ABSTRACT Baltrušaitytė, J. Strategic Development of Lithuanian Airports

ABSTRACT

Baltrušaitytė, J. Strategic Development of Lithuanian Airports [Manuscript]: Master’s Thesis: International Marketing and Management. Kaunas: ISM University of Management and Economics, 2013. In the modern global economy aviation activities at airports have grown exponentially by providing access to networks that transport people and goods all over the world. Airports contribute to the benefit of the local economies and communities creating opportunities for business and commerce, trade and tourism, employment and cultural development. The strategic development of airports is a major concern of airport managers in Europe as rapidly growing airports are tools for regional and national competition. During the recent years there have been many drastic changes in the Lithuanian air passenger market and a new strategic course is searched by the Lithuanian airport owner to develop the airports successfully. The research problem is - how the Lithuanian airports should be developed strategically. The study has a clear pragmatic aim to it – to provide empirically grounded recommendations for strategic development of Lithuanian airports. To arrive at the set aim, the author attempted to achieve 5 key objectives. Gathering, reviewing, screening and analysis of the academic literature and other secondary information sources enabled drawing findings, related to strategy, strategic development and critical success factors in general and further application in the airport context. For the purposes of the paper a new categorisation model of prevalent airport strategies in Europe was established as existing categorisations focused different parameters rather than commercial activities. The scarce and not systematic literary deliberations on airport critical success factors from the perspective of their strategic category confirmed the topicality and novelty of the reserach and proved the nedd for the established lists of airport critical success factors by strategic category to be empirically verified and extended. The execution of quantitative empirical research resulted in a solid set of primary data - experts’ opinions in respect to airport success factors in general and the development of Lithuanian airports. The synthesis of literature findings and empirical results enabled to draw out the generalizations on differences in the critical success factors perception and observed differences of critical success factors of an airport in general and based on specific strategic category that laid the foundation aiming to reaching the set goal of the research to provide empirically grounded recommendations for the strategic development of Lithuanian airports. The research contributes to the set of tools for airport managers and owners in Lithuania and beyond: to test and verify the underlying theories and assumptions and possibly, draw a model for improvement of the strategies set for the future development. The research contributes to the set of tools for airport managers and owners in Lithuania and beyond: to test and verify the underlying theories and assumptions to their airport case and draw a model for improvement of the strategies set for the future development. Keywords: airport, hub, O&D airport, low cost airport, airport system, strategic development, critical success factors.

SANTRAUKA

Baltrušaitytė, J. Strateginė lietuvos oro uostų plėtra [Rankraštis]: magistro baigiamasis darbas: tarptautinė rinkodara ir vadyba. Kaunas, ISM Vadybos ir ekonomikos universitetas, 2013. Šių laikų globalioje ekonomikoje aviacinė veikla oro uostuose auga dideliais tempais teikiant pervežimo paslaugas keleiviams ir kroviniams visame pasaulyje. Oro uostai prisideda prie vietos ekonomikos ir bendruomenių klestėjimo padėdami plėsti verslo ir prekybos ryšius, didina gyventojų užimtumą, skatina turizmą ir tarptautinį bendravimą. Oro uostų strateginė plėtra yra aktualus klausimas daugelyje Europos valstybių, nes sparčiai augantys oro uostai yra regioninio ir nacionalinio konkurencingumo įrankiai. Pastaraisiais metais Lietuvos oro keleivių rinkoje įvyko daug esminių pokyčių, ir Lietuvos oro uostų savininkas ieško naujos strategijos, kad sėkmingai plėtoti Lietuvos oro uostus ateityje. Šio baigiamojo darbo problema – išsiaiškinti kaip plėtoti Lietuvos oro uostus strategiškai. Aiškus ir pragmatiškas tyrimo tikslas – pateikti empiriškai patikrintas rekomendacijas strateginei Lietuvos oro uostų plėtrai. Siekiant užsibrėžtų tikslų buvo nustatyti ir sprendžiami 5 darbo uždaviniai. Teorinės literatūros ir kitų surinktų, antrinių informacijos šaltinių susisteminimas ir analizė leido prieiti su strategija, strategine plėtra ir kritiniais sėkmės veiksniais susijusias išvadas bendrai ir oro uostų industrijos kontekste. Darbo tikslams pasiekti buvo sukurtas naujas oro uostų kategorizavimo modelis pagal Europoje vyraujančias oro uostų veiklos strategijas, kadangi esami modeliai pagrįsti įvairiais kitais parametrais, o ne komercine veikla. Riboti ir nesistemiški svarstymai literatūros šaltiniuose oro uostų kritinių sėkmės veiksnių tema žvelgiant iš kiekvienos strateginės kategorijos perspektyvos įrodė darbo problematikos aktualumą ir naujumą ir įrodė poreikį sudarytus kiekvienos kategorijos oro uostų kritinių sėkmės veiksnių sąrašus empiriškai patikrinti ir papildyti. Įgyvendinus empirinį kokybinį tyrimą gautas pirminės informacijos rinkinys – ekspertų nuomonės leido susidaryti išsamų vaizdą apie oro uostų kritinių sėkmės veiksnius iš esmės ir Lietuvos oro uostų strateginę plėtrą. Teorinės literatūros ir empirinio tyrimo rezultatų sintezės metu buvo suformuluotos esminės išvados apie oro uostų kritinių sėkmės veiksnių sampratos skirtumą ir pastebėtus skirtumus įvardinant bendrus oro uostų kritinių sėkmės veiksnius ir atskirai kiekvienai strateginei kategorijai, kas padėjo pagrindą siekiant įvardinto tyrimo tikslo – pateikti rekomendacijas strateginei Lietuvos oro uostų plėtrai. Šis tyrimas papildo Lietuvos ir kitų šalių oro uostų sąvininkų ir naudotojų turimą įrankių bagažą siekiant patikrinti egzistuojančią literatūrą ir daromas prielaidas jų oro uosto atvejui ir nubrėžti gaires tolimesnei strateginei plėtrai. Raktiniai žodžiai: oro uostas, habas oro uostas, atvykimo/išvykimo oro uostas, žemų sąnaudų oro uostas, oro uostų sistema, strateginė plėtra, kritiniai sėkmės veiksniai.

CONTENT

List of Tables ...... 6 List of Figures...... 6 List of Abbreviations ...... 7 INTRODUCTION ...... 8 1. LITERATURE REVIEW ...... 11 1.1. Concepts of Strategic Development: Planning and Management ...... 11 1.2. Strategic Planning and Management in Airport Context ...... 14 1.3. Concept of Critical Success Factors...... 16 1.4. Relevance of Airport Classification ...... 17 1.4.1. Hub Airport...... 18 1.4.2. Low Cost Airports...... 20 1.4.3. Origin-Destination Airports...... 21 1.4.4. Airport System...... 21 1.5. Critical Success Factors in Airport Context ...... 23 1.5.1. CSFs of Hub Airport Category ...... 26 1.5.2. CSFs of Low Cost Airport Category ...... 27 1.5.3. CSFs of O&D Airport Category ...... 29 1.5.4. CSFs of Airport System Category...... 30 1.6. Conclusions on the Literature Review ...... 31 2. RESEARCH PROBLEM DEFINITION ...... 33 3. RESEARCH METHODOLOGY ...... 34 3.1. Research Aim and Objectives ...... 34 3.2. Research Design, Method and Sample Selection ...... 34 3.3. Research Questionnaire ...... 36 4. RESEARCH PROCESS AND RESULTS ...... 37 4.1. Data Collection and Analysis ...... 37 4.2. Research Results ...... 38 4. 2.1. Research Topicality Verification ...... 38 4. 2. 2. Experts’ Airport Success Determinants ...... 39

4. 2. 3. Experts’ CSFs of Hub Airport Category ...... 41 4. 2. 4. Experts’ CSFs of Low Cost Airport Category ...... 43 4. 2. 5. Experts’ CSFs of O&D Airport Category ...... 45 4. 2. 5. Experts’ CSFs of Airport System Category ...... 46 4. 2. 6. Experts’ Recommendations for Lithuanian Airport Strategic Development ...... 48 4.3. Composition of the Final CSFs List by Airport Category ...... 50 4.4. Relation of Existing Theory to Empirical Research Findings ...... 52 4.5. Analysis of Lithuanian Airport Situation in Relation to Research Findings ...... 54 4.6. Conclusions of Empirical Research ...... 56 5. DISCUSSION ...... 58 5.1. Key Findings of the Research ...... 58 5.2. Recommendations for the Lithuanian Airport Owner ...... 59 5.3. The Limitations to the Research and the Implications for Further Researches ...... 62 6. CONCLUSIONS ...... 64 LIST OF REFERENCES...... 67

List of Appendices ...... 71

List of Figures

Figure 1. Strategy Composition ...... 11

Figure 2. Relationship of Strategy Development Components ...... 11

Figure 3. Main Benefits of Strategic Planning in the Airport Industry ...... 15

Figure 4. Relation Between Mission, Strategy and CSF’s ...... 17

Figure 5. Existing Airport Classifications ...... 18

Figure 6. Airport CSFs Map ...... 23

Figure 7. Airport CSFs ...... 24

List of Tables

Table 1. Airport CSFs ...... 25 Table 2. European Low Cost Airports and Metropolitan Areas Served ...... 28 Table 3. Verification of Research Topicality...... 39 Table 4. Experts’ Airport Success Determinants ...... 40 Table 5. Experts’ CSFs of Hub Airport ...... 42 Table 6. Experts’ CSFs of Low Cost Airport ...... 44 Table 7. Experts’ CSFs of O&D Airport...... 46 Table 8. Experts’ CSFs of Airport System...... 47 Table 9. Experts’ Recommendations for Lithuanian Airport Strategic Development...... 49 Table 10. The Experts’ List of Airport CSFs ...... 50 Table 11. The Final List of CSFs by Airport Strategic Category ...... 50

List of Abbreviations (in alphabetical order)

ACI – Airports Council International AMS – Amsterdam Schiphol airport

CAA – Civil Aviation Administration CDG – Paris Charles de Gaulle airport CPH – Copenhagen airport CSFs – Critical success factors CSR – Corporate social responsibility FRA – Frankfurt airport GDP – Gross Domestic Product GTW – London Gatwick airport HHN – Frankfurt Hahn airport HR – Human Resources

ICAO - International Civil Aviation Organization KUN – Kaunas airport LCC – Low cost carrier LHR - London Heathrow airport MAD – Madrid Barajas airport PLQ – Palanga airport PPP – Private Public Partnership RIX – Riga airport STN - London Stansted airport VFR – visiting friends and relatives

VNO – Vilnius airport

Introduction

In the modern global economy international connection networks are of growing importance, especially air transport as people fly more frequently and over longer distances. Aviation activities at airports have grown exponentially over the past few decades, demonstrating very strong growth rate. Airports Council International (2013) estimates that the air transport industry generates around 7.8 million jobs in Europe and contributes more than €475bn to European GDP (€600 ml to Lithuanian GDP) from direct, indirect and induced impacts, mainly because airports provide access to networks that transport people and goods (Nettey, 2007) almost anywhere in the world. Therefore it is safe to claim that airports contribute to the thriving of the local economies and communities and that they create opportunities for business and commerce, trade and tourism, employment as well as and cross-cultural development (Kwok, 2010). The strategic development of airports is a major concern of airport managers worldwide as airports are tools for regional and national competition. This industry sector had been developing at a rapid pace in Europe, as well in Lithuania. Due to recent changes in the Lithuanian air passenger market, the formerly common-law principle based and quite successfully followed strategy of Lithuanian airports (legacy and charter carrier dominated vs. low cost carrier dedicated) has proved to be no longer valid. As a result of the changes operational sustainability of one of the airports calls for great attention. The damaging competition for the same segment of customers leads to financial losses and inefficient use of resources in the short run and threatens of a promise of incremental loss making further on. A new strategic course is searched by the airport owner – the Ministry of Transport and Communications - to develop the Lithuanian airports successfully.

The research problem is how the Lithuanian airports should be developed strategically.

The aim of this thesis is to suggest the empirically grounded recommendations for strategic development of Lithuanian airports.

The objectives of this research are: 1. Gather, analyse and present the main findings from the available body of literature on the subjects of strategy, strategic development and critical success factors in general and also in the airport context.

2. Explore, analyse the available body of literature and identify a list of strategic categories of airports in Europe.

3. Explore, analyse the available body of literature and identify a list of critical success factors for each of the airport strategic categories.

4. Provide a prioritized list of critical success factors for each airport strategic category constructed combining results of the literature review and experts’ input.

5. Produce the empirically grounded recommendations for the strategic development of Lithuanian airports.

The personal experience of the author of the thesis contributes to the problem of the research. The author of the paper has been involved with Lithuanian airport development for nearly 10 years now and despite numerous development studies done by variety of local or international consultants no clear strategy for Lithuanian airports has been adopted. Some trends became especially visible in the industry in the last 3 years:

1. The low cost airline segment has generated the biggest growth of passenger flows in Europe and in the region and consequently the appearance of new airports; 2. Meanwhile the number of operating airlines is shrinking due to bankruptcies, acquisitions or consolidations, consequently putting incrementally growing pressure on airports to compete for airline services; 3. Intensive and unmanaged competition between two biggest Lithuanian airports has consequently resulted in loss of segmentation, core competences, and finally threat of non- sustainability of one of the airport’s operations.

The research concentrates on the passenger activities of commercial airports in Europe. The wider scope, including non-commercial airports or other commercial activities as cargo, mail, land lease or retail development would expand the scope of research consideration beyond the borders of M.A. thesis.

