Case Study: a Comparison Between Barcelona and Malpensa De-Hubbing

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Case Study: a Comparison Between Barcelona and Malpensa De-Hubbing Case Study: A comparison between Barcelona and Malpensa de-hubbing. Andrea Giuricin PhD. Student In “Istituzioni, Amministrazioni e Politiche Regionali” three years scholarship, jointly organised by Pavia University, Catholic University, Milan University and Politecnico di Milano, Specialization in Public Economy and Transport Economics. Lecturer in Public Finance, Faculty of Economics, University Milano Bicocca. Fellow at Bruno Leoni Institute and author of the book “Alitalia, the never-ending privatization” and other publications on transportation's sector. Abstract In April 2008, Alitalia implemented a new industrial Plan, which aimed at reducing cost and redefining the network. These applied on a new strategy of Alitalia from a multi-hub system to one- hub system. SEA, Milan airport’s operator, decided to react in two directions. First, changing strategy from hub&spoke to a point to point network model. Second, lobbing national Government to liberalize bilateral agreements. This paper examines these two strategies and the results that were achieved. The Spanish flagship carrier Iberia made an important de-hubbing in the second airport of Spain, Barcelona. In these two cases, there are some similarities but also differences. Malpensa and Barcelona made agreement with low cost carrier Easyjet to substitute national flagship carriers. They have a similar competition by a secondary airport in the catchment area, where main airline is Ryanair. However airport operator is managed by AENA, a state-owned company, while Malpensa is managed by SEA, controlled by municipality of Milan. This paper analysed data from AENA and internal data from SEA. This availability allows a statistical comparison between the different reaction’s strategies. The goal of this paper is to make a comparison between the airport operator’s reactions face to dehubbing. In Malpensa’s case an individualized one, and a centralized in Barcelona’s case. I study how these different strategies have impact on type of carriers that invested in the airport to substitute flagship carrier and on new network model after dehubbing. Case Study: A comparison between Barcelona and Malpensa de-hubbing. Introduction European air transport, fully liberalized on 1st of April 1997, has gone under a very important evolution, or revolution. (Oum, 2009). Market growth has reached over 100 per cent in many European states, Spain and Italy between them. Both countries achieved to catch the air traffic, in particular low costs' one. Low cost companies has become essential players in the air transport field, and actually two of the four main European companies, in terms of carried passengers, are low cost carriers. The flagship carriers of those two countries, Iberia in Spain and Alitalia in Italy, had to face difficulties in a new competition situation, but reacted in a different way. The Spanish flagship carrier has deeply reorganised and has been privatized by the Government between the end of the nineties and the beginning of 2000. The same didn't take place in Italy, where the different Governments, centre-left winged and centre-right winged, have been keeping on giving public funds – more than 4 billion Euro between the 1996 and the 2008 – to save Alitalia. Even so the Italian carrier underwent bankruptcy in 2008, as it was not able to compete anymore in a market getting more and more competitive, despite of a business reorganization attempt tried with the so called Piano Prato, enacted in the end of March 2008. The air sector needs the companies, in order to withstand the competitive pressure, to have an extreme flexibility. In this, Iberia succeeded, as during the last years it has been reorganizing completely. This reorganization involved its own operative type, being the company focusing over Madrid's airport Barajas and with the creation of a low cost subsidiary, ClickAir, which has been able to feed the regional traffic in a hub&spoke network. Alitalia, instead, even suggesting five industrial plans between 2001 and 2007, has never been able to enact them. The insistences coming from politics and syndicates (Ponti, 2007), exerted over a company controlled by a public main shareholder (Ponti and Boitani, 2004), Economy and Finance Minister, kept the company stuck in a continuous loss status. Between 2003 and 2008 the flagship company overstake losses higher than 3,5 billion Euro. The carrier has been keeping since the beginning, a double hub structure, with Milan Malpensa and Rome Fiumicino, tough owning only 24 long range aircraft. The reorganization took place with the Piano Prato, from the name of Alitalia's CEO, which removed the double hub structure and focused the traffic over Rome Fiumicino. This strategy was headed to attract the incoming air traffic from abroad to the Rome hub, instead leaving the outcoming traffic generated over Milano Malpensa