transcripts to be broken down based on question and answer as well as into stakeholder groups.

135 Table 5-5: Leximancer 3 Level Approach

Level 1: Conceptual Analysis: Run all Interviews through Leximancer, understand concepts and linkages Level 2: Relational Analysis analyse the data sets by stakeholder groups Research Questions Approach Outcome (RQ) (see Table 5.2) RQ 1 Run complete Interviews Derive Stakeholder RQ 2 grouped by individual group specific stakeholder groups themes

Level 3: Relational Analysis analyse only the answers to the sub questions by stakeholder groups SQ 1-2 Run only the answers for the Derive themes SQ 1-3 SQ to answer the RQ 1 and 2 specific to – by individual stakeholder individual questions groups

Leximancer displayed the content of the textual documents as a concept map. The information that Leximancer generated about the occurrence and co- occurrence of concepts was represented by mapping out the concepts and their links. Examples of such concept maps are illustrated in section 5.10.4.

Although it is still a new software program, content analysis and semantic mapping using Leximancer has been published on an international scale. It has also been proven to be an efficient and effective tool in terms of stability and reproducibility (Smith 2000; Rooney 2004; Smith 2006). Stability refers to intercoder reliability, meaning that the machine learning phase is highly consistent, no matter how many times a data set is processed and reprocessed by the application (Rooney 2004). Reproducibility in the context of Leximancer is its consistency in classifying text given the same coding scheme, meaning that the maps are highly stable and consistent when reproduced.

The statistics produced about concepts, their frequency and connectivity as derived from the data are not an attempt of the analysis to turn qualitative data into quantitative data; rather the statistics are presented to explain the links and strengths of various concepts identified by the analysis. It should also be noted that this schematic graph is the commencing point of the analysis, not

136 the end point. Leximancer is only a tool that assists the qualitative researcher in interpreting and making sense out of the data.

5.8.3 Nvivo Version 7 The Nvivo software assisted the process of systematically transforming the raw data into “codes”. Qualitative coding is defined by Lewins and Silver (2007 p.81) as a process by which segments of data are identified as relating to, or being an example of, a more general idea, instance, theme or category. This process helped the researcher to organize, categorize and build ideas around the data. This was done by carefully reading the interviews, then reflecting upon the meaning of each sentence and paragraph and assigning a key word (code), to describe, and later define, the underlying concept. Qualitative methodology literature (Glaser and Strauss 1967; Denzin and Lincoln 2003; Lewins 2007) points out that coding can be done inductively or deductively. In this thesis an inductive approach was used as the researcher had immersed herself in the data without any predefined areas of interest.

The raw data from the interviews was the starting point of the data analysis. Nvivo and Leximancer were used in parallel. Throughout the data analysis the researcher placed stronger emphasis on using Leximancer because, as emphasized earlier, Leximancer applications and interactivity were found to be more suitable in evaluation of different stakeholder perceptions regarding Sydney Airport privatisation. The researcher relied on Nvivo during the model development phase in retrieving the attributes and indicators for airport performance assessment as specified by the participants. Nvivo predominantly helped answer Research Questions 3 and 4. Nvivo was more useful in this instance as the researcher worked purely with text interpretation and the participants’ ideas for the mode,l and no concept linkages and frequency analysis were carried out.

Nvivo was also used, prior to running the data through Leximancer, in the organization of the word documents and in dissecting the interviews by mapping the questions to answer. Embracing the inductive approach, themes emerging from the semi-structured interviews were compared and cross-

137 checked to all data sources and each other (individual and per stakeholder category), allowing differences and connections between themes to be identified. This was done to address the research questions concerning the impact of airport privatisation on stakeholders and to develop the model. The ‘tree nodes’ function on Nvivo (similar to a word file folder) enabled the creation of subfolders of an already predefined node (also known as a concept), allowing the researcher to group common themes together. This function facilitated efficient data management, grouping of ideas and verification of the conceptual analysis in Leximancer.

5.8.4 Data Triangulation In this purely exploratory qualitative study the data collected from the interviews was blended with the researcher’s knowledge gained from reading secondary sources during the case preparation stage and her reflections throughout the research process. According to Richards (2005) and Denzin and Lincoln (2003) it is common for qualitative research to include multiple data sources that bring different perspectives to the investigation of the identified research problem. The researcher’s interpretive approach to the thematic content analysis and her knowledge accumulated during the preparatory stages of this study, have led to reflections on and comparison of findings.

According to Silverman (2006) such a comparative method together with multiple data source data triangulation allows for detailed inspection and comparison of the multiple stakeholder viewpoints at Sydney Airport. Such research design assisted the process in obtaining optimum validity in this single case research. See Figure 5-4 for a graphical representation of the data sources that were triangulated.

138 Data Triangulation

Interpretation Interview & Reflections Data

Researchers Case Background Know-How

Figure 5-4: Data Triangulation

According to Denzin (1978) there exist four types of triangulation: a) source triangulation using different data sources; b) investigator triangulation, using more than one researcher; c) theory triangulation, interpreting the data with different perspectives and d) methodological triangulation, using several different data gathering techniques. In this study source triangulation was used. As shown in Figure 13, the triangulation of the interview data, the researcher’s knowledge at hand and data interpretation led to an understanding of the themes that emerged in gaining a more in depth view of the privatisation phenomena at Sydney Airport.

5.8.5 Reliability and Validity of this Study Reliability and validity are key issues to consider when designing a qualitative research strategy. According to Moisander and Valtonen (2006) reliability in qualitative studies is achieved by illustration of a transparent research process based on a conceptual framework of the study. Thus, reliability in this study was achieved through write-up of its comprehensive methodology chapter, by detailed transcription of the interviews and transcript verification. It was also achieved through the use of Leximancer’s objectivity in text analysis. As interviews were the primary source of data collection, high reliability was

139 achieved through Seale’s (1999 p.148) low-inference descriptors. The use of low inference descriptors means that the interview transcripts and subsequent analyses relied on direct wording from interviewees rather than interpretations made by the researcher. Furthermore, respondent validation was achieved by sending the transcripts to each participant for verification (Silverman, 2006 p.290). Validity, as defined by Hammersley (1990 p.57), refers to the extent to which an account represents the social phenomena to which it refers. In this qualitative study validity was achieved through its use of multiple sources of data and respondent validation. These also allowed the researcher to complete the picture and understand the impact of privatisation on Sydney Airport stakeholders.

The next section explains how the findings are reported. The conceptual analysis findings are shown below. They form the basis of the relational analysis that is discussed in the subsequent chapters (Chapters 6-9), combining the findings and discussion section for this thesis.

5.9 Step 6: Reporting the Research The focus of this thesis is on: a) exploring the outcomes and impacts of airport privatisation reforms on Sydney Airport stakeholders; and b) developing a stakeholder airport assessment scorecard,SAPAM. In applying the interpretive paradigm, the findings and discussion chapters examine not only the relatedness between the concepts but also the deeper, underlying meanings behind the relationships within the data and why various concepts are linked.

To reiterate, semi-structured interviews (in total 20 interviews) were conducted with representatives from key airport stakeholders. The respondents were grouped into five stakeholder group categories: airlines, airport operators, community and government, others, investors. Participants were selected based on convenience and snow ball sampling. All interviewees ranked at senior level within their organization. They were all asked questions on privatisation, airport privatisation and airport performance assessment.

140 Consistent with the research design in examining multiple stakeholder perceptions on the impact of privatisation, the primary focus of the research findings is related to the participants’ experiences of the privatisation reforms. The key themes reported by stakeholder groups are explored upon their mapping and grouping against the research questions. The results/ findings chapters of this thesis incorporate discussion. The results are reported and structured in accordance with the individual research propositions. Boxes labelled “model element” are used in the combined findings and discussion section to highlight the relevant linkages between the findings and the airport performance assessment tool. The findings are reported by means of conceptual schematic representation of Leximancer’s conceptual map and relatedness display. The structure of reporting the results is as follows:

1. First, Sydney Airport, the case object of this thesis, is introduced in Chapter 6.

2. Second, the stakeholders are identified and verified, followed by the background to privatising Sydney Airport illustrating the pre- privatisation process. Thereafter the extent of attainment of the government objectives of the privatisation reforms ,as perceived by the stakeholders, is reported and discussed in Chapter 7.

3. Third, the impacts of the reforms on individual stakeholder groups are discussed in Chapter 8

4. Last, the key performance indicators of the airport performance model are determined and discussed in Chapter 9.

Prior to reporting the findings by ‘drilling down’ into the data to find the meaning in the relatedness of the individual concepts in the context of airport privatisation (relational analysis), the individual concepts as defined by Leximancer and interpreted by the researcher require discussion. This conceptual analysis (which forms the basis for the subsequent relational analysis) is also discussed in section 5.11.1. The meanings of the most

141 frequently occurring concepts and vocabularies defining the concepts are examined first, then concept relatedness and connectivity are displayed through the concept map. The next section allows the reader to become acquainted with the terminology of Leximancer which is also employed in subsequent chapters. It is important to note that the concepts and their meanings illustrated in the section below drive much of the discussion in Chapters 6, 7 and 8.

5.9.1 Overall Concept Detection of this Study Conceptual Analysis involves the detection and quantification of the presence of predefined concepts within the text (Leximancer manual 2007). Table 5-6 below illustrates the most common concepts as identified by Leximancer from the 20 semi-structured interviews used in this thesis. The vocabulary making out these words is discussed below.

All analyses conducted by Leximancer (in this section and Chapters 6,7 and 8) were based only on direct responses, as worded by interviewees, to open- ended questions. The interviewer question text prompting the response has been eliminated from the analysis by using the “kill class” function available in Leximancer. This approach allowed for a more focused examination and exploration of the interviewees’ responses to prompts on airport privatisation and airport performance assessment. The open-ended questions tended to elicit long answers which largely avoided the belabouring of key words and statements necessitated by more closed and specific questions.

142 Table 5-6: Overview of Key Concepts

Absolute Relative Concept Count Count airport 1153 100%

y airlines 317 27.4% government 313 27.1%

uenc q High passengers 206 17.8% Fre people 202 17.5%

commercial 133 11.5%

y terms 133 11.5%

uenc regional 131 11.3% q

Medium money 127 11% Fre cost 118 10.2%

price 112 9.7% y community 112 9.7%

uenc privatisation 111 9.6% q Low charges 110 9.5% Fre capital 109 9.4% development 78 6.7% process 76 6.5% councils 69 5.9% service 69 5.9% control 65 5.6%

The conceptual analysis is facilitated by grouping the top fifteen key concepts into occurrences of high frequency, medium frequency and low frequency (section 5.10.2). The table above illustrates that the concept ‘airport’ is the most frequently occurring, with 1153 direct mentions within the text. In support of the view in the literature that airports are complex entities with multiple stakeholder involvement, the complexity and broadness of the concept ‘airport’ for this study is illustrated below:

An airport is more than just an economic engine. It is the place where the world touches that country! It is something that shareholders and economists will never understand - it is where people connect with each other, it is where people have their first interaction in terms of the arriving or departing experience. (Interviewee 10- Airport Operator)

143 The significance of the policy conundrum surrounding the privatisation of Sydney Airport enriches the key concept ‘airport’ even further as shown below:

Sydney airport is the premier piece of infrastructure in Australia. A critical piece of infrastructure for the country. (Interviewee 19- Others)

The least frequently occurring concept “control” was mentioned 65 times, that is 5.6% of the number of occurrences of the concept “airport”. This concept was mentioned by respondents when elaborating on and referring to the parties who may exert influence over airport operations or when discussing the pre and post privatisation regulatory regime. This is shown below:

At our airports, the bits that we can control are now done with a significantly higher-level of efficiency for the stakeholders, whether it's the airlines or passengers etc. What you need to recognize of course is that there are still chunks of what happens at the airport, which are still government controlled and government run. (Interviewee 20 - Investor)

An interesting aspect of this study is that although Sydney Airport has been privatised and has become commercially oriented, multiple references are made to the post privatisation role of the government. The ‘government’ as a key concept and theme is linked further with the concept ‘control’ as follows:

Privatisation has been successful in many ways- but a bit disappointing in the level of inactivity of the government in identifying what needs to be done in order to make airport regulations reflective of the needs of the day when the period of control ceased (Interviewee 13 - Government)

Due to Leximancer being interactive, the ‘concept editing’ function allows the researcher to delete, merge, or add concepts to the analysis of the text. To maintain objectivity no concepts were added but the following concept editing (deleting and merging) occurred in the process of identifying the above-listed key concepts:

144 Added Concepts: None Deleted back, day, issue, major, should, think, time, works and Concepts: years. Merged airline w/ airlines, airport w/ airports, passenger w/ Concepts: passengers and Sydney w/ Sydney Airport

To understand a concept and the way it is being used within the text the words associated with the major concepts identified in the text need to be reviewed. From Table 5-6 the fifteen most frequently occurring concepts with a relative count of above 9% are airport, airlines, government, passengers, people, commercial, terms, regional, money, cost, price, community, privatisation, charges, capital. These free standing single concepts are considered in the following context for this study:

The privatisation process and Sydney Airport is probably the most extraordinary example, causing a great deal of frustration and arguments amongst the various stakeholders, particularly the airlines. (Interviewee 19- Others)

As suggested by this interviewee and other respondents, the investigation of the privatisation of Sydney Airport is of political nature and requires an in- depth understanding of dynamic stakeholder relationships.

5.9.2 Vocabulary Definitions making up the Concepts for this Study Understanding the vocabulary of words that make up the seed concepts for the Leximancer analysis provides a wider comprehension of the transcript data and enriches the meaning of individual concepts. Note that some of these identified concepts with their underlying definitions are used in subsequent analyses of this thesis. The table below (table 5.7) sets out the words that comprise the ‘vocabulary’ associated with each of the fifteen concepts. These words are ranked in occurrence order according to the number of mentions in relation to the concepts. Those higher on the lists occur more often than those further below.

145 Table 5-7: Vocabulary Definition

High Frequency Concepts

Airport (1) Airline (2) Government Passengers (4) People (5) (3) Airport /s Airline/s government Passenger/s people government Airport/s airport /s Airport/s airport/s airlines government airlines airlines aircraft Sydney Airport Sydney airport Sydney Airport retail Sydney people regional privatisation revenue commercial community time commercial experience time commercial passengers community charge/s community privatisation charges investment aircraft experience terms people private terminal noise charges Sydney money time walk years Qantas price Sydney Airport money regional commercial regional cost business capital passenger time security issue cost power federal terms terminal councils major owned regional regional development privatisation ownership screening government airline revenue local pay facilities local pricing issue money shopping passenger/s operators aviation people local

Medium Frequency Concepts

Commercial (6) Terms (7) Regional (8) Money (9) Cost (10) commercial terms regional money cost airport airport /s airport/s airport/s costs development government airlines government airport/s developments commercial government spend capital government Sydney people people charges airlines airlines slots airlines price private time services Sydney airlines terms passenger charges passengers passenger investment charges Rex years government negotiations regional aviation amount aircraft Sydney revenue Sydney charges security retail capital terms community regional passengers aeronautical slot councils average community Qantas cost fuel Sydney impact people aircraft time increase activities terminal city view operations aeronautical price passengers cost charge business place communities fund measurement traffic years councils local aeronautical

146

Low Frequency Concepts

Price (11) Community Privatisation Charges (14) Capital (15) (12) (13) price community privatisation charges capital airport/s airport/s airport/s airport /s airport/s government local government aeronautical cost ACCC government process airlines years cost people impact regional airlines Sydney Airport impact community charge government airlines Sydney Airport post Sydney infrastructure assets privatisation pre increase expenditure terms regional airlines passengers price charges services time cost terms capital development regime price Sydney percentage time Sydney revenue investment charge money objectives capital city people perspective capital passenger regional market infrastructure years ACCC commercial time communities commercial services privatisation outcome privatisation Australia money major reasonable airlines negative pay recovery regional noise pricing terms revenue airline town place years charges

The details and analysis of the vocabulary are provided in Appendix A-8. This appendix highlights certain words and provides an overview of how the concepts are understood by the researcher and applied in the findings chapter of this thesis.

5.9.3 Relatedness of the Concepts explored in this study Exploring the connectivity between individual concepts is essential to an in- depth comprehension of the overall data. Therefore, the interview data was broken down by: a) stakeholder category; and through b) mapping of interviewees’ answers to individual research questions. The breakdown was facilitated by use of Nvivo software as a data management tool to itemize the transcripts by stakeholder category and/or question, prior to running it through Leximancer.

147 The table below (Table 5-8) shows the concepts associated with the largest concept - ‘airport’- that is examined by this thesis. These concepts are ranked in occurrence order; concepts occurring more frequently have a stronger connection with the concept “airport”.

Table 5-7: Connectivity of concept 'Airport'

Concept Absolute Count Relative Count airlines 171 14.8% government 152 13.1% passengers 116 10% people 116 10% commercial 88 7.6% terms 88 7.6% capital 80 6.9% community 76 6.5% money 68 5.8% regional 67 5.8% charges 66 5.7% privatisation 65 5.6% cost 64 5.5% price 59 5.1% councils 50 4.3% process 47 4% development 45 3.9% service 45 3.9% control 38 3.2%

The concept ‘airport’ occurs most frequently with the concept ‘airlines’, followed by the concept ‘government’ and ‘passengers’. The concept ‘airlines’ co-occurs in the text 171 times or 14.8% of the total occurrences of the ‘airport’ concept.

The conclusion drawn is that interrelatedness is present between the more frequently appearing concepts, with concepts such as airport, airlines and government appearing in all fifteen ranked vocabularies. In line with existing literature, stakeholder interdependence at privatised airports does exist. Although Sydney Airport had been privatised the concept ‘government’ had a strong presence in the conceptual analysis. Further analysis of stakeholder relationships post privatisation is discussed in the following chapters.

148 5.9.4 Concept Mapping As discussed previously Leximancer provides a means of both quantifying and displaying the conceptual structure of interview transcripts to explore interesting conceptual features (Leximancer Manual 2007). Leximancer diagrammatically represents the concept occurrences, co-occurrences and their links through a visual display, referred to as a conceptual map. Figure 5- 5 shows the initial conceptual map showing concepts relevant to this study.

Conceptual Map & Connectivity of Concept 'Airport'

Figure 5-5: Initial Conceptual Map & Connectivity of Concept 'Airport'

149

The schematic diagram displays Connectivity is illustrated in the five items of information about the following way when looking at a text (Leximancer 2007): diagram (Leximancer 2007):

 The main concepts  A line between concepts discussed in the transcript; means a connection occurs in  The relative frequency of the data; each concept;  The thicker the line the more  How often concepts co-occur connection occurs in the data; within the text;  The distance between the  The centrality of each concepts on the graph shows concept and relatedness. Leximancer  The similarity in contexts in translates this into visual which the concepts occur information on the map by (themes). summing the number of co- occurrences of any two concepts.

The above map displays all the main concepts discussed in the data (concepts previously displayed in Table 12). The relative frequency of each concept is shown by the strength of the concept label. This varies from black (frequent presence) for concepts such as government, passengers, airlines and airport to grey (infrequent presence) as shown by the concepts control, service, councils and development.

The co-occurrence and connectedness of concepts within the text is indicated by the line connecting the concept ‘airport’ with the other concepts. The size of the concept points on the map further emphasizes the key concepts which are airport, airlines, government, commercial and people. Similarities in contexts in which the concepts occur are known as thematic group circles. The two most central themes in the initial stages of the analysis and as indicated in the diagram are government and airport. As emphasized by one interviewee they co-exist in the context of airport privatisation

It's not necessary possible to totally disentangle privatisation from regulation. Because the two go hand in hand in that, many of the benefits that we feel we delivered to Sydney Airport are a combination of, A) having a private owner, who is motivated in a different way to the government, but B) having a regulatory

150 framework which permits us to work in tandem with the airlines. (Interviewee 20- Investor)

The role and influence of the government as well as the interdependence of stakeholder interests post privatisation needs further investigation.

Being an interactive tool Leximancer allows the map analysis to be taken a step further by adjusting the number of concepts that appear, the circled concepts that belong to a theme, or the relative size of the themes. Figure 5-6 displays an adjusted conceptual map illustrating the six central themes surrounding key concepts from this study. This map has been adjusted to show all concepts linked to the six major themes.

Connectivity of the “Privatisation” concept

Figure 5-6: Central themes with connectivity of the “Privatisation” concept

151 Figure 5-6 above exhibits the connectivity of the concept ‘privatisation’ with the other concepts grouped within the six central themes of government, airlines, airport, price, development and people that underpin this study. Although at first sight the connection to privatisation of these various themes and concepts is not straightforward, understanding the role of the airport in today’s air transport industry assists with the interpretation of the data and the Leximancer identified themes.

The term “Aerotropolis” as used below by one of the respondents highlights the interdependence of stakeholder operations at privatised airports:

Airports these days are airport cities. And the term is being coined ‘The Aerotropolis” - which describes an airport as a city as being a concept which every airport in the world will aspire to. Those who don’t aspire to it are obviously backward countries which have no ambition and no real appreciation that is aeronautical. (Interviewee 15- Community)

The conceptual map, concept frequency count and concept definition as illustrated and explained in this section are useful in the initial stages of analysing the data. They are used as an indicative guide before applying the interpretive paradigm, with only limited reliance being solely placed on the maps or frequency counts in attempting to discover the meaning of the data. This study is of qualitative nature and the researcher is central to the data collection and analysis when applying the interpretive paradigm to the performed conceptual analysis. Therefore the research process aims at a relational analysis of the interview data itself to derive the meaning of the text when mapping it against the research questions. This is discussed in the findings and discussion chapters that follow.

5.10 Chapter Summary This Chapter illustrated the methodological background of this study. The qualitative research approach and case design were discussed. This was followed by an overview of the research methods used and the analysis that was undertaken. The justification of a qualitative paradigm and the

152 methodological limitation of this case research were discussed. Interviews were nominated as the primary means of data collection. The researcher’s position in this qualitative study, as well as secondary sources used for case preparation, was illustrated. Content analysis was used in analysing the interview transcripts through data mining tools such as Leximancer and Nvivo. The central concepts and themes for the overall study were stated. The key concepts of ‘airport’, ‘airline’ and ‘government’ were explored in depth to highlight that stakeholder interdependence is evident from the data. Visual conceptual maps illustrated the findings of the textual analysis. The results of the conceptual analysis, which form the basis of subsequent discussion and result chapters, were discussed to ensure that the reader became familiar with the analytical interpretive approach used in this study.

153 Chapter 6

6 Introducing Sydney Airport at a Glance

6.1 Introduction This chapter introduces Sydney Airport, the focus of this study. The Airport’s significance as a national key asset is discussed and a descriptive overview of its performance from 1999-2006 is presented. Boxes labelled ‘model elements’ are used throughout the next three chapters to highlight findings relevant to the development of the Stakeholder Airport Performance Model (SAPM) which is discussed in Chapter 9.

6.2 Overview of Sydney Airport Sydney Airport is arguably the largest, busiest and most important domestic and international airport in Australia. Sydney Airport Corporation Limited (hereafter referred to as SACL) is the private operator of Sydney Airport. The Federal Government sold the management authority of Sydney Airport in 2002 to the Southern Cross Airports Corporation Holdings Limited (SCACH), which is the ultimate parent company of SACL. Macquarie Bank infrastructure investment funds have majority ownership of SCACH. The SCACH consortium, consisting of Macquarie Airports and Managed Funds (62.79%), Ferrovial Aeropuertos (20.68%), Hochtief Airport (11.57%) and Ontarios Teachers Trust (4.6%), paid 5.6 billion dollars for Sydney Airport.

The present ownership structure is illustrated in Figure 6-112 (note the increased shareholding from 62.79% in 2002 to 81.77% in 2006 of various Macquarie Bank infrastructure funds. This change occurred when Macquarie Airports reached an agreement with Ferrovial Aeropuertos about call and put options regarding Sydney and Bristol Airport.

12 adapted from the Sydney airport website www.sydneyairport.com.au

154 SACL Ownership Structure

Figure 6-1: SACL Ownership Structure

Sydney Airport is recognized as a prime infrastructure asset of Australia and was described by one respondent as follows:

Sydney Airport - It is Australia’s national linkage to the world. If that infrastructure is not growing and is not being invested in and not developing, then Australia and not only Sydney suffers - but the overall Australia’s national income suffers. (Interviewee 12- Government)

It is claimed that Sydney Airport has been successful in its operations to date, providing double digit growth earnings since its acquisition. According to Mather (2004) Sydney Airport contributes directly and indirectly 2% to the Australian economy, 6% to the NSW economy and approximately AUD 6.6 billion per annum to the NSW Gross State Product. Increased profitability and efficiency of operations of the airport are said to contribute on average $7 billion a year to the NSW economy. Sydney Airport is the oldest continuously operating airport in Australia and houses approximately 500 businesses and government bodies. It is one of the major employers in Sydney, directly

155 providing 62 000 jobs and a further 108 400 through flow on effects (SACL website).

Model Element 1: Airports are perceived as key national infrastructure assets

Sydney Airport has been operating since the 1920’s with ongoing developments, such as the building of a new international terminal in 1960’s, the 1992 construction of the north-south ,which is the longest runway in the southern hemisphere, and the construction of the third runway in the 1990’s due to capacity and movement limitations.. One of the consequences of the availability of private sector funds is that the airport is presently undergoing major refurbishment,, such as the project STAR (State-of-the-Art renewal), with the aim of remaining one of the world’s top airports (SACL 2007). The upgrades at the airport include the International Terminal (T1), Domestic Terminal (T2) and the airfields. In light of the ongoing changes in the air transport industry worldwide, such as the arrival of the A 380 and air travel becoming a commodity and a normal part of life for business and leisure travellers, the estimated completion date of the airport’s modernization is 2010. Post privatisation, Sydney Airport has received multiple awards13.

In addition to the passenger terminals, Sydney Airport has another five terminals to handle international and domestic freight. Of these, three are used for international freight movement and two for domestic freight movement. Estimated by the BITRE (2008) Sydney Airport handles 350 000 tonnes of air freight worth $ 33 billion a year.

Sydney Airport handled about 26 million passengers by 2004, and Mather (2004) states that the 20 year master plan approved by the government confirmed the Airport’s capability of handling up to 68 million passengers per annum. As pointed out by the BITRE (2008) the total number of passenger

13 Sydney airport has received awards, such as Top Ten International Airport (2007), Airport of the Year 2004 and 2005 , Best Airport Pacific Region (2002 -2007), No.1 Australia International Airport 2003, Airport of the year (2002), from large airport authorities such as Skytrax, IATA, ACI and AAA.

156 movements through Sydney Airport has increased by an average of 4.7 per cent a year in the last 14 years and is forecast to increase by 4 per cent over the next 20 years, from 28 million in 2005-06 to above 63 million in 2025-26.. The passenger and aircraft movement at Sydney Airport from 1999- 2006 is indicated in Table 6-1.

Table 6-1: Data on Passenger & Aircraft Movement Sydney Airport

1999 2000 2001 2002 2003 2004 2005 2,006 Passenger Number 21,876,182 23,257,594 26,436,503 23,863,544 24,183,353 26,426,363 28,288,150 29,100,000 Aircraft Movements 281,301 290,019 317,339 254,729 254,487 270,268 286,484 282648

However, it covers only 907 hectares, the smallest land area of any capital city airport in Australia. Indicated by one of the interviewees, Australia’s busiest airport is constrained by size and capacity.

Regarding Sydney Airport – you need to understand it is a relatively small airport by size. A lot of activity occurs in that approximately 884 hectares, and given these commercial pressures to develop the airport in terms of other uses of land and other issues it interferes with our operations. Also, the amount of commercial development that occurred at Sydney Airport over the last few years in particular has caused some alarm in neighbouring communities, certainly in local councils. (Interviewee 19- Others)

The airport operator states (SACL, website) that there are measures put in place to manage Sydney’s airport capacity and surrounding noise problems through the jet curfew (effective between 11:00 p.m. and 6:00 am); the movement cap of 80 scheduled aircrafts per hour; slot allocation; ring fenced agreements (for regional interstate operators); as well as the fair share noise flight path plan. The existing capacity constraints nevertheless seem to have had an impact on stakeholder operations post privatisation. The capacity issue seems to interfere particularly with the privatisation objective of commercially developing airport land. This problem is discussed in Chapter 8.

157

Model Element 2: Sydney Airport is by nature a capacity constrained airport; the capacity dilemma has had an impact on stakeholder operations post privatisation. Airport management requires an understanding of stakeholder requirements from an airport, as these form the basis for deriving the attributes needed to assess the performance of a privatised airport.

As mentioned in Chapter 3, the Australian air transport industry has undergone significant changes, triggered by deregulation of the aviation industry and globalization. The positioning of airports in today’s society has changed (see Figure 6-2) as was emphasized by the airport operator as follows:

Airports these days are within the aviation industry; the transport industry - yes we are, are we in the tourism industry – yes we are; are we in the retail industry – yes we are; are we in the property development industry – yes we are ! (Interviewee 9- Airport Operator)

This is supportive of the view of Poole (1994) that airport privatisation reflects a changed paradigm of what an airport is supposed to be. He argues (p.3) that the traditional paradigm views an airport as essentially a public service whose objectives ought to be simply to enable aircraft and their users to arrive and depart while just covering costs. The airport-as-an-enterprise paradigm views an airport as an entrepreneurial business, whose objectives are to meet the needs of its diverse clientele being the airlines, investors, passengers, meeters-and-greeters, staff, neighbourhood communities, airport tenants and others. This view furthermore supports Shirley (1999) claims that with a clear distinct corporate autonomy airport managers can make use of more efficient debt contracts and other capital market instruments; this means that effective ownership changes can lead to improvements in financial performance in terms of profitability, growth and financial viability.

158 Traditional vs. Contemporary Focus of Sydney Airport Operations

Traditional Contemporary Focus of Airport Privatization, Deregulation & Competition Focus of Airport Operator Operator

Passenger Facilitation Return to shareholders Commercial Development Investment Activities Traffic and Passenger Growth

Figure 6-2: Traditional vs. Contemporary Focus of Sydney Airport Operations

Model Element 3: The airport in its contemporary role is accountable to more stakeholders than in the past. Stakeholders play an ever more important role due to the interdependence of operations. The change of ownership has increased stakeholder involvement and also the demands on the airport operator; therefore privatised airport performance needs to be assessed by taking into account key attributes relevant to individual stakeholder groups

From the latter analysis and discussion it is apparent that the privatisation impact on Sydney Airport needs to be explored from multi-dimensional perspectives. In particular, airport performance is no longer solely about passenger facilitation but instead the focus has shifted to wealth maximisation through commercial business expansion. Supportive of the literature review on airport privatisation (Chapter 3), privatised airports, being no longer controlled by a government department, have learned how to operate and increase their presence in the market and are accountable to the multiple stakeholders involved in airport operations. Increased stakeholder involvement and commercial pressure have made Sydney Airport operations

159 more complex, a significant issue for the development in this thesis of the performance assessment tool.

In summary, from the above description of Sydney Airport it can be seen that privatisation has led to a change of a) the positioning and b) the performance of the airport. Post-privatisation, the importance of airport stakeholders has increased and it is therefore important to investigate Sydney Airport from key stakeholder perspectives and to develop a model of how privatised airports can be assessed from stakeholders’ perspectives. This is in line with the point made by Tsanemyi et al (2008), that privatised state-owned entities need to be assessed in terms of services provided to the community. After all, airports were established with an objective of serving the interest of the community and society. The next section provides a snapshot of Sydney Airport’s performance from 1999-2006

6.3 Snapshot of the Performance of Sydney Airport An examination of pre and post-privatisation financial reports (that is, before and after 2002) highlights that Sydney Airport has re-orientated itself to meet the demands of stakeholders, including consumers, investors, suppliers and regulators. The reports have increased in length and detail over the years, with a significant portion being dedicated to informing the reader about the airport’s strategy, future development and community involvement. Sydney Airport’s economic performance in terms of revenue from aeronautical and non aeronautical activities (shown in Figure 18) is in line with the findings of the PC (2006) inquiry on airport pricing and as indicated by Mather (2004 p.23); fifty percent of revenue is aeronautical and the other half is non- aeronautical. The latter is comprised of roughly 25 percent retail, 10 percent commercial (i.e car parking), with property revenue making up the balance. As specified in section 3.4.1 Graham’s (2003 p. 56) definition of revenue streams is applicable to this study; aeronautical revenue comprises landing fees, passenger fees, aircraft parking fees, and other aeronautical fees such as air traffic control, lighting, and air bridges. Non-aeronautical revenue streams

160 refer to concessions, rents, direct sales, car parking, charges for utilities and other.

Revenue Split Sydney Airport 1999- 2006 700,000,000

600,000,000

500,000,000

400,000,000

300,000,000

200,000,000

100,000,000

0

1999 2001 2003 2005 Aeronautical Income Commercial Income Retail Income Property Income

Source: Data compiled by author from annual reports

Figure 6-3: Revenue Split at Sydney Airport from 1999- 2006

Traditionally, the main indicator used for assessing the output (productivity) of publicly owned airports was based on the work-load unit (WLU), defined by Doganis (1992) as one passenger processed or 100kg of freight handled. As emphasized in Chapter 4 the passenger has become more relevant in assessing the airport business since non-aeronautical revenue exceeded aeronautical contributions post privatisation. Due to privatisation having led to the commercial development at the airport site, passengers spend more as they have more choice and represent a somewhat captive market which seems attractive to a monopoly. Thus, through ongoing property development

161 and the creation of an Aerotropolis, airports become self-sustaining with inbuilt demand for retail and car parking.