A qualitative approach of research was chosen for conducting the research as the objective of the paper was to “explain rather than predict phenomena” (Rubin and Rubin, 1995) and “to understand phenomena rather than measure it” (Mason, 2002). Qualitative method is also considered more suitable when the research sample is rather limited and requires expert knowledge as well as 100% response rate. As according to Rubin and Rubin (1995), qualitative interviewing is particularly useful for studying complicated relationships and slowly evolving events or processes, like in the case of this thesis. 9

Moreover, the interview method is recommended for collecting the narrative information as it provides direct personal contact (Saunders, Lewis and Thornhill as cited in Bitelmal, 2010). Purposeful sampling was chosen for this research as the opinions of the decision makers, key stakeholders and active participants of the aviation industry who do possess theoretical and practical knowledge of the subject were needed for analysis. The group of experts interviewed for empirical research are employed or otherwise involved as top or middle management executives in: airports, authorities of the Lithuanian Ministry of Transport and Communications, who are responsible for aviation sector, legacy and low cost airlines as well as aviation consultant companies. At 10 interviews the data reached the saturation point – no new insights were longer obtained and the sample was limited at that point. The research is expected to contribute to the present lively debate on the strategic turn to be taken with the future strategy and management changes of the Lithuanian airports and also provide practically applicable insights for the airport stakeholders or managers in Europe as it is aimed to provide an extensive verified list of critical success factors of airports aiming to pursue distinct development strategy. Nevertheless the author of the paper has no intent to provide a panacea document for all of strategically struggling airports as strategic development decisions have to be tailored to the compound decisions of stakeholder, political, financial and social arguments and circumstances.

1. Literature Review

Strategic development of airports is still a developing and comparatively recent concern. Therefore, it is useful to outline the meaning of and limits of the subject. This chapter provides a review of the key concepts and views associated with strategy, strategic development: management and planning, concept of critical success factors and reviews of those in the context of the airport industry.

1.1. Concepts of Strategic Development: Planning and Management

First of all, it must be stressed that, in spite of the plentiful resources of literature, there is no single, universally accepted definition of strategy as various authors, planners and managers use it differently. Nor is there a single standard approach to strategic thinking, planning or management, even if the classical strategic planning based approach has been in many spheres of policymaking (Mintzberg, 1994). And while the concept of strategy is considered as essential for the success of organization and preferred by managers who consider detailed plans as inapplicable (McGahan as cited in Bitelmal, 2010), scientists argue that there is no and cannot be straightforward and general definition for strategy (Barney, 1997; Henry, 2008). This lack of common agreement leads different authors to define their own meaning of the word. Quinn (1998) defines strategy as: (…) the pattern or plan that integrates an organization’s major goals, policies and action sequences into a cohesive whole. A well-formed strategy helps to marshal and allocate an organization’s resources into a unique and viable posture based on its relative internal competencies and shortcomings, anticipated changes in the environment and contingent moves by intelligent opponents. Quite often a simplistic or rather traditional definition of strategy by Steiner and Miner (as cited in Rockhart, 1979) is used for the purposes of management: The formulation of basic organizational missions, purposes, and objectives; polices and program strategies to achieve them; and the methods needed to ensure that strategies are implemented to achieve organizational ends. Hambrick and Fredrickson (2001) provide a graphical depiction of strategy (Figure 1) showing the orientation of strategy as a concept of how a company achieves its objectives and that is integrated centrally but oriented externally.

Figure 1. Strategy Composition (adapted from Hambrick and Fredrickson, 2001)

Quite similarly, other definitions consider strategy as activities that the firm takes in order to react to the environment and determine what can be exploited and achieved internally. Strategy is defined by Barney (1997) as “the strategy that neutralizes threats and exploits opportunities while capitalizing on advantages and avoiding or fixing weaknesses”. Review of the provided definitions of strategy clearly demonstrates the diverse and complex nature of the concept and an impression emerges that possibly the concept is constructed to embrace everything that is important in order to stress that ‘strategy is important’. In a multi-layered definition, the concept may get exhausted of meaning. Rumelt (as cited in Mintzberg et al., 1998) supports the idea: The term ‘strategy’ has been so widely used for different purposes that it has lost any clearly defined meaning. For our purposes a strategy is a set of objectives, policies and plans that, taken together, define the scope of the enterprise and its approach to survival and success. The integral concept of strategic development may be broken into two processes: strategic planning and strategic management. Hambrick’s and Fredrickson’s (2001) have presented a model of this process (Figure 2).

Figure 2. Relationship of Strategy Development Components (Adapted from Hambrick and Fredrickson, 2001) 12

Ricondo (2009) claims that most often strategic planning is defined as the process undertaken by an organization to define its future and map a guide for the organization from its current state to reaching its vision for the future. Strategic planning is based on the fundamental idea that aspects of an organization’s future can be influenced by actions taken in the present.

Rockhart (1979) presents the path from strategic planning to implementation to reach the goals as a process over time: Accomplishing the mission in a logical and systematic way requires the organization developing a strategy. The strategy encompasses a set of goals or targets that the organization must achieve in a specific period of time. The goals are transformed into subsequent tactical plans and activities to be performed at various levels of the organization. The concept of strategic management has been described as the process by which managers determine the long-term direction and performance of an organisation, by effecting a carefully formulated, properly implemented, and continuous evaluation of an organisation's strategy (Rue and Holland, 1989). Fellows (as cited in Reimann, 2005) explained the concept as the management function that initiates, activates and operates the process involved in business strategy; thus providing a dynamic element for planning the future of an organisation. These views are generally shared by several authors, including Mintzberg (1994) and Quinn (1998).

While speaking about differences between strategic planning and strategic management concepts Ansoff (1987) has listed the following characteristics of strategic management: 1. Focus on producing strategic results (“new markets, new products and/or new technologies (...) strategic management by results”); 2. Organizational action process; 3. Broadened focus of business, economic and technological variables with socio-, psychological and political variables incorporated (“choosing things to do and also about the people who will do them”). It is evident that the concept of strategy is a multilayered and has been defined differently by many scholars. The simplistic definition of strategy as a centrally integrated and externally oriented path to achieving the company’s objectives will be relied upon in this paper. The author will rely on the model of strategic development concept components, that provides facilitation for the subsequent stages of the strategic development process: planning and management. There is no reason why the accepted understanding and order of action could not be applied to the airport industry.

1.2. Strategic Planning and Management in Airport Context

To a greater or lesser extent, all the aspects considered in the previous section are relevant for most industries and organisations. Nevertheless, it is highly probable that different aspects will be more important in some contexts, industries or organisations. It would be wrong to assume that all aspects of strategy are equally important in all circumstances and contexts. This section reviews some of the aspects of strategic planning and management in airport context.

According to Camillus (2008), airport strategic planning is a classic example of a “wicked problem,” or a problem that has countless causes and has no correct answer.” Those “wicked problems” call for (a) a broader participation of parties affected either directly or indirectly by planned outcomes and (b) gathering a broad spectrum of data from a large and diverse range of sources (Dimitriou and Thompson, 2007). Strategic planning for airports consists of more than just ensuring the safety and security of the travelling public and achieving a good financial record. Ricondo (2009) claims that in case of both a single airport or an airport system, strategic planning projects offer (...) a future vision for the airport organization, determines strategies and objectives for the growth or prosperity of the organization (including the type of products and services it should provide), and defines how the vision and objectives can be accomplished.

In Figure 3 below Ricondo (2009) presents the main benefits of the strategic planning process in the airport industry, key of those singled out as:

1. The strategic planning process is a tool for reconciling the competing demands of policymakers, airport users, retailers and airport community; 2. Granting community support and explaining the airport’s contribution to the regional economic development; 3. Motivational tool to assist employees to understand the vision and goals of the organization; 4. The process is oriented to empowering stakeholders and addressing their needs. The academic findings on strategic planning highlights the importance of the strategic planning process to capacitate companies to develop strategies to achieve the competitive advantage that aims to result in continual growth of sales and profits. As the nature of a public commodity is attributed to airports, the airport management may be less focused or targeted on the economic benefits of the strategic planning (a case with public airport management). Airport managers are very limited with control mechanisms

14 over their customer base – airlines and passengers, and therefore the focus of airport companies is on the financial stability (i.e., revenues to offset costs and affording a lower airport charge structure) rather than profitability (Ricondo, 2009). A common benefit of the strategic planning process in both airport and corporate settings is that the process is useful for establishing parameters for performance evaluation. Another recognised benefit is the usefulness of the process for communicating the mission and vision of the organization to employees.

Figure 3. Main Benefits of Strategic Planning in the Airport Industry (Ricondo, 2009).

While studies (Porter 1976; Barney 1997; Grant 2008) in the area of strategic management have emphasised that firms in different industries have to develop strategic business plans in order to succeed, researchers (Graham 2004; Williams as cited in Bitelmal, 2010) in the field of aviation have found it difficult to apply strategic management techniques to the case of airports. Due to some 15 business and product characteristics, e.g. presence of passengers as secondary customers of the airport product, airports are seen as a unique case and different from other industries (Graham, 2004). It may be concluded that the airport industry has not been the focus of concern in the area of strategy, strategic planning or management, this topic has attracted marginal attention in the academic literature. While many airports become more active in following strategic trends, the body of literature on how airports can better understand their key strengths and critical success factors still needs expanding.

1.3. Concept of Critical Success Factors

Rockhart (1979) describes Critical Success Factors (CSFs) as the limited number of areas in which satisfactory results will ensure competitive performance for the organization and enables it to achieve its strategic goals. The crucial importance of CSFs for a company as stressed by Rockhart and Bullen (1981) is: “any activity or initiative that the organization undertakes must ensure consistently high performance in these key areas; otherwise, the organization may not be able to achieve its goals and consequently may fail to accomplish its mission” (Rockhart and Bullen, 1981). Rockhart and Bullen (1981) also described various dimensions of CSFs that can be categorized to clarify the focus of the organization and how it is positioned in the market: 1. Internal – within the control of a certain manager; 2. External – those over which any manager has very little control; 3. Monitoring – emphasize the continued scrutiny of existing situations; 4. Adapting – are focused on improving and growing the organization to reach its goals. Categorizing a CSF as either internal or external is important because it can provide better insight for managers in setting goals. While Parmenter (2010) calls the CSFs “the classic performance management tool” resulting out of company’s mission, vision, values and strategies and that should be questioned as the annual planning process and does not take external factors into account (Figure 4).

Figure 4. Relation Between Mission, Strategy and CSF’s (Parmenter, 2010).

According to Brotherton (2004), CSFs are those factors capable of providing the greatest competitive leverage upon which resources should be focused. For example, Said, Hassabelnaby and Wier (2003) have identified CSF as a position where the organisation’s pricing is “considered to be in the realms of competitive pricing and where the organisation’s technical capability can match or outstrip competition”. While presenting a much boarder view Brotherton (2004) considers CSFs to be a combination of processes and activities that are created aiming to support achievement of the desired business outcomes, defined as the company’s objectives or goals. Therefore partial monitoring of those by the management and ergo potential management may be achieved. CSFs emerge from a number of aspects of the organisation’s operating context, such as its competitive strategy (Said et al., 2003), stage of the product life cycle, size, culture, belief and values (Neely, 2004), location and position, competitor activity and cost structure, managerial decisions and financial strength (Brotherton, 2004). The concept of CSFs is a complex and diverse. Different scholars have analysed the subject from several perspectives and different views have been expressed, mainly differing on the scope of control and influence an organization may have on the CSFs.

1.4. Relevance of Airport Classification

For the purpose of this paper it is important to define the distinctive features of airports as it will lead to a better understanding of the airports’ development processes and successful strategies. Porter (1976, 1979) provided the theoretical background on strategic groups. Strategic groups in industries can be identified based on similarities in scale, similarity of products and services, based on their price, specific features and quality; similarity in technology or similarity in customers served, etc.

While Hatten and Schendel (1977) argued that the identification of groups within an industry could help management to evaluate strategies. The classification of airports into homogeneous groups may be a good starting point for the analysis of various issues, such as the impact of development policies and regulatory norms, airport congestion, airport performance analysis and airport benchmarking practices.

There are many classifications of airports provided, depending on their geography, functions, slot coordination, size in terms of passengers flows, runway or other airfield parameters, ownership and others. The most commonly used classifications are provided by the official regulatory bodies like the FAA (Federal Aviation Administration, USA), ICAO (International Civil Aviation Organization), the UK and Canadian versions are provided in Figure 5 below and are rarely used for commercial analysis purposes.

Figure 5. Existing Airport Classifications ( Kumar et al., 2002)

Despite the number of airport classifications available, for the purpose of this paper, the afore mentioned classifications will not be taken for the basis of the analysis of best practice as the classifications mainly rely on either combination of the features representing characteristics of specific region/country, e.g. Europe, Canada or USA or do not concentrate on commercial but rather operational nature.

