Perceptions of Privatisation and Corporate Performance: A Study of Sydney Airport 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 Airline 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
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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 New South Wales
PC Productivity Commission
RAAA Regional Airline Association of Australia
Rex Rex Airlines (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