Figure 6-4 shows that the revenue streams per passenger at Sydney Airport have grown since privatisation, with property, commercial and retail revenues outperforming the aeronautical revenues of the airport operator.

Airport Revenue Streams per Passenger from 1999- 2006

$50.00

$45.00

$40.00

$35.00

$30.00

$25.00 AUD $20.00

$15.00

$10.00

$5.00

$0.00 1999 2000 2001 2002 2003 2004 2005 2006 Years Aeronautical Income per Passenger Commercial Income per Passenger Retail Income per Passenger Property Income per Passenger Total Revenue per Passenger

Figure 6-4: Sydney Airport Revenue Streams per Passenger from 1999- 2006 Source: Data compiled by author from annual reports

Note the steep rise in revenues from 2002 when the airport was privatised. This supports the airport-as-an-enterprise paradigm view that airport operations have become more commercially focused with investors expecting a return on investment in the airport.

162 In evaluating the operating expenditures per passengers, there was a notable increase in 2002 to ready the airport for sale (post privatisation operating efficiency is apparent in Figure 6-5). The operating costs of Sydney Airport have since been reduced quite significantly, with increasingly evident margins between gross and net revenues as reported in the financial reports.

The post-privatisation efficiency gains were explained by the airport operator as follows:

We just streamlined our overheads and our operations in respect to our back office functions, and the way things are administered. And so from an airport management perspective, you look at the way you support the operations of the airport. You make sure that you have in place particularly aspects of operation and safety, on time performance of airlines, security etc., but then you look at the back office functions and say, ‘okay make sure we’ve got an efficient streamlined rationalised structure in place to support the business’. (Interviewee 9- Airport Operator)

Sydney Airport Operating Expenses from 1999- 2006 $7.00

$6.00

$5.00

$4.00 AUD $3.00

$2.00

$1.00

$0.00 1999 2000 2001 2002 2003 2004 2005 2006 Years Staff Cost per Passenger Service & Utilities Cost per Passenger Other Direct Operational Cost per Passenger Total Expenses per Passenger

Source: Data compiled by author from annual reports

Figure 6-5: Sydney Airport Operating Expenses from 1999- 2006

163 Although the operating revenues have increased post privatisation and the operating expenses have decreased, the bottom line of Sydney Airport resulted in a net loss since 2002. This is due to the financing decision and structuring of the consortium that has acquired the airport. The net loss is a result of the debt-structured financing used in the acquisition of the airport and with it the cost of capital. Figure 6-6 illustrates the interesting fact that whilst the operating profit has steadily increased post privatisation, the way in which the acquisition was financed resulted in Sydney Airport being in the red.

Operating Profit vs. Net Profit at Sydney Airport 1999- 2006

500,000,000

400,000,000

300,000,000

200,000,000

100,000,000 AUD $ AUD 0 1999 2000 2001 2002 2003 2004 2005 2006 -100,000,000

-200,000,000

-300,000,000

-400,000,000 Years

Operating profit (EBIT) Profit (Net)

Source: Data compiled by author from annual reports

Figure 6-6: Operating Profit vs. Net Profit at Sydney Airport

The airport operator claims that the most notable change in the airport’s position post privatisation resulted from access to shareholder funds and investments in assets:

164

Capital investment into the infrastructure. You know this most probably may not or would not have been achieved to the same extent if it was still under government ownership. So when you take a step back, have a look around and analyse the amount of money that the shareholders have reinvested back into this airport – it has been quite significant. (Interviewee 9- Airport Operator)

An examination of the capital structure of Sydney Airport reveals that equity levels have dropped significantly due to the retained losses post privatisation, whereas both non-current debt and asset levels increased as a consequence of financing infrastructure investment at the airport .

In accordance with Gerber (2002) and Graham (2003), the participation of private capital and strategic investors in the airport brought not only financial resources but also the knowledge to improve efficiency and develop new business fields in the non aviation sector.

Model Element 4: The privatisation of state owned assets and, in particular, airports has led to innovative management skills, increased stakeholder involvement and allowed for private capital sources to fund infrastructure and commercial development. An examination of financial statements to evaluate corporate performance is essential; however it is argued that relevant stakeholder measures, both financial and non financial, should be considered when assessing privatised airports. The evaluation of privatised airports should involve public accountability and be based on both operational and economic outcomes.

The next chapter discusses the composition of the stakeholders and compares their attributes and objectives to the original Australian government objectives of airport privatisation, as specified in its justification in 1996 for the 1st phase privatisation of airports.

165 6.4 Chapter Conclusion This chapter introduced Sydney Airport, the significance of which on a domestic and global scale was shown. The traditional role of the airport in terms of passenger facilitation was contrasted with the new-enterprise– paradigm and contemporary role of the airport. A snapshot of Sydney Airport’s longitudinal performance was then provided. The next chapter confirms the key stakeholders of the airport and examines the relationship between two major constructs in the literature, that of the objectives for privatising Sydney Airport and the’ perceptions of the stakeholders who were involved.

166 Chapter 7

7 The Stakeholders and their Views on Privatising Sydney Airport

7.1 Introduction This chapter explores the following research question and sub research questions from the viewpoints of airport stakeholders five years post- privatisation:

SQ 1 A. Who are the key stakeholders of RQ 1. What were the reasons Sydney Airport? for the Privatisation of Sydney airport? SQ 1B. What were the objectives of privatising Sydney airport as perceived by the stakeholders?

Prior to examining the privatisation objectives as perceived by stakeholders it was necessary to confirm the stakeholders of Sydney airport initially identified through the application of Mitchell’s (1997) stakeholder classification framework (discussed in Chapter 4). Following this discussion the stakeholder views post-privatisation are compared to those sourced from a review of the literature regarding government objectives at the time of Australian airport privatisation. Stakeholder outcomes and experiences resulting from the implementation of privatisation reforms are discussed in the next chapter (Chapter 8). Model element boxes continue to be used to link findings to the performance model that is discussed in chapter 9 of this thesis. Chapter 9 illustrates the SAPAM – Stakeholder Airport Performance Model - that is built up around the identified elements and which presents the attributes and indicators relevant to stakeholders for assessing the performance of Sydney Airport.

167 7.2 Sydney Airport Stakeholder Identification and Confirmation This section confirms the identities of the stakeholders of Sydney Airport whose views are explored in this study. O’Higgins and Morgan (2006) suggest that understanding a company’s stakeholders avoids wasting resources on non –stakeholders who have no legitimate interest or concern in the business. Initial identification of stakeholders of Sydney Airport was based on the existence of attributes such as urgency, power and legitimacy of the seven stakeholder type categorization of Mitchell (1997) as discussed in Chapter 4. .During the interviews of all stakeholders, participants were asked which groups or organizations they considered to be key airport stakeholders. The findings are that:

 the applied theoretical framework satisfactorily identified all key stakeholders of Sydney Airport; there was no need to contact additional stakeholders.

 strong interdependency of stakeholders exists at privatised Sydney Airport, reinforcing the importance of the individual role of stakeholders (Freeman 1984) and stakeholder multiplicity (Oliver 1991, Rowley 1997, Neville 2006).

 the theme of the stakeholder groups holding significant power over airport operations emerged; this theme supports the existence of Mitchell (1997) stakeholder attributes, verifying the previously applied stakeholder categorization.

Parts of the transcripts of all 20 semi-structured interviews referring to stakeholder verification were analysed through Leximancer. The interview questions relating to stakeholder verification are as follows:

 Who do you identify as the key stakeholders of Sydney airport?

 Who do you think has benefited the most from the privatisation of Sydney airport? Why? How? (Examples)

168 Table 7.1 below details the identified Leximancer concepts relating to the researcher’s understanding of who the stakeholders of Sydney airport are.

Table 7-1 Stakeholder Concept Identification

Absolute Relative Concept Count Count airport 59 100% stakeholders 25 42.3% community 18 30.5% airlines 17 28.8% power 15 25.4% people 11 18.6% government 9 15.2% control 6 10.1% investment 5 8.4% privatisation 3 5%

The respondents refer to the concepts ‘airport’, ‘community’, ‘airlines’, ‘government’, ‘people’ and ‘stakeholders’ in identifying the key stakeholders of Sydney airport. The ‘stakeholder/s’ concept was interchangeably used by the respondents when referring to shareholders and/ or investors. Also, the concept ‘people’ refers to the passengers and airport employees. An example of this is as follows:

Airports - there are a whole lot of stakeholders: the three levels of government, the airlines, the airport lessee, the community, the people who are employees of the airport and those who engage in airport related businesses are all stakeholders. Not to forget the investors and shareholders who are stakeholders. (Interviewee 15 – Community)

In examining the key concepts such as ‘airlines’, ‘passengers’, ‘government’ and ‘airport’, the results have shown a strong interdependence of operations among these identified stakeholder groups. As previously discussed in section 5.10.3 airports cannot co-exist without the airlines as they rely on airlines to bring passengers to generate their aeronautical and non aeronautical commercial revenue streams. This supports the argument raised by Freeman and Evan (1990) that the stakeholder environment consists of a series of multilateral contracts among stakeholders (p. 354). Furthermore it is

169 suggested by Rowley (1997) that organizations exist within a complex network of intertwining relationships. This holds true for Sydney Airport as the airport operator relies on the revenue streams derived from the non-aeronautical operations as well as the charges imposed on the airlines (aeronautical). Figure 7.1 shows further that although an airport cannot exist without airlines, the operator has also an interdependent relationship and obligation to: a) its investors who seek wealth maximisation: and b) the government, consisting of local, state and federal authorities, which require compliance with their regulations.

Stakeholder Interdependence:

Government Airport Operator Investors

Airlines

Figure 7-1: Identified Interdependence of Airport Stakeholders

The finding regarding the reciprocal reliance and interdependency of airport stakeholders at Sydney Airport is in line with the finding of Neville (2006) that stakeholders interact, cooperate and form alliances with one another.

Model Element 5: Interdependency of operations of different stakeholders is a key aspect of successful airport performance.

The relationship between the airport and the airlines was illustrated by the airport operator as follows:

Airports need airlines, airlines need airports. It’s about working together, right, and finding that balance now whether it's Qantas,

170 whether it's Virgin Blue you find all the home base carriers want to have a direct liaison and negotiation with the airport. I'm also looking to have more direct relationship and negotiation with other airlines rather than through the service industry association. (Interviewee 9– Airport Operator)

Alternatively, the role of the government in airport operations was exemplified by the investor holding controlling interest over the airport operator below:

Obviously immigration, customs, and quarantines - it is still government run and we coordinate with the government to the extent that we can. We try to advise them of when we are expecting surges in certain areas of the airport and that kind of thing. (Interviewee 20 –Investor)

Also, the airport operator’s role post privatisation has changed in relation to the local community. The airport operator claims to have become an active partner in the community via a process of community consultation as well as sponsorship. A community representative referred to this partnership as follows:

The community is obviously a stakeholder. Community consultation is a pain for the airport operators because people that often submit things are your difficult people that you will never please. So when you do a master plan you got to put it through community consultation. (Interviewee 15 – Community )

The results point to the fact that the private airport operator has to accept the mutually dependent involvement of stakeholders in the airport business. The next section identifies the specific role of each individual stakeholder involved in the airport operations.

7.2.1 Stakeholder Roles For the discussion of the privatisation consequences for stakeholder operations, it is important to acknowledge the interdependencies of operations of airport stakeholders. According to Wolfe and Putler (2002) the recognition of specific roles of stakeholder groups provides further understanding of the complex interactions of stakeholder operations. This is referred to by Oliver (1991) as stakeholder multiplicity.

171 An analysis of the key stakeholders’ roles at Sydney Airport demonstrates that:

 the investors exhibit significant influence and control over airport development and operations

 the federal government in Australia controls border security issues, the noise and environmental aspects of the air transport industry

 the airlines make it possible to provide passenger facilitation / transport services

 the private airport operator acts on behalf of the investors, runs the airport’s day to day business operations, and provides airport stakeholders with what they require to operate within the complexity of airport activities. The airport operator also aims to act in partnership with the local community. It is after all the community that that would seem to have little to gain from proximity to airport operations and perhaps much to lose in welfare and quality of life from the additional noise, traffic activity and air pollution that an airport generates

 the community surrounding the airport voices its concerns about undesirable social effects of airport operations and accepts the desirable effects such as work opportunities.

Model Element 6: Airports are complex entities. Key stakeholder perspectives, including those of the airlines, the airport operator, the investor, the community and other infrastructure support providers need to be considered in the overall performance model development Cchapter 9).

Each key stakeholder has a role to play in the airport business. Understanding the relationships between individual stakeholders assists in the identification of relevant stakeholder attributes for evaluating airport performance.

The above analysis used all interview transcripts. Figure 7.2 graphically summarizes the stakeholders central to Sydney Airport via the Leximancer

172 map (refer to Ch. 5 for details of Leximancer analysis techniques). While stakeholder identification was straightforward and the concepts clear, a more in-depth analysis of the data set revealed the emergence of concepts such as “power”, “control” and “investment”. The results show that the respondents frequently referred to aspects of power and control between stakeholders in the privatised airport operation when they were asked about stakeholder identification.

Conceptual Mapping of Stakeholders

Figure 7-2: Conceptual Mapping of Stakeholders

The themes of ‘control’ and ‘investment’ are quite strongly linked to the ‘power’ concept. This finding is at the heart of relationships between key stakeholders; the issue of power is highly significant for airport performance due to the interdependence between stakeholders as discussed above. A more detailed examination of the issues of power and control within Sydney airport operations is undertaken below.

173 7.2.2 Stakeholder Power and Control over Airport Operations To gain a better understanding of the usage of the concept ‘power’ and its relevance to the identified stakeholder groups, the connectedness of the concept ‘power’ to other concepts is explored and displayed in Table 7.2. The explanation for the low absolute counts of the connectivity of the “power” concept with the other concepts (when compared to other concept frequencies) is that the analysis focused solely on correlation and connection with the concept ‘power.’

Table 7-2: Connectivity of concept “power”

Concept Absolute Count Relative Count airport 9 60% airlines 6 40% government 4 26.6% control 4 26.6% people 4 26.6% community 2 13.3% stakeholders 2 13.3% investment 1 6.6% privatisation 1 6.6%

As shown above, the ‘power’ concept is most directly related to ‘airport’, followed by ‘airlines’ and ‘government’, signifying that, according to how respondents talked about them, these concepts have a high interdependency.

The stakeholder group exerting most power cannot be derived from the analysis. However, airport stakeholder power may be discussed in terms of Mitchell’s (1997) attributes as applied to the stakeholder categorization used in this study. According to Mitchell’s (1997) stakeholder categorization (section 4.4.2), power gains authority through legitimacy and it gains exercise through urgency. The investors were classified as the dominant stakeholders of the airport. The findings confirm that they possess power and legitimacy and support the claim that investors (the consortium that acquired the airport) control and influence the airport operator’s strategic and operational decisions. This was exemplified by the investor itself as follows:

174 We actually believe that it’s important to remain somewhat distant from the asset as the shareholder. So that we can - maintain if you like, that natural tension between shareholder and management, this helps us drive performance, (whether that’s financial performance or operational performance or whatever).

…..we certainly are very hands on, we are very involved in the day to day business, but we are not running the airport day to day. But we are involved in the basically all the big strategic decisions. So we are not going to be involved in how often to clean the toilets, but we might be involved in whether to have the toilet cleaning staff employed by the airport or by outsourcing the contract. So there’s operation and there’s strategy. And we are definitely involved in the strategy. We clearly are aware of what’s going on down here, but we are not necessarily involved on a day to day basis in the operations. (Interviewee 20 – Investor))

Furthermore, the commercial drive of the dominant stakeholder as perceived by the government was demonstrated as follows:

There is no experience in the world at all, where airports have been privatised, and the owners of the airports end up owning key access routes to the airport; all the parking within reasonable proximity to the airport with prospects of a major airline operating in and out of the airport. No one has ever done that before. (Interviewee 13 – Government)

The findings support investor and airport operator monopoly dominance over airport operations in Australia. In the case of Sydney Airport, this was confirmed by a government respondent indicating that the market power of airport operators and investors is seen as a non-favourable outcome of the privatisation process, which seems to have led to unequal bargaining positions in commercial negotiations with other stakeholders (discussed in Chapter 8):

I've no doubt, the Sydney Airport Corporation has market power, because of their ability to set price, because there are no effective competing airports. (Interviewee 12 – Government)

This statement supports submissions made to the Productivity Commission’s review on the light-handed regime (price regulation) of airport services (2006). Many submissions put the view that privatised airport operators are private

175 sector monopolies. It was argued that airport operators act on behalf of the dominant stakeholders and misuse their market power by focusing too much on the bottom line instead of the aeronautical side of aviation and public welfare. In particular, submissions by airlines claimed that the significant increases in charges and the inability to negotiate with airport operators post privatisation has become a common scenario at a number of airports in Australia and predominantly at Sydney Airport.

The only airport in Australia that was named by the Productivity Commission (2006) as not being a monopoly was Melbourne because of some scope for airlines to use adjacent instead. There is no competition in the Sydney basin The literature points out that where there is no competition, privatisation can be dangerous (Vickers and Yarrow 1995; Parker 2003); owners can lower service standards, become inefficient and exploit market power.

This study further shows that at Sydney Airport the power held by airline stakeholders has shifted as a consequence of the privatisation process, due to additional stakeholders such as the private investors becoming involved in airport operations. This shift can be explained in light of contingency theory (Fiedler 1964; Vroom 1973) in that optimal organization and leadership is contingent upon various internal and external constraints. As explained by Freeman (1984 cited in Frooman (1999) p.191) it is the firm, meaning the organization, that is the hub of a wheel and the stakeholders that are the ends of the spokes around the wheel. One of the airline interviewees provided an example of how airlines lost their dominance at Sydney Airport due to its commercial orientation, which resulted from control by an outside party with vested interest in wealth maximisation:

Pre-privatisation - it was Qantas that had the power, and Ansett, and the major airlines. Post privatisation, I think now that balance has probably shifted to the owners of Macquarie Bank or Macquarie Airports, the owners of the airport, not to forget the government that still influences airport operations. (Interviewee 7 –Airlines)

176 Due to increased interdependence of operations post privatisation, it is suggested that airlines fall in the definitive stakeholder category (Mitchell, 1997), that is airlines possess all three attributes of legitimacy, urgency and power and are the most important stakeholder for an airport to satisfy. International airlines such as Qantas, , Singapore Airlines, Emirates, are large contributors to Sydney Airport’s aeronautical revenue through bringing passengers to the terminal and significantly contributing to the airport’s commercial revenue in terms of retail. From an airline’s perspective the post privatisation investment in infrastructure, such as improvements to the terminals and airfield and faster response times in terms of new investments to accommodate new aircraft investment such as the A380 aircraft, was positive. However, the pricing of airport services by the operator triggered stakeholder confrontation and claims of misuse of market power. One of the respondents illustrated that the power in negotiations does not seem to be evenly distributed; this was predicted by Kimpton (1996) as one of the pre privatisation concern from the airline viewpoint. An airline interviewee stated:

The toughness in negotiation and the difficulty in negotiations is just a direct result of the lack of market power held by the airlines in relation to the airports in the post-privatisation era. (Interviewee 6 –Airlines)

As previously recognized in Chapter 5, Sydney Airport is perceived as probably the most extraordinary example of the effects of monopoly power causing a great deal of frustration and arguments with the various stakeholders. The impact of privatisation on airline operations is discussed in detail in Chapter 8.

Findings also reinforce the government’s role as a major stakeholder exerting influence and power through the regulatory framework by holding the airport accountable to the public, as well as maintaining control over the noise and other environmental aspects of airport operations. One government interviewee stated:

177

The main power is held by the Commonwealth Government, which has control over aviation. By selling it or leasing the airport to a private operator, they grant a great deal of power. The airlines, those large corporations, have a reasonable amount of power. The people affected have attempted to will some power over what has happened and what is happening at the airport, but without too much success. (Interviewee 12 – Government)

Model Element 7: The air transport industry has undergone significant changes in the past decade. Recognition that the airport adapts to fit the environment which is subject to rapid and far-reaching change, reinforces the importance of recognition of the role of airport stakeholders in day-to-day airport operations.

In privatising the airports The Hon. John Sharp MP, Minister of Transport and Regional Development (1996) stated that the aim was for the government to withdraw from detailed involvement in airport operations. Thus, in line with Mitchell (1996), the government stakeholder took on the role of a dormant stakeholder, having little interaction with the firm and no legitimate or any urgent claims on the airport operation. However, the government can impose its will on the airport operator through the regulatory framework and the decision to lease rather than sell the airport.

According to Smith (1996) the decision to lease the airports was based on maintaining Commonwealth power to provide constitutional legal support to some of the regulatory provisions in the Airports Bill 1996 and to ensure not losing complete control over such strategic national assets.

178

Model Element 8: Airport stakeholders rely on one another as their operations are interdependent, but it seems that some stakeholders have more say than others in private monopolistic airport operations.

An ‘integrated model’ that takes into account an equal weighting of the importance of the attributes of key stakeholders involved in airport operations is therefore proposed as an answer to the complexity of evaluating airport performance.

7.2.3 Summary of Stakeholder Identification Results In conclusion, it is the airlines, the airport operator acting on behalf of the investors and the government that are identified and verified as: a) the key stakeholders of Sydney airport; and b) as the stakeholders that are most salient in terms of Mitchell’s (1997) defined attributes of legitimacy, urgency and power. It is suggested by Pfeffer and Salancik (1978) that power lies with those stakeholders that control resources valuable to the firm and needed for the firm’s day to day operations. The findings of this section exemplify the resource dependency theory as individual airport stakeholders have more influence than others over airport operations.

Privatisation reforms, in accordance with contingency theory, have resulted in the various stakeholders’ roles becoming even more important in the complex business of operating an airport, particularly as their roles are interdependent. Therefore this study proposes that stakeholder views need to be considered in evaluating the aftermath and outcomes of privatisation and in assessing privatised airport performance. The next section explores stakeholder perceptions about the objectives of privatising Sydney Airport and the privatisation process itself, five years post-privatisation. These views are then compared with the original government objectives of 1996 when airport privatisation in Australia began.

179 7.3 Stakeholder views on privatising Sydney Airport Stakeholder views on the privatisation of Sydney Airport are explored through the Leximancer derived key concepts, summarized in Table 7.3 and the schematic map in Figure 7.3. The findings emphasize a strong link between the concepts of ‘privatisation’, ‘airport’ and ‘government’. This is not surprising as the government privatised the airports. A detailed examination of the meaning and connectedness of secondary concepts such as ‘infrastructure’, ‘money’, ‘capital’, ‘investment’ and ‘assets’, however, supports the original government objective that the primary aim of Sydney Airport privatisation was to: a) maximize the sale proceeds; and b) secure a purchaser with the financial capability to fulfil the development and expansion plans needed to align the airport operations to global standard levels. The expression ‘global standards’ used in this thesis refer to an airport having become a unique location for shopping and other commercial facilities that the passengers and other airport users demand on global scale.

The interview questions related to this part of the analysis were as follows:

 What do you see as the main objectives behind privatisation reforms?

 What were the pre and post privatisation concerns for your organization? Why?

 Do you think that the privatisation of Sydney Airport fulfilled the government’s desired objectives?

180 Table 7-3: Identified Concepts related to Privatisation Objectives

Absolute Relative Concept Count Count airport 127 100% government 67 52.7% privatisation 30 23.6%

27 21.2% infrastructure money 19 14.9% private 18 14.1% capital 16 12.5% community 16 12.5% assets 14 11% investment 11 8.6% million 11 8.6%

Conceptual Map of the Privatisation Objectives

Figure 7-3: Conceptual Mapping pointing out “Privatisation Objectives”

Five years post-privatisation of Sydney Airport, the respondents perceive the objectives behind the privatisation of Sydney airport to be of a primarily

181 financial and economic nature. The findings indicate that key airport stakeholders believe privatisation of Sydney Airport was a money-making exercise for a) the government and b) the airport lessee in the form of returns to be gained from investments and commercial developments on airport land. The government philosophy at the time of privatisation, as perceived by the respondents, was that the private sector should do what the private sector was best at, and the government should do what the government was best at; the belief was that the private sector was definitely better at running commercial entities. This belief is illustrated by a government representative as follows:

Where government gets involved in running commercial entities they usually make a mess of it. It usually results in inefficient operations, misdirected capital investments and also misdirected other investments - mainly through reasons other than getting a better service delivery, and passenger or customer experience – it is usually because of political pressure to win a seat in a community and that does not necessarily result in sensible and efficient use of the nation’s capital resources.

So we believe that governments should restrict their involvement in commercial activities, and let the private sector do what it does best. (Interviewee 13 – Government)

This was furthermore illustrated in the data as follows:

182 Table 7-4: Identified Financial and Economic driven Privatisation Objectives

Stakeholder Illustration of Financial and Economic Driven Outcomes Airlines The whole point of privatisation was to avoid having to use public money for upgrading infrastructure and all that. It's not about airports, it's about money! (Interviewee 5 – Airlines) Airport Regarding the privatisation, there are many reasons for privatisations. There is one fundamental reason why Operator governments privatize and that is cash/returns! (Interviewee 10 – Airport Operator) Government The government was also very interested in ensuring that there was adequate infrastructure investment for aviation around Australia. The best way of doing that was to put the airports in private hands, so that they would have access to far greater sources of capital, for expansion for going forward, than government might ever have. (Interviewee 12 – Government) Community Fundamentally it’s a money making exercise for all the people around the airports. (Interviewee 15 – Community) Investors The qualitative aspect of privatisation is to create an environment which promotes A) future investment in the airport to support expected capacity growth and B) also service levels. (Interviewee 20– Investor) Other There is a potential danger that original intention of an (Infrastructure airport has been overlooked, because of the need to support drive up revenue through non aviation related retail Providers) and commercial activities. (Interviewee 19 –Other)

7.3.1 The Privatisation process

In Australia the airports were firstly corporatised through the Federal Airports Corporation (hereafter FAC), a full government business enterprise responsible for selling the airports. FAC controlled 22 distinctly different international, regional and general aviation airports, with varying levels of passenger movements. Barry Murphy (1996), Managing Director and Chief Executive of FAC, indicated that 80% of traffic was, however, concentrated on the four gateway airports. He stated that FAC ran its 22 airports as 22 business units, each eventually with its own business plan based on value

183 earning criteria and with good performance indicators to show where initiatives and plans were adding to or subtracting from overall economic value at that location. Peter Harris (1996), First Assistant Secretary, Aviation Policy Division, Department of Transport and Regional Development, indicated that FAC had two roles: a) to develop airports in a manner which would serve the interests of public parties (airlines and passengers); while b) ensuring that matters of public interests were covered. The airline, airport and community interviewees, however, perceive FAC to have been a bureaucratic government authority. Their argument, demonstrating a belief in private entity efficiency, is that FAC lacked focus on the retail and commercial and lacked the property acumen of modern airport operators:

The Federal Airports Corporation appeared to be was a rather bureaucratic entity, very much a government authority. Whilst the phase 1 airport sales had gone reasonably well, the whole decision-making process in terms of having Sydney Airport, and then having a head office a mile away down the road - trying to make decisions with regard to the Olympics, the redevelopment and then privatisation would not be efficient. (Interviewee 10 – Airport Operator)

Interviewees suggest that without first corporatizing Sydney Airport , the management of a) Sydney Airport and b) the Federal Airports Corporation may have interfered with the fairly tough decision-making required regarding the Olympics held in Sydney in 2000 and the subsequent privatisation. Interviewees involved in the corporatization process emphasize that the corporatisation move led to an optimal privatisation of Sydney Airport post the Olympic games; post-corporatisation, the FAC, having its own chairman and dedicated board, was able to drive the airport to be more focused and commercially resilient through the redevelopment for the Olympic Games.

The more successful the airport was in the lead up to the privatisation and the stronger its future cash flows looked - the higher the sales price would be. So it was like fattening sheep up for sale. . (Interviewee 11– Airport Operator)

There were two reasons why Sydney Airport was privatised last, as suggested by one interviewee who was directly involved in the privatisation process.

184 Firstly, the government had not decided what it would do about a second airport in the Sydney basin, particularly in terms of any obligations to be placed on the new owner of Sydney Airport regarding the possibility of a second airport being in close proximity. Secondly, the government was anxious about the preparations for the Sydney Olympics, as pointed out below:

I felt concern for lots of reasons: some security, some investment and primarily control over a major gateway for the Olympic Games. We wanted to keep Sydney Airport to one side so we would have full control over the airport during the sensitive period leading up to the Olympic Games. Plus we were concerned about the market’s capacity to afford all those investments. . (Interviewee 10 – Airport Operator)

Government objectives behind the sale of Sydney Airport, as pointed out earlier, were to maximize sale proceeds, to have a transparent process and to attract a purchaser with the financial capability to fulfil development and expansion plans and to align airport operations with global competition. Privatisation objectives as perceived by the stakeholders are discussed below

7.3.2 Privatisation Objectives As identified in the literature review, during times of increased competition and globalization (such as in the mid-1980’s) governments around the world face budget difficulties (Parker 2003). For this reason, funding infrastructure and customer-focus may not be considered high priority. In the interviews it was mentioned that the Commonwealth was in excess of $100 billion in debt when the Howard Government came to power in 1996. As commented upon by Humphreys and Francis (2002), governments have tended to pursue investments in aspects of society that the private sector cannot undertake or have little interest in, but which governments can do reasonably well, such as: social services, defence, immigration, family services and such. The enormous amount of capital that was tied up in airport infrastructure in Australia was seen by the respondents as a key element driving airport privatisation in Australia. As indicated by one of the interviewed government

185 stakeholders who played a key role in the privatisation process, Sydney Airport was privatised for $5.6 billion and the other airports managed by the Federal Airport Corporation (FAC) were privatised for collectively close to $5 billion, close to a total of $10 billion dollars .

Also, with the need for and planned introductions of new large aircraft such as the Airbus A380, airline stakeholders commented that Sydney Airport required private funding to accommodate them, particularly, as pointed out by Francis and Lawrence (2006), since the air transport sector has undergone significant expansion with traffic doubling every 12-15 years since the 1970’s. As claimed by one government stakeholder respondent, due to the annualized nature of budgetary cycles, governments found it very difficult to invest in infrastructure and customer relationship building. Thus, for infrastructure projects with a long term focus that requires a strong customer-orientation, such as airport development and operation, especially of Sydney Airport, privatisation in Australia was a virtually unavoidable option. A government stakeholder commented on the lack of customer orientation for a public oriented entity as follows:

Without being unkind as government, we don’t really worry about those sort of interface with customers. It’s not what we do, but what commercial people do, when you got your own money invested (Interviewee 12 – Government)

According to the airlines and the airport operator at the time of privatisation it was only the private sector, not the Commonwealth, that was prepared to make the capital investment necessary to improve the experience for airport customers and plan for the future.. Thus, a further objective of privatisation as reported by a government interviewee was to stimulate investment in the airports through private equity:

When the government announced privatisation, they did have a plan for phasing in the efforts. Thus, two other objectives behind the privatisation reforms were to have the environmental and planning insurance operated under the Commonwealth legislation. The key part of the regulatory framework was to

186 ensure that private owners invest in the infrastructure (Interviewee 14 – Government)

The findings have shown that key objectives behind privatising Sydney Airport related to aligning the airport to the global standard through private sector involvement, as the public sector was confronted with budgetary difficulties.

This was exemplified by references to the plans for extensive airport land development to satisfy the future needs of airport stakeholders

Model Element 9: The underpinning reasons for privatising Australian airports, and Sydney Airport in particular, from the viewpoints of the airlines, the airport operator, the communities, the infrastructure support providers and the government perspective, were to have the new owners invest in infrastructure at considerably greater levels than the government could undertake, and to be more customer oriented. That is why the airport performance model needs to consider attributes that reflect such outcomes of privatisation.

An additional finding is that from the airport operator’s view the aim was to generate an improved passenger experience, leading to increased commercial revenue streams, which corresponds with the public versus private sector management approach argued by Carney and Mew (2003). Free from government constraints, private sector managers may focus on operational and service improvements that provide consumers with greater convenience and choice. This view was presented by a government representative as follows:

One can argue that the improvement at Sydney Airport has taken place as a result of private ownership - an example of that would be, more retail shops which gives the travelling public a greater range of services; there are more eating facilities which gives the travelling public a better experience, even though it complicates the operations of airlines because everyone's queued up. (Interviewee 13 – Government)

187 According to Freathy (1998) private sector management focuses, through correct incentives, on better management of people and facilities. As suggested by Advani (1999) privately managed airports are more customer oriented. Maximizing the returns for shareholders in the form of increased non-aeronautical revenue streams tends to be considered essential for the airport operator acting on behalf of the investors. This is further discussed in the next chapter. The community stakeholders mention further that privatisation was the last resort for government; it disposed of an asset that was generating considerable public concern and anger around the time of privatisation, particularly in relation to the aircraft noise dilemma (see Chapter 6) and the possibility of a second airport for the Sydney basin. This was signalled by one interviewee who states:

The privatisations that the government has undertaken in recent years, was to firstly make a short term capital gain by selling public assets. In terms of Sydney Airport, it was really a hot potato for the government. It was an area of conflict that they put off into the private sector. (Interviewee 17 –Community)

As mentioned in earlier chapters (5 and 6), Sydney Airport was perceived by the participants in this study as Australia’s major airport and the most critical single piece of infrastructure for Sydney (NSW). It was pointed out by both the government and airlines that whilst the aeronautical infrastructure was in good shape at the time of the privatisation, the terminals were not, a serious problem for a critical national asset. Cowan (as cited in Carney and Mew 2003) suggests that governance reforms promote the adoption of new technologies and capital investments and act as a catalyst for innovation (p.222).