1.4.1. Hub Airport.

Large established network carriers, like KLM, Lufthansa or US Airways, have traditionally dominated the airline industry. Network carriers generally concentrate most of their operations in a limited number of hubs, i.e. airports, serving most other destinations in their network by providing one-stop or

18 connecting service through those hubs (Borenstein, 1989). Long and short-haul destinations, sometimes transcontinental flights are served from hub airports. Quite often alliances or main carrier dominates the operations at the airport and shapes the hub pattern, e.g. KLM at Amsterdam Schiphol, airBaltic at Riga or Malev at Budapest (until Malev demise). Hub airports are often also characterized by the low to none presence of low-cost carriers (London Heathrow, Copenhagen, Frankfurt) (ACI, 2013). Bontekoning (2006) describes the purpose of creation the hub system:

The concept of the Hub-and-spokes system was to concentrate traffic to one airport- the major hub from smaller national airports (known as the spokes) or other means of transport, and then the gathered group of passengers would be transported from the major hub to another major hub. The development of this system had offered travellers a more integrated travelling system and experience, where passengers travelling from regions are able to transit or transfer at a major hub where from a network of connecting flights to variety of other destinations is available. The hub systems greatly increase the number of the possible city pairs that passengers can get to by air (Bontekoning, 2006). Hubs generally increase available flight options for passengers travelling to and from hubs and facilitate more convenient service on routes for which demand is not sufficient to support frequent non- stop service at relatively low prices. At the same time, because very few airports have the logistic or economic capacity to support more than one hub operation on a large scale, competition at the hub airports typically is quite limited, yielding substantial market power for airlines at their own hubs (Borenstein, 1989). According to Cooper (as cited in Borenstein, 1989) “the centrepiece of the industry structure is the hub-and-spoke network”. The key advantages of an airport to operate as a hub airport are established by Kraus and Koch (as cited in Malighetti, Paleari and Redondi, 2009): 1. Long waiting time of passengers in the airport to maximize non-aeronautical revenues; 2. High infrastructure utilization rate to increase revenues; 3. Attempt attracting other carriers next to the hub airline to fill the low gaps between the flight waves. Generalising the following typical characteristics of a hub airport may be listed:

1. Strong home based carrier with extensive network (40-70% of traffic) 2. Transfer hub for intercontinental traffic (40% to 80% connecting passengers); 3. Catchment area of maximum 2 hours for international flight costumers;

4. Over 5 ml passengers a year; 5. Global service area; 6. Major node for alliances; 7. Low to none low cost carrier presence.

1.4.2. Low Cost Airports.

R. de Neufville (2003) singles out another airport business model that has emerged and been accepted internationally: cheap fare, short haul airports that mainly serve the low cost low fare airlines like Ryanair, easyJet, AirBerlin, Wizz Air, Jet2.co, etc. in Europe alone. Naturally, low cost carriers (LCC) generate the traffic of low cost airports predominantly. LCCs require a different level of service from airports than their competitors. The availability of slots, the lack of congestion, good transport facilities on the surface and 25-30 minute turnaround on the ground attracted low cost airlines to often underused airports that were more compatible with LCCs business models. Examples of these inexpensive airports could be Brussels Charleroi, Frankfurt Hahn, Stockholm Skavsta. De Neufville (2008) claims that the recent rapid growth of LCC resulted in increased expansion of the low cost airports, and naturally the increasing availability of low cost airport facilities in general (even in hub airports, e.g. CPH low cost terminal).

De Neufville (2003) notes that frequently any other airport exists next to a hub airports. He states that: Business objectives and opportunities of these airports are, in the main although not always entirely, substantially different from those of the [major hub airports]. Low cost airports often develop in competition with major airports, either as secondary airports in a multi-airport system, or as destinations that bypass the use of a centralized metropolitan hub. Comparing the difference between LCC and network airlines, low cost airports put emphasis on the profitability that may be most viably achieved through operational efficiency and minimal royalties - as the strategic business model of a low cost airport is different from the other airports (Reimann, 2005; Doganis, 2006). To sum up the typical characteristics of a low cost airport are: 1. Point to point traffic served by dominating LCCs (up to 99% of traffic) ; 2. Serving local/regional service area; 3. Less than 4 ml passengers a year; 4. Close to a large metropolis or area of specific attraction; 20

5. Often relying on non-aeronautical revenues for financial stability.

1.4.3. Origin-Destination Airports.

O&D airports mostly accommodate passengers beginning or ending their travel at that airport rather than using the airport to connect with another flight to reach their destination (Ricondo, 2009). An O&D airport is ensuring the mobility of the airport region without a hub structure and transfer passengers, e.g. Lyon, Hanover, Bristol, Tunis Carthage Airport, London Gatwick. In an O&D airport managers understand the true origins and destinations for any specific airport, city, or region the passenger travels to therefore possess valuable marketing insight. An active perception is that O&D passengers just take a flight at the airport. But the truth is that these travellers either spend at the airport or, mainly, enter into the community and bring benefit the local economy (Vaz, et al., 2012). Higher O&D traffic usually results in risk reducing significant services from multiple airlines, provide a strong indication of existing and future demand, and “indicate a higher likelihood of replacement or expanded services in the event of scheduling changes by an individual carrier” that way resulting in a more diversified and lower risk business model (Lehman et al, 2012).

To conclude the following typical characteristics of an O&D airport can be listed:

1. point to point traffic mainly (85% to 90% while connecting 10% to 15%); 2. network of connections to gateway or secondary hubs; 3. regional service area (often next to big city); 4. few long range destinations; 5. often less than 5 million passengers per year.

1.4.4. Airport System.

The development of LCC airlines has generated numerous expansion of secondary airports in major metropolitan areas. These LCCs have created an alternative to the legacy carriers and consequently they are bringing up a parallel market and secondary network of airports. De Neufville (2003) came to such a conclusion analysing of a worldwide database on major metropolitan airports. Therefore cooperation to some extent with other airports that serve the customers in the same or overlapping catchment is recommended for profitable and sustainable development. Airports Council International (ACI) has defined an airport system as "airport operator/authority managing more than one airport within a metropolitan area" (ACI, 2013) – in quite simplistic and

21 largely limiting terms where only same owner airports may be regarded as a part of the system. Meanwhile De Neufville (2003) has presented quite a contradictory and much wider definition: "(…) for the purposes of airport planners and operators, a multi airport system is the set of significant airports that serve commercial transport in a metropolitan region, without regard to ownership or political control of individual airports." E.g. London, Milan, Paris areas are the most competitive multi- airport regions in the world with 3 to 5 airports serving the same catchment and not necessarily belonging to the same owner. Nevertheless, there are numerous examples of European airports, managed as an airport system, e.g. 47 Spanish airports under AENA ownership, 46 Norwegian airports under Avinor group, etc. Bonnefoy (2010) states that the air transport system is the essential backbone infrastructure for the national or local economies and it is critical to ensure that this system remains reliable, safe and efficient while the future demand is met. Often airport systems develop in the course of adapting of the air transport system to emerging capacity constraints and market opportunities. As major airports reach their capacity limits and become congested, new airports emerge in the catchment either through either the construction of new high capacity airports or the development of secondary airports from available or under-utilized airports. As the reality of major airports facing their capacity constraints, the development of airport systems is going to be the key technique for the air transport systems around the world to be able to meet and satisfy the future demand. While Pels, Nijkamp and Rietveld (2003) warn that too many airports in a region can result in all airports becoming economically unviable, urging for long term planning that can provide for niche market airports and accentuating the segmentation of the neighbouring airports. Airport systems - where several airports accessible in a region substitute and supplement each other in meeting the region's demand for air transportation - provide alternative travelling options for passengers as well as air cargo shippers and forwarders (Loo, 2008). Young and Wells (2011) present an extensive understanding of the airport system:

the complex system of (...) airports is made up of individual airport facilities of varying sizes, serving various purposes, all organized into plans of regional, national, and international levels. The range of rules, regulations, and policies, administered from varying levels of government, cover the full spectrum of airport and aviation system operations”. Furthermore, Young and Wells (2011) note the airport manager’s role in pursuing successful management task as difficult and crucial: “by understanding where an airport manager’s airport falls within the civil aviation system, what rules must be followed, and sources of support and assistance 22 exist, the task of efficiently managing the complex system that is an airport, becomes highly facilitated”. Basar and Bhat (2004) believe that air passengers consider available airport systems in the region and select airports and flights primarily based on airport ground accessibility, parking costs, flight schedule and frequency options to their required destinations.

1.5. Critical Success Factors in Airport Context

The academic literature or research sources on CSFs in the context of airport industry management are very scarce. With little difference from other industries, Vogel (2004) defines the airport function as providing infrastructure and services at production costs and selling this product to the market. He further explains that: “building on their airline base, they [airports] create value by converting (effectively GDP-derived) air traffic in the form of aircraft movements, passengers and cargo into aeronautical and – increasingly more - commercial earnings”. Based on this definition, a summary list of CSFs of an airport business model can be concluded: operating efficiency, capital structure and asset utilization (Figure 6). Operating efficiency, asset utilization, as well as an appropriate capital structure are the key drivers of an airports value, perceived as the shareholder value.

Figure 6. Airport CSFs Map (Vogel, 2004).

Reimann (2005) lists even a longer list of CSFs of an airport, looking from specific dimensions and emphasizing a greater focus on knowledge and learning in the organization. The detailed list is as follows: 1. Profit sharing schemes 2. Specific Management concepts a. specialist expertise 3. Strategic orientation and process management 4. Diversification strategies 5. Special Services for customers a. partnerships /alliances b. knowledge transfer/ cooperation 6. Knowledge transfers and multilevel learning a. consequent market research and surveys 7. Leading edge technology (internet shopping, electronic pre-ordering systems etc.) 8. Involvement of partners, contractors and employees a. performance improvement systems and programs (Reimann, 2005). In the most recent paper while sharing Vogel’s opinion on importance of Operating efficiency, Deillon (2012) presents a wider list of airport CSFs (Figure 7 below), putting the strong finances at the core of it.

Figure 7. Airport CSFs (Deillon, 2012). 24

This model presents the most extensive and general view of CSFs of an airport. Therefore a detailed description of each of the branches of the model have been described in the Table 1 below: Critical Success Typical characteristics Factor Strong Financial Capacity to invest into future expansion and development; Situation High cash flow; Debt to equity ratio; Balanced income from aeronautical and non-aeronautical activities (single till, cross subsidy effect); Strategies to increase non-aeronautical revenues. Cost Capacity to attract airlines with competitive charge and incentive schemes; Competitiveness Competitive airport charges (landing, passenger, security, etc.); Incentives for new scheduled routes and/or to grow traffic volume; Comprehensive marketing support package for new services; Cooperation to ensure attractive prices from all third-party providers (handling, catering, fuelling, etc.). High Quality Capacity to anticipate demand and construct relevant infrastructure to meet the Infrastructure market demands; Create and operate facilities responding to needs of various market segments (business, transit, transfer, low cost, VFR, shopping, etc.); Developed master plan. Flight Network Capacity to offer extensive flight network and frequencies to the region, meeting needs of business, tourism, leisure sectors; Variety of offer in both quantitative terms (number of destinations) and qualitative (schedule, frequency, aircraft type, etc.); Diversity of airlines and market segments (legacy, network, business, charter, LCC, etc.); Unique network for the region. Corporate Social Capacity to grow while supported locally; Responsibility Active CSR policy and cooperation with local communities (meetings, events, and Economic sponsorship, etc.); Impact Carbon neutral and environmental action plan; Substantial and tangible direct and indirect impact on the economy of the whole region. Customer Capacity to satisfy customer needs (B-to-C and B-to-B); Orientation Quality of service as corporate culture; Customer satisfaction and quality monitoring and benchmarking effort; HR motivation and training policy; Focus on new intelligent customer services (free WiFi, Apps for smart phones, airport signage and information, duty-free on arrivals, etc.). Operational Capacity to handle activities, infrastructure, HR in efficiently and cost-consciously; Efficiency High level airport partners (handling, catering, slot coordination, fuelling, etc.); Close cooperation with official authorities (police, customs, CAA, etc.); Safety & Security as imperative.

Table 1. Airport CSFs. Adapted from Deillon (2012).

Due to extensiveness of the available model, the author will consider Deillon’s model to be the key academic insight for the further analysis in the paper. These classifications provide a referring background for a further in-depth analysis of CSFs of each airport category.

1.5.1. CSFs of Hub Airport Category

Airport Council International (ACI) Regional Director Kwok (2010), speaking at a ACI conference in China identified 4 main CSFs of a Hub Airport. 1. Strategic geographical location. The dense population within a short span of travelling on land and flying time has made possible the rapid development of many gateway hubs (Kwok, 2010; Huat, 2008). Here examples of Frankfurt (FRA), Amsterdam Schiphol (AMS) or London Heathrow (LHR) could be provided. FRA catchment area contains population of 38 ml (43% of Germany's population); LHR – 33 ml; AMS – 33 ml (beyond the borders of Holland). Strong local and regional economy: hub airports have the privilege of having a strong and dynamic local and regional economy which is able to provide the huge demand for passenger travelling and cargo shipping to support the development of originating and destination traffic upon which transfer connections can be built (Kwok, 2010). Again FRA, LHR, CPH, Madrid Barajas (MAD) have strong economies and industrial, trade relation base in the region, combined with substantial population base, high purchasing parity and steady GDP rate (ACI, 2013). 2. Strong local economy: hub airports have the privilege of having a strong and dynamic local and regional economy which is able to provide the huge demand for passenger travelling and cargo shipping to support the development of originating and destination traffic upon which transfer connections can be built (Kwok, 2010; De Neufville, 2003). Again FRA, LHR, CPH, Madrid Barajas (MAD) have strong economies and industrial base within the region, combined with substantial population base and quite steady growth in GDP. 3. Strong home based airline with extensive network – working with airlines in developing new routes and strengthening existing ones to secure long-term traffic growth (Kwok, 2010; Borenstein, 1989; Huat, 2008). E.g., FRA is the primary hub of Lufthansa, the largest passenger airline in Europe in 2012. It is also the headquarters of the largest global airline alliance - Star Alliance. Lufthansa and Star Alliance partners deliver 77% of all passengers at FRA (57,5 ml in 2012). At FRA 107 airlines fly to 275 destinations in 111 countries. Paris Charles- De Gaulle (CDG) airport handled 61 ml passengers in 2012, the main carrier Air France serves 156 destinations in 91 countries. LHR is used by over 90 airlines flying to 170 destinations in the 26

world. The airport is the main hub of British Airways and accepted 70 ml passengers in 2012. British airways carried 54,6 ml passengers in 2012 (with Iberia) (ACI, 2013). 4. Well developed infrastructure and capability to expand (Kwok, 2010; Huat, 2008). The new passenger terminal has established MAD as a one of major European hubs and consolidated its position as the focal connection between Europe and Latin America. MAD is set to become the second busiest airport in Europe in five years time. At FRA the fourth runway went into operation in 2011, which will allow the airport to accommodate the predicted demand of 700 thousand flights in 2020. To handle the projected passenger flow of about 90 ml in 2020, a new terminal section adjacent to Terminal 1 for additional 6 ml passengers opened in 2012, and third terminal for 25 ml passengers is to be opened in beginning of 2013 (ACI, 2013). The 5th factor that could be attributed here is the good ground access. As majority of passengers at hub airports are business passengers, the proximity and access time to main finance and business centres is essential. Many of the hub airport have excellent intermodal integration, often by express trains, e. G. Moscow, London, Paris airports.