unprotected. Those two flagship carrier's strategies had important consequences both on Barcelona’s hub and Milan Malpensa’s one, which underwent a dehubbing process. This paper's aim is to analyse first the dehubbing process in the two different European hubs enacted by the two national carriers, started, anyway, from two extremely different regulations conditions of the airport's branch. Than I take account of the existing competition of other airports in the same catchment area, in particular the one made by the two regional airports Girona and Bergamo Orio al Serio. The low cost carriers growth in regional airports situated near the main hubs played an important role. The different regulation and properties between the Italian airport system and the Spanish one had stimulated different reactions from the airport operators after the dehubbing process. Reported data aims to show the different reactions strategies of the hubs, if they took place. 1 Regulatory framework and air transport market evolution European air market underwent a strong growth over the last decade thanks to liberalization. On consequence the airports fronted a quick traffic growth. In particular, secondary hubs had developed, thanks to the coming of the low cost companies. Not all of those carries decided for a development model focused on regional hubs. In fact, Easyjet, the second European low cost company, mainly makes use of principal hubs and this is the case for Barcelona's and Milan Malpensa's airports. The Milan hub is the second European airport for the British company, which in 2009 will carry about 5 million passengers from and to this hub. Ryanair, the main European low cost company, with almost 70 million customers in 2009, makes instead use of secondary hubs, and in the particular case of Barcelona and Milan, utilised airports are Girona and Bergamo Orio al Serio. Low cost companies introduced some competition in the European panorama, even the business remaining characterised by an almost monopoly positions. If the competition is necessary, as underlined also in the London area by the English Office of Fair Trading1, it is important to highlight that there is an issue regarding the argument of the airport subsidies or the companies' ones from the Local Institutions. European Commission had faced this problem in the well know verdict about Brussel's Charleroi airport on the 12th of February 2004, where it was traced which could be the aids in a new route start-up. However a judgement of the Court of First Instance of 17 December 2008 revoked the Commission Decision 2004/393/EC of 12 February 2004 concerning advantages granted by the Walloon Region and Brussels South Charleroi Airport to the airline Ryanair in connection with its establishment at Charleroi. Thus the problem remains unsolved and, maybe, the most problematic cases stand in the Spanish case. In fact, in Spain all the airports are managed by an unique State-owned Enterprise, AENA, which applies the same fares in every hub in the Spanish country. In 2009 has been introduced the possibility to lower the airport fares of a 20 per cent for those companies which in 2009 increased the number of carried passengers compared to 2008. This decision should be a benefit for Ryanair, which is one of the few companies able to increase the offer and the carried passengers in Spain. Probably, after the merger between Clickair and Vueling, even this new company, majority share- held by Iberia, could profit by this fares advantage. 1 In April 2007 the Office of fair Trade formally referred BAA to the Competition Commission and invited the Competition Commission to investigate the supply of airport services within the UK under section 131 of the Enterprise Act 2006 Airports in the Barcelona catchment area, Girona, Reus and the city hub, show a strong presence of both Ryanair and the Iberia's low cost company. Thus the effects of this Government measure will show even on those airports. Thus, AENA, which applies the same fares for every company and for every airport, doesn't allow a competitive management of the airports. In addition the structure is strongly focused on Madrid, so Barcelona's airport manager can't search for agreements with any air company in order to develop the traffic over his hub. The problem is really relevant as any airport, in Spain, can't manage its own customer base and can't look the market for eventual operators which would like to invest on a certain airport. AENA management, strongly centralized, over the last years seems to have been focusing its own interests on the development of Madrid Barajas, the main Spanish hub with almost 50 million carried passengers in 2008. The Spanish capital's airport is the hub of the flagship company Iberia and over this hub the investments have been focused during the last years. The persisting lack of competition issue between the Spanish airports and the lack of a direct administration from the management of a certain hub is, thus, a serious limit.
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