Model Element 10: The privatisation of Sydney Airport, initially designed to deliver value for passengers and airlines, has resulted in a change of the overall business model for the airport owner and the various stakeholders involved in the operation of the airport.

188 Other findings relating to investors’ opinions as to why the airport was privatised are in line with the argument of Francis, Lawrence et. Al. (2006), that the air transport industry required private sector input due to existing pressures arising from: a) expected investment of $500 billion needed to fund airport expansion between 1999- 2019 to accommodate the traffic growth as estimated by the Airport Council International (ACI); b) the fiscal burden imposed on government by expansion of air transport infrastructure; c) the lack of funds for infrastructure development; d) free market forces; e) globalization; f) improved efficiency; g) congested infrastructure; and h) new larger aircraft. This was exemplified by the investor as follows:

Obviously on the economic side of things, privatisation is a revenue generating event generally speaking. So if you have a government which has a deficit or has you know future funding commitments then the ability to generate, not just the lump sum of revenue that comes from the privatisation (from the sale of the asset) but also the potential to maintain an ongoing income stream, potentially form license fees or rates things like that, is quite important (Interviewee 20 –Investor)

When analysing the acquirer’s perspective, investors involved in a privatisation are, according to Gerber (2002 p. 32), interested in the lowest possible purchase price, high returns on investments, entrepreneurial freedom and require that the level of investment takes into account the improvement in infrastructure. In the case of Sydney Airport, the airline and community stakeholders perceived the price paid for the airport as significant. The investors, however, pointed out that it was a fair reflection of the due diligence and asset valuation undertaken at the time.

It was also pointed out by the stakeholders that the government indicated at the time of privatisation, that there should be commercial negotiations and transparency between the various stakeholders who are involved in capital planning and pricing decisions.

Where airport privatisation is concerned, I think it is fairly safe to say that the strategy that's been pursued in Australia with its capital investment programs - has and probably will continue to

189 deliver aviation infrastructure that is fit for the purpose, adequate to the demand requirements of the airlines, and other stakeholders and probably at a reasonable price. (Interviewee 5– Airlines)

A further objective of privatisation was aviation affordability. The government stakeholders indicated that by reducing aeronautical charges, the airport operators could make aviation more affordable, which would bring more people to the site, which in turn would help create better opportunities for rental income for retail and other commercial services on the airport sites.

It was our hope that the airport owners would use the revenues from the retail end- shops, commercial, rental activity- on airports to enable them to reduce the cost of aeronautical charge. (Interviewee 13 – Government)

As noted, the privatisation objectives were linked to economic and financial outcomes. Regarding commercial development at Sydney Airport, the findings however indicate that some but not all developments thus far on the airport site benefit running the airport business. The development of shopping complexes too close to the airport site is criticized, particularly as Sydney Airport is constrained by size and access routes. It is said that the commercial orientation of the airport operator and investors is reflected in the price paid for Sydney Airport, which signalled the intention of commercially developing the approximately 880 hectares of land within 10 kilometres of the Sydney Central Business District. One of the airline stakeholders argues that the airport operator’s commercial drive could result in a negative impact on certain stakeholder operations in the long term.

In terms of you know the bulky goods outlet, as long as the airport wants to generate additional revenue out of that space while it’s not used, I don’t have a problem with it. The issue becomes when you actually do need to convert it to aeronautical space, and then it’s converted to aeronautical space at a much higher dollar value, because they value what they could get commercially, we end up paying for the commercial component of it, or when it creates supporting infrastructure problems such as road traffic.(Interviewee 2- Airlines)

190 In support of this view, De Neufville (1999) argues that it is debatable whether all activities, especially those that are central to a community’s welfare and open to monopolistic exploitation of the public, such as airports, can and should be privatised. In exploring the pre-privatisation concerns of Sydney Airport stakeholders it was found that concerns were related to the privatisation process, in particular the timing, not being able to achieve the highest selling price for Sydney Airport and not being able to attain their perceived and desired objectives. One of the respondents summarized the pre-privatisation concerns as follows:

Government was worried about not achieving the budgeted sale price; it was clearly worried about the processes and anything which could come back on the government. It had to be a thorough, fair and equitable process. Government was worried about not having enough bidders. I think the other concern pre- privatisation was making sure that the government got the sale target it wanted. The government had already done its own budget; expecting 3 ½ billion. The government was worried about any event which could unsettle it. (Interviewee 15- Community)

Other pre-privatisation concerns expressed by interviewees include:

 the incentives of a private owner to cut back on service quality to maximize profit

 the fairness and equitableness of the airport price. The pricing issue was the prime concern for airlines as they could land almost at no cost under government ownership

 the September 11 terrorist attack in the United States;, due to the consequent volatility in the aviation sector there was concern that the desired sale price for Sydney Airport might not be achieved

 the possibility of overwhelming potential investors with potential investments if all airports were privatised at the same time

 the community backlash regarding the aircraft noise problems, which were diluted by 2002 with the introduction of the ‘fair share’ concept. 14

14 It was indicated that by sharing the aircraft noise, Mosman, Manly, Double Bay and the Eastern Suburbs had aircraft movements which they had not had in the past. As a result the agitators became less extreme as everyone was getting a fair go rather than just only a few houses;

191

Model Element 11: Stakeholders have expressed concerns about the privatisation of key national infrastructure assets such as airports. Stakeholder analysis of the perceptions of stakeholders about the objectives of privatisation post privatisation provides insight into stakeholder expectations of airport management. These expectations need to be reflected in the airport performance assessment

The next section summarizes and compares the identified Sydney Airport stakeholder views regarding the privatisation objectives with the original intentions of government.

7.3.3 Comparison of Stakeholder Views vs Government Objectives on privatising Sydney Airport In reviewing the literature on privatisation (Chapter 3) it was ascertained that state owned assets were transferred into private ownership for reasons such as to reduce government involvement in industry (Beesley 1992; Haskel and Szymanski 1993), to improve efficiency through commercially focused management (Vickers and Yarrow 1995; Wu and Parker 1998), to reduce the financial burden on government (Newberry 2003; Parker 2003), and to provide access to private investment (Megginson, Nash et al. 1994; Emmons 2000; Fairbrother, Paddon et al. 2002).

Privatisation objectives were linked to stakeholder theory because it is stakeholders that interact and give meaning to a corporation. An analysis of the interview transcripts of stakeholders found that it was perceived that privatisation of Sydney airport should lead to the airport operator becoming more efficient, profit oriented and accountable to various stakeholders.

192

Model Element 12: Private sector corporations recognize the existence of multiple parties having legitimate interests or stakes in their businesses .It is proposed that private airport operators are accountable to all stakeholders. This is an important justification for developing the airport performance assessment tool to include stakeholder relevant attributes to assess airport performance.

Regarding the original Australian government privatisation objectives, the regulatory framework for airport leasing as stated by The Hon. John Sharp MP, Minister for Transport and Regional Development (1996), had two principal aims: it was to allow private airport operators to provide the necessary services on a commercial basis; and it was to ensure the protection of the public interest (p. 7).

The table below (7.5) summarises the perceived objectives for privatising Sydney Airport according to the interviewed stakeholders five years post privatisation, and compares them to the government objectives for privatising the airports in Australia as specified by Ross Smith (1996), the Chairman of the Airports Task Force (p.11). Note that the stakeholder views below comprised representatives from the following stakeholder sample: the airlines, the airport operator, the government (local, state and federal), the investors and the infrastructure support providers.

193 Table 7-5: Comparison & Summary of Stakeholder vs. Government Objectives

Stakeholder Views 2007 Government Views 1996 (refer to section 7.3.2) (refer to section 3.3.3 )

a) maximize the sale proceeds and a) optimize sales proceeds; reduce government debt; b) operate more commercially, under b) ensure that new airport operators private ownership business and have the necessary financial strength investment experience; encourage and managerial capabilities to operate commercial negotiations and and develop the airports over the transparency between airport lease period; stakeholders; c) have an effective process and c) minimize the Commonwealth’s regulatory regime in place for a exposure to residual risks and smooth transition from public to liabilities associated with Phase 1 private ownership; have a regulatory airports; regime in place that meets the needs of all stakeholders; d) secure a purchaser with the d) ensure that these strategic assets financial capability to fulfil the are well managed in the long term and development and expansion plans that the new operators take into needed to align the airport operations consideration the interests of the with global competition; complex array of stakeholders, while keeping in mind that the sales price is very important e) encourage aviation affordability; e) ensure fair and equitable treatment of FAC employees, including preservation of accrued entitlements f) ensure private ownership f) ensure that the airports remain majority Australian owned and controlled

The analysis summarized in Table 7.5 shows there is a strong overlap of the original government objectives with those identified by the stakeholders. A concluding remark is that the overall aim of privatisation was to facilitate innovative management with greater private sector involvement and input to decisions on airport operation and development. It is debatable to what

194 degree the identified privatisation objectives were met. This is discussed in more detail in Chapter 8. Sydney Airport has been named in multiple circumstances by airline stakeholders and other infrastructure providers as a ‘frustrating experience in trying to negotiate any contract and/or new price’, particularly from the airlines’ perspectives. This coincides with submissions made to the Productivity Commission (2006) review on airport pricing.

Furthermore, the answer to the research question regarding the perceptions of Sydney Airport stakeholders concerning the main objectives behind the reforms is in line with Gerber (2002) who claimed that privatisation must be undertaken as a politically active process, with the task of the government being to set up a regulatory framework which: a) balances the interests of the various stakeholders: b) protects the users: and c) creates a basis for partnership to enable growth (p. 33).

Model Element 13: The impact of the privatisation reforms need to be analysed by examining stakeholder experiences. This insight will help determine individual stakeholders’ expectations of the airport operator; this is linked to assessing overall airport performance from stakeholder views.

Therefore, post privatisation experiences are explored in more detail in the following chapter, discussing the outcomes and impacts of the reforms on stakeholder relationships and operations.

7.4 Chapter Conclusion This chapter has introduced the stakeholders of Sydney Airport. As the applied theoretical framework satisfactorily identified all key stakeholders of Sydney Airport, there was no need to contact additional stakeholders. The airport, community, airlines, government, investors and community were identified as the key stakeholders of Sydney Airport. The role of each stakeholder at the airport was discussed. In addition, the theme of the stakeholder groups holding significant power over airport operations was discussed; this theme supports the existence of Mitchell (1997) stakeholder

195 attributes, verifying the previously applied stakeholder categorization. A reciprocal reliance and interdependency of airport stakeholders at Sydney Airport was identified. This finding is supportive of stakeholder theory as stakeholders interact, cooperate and form alliances with one another.

Five years post privatisation of Sydney Airport, the respondents perceived the objectives behind the privatisation of Sydney Airport to be of a primarily financial and economic nature. The findings indicated that key airport stakeholders believe privatisation of Sydney Airport was a money-making exercise for a) the government and b) the airport lessee in the form of returns to be gained from investments and commercial developments on airport land. A brief comparison was also provided on the stakeholder identified objectives versus the government original intentions when privatising the first airports in 1996. The next chapter explores the outcomes and impact of privatisation on stakeholder operations at Sydney Airport.

196 Chapter 8

8 Impact and Privatisation Consequences from Stakeholder Views

8.1 Introduction Sydney Airport stakeholders were identified and verified in the previous chapter. This was followed by a discussion of the airport privatisation objectives through stakeholder eyes which were compared to the original government objectives related to privatising the airports in Australia. This chapter links the previous results to the perceived post-privatisation situation at Sydney Airport. The aim of this chapter is to report the results in the context of the actual impact and outcomes that airport privatisation had on stakeholder operations at Sydney Airport.

In accordance with the privatisation objectives as discussed in the previous chapter, McGhee (1996) claims that the privatisation of Australian airports was to be value adding for all stakeholders involved (p.13), because: a) there is much an airport can achieve in working together with the states, other authorities and the airlines in stimulating traffic growth through promoting the advantages of new routes or additional frequencies and providing service to meet the needs of the airline; b) much value can be unlocked in developing optimal solutions to new investment programs as and when they become necessary; and c) value can be delivered not only to shareholders and customers of the business but also to other stakeholders such as the local community, the region and the travelling public.

The question that drives this chapter concerns the impact of privatisation on airport stakeholders which is related to airport performance, as the airport consists of multiple stakeholders.

RQ 2. What was the Impact of Sydney airport privatisation on key airport stakeholders?

197 The attainment of the government related privatisation objectives is investigated and discussed. This is explored in two parts: this section (8.2) explores the overall combined reflections of all Sydney Airport stakeholders; section 8.3 reports the findings relating to the five individual stakeholder groups separately.

8.2 Overall Reflections on the Privatisation Outcomes at Sydney Airport This section provides a general overview of all stakeholder perceptions on the outcomes of the privatisation of Sydney Airport and examines the impact of privatisation on stakeholder operations. The analysis was conducted by running through Leximancer (as discussed in Chapter 5) the sections applicable to sub-research question 2 A (how did privatisation reforms impact the key stakeholders?).

The interview questions were as follows:

 In which way have your day-to-day business operations been affected through the privatisation of the airport business? Why? How?

 What were the most important pre and post privatisation organizational changes observed? o at overall Sydney airport / in your organization

 What are the differences in terms of dealing with the private airport operator as opposed to a government authority? Why? How? (Examples)

 Would you be able to give examples of o positive privatisation experience encountered so far, for organization, for public o negative privatisation experience encountered so far, for organization, for public

 Since privatisation, do you believe Sydney Airport has become accountable and transparent to the public? To your organization?

198

The findings reveal that the concept of key airport stakeholders is the most frequently occurring concept in the interview transcripts. As shown in table 8.1 below, the stakeholders (airport, airlines, government, people, and community) all appear towards the top of the frequency table. The explanation for this is that the interviewees were providing examples and were commenting on the impact that privatisation had on their operations.

Table 8-1 Concepts related to Privatisation Outcomes

Concept Absolute Count Relative Count airport 938 100% airlines 267 28.4% government 205 21.8% people 154 16.4% community 145 15.4% development 143 15.2% commercial 135 14.3% terms 126 13.4% privatisation 98 10.4% passengers 95 10.1% money 90 9.5% regional 88 9.3% councils 71 7.5% price 71 7.5% land 70 7.4% terminal 70 7.4% cost 63 6.7% return 57 6%

The other concepts such as ‘development’, ‘money’, ‘price’, ‘commercial’, ‘privatisation’ shown below relate to the more direct outcomes of the reforms. The respondents exemplified this by mention of the ongoing commercial development on airport land as a result of private ownership.

This is consistent with the airport’s contemporary orientation of seeking return on investment for its controlling shareholder.

199

Model Element 14: Privatisation impacted on the operations of airport stakeholders due to the changed airport positioning from pure focus on a passenger facilitation approach towards a more commercial ‘bottom line’ approach. Therefore it is important to derive stakeholder attributes related to their post privatisation involvement and expectations on the airport operator in privatised airport operations

The diagram below (Figure 8.1) illustrates the themes that have emerged from an exploration of the relatedness of the ‘privatisation’ concept to the other identified concepts.

The themes relating to privatisation outcomes from the stakeholder viewpoints are as follows: a) development of airport land and capacity issues b) transparency of the airport operations and the commercial negotiation process and c) unexpected consequences

The findings from the overall sample related to the research question are discussed in section 8.2.1 – 8.2.3 below. Section 8.3 then elaborates on the privatisation consequences relevant to each stakeholder group.

200

Figure 8-1: Themes and Concepts related to Privatisation Outcomes

8.2.1 Airport land development & capacity issues The commercial development on airport land was identified in Chapter 7 as one of the privatisation objectives. This commercial growth aspect of the Sydney Airport privatisation, in the form of major retail development in terminals, commercial operations of car parks, and other non-aeronautical type-activities in and around the airport site, was emphasized by the respondents. Other examples of the commercial orientation at privatised airports in Australia include the development of DFO retail outlet centres on airport grounds at Brisbane and Canberra airports, the forecast of expansion of office space, new retail and accommodation facilities as well as the enlargement of the car park at Sydney Airport. This lends support to Watkins’ (2006) argument about Australian airports pursuing excessive non- aeronautical use of airport land to meet the returns for the private investors.

On one hand the findings have shown that such airport developments are essential to meet the dynamics of the global air transport industry, particularly

201 as traffic is expected to double between 2002-2020 according to the ACI (2003 b). This supports claims by Francis, Lawrence et al (2006) that the pressures for change in the air transport sector are driven by the large cost of infrastructure provision to accommodate the forecasted long-term growth of traffic. As stated by Kimpton (1996) airports are a vital component of the nation’s air transport system, which is important to the total transport system. It is therefore important that operators and users are able to grow, adapt and develop in line with the markets they serve. Sydney Airport’s adaptation to the changes in the air transport environment was highlighted by the airport operator as follows:

You want to enhance your infrastructure to meet the current and the immediate future demands of the aeronautical side. Now there’s no good SACL investing in new terminal, extra gates, spending 100s of millions of dollars if there isn’t sufficient passenger in the planes to fill all those gates. (Interviewee 9 – Airport Operator)

On the other hand, the results emphasize conflicting views regarding non- aeronautical developments at the airport. The findings indicate that some of the post privatisation developments at Sydney Airport created tension among stakeholders. Discord was identified in relation to the conflicting interests of the focus of the airport operator on obtaining the highest return on the acquired assets to meet the wealth maximisation objectives for the private investors versus the fulfilment of the airport’s traditional role of passenger facilitation. The literature supports the view that privatisation reforms and attendant new mindset and management approach to airport operations result in commercial transformations of airport sites through development of a diverse range of products to increase the commercial revenue streams (Humphreys (1999); Gerber 2002 and Graham 2003).

Sydney Airport’s location and size is unique in comparison to other airports in Australia and its capacity issue is a function of location close to the city and demand for its services rather than the implemented privatisation reforms. However, respondents express concern about the privatised ownership approach of over commercializing Sydney Airport and the effect on its long-

202 term ability to cater for increased traffic and passenger growth and to generate the projected returns into the future. As emphasized by Hamzawi (1992) major airports around the world are confronted with lack of sufficient airport capacity to meet traffic demands and avoid problems of congestion. Previous Chapters 6 and 7 further cover the issue of limited capacity at Sydney Airport. A government representative comments on the impact of limited capacity on stakeholder operations as follows:

….. it goes to the question of how best can you run an airport where there is rising capacity demand, increasing demand from airlines for more fuel efficient flight paths and also the interest of the community. Now that is a very fine balancing act that occurs everyday and its getting harder and harder (Interviewee 12- Government )

One of the identified privatisation objectives in the previous chapter included the private investors’ investment in non-aeronautical airport land development so that the airport is aligned to global standards. Conversely, the limited amount of space available at Sydney Airport to fulfil this objective seems to cramp and reduce the efficiency of the airport. Interviewees, particularly the airlines and infrastructure support providers, indicate that the commercial needs of the airport have started to interfere with stakeholder operations in a way that did not happen in the past. The findings emphasize that lack of space at the airport has created post privatisation predicaments relating to: a) stakeholder location on airport premises; and b) dilemmas of aeronautical vs. non aeronautical expansion of airport land. A representative from the infrastructure support providers comments as follows:

It is becoming an issue in terms of where we are located, where in the terminal, what space the Customs Department need, what’s does quarantine need. Those sorts of issues are becoming I think increasingly matters for discussion between the airport and the various agencies, and the need to be there for providing essential services. (Interviewee 19 – Others)

The capacity issue in relation to the airport’s operational efficiency was highlighted further by an airline respondent:

203 There are capacity issues at Sydney Airport…if Sydney Airport is to survive as Sydney Airport, they need to try to get larger aircraft coming into that airport, encourage bigger aircraft to come in. Because you are going to get higher passenger volumes going through, so they will be getting higher revenues (Interviewee 1 – Airlines)

The private investor is under pressure to generate a return on investment for their shareholders. Limited capacity on the airport site restricts development, whether it be commercial or aeronautical, to support traffic growth and increased passenger volumes. The analysis reveals a conflict between airport users and operators over how the airport should be developed.

Model Element 15: The capacity-limited nature of Sydney airport leads to conflicts between the traditionally recognized role of the airport (facilitating passengers) and its present commercially orientated focus. Commercial revenue streams, due to rapid commercial developments on the airport site, currently exceed aeronautical revenue. Sydney airport operations have become driven by the ‘bottom line’.

Additional findings are that it is the small scale airlines that feel pressured by the operator post privatisation because it seems their operations interfere with the commercial approach of the operator. They point out that their operations take on a philosophy of ‘survival of the fittest’. This was evidenced as follows:

…..you’ve got the conflicting interest of on the one hand the airport owner trying to maximise their return on their investment; and on the other hand you’ve got the community requirement that says that we need to have services to regional communities. (Interviewee 3 – Airlines)

Interestingly, the government pre-empted that small scale operators would require assistance and operational assurance post privatisation by putting ring-fence agreements in place. Despite this, however, the commercial drive of the airport operator wanting to make the most out of the available space at Sydney Airport has emerged as a source of unexpected consequence in

204 stakeholder eyes. The dominance of the private owner over airport operations, which is also supported by submissions made to the Productivity Commission, is reflected upon by a government interviewee as follows:

We had anticipated pressure on regional airline operations which is why we ring fenced them. What we did not anticipate was that we should have ring fenced more activities and facilities at the airport than just slots. It is all very well having a slot, but if you do not have a space for maintenance facilities, you cannot operate because you cannot maintain your aircraft. (Interviewee 13– Government)

Other unexpected consequences as a result of privatising the airport are illustrated and discussed in section 8.2.3. The impact of this commercial drive on individual stakeholder operations, a central theme of this chapter, is explored and discussed in more detail in section 8.3.

8.2.2 Transparency, Accountability and the Commercial Negotiation Process Further findings in exploring privatisation effects at Sydney Airport relate to: a) the transparency and accountability of airport operations; and b) stakeholder involvement in the commercial negotiation process with the private airport operator. The respondents perceive that the airport in private hands has become more transparent in the reporting of its undertakings than under public ownership. This finding relates to a further government-imposed privatisation objective aimed at encouraging commercial partnership among the various airport stakeholders. The government philosophy in Australia as emphasized by Sharp (1996) was to withdraw from detailed involvement and to provide a framework in which airport operators and customers would seek to negotiate prices rather than involve the government of the day. This philosophy supports stakeholder theory in that firms are not seen as purely private institutions solely responsible to their shareholders, but instead as social institutions responsible and accountable to all their stakeholders (Carroll 1979; Balabanis, Phillips et al. 1998; Harrison and Freeman 1999).

205 One respondent provided an example of the consultation processes of the airport operator in notifying the airlines of their capital programs, such as the development of the new parking facilities at the international terminal. The findings reinforce that airlines and other airport stakeholders have become more involved in the overall decision making processes at the airport. This supports Graham (2003) and Francis (2001 b) who state that airports depend on airlines to bring in the passengers, but, as it is the passengers that help generate non-aeronautical revenues, they need to satisfy both parties. This finding further supports Francis et al. (2003) who state that in today’s commercialized and privatised environment the traditional airline-airport- passenger relationship has become more complicated as airports place more emphasis on non-aeronautical revenues from retail and concessions. In this study the results show that airlines do seem to have better lines of communication and a better understanding of the development proposals going forward at Sydney Airport than they did under the government processes.

Thus it can be argued that privatisation has not only allowed for stakeholders to acknowledge their reliance on one another, but to also become actively involved in the decision making process regarding capital investment that is of benefit to the key stakeholders involved. The degree of involvement of particular stakeholders, however, was found to vary. This is supportive of Zografos et al (2006) who claim that the airport decision-making process regarding operations is made more complex by the large number of stakeholders having different, and sometimes conflicting, objectives regarding the assessment of airport performance.

Model Element 16: Privatisation has not only allowed for stakeholders to acknowledge their reliance on one another, but to also become actively involved in commercial negotiations and the decision making process regarding capital investment at the airport site.

206 This re-emphasizes the importance of examining privatised airport performance through stakeholder eyes. The cooperation among airport stakeholders needs consideration in evaluating private airport operations

Additional findings relate to the commercial negotiation process. The commercial negotiation process was identified earlier in this study as one of the key privatisation objectives. As stated above, the findings have shown that most stakeholders seemed to have gained an understanding and appreciation of the character and compromise of commercial negotiations under a privatised airport.

On one hand the results have shown that negotiating with a private entity is easier than with a government authority as the airport, under private ownership, was required to adopt a consultative approach which was favourably perceived by the respondents. This was evidenced by respondents’ comments on a mutual understanding of the motivation of particular proposals due to the commercial orientation of both parties regarding the developments on the airport site. In contrast the airport under government ownership was characterised as follows:

It was running a public service; it didn’t have the imperative of having to make every single activity on the airport a profit making activity. It saw itself as providing a basic public service which is subject to all sorts of rules and regulations for the good of public, but it wasn’t purely and simply a money making exercise, as it is under the operations conducted by the privatised operators. (Interviewee 16 – Community)

The respondents mentioned that pre privatisation the government was in a position to do whatever it liked at the airport and did not have to consult with a local council or community, the State Government or any other planning authorities. The airline and community stakeholders classified their experience when negotiating with the FAC as ‘pretty poor’. The difference in negotiating with the private operator was summed up by one of the respondents :

207 We have negotiated various things with Sydney Airport very successfully. Just because they are difficult, you know, what I’m saying with a government they are impossible. But with a private enterprise, they are difficult. (Interviewee 7 – Airlines)

On the other hand however, the current pricing regime was identified as a major cause of difficulties in negotiation experienced at Sydney Airport.. In particular air service providers, in the interviews and in the most recent submissions to the PC, claimed excessive airport charges. These were especially found in areas not captured by the definition of aeronautical (versus non aeronautical) charges, unrealistic asset valuations, and the perception that airports as monopolies have no intention of engaging in a commercially constructive way with airport users (ACCC; Airlines 2006; Qantas 2006). The challenge related to the pricing, particularly with the air service providers, was highlighted as follows in the interviews:

Obviously from an airline perspective the negative impact is the price. The airport is allowed to make a return on their investment. We don’t actually have a lot of transparency on how they actually do their pricing. While there is the ACCC guideline, there is not a lot of transparency in it and airports interpret the guidelines very loosely. (Interviewee 1 – Airlines)

The challenges of the negotiation process at Sydney Airport relate to the lack of arbitration in the process and are summarized by one stakeholder as follows:

There is a consultation process, but most of our agreements with the airports are self-executing or have a provision that they can actually charge the price they want……so they consult with us, but even if we don’t agree with that they are doing they actually have the right to do what they want. Airports are reluctant to include a third party arbitration process in their agreements……..so we actually think the negotiation process is fairly one sided. (Interviewee 2– Airlines)

The toughness of negotiations and arriving at agreements was stated to be the direct result of the lack of market power held by some airlines in relation to the airport. The airport operator perceived the airlines to have leverage because of the size of some airlines, although airlines did not support this

208 view in the analysis. It is the lack of competition and certain monopolistic characteristics of Sydney Airport that is associated with the lack of power for certain stakeholders in negotiating the terms for supply of services in an efficient and effective manner. However, the airport operator claims that airlines have viable alternatives and consequently countervailing power in commercial negotiations.

This supports identified arguments in the literature of opponents of privatisation implying that the privatised entities behave as monopoly profit maximisers in a free market situation of unequal stakeholder power distribution. As argued by Kimpton (1996), given the monopoly power that airports are able to exercise relative to the markets they serve, adequate regulation is essential in the interests of both airlines and passengers . This point supports the airlines’ pre-privatisation concerns that as each airport becomes a “law unto itself” the possibility exists that a whole range of activities may well be undertaken in different ways at each airport rather than uniformly. These activities may include the basis for charging, the preparation of plans, the presentation and preparation of financial and performance data, regulation of prices after the first five years and so forth.

The analysis shows that the smaller airport users particularly question the airport operator’s dominance. This is supportive of Jones and Fleming (2003p. 435) that stakeholders often do not have equal power due to differentials in resource control, ownership, ability to voice interests and so forth. However, due to the interdependence and symbiotic relationship between stakeholders at the airport, one would expect to see consistency in expectations and demands of stakeholders.

It seems, however, that the bargaining power of stakeholders classified, according to Mitchell (1997), as dominant and definitive (airlines, passengers, airport operator, and investors) has increased post privatisation, whilst the dormant stakeholder (the government) has maintained control of monitoring noise, pollution and price charges (through the introduction of the light handed regime). The results further highlight that it is the dormant stakeholder that

209 exhibits indirect influence by imposing or reinforcing stricter operating processes in terms of security, safety and ensuring world standards of quarantine and customs and other border controls. In these areas, the findings indicate that the airport users, investors and operators have neither negotiation power nor say.

This is supportive of Gerber’s (2002) argument that, on one hand the airport must pursue politico-economic, traffic and structure-political targets and on the other hand the highest possible privatisation earnings. Furthermore, Parker (2003) argues that successful privatisation is accompanied by competition and regulation as it is after all the changes of ownership and management that led to greater efficiencies. Others (Pryke 1983, Kay and Thompson 1986, Beesley 1992, DeNeufville 1999) question further whether it is competition or ownership that is more important for increased economic performance and efficiency. Therefore, as Sydney Airport does not compete with any other major airport in the Sydney basin, the findings suggest that it is private ownership that has driven any post privatisation efficiency gains at the airport.

Model Element 17: It is suggested that a mutually satisfactory relationship among stakeholders leads to improved airport performance. Therefore it is essential to understand the post privatisation needs of airport users and to accommodate them in a way consistent with the interests of airport operators and investors.

The overall findings on the commercial negotiation and decision-making process at the airport are that stakeholders prefer private ownership of the airport over public. The respondents highlight that under government ownership the airport operator (the Federal Airports Corporation (FAC)) could set its own rules because it was a Federal Authority. The stakeholders point out that with the FAC they never knew the ultimate objective which is not the case when dealing with a private commercial entity. An airline representative comments on the lack of transparency under public ownership as follows:

210 They would come to a meeting and put forward a particular proposal and we would wrestle with it and give our comments on it, and then they’d go away and think about it, then come back with something completely different, You just never knew which way they were going to jump. (Interviewee 5 – Airlines)

This is in line with the Gomez-Ibanez and Meyer (1993) view that the private sector is inherently more efficient than the public sector, because private firms are better equipped and more motivated than their public counterparts to be cost –conscious and customer oriented. Private firms are not as constrained as public sector organizations with respect to the myriad of government requirements that delay planning, construction schedules and generally increase paperwork. The efficiency of the private operator of Sydney Airport was seen to translate into ongoing developments and the ability of stakeholders such as the airlines to keep a watch on development proposals and work together:

Now at the end of the day, it’s about working together. Airports need airlines, airlines need airports. It’s about working together, right, and finding that balance. I’m also looking to have more direct relationship and negotiation with other airlines rather than through the service industry association (Interviewee 9 – Airport Operator)

Other findings show that the airport has become much more accountable to the public and its stakeholders. It was highlighted that at Sydney Airport, due to private sector involvement in airport operation and the investor having its own money invested, the accountability and transparency of airport operations assists in stakeholder relationship building. The reporting that is done at Sydney Airport to its external stakeholders was illustrated by the airport operator as follows:

Now you have a situation where Sydney Airport produces, A) annual accounts, B) makes a quarterly release about its financial performance, makes monthly releases about traffic statistics. Provides a lot of performance data, which we certainly think is pretty easy to understand. whether it’s more or less transparent than under government ownership is hard for me to say, because I wasn’t around at the time, but I’d be surprised if it was less transparent than it was. (Interviewee 9 – Airport Operator)

211

In the interviews the airport operators’ accountability to the board and shareholders was highlighted as follows:

……. through a number of management reports [for board level], the airport is providing performance reports to its shareholders….more than just traditional financial annual reports. The monthly management accounts consist of operational reports on occupational health and safety, security breaches, incidents reports. (Interviewee 9 – Airport Operator)

The noted increased accountability of airport operations post privatisation helps explain Pfeffer et al. (1978) resource dependency theory and Mitchells’ (1997) acknowledgment of stakeholder group importance in an organization. Companies publish annual accounting reports to inform and communicate with stakeholders. Also, due to recent collapses such as Enron, WorldCom, OneTel and HIH, corporations have become more accountable to stakeholders, with regulatory bodies imposing stricter reporting and disclosure guidelines because of claims that society had been damaged by financial fraud and egocentric and manipulative managerial behaviour (Rezaee 2002; Schilit 2002; Benston, Bromwich et al. 2003).