1.5.2. CSFs of Low Cost Airport Category

Barret (2004) presented a shortest list of CSF of a low cost airport providing the approach of the CEO of Ryanair - leading LCC saying that prom their perspective, the main three requirements for a low cost airport are to provide low airport charges, secure fast turnaround times, and operate single-story airport terminals.

Elaborating on CSFs in the case Low Cost Airport, the following aspects should be emphasized:

1. Regional government support (financial in many cases) is crucial for this category of airports as LCC require substantial amounts of marketing or route development funds support to establish (or later maintain) the operations to the low cost airports. “Marketing contracts are always discussed with cities (…) If no marketing agreement is reached, it is quite possible that no new route will be opened. The typical business model is that development contracts are signed between cities and airlines” according to Lankinen (2011). Widely known cases of European court analysed marketing support to airlines to establish flights are of Belgium Brussels Charleroi, Romanian Timosoara airports, widely in the media discussed cases of Finish Tampere or Lappeenranta airport cases, the Greek Rhodes and Kos airports (Morrell, 2003; Doganis, 2006).

2. Efficiency and speed of operations – majority of LCCs require minimum turnaround time of approximately 25-30 minutes. Quite often basic airport infrastructure or operational offering is required tailoring to particular needs of airlines (e.g. manual check-in, special baggage allowances, etc.) (De Neufville, 2008; NACO Consulting, 2005). 3. Low airport service fees – is one of the prerequisites of this category. “Most obviously, they [LCCs] appreciate the low charges” (De Neufville, 2008). Quite often low cost airlines operate at an airport on main dogma: “We only pay for what we need”. 4. Business ability to generate income primarily from non-aviation activities – in majority of Low cost airports non-aeronautical revenues account for up to 80 percent of total revenue, i.e. income is generated from services, provided to passengers, like: parking, retail, food and beverage sales, etc. (Francis et al., 2003; Morrell, 2003; NACO Consulting, 2005). 5. Proximity to a destination with high awareness and appeal – a strong destination due to familiarity, proximity and traveller attractions (tourism, shopping, leisure, etc.) creates a potentially secure passenger flow and airline attraction. E.g. London or Paris are large metropolies, creating annual air traffic of 135 ml and 93 ml passengers (ACI, 2013), part of this traffic travels via established low cost airports, thus confirming airport title choice – quite often large city name and local vicinity title combined together.

De Neufville (2008) adds a stronger light to this argument - the LCCs are establishing parallel networks that bypass the traditional main airports. An extensive list of low cost airports, serving large metropolitan areas is presented in Table 2 below. City/ Metropolitan area Low cost airports Amsterdam Roskilde Barcelona Barcelona Gerona Reus Barcelona Brussels Brussels Charleroi Bucharest Bucharest Alexeni Cologne Cologne Bonn Copenhagen Rotterdam Malmo Dusseldorf Dusseldorf Weeze Frankfurt Frankfurt Hahn Gothenburg Gothenburg Landvetter Glasgow Glasgow Prestwick Hamburg Hamburg Lubeck Leeds Leeds Bradford London London Stansted London Luton

London Gatwick Marseille Marseille Provence Milan Milan Bergamo Milan Malpensa Oslo Sandefjord Airport Torp Oslo Rygge Oslo Gardemoen Paris Paris Beauvais Paris Orly Paris Vatry Rome Rome Ciampino Rome Fumicino Stockholm Stockholm Skavsta Stockholm Vasteras Warsaw Warsaw Modlin

Table 2. European Low Cost Airports and Metropolitan Areas Served (ACI, 2013).

This is strikingly evident in Europe, where many LCCs make a point of serving major metropolitan areas through secondary airports. Thus, Ryanair, Wizz Air or Norwegian network comprises several airports, serving same cities, e.g. London Stansted/Luton/Gatwick, Barcelona Gerona/Reus, Rome Ciampino/Fumicino, Oslo Gardemoen/ Rygge/Torp etc. (Morrell, 2003).

1.5.3. CSFs of O&D Airport Category

The main CSFs of an O&D Airport could be listed as follows:

1. Outbound market size and local propensity to travel – strong outbound markets in the catchment area are usually driven by a high proportion of time sensitive and high yield demand (Lehman et al, 2012). Those markets demand local connections as well as connections to big hubs and create market for airlines to connect to their main hubs. As Doganis (2006) suggests, airlines demand the population of at least 200 thousand on both directions to initiate a direct route. The market for point-to-point services must be very strong as the ability to support the route with feeder hub traffic from other traffic is little likely to be available.

2. Extensive route network, including connections to large hub airports. Consumers now require a far wider and more transparent range of choices; they want flexibility and are experienced as well as demanding with their needs for with airline, transfer airport or aircraft product choice (Lehman et al. 2012).

3. Developed ground access and low airport passenger services charge base (e.g. parking). O&D airports granting sufficient frequency and variety of means of access to the airport for the local catchment rely on yet another advantage - (as well as source of non-aeronautical revenues) (Young and Wells, 2011) when easily accessed smaller airport is preferred over large hub.

4. Mix of passenger segments (e.g. business, VFR and holiday traffic) keeps the operations sustainable and offsets risk as it helps reducing seasonality impact and maintaining airline load factors, as well as offsets risk of one source market dropping in demand (Vaz et al., 2012).

5. Public funding proves indispensable to the survival of small regional O&D airports. Local regional authorities (municipal or regional governments) are willing to assume partial or full ownership of airport as they have an important role for the economic development of the region, domestically, regionally and internationally, and also they attract international traffic (Vaz et al., 2012). E.g. Hamburg Airport - the City of Hamburg (51%), Granada Airport owned by the City of Granada, Toulouse Blagnac Airport ownership - Toulouse Chamber of Commerce and Industry (25%), the Regional Council (5%), the Departmental Council (5%) and the Urban Area (5%) (ACI, 2013).

1.5.4. CSFs of Airport System Category

To successfully operate airports as an Airport system, the below established key factors are of most importance:

1. Coordinated strategy - management of an integrated system, network rather than individual airports offers new travel alternatives for population of large metropolises. The result of it is the reduced airport ground access distance and travel time, wider choice of airlines, destinations and schedules (Lehman et al., 2012). Nevertheless, each airport should be assigned a distinct individual strategic role in the system. 2. Optimal capacity utilization - relieved congestion at main hubs and protected existing underutilized smaller airports. The entry of a low-cost carrier changes the market dynamic and typically lowers fares which opens up new market opportunities and stimulates traffic. Given the capacity constraints on existing major airports and often limited ability to increase their capacity, the transition of strategic development to the method of airport systems appears to be key mechanism by which air transportation systems around the world will be able to meet future demand

(Bonnefoy, De Neufville, 2010). E.g. Milan Malpensa and Milan Linate, Madrid Barajas and Madrid Cuatro Vientos. 3. Diversified airport services offer enables the effective infrastructure management providing the choice to the carrier of airport capacity, facilities and consequently pricing choices (Young and Wells, 2011), e.g. Copenhagen and Roskilde, Amsterdam and Rotterdam. 4. Eliminated competition and reduced possibility for monopolistic positions that can sometime emerge in single-airport results in higher volume of aeronautical activities and non-aeronautical revenues (Bonnefoy, de Neufville, 2010). Moreover, eliminated competition between the single- owner airports greatly and competitive position in terms of a region or country. 5. Financial sustainability - (Lehman et al., 2012).

The main statements and supporting arguments vary depending on each of the considered airport strategy. The CSFs were included in the lists, based on the emphasis and attention devoted to the criteria in the analysed literary works. Moreover, it is essential mentioning that quite several listed CSFs are external and in the scope of the classical definition of CSF could rather be attributed as factors of little to none managerial influence. The lists of CSFs were designed incorporating those factors as well and hoping for empirical verification in the later stage of the paper.

1.6. Conclusions on the Literature Review

The literary analysis confirmed the topicality of the thesis problem in Lithuania and Europe, as it demonstrated the existence and relevance of the on-going debates and different views of academic and business society analytics towards airport strategy, the extent of uniformity of CSFs to different airport businesses and presented the variety of different CSFs of airports. Main conclusions which could be drawn after the literature review:

• The review of the available literary sources of information confirmed the topicality of the research object and problem as proved by the size of the industry, the scarcity of scholarly literature and availability of literary sources on other businesses in the aviation industry, amount of analytical and media articles, conference and event presentations and researches on other aspects of airport business rather than strategic development;

• It is evident that the analysed theoretic concepts are largely multi-layered and have been defined differently by many scholars and there are no universally recognized, unquestionably accepted or unified definitions of key concepts, e.g. strategy;

• The literature review illustrates and demonstrates the ample amount of literary deliberations on subjects of strategy, strategic planning and management as well as CSFs in general. While attempts to look at these factors from the perspective of the airport industry proved that availability of literary sources is much scarcer;

• As the available categorisations of airport strategies in Europe focused on geographic, operational or size parameters and were not applicable for the purposes of this paper, the author came to a decision to establish a model of prevalent strategic categories of airports in Europe;

• The review of academic sources resulted in argument suppported lists of CSFs for each strategic airport category;

• On the European scale the research topic has been analyzed by researchers, most of the findings are theoretically based. While in Lithuania the topic has become the axis of lively public debate during the time the thesis was being written, the public discussion mainly circles around very circumstantial, ill-founded or amateur statements. In order to answer the research problem with empirical ground to it, the analysis of gathered literary sources proved the need for obtaining a more extensive, verified data set of CSFs for each airport strategy and provided an essential basis and useful insights for further parts of the research.

2. Research Problem Definition

There have been many significant events causing changes in the Lithuanian aviation market during the last five years: bankruptcies of Vilnius airport based carriers, including formerly national airline FLY LAL, growing demographic trend of emigration, development of economic and cultural relations, crisis and subsequent recovery and growth of national economy, increasing living standards, tourism flows as well as rapid development of the low cost carriers have impacted the changes in the Lithuanian airports. The strategic course of development of Lithuanian airports had never been set and documented leaving the strategic development of airports in the chaotic course and under airports’ managers responsibilities. In order to ensure successful and sustainable development of the Lithuanian airports, long–term strategic development course, consistent strategic planning and committed execution is essential. The author of this paper aims to arrive at possible recommendations for strategic development of Lithuanian airports, based on empirical findings of critical success factors of the European airports and expected input of interviewed experts.

While the concepts of strategy, strategic planning and management, critical success factors have been extensively analysed by academic researchers, the small body of practical literature on strategic development and CSFs in the airport context is predominantly written from the theoretical view and from the perspective of academic researchers, and documents the significant concepts of airport strategic development and CSFs in general but does not address the characteristics of specific airport strategic categories.

To answer the research problem is how the Lithuanian airports should be developed strategically.

To answer the research problem author of the paper raises the following research questions:

What are the critical success factors of an airport? Which critical success factors affect each airport category most? What recommendation for development strategies for Lithuanian airports could be provided?

3. Research Methodology

This part of the thesis presents author’s assumptions and baseline for the empirical research. The chapter consists of 3 sub-chapters covering the aim of the research, objectives of the research, research design and method, description of the instrument used to answer the research problem. The question of the size of population and sample technique are analysed; as well as considerations on the instruments of data collection and analysis.

3.1. Research Aim and Objectives

The empirical research aims to identify what are the CSFS on an airport and which of the CSFs affect the success of each airport category most. The research goes into establishing a comprehensive and verified list of the main CSFs for each of the airport strategy and finding arguments for the priorities. Further on the research looks for suggestions for future strategies for successful development of the Lithuanian airports.

A simply practical research problem (lack of concise information on CSFs in each airport category) suggests the following objectives of the empirical research:

• Verify the topicality of the research problem;

• Provide a prioritized list of CSFs for each airport strategic category obtained from the interview data and following combine with the one of the author’s;

• Compare the final list of with the one provided by Deillon (2012);

• Draw a recommendation for development strategies for Lithuanian airports.

The larger part of the empirical research results should be achieved orienting the efforts towards the totality and universality of CSFs of each strategic airport category, not concentrating on the situation or traits of the three Lithuanian organizations. The smaller part of the research clearly speaks of the narrow purpose and orientation – to look for the advice for the Lithuanian airport owner.