It is applicable to this study that Keim (1978), in accordance with Belkaoui (1976) and Watts and Zimmerman (1978), argues that socially responsible activities are consistent with wealth maximisation motives. Research on the economic consequences of social corporate disclosure emphasizes that financial market prices, economic performances and public perceptions of companies are iinfluenced by disclosing social responsibility activities (Alexander and Buchholz 1978; Ingram 1978; Spicer 1978; Abbott and Monsen 1979; Anderson and Frankle 1980; Ullmann 1985; Epstein and Freedman 1994; Baird 1996; Balabanis, Phillips et al. 1998). An investigation of pre and post privatisation financial reports has shown that Sydney Airport has re-orientated itself to increase its communication to stakeholders.

212 Model Element 18: Due to the airport’s public role it is important to assess overall airport performance by considering the community and environmental aspects of airport operations.

Sydney Airport reports (financial and non-financial) have increased in length and detail over the years with a significant portion being dedicated to informing the reader about: a) the airport’s future development; b) community involvement ; and c) their strategy. Reporting on corporate social activities in pre-privatisation occupied just a couple of pages. At the time of writing (2008) the reporting of social activity and disclosure has its own chapter, in which charitable donations and various other activities are described. Since 2002, Sydney Airport has reported on its sustainability agenda, informing potential investors and the public about the environmental agenda arising out of the Airports Bill 1996, which is aimed at providing certainty about airport planning to interested parties.

The next section discusses unexpected consequences that have arisen at Sydney Airport post privatisation.

8.2.3 Unexpected Consequences

As discussed above, the sale of the airport asset was perceived to be positive by the majority of respondents as it freed up Commonwealth capital for other public sector activities. In terms of achieving the privatisation objectives as set out by the government (discussed in Chapter 7), the findings indicate mixed outcomes for the five years post the privatisation. According to McGhee (1996) Australian airports are considered lucrative investments because they are cash generative, growth businesses with substantial asset backing and low risk (p.3). The findings support this as the privatisation of Sydney Airport led to the attainment of: a) a high sales price; b) commercial growth bringing Sydney airport to global standards; and c) increased passenger flows. Also, light –handed regulation and commercial negotiations between the airport operators and airport users are perceived to benefit the

213 stakeholders involved as agreements are able to be reached without any government interference; and commercial organizations are easier to deal with than government empowered bureaucrats with little commercial sense.

Model Element 19: On one hand the findings have shown that since privatisation significant capital investment, as well as improvements in productivity and efficiency of the airport, have translated into a better passenger facilitation and experience. On the other hand, however, the findings have revealed certain unexpected privatisation outcomes resulting directly from the commercial drive of the airport operator.

However, not all parties favour the privatisation of state-owned assets. Negative privatisation outcomes, as pointed out in the literature review in Chapter 2, are related to: a) deflated share prices as exemplified in the case of privatising Telstra in Australia (Fairbrother, Paddon et al. 2002) and Telekom in Germany (Hyde 2003); b) work force redundancy through outsourcing business functions and restructuring of the workforce as in the case of Qantas (Fairbrother, Paddon et al. 2002; Rochfort 2005) or the UK steel industry (Wu and Parker 1998); and c) the neglect of customers due to disintegration of a state-owned entity into a number of independent businesses as in the case of British Railway (Crozier 2001; Parker 2003).

Regarding airport privatisation, Gerber (20002), as well as Truitt (1996), reports that the case of BAA may be seen as a role model for successful privatisation, as it led to increased in productivity and reorganization of the business structure by introducing the single till approach and placing increased importance on non aviation related activities. The Hamburg Airport privatisation in Germany was also carried out successfully according to Gerber (2002), due to enforcing a long-term systematic partnership for growth between the airlines and the airport operator through fee cap regulation (p.31). On the other hand, focusing predominantly on the aviation side of airport operations resulted in Vienna Airport becoming Europe’s most

214 expensive airport. Athens Airport provides a further example of negative privatisation outcomes which arose from government’s failure to set up institutional and regulatory frameworks to prevent imposition of additional fees on passengers that led to conflicts between investors and airlines. According to Gerber, privatisation of Düsseldorf and Berlin Airports in Germany also resulted in a similar revenue orientation with the airlines and airport battling each other in court due to increased fees (p. 32).

In the interviews for this study, no mention was made of workforce redundancy or deflated share price as a negative outcome of privatising Sydney Airport. However, the ongoing commercial drive and focus on the commercial side of non-aeronautical developments, together with the dual till approach, present challenges in negotiations for airlines. The results have shown that Sydney Airport privatisation has resulted in certain outcomes that the government did not anticipate.

One unexpected outcome is the large increase in airport revenues due to expanding the income earning potential on privatised airports:

A negative example that we did not anticipate included the fact that in the case of Sydney airport, its owner and controlling shareholder, may have control over so many aspects of life of the airport. ………..the biggest surprise is Macquarie Bank and the integration of everything related to the operation of the airport under their ownership and control through various bodies. (Interviewee 13 – Government)

It appears the government in hindsight believes the privatisation process allowed the airport operator too much free reign. This was exemplified by a government interviewee as follows:

We probably should have structured more supervision of the airports than we did. We should not have allowed the airports to operate as freely as they are now able to do. So, although they will tell you they are not able to operate freely, as they still have all sorts of restrictions on them - but in reality, they operate pretty freely! (Interviewee 12 – Government)

215 Unexpected outcomes, relating to the investors and controlling shareholder having control over so many aspects of the life of the airport and being able to exploit Sydney Airport as a toll gate for increased economic returns, are identified in an analysis of stakeholder responses below.

Further issues were also highlighted in submissions to the productivity Commission 2006.

 Small players on the airport site experience challenges in terms of access and availability of facilities

 Aeronautical charges increase, instead of revenues from the retail end- shops, commercial and rental activity being used to reduce the cost of aeronautical charges

 Cost of parking has increased

 Additional control obtained through ownership of the M5 (and also the Eastern Distributor) which is the main access road to the airport.

 Car parking facilities have been purchased outside the airport perimeter to establish and/ or maintain monopoly on car parking for the airport and to prevent airlines setting up a cheap car park

It was identified that Sydney Airport has traffic management problems due to congestion and capacity issues of the surrounding roads leading to the airport, which according to local council representatives were built to carry significantly less traffic than currently carried. Other respondents noted the dilemma about the exaggerated parking costs at the airport which represent a significant proportion of the airport’s commercial revenue stream. Increased parking charges are the result of valet parking facilities taking up the prime parking area of covered parking and a premium being charged for uncovered parking. This increases the revenue for the operator and return to shareholders, but is perceived negatively by the general public.

The government hears the odd complaint about higher parking fees, …….it is all corporate and corporate employees could not care less. And families who park and go for holidays usually get

216 dropped off or take a cab or park in the long-term care park. (Interviewee 13– Government)

The introduction of taxi charges was also not expected as a privatisation outcome. Negative consequences for the end consumer and taxi industry are explained from the government side as follows:

The taxi charges, we had not anticipated those as something they would introduce. And the other thing we had not anticipated is the arrangement for short-trips outside the airport. You go down the stairs and wait in a long queue and there is a $ 5000 fine for the taxi driver if he picks you up on deck. It is the same with the international airports as with the domestic airport. That is not a positive outcome for the taxi industry nor for the travellers, because poor old taxi drivers can spend 45 minutes waiting in a queue to get a for example $ 7.00 fee for a short trip if you are dropped off close to the airport and that is not fair on the driver and it is not fair on the person who wants to travel the short distance. (Interviewee 13 – Government)

Additional findings indicate that the government was taken by surprise when the owner/ investor expressed a desire to acquire one of its customers (one of the largest domestic airlines) through a consortium. This was pointed out as follows:

Well no one anticipated we should have a restriction that an airport can own no more than 5% of an airline, because we really had no prospect of this situation. (Interviewee 13 – Government)

These unexpected consequences are supported by the literature on privatisation which emphasizes that it is the end-consumer that can suffer from the changes wrought by the efficiency and profit oriented approach of private ownership. The findings of this study on the dominance of the airport operator and investor over Sydney Airport operations are also supported by matters raised in submissions made to the PC inquiry into airport pricing.

217 8.2.4 Summary Section 8.2 – Perceptions of the overall Privatisation Impact on Stakeholders

The perceptions of all stakeholders about the privatisation effect at Sydney Airport are that the change in ownership has had a significant impact on stakeholder relationships and interactions. The stakeholders have become more engaged in decision making processes and consultative approaches to terminal redesigns, or other airport site projects involving neighbouring communities. Commercial negotiation tactics, business growth and airport land development, although criticized to an extent, were perceived to be the most notable outcomes of the Sydney airport privatisation, with each having an impact on stakeholder operations.

The results emphasize that catering for the end consumer and satisfying stakeholders through improved company performance has led to significant shareholder wealth maximisation for institutional investors at Sydney Airport. It is further acknowledged that the revenue streams from the commercial oriented approach of privatised business operations have outperformed the traditional aeronautical revenue streams, despite the capacity problems at the airport that were identified earlier.

8.3 Privatisation Outcomes on Individual Stakeholders Airports are complex entities and the focus on stakeholders has increased as an aftermath of privatisation. Therefore the following section is tailored to a discussion on the post privatisation consequences as perceived by the identified individual stakeholder groups. Entire transcripts for representatives from each stakeholder group, the airlines, the airport operator, the government, the investor and other infrastructure support providers were analysed through Leximancer. The conceptual maps shown below were used as the starting point of the analysis. The concept ranking is not displayed, as the analysis focused on the themes whilst drilling down into the data to examine individual stakeholder experiences.

218 The aim is to identify and discuss commonalities and differences mentioned by each stakeholder group. The discussion goes beyond the above general overview by providing additional insight into the perceptions of individual stakeholder groups on the post privatisation situation at Sydney Airport.

8.3.1 Airline Stakeholder Perspective

In examining the airline stakeholders’ views regarding the consequences of privatisation reforms the four key themes that emerge are ‘passengers’, ‘airport’, ‘money’ and ‘government’, as displayed in the Leximancer map below (Figure 8.2).

Figure 8-2: Conceptual Mapping of Airline Stakeholder Perceptions

The airlines refer most often to the airport’s commercial orientation as identified in their responses by the concepts of ‘commercial’, ‘revenue’,

219 ‘development’ and ‘service’. The findings suggest that airlines perceive investment in aeronautical infrastructure as a positive contribution to running their businesses as exemplified by the following quote:

There is a big benefit with the investment in the infrastructure. I don’t think there is actually a group of airline airport users that hasn’t benefited. You know, the degree of benefit is different for each airline. For example, if they are developing the airport for larger aircraft to increase the capacity, the smaller airlines may lose out because they may have to bus their passengers. (Interviewee 1 – Airlines)

On the other hand the findings suggest that airline stakeholders perceive non- aeronautical development of airport land to be the airport’s approach to becoming a real estate developer rather than behaving as an airport. This is illustrated below:

You don’t have airports to have shopping centres. Certainly the emphasis in Sydney has changed from being an efficient airport to being an efficient gatherer of funds from passengers. The two can co-exist; it just depends on how much emphasis is put one or the other. (Interviewee 6 – Airlines)

The analysis shows that privatisation reforms and the commercial push have the following impacts on operations of air service providers:

 Challenges in the commercial negotiation and consultation process regarding airport charges and capital investments

 Complexity in facilitating passenger movement due to over commercialization

8.3.1.1 Challenges with Commercial Negotiations The findings illustrated that the so claimed increase in charges was a notable impact on airline operations as an aftermath of privatisation. Price increases were previously noted as the prime pre-privatisation concerns from the airline perspective:

220

Airports in this new world of privatisation would simply not be able to generate the funds they needed to reinvest. ………. the airlines and ultimately their passengers needed to pay more for the use of that asset. I think the question now is how far has that pricing principle been taken. And that’s what’s exercising the minds of a lot of airline executives. (Interviewee 4 – Airlines)

Interestingly, in July 2002 (post Sydney Airport privatisation) a light handed regulation regime was introduced to avoid unwarranted price increases for aeronautical services at seven major Australian airports15. Mutually acceptable commercial agreements between airports and airlines were encouraged as part of the monitoring regime post privatisation. This price monitoring regime handed the responsibility of monitoring prices at these airports to the ACCC (Australian Consumer and Competition Commission). The findings from this field study support those of the Productivity Commission inquiry held in 2006 which received submissions that claimed excessive airport charges, particularly in areas not captured by the definition of aeronautical (versus non aeronautical) charges, unrealistic asset valuations and claims that airports as monopolies have no intention of engaging in commercially constructive way with airport users (ACCC 2006; Airlines 2006; Qantas 2006). One airline respondent highlights the problems associated with the debate about what is aeronautical versus non aeronautical as follows:

What we don’t agree to is potentially the value of the capital, how it is recharged to the airlines, because the recharging bucket is split into aeronautical and non-aeronautical. So we have disputes with the airports in terms of what is aeronautical and what’s non- aeronautical, because a lot of their revenue comes from concession revenues in the terminals (Interviewee 1 – Airlines)

Supportive of the PC inquiry the airport users and even the ACCC (2006) believe that the current regime does not provide information about whether monopoly profit is being generated in the longer term by airport operators. On one hand the Sydney Airport operator argues that the existing flexible pricing regime assists in dealing with resource constraints and enhances commercial

15 Sydney, Melbourne, Adelaide, Perth, Brisbane, Darwin, Cairns

221 relationships with airlines (Schuster 2006). On the other hand, airlines express dissatisfaction with the current dual till approach which does not require disclosure of non-aeronautical prices. Airlines favour the traditional, pre-privatisation, single till approach, where the aero and non-aeronautical revenues are pooled to essentially cross subsidize aeronautical investment. Although the latter is policy at many airports around the world, in Australia, post-privatisation, the operator does not perceive this as a very efficient pricing mechanism from an economic perspective; this means the infrastructure would be priced at marginal cost. One interviewee identifies the conflict between the airlines and the airport operator about the imposed charges as follows:

Their philosophy was ‘if we land at your airport and bring you passengers that are going to spend money at your duty free shops, you should be thanking us, by letting us land if not for free for a minimal price because we bring you the customers to your airport’. (Interviewee 5 – Airlines)

Despite the finding of a consultative approach, where the airport operator notifies the airlines of its capital program by providing them with high level statistics such as passenger and aircraft movements and year, to date forecasts that support investment decisions, discontent is nevertheless expressed about: a) the charges

We did not anticipate that they would rack up their charges to us, as much as they have done. You will recall, when we privatised the airports, they were put under control of the ACCC, who had to approve all of their increases and charges, and that was for a period, I think, of 5 years. (Interviewee 3 – Airlines) and b) the lack of an arbitration process in commercial negotiation In the past consultation has tended to be just a process on the airport part. If we could not come to agreement, the airports position is imposed. At the moment if we don’t agree with something that’s going on with an airport there is no third party

222 arbitration, there’s no binding third-party process, other than to have the airports declared. (Interviewee 2 – Airlines)

In connection with the previously discussed ‘power’ concept, respondents indicate that airlines that have viable alternatives and countervailing power have greater commercial negotiation success with airports. It therefore tends to be the small airlines that fail to negotiate reasonable terms and conditions relating to their day to day business operations in terms of slots, hubs and fuel throughput charges. Nevertheless, as was noted previously, the airport operator sometimes must compromise on a number of standard provisions to accommodate such customers, especially the regional airlines, due to government intervention in guaranteeing of grandfather slots. The challenges in terms of access and availability of facilities that small airlines experience (as stated under the unexpected consequences discussed in section 8.2.3) are further illustrated as follows:

regional aircraft carry a relatively small number of people, so therefore are not high on the list of priorities at airports. We tend to get whatever is left over, and then be shunted around and changed whenever something is required for someone else. (Interviewee 6– Airlines)

Additional findings are that although the airlines are participating in the decision making process and are involved in terminal design post privatisation, it is the airport operator acting on behalf of the investor that seems to have the final say. This leads to dissatisfaction of stakeholders, exemplified as follows:

This whole thing was non-negotiable, so what’s the point of talking to us about it, they’ll just do what they wanted to do and we won’t get anywhere. And then after we calmed him down a bit, and told him we are here to talk about it, you know what are the options, what can we do. He then made it perfectly clear, that SACL weren’t prepared to negotiate on the design as well. (Interviewee 7 – Airlines)

The airlines express concern about the effect of such developments on efficiently running their operations. The dilemma regarding commercial expansion at Sydney airport and passenger facilitation is discussed below.

223 8.3.1.2 Passenger Facilitation In terms of the redevelopment of Pier C, part of the STAR program (as described in Chapter 6), the findings show that such retail development impacts on the timely operations of air service providers. Airlines point out that over commercialization creates problems for airlines trying to get their passengers out of the shops and on to the aircraft whilst meeting their slot allocation.

Pier C operators, under that design, don’t know if they are missing a couple or they are late, they don’t know if they are looking in shops from this part of the terminal, or whether they are all the way up here stuck in a shop. So they are going to have to initiate searches and call for passengers (Interviewee 4 – Airlines)

The findings also indicate that certain developments affecting airline operations are, however, controlled by government and are not under the direct control or influence of the airport operator. Thus a distinction needs to be drawn between controllable and non controllable factors in the model development. An example of a non controllable change is the additional security when checking in as the aftermath of the terrorist attacks. This is illustrated below:

One of the things that the airlines offer the customers is trying to get them through the airports as quickly as possible. That means, keeping check-in as late possible, and the new security restrictions actually extend the time that passengers have to spend at the airport. (Interviewee 7 – Airlines)

The findings were in line with Kimpton (1996) and Sharp (1996) that airport users should also get involved in the formulation of airport plans in accordance with the Airport Act setting out a comprehensive regime with respect to airport master plans, major development plans and environmental strategies. Apart from the requirement, inserted by senate, that airlines and communities be consulted with respect to noise amelioration, there is no requirement that stakeholders be consulted in the planning processes. From an airline perspective the quality of planning is seen to be enhanced by consultation with airlines at the earliest possible opportunity.

224

In conclusion, although airlines adopted the new philosophy of a privatised airport operator, dissatisfaction is apparent with the commercially oriented approach and with commercial negotiations. Nevertheless, the interdependence and reliance on operations has led to compromises on both sides. The findings show that favourable negotiation outcomes and decisive authority regarding the form of airport development depends on the countervailing power of individual air service providers.

The results show that although Sydney Airport is named by stakeholders as a ‘frustrating’ experience to deal with, the airport operator uses the economic rationale of pricing and other means to control the demand to effectively cover a limited supply of airport facilities. The economic rationalist approach is that if supply cannot expand any further, the situation exists where the limited availability of supply and an increasing demand leads to increased prices.

8.3.2 Investor Stakeholder Perception

From the viewpoint of the investor the key theme relates to wealth maximisation and generating a return on the acquired asset. This is illustrated by the conceptual map (Figure 8.3) with the identified key themes of ‘airport’, ‘asset’ and ‘price’. The respondents referred to the price paid for the airport and its extensive commercial development, which they perceive to be in the best interests of all stakeholders.

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Figure 8-3: Conceptual Mapping of Investor Stakeholder Perceptions

The ‘airport’, ‘asset’ and ‘price’ themes deal with the commercial orientation and business growth of Sydney airport as a direct result of privatisation. The frequent usage of concepts such as ‘commercial’, ‘lounge’, ‘terminal’, ‘return’ and ‘traffic’ by the respondents have support these findings. The following quote sums up the investor’s perspective that is discussed below.

The only thing that we can say is that the airports now operate in our view, far more efficiently, far more effectively, offer a better passenger experience than they did under their previous owners. Would they have been as good if they’d stayed under the same owners? To a degree, it’s an unanswerable question, the only hard fact you have is that the ownership has changed and in our view, things have improved. (Interviewee 20 - Investor)

The changes at the airport site, in the aftermath of privatisation, attributed to private versus public ownership are as follows:

 Commercial development

 Airport marketing & customer focus

 Return on investment for shareholders

226 8.3.2.1 Drive for Commercial Development In terms of strategy and exploiting the airport ‘asset’ the results show there were two options post privatisation available to the investor based on: a) a very short-term view, ‘basically just try and grab every money making opportunity to maximize share price in the short-term’ (interviewee 12); or b) a longer term view. In line with finance literature, the short term view would have a detrimental impact on airport operations in the long-term, particularly as it is a public infrastructure asset. One respondent suggested that it is all about long-term planning when in charge of a privatised airport.

It’s about - how do we maximize our returns in the long-term; well it is about having passengers who are happy and satisfied, so they are likely to use Sydney Airport more often, they are likely to spend more money when they are at Sydney Airport. If we attempted to maximize revenue on their first visit, they may never come back. (Interviewee 20 - Investor)

The findings emphasize further that the private investor does not fully control the operations of the airport, as it is part of the national infrastructure and subject to light handed regulation and government involvement. It was, however, recognized that activities under direct control of the airport lessee are performed with a significantly higher-level of efficiency for the stakeholders, whether airlines or passengers. Due to interdependency among stakeholders, the findings indicate that the investors and operator are in direct communication and in a so-called advisory role to the government, being experts in private business dealings with a commercial focus.

Model Element 20: There are certain aspects of airport operations that are not controlled by the airport operator nor investor. This needs to be considered in the model

The government controlled and run operations comprise immigration, customs, and quarantines and it was identified that these are perceived as ‘efficiency’ hurdles for the operator. This is in line with De Neufville’s (1999)

227 argument that airports cannot be fully privatised due to concern for public welfare and airports being critical national infrastructure.

Additional results point out improvements arising from private ownership such as the redevelopment of the old Ansett terminal 2 (T2) and the preparation of the airport for the arrival of the A380. Interestingly, further comment about a positive consequence of the privatisation in the aftermath of the collapse of Ansett airlines was that Ansett creditors received part of the cash injection from the acquisition of the Ansett Terminal at Sydney airport, owned by the airline and not the government.

The investor’s view on this issue was as follows:

…..would another private owner have come in and acquired it, without knowing that there was no guarantee that anybody would necessarily put traffic through that terminal…… Because we own the rest of the airport, we could buy that terminal, because it didn’t really matter whether that traffic went to that terminal or another terminal. So another benefit there was 192 million dollars that the creditors of Ansett received, that they might not have otherwise received. (Interviewee 20 - Investor)

8.3.2.2 Marketing & Customer Focus The findings show further that the investor has taken an active role in business to business marketing whilst positioning the airport at a global level. The results emphasize that it is not only about commercial development, but as owner of the airport, the investor sees its role in also marketing the airport to other countries and airlines to increase passenger and traffic flow. The private investor has brought in expertise in airline marketing and network planning, developments that the government may never have considered under public ownership. Thus, it is an outcome of privatisation that a more direct approach is used to boost traffic and enhance profits at Sydney Airport. This success in turn leads to broader impacts on the economy and surrounding region.

228 When the government owned the airport, as the national gateway to Australia, the assumption was “We don’t really have to market ourselves very heavily” At the end of the day, if an airline wants to fly to Australia, they are probably going to come to Sydney. And so, there was really no active marketing of the airport. (Interviewee 20 - Investor)

Other findings relate to the focus of the private investor on various passenger profiles, as it sees its role not only in passenger facilitation but also in generating an experience to ensure the return of the passenger. It was indicated that only 30% of the people who travel through the international terminal at Sydney Airport have access to an airline lounge. One interviewee questioned whether under government ownership, much thought would have been given to the space that the other 70% of people occupy while they are waiting for their flights. The investor indicates that management is constantly thinking about ways to improve the passenger process. Examples of the improvements are the recently introduced fast track security and availability for purchase of duty free goods on arrival at Sydney rather than carrying them on the trip. The investor focus on passengers is further illustrated by:

As a private owner you want to make people happy, because if they are happy, then they are in a better frame of mind obviously to spend money. So that at the end of the day there is a motive to improve the return, but in order to improve that return, you have to improve the service and you have to make the airport a much better environment. (Interviewee 20 - Investor)

In contrast to the pre-privatisation concerns that privatised airport retailers can ‘whack up’ the prices and exploit customers due to monopolistic characteristics, the findings show this perception is now inaccurate due to the introduction of known franchises in control of their price setting in the terminals. The investor explained this as follows:

What we typically do with retailers, is that we get them to guarantee they won’t charge more for a product at the airport than they do in same store down town. (Interviewee 20 - Investor)

229 8.3.2.3 Returns for Institutional Investors The ‘price’ theme identified through Leximancer refers to the actual price paid for the airport in the acquisition year. The respondents point out that Sydney Airport was acquired in July 2002, only a few months after 9/11 and there was a perception amongst the respondents that 9/11 was just about the worst event that could have happened to the aviation industry. Also, in the year after Sydney Airport was acquired, the Bali bombings, the SARS scare, followed by the Gulf War, had a very significant impact on Australian travel. International traffic was claimed to have fallen by 20% at Sydney Airport for three months. The findings show that these unpredictable events led to a perception that the price paid for the airport was too high. This is, however, no longer the case as the returns have become quite substantial.

And so very soon after we had acquired Sydney Airport, there was quite a strong feeling amongst the institution, (that’s the community), that we had significantly over paid for its investment in Sydney Airport. Original price of the airport was a total of about 5 billion dollars, of which 2 billion dollars was equity, and the 3 billion dollars was debt. Today, five years on from the acquisition as a shareholder, we have recovered all our equity from Sydney Airport. (Interviewee 20 - Investor)

Other findings, derived from reviews of the annual reports and conversations with the investors, indicate that the biggest cost, given the scale of airport investment required, was the cost of capital.

So you know, Sydney Airport’s interest bill is its single biggest cost. So we have over the course of our five years of ownership at Sydney Airport, been able to manage financing in such a way to obviously generate a very good return for shareholders of Sydney Airport, but also be securing the level of financing that’s required for future investment in the airport. (Interviewee 20 - Investor)

Therefore, it can be argued that the cost of capital may be the root cause of the identified increases in landing charges imposed on airlines to subsidize aeronautical and non-aeronautical investments. It was also pointed out by the

230 airport operator that the rents of retailers and other concessionaries have increased as a result of privatisation.

Reflecting on the investor perspective (the investor is SCACH, in which various Macquarie Infrastructure Funds has 81.77% and other consortium have minor shareholding (refer to Figure 6.1)), the findings identify that the investor’s prime focus, keeping in mind that it is the interest bill that is most expensive when running an airport, is on generating returns for its institutional investors, such as the superfunds that have invested in the Macquarie Bank infrastructure investment funds. The return achieved thus far five years after the event has proven the airport to be a satisfactory investment for the parties involved and belies the belief that too much was paid for Sydney Airport, given the economic circumstances and global turmoil in the aviation industry in 2002. To generate the returns, the investor adopted an approach of satisfying airport customers by providing a choice of goods and services and generating increased traffic through direct marketing of the airport.

8.3.3 Airport Operator Stakeholder Perspective

The airport operator’s perspective regarding the outcomes of privatising the airport is quite similar to that of the investor’s perspective discussed above. Ownership levels signal the presence of significant direct controls on airport operations, excluding the controls of government, imposed by the investor. It is the investor (particularly Macquarie Airports that has high majority shareholding), who owns the airport until the year 2097, driving the changes post privatisation due to the injection of private funds, whereas the operator is implementing and acting on behalf of the owner.

As shown by the Leximancer map (Figure 8.4), the major themes relevant for the analysis of this perspective are ‘government’, ‘airlines’ and ’airport’. These key themes refer to the airport operator’s acknowledgement of the major stakeholders involved in the day to day business operations of the airport. The findings emphasize the airport operator’s position post privatisation as follows:

231  justification for commercial development

 market power in commercial negotiations

Figure 8-4: Conceptual Mapping of Airport Operator Perceptions

8.3.3.1 Justification of Commercial Development The airport operator, being directly accountable for generating a return to the investor, is concerned primarily and notably with maximizing profits. Therefore commercial expansion and growth in traffic and passengers are perceived as the most significant post privatisation outcomes. Driven by the bottom line with a desire to maximize return per passenger, the level of improvement for passengers post privatisation is claimed by the airport operator to have been greater than it would have been under government ownership. This is illustrated below:

You want to increase the profit per arriving passenger, departing passenger and profit per airline movement. The way you

232 increase the profit per passenger is you should get them to pay and to buy more things, more opportunities at higher prices, and get more airline customers at higher prices whilst at the same time reducing costs. (Interviewee 10 – Airport Operator)

The operator points out that when money is spent on capital investments into aeronautical related infrastructure, the investment is later recovered, with proper consultation, from the airlines and passed on as an increased passenger charge. Therefore the significance of cooperation in capital investment decisions and the importance of liaising with the airlines emphasizes once again the interdependency of interests and operations among stakeholders. Effective and efficient airport operations require working with the airlines to ensure that passenger have a good facilitation experience all the way to the gate through passenger arrival, check in, security and border control agencies,.

The above indicates that the airport operator’s fundamental concern is to create a satisfactory passenger experience at the airport. Privatisation has enabled the operator to cater for passengers in a variety of additional ways through the available funding and investment push in non-aeronautical infrastructure.

8.3.3.2 Market Power In exploring the arguments of Sydney Airport’s use of its perceived monopolistic powers, the analysis identifies that the operator sees its own market power as limited in relation to some stakeholders, due to their countervailing powers.

Look, I think when you own a national infrastructure asset, there are always going to be at the end of the day certain monopolistic characteristics to that business. On the other hand, you know the largest airline at Sydney provides 45% of the traffic. So it has quite a lot of power in negotiations as well. So we think it’s a pretty even split. (Interviewee 11 – Airport Operator)

233 The analysis also identifies that the airport operator sees limitations to its power and control due to the overall complexities of operating an airport

They signed up to conditions of use, even if they don’t adhere to those conditions of use, I can’t walk out on the runway, put my hand up and, “Don’t come to Sydney, don’t land here”. If you are running a business, there are certain issues you can choose not to do business with (Interviewee 9 – Airport Operator)

Due to the interdependency of operations and multiple stakeholder involvement, it is therefore interesting to note the operator’s view on the commercial negotiations:

That's what the commercial negotiation all about. It is about sitting down at the table, it's about looking at the airport’s needs, it's also recognising the airlines’ needs. (Interviewee 9 – Airport Operator)

This study examines privatisation outcomes as experienced by individual stakeholder groups at Sydney Airport. The operator has acknowledged the importance of cooperating with its main stakeholders, the government and the airlines. Satisfying the passenger was identified as the prime goal of the airport operator as it assists in generating sufficient returns for the investors. It was found that the operator’s power is quite limited. After all, it is the investor that has significant control over the operations of the airport. It was further found that the airport operator has taken on a position of becoming what is claimed to be an active partner to the neighbourhood and local community post privatisation (this is discussed further below).

8.3.4 Community and Government Perspective

Community and government perspectives are critical in this study, due to the potential conflict of the economic goals of the airport operator and investor versus public accountability. According to the Leximancer output (Figure 8.5) the themes emerging from an examination of the textual documents for this stakeholder group are ‘issue’, ‘airport’, ‘development’ and ‘government’. The discussion below relates to the following:

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 Community tolerance regarding commercial development post privatisation

 Noise Dilemma

Figure 8-5 Conceptual Mapping of Community and Government Perceptions

8.3.4.1 Community tolerance regarding airport land development The results show that pre-privatisation there was no consultation process between the FAC and the local community. Post privatisation, however, it was identified that the community is now invited to be part of the consultative panel ,due to the airport operator’s acceptance of the role of being a partner with the local neighbourhood and community.

The local community was getting upset, because with Sydney Airport there was no control whatsoever, no community

235 involvement in the development of the airport in the same way as there would be with building a large hotel or shopping centre in the local community. The local community now, post privatisation, will be very much involved in what happens with the design of a development, the time of operations for trucks in and out, and the banging noises and the effect on streets used, the damage to the streets and other facilities in the communities as consequences etc. (Interviewee 13 – Government)

According to Goodman et al. (1991) it is managerial accountability that matters rather than ownership in examining whether privatisation serves the public interest. At Sydney Airport the continuing involvement of government as a dormant stakeholder seems to protect public welfare, which supports the effectiveness of privatisation if management has incentives to act in the public interest. Nevertheless, the findings demonstrate that commercial expansion on airport land has caused friction and negative perceptions within the community and a federal vs. state land development debate. The respondents indicate that the developments on airport land do not follow a process that is as transparent as the local council and state process for developments. Therefore, it is argued that there seems to be a difference in the planning and consultation processes for building projects on airport land under federal controls The local, state and federal government views on airport development are summarized by one interviewee as follows:

The local councils are concerned that the development on airport land is bypassing the normal planning processes that are put in place by councils and are state and local planning processes. (Interviewee 14 – Government)

This is in line with Kimpton (1996) who describes a paradox with regard to airport adjacent land: it is attractive because of the proximity of the airport and its transport links, but on the other hand the wider community suffers if an airport is inhibited. It is essential that state and local government bear in mind the need to act as early as possible to prevent developments that are incompatible with the maximisation of an airport’s potential. It was further highlighted by council representatives that the local community dislikes the developments due to the negative side effects such as traffic and road congestion as well as pollution:

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We had not anticipated DFOs and DFOs tend to generate thousands of cars a day, they had not been anticipated! (Interviewee 15 – Community)

Truitt (1996) and Smith (1996) argue that the privatisation choice of leasing the airports in Australia is an alternative to full divesture and ensures that the interests and of the public are protected; at the same time Sydney Airport and the public they serve are able to enjoy the benefits of superior efficiency of private enterprises. Sharp (1996 p. 7) highlights that leasing the airports was a pragmatic decision as the government wanted to ensure that the regulatory safeguards were to be maintained in the future; the prime concern was to safeguard the interests of users in airport operations. However, the local councils seem to oppose the ongoing development., indicating that they are not achieving sufficient returns from having the airport as a neighbour, although it is claimed that rates are paid to the councils and that they are involved in community consultation processes. The councils argue that there is no fair, equitable or transparent process, due to the lack of available information on valuing airport land post privatisation. This point is illustrated as follows:

There are no existing values on land which was always part of the airports, so when a new lease is entered into, the obligation then is from the airport operator to send that data to the Valuer General, so he can prepare values which are used for rating purposes. And that doesn’t always happen. We don’t find out about it until many months, years even, later. (Interviewee 15 – Community)

The findings show that this commercial development dilemma was triggered by giving the airport operator too much power as part of the original sale agreement, as illustrated by one of the respondents:

Too much control and/ or too much power was given to them to manage that space without that what we consider to be an appropriate check and balance system. (Interviewee 16 – Community)

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Although the local vs. federal land development issue was identified from the community stakeholders’ perspective as a privatisation outcome, it does not form a critical part of the thesis. This thesis solely focuses on: a) the stakeholder perspectives regarding the privatisation of Sydney Airport and;b) how airport performance can be assessed through stakeholder eyes.

8.3.4.2 Noise Dilemma Another theme that emerges throughout the interviews and that is identified by Leximancer is the ‘issue’ theme. The ‘issue’ theme refers to the noise dilemma that has prevailed at Sydney Airport since its inception, as it is an airport located within the city with neighbours surrounding it. The noise issue was previously and pre-privatisation dealt with by the government through the Curfew Act and a noise sharing arrangement. The aircraft noise dilemma was present pre-privatisation, with the neighbouring councils and communities complaining strongly about the aircraft noise. Therefore, the noise issue does not form a central argument for this study as it is not a direct consequence of privatisation.

The interviewees propose that noise has been an issue for over 80 years as the city of Sydney has literally grown around the airport and air traffic has increased. The airport distributes use of its runways during the day to share noise between communities provided the wind is right. Local councils indicate satisfaction with this arrangement if there is equitable treatment, as illustrated below:

Noise is not such an issue at the moment. I think the noise issue is benign, but it’s a beast that’s asleep in the corner and you don’t want to disturb it. (Interviewee 12 – Government)

Traffic increases and noise issues are not outcomes directly attributable to privatisation reforms. Interestingly, every other airport in the country is responsible for relations with its community over issues such as noise, but not

238 so Sydney. The government has delegated this job to the Sydney Airport Community Forum of which Sydney Airport is a member; however, as emphasized by the interviewees it is a fairly quiet member on many occasions. A question for further research is the role that Sydney Airport occupies being part of such forum. The noise dilemma, although strongly emphasized on the conceptual map, does not fit the criteria for examination of privatisation outcomes in this study.

The section below discusses the perspective of other stakeholders, predominantly infrastructure support providers such as fuel providers, air traffic controllers as well as air services.

8.3.5 Others – Infrastructure Support Providers

The themes that were identified for the infrastructure support providers are ‘development’, ‘airport’ and ‘stakeholders’ (Figure 8.6). The analysis verifies the following key issues which have already been discussed and will not be repeated in this section. They are as follows: a) stakeholders play a central role in airport operations due to their interdependency of interests; and b) commercial developments have had an impact on all stakeholder operations due to capacity constraints of the airport. Only one additional finding, relating to the imposed fuel levy, is discussed below.

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Figure 8-6: Conceptual Mapping of Infrastructure Support Providers Perceptions

8.3.5.1 Fuel Levy The results show that the airport operator has been misusing its power with regards to the imposition of an additional fuel levy. The government has already taxed the fuel by couple of cents per litre and the findings emphasize a miscomprehension as to why the airport operator is taking a further cut through the so-called throughput fee. This point was also raised by the fuel providers in their submissions made to the Productivity Commission inquiry 2006 (Shell, 2006). The tension between the operator and the stakeholders regarding fuel provision at privatised airports is exemplified as follows:

……That was our question back to them, but you need fuel at the airport, the answer was 'we don't care'. Now all I think they mean by that is that they actually don't want to run the airport. (Interviewee 18 – Other)

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This tension between the fuel provider and the airport operator is further increased by some airports in Australia appearing to take on the provision of such infrastructure services themselves in the long-run to gain more power and control over airport operations. This is illustrated as follows:

The other thing we've seen a bit is the airport authorities trying to run their own fuel facilities, like Canberra. They invested their own money and built the fuel facility out there. (Interviewee 18 – Other)

8.3.6 Summary Section 8.3

This section provided examples from individual stakeholder perspectives exemplifying the negatives but also positive experiences of privatisation. The analysis shows that the interdependency of stakeholder interests is a key variable in commercially oriented airport operations.

8.4 Chapter Conclusion This chapter provided a general overview of stakeholders’ perceptions on the outcomes of privatising Sydney Airport. As indicated at the beginning of this study, the focus on stakeholders has increased as an aftermath of privatisation. The privatisation outcomes relating to the commercial orientation of the airport operator acting on behalf of the investors are critically perceived by the airport stakeholders. Examples were provided of privatisation experiences in terms of the impacts they had on individual stakeholder relationships and operations. These impacts need to be assessed in dimensions beyond standard financial measures, and be based on relevant attributes for individual stakeholder groups. The next chapter demonstrates how privatised airport performance outcomes can be assessed.

241 Chapter 9

9 Stakeholder Airport Performance Assessment Model (SAPAM)

9.1 Introduction The previous three previous chapters discussed the findings related to the following research and sub research questions

RQ 1. What were the SQ 1 A. Who are the key Reasons for the stakeholders of Sydney airport? Privatisation of Sydney What has been the airport? SQ 1B. What were the impact of Sydney objectives of privatising Sydney Airport airport as perceived by the privatisation on stakeholders? key airport stakeholders?

RQ 2. What was the SQ 2 A. How did privatisation Impact of Sydney airport reforms impact the key privatisation on key airport stakeholders? stakeholders?

The analysis of those chapters confirms that privatised airports, perceived to be key national infrastructure assets, are complex entities with increased stakeholder involvement and stakeholder demands on the airport operator. Some stakeholders claim that these airport entities exhibit monopolistic standing in society due to their business nature and industry positioning. However, the findings also demonstrate that stakeholders play an ever more important role due to interdependency of operations and that the airport in its contemporary role is accountable to more stakeholders than in the past.

To overcome the complexity and difficulty of evaluating airport performance it is proposed that privatised airport performance needs to be assessed by taking into account key attributes relevant to individual stakeholder groups. This chapter presents a performance model applicable to Sydney Airport. The suggested Stakeholder Airport Performance Assessment Model (hereafter

242 referred to as SAPAM) is specifically designed to take into account distinct stakeholder features relating to airport operations from operational, financial and community perspectives. This is in line with Humphrey and Francis (2002) who call for research in the field of airport performance measurement and argue that, as stakeholders are a contingent factor, ‘stakeholder theory could be used to explore interest groups for which the performance measurements have been set and are considered’ (p.28).

The proposed model is developed based on feedback received from the research participants who commented on the ‘experimental’ literature derived model that was introduced in Chapter 4. The ‘experimental’ model was built after carefully examining the literature on the changing nature of the air transport industry and the significance of corporate performance measurement in light of stakeholder theory. The final model, being the SAPAM model based on field research, is discussed in this chapter. The differences between the literature derived experimental model and SAPAM are highlighted.

The SAPAM model development for this part of the study was driven by findings relating to the following research questions:

RQ 3. What are the key SQ 3 A Why is performance attributes of airport measurement of airports performance from the important? How can privatised various stakeholder airport perspectives? SQ 3 B. How has airport performance be performance been assessed pre- measured from privatisation? stakeholder viewpoints? RQ 4. How can these SQ 4 A. What indicators should attributes be measured to be used that reflect airport provide information on stakeholders needs when airport performance? assessing privatised airport performance?

SQ 4 B. How can these be measured?

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The research participants were asked what they perceived as the key attributes of airport performance and how these attributes could be measured to provide information on airport performance. The overall aim was to derive three to five attributes or indicators most relevant for each stakeholder category. The analysis was conducted using Nvivo v 7 software. This software assisted with the coding and mapping of the interviewees answers in the interview transcripts to the questions relating to airport performance measurement. Thereafter an interpretive paradigm was applied to understand the meaning behind the interviewees’ responses regarding attributes relevant for airport performance measurement.

This chapter is structured as follows: The next section 9.2 sums up the findings that were highlighted by the model element boxes in the previous chapters, as rationale for the model development applicable to Sydney Airport. This is followed by an explanation of the required changes to the experimental model in light of the results from the field research (in section 9.3) prior to introducing the SAPAM model (in section 9.4).

9.2 SAPAM Development 9.2.1 A Review of the Findings justifying the model The air transport industry has undergone significant changes in the past decade (Model Element 7). The underpinning reasons for privatising Australian airports, and Sydney Airport in particular, from the viewpoints of the airlines, the airport operator, the communities, the infrastructure asset providers and the government perspective (see stakeholder identification Chapter 7) were essentially to make the airport more customer oriented and have the new owners invest in infrastructure at considerably greater levels than could the government (Model Element 4). The findings demonstrate that privatisation had an impact on the operations of airport stakeholders due to a changed airport paradigm from a single focus on passenger facilitation towards a more commercial ‘bottom line’ approach (Model Element 2 and 3). The alignment of stakeholder operations with this new contemporary role of the airport was proposed by Poole (1994) to lead to improved airport

244 performance. As airports are complex entities, and as the results indicate, the Sydney Airport operator adapted to an environment subject to rapid and far- reaching changes and increasingly recognized airport stakeholders in its day- to-day airport operations. Thus, the privatisation of the airport, initially designed to deliver value for passengers and airlines, resulted in a change of the overall business model for the airport owner and the various stakeholders involved in the operation of the airport (Model Element 11, 15 and 17).

The key argument in this part of the study is that to appropriately and comprehensively assess privatised airport performance it is necessary to derive stakeholder related attributes that reflect stakeholders’ post- privatisation involvement in the airport and their expectations and demands on the airport operator (Model Element 5, 6, 8, 12 and 16). The relevance of such an integrated stakeholder airport performance assessment model (SAPAM) was confirmed in the interview with the airport operator as follows:

Airlines judge the airport by their whole process. And the airport operators’ key role is ensuring airport operations run smoothly and the important issue here is to engage all of the stakeholders to work constructively…….

……..[Because] as an airport CEO you are like a conductor - You get the band and the music. Even though they are different companies they can all perform well together. And this will definitely increase your earnings. A lot of operators believe all this is nonsense and the one way to do it is to just keep raising your prices. You can do both. You can still run a really good service and commercial experience. (Interviewee 10 – Airport Operator)

The rationale for the model development is also in line with stakeholder theory (Freeman 1984; Friedman and Miles 2002; Neville 2006), as private sector corporations recognize the existence of multiple parties having legitimate interests or stakes in their business as well as the potential for exploiting value adding opportunities (Model Element 9 and 10). As discussed earlier, the findings also show that the private airport operator has become more accountable to stakeholders than when under government ownership. Rowley (1997) suggests that firms do not respond to each stakeholder individually, but

245 rather to the interaction of multiple influences from the entire stakeholder set. Therefore, an understanding of the relationships between individual stakeholders as well as stakeholder roles (see Chapter 7) assists in the identification of stakeholder relevant attributes for evaluating and monitoring post privatised airport performance.

In conclusion, the change in ownership was identified as leading to significant impacts on stakeholder relationships and interactions. The stakeholders are more engaged in decision-making processes and consultative approaches to terminal redesigns and other airport site projects involving neighbouring communities. Commercial negotiation tactics, business growth and airport land development, although criticized to an extent and each having an impact on stakeholder operations, were perceived to be the most notable outcomes of the Sydney Airport privatisation (Model Element 11, 13 and 14). These overall results are in line with the resource dependence theory suggested by Pfeffer and Salancik (1978) that power lies with those stakeholders that control resources that are valuable to the firm and needed for the firm’s day to day operations. They are also in line with contingency theory (Fiedler 1964; Vroom 1973) that suggests that optimal organization is contingent upon various internal and external constraints. The importance of examining privatised airport performance through stakeholder eyes is thus re- emphasized, as these theories suggest that mutually satisfactory relationships among stakeholders leads to increased airport performance.

The next section revises the conceptual framework underpinning the model and illustrates the changes to the ‘experimental’ model from Chapter 4. This is followed by an analysis of the differences in the measures and indicators for each stakeholder perspective derived through the literature and through field research prior to introducing SAPAM.

9.2.2 The Conceptual Framework and the “Experimental” Model

The Balanced Scorecard of Kaplan and Norton (1996, 2001) provides a framework of relational and integrated performance measures. The SAPAM

246 model is based on such a rationale of integrated performance measurement and accepts stakeholders as key determinants of airport business due to the complexity and interdependence of stakeholders in airport operations. As previously highlighted (see Chapter 4) and in accordance with the literature, (Humphreys and Francis 2000; Francis, Humphreys et al. 2002; Humphreys and Francis 2002; Graham 2003; Walsh, Lok et al. 2005), corporate performance measurement and in particular airport performance assessment is considered to be as follows: a) Challenging - as various factors need to be considered, especially the commercial drive of the airport operators post privatisation, b) Complex - as the airport operator is accountable to and influenced by multiple stakeholders due to the interdependence of their operation and c) Subjective - overall, as often organizations measure what they want to measure.

Furthermore, according to Neely (1998) key performance measures are said to perform three core functions, namely: a) assist businesses to comply with regulatory obligations (financial measures/ data in annual reports), b) assist management to check financial and non-financial health of the business and c) support the strategic direction and vision of the business.

Thus to overcome the difficulties identified in the literature that are associated with overall corporate performance measurement (discussed in Chapter 4), the measures and attributes proposed in the SAPAM model encompass both internal operational and external factors. They are derived from key stakeholder perspectives to reflect the interdependency of stakeholders’ operations and thus extend beyond the financial health of the airport. The airport stakeholder groups, previously confirmed in Chapter 7 after applying Mitchell (1997) stakeholder classification, reflect the interdependence of

247 stakeholders’ interests and are grouped into the following three perspectives for the SAPAM model (see Table 9.1).

Table 9-1: Grouping of Stakeholders into Model Perspectives Airport Stakeholders Model Development Perspective

Investors/ Shareholder Financial Perspective Other Airport Users: Infrastructure Support Providers Operational Perspective Airlines (Domestic & International), Airport Operator Government / Regulators Community/ Council Community Perspective Environmental Groups

The three perspectives are financial, operational and community/regulatory. Each perspective consists of different stakeholders; each stakeholder has distinct key performance attributes and/or indicators supporting specific stakeholders’ viewpoints of the airport business. Each perspective is equally important.

Furthermore, this study identifies certain aspects of airport operations that are not controlled by either the airport operator or the investor, and variables that neither the airport operator nor any other key stakeholder besides the government can directly control . The airport operator does not have control over security and safety, slot allocation and flight control and must adhere to government policies in these areas (Model Element 20). This was emphasized by the airport operator as follows:

What you have got to be careful with is separating out those issues that the airport operator has a direct control over and those issues that the airport operator has no control over. Now issues in respect of noise and flight paths, we have no control over. It’s controlled by the government through Air Service Australia. (Interviewee 9 – Airport Operator)

248 For this reason the SAPAM model takes into account only those factors of airport performance that are controllable by the airport operator. These factors are shown in the outer circles of Figure 9.1.

Operation/ Direct Control No direct control Processes of Airport of Airport (Efficiency) Operator operator Economic Security & Safety Performance (Financials)

Airport Performance Government Community Regulations Engagement

Client Satisfaction: Airlines Environment Impact Passengers Needs

Figure 9-1: Factors relevant for Airport Performance Analysis

The performance dimensions included in SAPAM which fall under the control of the airport operator encompass the cooperation and impact of operations on the community, customer relationships with airlines and passengers, and efficiency and effectiveness of operations leading to financial performance outcomes.

One research participant from the airport operator stakeholder group, in support of the conceptual idea of the SAPAM model, referred to a Total Journey Experience tool (hereafter called TJE) that he implemented whilst in charge of airports around the world. The fundamentals of his TJE model ensure that an airport is seen from a pilot’s eye through the passengers getting off the plane, going through baggage claims, and making sure that when somebody is waiting for the passenger there is a coffee shop and it’s

249 also making money. Although the TJE model has not been published as such, he claimed that his philosophy of running the airport was implemented at airports for senior management to assist them in running the airport operations. He described his philosophy as follows:

To create a journey experience everyone at the airport needs to be part of it. If the customs person, and the airline and a passenger and the engineer can see their part in helping create this experience it gives them a sense of being ‘one team’……….The more people I have engaged in the experience, ‘the better the journey experience”, the more people want to come earlier to the airport’. They come earlier, they spend more. …..So by improving the journey experience, people stay longer and every minute you stay on an airport, someone’s paying for the car park, and you spend more. (Interviewee 10 – Airport Operator)

The model attributes identified as most relevant for each particular stakeholder perspective are detailed below (section 9.3.1- 9.3.3). These are accompanied by a discussion of the changes and modifications to the literature based “experimental” model. This is followed by the introduction of the finalized SAPAM model as applicable to Sydney Airport in section 9.3.4. The model was derived by exploring the viewpoints of key stakeholders of Sydney Airport.

The figure below (Figure 9.2) illustrates the undertaken process in the development of SAPAM which is described in detail in section 9.3. below:

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Step 1: Derive literature based experimental model

Step 2: Engage in field research and ask for feedback and / or modifications regarding the experimental model (how can privatised airport performance be assessed through stakeholder eyes ?)

Step 3:

Analyse the interview transcript and derive the indicators and measures from the data. (Note: Analysis conducted using Nvivo. An interpretative paradigm was applied to deriving the indicators and measures)

Step 4: Group the indicators and measures (retrieved from the data) into the experimental model sections and stakeholder perspectives (operational, financial, social & environment)

Step 5: Put the SAPAM Model together

Figure 9-2: The SAPAM development process

Nvivo was used during the model development phase in retrieving the attributes and indicators for airport performance assessment as specified by the participants. Nvivo predominantly helped answer Research Questions 3 and 4 in this study. Nvivo was more useful in this instance when compared to Leximancer, as the researcher worked purely with text interpretation and the participants’ ideas for the model and no concept linkages and frequency analysis were carried out.

Quotes from the interviewee data are used below to justify the chosen indicators for each stakeholder group. Furthermore, a summary of the chosen indicators and measures is provided in a table at the end of each stakeholder perspective (section 9.3.1.1- 9.3.3.2). Thereafter all of the indicators and measures are reflected in Figure 9.4, illustrating the final SAPAM .

251 9.3 Modifications to the “Experimental” Model

The ‘experimental’ airport performance assessment model derived from the literature is shown in Figure 9.3 below. It is broken down into three sections, each of which is discussed and forms part of the final SAPAM.

Model section 1 deals with indicators and measures that are related to the day to day airport operations and includes attributes from stakeholder operations such as the airlines, the passengers and the airport operator, as well as other infrastructure asset providers.

Model section 2 incorporates the investor based attributes and primarily focuses on assessing the financial health of the airport.

Due to the increased importance of public accountability and corporate social responsibility including environmental sustainability of airports, Model section 3 takes into account indicators and measures from the community perspective.

The experimental model (Figure 9.3) and SAPAM (Figure 9.4) consist of both indicators and measures derived from the literature. To make SAPAM operational a measure for each identified attribute and indicator was derived through field research and the researcher’s interpretation of the data.

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Model Section 1: Model Section 2: Model Section 3:

Customers/ Service / Process Financial Measures (FLAP indicators) Environment Operational Perspective Financial Perspective Community Perspective Passengers: Curb-to-gate distance/ time Service time: check in, baggage claim, waiting Revenue Cost Key Environment indicator times, variability of wait Connecting time, flight alternatives Traffic income per  Air quality  Staff cost/ employee Costs: food and drinks, departure fees, passenger   Community relations Passenger/employee connection fees, airport tax Traffic income per  (response time to complaints)  WLU per employee Comfort: crowding, sound level, noise, WLU   Energy consumption (kWh/m Staff cost per temperature, choice of things to do Traffic income per  squared floor area)  passenger turnover%  Ground transport (public Staff cost per WLU Airport Operator & Service Providers: Commercial income  transport usage)  Other direct cost per Passenger served per unit time per passenger   Noise (% of aircraft operations passenger Baggage handled per unit time Concession income per annum)  Other direct cost per Flight ground delays per passenger   Area affected by noise WLU Waste recycling (%) People accommodated per unit time  Duty & Tax free  Gate utilization income per  Waste disposal (weight) Other: Power/ fuel consumption international  Water conservation (water Security effectiveness/ crime/ theft departing passenger consumption per passenger) Profitability Property income per   Activity Airlines (Domestic & International): passenger  Baggage transfer reliability Solvency   Property income per  Passenger service times WLU Aircraft turnaround Terminal fees/ labor cost/ equipment cost/ inventory cost Control of space, design

Figure 9-3: The “Experimental” Stakeholder Airport Performance Assessment Model

253 9.3.1 Model Section 1: Operational Perspective

The Operational perspective of the model considers the interests of the following stakeholders: passengers, airlines, the airport operator and other infrastructure asset providers. Each is discussed below.

9.3.1.1 Passengers At an airport passengers and their guests can experience departure and arrival and passengers can have the additional experience of transferring or being in transit. An airport is therefore evaluated according to its provision of facilities for these experiences. This was exemplified by the airport operator as follows:

You can be an arriving passenger or an arriving guest. So you must facilitate an airport which works well for people meeting you and for your arriving. How you depart, how you arrive; those intangible things – and people still tell me that an airport is not in the service industry, I say untrue! (Interviewee 10 – Airport Operator)

The airport operator tracks passenger satisfaction through surveys. There are various demographics of airport passengers, the leisure traveller and the business traveller. In particular, the variety of retail facilities and the ease of timely process through the airport are noted to be of prime concern to the passengers. Access to these survey documents was not granted to the researcher in this study. The airport operator commented, however, that most surveys indicate that about 90 percent of the passengers desire a retail experience and that passengers seem to enjoy shopping at airports. The respondent commented that passengers must perceive there to be something different about shopping in an airport, the duty free shopping or the different range of products, as people simply seem to be in a different mind set when on the airport site. The airport operator commented about the surveying of passengers as follows:

We track their satisfaction, or their non-satisfaction; whether it be the time that takes them to get through the board of control agencies, whether it be the cleanliness of our terminal, whether it

254 be the operations versus the cleanliness of our toilets, whether be the access to the range of products that they wish to consider in respect of purchasing. So it’s a whole broad range of areas that we actually survey our passengers. (Interviewee 9 – Airport Operator)

Additional findings for the passenger perspective relate to the layout and design of the terminals as well as the overall service experience. It was pointed out passengers these days who are world travellers do compare the facilities of airports and their offerings on a global scale. This was demonstrated by the following statement:

The service experience of travelling through Heathrow is terrible since privatisation. The service experience of travelling through Singapore Airport is absolutely fantastic. It’s possibly a balance in between that I tried to get at Sydney Airport; to still have the service ethos of Singapore, but be commercially efficient and not be a disappointment. (Interviewee 10 – Airport Operator)

Furthermore, the results indicate that airlines try to process passengers through airports as quickly as possible, especially by keeping check-in as late possible. However, the new security restrictions have extended the time that passengers spend at the airport. So the ease of moving through the airport and the terminal layout do impact on the service that airlines are able to deliver to their customers, and consequently impact on passengers’ views about the airport. Airlines provide timing schedules for passengers, with passengers needing to be checked-in by a certain time, so they can be processed through the airport to their gate. Thus, the curb-to-gate measure of passenger flow is significant for the airlines and passengers. In addition, other performance criteria that matter to passengers identified in the analysis were: a) timing of departure of connecting flight alternatives; and b) the availability of such flight alternatives.

The availability and pricing of the airport parking facilities was also identified as an attribute for Sydney airport passengers, particularly as the parking charges have increased post-privatisation. As identified and discussed in the earlier Chapter 8 (section 8.2.3), the increase in parking charges was an

255 unexpected post privatisation consequence perceived as a money making exercise on behalf of the investors.

Overall, it can be concluded that passengers seem to expect a level of convenience, comfort and ease of travel whilst in the airport. This is supported by the similarities of the performance measures derived from the interviews with those derived from the literature (see Figure 9.3 section 1). The literature based indicators are as follows: a) curb-to-gate distance/ time; b) service time at the check in and baggage claim, as well as overall waiting times, c) connecting time and flight alternatives; d) cost of food and beverages, departure fees, connection fees, airport tax; and e) comfort:, crowding, sound level, noise, temperature, as well as choice of things to do.

The only point of difference was that in the interviews no mention was made of airport charges being of any importance to passengers. This might be due to travel having become a commodity in today’s society as there are no real alternatives in terms of departure from the Sydney basin, as there is no other airport. It can be argued that passengers are simply willing to pay for the service and comfort of air travel.

The attributes of the passenger perspective included in the SAPAM model derived from the undertaken research are summarized below:

Indicators Measures

Variety of retail facilities  # of stores and outlets by category

Convenience of layout and design of  # of inquiries at information terminals (ease of moving through the desks airport)  flow of people through terminal

Connecting Flight Alternatives  # of flights per destination per day  time of connecting flights

256 Cleanliness of the airport  # of toilets cleaned per day, frequency of cleaning,  # of rubbish bins that are emptied

Parking Availability & Pricing  # of car spaces available

 # of complaints regarding the parking charges

Passenger Overall Comfort  Crowding (# of passengers per gate/ seating areas/ lounges)

 # of complaints regarding noise

 Temperature

 Choice of things to do

The next section discusses performance attributes from the airline perspective.

9.3.1.2 Airlines The most important elements for evaluating airport operations from the airlines’ perspective relate to the safe and efficient flow of passengers to and from the aircraft at a reasonable price. The findings show that airlines do judge the effectiveness of the airport operator by the time it takes their passengers to move from curb to airplane door. The airport operator, however, cannot control all aspects along the way because this process involves multiple independent service providers. As mentioned previously (section 9.2), only the aspects of airport operations that can be directly influenced by the airport operator form part of the SAPAM model. This approach is supported by one interviewee as follows:

…. fairly or unfairly, airlines judge the airport by their whole process. And the airport operator’s key role is ensuring airport operations run smoothly and the important issue here is whether it’s able to engage all of the stakeholders to work constructively. (Interviewee 19 –Others)

257 The findings show that it is the overall process of passenger facilitation encompassing access, stakeholder relationships and airport charges that is of significance to airlines when evaluating an airport. Interviewees indicate that the efficiency and reliability of the baggage system is of utmost importance in the provision of airline services. The airline interviewees point out that the monumental growth in passenger numbers over last three or four years in Australia caught most airport operators by surprise as their baggage systems were not to able to cope as efficiently as needed. This is identified as a weak point in airports around the world because airlines bear the cost of carrying baggage on subsequent flights and arranging its delivery to, sometimes, angry passengers at the end of the day if the baggage system does not work properly. The findings show further that most arguments between airlines and airport operators, on a day to day, house-keeping basis, relate to the performance of the baggage handling system.

The airlines are very critical of the performance of the airport with respect to the problems that they’ve had with the baggage systems over the years. It’s with the baggage handling system that is the principal cause of concern. And it’s not just outwards make sure that the bag gets on the aircrafts coming in again too the waiting time at the baggage carousel, so that could be a real issue as well. That is the problem at Sydney Airport because the capacity of inwards baggage system it’s nowhere near what is necessary because of the numbers of passengers we have now. (Interviewee 5 – Airlines)

Concerning the check-in process, one airline interviewee pointed out that this is the sole responsibility of the airlines. Everything else concerning airport operations and passenger flow through the airport was indicated to be the sort of matters that the airlines examine in terms of assessing the performance of the airport operator. In other terms if there is a delay with the check in, this is generally caused by an operational problem with the aircraft or the breakdown of the baggage systems . It is therefore the provision, the appearance and the operational efficiency of check-in counters by which airlines judge the airport operators.

258 From inside the airport we look at the baggage systems, provision of check-in counters, we also benchmark the relationships that we have with various airports. (Interviewee 6 – Airlines)

Other important attributes identified from comments on the model by interviewees as affecting operational efficiency were the provision of gates by the airport operator, aircraft turnaround time (can the aircraft come to a gate immediately or is there a stand off) and runway operations, particularly lighting and taxiway layout and speed turnoffs to avoid choke points. At Sydney Airport there are two taxiways, north bound and south bound, which are favourably perceived by the airlines. The availability of high speed turnoffs at airports is a limiting factor in air traffic management as it affects runway occupancy time. One interviewee explained that if the runoffs are 90 degree turnoffs, that is, the aircraft has to slow right down to 20 knots before it can turnoff, which means that it is going to use up more time on the runway and prevent other aircraft from landing. A high-speed turnoff allows the aircraft to travel at 80 knots. Comment was made that , having put a lot of work into turnoff management, is ahead of Sydney Airport in this area. In addition, lighting and sign boards are important. Airlines mentioned that there are some airfields, like Auckland in New Zealand, that are confusing because the sign boards are very difficult to read. With regards to Sydney Airport, however, the airline stakeholders commented that the operator has invested in upgrades and that the lighting especially has been very satisfactory over the years. Currently Sydney Airport is undergoing further improvements, mentioned as follows:

Now they are working on the taxiways. But they are out there trying to improve it, and that’s good. You know we don’t mind spending the money, provided we get the service needed that’s true, yes. Everyone’s got to run their business. (Interviewee 2 – Airlines)

The above mentioned attributes are in line with performance evaluation criteria from the experimental model, such as baggage transfer reliability, passenger service times, aircraft turnaround, terminal fees and the available space at the airport. As can be seen there are similarities between the

259 measures derived from the literature and the ones derived from the interviews. Most interviewees when commenting on the experimental model agreed with the measures it contained, but pointed out that the qualitative aspects of the relationship with the private airport operator, which is a key issue these days, is missing in the model. They emphasised that in a competitive environment it is about the importance of reaching agreements that are of mutual benefit and convenience. This was exemplified by one airline respondent as follows:

In terms of the relationship - we measure you know, how quickly can we get agreements. Some of those might be commercial agreements, so the lease for a new Qantas Club, what are the rates they are charging and things like that. So they are sort of key indicators that we look at. (Interviewee 1 – Airlines)

Most airline interviewees pointed out that the airports in Australia do provide a reasonable level of service, but that the cost factor and difficulties in negotiations are of concern. Airport charges include fees for access to airport facilities, rent, landing charges and any other fees in relation to aircraft.

I guess what we are really talking about here is the airport charge. The charge per passenger for operations through the airport. That is probably the most important thing. What is the cost to get a passenger through the airport. (Interviewee 8 – Airlines)

Access to and cost of facilities, such as parking of aircraft on the tarmac and ease of access in and out of the airport for crew, are considered by airlines to be important. The ease of negotiations and cooperation were also mentioned by the airlines as key attributes in how they judge the airport operators. As previously mentioned in Chapter 7, stakeholder power plays an important part in negotiations. The smaller scale air service providers hold limited countervailing power and so especially judge the airport operator on its cooperation. This was exemplified by an airline representative’s comment that there is often difficulty in negotiating a lease with reasonable conditions to secure a suitable location,

The results also show that airlines judge an airport by the degree of their involvement in the decision-making process regarding terminal layout and

260 designs. This was previously discussed in Chapter 7 in relation to the attainment of the privatisation objectives. Commercial negotiations and stakeholder involvement in the process of capital investment decision-making were key government privatisation objectives. The airlines recognize the interdependency of everyday operations, stating that it is the airport operator providing the terminal facilities, the airlines doing the check -in, the airport providing the baggage facilities, the concessionaries providing the retail and food experiences, the government providing the customs and security systems and so on. Passengers can become lost in the retail stores and lose track of time which creates a problem for the airlines in terms of on-time departure; at Sydney Airport passengers are not allowed to be served at Duty Free shops within half an hour of departure. Airlines consequently see themselves as having a stake in terminal design decisions. The layout of the terminal needs to be thoroughly planned to facilitate passenger processing and airline operations.

Key things for us are the safe and expeditious flow of our passengers through the airport and to and from the aircraft. So if you’ve got a check-in facility, at one end of a long terminal, and the lounge at the other end of the terminal and the aircraft somewhere else - it’s not convenient. (Interviewee 6 – Airlines)

The attributes from the airline perspective to become part of SAPAM are summarized below:

Indicators Measures

Process: Reliance on airport  Length (time and distance) for operational effectiveness when passengers from curb to passengers go through security, airplane door customs etc.

Baggage transfer reliability,  # of lost baggage

Accessibility to airport facilities  Availability of gates important measure to assess airport Waiting time performance 

261 desired participation in the airport  # of meetings/ briefing development planning process by # or reports issued & details ensuring convenient layout and  thereof design of airport terminals due to airlines being critical at every dollar spent in terms of capital investment

Airport charges and ease of  # of complaints negotiations (airlines benchmark airports)

Airfield requirements: Safe runways  # of incidents, and efficient taxiway layout without # of complaints choke points promotes more traffic;  high speed off points avoid long runway occupancy points; airfield lightning signs and maintenance thereof

The next section discusses the model attributes relating to the airport operator.