3.2. Research Design, Method and Sample Selection

This chapter establishes the author’s choices and provides argumentation for research design, method, as well as population and sample selection. A qualitative approach of research was chosen for the following reasons:

1. the objective of the work is to explain rather than predict phenomena (Rubin and Rubin, 1995); and 2. to understand phenomena rather than measure it (Mason, 2002); 3. concepts and theories, resulting from the qualitative research should be relevant beyond the academic world, even if the exact data cannot be replicated (Mason, 2002). Qualitative method is also more suitable as the research sample is rather limited and requires expert knowledge as well as 100% response rate. The interview is considered the most relevant tool in collecting the narrative information as providing direct personal contact (Saunders, Lewis and Thornhill as cited in Bitelmal, 2010), moreover, qualitative interviewing is particularly useful for studying complicated relationships and slowly evolving events or processes (Rubin and Rubin, 1995). Interviews instead of survey or focus group was chosen because of the narrative nature of data collection. Also this type of data collection is more credible because the researcher can control the process of answering the questions to make sure data is provided from proper source of information. Another reason is the expectation that important data will be collected by giving the interviewee space to communicate openly. Semi-structured interviews are chosen instead of in–depth interviews as a tool for empirical research, the questionnaire verified the list of CSFs of each airport category composed by the paper author. The questionnaire as presented to the experts is provided in Appendix 1. The whole population of aviation experts, including airport managers, in Lithuania is not abundant. As stated in the website of The Ministry of Transport and Communications, which is the founder of the three Lithuanian airports: “The state regulatory function of the air transport is being carried out by the Civil Aviation Department of the Ministry of Transport and Communications” – even the number of regulatory bodies is very limited. As the research is of qualitative nature and does not have an ambition to get the representative data, the sample size was aimed to limit the number of interviews at data saturation point when no insights and new data is obtained and the answers begin to be repetitive. Therefore the sample consists of 10 participants. The main reason of choosing the purposive sampling is the need to analyse the opinions of the decision makers, key stakeholders and active participants of the aviation industry who do possess theoretical and practical knowledge of the subject. The purposeful sampling choice of experts was made by the author of the thesis on the basis of their likely ability to contribute to theoretical understanding of the subject and applying criteria of active involvement in the Lithuanian airport development aiming to make the research credible and informative, rather then randomly choosing the participants from the aviation

35 sector. Foreign experts were selected due to their recent active involvement in the management processes of the Lithuanian airports and have up to date information on the local situation as well as general knowledge of the European aviation development. The group of experts interviewed for empirical research are employed or otherwise involved as top or middle management executives in: airports, authorities of the Lithuanian Ministry of Transport and Communications, who are responsible for aviation sector, legacy and low cost airlines as well as aviation consultant companies. All the interviewed experts have between 38 and 7 years of experience in the area. Concise information on each of the experts are provided in the Appendix 2. The research question is answered after conducting the interviews with the experts.

3.3. Research Questionnaire

As the empirical research aims at finding out the opinions and experiences of industry professionals, for the collection of the primary data the research tool – interview questionnaire was designed. It has 5 main open-ended questions, includes 4 open-ended sub-questions – the partially pre-planned part of questions, thus based on the course of the interview, it proved sometimes required to ask purposeful follow-up or narrowing questions, e.g. Can you think of any internal/external factors? Why do you think so? Would you please enlarge upon it? The author purposefully did not include any of suggestive theoretically grounded lists of CSFs in order to avoid getting the answers that respondents feel the interviewer expects to get and to avoid the interviewers refraining to the suggested choices and contemplating with the boundaries of the author’s composed list. At the begging of every interview a concise description of the main definitions: strategic development, CSFs, airport strategic categories was presented to each interviewee.

4. Research Process and Results

This part of the research aims to present the process of empirical data collection, analysis and the results obtained through thorough process of data categorisation and coding. This chapter provides the answer to the research questions.

4.1. Data Collection and Analysis

The appointments to get the interview were made using electronic mail or telephone communication. The researcher was using personal contacts to schedule interviews with the sample experts. The interviewees were told that research aims to identify and verify which critical success factors affect the success of each European airport category most, and provide recommendations for Lithuanian airport owner. The expected input was explained and brainstorming encouraged.

The interviews were held in person (in two cases using Skype communication) on one occasion with each person, in the privacy of the offices of experts. The interviewees were informed of the generalised nature of result analysis, also offered the privilege of granting their confidentiality, of the respondents felt needed exercising this option. The interviewees were told the expected duration of the interview of 45 minutes, thus is many cases the conversations proved to be engaging for the experts and slightly more time was spent, none of the interviews lasted longer than 65 minutes. The conversations were audio recorded under the approval of the interviewee. The interviews were conducting during a two- week period in April.

The smaller part of the interviews were held in English, with Lithuanian native speakers English terminology was encouraged and accepted during the interview, thus offending the native language nevertheless for the sake of maximising the authenticity of the ideas and minimising the potential of losing or misinterpreting the data. 8 of the interviews were conducted in Lithuanian, 2 in English. All the interviews were audio recorded and concise transcripts pertaining summarize key thoughts of the interviews. The records of the interviews would be available on request. The author relied on her experiences, knowledge of aviation-related vocabulary and the English language to translate the interviews into English (the author is a diploma graduate of Vilnius University B.A. in English philology program). The interviews were transcribed on a daily basis, following up the interview.

The key ideas of the responses to the questions of the interviewer were categorised. The data categorization and coding process was conducted by identifying key, meaningful phrases or words.

Using this method the data was categorised, coded and counted numerically depending on the repetition of the same statements or statements pertaining the same idea and the attributed priority. If the interviews proved to provide additional data, recognized as valuable and benefiting the body of the research, additional statements were formulated to the final list of conclusions.

The final point of the analysis of the collected data was formulating the final list of the attributes, which were established as the critical success factors of each airport category in the experts’ priority order. Table in the Appendix 3 presents the coded interview responses that were analysed by the author.

4.2. Research Results

This chapter is devoted for the research results presentation that were obtained after thorough analysis of the coded data and interpretation of the data to arrive to a 4 lists of airport CSFs by strategic category.

4. 2.1. Research Topicality Verification

To question the topicality of the research and the approach taken to solving the problem in the eyes of the industry the first question was designed.

The respondents rehabilitated the author’s choice for research, as unanimous assent towards the topicality was expressed by the respondents. Respondents accentuated the current difficult situation in the Lithuanian market: “Development is not coherent, caused by political decisions. Difficult competition between KUN and VNO”. One of the respondents noted that ”it goes beyond the Lithuanian context and is topical in many countries as there are too many chaotically developing airports. (…) Economy, the past crisis, whatever situation that we are in now, calls for coordinated strategies for the European airport network development“. One of the respondents made a comment on the first question at the end of the interview and called the object of the conversation “a new theory created for airport strategists”, also a recommendation was provided to share the practical results of the research with the relevant state bodies once the research is completed.

In your opinion, is the research problem topical and may it be significant for other countries?

Interviewee 1 Yes. New theory created.

Interviewee 2 Yes. Development not coherent. Political decisions. Difficult competition between KUN and VNO. Interviewee 3 Yes. Interviewee 4 Yes, beyond LT context. Too many airports in Europe, chaotic development. Too few airlines for airports. Coordinated strategies of European airports needed. Interviewee 5 Yes.

Interviewee 6 Yes. Many studies done. No strategy adopted.

Interviewee 7 Yes, but the academic to real life value depends on the factors identified.

Interviewee 8 Practice does not work without theory. Yes.

Interviewee 9 Results need to be presented to relevant people.

Interviewee 10 Yes.

Dominating Yes.

Table 3. Verification of Research Topicality

Drawing the conclusions from the obtained data it may be stated that all the experts consider the research problem topical and see the significance of the research results beyond the context of Lithuania.

4. 2. 2. Experts’ Airport Success Determinants

The second question raised emotional reactions of the interviewees – a few took a minute to think, commenting that it is a question to talk about for several hours. One immediate response questioned the concept of success itself. Majority of respondents took the path of thinking of practical examples of successfully run and expanding airports, in reaction the author of the paper asked to think generally, not confining to any size or category of airport.

Majority of the respondents listed “developed infrastructure” and “strong based airline” as the main prerequisites for success of an airport. Further on equal emphasis and attention was devoted for the following attributes: “market size in the catchment, geographic location, ground access and developed infrastructure”.

The main argumentation behind those attributes were:

1. Developed infrastructure – a particular set of airport infrastructure is required to secure operations of airlines. 2. Strong based airline – airport operations “begin with an airline that can develop a network. Without carriers airports are just expensive infrastructure”. 3. Geographic location – strategic location in big and strong region guarantees demand for airline services. 4. Ground access – good access is required as “quite often airports are away from cities”, it encourages passengers choosing one airport over another, an example of German well developed ground transportation on city-airport rail links was presented. 5. HR competences – experienced and dedicated team of professionals can manage the operationally and infrastructure wise complex and capital-intense business.

What would you say determines success of an airport? What would you call the critical factors of success of any airport? Interviewee 1 Strong based airline. Economic situation. Geographic location. Interviewee 2 Strategic goals. HR competences, perception of strategy. Developed infrastructure. Marketing. Interviewee 3 Market size in the catchment. Strong based airline. Management and ownership model. Interviewee 4 Market size in the catchment. Mobility potential. Ground access. Based airline or airline mix. Space for development. Management. Long and short term strategy. Interviewee 5 Geographic location. Ground access. Developed infrastructure. Interviewee 6 Geographic location. Economic situation. Ground access. Airport meteorological conditions. Mission from the passenger's perspective. Interviewee 7 Connectivity with other airports. Frequencies, airline type. Air fare levels. Profitability. Interviewee 8 Safety. Developed infrastructure. Service level orientation. Optimal charge structure. Interviewee 9 Innovative route development. Ownership model. HR competences. Based airline. Interviewee 10 Developed infrastructure. Strategy. HR competences.

Dominating Developed infrastructure 4 Strong based airline 4 Geographic location 3 Ground access 3 HR competences 3 ------Market size in the catchment 2

Table 4. Experts’ Airport Success Determinants

It is important noting that majority of the core determinants of success are 3 external factors and 2 internal factors. Thus, an emphasis was put on “developed infrastructure” and “strong based airline” factors, further equal amount of responses were counted for following factors of: “geographic location, ground access and HR competences”. The final list of CSFs of an airport could be composed as follows: 1. Developed infrastructure; 2. Strong based airline; 3. Geographic location; 4. Ground access; 5. HR competences.

4. 2. 3. Experts’ CSFs of Hub Airport Category

Going deeper into the industry opinions were asked on what are the critical success factors of airports, pursuing specific strategies.

Firstly, hub airport category was discussed and experts unanimously agree that “geographic location” is the most important CSF of a hub airport, followed by “strong based airline” and “specific infrastructure” criteria. One of the experts noted the importance of airline – airport common strategy understanding, which ties two of the leading criteria together: “strong based airline” and “specific infrastructure”. “Only closely developing common strategy airport and airline can achieve maximum growth of passenger flows as [airports need to] adapt the infrastructure to airlines’ strategies, operational requirements and especially growth rate and prospects, e.g. “Riga airport and airBaltic case – classical failure”, when the growth rate of the airline was clearly limited by incomprehension of importance of infrastructure expansion.

The remaining two external factors: “market size in the catchment” and “economically strong region” scored equal attention of experts, just worth noting that market size criterion was stated with higher priority.

The main argumentation behind the listed CSFs were:

1. Geographic location – strategic location in big and strong region guarantees constant and substantial demand for airline services, e.g. “CPH growth slows down when HEL and AMS are

expanding”. The dense population within a short span of travelling on land and flying time has made possible the rapid development of many hubs (Kwok, 2010). 2. Strong based airline – airport operations “begins with an airline”. Without based carriers that develop flight network executing hub-and- spoke strategy, “airports are just expensive infrastructure”. 3. Specific infrastructure – hub and spoke operations model requires specific set and layout of airport infrastructure, especially passenger terminal wise. “Transit and transfer areas are of much sophisticated structure than, for example of O&D operations”. Moreover, such structures demand much more space. 4. Flight network – only the developed flight network – short/long leg, transcontinental - can create enough demand for hub service. 5. Market size in the catchment – big population is needed to generate passenger flows to support routes and frequencies. What are the top 3 CSFs of a hub airport? Interviewee 1 Strong based airline. Geographic location. Economically strong region. Market size in the catchment. Interviewee 2 Flight network. Strategic geographic location. Strong based airline. Interviewee 3 Geo-political location. Airport fare structure. Specific infrastructure. Economically strong region. Transport cluster creation. Interviewee 4 Geographic location. Market size in the catchment. Strong based airline and alliance membership. Specific infrastructure and capability to expand. Common strategy understanding with based airline. Interviewee 5 Geographic location. Market size in the catchment. Specific infrastructure. Strong based airline. Market liberalization. Interviewee 6 Geographic location. Strong based airline. Market size in the catchment.