9.3.1.3 Airport Operator The finding is that airport performance is considered by the Sydney Airport operator to be a function of financial performance, taking into account efficient and effective operations whilst having good relationship with airport customers, that is, airlines, concessionaries and passengers. The airport operator commented on its commercially oriented airport operations and stakeholder relationships as follows:

There must be fair return on its assets and there must be a wide selection of goods, there must be facilities and they must be appropriately priced- not under priced but commercially priced at market value. There must be the ability to design a layout that people walk into shops and ensure that everyone has good traffic flows, because that helps retailers and also the airlines. (Interviewee 11 – Airport Operator)

As previously discussed, the airport operator acts on behalf of the investors, runs the airport’s day to day business operations, and provides airport stakeholders with what they require to operate within the complexity of the

262 airport business. At the same time the airport operator claims to be a vital partner with the local community. In terms of the operator evaluating its own performance, the experimental model includes efficiency measures such as passenger served per unit of time, baggage handled per unit time, flight ground delays, people accommodated per unit time, gate utilization, as well as security effectiveness, crime and theft (which is not under the direct control of the airport operator). Throughout the interviews with the airport operators, financial measures such as Earnings and Return of Investment, through the appropriate pricing of facilities and assets, have emerged as being of prime importance, as privatised airports need to be commercial operators first and foremost:

Therefore the return on its investment is an important measure when capturing all the revenue. Revenue from the car parking, revenue from the checking counters, revenue from the fuel levies and things like that. (Interviewee 9 – Airlines)

Alternatively it was indicated:

You make sure that you have in place particularly aspects of operation and safety, on time performance of airlines, security, but then you look at the back office functions and say, ‘okay make sure we’ve got an efficient streamline rationalized structure in place to support the business’. (Interviewee 9 – Airlines)

As the literature on airport privatisation suggests, commercial revenue streams exceed aeronautical streams and retail revenues (non-aeronautical as well as concession revenue) are maximized if the right passengers are targeted. Market segmentation and the concepts of revenue per retail space, commercial income per passenger and other factors have become important indicators relevant for expansion plans of Australian and international airports (BRW 2005). The interviewees indicated that the passenger spend rate is an appropriate measure of commercial revenue streams; it can be broken down in three parts: a) penetration- people coming through stores; b) conversion- how many people buy something, and c) transaction value – amount of purchase. It was also noted that duty free contracts need to be competitive otherwise passengers would buy duty free elsewhere, including in other

263 countries. The operators of Sydney Airport confirmed that they ensure and monitor the competitiveness of the duty free contracts.

In addition, airport employees contribute directly and indirectly to the efficiency and productivity of the airport business and increased commercial revenue streams. So in line with the Total Journey Experience (TJE), the airport operator indicated that employee satisfaction and low turnover is of high importance. A telling remark made by the airport operator on how airport operators evaluate and monitor performance is as follows:

For me as operator, my first indicator was earnings. You had to get a return on capital employed. My second was efficiency; efficiency that was directly under my control or indirect control. So there’s efficiency in terms of productivity of labour, efficiency on how much was spent, ie how much was spent per passenger, how many aircrafts can land per hour, or how many flights can you have a year, or can you have flights in the evening. That requires decisions by government, so we were always trying to improve our efficiency within our regulatory environment, but you also had to keep trying to push for less regulations. (Interviewee 10 –Airport operator)

Aspects outside the operator’s control that have become of paramount significance to the airport operator when evaluating airport performance include security and safety. The interviewees mentioned that not only the direct costs of the added security measures need to be considered by the airport operator, but also their consequential effects on other stakeholder operations. Efficient passenger facilitation through the terminals is affected by screening, adding layers of logistics and additional costs to the industry. The way in which security and safety on the airport is measured was described as follows:

It’s measured on incidences, you know breaches. First of all, the bulk of the security safety is mandated, so you have to adhere to mandated standards, whether that be the actual level of security itself or the way the security is applied in process. So we measure our success on that in respect of breaches or incidences. (Interviewee 9 –Airport operator)

264 Another aspect outside the direct control of the airport operator, and perceived as quite an important indicator from the operations perspective, is that aircraft movement; flight paths and slot management are controlled by , which is an independent party.

The SAPAM model attributes that are relevant to the airport operator are summarized below:

Indicators Measures

Profitability Indicators because  Return on Investment privatised airports need to be commercial operators first and foremost (appropriate pricing of facilities and assets)

Commercial revenue from retailing:  Passenger Spend Rate (penetration- people coming through (Revenue per passenger) stores; conversion, how many buy something, transaction value – amount of purchase)

Competitiveness of Duty Free  # of product offerings at Duty Contract Free

 sales figures per category of product

Airline and passenger satisfaction  # of baggage handling (Efficient facilitation for departing, incidences transferring and arriving passengers  Retail store offering

 Availability of ground handling

 Safety and security processes

Number of plane movements  Aircraft turnaround

 Passenger movement

Employee Satisfaction  # employee turnover

9.3.2 Model Section 2: Financial Perspective Indicators This is the part of the model that varies quite significantly when comparing the measures of the experimental performance model to the attributes as

265 identified in the field research. The results show that the private investors tend to evaluate the strategic and operational processes of the airport operator and not to focus solely on the financial health of the business. Furthermore, elements such as relationships among stakeholders, passenger satisfaction, the efficiency of airport operations and the attainment of global airport standards seemed important to the investors.

In the pre-privatisation era when airports were perceived as public entities the performance measures applied were used in the context of making the airport accountable to the government (owner). The main indicators used for assessing the output (productivity) of a publicly owned airport were, according to Doganis (1992), based around the work-load unit (WLU) defined as one passenger processed or 100kg of freight handled. These indicators (Figure 9.3) were embraced at an international level in the 1980’s and output, or to use Doganis’ term ‘throughput – of 100kg’ was the major indicator of public airport performance used for decision making purposes by government. Recalling from Chapter 3, such a measure is argued to be in line with the pre privatisation role of airports, namely to facilitate the transfer of passengers. However Graham (2003) and others (Humphreys and Francis 2000; Humphreys and Francis 2002) point out that the WLU factor was more relevant for airlines (as a freight measure) than for airport operators focusing on passengers: their spending habits and the costs of providing goods and services to passengers, attributes which are not included in WLU. Humphreys and Francis (2002) argue that new performance measures were needed for airport operators to analyse the commercial nature of airport performance..

Under private ownership the passenger has become the key variable, redirecting the performance measurement focus on to operational activities. Table 9.2 compares the internationally recognized past and present financial airport performance measures that were applied to the literature based experimental model; as stated the FLAP indicators measure financial performance at airports in terms of passengers.

266 Table 9-2: Financial Airport Performance Measures – Past and Present

Typical WLU measures FLAP16 Financial performance measures (Present): (Past):  Total cost per WLU Revenue Cost  Operating cost per  Traffic income per  Staff cost/ WLU passenger employee  Depreciation per WLU  Traffic income per WLU  Passenger/employe  Labour cost per WLU  Traffic income per e  WLU per employee turnover %  WLU per employee  WLU per unit asset  Commercial income per  Staff cost per value passenger passenger  Total revenue per  Concession income per  Staff cost per WLU WLU passenger  Other direct cost  Aeronautical revenue  Duty & Tax free income per passenger per WLU per international  Other direct cost departing passenger per WLU  Property income per passenger  Property income per WLU

Source: Modified from Doganis (1982), Francis & Humphreys (2002), Graham(2003)

The investors emphasize that it is the EBITDA per Passenger, the Return on Assets (ROA), the Internal Rate of Return (IRR), as well as operating margin ,that are the key indicators for evaluating Sydney Airport performance, while always keeping in mind the quality of service. This was exemplified as follows:

So for Sydney Airport we look at either EBITDA, we look at particularly things like either EBITDA per passenger, we obviously look at return on investment, we look at the IRR, our margin. But there is clearly a more qualitative metric that is important as well, so we monitor quality of service. We monitor for example, traffic, are we increasing traffic or increasing it by more than X, traffic increases on average for Australia or globally or less. (Interviewee 20 –Investor)

16 FLAP group indicators was made up of representatives of Frankfurt, London, Amsterdam and Paris airports.

267 The findings are in line with Graham (2003) who suggests that FLAP indicators and other standard financial measures should no longer be viewed alone as there is more to airport assessment than the financial health of airport operations. Thus operational issues of concern to the investor were, for example, the quality of service to an airport customer. The investors consider that an appropriate measure can be derived from passenger surveys and monitoring of airport awards. Other qualitative factors of relevance to investors relate to the monitoring of the relationships among the stakeholders, such as the notification of any major problems that arise on a strategic and operational level. Conducting passenger surveys was also on the agenda for the investor :

We do a lot of passenger surveys; that’s probably the principal methodology, and also obviously we monitor all the airport awards quite closely, Sydney was recently voted the best airport in Asia Pacific Region. (Interviewee 20 –Investor)

The speed of passenger processing, the timeliness of departures and the efficiency of aircraft turnaround are other indices of interest to the investor. This was emphasized as follows:

Now we don’t control that whole process, because we outsource a lot of it, but it is still important to us particularly for the low cost carriers like Virgin Blue, , as they need their aircraft on time very quickly. So on time departures, (which is you know it’s an airline issue as well, but it’s also our issue). Speed of processing through security, average wait time on arrivals in immigration, those are the kind of things we monitor. (Interviewee 20 – Investor)

Airline earnings are particularly volatile due to the susceptibility of the industry to oil price increases and terrorism threats. In particular, traffic changes on a global level were mentioned by the airport operator as having an impact on everyday airport operations. Interestingly, it was also mentioned by the airlines, the airport operator and the investors that the nature of airport business is quite defensive. If there are fewer passengers the airport operator and thus investors earn less from the airlines, although the earnings of retail contractors around the airport are not necessary directly related to passenger traffic. So airports enjoy more downside protection than the average airline.

268 Nevertheless, the findings are that the investor is interested in assessing privatised airport operations in terms of being accommodating and responsive to the difficulties airlines face due to the volatility of their industry.

The SAPAM attributes that are reflecting the investor’s view are as follows:

Indicators Measures

Profitability Indicators  ROA

 ROE

 IRR

 Margin

Quality of Service :

 Speed of Airline and  Speed of Aircraft Turnaround & Passenger Processing On time departures

 Monitoring of Volatility of  # of passengers per airport on Industry a global scale amount of capital investment programs on a global scale

9.3.3 Model Section 3: Social and Environmental Perspective Indicators

As shown in the experimental model (Figure 9.3 model section 3), the social and environmental perspective indicators consist of primarily environmental measures. These measures were derived from 34 environmental performance measures developed by Manchester Airport in the UK, in partnerships with the local community and planning authorities, to assist in deciding on a new runway. The most important environmental measures relate to average water quality, contamination events, waste recycling, energy consumption, noise and breaches of noise limitations (Humphreys and Francis 2002). Interestingly, the researcher became aware through carrying out the field research at Sydney Airport, that the social and environmental perspective needs to be broken down into two parts. These parts, each having distinct measures for evaluating airport operations, are as follows:

269

 the community view, due to local council’s role as a voice concerning the desirable, such as work opportunities etc., and the undesirable social and environmental consequences of airport operations,

 the regulator,, the federal government, having privatised the airports, is still in control of border security issues, noise and environmental aspects of the air transport industry

Therefore, the Social and Environmental Perspective of the model contains measures to assess the corporate social responsibility behaviour of the airport operator. In line with Humphreys and Francis (2002) regulators require sufficient information to monitor and maintain environmental and safety standards, particularly in the context of increased commercial pressures. For the purpose of this study corporate social responsibility is defined as policies of action which identify a company as being concerned with society related issues (Friedman 1962; Ullmann 1985; Cowen, L. et al. 1987; Roberts 1992; Moir 2001).

Both perspectives are discussed below.

9.3.3.1 Community & Environment

The findings show that it is the community that would seem to have little to gain from proximity to airport operations and perhaps much to lose in welfare and quality of life from the additional noise, traffic activity and air pollution that an airport generates. Throughout the interviews it was apparent that the community evaluates airport operations in terms of the operator’s corporate social responsibility and approachability. This was exemplified as follows:

The airport is a private company, focusing on profits. Our focus is how they perform particularly keeping in mind the people, the planet, social issues and environmental issues.(Interviewee 16 – Community)

As discussed in Chapter 8 the airport operator has become more interested and involved in the community post privatisation. The local council

270 representatives pointed out that pre-privatisation the local community was frustrated with Sydney Airport because of the lack of community involvement in the development of the airport, compared to how much involvement it would have, for example, with large hotel or shopping centre developments. Post- privatisation, the local community has become more involved in the design of developments on the airport site, due to the airport operator’s aim of being a vital partner with the local community. One reason that the airport operator has become more engaged in corporate social activities may be, in line with Belkaoui (1976), Watts and Zimmerman (1978) and others (Alexander and Buchholz 1978; Ingram 1978; Spicer 1978; Abbott and Monsen 1979; Anderson and Frankle 1980; Ullmann 1985; Epstein and Freedman 1994; Baird 1996; Balabanis, Phillips et al. 1998), that socially responsibie activities are consistent with wealth maximisation motives of private entities

In addition other social or cultural indicators that were pointed out relate to employment opportunities in the neighbouring community, especially as Sydney Airport contributes about 6.6 billion dollars to the State’s gross domestic product. The findings indicate that the community understands and appreciates the economic significance of an airport in any major capital city.

Tthe community further indicated that it also evaluates the airport operator’s role in terms of providing local sponsorship to school and clubs.

In terms of evaluating the impact of airport operations on the environment, the indicators in the SAPAM model are in line with the Manchester UK indicators as discussed by Humpreys (2002). Those indicated as important are as follows: energy consumption (kWh/m squared floor area), public transport usage, air quality, waste recycling and disposal, as well as noise (% of aircraft operations per annum). When assessing the experimental model, the community representatives commented that they are predominantly interested in measures relating to air quality and noise. The analysis emphasizes the expressed concerns of councils surrounding the airport site about roads being relatively congested and the pollution and decline in air quality resulting from

271 the congestion and aircraft noise. This was demonstrated by a community representative as follows:

Traffic is a major problem. Because of all this business that’s being put out on the airport now, the road systems can’t cope. Taxis don’t want to go at certain times because they just get stuck and they can’t earn any money. It’s a substantial issue. (Interviewee 16 – Community)

One interviewee pointed out that monitoring stations around the suburbs measure air quality resulting from pollution caused by all traffic, all industry and the airport so that a more appropriate measure of aeronautical air pollution would be airplane fuel usage. This was demonstrated as follows:

They know how much fuel they use on all the loads and all the distances and take offs and everything, so that’s the other way they can calculate. And that’s also how they do prediction of what the pollution is. (Interviewee 17 – Community)

Other indicators from the community perspective relate to the airport operator’s response time to community complaints regarding aircraft noise levels. Noise levels and community complaints are monitored by Airservices Australia, a government organization which publishes reports on its website. Aircraft noise and aircraft movements are regulated by the Airport Act that specifies curfew, flight paths and aircraft movements per hour, but sometimes curfews may not be met when aircraft movements are limited by weather, safety considerations and other factors that air traffic controllers must take into account when moving aircraft into and out of airports.

But what we get back to the communities on is in respect to any issue that they have, and we respond to those issues. The thing with the communities and you know I presume it would’ve been even pre-privatisation, but very much post privatisation is that, Sydney Airport sees itself as part of the community. When you take a step back, you know there are some 60,000 jobs, full and part time jobs as a direct result of Sydney Airport. There’s another 100,000 odd jobs that are there as an indirect result of Sydney Airport. (Interviewee 9 –Airport Operator)

272 A government representative pointed out the positive privatisation consequence that the private airport operator is more willing than the public airport operator was to assist in clean-ups and to provide environment related sustainability reports. This was reported as follows:

Regarding the environment, I think the issues there are; have we got a better on ground environmental outcome. I think we do, because we have quite a clean up happening in relation to past contamination. We’ve got a lot of improvements taking place in the way that drainage and other things happen to be much improved than it was when we owned it. (Interviewee 12 – Government)

Indicators identified to be relevant to the social and environmental perspective of the community are summed up below.

Social

Indicators Measures

Corporate Social Responsibility of Airport Operator:

Community Partnership  response time to complaints

 # of community meetings

 # of open days for High Schools, local sponsorship such as. sporting teams,

 contribution to programs such as Clean-up Australia

Employment Opportunities  # of jobs available due to having the airport in the neighbourhood

Environment

Indicators Measures

Corporate social responsibility reporting on environmental issues

Air quality & noise  fuel consumption per airplane movement;

 % of aircraft operations per annum

273 Wastage reduction  Waste disposal (weight),

 Waste recycling (%)

Energy consumption  kWh/m squared floor area

Traffic Growth and Congestion in  # of cars on roads, surrounding areas, Ground traffic growth and throughput transport  through local areas

 public transport usage

The following section focuses on the regulator’s viewpoint and its basis for evaluating privatised airport performance.

9.3.3.2 Regulators The results show that the regulators evaluate Sydney Airport operations in terms of infrastructure development on airport land, traffic growth and the service quality/ offerings available to the travelling public. Infrastructure investment was pointed out to be of interest to the government in particular, as Sydney Airport is considered the most critical single piece of infrastructure for Sydney, for NSW, is Australia’s major airport and is capacity constrained. The capacity dilemma impacts on stakeholder operations post privatisation. Growth in infrastructure of Sydney Airport was justified by a member of the Federal government making the point that if Sydney Airport is not growing and attracting investment and is not developing, then not only does Sydney’s business suffer, but Australia’s national income suffers also.

When you look at the key performance indicators, is traffic growing and are we meeting the demand growth, and is the infrastructure keeping pace. I think thay are the key drivers, as we will see as a result of a successful privatisation process. (Interviewee 12 –Government)

The airport operator’s compliance with government regulatory requirements to keep airport charges under control was pointed out as a further measure for

274 evaluating privatised airport performance. This was exemplified by a government interviewee:

We certainly do have the growth in investment and the growth in traffic through the airport. So I think from that perspective and if you compare that to other airport privatisations around the world, I think ours does stack up very well. But also I think the regulatory structure in the way the privatisation was done, and how it ensures investments are taking place, and particularly the pricing regime. (Interviewee 13 –Government)

A government interviewee also pointed out that although the regulators are no longer involved in day-to-day airport operations, they are still interested, considering Sydney Airport’s limited capacity, in service indicators and operational issues such as the provision of access to gates, exits, how well aeronautical infrastructure is keeping pace with demand,.

Are we investing in airline infrastructure, is it keeping pace with demand? At this stage it is. That’s something we as regulators, look closely at in terms of that master planning process. To make sure that adequate facilities are provided. And issues like clearance processes, setting aside the security issues. We just introduced new measures last week, for boarder control agencies. We look very closely at those issues, but they are not largely driven by the airport privatisation issue, they are driven by staffing, the environment and queue agencies (Interviewee 12- Government)

In addition, one interviewee mentioned that the government is not only interested in increased passenger flows, but also cooperative relations between the operator and airport users because of the interdependence of stakeholder relationships and the current flexible regime. An appropriate measure would be the number of interventions and public dilemmas as specified by the community representative.

An initial measure of Sydney Airport privatisation from the government perspective was the price it could receive for the sale of the airport (for discussion see Chapter 7). This supports the prior findings in Chapter 7 on the privatisation objectives as perceived by the airport stakeholders five years

275 post privatisation, that the privatisation of Sydney airport was predominantly driven by financial and economic motives. This was supported even further by a Federal Government interviewee stating that they have received twice as much for Sydney Airport than they thought it was worth. He furthermore commented that for Sydney Airport, the investor paid a very significant premium over the second highest bid.

The measures from the regulator’s perspective are summarized as follows:

Regulator

Indicators Measures

Traffic Growth - most critical indicator  passenger movements and of successful privatised airport aircraft movement per annum operations

Stakeholder Relationships –  no government intervention satisfactory cooperative relations and fewer public dilemmas between operator and airport users

International reputation of the airport  amount of Infrastructure and meeting international standards Iivestment and airport development in line with/ compared to global indices

Security  # of reported breaches

Safety  # of reported incidences

This next section introduces the SAPAM model.

9.4 The SAPAM Model As previously discussed a principal impact of Sydney Airport privatisation is related to growth in commercial activities at the airport. This is in line with Watkins’ (2006) argument that Australian airport operators pursue excessive non-aeronautical use of airport land, some of which is opposed by government and other airport users. The findings further identify shareholder wealth maximisation as the key focus of the Sydney Airport operator on commercial strategies and expansion, leading to the commercial revenue

276 streams exceeding the aeronautical. This is supportive of Carney (2003), that different ownership arrangements embody distinct patterns of authority, responsibility and economic incentives that influence the quality of managerial performance and types of financial capital.

The findings of this study reveal that although significant capital investment and improvements in productivity and efficiency of airport operations have translated into improved passenger facilitation and experience since privatisation, the commercial drive of the airport operator has also directly resulted in certain unexpected privatisation outcomes. It needs to be pointed out that the unexpected consequences are not exemplified in the model as they are not to be considered when assessing private airport performance. For details on the unexpected consequences refer to section 8.2.3.

The SAPAM model has been developed in light of literature on airport privatisation (Francis, Humphreys et al. 2002; Francis, Humphreys et al. 2005) and the findings relating to the ongoing developments in the airport industry. Airports, airlines and other airport stakeholders form relationships and are interdependent (Model Element 14 and 16). SAPAM acknowledges such stakeholder interdependence and the emergence of new stakeholders in the air transport industry as pointed out by Schneiderbauer and Feldman (1998). After all, airports were established with an objective of serving the public interest and play a unique role in society. In accordance with the view that they should be publicly accountable to their stakeholders and with the view of Tsanemyi et al (2008) that privatised state entities need to be assessed in terms of services provided to the community as a whole, this study addresses the assessment of value being delivered to key stakeholders post privatisation.

Figure 9.4 illustrates the SAPAM model.

277

“SAPAM” Stakeholder Airport Performance Assessment Model

Operational Perspective Financial Perspective Social & Environment Perspective

Passengers: Inve stors : Social: Cost and Variety of R etail & Food Outlets  Performance measures / Corporate Social Responsibility of Airport # stores/ outlets by category)  Quantitative Factors Operator to Community:  Convenience of layout & terminal design Profitability  Com munity Partnership  flow of people through term inal ROA   Response time to complaints  # of inquiries at information desks ROE   # of community meetings Connecting time and flight alternatives EBITDA    # of open days for high school # of flights per destination per day IRR    students waiting time for connecting flights Margin   Amount of local sponsorship Cleanliness of Airport   Contribution to community programs # of toilets cleaned per day   Quality of Service / Qualitative (dollars) # of rubbish bins that are emptied  Factors: Em ployment opportunities # of complaints   Speed of Airline and Passenger  # of jobs available  Parking Availability & Pricing processing  # of car spaces available  speed of aircraft Environment: # of complaints regarding parking charges turnaround Corporate Social Responsibility reporting  Passenger overall Com fort On-time departures crowding (# of passengers per gate/ seating  on environmental issues:  # of complaints area/ lounges)   M onitoring of Traffic Changes on  # of complaints regarding noise, temperature, Air quality and Noise choice of things to do ( i.e. when in transit) global level & Volatility of Industry Fuel Consumption per airplane  # of passengers per   movement airport on global scale Airlines (Domestic & International):  % of aircraft operations per annum Traffic growth (aircraft movement globally) Wastage Reduction Waste recycling (%)  Process: operational Efficiency in terms of amount spent on global   Waste disposal (weight) Passenger (i.e. security & custom screening) scale capital investment  Energy consumption  length (time & distance) from curb to gate programs at airports  Baggage transfer reliability  kWh/m squared floor area  Traffic Growth & Congestion  # of lost baggage  Ground transport usage public  Accessibility to Airport Facilities  transport usage) Availability of gates  # of cars on roads (throughput Aircraft turnaround   through local areas) On-time departures  Participation in Design & Terminal Layout Regulator: # of meetings/ briefings # of reports issues & details thereof Traffic Growth Ease of Negotiations & Airport Charges  Passenger movement Aircraft m ovement # of complaints  Stakeholder Relationship # of Public disputes  Airfield Requirements: Safe Runway, Taxiways,  # of government intervention Speed off Points, Airfield Lightning, signs  # of public disputes Upgrades International reputation of airport Infrastructure Investment and Airport # of incidents   Development  # of complaints Security Airport Operator  reported breaches Sa fety  reported inc idences  Profitability Indicators Earnings & ROI  Com mercial Revenue from Retailing (Penetration, Conversion, Transaction Value) Passenger Spend Rate (revenue per Passenger)  Duty Free contract com petitiveness  # of product offerings Sales dollars per category of product Airline Operational Efficiency & Passenger Satisfaction # of baggage handling incidences R etail store offerings Availability of ground handling Aircraft turnaround Passenger movement  Em ployee satisfaction Employee turnover

Figure 9-4: The SAPAM

SAPAM (Figure 9.4) consists of performance attributes applicable to Sydney Airport derived from field research on Sydney Airport stakeholders and the

278 literature on the privatisation of state owned assets. The derived attributes and measures provide support in assessing the known privatisation outcomes of more innovative management skills, increased stakeholder involvement and access to private capital sources to fund infrastructure and commercial development (Vickers and Yarrow 1995; Schipke 2001; Parker 2003). Also, due to the airport operator’s public role and stakeholders’ acceptance of private ownership, SAPAM embraces public accountability of the airport as well as assessing its operational and economic performance. It is suggested that such an airport performance tool could be useful for: a) the airport operator and management as the indicators are to emphasise how stakeholders judge the airports operation; as well as b) the regulator, that is the government, due to the public accountability of airport operations.

In relation to who would collect the data (measures) the implications for practice of the SAPAM are further discussed in the next chapter (section 10.4). It is, however, suggested in section 4.4.3 that the data should be collected and published by the government body ACCC. After all it is the ACCC that administers the light handed regime on pricing and as it is charged with the responsibility of ensuring competition in the market place and protecting consumers from monopolies.

9.5 Chapter Conclusion This chapter presented the Stakeholder Airport Performance Assessment Model referred to as SAPAM. The conceptual framework and findings from earlier chapters were integrated and provided the rationale for the design of the model. The performance measures from the experimental model derived from the literature were compared to the findings from the field research to assist in the process of establishing operational, financial, social and environmental attributes. The aim of SAPAM is to develop a model that is based on stakeholder specific attributes (indicators and measures) to assess privatised airport performance. The model takes into account a new paradigm that portrays an airport as a cluster of commercial activities with a focus on meeting the demands set by various stakeholders, rather than as a core

279 business that facilitates passenger movements. In particular, post privatisation the needs and interests of airport users, consistent with those of the airport operator and investors, are obliged to be accommodated, as the latter are the drivers and implementers of changes to the airport site.

280 Chapter 10

10 Final Discussion and Conclusion Chapter

10.1 Introduction Airports, post privatisation, consist of and rely on a symbiotic relationship of multiple stakeholders. Privatisation has had an impact on the operations of airport stakeholders due to a change in airport positioning from passenger facilitation to a more commercial ‘bottom line’ approach. DeNeufville (1999) and Parker (2003) argue that outcomes from privatisation reforms need to address the welfare gains and the distribution of the economic, political and business benefits among all consumers and investors. If the argument is to prevail that privatisation reforms lead to overall beneficial outcomes for society, the gains in value that have been claimed need to be measured and confirmed; it also needs to be ensured that these reforms are both acceptable to the public and serve public interest.

This chapter highlights and discusses the overall findings of the field research conducted to provide insight into how airport privatisation has changed airport business and whether and how key stakeholders perceive they have benefited from the changes. The question driving this study concerns the impact of privatisation on airport stakeholders and airport performance from their perspectives. In more detail, the purpose of the research was: a) to understand, record and analyse the views of Sydney Airport stakeholders regarding the impact of privatisation reforms: and b) to develop a Stakeholder Airport Performance Assessment Model with key indicators of privatised airport performance from airport stakeholders’ perspectives.

Thus, the central research questions (CRQs) driving the research design and the analysis were as follows:

281

1. What has been the impact on key airport stakeholders of the privatisation of Sydney Airport?

2. How can privatised airport performance be measured from stakeholder viewpoints?

The study comprised two parts:

First, existing claims and theories sympathetic with privatisation reforms were explored. The key stakeholder groups of Sydney Airport were investigated and identified. This was followed by an examination of the airport privatisation objectives as perceived by the key stakeholders of Sydney Airport five years post privatisation. The impact of the privatisation reforms on stakeholder operations was also investigated.

Second, a theoretical model referred to as the Stakeholder Airport Performance Assessment Model (SAPAM), based on the Balanced Scorecard of (Kaplan and Norton 1996, 2001), was designed with operational, financial and social and environmental perspectives to assess airport performance according to indicators and measures that the stakeholders themselves perceived as relevant.

Such a performance assessment approach is in line with Tsamenyi et. al (2008) who claim that there is a need to assess the performance of privatised firms by using multi-dimensional approaches such as a balanced scorecard. According to Doganis (1992) airports are key infrastructure assets of the nation. Due to the unique position that airports have in society, the proposition advanced in this study is that privatised airports should be publicly accountable to all their stakeholders. Since the users of public services, end- consumers and the employees of privatised entities are those who experience any adverse consequences arising from privatisation, it was argued that the outcomes of privatisation reforms need to be explored through analysis of the perceptions of such stakeholders and the actual impact on stakeholder groups of privatised entities. After all, airports were established with an objective of

282 serving the interests of the community and society. Therefore, privatised state-owned entities need to be assessed in terms of services provided to the community and other stakeholders.

The need to extend organizational performance measures beyond the traditional financial indicators (emphasized below) has been recognized in the literature (Brignall 1996; Kaplan and Norton 1996; Brignall and Modell 2000; Johnson 2001). By focusing only on financial indicators the success or failure of privatisation programs is viewed, as described by Tsamenyi et al. (2008), through only a single lens. Airport performance is frequently assessed by focusing on financial performance; despite airports being complex entities exhibiting monopolistic attributes whilst having extensive social responsibilities, little attention has been paid to performance analysis that combines financial measures with non financial measures.

Therefore, to assess the performance of Sydney Airport, a stakeholder scorecard, SAPAM, was developed to overcome the identified weaknesses of focusing on financial performance and paying little attention to non-financial measures which may be of prime importance to some stakeholder groups. This study is unique because of its qualitative approach to the exploriation of privatisation outcomes and the assessment of airport performance, since most studies examining the impace of privatisation at airports take a quantitative, financial approach.

The literature reviews in Chapters 2 and 3 point out that Australia and other nations are still subject to ongoing privatisation reforms. The significance of this study is enhanced because privatisation reforms are a contemporary, highly debatable topic in society. . Chapter 4 explored the challenges in measuring privatisation outcomes and provided a description of the conceptual framework applicable to this study. The argument in support of this particular conceptual framework was that privatisation reforms of Sydney Airport had an impact on the operations of airport stakeholders and on the overall privatised airport performance.

283 Graham (2003) claims that airports consist of multiple stakeholders and are complex entities. Graham (2003) and Francis, Humphreys et al (2002) regard assessment of overall airport business performance and the individual value of airports as a complex issue due to the multiple facets and players that make up the diverse profiles at each airport. Further, they state that airport performance measurement is viewed as a mysterious task with the solution being subject to the indicators chosen by researchers. Complications arise due to variation in airport size, nature of traffic, finance/accounting methods used, ownership, activities performed and regulations that differ from country to country.

In this research the outcomes of the implemented privatisation reforms at Sydney Airport were explored by analysing the actual impact on individual stakeholder groups involved in airport operations. Also, due to the acknowledged interdependence of stakeholder operations, and the global trend towards more commercially focused airport operations, the proposed indicators and measures that make up SAPAM reflect a wide range of airport stakeholder group views on assessing airport operations.

Chapter 5 addressed research methodology and design. The selection of representatives from the various stakeholder groups in this research was based on their role, corporate and stakeholder interest and involvement in the Sydney airport privatisation. A tabular representation (Table 5-4) indicates the stakeholder sampling for this study; a total of 20 interviews were conducted) Due to the political and competitive nature of the air transport industry a combination of convenience and snow-ball sampling was used to access the sample. Qualitative research data mining software packages (Leximancer) and Nvivo v7 assisted with the content and relational analysis in this study.

The Leximancer software provided a means of both quantifying and displaying the conceptual structure of the interviews which enabled the researcher to explore interesting features (Leximancer, 2007). Refer to table 5-5 and section 5.8.2 for details on the data analysis. The findings from this study were derived using an interpretive and positivist paradigm.

284 Chapter 6 introduces the focus of this study, Sydney Airport, which the research participants verified as a premier piece of New South Wales and Australian infrastructure (see section 6.2).