Interviewee 7 Passenger volume. Frequencies of flights. Specific infrastructure. Flight network. Based airline. Interviewee 8 Flight network. Specific efficient infrastructure. Transfer service. Developed retail. Interviewee 9 Based airline. Geographic location. Mix of airlines. Specific infrastructure and capability to expand. Interviewee Flight network. Developed specific infrastructure. Common strategy 10 understanding with based airline. Dominating Geographic location 7 Strong based airline 7 Specific infrastructure 7 Flight network 4 Market size in the catchment 3 ------Economically strong region 2

Common strategy understanding with based airline 2

Table 5. Experts’ CSFs of Hub Airport

Interestingly, the results of the first general consideration revealed that the factors, established as determining the success of hub airport are mainly external – many beyond or within limited control of airport owners or managers. The prioritised list of hub CSFs is as follows:

1. Geographic location; 2. Strong based airline; 3. Specific infrastructure; 4. Flight network; 5. Market size in the catchment;

4. 2. 4. Experts’ CSFs of Low Cost Airport Category

Further on, the low cost airport category was analysed. Differently from the first airport category, more of internals factors were mentioned as CSFs. Thus most respondents firstly devoted attention to the external “regional support” factor, the following four out of five accented attributes are internal factors, such as: “cost efficiency”, “special airport fare structure”, “non-aeronautical revenue” and “simple infrastructure”. The argumentation in favour of the listed low costs airport CSFs were:

1. Cost efficiency – operations of airport infrastructure, HR on the lowest possible cost base is the key to be able to match LCC expectations charge wise. “Low infrastructure maintenance costs (...) resulting in airport charge structure, attractive for LCC flight development”. 2. Regional support – often low cost airports are smaller, regional airports therefore the region they immediately serve is the beneficiary of the provided services in terms of business relations, investment, mobility, accessibility, employment stimulation. “Success created for the region must be returned to the airport” – regional governments must take a financial stake in airport’s financial management. 3. Special airport fare structure – LCC operate on strictly monitored lowest cost base possible. “A large part of airlines costs are airport charges so they need to be low as you cannot control fuel

prices”, moreover “low fares stimulate and create new market – no one believed that Hahn [Frankfurt Hahn Airport] would be successful when they started operations”. 4. Non-aeronautical revenue – “operations largely depend on the ability to generate non- aeronautical revenues” to cross subsidise low (to none) income from aviation related sources - airlines. 5. Simple infrastructure – only the basic elements of airport infrastructure are required and by airlines, and naturally it is the way to secure the efficient and quick aircraft turn-around times and punctuality. What are the top 3 CSFs of a low cost airport? Interviewee 1 Based airline. Geographic location. Operational and cost efficiency. Interviewee 2 Non-aeronautical revenue. Cost efficiency. HR. Flight network. Regional support. Interviewee 3 Regional support. Geographic location. Special airport fare structure. Interviewee 4 Regional potential for flight development. Regional support. Cost efficiency. Simple infrastructure. Special airport fare structure. Interviewee 5 Cost efficiency. Special airport fare structure. Simple infrastructure. Non- aeronautical revenue. Geographic location. Interviewee 6 Strong regional economy. Cost efficiency. Regional support.

Interviewee 7 Based airline. Wicked circle. Cost efficiency. Special airport fare structure. Non- aeronautical revenue. Interviewee 8

Interviewee 9 Cost efficiency. Simple infrastructure. Regional support. National policy.

Interviewee Regional support. Non-aeronautical revenue. Simple and effective infrastructure. 10 Dominating Cost efficiency 7 Regional support 6 Special airport fare structure 4 Non-aeronautical revenue 4 Simple infrastructure 4 ------Geographic location 3 Based airline 2 Table 6. Experts’ CSFs of Low Cost Airport

It may be concluded that according the expert opinions, the largest part of CSFs of low cost airport are internal factors, within the airport’s control as very different from the hub airport, for example. Still one of the most important attributes is the external factor of regional support. The prioritised list of low cost airport CSFs is as follows:

1. Cost efficiency; 2. Regional support; 3. Special airport fare structure; 4. Non-aeronautical revenue; 5. Simple infrastructure.

4. 2. 5. Experts’ CSFs of O&D Airport Category

Thoughts on O&D airport category provided most of different opinion, in comparison with other categories. The opinions of experts were in agreement over three factors: “market size in the catchment”, “strong local economy” and ”ground access”. The “business maturity” argument is also very much supporting the idea of local economy strength.

The main arguments in favour of these aspects were:

1. Market size in the catchment – only big population can support the extensive flight network, as O&D airport is the other side of a hub - the market for point-to-point services must be very strong as the ability to support the route with feeder hub traffic from other traffic not available. 2. Ground access – “main customer of this airport is the business passenger. They value time and need good connection from the city to the airport”. 3. Strong local economy – main customer of O&D airport services – a business passenger therefore local economy must have a industrial base in the region, combined with steady growth in GDP.

4. Competitive pricing of airport services for passengers – O&D airports compete with hub and if they can provide basic airport services, like parking at a lower cost it may be one of the factors for passengers not to chose congested hubs.

5. Mix of passenger segments – “the variety in passenger customer segments guarantees the versatile need for airport services (business lounge, parking, fast-track, retail, etc.)” and reduces the seasonality effect.

What are the top 3 CSFs of an O&D airport? Interviewee 1 Market size in the catchment. Mix of airlines. Operational and cost efficiency.

Interviewee 2 Demographic trends. Strong local economy. Competitive pricing of airport services for passengers. Ground access. Interviewee 3 Based carrier. Flight network to hubs. Market size in the catchment. Flight reasoning. Interviewee 4 Regional potential for flight development. Market size in the catchment. Business maturity. Strong local economy. Interviewee 5 Market size in the catchment. Mix of passenger segments. Ground access. Interviewee 6 Cost efficiency. Mix of airlines. Special airport fare structure. Regional support.

Interviewee 7 Flight network to hubs. Ground access. Competitive pricing of airport services for passengers. Interviewee 8 Safety and security. Efficient infrastructure.

Interviewee 9 Geographic location. Proximity to attractive, known location. Strong local economy. Mix of passenger segments. Interviewee 10 Ground access. Competitive pricing of airport services for passengers. Mix of passenger segments. Regional potential for flight development. Dominating Market size in the catchment 4 Ground access 4 Strong local economy 3 Competitive pricing of airport services for passengers 3 Mix of passenger segments 3 ------Cost efficiency 2 Flight network to hubs 2 Mix of airlines 2 Regional potential for flight development 2 Table 7. Experts’ CSFs of O&D Airport

Experts provided the most different opinions on this category therefore it was the most demanding CSFs selection of the O&D airport. The difference of response intensity between the final factors was marginal. The prioritised list of the category is: 1. Market size in the catchment; 2. Ground access; 3. Strong local economy; 4. Competitive pricing of airport services for passengers; 5. Mix of passenger segments.

4. 2. 5. Experts’ CSFs of Airport System Category

While speaking on airport system CSFs experts gave a clear and optimistic preference for this strategic trend, expressing quite many positive ideas as of preferred and suggested method.

The responders named 4 external factors putting the biggest emphasis on “segmentation” (of activities and pricing) and “coordinated strategy”. One of the respondents expressed this factor in a very enthusiastic manner, expressing his approval of the concept. Naturally expected factor of “eliminated competition” was also amongst preferred.

The final argument list of airport system CSFs was as follows:

1. Segmentation (activities, pricing) – clear differentiation between the airports in the system is essential. “Separate different infrastructure to create different conditions [for airlines] and based on it - different pricing, mining the needs of airlines”. Segmentation enables tailoring the airport product to the market to serve as many segments. 2. Coordinated strategy seeks for maximum utilization of existing capacity and market stimulation serving different segments. Also once there is “established strategy for airports individually and in the context of the system, it aims for added value selling it to the market as a system but not in competition”. 3. Eliminated competition - competition with the system is eliminated as airports serve different segments and balanced growth is ensured. 4. Ownership structure – optimal ownership structure is also prerequisite to success. “Bad example AMS and Rotterdam – same owner (...) underutilised, strangles capacity. Rotterdam could be better developed”. 5. Capacity utilization – optimal capacity utilization is reached in the system as one airport can serve as a reliever or lower cost alternative serving similar catchment, “when VNO is utilised at 85% and KUN at 45% it is not good management of expensive resources”.

What are the top 3 CSFs of an airport system? Interviewee 1 Capacity utilization. Ownership structure. Coordinated strategy. Interviewee 2 Management strategy. Segmentation. Easy commute between the airports in the system. Interviewee 3 Coordinated planning, strategy, management. Eliminated competition. Segmentation of activities, pricing. Unanimous agreement to enter system. Autonomy on a level. Interviewee 4 Segmentation of activities, pricing. Individual and system strategy. Eliminated competition. Efficient infrastructure management. Systematic approach to development and investment. Integral development within the system. National goals for accessibility stimulation. Interviewee 5 Ownership structure. Segmentation. Political will for cross subsidizing. Big distance between airports.

Interviewee 6 Coordinated strategy. Optimal ownership structure. Eliminated competition. Right number of airports. Interviewee 7 Coordinated strategy. Segmentation. Diversification.

Interviewee 8 Simple infrastructure. Segmented pricing. Coordinated strategy.

Interviewee 9 Segmentation of activities. Eliminated competition. Coordination of activities.

Interviewee Coordinated strategy. Segmentation. Capacity utilization. 10 Dominating Segmentation (activities, pricing) 7 Coordinated strategy 6 Eliminated competition 4 Ownership structure 3 Capacity utilization 2 Table 8. Experts’ CSFs of Airport System

The respondents voiced opinions on 5 main CSFs, that are mainly in the competence of the system owner, thus (the first factor can be aimed for even in different owners) for airport system clearly emphasising the most important criteria of this category – segmentation and coordinated strategy.

The prioritised list of airport system CSFs is as follows:

1. Segmentation (activities, pricing); 2. Coordinated strategy; 3. Eliminated competition; 4. Ownership structure; 5. Capacity utilization.

4. 2. 6. Experts’ Recommendations for Lithuanian Airport Strategic Development

The major attention in this section was devoted to “soft” issues – strategic, management, competition, goal setting, diversity, system approach.

Two of the respondents expressed ultimately opposing views toward management choices: “management should not be centralized” and “united management required”. A third opinion on management was suggesting “coordinated management” so a solid recommendation cannot be concluded. Meanwhile the majority of respondents demonstrated quite unified attention to three recommendations: “system approach”, “segmentation” and “eliminated competition”. It is worth

48 mentioning that one of the respondents contradicted the latter approach of eliminated competition saying that: “competition is the main driver”.

While main of the suggested measures are of the short-term implementation plan, even more suggestions for consideration for the long-term period were made: involve regional government, consider PPP projects, eliminate political factors, establish flight support schemes, introduce based carrier, etc.

What strategy should be pursued with Lithuanian airport development? Why do you think so? Interviewee 1 Management should not be centralized. Competition driven. Interviewee 2 Common strategy, segmentation. Competition eliminated. Optimal infrastructure utilization. Involvement of regional government. PPP projects for the future. Interviewee 3 Competition eliminated. Coordinated management. Based carrier introduction plan. Political factor elimination. System approach. Commitment to long term goals. Vision communication. Interviewee 4 Coordinated development. Flight support programs to stimulate network. Diversified investment. System approach. Segmentation. Diversified long term strategy. In future competition may be encouraged. Interviewee 5 United management. Diversity and segmentation. Harmonized system approach. Interviewee 6 Based national airline. Competition eliminated. Coordinated management. Diversified airport product. Commitment to long term strategy. Interviewee 7 Segmentation. Diversify mix of airlines. Developed non-aeronautical revenues. Interviewee 8 Common strategy. PLQ - O&D orientation. KUN - low cost. VNO legacy dominated, low cost remains, different facility. Interviewee 9 VNO hub or O&D. KUN low cost and hybrid. Business, local government support to route development funds. Interviewee System approach. VNO – capital, legacy, network, regional, little LCC. KUN – 10 all LCC, little regional. PLQ – business, leisure traffic – O&D. Dominating System approach 4 Segmentation 4 Eliminated competition 4 Commitment to long term strategy 2 Common strategy 2 Table 9. Experts’ Recommendations for Lithuanian Airport Strategic Development

In conclusion it can be stated that kind of a suggestions plan was made up for the owner of Lithuanian Airports: a) adopt systems approach, b) segment the airports, c) eliminate competition. A few exact recommendations were provided as for each of Lithuanian airports. The main 4 ideas voiced were: 1. Adopt system approach; 2. Segment the market; 49

3. Eliminate competition; 4. Adopt and commit to long term strategy.

4.3. Composition of the Final CSFs List by Airport Category

Responding to the aim of the research a comprehensive, prioritised list of airport CSFs was composed on the basis of the interviewees responses (Table 10). It is important noting that majority of the core determinants of success are 3 external factors and 2 internal factors. Thus, an emphasis was put on “developed infrastructure” and “strong based airline” factors, further equal amount of responses were counted for following factors of: “geographic location, ground access and HR competences”. The final list of CSFs of an airport could be composed as follows: Critical Success Factor Priority Developed infrastructure 1 Strong based airline 2 Geographical location 3 Ground access 4 HR competences 5 1 = most important 5 = less important.

Table 10. The Experts’ List of Airport CSFs.

Responding to the questions of the empirical research and combining, verifying the opinions of the interviewed experts and the author, final lists of prioritised CSFs for each of the airport strategic categories was compiled. The final list of airport CSFs by strategic category is presented in the Table 11 below.

Critical Success Factor Hub Low Cost O&D Airport Airport category Airport Airport Airport system Strategic geographical location 1 Strong based airline 2 Developed specific infrastructure 3 Strong local and regional economy 4 Flight network 5

Regional government funding 1 Cost efficiency 2 Low airport service charges 3 Income from non-aviation activities 4 Simple infrastructure 5 50

Market size in the catchment 1 Well interconnected ground access 2 Mix of passenger segments 3 Competitive pricing of airport services for 4 passengers Strong local economy 5

Coordinated strategy 1 Segmentation (activities, pricing) 2 Optimal capacity utilization 3 Eliminated competition 4 Ownership structure 5

1 = most important 5 = less important.

Table 11. The Final List of CSFs by Airport Strategic Category.

Comparing the lists with the primary, the author’s composed in the review of literary sources, changes were introduced in every category.

Firstly, in the hub category importance of external factor as “strategic geographic location” was confirmed with the experts as well as the essential element of “strong based airline”. The author’s and experts’ attributed importance to the factor of “developed specific infrastructure”, the opinions on the importance of the infrastructure element almost matched. Primarily the development level, emphasising the expansion capability was pertained and in the final list the aspect of peculiarity of hub airport infrastructure, especially passenger terminal, was noted. The noticeable change was the importance assigned to “strong local and regional economy” factor –in the final list low priority was assigned to it. The main change to the primary list was of the last included factor – “ground access” - was replaced by a more strongly supported argument of the “flight network”. In the final list only one internal factor “developed specific infrastructure” was established as CSF for a hub, 1 partially controlled factor “strong based airline” and three ultimately external factors, beyond the airport control. Consequently a conclusion may be drawn that little to the success of a hub is contributed by the manager or the owner of the airport. In this case the certain pursued strategy is largely the result of the acquired conditions and historic operational context and only secondly the natural purposeful driven effort to reach certain objectives.

In the case of low cost airport “regional government funding” and “cost efficiency” proved to be indispensable for success of the airport. Many changes from the primary list were introduced to the 51 final list. This airport category was assigned the biggest number of internal attributes as CSFs therefore contributing the biggest authority of success to the management or owners of airport companies. A conclusion may be drawn that the low cost airport is a deliberately chosen and pursued strategy. Nevertheless the most complex issue for this strategy may be the highest priority assigned external factor of regional funding.

The O&D airport strategic category did undergo quite a few changes from the primary list. Different priorities were assigned to the factors of ground access and “mix of passenger segments”. The most obvious changes – elimination of “public funding” and “extensive network” factors which were replaced by the factors of “strong local economy” and “competitive pricing of airport services for passengers”. The latter – the only purely internal CSF was identified for this category. While airport management or authority may have partial influence in development of two external factors of “mix of passenger segments” and ground access, it may be concluded that the biggest relative weight is assigned to external factors. Does it mean that basically the strategy of O&D is a consequence of the operating conditions and context? In the industry a trend of O&D airports becoming dominated by LCC has been observed on a large scale (De Neufville, 2008). An assumption may be raised that high dependency on external circumstances for success aggravates the pressure for O&D airports in the market as growth in passenger numbers is predominantly generated by LCC.

The fewest changes were introduced to the final CSFs list of an airport system category. Unanimously the “coordinated strategy”, “eliminated competition”, “optimal capacity utilization” and diversification/segmentation elements were assigned the most importance. The general opinion towards airport development as an airport system was very positive and seen as a most sensible option for an airport owner (if more than 1 airport owned) or a hub-neighbouring airport. Experts expressed the opinion that moving toward airport system approach is the trend for the future development of airports in Europe.

4.4. Relation of Existing Theory to Empirical Research Findings

While comparing the list of airport CSFs with the one of Deillon’s (2012) as presented in the literary analysis part, the main differences may be observed that not all the aspects were reflected in the final experts’ list. A couple of external factors: “strong based airline” and “geographical location” have not been regarded in the Deillon’s list.

Critical Success Factor Priority Developed infrastructure 1 52

Strong based airline 2 Geographic location 3 Ground access 4 HR competences 5

Comparing the final list of the airport CSFs by strategic category to the general list of airport CSFs, provided by Deillon (2012), it may be stated that the academic approach and the industry representatives’ views were quite different. The most obvious conclusion that is essential to make here – the different understanding of the CSF concept itself was observed. The trend became obvious even in the literature analysis part of the thesis and later on it was unmistakably confirmed during the data analysis process. It can be concluded that for a couple of strategic categories (i.e. hub and O&D airports) the experts listed external factors for CSFs, as crucial for success of an airport company. Factors like: geographic location, strength of the local and regional economy, the population size in the catchment as well as “third-party decisions” of local government support, based airline development or ground access development are not the CSFs in the classically defined sense of the CSF concept by Deillon (2012) – CSFs, resulting out of the strategic actions, taken by the organization.

Nevertheless, at this stage the findings may be supported by the ideas of Rockhart and Bullen (1981) on CSFs in general and that were not the primary focus for the airport CSFs list comparison with the research results, but must be referred to at this stage of research. They state that while CSFs emerge from and are the reflection of the management deliberations and decisions, they are also forced upon the organization from the industry and market where it operates, its position in relation to competing organizations, as well as the effects of the daily operating context and environment.

Further on, it may be stated that the 2 out of 4 airport strategic categories (low cost airport and airport system) were mainly focused on the internal list of CSFs that way contributing to higher implications of the managerial decisions and control aiming to successful pursuit of the deliberated strategy (especially in the case of airport system).

It may be concluded that for pursuit of a hub and O&D airport strategy much of success is attributed to the external factors, and internal factors – within management control come in as only secondary. Comparing to the Deillon’s (2012) list it may be concluded that the “soft” factors of “CSR” and “economic impact” were not touched upon by any of the experts. The factors of “strong financial situation” and “customer orientation” were mentioned on two separate occasions by the experts and did not constitute substantial volume to be included in the final lists of CSFs.

Evidently, the general list of airport CSFs does not portray the full scope of CSFs when judging from the perspective of distinct airport strategy. While Deillon (2012) rightfully establishes the critical internal or monitored factors of success, the external factors are not considered, while the relative weight of the latter appears to be fundamental for certain strategies.

Therefore the author believes that the final list of CSFs by airport category is extensive and well reflecting upon the industry. Also it provides a valuable addendum the one of Deillon’s (2012) and may be a useful reference point for future researchers on the subject.

4.5. Analysis of Lithuanian Airport Situation in Relation to Research Findings

Based on the findings of the empirical research and the provided insights and suggestions of the aviation experts as well as the contributing practical knowledge of the author, it may be concluded that the Lithuanian airport owner should be aiming for a change for the future strategic development of the thee Lithuanian airports.

Based on the classification criteria, provided in Chapter 1.5, presently the Lithuanian airports could be attributed to the following strategies:

1. Vilnius Airport – O&D airport, as meeting the criteria for the category.

Point to point traffic mainly (85% to 90%) Yes, 99% Network of connections to gateway or secondary hubs Yes, FRA, CPH, RIX, HEL, DME Regional service area (often next to big city) Yes, Vilnius Few long range destinations No Often less than 5 million passengers per year Yes, 2,2 ml in 2012

It is important noting here that Vilnius airport shows signs of low cost airport strategy pursuit as over 50% of the traffic is being delivered by LCC, the company is increasing the stake of non-aeronautical revenues in the overall revenue structure. This trend that has proved itself strong with many other O&D airports in Europe over the last 10 years with the rapid development of LCC – “low-cost airlines come first, and the low-cost airports (and low-cost facilities) mostly come afterwards”, as stated by De Neufville (2008).

2. Kaunas Airport – low cost airport, as meeting all criteria of the category 54

Point to point traffic served by dominating LCCs (up to 99% of traffic) Yes, 98% Serving local/regional service area Yes, Kaunas + Vilnius Less than 4 ml passengers a year Yes, 830 000 in 2012 Close to a large metropolis or area of specific attraction Yes, Kaunas + Vilnius Often relying on non-aeronautical revenues for financial stability Yes, 70% of revenues

3. Palanga Airport – O&D airport, pertaining majority of the attributes for the category

Point to point traffic mainly (85% to 90%) Yes, 99% Network of connections to gateway or secondary hubs Yes, CPH, RIX Regional service area (often next to big city) Yes, Klaipeda, Palanga Few long range destinations No Often less than 5 million passengers per year Yes, 128 000 in 2012

The relevant back-up traffic statistics of the airports are provided in the airports’ websites and referenced later in the paper.

Judging the established airport strategies form the perspective of CSFs of the category, the following conclusions can be made: 1. Vilnius airport satisfies the main parameters that have been listed as critical for success of an O&D airport. Market size in the catchment Yes. 2 ml in 2 h drive time. Well interconnected ground access Yes/No, close to the city but solving traffic problems. Mix of passenger segments Yes. Business, leisure, VFR traffic served. Competitive pricing of airport services for passengers Yes/No. Special benchmark needed. Many services provided by several competing providers. Strong local economy Yes. Vilnius region - 25% of national GDP.

According to the above listed and augmented CSFs, the airport could be pursuing the strategy and developing successfully. Nevertheless, in Q1 of 2013 the constantly increasing LCC share has reached dominating traffic level – over 55% and an obvious trend towards the increase of non-aeronautical revenue share increase may be observed – 78% increase recorded (Vilnius Airport Financial Reports,

2013). Referring to this and the expert’s opinions it may be stated that Vilnius airport has lost its strategic focus and is becoming a low cost airport. 2. Kaunas airport meets the main criteria listed for successful pursuit of low cost strategy: Regional government funding No. Cost efficiency Yes/No. Best cost efficiency level reached at 1 ml passenger volume. Low airport service charges Yes. Volume based incentive scheme available to carriers. Income from non-aviation activities Yes, 70% of revenues. Simple infrastructure Yes, simple passenger terminal structure, runway facilitation enables 25 min. Turnaround.

It may be concluded that Kaunas airport is following the typical low cost airport strategy – “the business model for low-cost airports is distinct from that of the traditional major airports. Low-cost airports emphasize profitability through operational efficiency and minimal frills” De Neufville (2008), just lacking the regional financial support to off-set the aviation revenue loses by lowering charges to airlines with external regional funding (Pels et al, 2003). (NOTE: VNO, KUN and PLQ airports in Lithuania are owned by the State). 3. Palanga airport is another airport in Lithuania developing on O&D airport strategic framework: Market size in the catchment Yes. 0,7 ml in 2 h drive time, catchment limited by the sea. Well interconnected ground access Yes, close to the city. Mix of passenger segments Yes. Business, leisure, VFR traffic served. Competitive pricing of airport services for passengers Yes/No. Small scale and special benchmark needed. Strong local economy Yes. Klaipeda region – 14 % of the national GDP.

Palanga airport operations satisfy the CSFs criteria for successful strategic development. Naturally, the specific geographic location, the size of the region catchment and economic power limit the airport operations for small scale, yet the profitability factor is successfully reached (Palanga Airport Financial Reports, 2013).

4.6. Conclusions of Empirical Research

The empirical research aimed to identify the main CSFS on an airport and which of the CSFs affected the success of each airport category most. The conducted empirical research was an instrument to

56 providing useful insights and obtain a full, prioritised and reasoned lists of CSFs for each of airport strategic category, pertaining the views of professionals in the industry. The research revealed that different strategies rely on the different sets of CSFs. The conducted interviews with experts offered an empirically verified backbone of CSFs as well as their own practical observations and suggestions for basing the recommendations for the Lithuanian airport strategic development. The respondents unanimously confirmed topicality the author’s research topic.

Aiming to avoid the repetition and data duplication, the summary of the empirical research’s results was chosen not be provided in this sub-chapter – as the concentrated research results are discussed in the previous sub-chapter and will be discussed in detail in the following chapter “Discussion”. The research methodology, instrument, procedure and result interpretation lead to obtaining empiric data, presented in this paper and all research’s objectives were implemented successfully:

• the topicality of the research problem was verifies and positively confirmed;

• after the interviews a prioritized list of CSFs for each airport strategic category was obtained and later compared to the one of the author’s and the one provided by Deillon (2012);

• a list of experts’ recommendations for development strategies for Lithuanian airports was composed;

• deliberations on the situation of the Lithuanian airports’ in the context of the research findings were analysed and presented.

5. Discussion

5.1. Key Findings of the Research

Despite the variety of existing airport classifications, majority of them are based on factors like geography, functions, slot coordination, size in terms of passengers flows, runway or other airfield parameters, ownership and others. Therefore for the purpose of this paper the existing classifications were not topical and a new classification, concentrating on commercial nature of passenger airports in Europe was created.

Comparing the final list of the airport CSFs by strategic category to the general list of airport CSFs, provided by Deillon (2012), it may be stated that the academic approach and the industry representatives’ views were quite different and changes were introduced in every category. The most obvious conclusion to make here – the slightly different understanding of the CSF concept itself was observed. The experts listed substantial number of external factors as crucial for success of an airport company. While Deillon (2012) rightfully establishes the critical internal or monitored factors of success, the external factors are not considered, while the relative weight of the latter appears to be fundamental for certain strategies. Nevertheless, at this stage the findings may be supported by the ideas of Rockhart and Bullen (1981) on CSFs in general (that were not the primary focus for the airport CSFs list comparison with the research results) but must be referred to at this stage of research. They state that while CSFs emerge from and are the reflection of the management deliberations and decisions, they are also forced upon the organization from the industry and market where it operates, its position in relation to competing organizations, as well as the effects of the daily operating context and environment. Evidently, the general list of airport CSFs does not portray the full scope of CSFs, especially when judging from the perspective of a distinct airport strategy.

Summing up it may be stated that aiming for success and effectiveness, managers must mind and monitor a wide range of activities, events, and conditions that take place in the organization and no less important is the external environment in which the organization operates. Therefore the author believes that the final list of CSFs by airport category is extensive and well reflecting upon the European airport industry. Also it provides a valuable addendum the one of Deillon’s (2012) and may be a useful reference point for future researchers on the subject.

The subsequent chapter 5.2 provides the extensive deliberations on the problem of the research and for the purpose of avoiding repetition are not discussed in this chapter.

5.2.Recommendations for the Lithuanian Airport Owner

Based on the analysis of the literary sources, the empirical research results it may be suggested that the two biggest airports within same catchment area are pursuing similar strategy of low cost airport: Kaunas deliberately, Vilnius – a hybrid – O&D airport, consequently to unlimited LCC expansion becoming low cost airport. De Neufville (2008) warns that the “low-cost airports compete with the traditional major ‘legacy’ airports” and Vilnius – Kaunas airport competition proves to be destructive for Kaunas financial and operational sustainability (Kaunas Airport Financial Reports, 2013). Graham (2004) supports this conclusion stating that: “if the airports are physically close, their catchment areas may overlap and the competitive rivalry will be greater”. As a resulting solution three options may be suggested here:  find ways to support Kaunas airport with external financial sources of regional government (1st CSF of the relevant strategic category) or,  attract/introduce the based airline to VNO aiming for perceiving of the hub strategy (1st CSF of the relevant strategic category); or  construct a low key, simplistic passenger terminal to serve LCC carriers at VNO that was differentiating the service level and charge structure (De Neufville, 2008), or else  referring to the experts’ suggestions - eliminate competition and introduce segmentation of airport strategies by the owner of the airports.