The next section summarises the key outcomes of the study and highlights the findings for each of the research questions (RQ) that have guided this research and which were examined in detail in particular chapters of the thesis. It is structured as follows:

 Key Findings and Discussion o Reasons for Privatising Sydney Airport (RQ 1 Outcomes) o Privatisation Impact on Stakeholder Operations (RQ 2 Outcomes) o Performance Measurement at privatised airports (RQ 3 Outcomes)

 Applicability of Findings to Practice

 Applicability of Findings to Theory

 Limitations

 Areas of Future Research

285 10.2 Key Findings & Discussion The findings are supportive of Poole (1994) who states that airport privatisation reflects a changing paradigm of what an airport is supposed to be (p.3). The traditional paradigm views an airport as essentially a public service enabling aircraft and their users to arrive and depart while just covering its costs. Privatisation creates the airport-as-an-enterprise paradigm, which views the airport as an entrepreneurial business meeting the needs of diverse clientele being the airlines, passengers, meters-and-greeters, staff, neighbourhood communities, airport tenants and others (figure 6-2). Recognizing that an airport adapts to fit the environment, which today is subject to rapid and far-reaching changes, reinforces the importance of airport stakeholders in day-to-day airport operations and the interdependent roles of particular airport stakeholder groups that make up a privatised airport.

The research questions guiding this research and the chapters in which they have been addressed arte shown below. This is followed by a detailed summary of the findings that assisted in answering the research questions.

286 RQ 1. What were the reasons for the

Privatisation of Sydney airport? Discussed in detail  Who are the key stakeholders of in Chapter 7 Sydney airport?  What were the objectives of privatising the airport?

RQ 2. What was the Impact of Sydney airport privatisation on key airport stakeholders? Discussed in detail  How did the reforms impact the key in Chapter 8 stakeholders?

RQ 3. What are the key attributes of airport performance from the various stakeholder perspectives?  Why is the performance measurement at airports important?  How was it done pre-privatisation? Discussed in detail in Chapter 9 RQ 4. How can these attributes be measured to provide information on airport performance?  What indicators should be used that reflect the stakeholders needs when assessing privatised airport performance?

10.2.1 Rationale for Privatising Sydney Airport (RQ 1 Outcomes)

The airport stakeholders relevant to this study (Table 4-1) were identified by utilizing Mitchell’s (1997) theory on stakeholder identification, which claims that stakeholders become salient to managers according to constructs such as power to influence the firm, legitimacy with the firm and urgency to claims on the firm. The roles that the individual airport stakeholders play in airport operations was derived from the interviews and summarized in section 7.2.1. An understanding of these stakeholder roles provided confirmation that: a) the airport is a complex entity; b) stakeholder operations are interdependent and intertwined (see Figure 7-1); and c) assessment of airport performance therefore requires indicators for each stakeholder group.

287 The underlying reasons for privatising Australian airports, and Sydney Airport in particular, from the viewpoints of all key stakeholder groups, that is, the airlines, the airport operator, the communities, the infrastructure support providers and the government, were that the new private owner of the airport would invest in infrastructure at considerably greater levels than the government had available, and would be more customer oriented (see section 7.2 and in particular Table 7-1 for stakeholder identification and confirmation as applicable to this study).

A significant finding was that the influence of certain stakeholder groups has changed post privatisation. The investor and airport operator monopoly dominance over airport operations in Australia was highlighted in Section 7.2.2. In the case of Sydney Airport, this was confirmed by a government respondent indicating that the market power of airport operators and investors is seen as a non-favourable outcome of the privatisation process and that it seems to have led to unequal bargaining positions in commercial negotiations with other stakeholders

The results show further that the investor occupies a dual role of driving the privatised business operations and capturing the value from it for institutional investors seeking in wealth maximisation. To generate the returns, the investor and airport operator adopt innovative approaches to satisfying airport customers and stakeholders involved in the day to day operations of the airport business. They provide a choice of goods and services and generate increased traffic through direct marketing of the airport as well as direct involvement with the airlines. The findings demonstrate that the investor not only supplies the capital for expansion, but also believes it has a key role in marketing the airport to countries and airlines in order to increase passenger and traffic flow. It was identified that the private investor has brought in expertise in airline marketing and network planning; aspects that, it was argued, the government would have never considered under public ownership. This is in line with the public versus private sector management approach as argued by Carney and Mew (2003). Free from government

288 constraints, private sector managers can focus on operational and service improvements that provide consumers with greater convenience and choice.

The airport operator’s and the airlines’ roles were defined as providing the actual airport services due to their interdependence of operations. The post privatisation changes were reflected by the airport operator working with the airlines to ensure effective and efficient airport operations so that passengers have a good travel experience. The government’s role was defined in terms of control over border security issues and environmental aspects of airport operations. The role of the community surrounding the airport site was depicted as a voice in decisions concerning the desirable and undesirable social effects of an airport neighbour.

Airports were privatised on a global scale and in particular in Australia, to provide capital to foster airport growth as airport management in the public sector was dependent upon limited sources of funding (see section 3.2 for details). Public sector funds became scarce for airport expansion due to the government focus on more political targets such as education and health. It was illustrated in Chapter 3 that the globalization and deregulation of the air transport industry prompted changes in the aviation sector as the increasing demand for air transport resulted in the need for: a) new infrastructure; and b) the adoption of a more business oriented philosophy of airport operation (Graham 2003).

Arguments in support of Australian airport privatisation as raised in the literature (see section 3.3.3) are as follows:

 the government’s disposal of assets lowers the budget deficit and promotes investment into other sectors to foster economic growth and development;

 the airlines and the general public profit from a wide range of commercial services;

 the airport operators generate more return on investment linked to long-term plans and expansion strategies and

289  the overall airport business is to run as a profitable business, enticing airport operators to rethink the concept of self funding and accountability.

These arguments can be compared to a summary of findings of this research relating to stakeholder perception, five years post privatisation, of the privatisation objectives for Sydney Airport (see section 7.3 for more details)::

 Debt reduction for the government

 Capital investment on airport land to adapt to the pressures from globalization and international trends in the aviation industry such as the introduction of the Airbus 380 aircraft.

 Commercial development to ensure improved passenger experience

 Transparency and accountability of airport operations to stakeholders due to the interdependence of stakeholder operations on the airport site

 Stakeholder cooperation and commercial negotiations in setting airport charges as post leasing (post privatisation). It was the government’s philosophy to withdraw from detailed involvement and to provide a framework in which airport operators and customers seek to negotiate prices rather than involve the government of the day

These results were found to be generally aligned with the original government privatisation objectives as specified by The Hon. John Sharp MP Minister for Transport and Regional Development (1996) and the Chairman of the Airport Sales Taskforce Ross Smith (1996). For further details see Table 7-5 for a detailed comparison of the original government objectives versus stakeholder perceptions of objectives five years post privatisation.

The impact of privatisation on stakeholder operations is highlighted in the next section.

290 10.2.2 Impact of Privatisation on Stakeholder Operations (RQ 2 Outcomes)

Findings of privatisation outcomes from stakeholder viewpoints are related to: a) the development of airport land (section 8.2.1); b) the transparency of airport operations and the commercial negotiation process (section 8.2.2); and c) the unexpected consequences at Sydney Airport due to the strong focus of the investor and operator on the bottom line and their dominance over airport operations (section 8.2.3).

The post privatisation commercial growth at Sydney Airport was exemplified by the respondents pointing to major retail development in terminals, commercial operations of car parks, and other non-aeronautical activities in and around the airport site. Post privatisation improvements to Sydney Airport management were exemplified by respondents pointing to investment in infrastructure and airport land development, the overall facilitation of a better passenger experience, engagement and perceived partnership role in the local community, the acknowledgement of interdependency of stakeholder operations and liaisons with the airlines. However, it needs to be acknowledged that Sydney Airport privatisation is perceived by the key airport stakeholders as a money-making exercise for: a) the government; and b) the investor (airport lessee) in the form of returns to be gained from investments and commercial developments on airport land (for detailed stakeholder quotes see Table 7-4).

The recognition that more than seventy percent of airport operators’ revenues is of a non-aeronautical nature suggests that airport operators are driven by a strong commercial orientation (Mather 2004). This is perceived to be the situation at Sydney Airport which has led to conflicting views amongst stakeholders when asked about the original intentions and aftermath of airport privatisation (for details and a longitudinal overview on the composition of the revenue streams of Sydney airport refer to Figure 6-3). Deputy Premier– Minister of Transport John Watkins (2006) acknowledges that airports in Australia are pursuing excessive non-aeronautical expansion on their sites.

291 This commercial orientation was also highlighted by submissions of airport stakeholders to the Productivity Commission iIquiry 2006 on airport pricing (see Figure 3-1 for stakeholder concerns raised in submissions to the Productivity Commission).

The results from the field research indicate that airport developments are essential to meet the dynamics of the global air transport industry as specified by the airport operator and the investor, particularly as traffic is expected to double between 2002-2020 according to the ACI (2003 b) and the BITRE (2008). Francis et al (2006) support that the pressures for change in the air transport sector are driven by the large cost of infrastructure provision to accommodate the forecasted long-term growth of traffic. Sydney Airport’s need to adapt to changes in the air transport environment was highlighted by the airport operator as well as by the investors. The use of Sydney Airport land for non-aviation activities was opposed by the NSW government and other airport users (Rex 2006, Qantas 2006, Virgin 2006, RAAA 2006) in submissions to the PC.

Conflicting views were also apparent in interview responses about non- aeronautical developments at the airport. There was discord about the airport operator obtaining the highest return on the acquired assets to meet the wealth maximisation objectives for the private investors versus the fulfilment of the airport’s traditional role of passenger facilitation. In particular, Sydney Airport’s location and size were identified as unique in comparison to the other airports in Australia. However, the capacity issue at Sydney Airport is not directly related to the aftermath of the implemented privatisation reforms, as the capacity problem is a function of its close proximity to the city.

One of the privatisation objectives, included as the private investor’s responsibility, was to invest in non-aeronautical airport land development to align the airport to global standards. However, the limited amount of space available at Sydney Airport (see section 6.2) to fulfil this objective would seem to have cramped and reduced the efficiency of the airport. This was argued by interviewees, in particular the airlines and infrastructure asset providers, who

292 indicated that the commercial needs of the airport have begun to interfere with stakeholder operations in a new way. The findings emphasize that lack of space at the airport has created post-privatisation predicaments and impacts on stakeholder operations as to: a) stakeholder location on airport premises ;and b) dilemmas regarding the aeronautical versus non-aeronautical expansion of airport land.

Despite the concerns of some stakeholders, catering for the end-user airport consumer (passengers) under privatisation would seem to have contributed to shareholder wealth maximisation for institutional investors at Sydney Airport. As shown in the financial reports of SACL the revenue streams in past years from the commercial side of privatised business operations have outperformed the traditional aeronautical revenue streams. The revenue streams per passenger at Sydney Airport have grown since privatisation, with property, commercial and retail revenues outperforming the aeronautical revenues of the airport operator.

The findings demonstrate that the change in ownership has had a significant impact on stakeholder relationships and interactions. The stakeholders have become more engaged in decision making processes and consultative approaches to terminal redesigns, or other airport site projects involving neighbouring communities (section 8.3.1). Commercial negotiation tactics, business growth and airport land development, although criticized to an extent and each having an impact on stakeholder operations, were perceived to be the most notable outcomes of the Sydney Airport privatisation;

As discussed in Chapter 8 the privatisation reforms and the commercial push have had a range of impacts on the individual stakeholder groups. These impacts have been summarized for each of the key stakeholder groups in Table 10.1 below. Full details of these impacts were discussed in Chapter 8, sections 8.3.1-8.3.5.

293 Table 10-1: Privatisation Consequences on Individual Airport Stakeholders Airlines  Challenges in the commercial negotiation and consultation process regarding airport charges and capital investments

 Complexity in facilitating passenger movement due to over commercialization Investor  Commercial development

 Airport Marketing & Customer Focus

 Return on Investment for Shareholders Airport Operator  Justification for commercial development

 Market power in commercial negotiations Community  Community tolerance regarding commercial development post privatisation

 Noise Dilemma Other Infrastructure Asset providers  Complaints about additional charges imposed e.g. Fuel Levy

Further findings of privatisation effects at Sydney Airport relate to: a) the transparency and accountability of airport operations; and b) stakeholder involvement in the commercial negotiation process with the private airport operator.

The results show that in private hands the airport has become more transparent in the reporting of its undertakings than under public ownership. This is in line with government philosophy, emphasized by Sharp (1996), that the government was to withdraw and was to provide a framework in which airport operators and customers would negotiate prices without involving the government of the day. The results on commercial negotiations and the decision-making process at the airport show that the stakeholders prefer private ownership of the airport to public. The respondents have highlighted that under government ownership the airport operator it was a Federal

294 Authority. The airlines, community and infrastructure support stakeholders classified their experience when negotiating with the FAC as ‘pretty poor’, as they did not have a great deal of influence in decision-making.

Regarding commercial negotiations, on one hand the findings show that negotiating with a private entity is easier than a government authority, as the new airport owners adopt a consultative approach favourably perceived by the respondents. This was evidenced by respondents commenting on the mutual understanding of the motivation behind particular proposals for developments on the airport site due to the commercial interests of both parties. On the other hand, dissatisfaction was expressed by the airlines with the current dual till approach which does not require disclosure of non-aeronautical prices. Airlines pointed out that they are in favour of the traditional, pre-privatisation, single till approach, where aero and non-aeronautical revenues are pooled, essentially to cross-subsidize aeronautical investment. Conflict was identified between the airlines and the airport operator about imposed charges and the lack of an arbitration process in commercial negotiations. Although airlines are now participating in the decision making process and are involved in the terminal design post-privatisation, it is the airport operator acting on behalf of the investor, that seems to have the final say.

The current pricing regime was identified by airline stakeholders as a major cause of the negotiation difficulties experienced at Sydney Airport. Claims of excessive airport charges, particularly in areas not captured by the definition of aeronautical (versus non aeronautical), were made by the air service providers in the interviews and in the most recent submissions to the PC. Other claims were made of unrealistic asset valuations and that airports, as monopolies, have no intention of engaging in a commercially constructive way with airport users (ACCC; Airlines 2006; Qantas 2006). Gerber (2002) supports that the misuse of monopoly powers is evident in the way that privatisation may either lead to a fall in quality and safety standards of an increase in efficiency because the necessary investments are not carried out, or it may lead to the administration and pricing of infrastructure scarcity. There is a guarantee of risk less scarcity rents for the airport or, as the consumers

295 and customers have no say in the decision and unnecessarily large projects may be built.

A problem commonly identified in PC submissions was the reluctance of airport operators to engage in financial and operational transparency. Airport users and even the ACCC (2006) believe that the current regime, the so- called light-handed regulation approach, does not provide information about whether monopoly profit is being generated in the longer term by airport operators. Furthermore it is argued that ‘hidden’ charges on airlines have been introduced (Qantas 2006, Rex 2006). Airport users also claim that airport operators fail to negotiate reasonable terms and conditions in terms of slots, hubs, fuel throughput charges relating to their day to day business operations (BP 2006; Qantas 2006; RAAA 2006; Rex 2006; Shell 2006; Virgin Blue 2006). Airlines such as Rex Airlines, Virgin Blue and Qantas see airport operators as monopoly providers undermining cost cutting efforts (Rex 2006, Virgin Blue 2006; Qantas 2006). On the other hand, the airport operators argue that the existing flexible pricing regime assists in dealing with resource constraints and enhances commercial relationships with airlines (Schuster 2006). Nevertheless the airport operators have had to compromise on a number of standard provisions to accommodate some customers, including regional airlines (Schuster 2006).

Unintended outcomes of privatising Sydney Airport identified during the study, related to the investors and controlling shareholder having control over so many aspects of the life of the airport. (Refer to section 8.2.3 for details) The detailed analysis of stakeholder responses has identified that there are unexpected consequences, some of which were also highlighted in the submissions to the Productivity Commission 2006, in terms of the post privatisation exploitation of Sydney Airport as a toll gate for increased economic returns for the investor.

Overall, the results show that airport stakeholders have adopted the new philosophy of a privatised airport operator. Although the commercially orientated approach and difficulties in commercial negotiations seem to have

296 caused dissatisfaction amongst the stakeholders, nevertheless, the interdependence of operations has led to compromises on both sides. The findings show that favourable negotiation outcomes and input into decisions regarding airport development are dependent on the countervailing power of an individual airport stakeholder.

The first part of this thesis examined the impact of privatisation and the consequent change in focus from passenger facilitation to a commercial ‘bottom line’ approach on the operations of airport stakeholders. The airport in its contemporary role has become accountable to more stakeholders than in the past, and they play an increasingly important role due to interdependency of operations. The change of ownership has increased stakeholder involvement and the demands on the airport operator. As privatised airports are key national infrastructure assets accountable to stakeholders, the argument addressed in the second part of the thesis is that privatised airport performance needs to be assessed by taking into account key attributes relevant to various stakeholder groups.

10.2.3 Performance Measurement of privatised airport operations (RQ 3 and RQ 4 Outcomes)

An underlying principle of stakeholder theory is that organizations exist as part of, and according to, the values of society. Research to date in the field of corporate performance measurement supports Freeman’s (1984) stakeholder theory; that an organization cannot be seen as a purely private institution but instead as a social institution responsible not solely to its shareholders but to all its stakeholders who are affected by its business. This thesis has argued that the performance of privatised airports needs to be assessed by indicators relevant to all its stakeholder groups and not purely by financial indicators for the investor.

Airports, as previously stated, are complex entities and there are difficulties in assessing airport performance (section 4.3.1). The privatisation of an airport

297 generates a radical change in the overall business model which impacts on the various stakeholders involved in the operation of the airport. Airports are essentially part of public infrastructure, and therefore should serve the public interest. Furthermore, key stakeholders are interdependent and vital to the overall success of airport operations. Thus, the multi-dimensional ‘Stakeholder Airport Performance Assessment Model (SAPAM)’ (see Figure 9.4) was developed as a tool to assist airport management and regulators in understanding how airport stakeholders judge airport operations and to provide a means of assessing airport performance from stakeholder perspectives (discussed further in section 10.4).

The literature review shows that traditional financial measures should not be the sole focus of corporate performance measurement, (see 4.4.1).To obtain a complete picture of an organization’s performance, measures need to be of a financial, customer specific and operational nature (Nanni, Dixon et al. 1992; Kaplan and Norton 1996; Walsh, Lok et al. 2005). Corporate performance assessment is used to steer a company in a financially stable direction. Although many generic measures in the Accounting and Finance literature compare and benchmark organizations against competitors and industry averages, such standard measures cannot be applied to all industries or entities, especially unique and monopolistic airport entities.

As privatisation results in a broad spectrum of economic and internal changes to the privatised entities, assessing privatised entities based on a few economic indicators such as profit and employment figures would not provide the full performance picture. It was therefore suggested that public accountability of airports would be improved by including stakeholder relevant attributes of financial (quantitative) and qualitative nature in post privatisation assessment of operational and economic performance.

The SAPAM model was developed from the feedback of research participants after their evaluation and comment on the literature-based experimental model which was introduced in Chapter 4 (see Figure 4-5). The conceptual framework for the model was based on the Balanced Scorecard Framework of

298 Kaplan and Norton (1992). The original notion of the Kaplan and Norton scorecard was to assess the health of an organization from four perspectives (see section 4.4.3). As Kalagnanam (2004) points out the Balanced Scorecard tool has been modified over the past decade in 1996, 2001 and 2004, evolving to embrace communication, coordination, evaluation, motivation and implementation of strategy. Kaplan and Norton (1996) acknowledge that the four perspectives of the Balanced Scorecard are not decisive, and Tsamenyi et al (2008) add a further community perspective, to measure the outcomes of privatisation in Ghana. Tsamenyi et al (2008) supports the view in this study that the community, or the social/ environmental perspective, is of particular importance: airports are privatised state-owned entities, established with an objective of serving the interests of the community and society (as discussed in Chapter 3) and so need to be assessed in terms of services provided to the community.

Thus, the model was developed to include operational, financial and social/ environmental perspectives (Figure 4-6), with each having distinct key performance indicators (KPI’s) and measures supporting specific stakeholders’ viewpoints. This model is an external airport stakeholder scorecard for use by those affected by the privatisation of the airport and comprises measures of performance relevant to identified stakeholder groups

The SAPAM indicators and measures for each airport stakeholder perspective were discussed in sections 9.3.1- 9.3.3; the model was illustrated in Figure 9- 4.

The findings show that the research participants, in commenting on the experimental model, agreed with most of the indices relating to the operational and social/ environmental perspectives. With regard to the financial perspective participantsy pointed away from the traditional performance measures towards more qualitative indicators reflecting relationships among the stakeholders (see Figure 9.4.).

299 The overall analysis has highlighted that in the current commercially focused environment it is vital to reach agreements of mutual benefit and convenience for all stakeholders involved. The airport operator, acting on behalf of the investors, runs the airport’s day to day business operations, and provides airport stakeholders with what they require to operate within the complexity of the airport business. Beyond the focus of wealth maximisation for institutional investors the airport operator expressed desire to be involved with and have good relationships with the other stakeholders, including being an active partner in the local community.

The negotiation of mutually beneficial agreements was suggested for the operational perspective; airport stakeholders have become more engaged in decision making processes and consultative approaches to terminal redesigns and other major airport site projects. For example, airlines judge an airport operator, not only by essential attributes such as reliable baggage systems, the availability of gates and aircraft turnaround time, but by their experience with the airport operator in terms of ease of negotiations, co-operation, and the degree of involvement in the decision-making process regarding terminal layout and designs. The passengers’ chosen indicators (as derived from the airline interviewees) suggest they expect the airport operator to ensure convenience, comfort and ease of travel; these indicators are often a product of cooperation and mutually beneficial agreements with other stakeholders, for instance the airport and airlines need to cooperate in the design of and provision of passengers’ lounges.

The social and environmental perspective of the model was broken down into two parts: a) the community’s view through the local council’s role (alias a lobby group) of accepting the desirable and tolerating the undesirable social and environmental impacts; and b) the regulator’s view as it was the federal government that privatised the airports and is still in control of border security issues, noise and environmental aspects of the air transport industry. The indicators and measures for the community perspective reflected qualitative aspects of airport operations such as response time to community complaints, community partnership and employment opportunities arising from having the

300 airport operator in the neighbourhood. Concerning environmental measures of airport operations, the airport operator’s engagement in corporate social reporting was pointed out as well as other more specific measures such as the impact of ground transportation on air quality, waste recycling/disposal, air quality and others.

For the regulators the aftermath of privatisation of Sydney Airport was evaluated in terms of infrastructure development on airport land, traffic growth and the service quality/offerings available to the travelling public. Infrastructure investment in particular was of interest to the government as this was the fundamental reason for airport privatisation in the first place.

It was suggested in Chapter 4 that airport privatisation led to the emergence of airport stakeholders and enabled the airport operator to raise additional capital, improve efficiency, reduce costs, seek new revenue streams and engage in market-oriented investments. It was pointed out by many different respondents that the principal impacts of privatisation of Sydney Airport relate to growth in its commercial activities (section 8.2.4).

The Sydney Airport Performance Assessment Model (SAPAM) developed through this research was founded on the acknowledgement of the importance of stakeholders in privatised airport operations. The work of Schneiderbauer and Feldman (1998) and Grahams (2003) supports the view that privatised airport operations have led to the emergence and importance of stakeholders in the air transport industry. Therefore, in line with the objectives of this study the model was designed to enhance a new paradigm that portrays an airport as a cluster of commercial activities with a focus on meeting the demands set by various stakeholders, rather than as a unitary business that facilitates passenger movements.

10.3 Implications of Research Outcomes for Theory The privatisation of Sydney Airport has led to airport operations being primarily driven by the ‘bottom line’ of profitability. The commercial orientation

301 of Sydney Airport, its overall business growth and the ongoing airport land development, although criticized to an extent, were perceived to be the most notable outcomes of the Sydney Airport privatisation; each having an impact on stakeholder operations.

The findings of this study are relevant to stakeholder theory, resource-based theory and contingency theory. The results demonstrate the importance of stakeholder recognition by corporations, thus linking it to performance management. The findings can also be seen as contemporary contributions to the global privatisation debates, as there is no privatisation theory as such. Due to the lack of a convincing theory, Fafaliou and Donaldson (2007), who examine the nature of the privatisation debate, conclude that there is no well- formed theory of privatisation and therefore no well-formed opposing view. The privatisation debate is thus set to continue on the more ideological grounds of competition, free-markets and other relevant factors. This suggests that privatisation is best viewed as an ideology, as discussed in Chapter 2.

The theoretical linkages were illustrated in Figure 4.2. Accountability and public welfare were pre-privatisation prime concerns (see discussion in section 3.2.1). The findings show that privatised airports have become considerably more accountable to the public and its stakeholders. SAPAM proposes that the impact of privatisation reforms on society should be validated by assessing privatised airport performance through the eyes of stakeholders in line with the framework of the Balanced Scorecard and stakeholder theory.

See Table 10.2a – 10.2 c for an illustration how the findings from each research question relate to existing theories.

302

Key Findings Implications for Theory

Identification and Findings are in line with stakeholder theory that recognizes that, with the presence of multiple parties having a legitimate Confirmation of interest or stake in the business (Brenner 1995; Donaldson and Preston 1995; Nasi 1995; Donaldson 2002; Friedman Sydney Airport and Miles 2002; Atrill, McLaney et al. 2006). Savage (1991) stakeholders are in a relationship with the organizations. Stakeholders & understanding of The results also support Hill and Jones (1992) who argue that stakeholders have an interest and influence in the actions their roles at the of organizations, thus making the operations of organizations possible. airport  Recognition of In addition this study provides insights to the affirmation of stakeholder interdependency at airports, particularly the role, Airport as discussed, of each airport stakeholder and the power they hold (section 7.2.2). This supports the proposition that Stakeholders’ stakeholders interact and give meaning to the corporation, placing moral obligations on managers, and that these interdependency obligations can influence decision-making (Wicks, Gilbert et al. 1994; Jones and Wicks 1999). and reliance of operations Fafaliou and Donaldson 2007) point out that because a convincing privatisation theory does not exist, this study on a  Acknowledgment recently privatised airport therefore provides additional content to the privatisation debate The underlying assumption of of the primarily privatisation is that the whole economy benefits from efficiency gains made by privatised organizations, especially as economic and taxpayers are no longer financing unprofitable government enterprises where service delivery is questionable. (Wiltshire financial motives 1987; Vickers and Yarrow 1995; Parker 2003) behind privatising the airport

Table 10-2a: Relatedness of Research Question 1 Findings to Theory

303 Key Findings Implications for Theory Issues relate to: As identified by Mitchell (1997) stakeholders contribute resources to business operations and can affect or be affected by  development of organizations actions. The overall results are in line with the resource dependence theory of Pfeffer and Salancik (1978) airport land in the that power lies with those stakeholders who control resources that are valuable to the firm and needed for the firm’s day context of the to day operations. capacity constraints of The findings are also applicable to contingency theory (Fiedler 1964; Vroom 1973), that optimal organization is Sydney Airport contingent upon various internal and external constraints.  Accountability and transparency of The results further emphasise the importance of examining privatised airport performance through stakeholder eyes, as airport operations research underpinning the SAPAM model suggests that mutual satisfactory relationship amongst stakeholders leads to  Commercial increased airport performance. This aspect of the research further supports stakeholder theory, seen by Pesqueux and negotiation Damak-Ayadi (2005) as a theory of organization about who is actually working with and in the firm. outcomes and  the unexpected The findings thus provide further insight and illustrate the benefits to particular stakeholders, especially as the success of consequences that privatised entities is no longer dependent upon favours from the government, but upon operating successfully in have arisen at regulated and competitive markets. Tsamenyi et al. (2008) and others (DeNeufville 1999; Parker 2003; Fafaliou 2007) Sydney Airport report that most research on the outcomes of privatisation programs tends to be at the financial-macro-level of examining due to the strong the impacts of privatisation on the economy in terms of GDP and government revenue. This study adds to the body of focus on the literature by taking a different approach, to provide qualitative results from field research into stakeholder perceptions of bottom line by the consequences of the reforms on stakeholder operations. investor and operator

Table 10-3b: Relatedness of Research Question 2 Findings to Theory

304 Key Findings Implications for Theory  Acknowledge According to stakeholder theory, organizations cannot be seen as purely private institutions but as social institutions also. ment of As Freeman (1984) claims, a firm is not solely responsible to its shareholders but to all of its stakeholders who are affected difficulties by the business (Carroll 1979; Freeman and Evan 1990; Hill and Jones 1992; Clarkson 1995; Balabanis, Phillips et al. with 1998; Harrison and Freeman 1999). performance measuremen Consequently, by applying Chesborough’s (2007) definition of a business model due to stakeholder interaction and the t at airports roles that stakeholders occupy at the airport site., the results demonstrate that post privatisation the airport business model after has changed. The finding that Sydney Airport has re-orientated itself to meet the demands of stakeholders, including recognizing consumers, investors, suppliers and regulators, and also that the value captured from privatised airport operations at the post- Sydney Airport has resulted in increased profits per arriving passenger, departing passengers and airline movements privatisation supports stakeholder theory and its linkage to corporate performance assessment (see conceptual framework chapter 4). changes to airport SAPAM furthermore embraces the new paradigm according to Poole (1994) that portrays an airport as a cluster of business and commercial activities with a focus on meeting the demands set by various stakeholders, rather than as a core business that its place in facilitates passenger movements; particularly as a privatised airport generates a return for its investors and is characterized society by interdependency amongst its stakeholders.  the SAPAM model In addition, the findings on the impact of privatisation on stakeholder operations address the query that has been identified highlights in the literature about the claimed value creation gains of privatisation; if privatisation reforms are to lead to overall stakeholder beneficial outcomes for society and other stakeholders, they need to be confirmed through measurement and to ensure that attributes these reforms are acceptable to the public. Thus, the integrated performance assessment such as the Balanced Scorecard from the framework was proposed for privatised entities as it encourages the analysis beyond traditional financial measures. operational, The findings are in line with the identified call in the literature for performance analysis of privatisation outcomes beyond financial and financial analysis at the myopic macro-level, which has been widely adopted by the international financial community and social and policy makers, and a need to explain performance using multi-dimensional approaches such as a balanced scorecard environment (Tsamenyi 2008, Brignall 1996; Kaplan and Norton 1996; Brignall and Modell 2000; Johnson 2001). In the analysis al underlying the development of SAPAM, assumptions were made in support of the perception of airports as essentially perspective public infrastructure that serve the public interests. Accordingly the indicators and measures derived from this research into of airport stakeholder perspectives in the context of airport privatisation can provide important benefits to airport management, stakeholders stakeholders and society. Table 10-4c: Relatedness of Research Question 3 Findings to Theory

305 10.4 Implication of Findings for Practice The key outcomes of this research are: (i) identification of, and insight into, the impacts of privatisation reforms on stakeholder groups of Sydney airport; and (ii) the development of methods, comprising perspective and stakeholder specific indicators, to measure those impacts (SAPAM). The following implications for industry and practice arise from these outcomes:

 Insight into the consequences of privatisation on airport stakeholder operations may assist future commercial negotiations and decision- making processes regarding developments at Sydney Airport.

 Such insight may assist other countries that intend to privatize airports.

 The derived key indicators and attributes provide criteria and a measurement tool that can be used by the airport operator and investor to assess efficiency and effectiveness from the perspectives of Sydney Airport users.

 In relation to the operationalisation of SAPAM the question arises as to who would produce, collect and collate the data (measures) and who would publish the scorecard. One suggestion is that this should be overseen by the government body ACCC, as it is the ACCC that administers the light handed regime on pricing and is charged with the responsibility of ensuring competition in the market place and protecting consumers from monopolies. Some measures such as community and environment indices are available from AirServices Australia. Financial indices could be derived from the audited financial statements. Other operational measures relating to service satisfaction from the passenger and airline perspectives can be sought independently by the ACCC through surveys, especially as it already monitors the quality of service at airports.

 The prevalence of privatisation of key infrastructure and the public’s vested interest in monitoring outcomes of privatisation of “public” assets would suggest that non-financial privatisation outcomes need to be assessed. The accounting and auditing profession does not require information much beyond the financial be published and audited. The information required to be made public is mainly directed towards the

306 investor stakeholder. Current international environmental issues such as global warming and an increased awareness, though high profile corporate collapses such as Enron, that corporations should be good public citizens, would suggest that ecological sustainability and social indicators, including the non-financial, should be subject to public scrutiny and audit. This case is particularly strong when there is a lack of other countervailing forces such as stakeholder power and industry competition; airports are monopolistic. This implies that accounting needs to extend its practice into assessing non-financial outcomes or that another profession needs to fulfil public and non-investor stakeholder expectations.

 If it is not otherwise possible to ensure public and stakeholder accountability of the outcomes of airport privatisation the government could intervene and require that the data is available and that the airport produce and publish an audited scorecard of measures in line with those of SAPAM.

 A further important aspect for government policy is that SAPAM could provide insight and evidence as to how well a prior privatisation worked for input in future decision making about privatisation of infrastructure. Future research via an application of SAPAM could focus on the conduct of a trend analysis based on the expectations of stakeholders and the public regarding the privatisation of public infrastructure. This would provide insight into whether the reforms have worked as intended and whether the privatisation is producing ongoing public benefits. Measurements from the pre-privatisation era, where available, could be included and compared to see the trend.

10.5 Limitations The delimitations of the study were detailed and described in section 1.8. Criticism of case based research is acknowledged including that the researcher’s own bias and interpretive frames may have influenced the direction and analysis of the findings of the research.

307 Other limitations to the research were noted as follows:

 Sydney Airport was the single case object and the only airport examined for the purpose of this study. A study on other major airports in Australia may have provided additional insight regarding the objectives behind the privatisation reforms as well as the impact that privatisation had on airport stakeholder operations.

 Due to the politically sensitive nature of the air transport industry, the data and findings were restricted to those managers to whom the researcher was granted access. However respondents included senior managers of all key stakeholder groups, all of whom had direct and extensive involvement in the airport operations and privatisation.

The indicators proposed in the SAPAM model therefore reflect the views of individuals who are primarily involved in the Sydney airport operations. However, as airports globally are of similar nature and as highly ranked senior management were asked to express their opinions on the Stakeholder Airport Performance Assessment Model, it is believed that the findings and the model as designed are applicable to other high volume international airports.

Given the efforts made to ensure that the design and applied methods of the research were robust (see section 5.6 and Figure 5-1), the insights provided by the interviewees have the potential to extend existing knowledge and practice regarding performance measurement of privatised airports.

10.6 Areas of Future Research This study has generated outcomes of high potential value for future research. The following areas have been identified as valuable future extensions of this work:

 Determining possibilities for the collection process of such measures as identified by SAPAM by a government department i.e. the ACCC.

 To test SAPAM through full collection of required data and development of suitable metrics and performance benchmarks.

308  To assess SAPAM for its usefulness. To investigate whether SAPAM, consisting of operational, financial and social and environmental key performance indicators, as developed from stakeholder perspectives, provides an effective solution for assessing the overall performance of privatised airport operations.

 To extend the study to other airports by exploring the privatisation phenomenon at Australian airports. This would result in a comparative analysis of insights about the privatisation impact on Sydney Airport stakeholders with that on other airport stakeholders.

 To derive an index for the different stakeholders that would allow determinination of which stakeholder group is better or worse off. This might indicate unilateral decision making of the airport operator and investor and so make them more likely to consult with the other stakeholders in good faith before taking decisions such as the increased taxi and car parking charges.

 To identify whether SAPAM would be applicable to airports in other countries.

 To extend the model to other industries, for example telecommunications or electricity distributions where privatisation reforms have had an impact.

 To derive an overall index of whether privatisation outcomes have added value to public welfare by assigning weightings to the measures. Although this might be challenging as people hold various views about privatisation outcomes and it would be difficult to quantify, it nevertheless is feasible. For example, some countries develop which takes into account many non-financial aspects of human experience ,rather than relying on economic measures to tell them how well off they are. Such an approach to further research in the area of privatisation outcomes may be interesting and certainly of more use than the ideology and rhetoric about public welfare in government decision-making. This might affect government policy if the public welfare index idea was accepted

309 10.7 Chapter Conclusion This chapter has highlighted the overall findings of the field research that was conducted. The overarching aim of this study was to explore the privatisation of Sydney Airport from airport stakeholder perspectives. This involved two key aspects: a) to understand how Sydney Airport stakeholders feel about the existing privatisation reforms; and b) to develop a “Stakeholder Airport Performance Assessment Model” with key indicators for privatised airport performance assessment from airport stakeholder perspectives. The reasons for privatising Sydney Airport were stated., and the impact of privatisation on Sydney Airport stakeholders was analysed. Due to the changes that have occurred in the air transport Industry, the applicability of the Stakeholder Airport Performance Assessment Model (SAPAM) was discussed. Finally, the implications of the research for theory and practice were considered. Possible limitations of the research outcomes were discussed, and potential areas for future research were identified.

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324 APPENDICES

A 1- Feedback from Pilot Interviews ...... 326 A 1. 1 - Comments on Interview Questions...... 326 A 1. 2 - Comments on Information Sheet / Consent Form ...... 327 A 2 - Final Interview Questions ...... 329 A 3 - Information sent to Participants...... 334 A 3. 1 - Participant Consent Form...... 334 A 3. 2 - Information Sheet ...... 335 A 4 De-Identification of Research Participants...... 337 A 5– Interview Log Book (Date, Time and Location of Interviews) ...... 338 A 6 - Transcription Letter send to Participants for Verification Purposes...... 340 A 7– Nvivo v.7 Tree-Nodes ...... 341 A 8– Leximancer ...... 344 A 8. 1: Vocabulary associated with the 15 key concepts ...... 344 High Frequency Concepts...... 345 Medium Frequency Concepts ...... 347 Low Frequency Concepts ...... 349 A 9 - List of Publications & Recognition to date ...... 353

325 A 1- Feedback from Pilot Interviews

A 1. 1 - Comments on Interview Questions

 Overall, good and precise questions

 The structure and preparation for the interviews seems to be well organised

 Ensure that the interview questions are in line with the research questions. Carry out a mapping exercise o In regards to the mapping of the interview questions with the research questions refer to the tabular representation on the interview question and the first column in Appendix A 2- the final interview questions

 Avoid leading questions and also hypothetical ones, examples:

Questions that were deleted

Is it easier in dealing with the private airport operator than it was with the government authorities?

Did you have more say in the airport day-to-day operations pre-privatisation?

If you could turn back time, would you prefer to get back to the pre privatisation era?

Do you agree that privatised airport operations have become more environmentally friendly, or do you think the focus is purely on the ‘bottom line’

 Avoid question overlap, examples:

Questions that required adjusting

Would you be able to give examples of

 positive privatisation experience encountered so far, for organisation, for public  negative privatisation experience encountered so far, for organisation, for public

326 What were the direct consequences for airport operators and airlines from the Sydney Airport privatisation in 2002? (i.e. monopolistic attributes of airport operators, charge increases for airport users, commercial & real estate developer approach to land…)

Modification to Interview Questions

Who do you think has benefited the most from the privatisation of Sydney airport? (the airport operator, airlines, consumers, the government, the community = airport users vs. airport operators & consortia) Why? How? Examples….

What was the most important pre and post privatisation organizational change observed (i.e. restructuring, regulations, bureaucracy, and restrictions?)  at overall Sydney airport  in your organization

 Additional questions re. the performance model development that the researcher did not consider, examples:

Questions added From your viewpoint, what is an appropriate measurement tool for assessing the outcome of privatisation reforms for airports?

How would you define/ measure overall airport efficiency and profitability in financial and non-financial terms?

A 1. 2 - Comments on Information Sheet / Consent Form

 The confidentiality aspect of your field study has to stand out in the letter (information sheet) that you send out.  Provide assurance that the transcripts will be sent to the interviewees for verification, prior to conducting any type of analysis. This is extremely important as your sample consists of highly ranked and influential individuals in the Australian air transport sector.  Check your spelling and sentence structure (be careful with the usage of semi colons)  The consent form is fine

327 Additional information added to the Information Sheet:

Please note that this PhD project has been approved by the University of Western Sydney Ethics Clearance Committee and anonymity of participants and confidentiality is guaranteed.

All information collected in the interview will be treated with utmost confidentiality:

 the interview transcript will be sent to you for confirmation and you can remove and veto company sensitive information you do not wish to be included in the transcript  due to the confidential nature of this project your company will be de- identified  all participants will be informed about the overall outcome of the research conducted once the final analysis/ PhD is complete.

328 A 2 - Final Interview Questions

329

INTERVIEW QUESTIONS

PhD Project: Impact of Privatisation on Stakeholders and Corporate Performance – A Study of Sydney Airport

330 STRUCTURE OF THE INTERVIEW & INTERVIEW QUESTIONS

Note: The interviewees will be asked to answer from Corporate perspectives. No personal opinions/ private views are sought. Maximum length of Interview 60 minutes.

Interview Structure Open Ended Questions

Interviewee What position do you hold with your organization? Length?

Background: What are your key duties in your organization?  Interviewee Position Have you been directly/ indirectly involved/ influenced in/ by the Australian 1st phase airport privatisation in  Responsibilities 1996 or the 2002 Sydney airport privatisation?  History

What do you see as the main objectives behind privatisation reforms? RQ 1: Views on

Privatisation Do you think that the privatisation of Sydney Airport fulfilled the government’s desired objectives? (greater efficiency and profitability of operations) (Examples) General View  (corporate In your opinion, at the time of planning what were the pre and post privatisation concerns for your organisation. perspective) Why? (Examples) Airport Specific 

Would you be able to give examples of  positive privatisation experience encountered so far, for organisation, for public negative privatisation experience encountered so far, for organisation, for public

331

Who do you identify as the key stakeholders of Sydney Airport? Who has the most stakeholder power/ RQ 2: Impact of influence on airport operations? Sydney Airport Who do you think has benefited the most from the privatisation of Sydney Airport? (the airport operator, airlines, Privatisation on consumers, the government, the community = airport users vs. airport operators & consortia) Why? How? Stakeholders (Examples)

What was the most important pre and post privatisation organizational change observed (i.e. restructuring,  Who are regulations, bureaucracy, and restrictions?) Stakeholders  at overall Sydney Airport  Operational  in your organization Impact  Financial Impact What are the differences in terms of dealing with the private airport operator as opposed to a government  Environmental authority? Why? How? (Examples) Impact  Power In which way have your day-to-day business operations been affected through the privatisation of the airport  Changes Pre/ business? (Power of the airport operator / government on your operations). Why? How? (Examples) Post Privatisation  Financial impact  Operational impact (Service, Process, Quality)  Environmental Impact

In your opinion what is the future outlook for Sydney Airport stakeholders?

Since Privatisation, do you believe Sydney Airport has become accountable and transparent to the public?

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How is overall airport performance assessed? Is it different pre and post privatisation? RQ 3: Views on

Airport Performance From your viewpoint, what is an appropriate measurement tool for assessing the outcome of privatisation reforms?

 What is Airport How would you define/ measure overall airport efficiency and profitability in financial and non-financial terms? Performance  Performance What are the key performance indicators to assess airport performance? Measurement  Financial  Non financial

What are the key indicators (measures) that you use in assessing your companies corporate performance?  Financial  Non-financial

Have you analysed your company performance pre and post privatisation? If so – what was the outcome? What has changed? Why? Is it possible to obtain a copy of it?

Regarding the propose Airport Performance Scorecard (please see p. 10 of the PhD Project Overview) - Are there any additional indicators and/or perspectives that you believe need to be taken into account – from your perspective as a key stakeholder

How do you perceive privatised airport performance being the sum of the performance of all key airport stakeholders? What changes could be made to this performance measurement tool?

Is there anything else that you would like to share on the topic of:  Airport privatisation  Airport performance Measurement

333 A 3 - Information sent to Participants

A 3. 1 - Participant Consent Form

To Dorothea Zakrzewski University of Western Sydney School of Accounting Locked Bag 1797 Penrith South DC 1797 NSW

CONSENT FORM for RESEARCH PROJECT: Impact of Privatisation on Stakeholders and Corporate Performance – A Study of Sydney Airport

Dear Dorothea Zakrzewski

I______(insert name) have read the project description and would like to participate in an interview for your PhD research project: “Analysing the impact of privatisation on stakeholders at Sydney airport”.

I have been made aware that the intention of the scheduled interview is for me to respond freely to the questions asked. All information collected through the interviews will be treated confidentially and the overall research outcome will be revealed to me prior to publication.

I have been made aware that I can withdraw from this project at anytime without providing any explanation should I no longer wish to participate. I do not have to answer all the questions asked.

Regards,

Date: ______

Signature: ______

334 A 3. 2 - Information Sheet

Impact of Privatisation on Stakeholders and Corporate Performance - A Study of Sydney Airport

To Whom It May Concern:

My research area involves the analysis of the impact of privatisation on stakeholders of Sydney airport. As you are working for one of the identified key stakeholder groups of Sydney airport, I would be very interested in your point of view on the privatisation phenomena and how it has impacted your operations.

Please regard this letter, together with the attached research proposal, as an invitation to participate in this project.

Airports are key strategic assets of national significance and thus it is arguable that airport operators should be accountable to various stakeholder groups such as airlines, passengers, investors and other service providers. Stakeholders are those affected by and therefore have a stake in the activities and achievements of an organization. In a broad sense the interests of stakeholders define why an organisation exists. My project looks at the experiences of various stakeholder groups of Sydney airport and the impact of privatisation reforms on overall airport performance from their viewpoints.

As my research focuses on subjective experiences and views of defined stakeholder groups I would like to personally interview representatives of the groups. The interview questions will be sent to you in advance so that you would be aware of the type of information sought. The maximum length of the interview is approx. 60 minutes.

All information collected through the interviews will be treated confidentially and all participants will be informed about the overall outcome of the research conducted. If you are not personally able to participate in this project, I would be most grateful if you could direct me to one of your colleagues who is happy and able to share his or her views on the impact of privatisation.

Please note that this PhD project has been approved by the University of Western Sydney Ethics Clearance Committee and anonymity of participants and confidentiality is guaranteed.

335 All information collected in the interview will be treated with utmost confidentiality:

 the interview transcript will be sent to you for confirmation and you can remove and veto company sensitive information you do not wish to be included in the transcript  due to the confidential nature of this project your company will be de- identified  all participants will be informed about the overall outcome of the research conducted once the final analysis/ PhD is complete.

The research project, will be conducted by myself, Ms. Dorothea Zakrzewski from the School of Accounting at the University of Western Sydney. It is supervised by Prof. Roger Juchau (School of Accounting) and Prof. Ross Chapman (Associate Dean Research College and Business).

Again, please view this letter as an ‘invitation to participate’. If you express an interest to participate in this project, I would contact you in early 2007 to arrange for a convenient time to carry out the interview. Your involvement in this project would add to its value considerably. Please be aware that you can withdraw from this project at anytime and that, as mentioned above, all the data collected is treated with absolute confidentiality

I would be more than happy to discuss this project in more detail with you at anytime. Please do not hesitate to contact me by email at [email protected] or by phone on 02 – 4620 3476 or 04315 65214. You may also contact my principal supervisor Prof. Roger Juchau at [email protected] .

I trust this project is of interest to you. I look forward to hearing from you.

Yours faithfully

Dorothea Zakrzewski

NOTE: This study has been approved by the University of Western Sydney Human Research Ethics Committee or Panel (indicate Committee or Panel). The Approval Number is HREC 06/190 If you have any complaints or reservations about the ethical conduct of this research, you may contact the Ethics Committee/Panel through the Research Ethics Officers (tel:: 02 4736 0883 or 4736 0884). Any issues you raise will be treated in confidence and investigated fully, and you will be informed of the outcome.

336 A 4 De-Identification of Research Participants

In-Text INTERVIEWEES Cross Ref.

Airline 1 1

Airline 2 2

Airline 3 3

Airline 4 4 Airlines Airline 5 5 Airline 6 6 Airline 7 7

Airline 8 8 Airport Operator 1 9 Airport Airport Operator 2 (pre-privatisation) Operator 10 Airport Operator 3 (pre-privatisation) 11 Federal Government 1 12 Federal Government 2 13 Local Government 1 Government / 14 Community Local Government 2 15 Local Government 3 16 Community Group 17 Infrastructure Asset Provider 1 18 Others Infrastructure Asset Provider 2 19

Investor Investor 1 20

337 A 5– Interview Log Book (Date, Time and Location of Interviews)

338 Interviewees Date of Interview Location Time In-Text Cross Ref. Airline 1 12.9.2007 Sydney Airport 10.00 a.m.- 10.30 a.m. 1 Airline 2 20.9.2007 Sydney Airport 9.30a.m. - 10.30 a.m. 2 Airline 3 20.3.2007 Sydney Airport 15.00 p.m. - 16.15.p.m. 3 Airline 4 20.3.2007 Sydney Airport 17.00p.m. - 17.30 p.m. 4 Airlines Airline 5 10.5.2007 CBD Sydney 10.30 a.m.- 12.00 p.m. 5 Airline 6 13.4.2007 Canberra 11.00 a.m. - 12.30 p.m. 6 Airline 7 12.9.2007 Sydney Airport 14.00 p.m. - 14.45 p.m. 7 Airline 8 13.9.2007 Brisbane Airport 8 Airport Operator 17.5.2007 Sydney Airport 11.30 a.m. - 12.30 p.m. 9 Airport Airport Operator 17.8.2007 CBD Sydney 11.00 a.m. - 12.00 p.m. 10 Operator Airport Operator 18.7.2007 CBD Sydney 10.00 a.m.- 11.15 a.m. 11 Federal Government 20.5.2007 CBD Sydney 10.30 a.m. - 11.45 a.m. 12 Federal Government 24.4.2007 CBD Sydney 11.00 a.m. - 13.00 p.m. 13 Government/ Local Government 10.5.2007 CBD Sydney 14.00 p.m. - 15.00 p.m. 14 Community Local Government 3.9.2007 Sydney Airport 10.30 a.m. - 11.15 a.m. 15 Local Government 12.4. 2007 CBD Sydney 11.00 a.m. - 11.30 a.m. 16 Community Group 29.5.2007 CBD Sydney 19.00p.m. - 19.45 p.m 17 Infrastructure Asset Provider 1 17.8.2007 Sydney Airport 15.00 p.m. - 16.00 p.m. 18 Others Infrastructure Asset Provider 2 19.4.2007 Canberra 11.00 a.m. - 12.00 p.m. 19 Investor Investor 9.10.2007 CBD Sydney 10 a.m - 11.00 a.m. 20

339 A 6 - Transcription Letter send to Participants for Verification Purposes

Address August, 20th 2007

Re: Transcription validation for PhD Project on Sydney Airport Privatisation Dear Mr. XXXX

I would like to take this opportunity to thank you once again for meeting with me regarding my PhD project on Sydney Airport Privatisation.

I have enclosed your interview transcript for your confirmation. As indicated during the interview you may veto sensitive information at this stage. The confidential nature of this project means that your company will not be identified in the final write-up of the study. The content of the transcript will be analysed with the help of the Leximancer and Nvivo v7software for qualitative studies. Please note that this transcript has not been edited in terms of sentence flow or grammar.

I would appreciate, and it would be very valuable for the progress of my research, if you could indicate any changes you wish to make to the enclosed hard copy of the interview transcript. Your response by August 31st 2007 is appreciated. If I don’t hear from you by then I believe you are happy with the content of the transcript. Please be so kind to send the transcript to the address above.

Please do not hesitate to contact me by email at [email protected] or by phone on 02 4620 3476 or 04315 65214 should you have any further concerns or questions. With thanks for your attention,

Yours truly, Dorothea Zakrzewski

A 7– Nvivo v.7 Tree-Nodes

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A 8– Leximancer

A 8. 1: Vocabulary associated with the 15 key concepts High Frequency Concepts

Airport (1) Airline (2) Government Passengers (4) People (5) (3) Airport /s Airline/s government Passenger/s people government Airport/s airport /s Airport/s airport/s airlines government airlines airlines aircraft Sydney Airport Sydney airport Sydney Airport retail Sydney people regional privatisation revenue commercial community time commercial experience time commercial passengers community charge/s community privatisation charges investment aircraft experience terms people private terminal noise charges Sydney money time walk years Qantas price Sydney Airport money regional commercial regional cost business capital passenger time security issue cost power federal terms terminal councils major owned regional regional development privatisation ownership screening government airline revenue local pay facilities local pricing issue money shopping passenger/s operators aviation people local Medium Frequency Concepts

Commercial (6) Terms (7) Regional (8) Money (9) Cost (10) commercial terms regional money cost airport airport /s airport/s airport/s costs development government airlines government airport/s developments commercial government spend capital government Sydney people people charges airlines airlines slots airlines price private time services Sydney airlines terms passenger charges passengers passenger investment charges Rex years government negotiations regional aviation amount aircraft Sydney revenue Sydney charges security retail capital terms community regional passengers aeronautical slot councils average community Qantas cost fuel Sydney impact people aircraft time increase activities terminal city view operations aeronautical price passengers cost charge business place communities fund measurement traffic years councils local aeronautical

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Low Frequency Concepts

Price (11) Community Privatisation Charges (14) Capital (15) (12) (13) price community privatisation charges capital airport/s airport/s airport/s airport /s airport/s government local government aeronautical cost ACCC government process airlines years cost people impact regional airlines Sydney Airport impact community charge government airlines Sydney Airport post Sydney infrastructure assets privatisation pre increase expenditure terms regional airlines passengers price charges services time cost terms capital development regime price Sydney percentage time Sydney revenue investment charge money objectives capital city people perspective capital passenger regional market infrastructure years ACCC commercial time communities commercial services privatisation outcome privatisation Australia money major reasonable airlines negative pay recovery regional noise pricing terms revenue airline town place years charges

High Frequency Concepts By reviewing the vocabulary as set out in table above, the three key concepts ‘airport’, ‘government’ and ‘airline’ have the first four seed words in common. The concept ‘airport’ embraces words such as ‘commercial’, ‘people’, ‘community’, ‘development’ and ‘local’. While the definition of the word ‘airport’ is straightforward the complexity of the concept is, as also noted and illustrated previously in section 5.9, discussed by respondents in terms of delivery of public service and ongoing commercial development on the airport site.

The second most frequently occurring concept ‘airline’ uses words such as ‘pricing’, ‘term’, ‘service’, ‘passengers’, and ‘charges’. These suggest an idea of the post-privatisation relationship between the airlines and the airport operator, which is supported by an airline history of disputes about charges and negotiation difficulties.

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Sydney is at the edge in terms of its relationship with airlines over pricing. My sense is that there will need to be some moderation in that process. The airlines look very critically at every dollar that’s been spent in terms of capital investment, and they are certainly very critical of the charges they pay and for the service levels that they now get from the airport. (Interviewee 19 - Others)

In particular the airline stakeholders refer to a certain power struggle when elaborating on the government expectation of a commercial negotiation process between airlines and airport operator in price setting and other operational aspects at Sydney airport.

The third concept ‘government’ highlights the word ‘privatisation’ as the fourth most frequently occurring word next to other commonly used words such as ‘commercial’, ‘private’, ‘investment’, ‘passengers’ and ‘price’. Comments from the interviewees when referring to the ‘government’ were directed towards the objectives of and reasoning behind the privatisation reforms:

Government made it very clear at the time of privatisation, that there should be commercial negotiations and transparency between the parties about what their capital plans were and what the pricing proposals are going to be. (Interviewee 5 - Airlines)

In other circumstances the concept ‘government’ was also used by the respondents when commenting on the differences and outcomes of public versus private ownership as well as management.

Australia has a very good reputation for engineering at airports, and that airports are well designed, well maintained. But because that came out of government ownership we had no real commercial drive. (Interviewee 12- Government)

The fourth and fifth concepts, ‘passenger/s’ and ‘people’, are to be considered together due to similarities of words employed such as ‘retail’, ‘experience’, ‘money’, ‘terminal and ‘revenue’. These two concepts were used interchangeably in similar contexts by the interviewees, as shown below:

Our aviation industry is carrying record numbers of people at the airports currently. Having been around this for some time if we

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would not have we not privatised the airport, we would be having significant capacity problems at each of our major airports, now. (Interviewee 12- Government)

The terms ‘passenger’ and ‘people’ refer to the airport or airline customers. These stakeholders are important when considering the model attributes from the operational perspective in chapter 9.

From the moment the passenger hops out of a vehicle and arrives curb side at departures, checks in, goes through security, boarder control agencies, all the way through to the gate, what the airport is on about working with the airlines is to ensure that the passengers and people has a good facilitation experience. (Interviewee 9- Airport Operator)

Medium Frequency Concepts ‘Commercial’ comprises the sixth most commonly referred to concept in the transcripts and is linked to words such as ‘development’, ‘investment’, ‘private’, ‘business’, ‘retail’ and ‘privatisation’. This concept received many mentions by interviewees because of the pursuit of commercial expansion by the operator of the privatised airport operator; an aside in favour of privatisation. An example is as follows:

No doubt that this was an undeveloped area of Australian airports pr-privatisation. The whole retail issue, the commercial development issue; there was land available on these airports for development. (Interviewee 12- Government)

In addition the concept ‘commercial’ in this study relates to the commercial negotiations between the airport operator and the airlines. Commercial negotiations and transparency as previously indicated have been government objectives when privatising airports in Australia (see section 3.3) and were also referred to in the submissions to the PC inquiry.

What we have at Sydney is what we call 'light handed regulation', where effectively the airport and the airlines are free to negotiate a commercial outcome, and it is only if they can't agree, the threat of a regulatory back stop emerges. ( ) It's not an instant threat, there are several more stages that you go through before you would reach a regulatory outcome. (Interviewee 20 - Investor)

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Stakeholder experiences with commercial negotiations are discussed in Chapter 8.

The concept ‘terms’ consists of words such ‘airlines’, ‘price’, ‘terminal’, ‘passengers’ and ‘government’. Typically, this word was used in the following scenarios:

From the Government’s point of view in terms of trading off the capital part of debt you can easily say that the passengers have a better experience at the airport than years ago, and certainly better than it would have been with airports still under Government ownership (Interviewee 13 - Government)

Alternatively:

The airlines general find that the terms and conditions contained within an agreement are one sided for example risk sharing & liabilities. Also even after we agree to a price, same airports reserve the right to increase prices. (Interviewee 1 - airlines)

Having examined the words making up the concept ‘regional’ many interrelationships were found to exist between this concept and other major concepts that have previously been explored in the data. This is illustrated as follows:

With the Sydney Airport privatisation in someway the services provided to regional operators might have diminished somewhat, their slots might have been shifted around, and there was a discussion whether they might loose slots. (Interviewee 14- Government)

The concept ‘regional’ is used in referring to the regional air service providers. In light of Sydney Airport privatisation, the privatised airport operator imposes, it is claimed, a so-called ‘take it or leave it’ approach on regional airlines. It is suggested that larger customers are favoured due to their ability to bring in additional revenue and with airport capacity constraints, the airport operator

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has little interest in smaller regional operators. This is discussed in Chapter 8 and forms a central argument of this thesis.

The next concept in terms of occurrence is the concept ‘money’. Interviewees commonly alluded to privatisation as nothing else but a money-making exercise:

Standards will fall and prices will come up because the key and only objective of a privatised operator is to make money. (Interviewee 11- Government)

The ‘cost’ concept contains words such as ‘airport’, ‘operations’ and ‘measurement’ and is discussed by one interviewee as follows:

Efficiency gains can be measured in a number of ways, from the cost of operating the airport, so you look at our operating cost, and the operating cost of Sydney Airport have gone down quite significantly, and it's been held at a very low level. (Interviewee 9 – Airport Operator))

Low Frequency Concepts Most respondents discussed ‘price’ in terms of the sales price of the airport:

Very soon after we had acquired Sydney Airport, there was quite a strong feeling amongst the institution, (that's the community), that we had significantly over paid for it's investment in Sydney Airport. Original price of the airport was a total of about $5 billion dollars, of which 2 billion dollars was equity, and the 3 billion dollars was debt. (Interviewee 20- Investor)

Other interviewees considered it also in the context of charges imposed on airlines. An example from the data is as follows

The key matter that we can almost never agree on is the price. Much of the discrepancies are driven by passenger forecasts, valuation of assets or the asset beta that the airports use. (Interviewee 1- Airlines)

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This view is in accordance with the submissions made by airline stakeholders to the Productivity Commission (PC) inquiry in 2006 on airport pricing. Airlines claimed excessive airport charges particular in areas not captured by the definition of aeronautical (versus non aeronautical) charges, unrealistic asset valuations and claims that airports as monopolies have no intention of engaging in commercially constructive way with airport users (ACCC; Airlines 2006; Qantas 2006).

The concept of ‘community’ is fundamental to an analysis of national infrastructure assets such as airports due to community vested interest, interaction and involvement. After all airports are very large businesses that operate in a local community. Key words in the vocabulary for this concept include ‘local’, ‘government’, ‘Sydney Airport’ and ‘privatisation’. The following are examples from the government and airport operator viewpoints respectively that highlight community interaction:

The airport is much more aligned with the local community, than it was under government ownership. I mean the negative of government ownership is that it is the government's monopoly in its own right. (Interviewee 13- Government)

We work with a lot of the local primary schools for instance to give them knowledge/experience what an airports all about, we involve them in our environmental strategies, for them to understand how the airport operates, where it fits within the community. when we engage with the community, they understand the importance of the airport in any major capital city. (Interviewee 9- Airport Operator)

The ‘privatisation’ concept is of major importance to this study and is explored in more depth and detail in the following chapters. Most respondents discussed this concept when comparing the pre and post privatisation situation, especially in the context of post privatisation improvements and capital investment, and what the airport would have been like were it still in government hands. The words contained in the vocabulary for ‘privatisation’ are ‘community’, ‘infrastructure’, ‘concerns’, ‘commercial’, ‘impact’, ‘process’ and ‘objectives’.

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I think the issue with airport privatisation is that one needs to take a step back and have a look at the benefits both from an economic point of view, and also from a transport facilitation point of view.

I mean the commercial development is one aspect of what some customers want. However the cost of a coffee, the airport pricing of car parking and all of that indicates that prices have gone up and standards have come down. (Interviewee 11- Airport Operator)

The next concept that was highlighted in the table is that of ‘charges’; included in its vocabulary are ‘increase’, ‘pay’, ‘ACCC’, ‘airports’, ‘airlines’ and ‘regional’. Interestingly this concept shares some similarities with the airline, price and regional concepts as it is used in the context of airport imposed charges on airlines. This similarity is illustrated by:

That's the issue that we are struggling with when dealing with airports because they tend to just continue to increase their charges, and growth may be faster than their investment. Their charges should be coming down. (Interviewee 2- Airlines)

Alternatively:

International and heavy jets take priority over regionals, and we sort of pick up the crumbs that are left over. At the end of the day, we are paying a whole lot more than we used to have to pay, but we are getting second rate services at some airports. (Interviewee 6- Airlines)

The final concept to be reviewed in this section is that of ‘capital’. Although it is the fifteenth ranked concept in this study, its meaning within the data is nevertheless important as it relates to capital investments undertaken post privatisation. This concept has amongst its vocabulary, ‘commercial’, ‘return’, ‘infrastructure’, investment’, ‘airport’ and ‘revenue’. Examples of interviewees discussing the concept of capital are below:

I believe that an airport should be able to make an appropriate return on capital and it should be able to maximise that and on top of that it should be able to do whatever it likes commercially. I think we’ve gone too far on being totally light handed. There must

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be some mechanism to make sure that there aren’t excessive profits. (Interviewee 10 -Airport Operator)

They are looking at generating as much revenue as they can from the infrastructure that they got, so they are investing in that. So from an airline's perspective that's positive, you know we see improvements of the terminals, and the airfield, and quicker response times in terms of new capital investments to accommodate airlines' new aircraft investment. (Interviewee 2- Airlines)

Whilst analysing the vocabularies of the key concepts it is noted that although similar words are contained within the individual lists, their ranking differs. While concept frequency and comprehension of the vocabulary of key concepts is useful in the initial stages of qualitative data analysis, this study focuses on understanding the meaning and relatedness of concepts within the text. The next section examines the degree of connectivity of particular key concepts through conceptual mapping. The aim is to identify the central themes for this study.

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A 9 - List of Publications & Recognition to date

External grants & recognition to date

 American Institute of Management Accountants (IMA) Foundation for Applied Research (FAR) Doctoral Grant in recognition of PhD topic (US 9000)

 Accounting and Finance Association of Australia and New Zealand (AFAANZ) Grant for a project on ‘the Impact of Aircraft lease-purchase decision making on financial reporting’ (AUD 3700)

 Participant at the Deloitte Michel J. Cook American Accounting Association (AAA) Doctoral Consortium 2007, Lake Tahoe CA as the (Accounting and Finance Association of Australia and New Zealand) AFAANZ representative

 Research secondment in 2007 to the Centre of Industry and Innovative Studies at the University of Western Sydney: Lodgement of additional grants and industry research undertaken Conferences (Presentation of research findings)

 Assessing Airport Privatisation from stakeholders views; presented at the Air Transport Research Society (ATRS), Athens (Greece), July 2008

 Linking aircraft lease-purchase decision making to corporate performance: a study of regional aviation in Australia presented at the Air Transport Research Society (ATRS), Athens (Greece), July 2008 th  Airport Innovation driven by Privatisation; presented at the 9 International Continuous Innovation Network (CINet) Conference, Valencia (Spain) September 2008

 The Airport Performance Model –airport performance viewed from stakeholder perspectives –conference presentation at the 4th Performance Management conference - EIASM, Nice (France) in September 2007

 Challenges of Regional Aviation in Australia: A case study of Rex Airlines; presented at Air Transport Research Society (ATRS), UC Berkeley California, June 2007

 How successful was Sydney Airport Privatisation? presented at the Air Transport Research Society (ATRS), Nagoya Japan 2006

 Have privatised airports become more accountable in their social disclosure to stakeholders? presented at the Accounting and Finance Association of Australia and NZ (AFAANZ), Wellington, NZ Publications

 Zakrzewski, D. (2008) Assessing privatised airport performance from stakeholder viewpoints – A Study of Sydney Airport; Book Chapter 11: Studies in Managerial and Financial Accounting, volume 18, Performance Measurement and Management Control: Measuring and Rewarding Performance, edited by Epstein and Manzoni

 Zakrzewski, D. (2006) Airport Privatisation – Success or Failure. The Airport Performance Scorecard a Theoretical Assessment Tool; Aerlines Magazine, Issue 34, Nov. 2006 (ISSN: 1569-7649)

 Zakrzewski, D, Juchau, R. (2006) Privatisation Impact & Social Disclosure: The Case Study of Sydney Airport, APCEA, Volume 12 No. 4, December 2006 (ISSN – 1442- 1224)

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