To discuss the options it may be stated that the first and second one should not be prioritised, because the first option asks for external sources of financing that are hard to secure and manage, also require attention not to break the EU state aid regulations, as Morrell (2003) warns that: “rules (…) apply to

59 both airports and airlines (…) where there is doubt as to whether state aid [regulations] applies (in the case of public capital injections and loan financing and guarantees)”. Similar level of difficulty can be attributed to the based carrier establishment which proved to be a series of failures and bankruptcies in the Lithuanian aviation (FLY LAL, Star1, Air Lituanica?). Moreover capital intense investment is required into infrastructure which is readily available at Kaunas (low cost terminal) and that would create infrastructure surplus in the country, utterly defying the CSF of cost efficiency, De Neufville and Odoni’s (2003) argument is illustrative here: “if the secondary airport is underutilized compared to its cost, it is a failure as a transport investment, regardless of its technical features and architectural beauty”. Therefore the fourth strategic argument would seem as the most appropriate action aiming for sustainable strategic development. Although Palanga Airport geographically is located in a substantial distance from the other two airports, the same strategy is pursued as of the main airport. The researched literature and the experts agree that airports, within more than 3-hour driving distance do not directly compete to each other (Graham, 2004). Nevertheless, the two airline representatives voiced opinions that Vilnius and Palanga airport compete to each other “for airline service frequencies and schedules based on their [airport] charge structure” and airline representatives expressed belief that judging from the airport perspective it may have a very negative overall impact to the company’s revenues, as confirmed by Morrell (2003): “airports compete on price (...), offer incentives for those airlines that increase traffic on their existing services”. Moreover it may also consequently have a negative effect on the 3rd CSF of the category – “mix of passenger segments” as airlines may decide to consolidate operations in one of the airports reaching for maximum cost efficiency and withdraw operations from the smaller airport, most probably. Here the following suggestions may be presented drawing from the empirical part of the research:

 segmentation of airport strategies and  coordination of airport charge systems.

The suggested actions may be taken or imposed by the airport owner aiming for maximum development of accessibility of the country or region, sustainability of operations and return on investment, moreover introducing the customer orientation approach and financial sustainability as a CSF as suggested by Deillon (2012). As expressing the airlines approach the De Neufville (2003)

60 claims: “the variety of [different] airport practices is organizationally inefficient for the [airline] industry” – asking for more standardisation or unification in the airport management.

Consequently, as the element of coordination is rightfully suggested, the idea of Neufville and Odoni’s (2003): “[airports] can choose to do thing individualistically, or they can move to system-wide management of their activities”, suggests the approach of airport system for the future of Lithuanian airports. This idea is largely and enthusiastically supported by in the suggestions obtained performing the empirical research – “due to close geographic proximity and call for strategic change Lithuanian airports could be managed as an airport system”, serving it’s separate catchment with specific strategy for it.

Based on the literary analysis of the academic tribute and empiric analysis findings, the benefits of the airport system approach to the strategic development of the Lithuanian airports could be listed as follows:

1. Establish and commit to long-term development strategy (Experts: “There have been many studies done, but no strategy introduced. The development has been chaotic, based on political and individual managerial decisions”); 2. Eliminate (or manage) the damaging competition between the airports (“Building up incrementally the capabilities of the (...) airports in a system - to give the region the accessibility to compete effectively with other regions for business, industrial and touristic activity”, Neufville and Odoni, 2003); 3. Achieve concentration benefits in terms of purchasing, HR, investment (“airports (...) buy equipment and services at retail prices, [since] they do not combine in larger groups to exert pressure on manufacturers”, Neufville and Odoni, 2003); 4. Segment the airports, assigning specific strategic purpose to serve in the system (differentiation allows the airport to become an expert for the particular market/segment and that way to achieve the competitive advantage for the whole system (Bitelmal, 2010); 5. Coordinate airport charge and incentive systems (“The airport operator can also (…) influence [airline] costs through choice of its organisations to provide services and also the amount of the competition which it allows”, Graham, 2004).

Graham (2004) clearly lists the concluding arguments in favour of a system approach: “economies of scale and enhanced career opportunities for employees, a stronger financial structure which can support

61 the investment peaks and troughs at different airports and a more consistent strategic planning and investment policy”. Following this strategic development approach the optimal utilization of dedicated airport infrastructure capacity would be achieved and would enable traffic growth offering airlines attractive airport charges, based on the costs of the operated infrastructure in an airport system where dedicated strategic roles are assigned to each airport.

5.3. The Limitations to the Research and the Implications for Further Researches

This research is significant because it contributes to the body of practical literature on CSFs of commercial airports that is predominantly written from the theoretical view and represents a body of literature documenting the significant concepts of airport CSFs in general but not addressing the peculiarities of specific airport strategic categories. Moreover the product of this research - the list of CSFs for airport categories is based on both – synthesis of the opinions of academic researchers in the analysed literature and the voices of industry professionals. The results of this paper provides future researchers with a foundation to be built upon. The research contributes to the set of tools for airport managers and owners: to test and verify the underlying theories and assumptions and possibly, draw a model for improvement of the strategies set for the future development. The amendment to benefit of the existing research could be made by widening the current research sample and employing a different research method. As the thesis aims to arrive at results, applicable not only for the Lithuanian airport case, but for wider European audience, more foreign experts may be interviewed for the CSFs list composition part where knowledge of the local market peculiarities is not critical. This part of research could be done employing the technique of quantitative research as it would enable generalising results from a much larger sample, would possibly arrive at a generalisation of the relation between airports external environment, operational context and strategic course taken by the company, breaking the views by industry, airport category, etc. Also the researcher’s subjective immersing in the subject matter could potentially be avoided. Moreover, the wider scope of airport economic operations could be considered, widening the considerations and including general aviation, cargo, business development as retail, real estate and land development in the body of airport categorisation. This research may have applications beyond this document, for both the academic and international commercial practice view on commercial airport management in Lithuania and in Europe. The author

62 truly believes that the scientific concepts such as strategy are best exercised and tested in the practical manner in the business world. Considering the new areas in the field of in Lithuania that could be researched the following suggestions can be discussed: 1. The role and effect of an airport for the economic development of the region it serves (possibly dedicating the research for the Lithuanian regions of Kaunas and Palanga). There were opinions voiced during the interviews that airports bring the biggest benefit to the immediate region they serve. The effect of airports in regions is primarily observed as people and cargo moving point. The effect of an airport on region’s incoming tourism employment, business relations, investment stimulation and overall economic development has been largely debated. The effect on regional development could be measured as economic output per capita. 2. The role of ownership structure to the success of airport strategy. For many years up to 1980ties, many airports in Europe were owned and operated by national governments or local municipalities. The UK was one of the pioneers that has set the trend - sold for the private operator - British Airport Authority - the three main airports of London and four other major UK airports. Since that time in many countries in Europe that airports are no longer state enterprises and the private sector has been involved on different degree: ownership, franchise, management. The degree of influence of the ownership model on airport performance in Europe and factors for success could be the object of a new research. 3. The measurement of strategy. While developing of strategy is quite an important task, the measurement of its success (or contrary) is no less important. A few of the respondents spoke about recent changes in the market that have distorted the former strategy also the needed for commitment to long-term strategy. Here the measurement of strategy would need to be an adjacent process to closely monitor the implementation of suggested strategic changes and the outcomes of them. Having in mind the available methods for it of Benefits Measurement, KPI, ROC, IRR, ROA, in author’s belief the Balanced Scorecard approach of Kaplan and Norton would seem the most applicable due to the construct of it, focusing on four different perspectives, that are important considering that airports are performing as business companies with a dedicated social function. This research could be a follow-up step after a certain strategy is adopted to pursue by any airport.

6. Conclusions

The goal of this paper is to suggest the empirically grounded recommendations for strategic development of the Lithuanian airports. To achieve the set aim 5 objectives were outlined in this paper. The key findings to each of the identified objectives that were discovered during the research process are listed below.

Gathering, reviewing, screening and analysis of the available literary sources on the subjects of strategy, strategic development and critical success factors in general and further in the airport context resulted in the following systemised conclusions:

1. The analysed theoretic concepts are largely multi-layered and have been defined differently by many scholars and there are no universally recognized, unquestionably accepted or unified definitions of key concepts, e.g. strategy or critical success factors;

2. The model of strategic development concept components, that provided facilitation for the subsequent stages of the strategic development process: planning and management was relied upon in the paper;

3. Ample amount of literary deliberations on subjects of strategy, strategic planning and management as well as CSFs in general. While attempts to look at these factors from the perspective of the airport industry proved that availability of literary sources is much scarcer;

4. Still there is no reason why the accepted understanding, principles and order of action could not be applied to the airport industry.

Exploring and analysing the available body of literature on airport classification in search for the categorisation model for the purposes of this paper it was assessed that:

1. The available categorisations of airport strategies in Europe are focused on geographic, airport operational or size parameters and are not applicable for the purposes of this paper; 2. A new categorisation model of prevalent airports strategies in Europe was established – hub, O&D, low cost and airport system categories;

Gathering, screening and analysing the available literary sources aiming to identify a list of critical success factors for each of the airport strategic categories the author arrived at the following conclusions:

1. The availability of literary deliberations on subject of airport critical success factors from the perspective of their strategic category is very scarce and not systematic; 2. The lists were composed on the basis of analytical and industry media articles, case analyses, conference and event speeches and presentations ; 3. To arrive at the empirically verified recommendations extensive and empirically verified data set of CSFs for each airport strategy was need that gave reasoning for the empirical research.

In the empirical research part of the paper, the synthesis of the primary data (empirical research results) and the secondary data (theoretical and literature findings) enabled coming to the following generalizations:

1. The academic approach and the industry representatives’ views and understandings of the CSFs by airport strategic category were quite different from the Deillon’s (2012) provided general list of airport CSFs as considerably larger emphasis was put on external CSFs by the experts, especially in cases of hub and O&D strategies, while Deillon concentrated solely on internal factors (e.g. operations, finance and services); 2. Aiming for success and effectiveness, airport managers/owners must mind and monitor a wide range of activities, events, and conditions that take place in the organization and no less important is the external environment in which the organization operates; Aiming to arrive at the goal of the research and producing the empirically grounded recommendations for the strategic development of Lithuanian airports, the following can be concluded:

1. The literary analysis confirmed the topicality of the thesis problem in Lithuania, as it demonstrated the existence and relevance of the on-going debates and somewhat different views of academic and business society analytics towards the airport strategy, the extent of uniformity of CSFs to different airport businesses and presented the variety of different CSFs of airports; 2. While in Lithuania the object of research has become the axis of lively public debate during the time the thesis was being written, the public discussion mainly circles around very circumstantial statements with no scientific grounding; 3. The opinions of the professionals of the industry of the main CSFs of Lithuanian airports and recommendations for the future development were similar to a very large extent;

4. Following the airport system strategic development approach the optimal utilization of dedicated Lithuanian airport infrastructure capacity would be achieved and would enable traffic

growth offering airlines attractive airport charges, based on the costs of the operated infrastructure in the airport system where dedicated strategic roles are assigned to each airport. This research considerably contributes to the body of practical literature on commercial airport development addressing the peculiarities and establishing categorisation system minding specific airport strategies. Moreover this research produced the list of CSFs for airport categories based on both – synthesis of the opinions of academic literature and voices of industry professionals. The successfully executed research resulting in achievement of the set aim provides a solid foundation for further explorative research into the field of strategic development.

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List of Appendices

Appendix 1. Interview Questions ………………………………………………………………………72

Appendix 2. List of Interviewed Experts ………………………………………………………………73

Appendix 3. The Coded Interview Responses……………………………………………………….…74

Appendix 1. Interview Questions

Would you mind telling me your name and your current position?

1. In your opinion, is the research problem topical?

2. What would you say determines success of an airport? What would you describe as the main factors behind a successful airport company?

3. Going deeper into the industry I would like to ask you opinion on what are the critical success factors of airports, pursuing specific strategies.

3.1. What are the CSFs of a hub airport? Could you prioritize the top 3?

3.2. What are the CSFs of a low cost airport? Could you prioritize the top 3?

3.3. What are the CSFs of an O&D airport? Could you prioritize the top 3?

3.4. What are the CSFs of an airport system? Could you prioritize the top 3?

4. What strategy should be pursued with Lithuanian airport development? Why do you think so?

5. Would you like to add any other information?

Thank you very much for your cooperation.

Appendix 2. List of Interviewed Experts (in alphabetical order)

# Interviewee Name, Key facts Last name 1. Arijandas Šliupas Vice-minister of Transport and Communications of the Republic of Lithuania, responsible for the aviation sector development. Previously General Manager of Kaunas Airport for 4,5 years, General Manager of couple of Logistics companies. Overall 12 years experience in the aviation sector. 2. Darius Acting Managing Director, Director of Infrastructure Department of Okunevičius Vilnius Airport. Previously experienced working for the Lithuanian Civil Aviation Inspection. Overall 18 years experience in the aviation sector. 3. Gražvydas Director of Road Transport and Civil Aviation Policy Department of the Jakubauskas Ministry of Transport and Communications of the Republic of Lithuania. Overall 7 years experience in the aviation sector. 4. Paulius Mikučionis airbaltic Regional Manager for Lithuania. Overall 9 years experience in the aviation sector. 5. Rimantas Skridaila Former General Manager of Kaunas Airport for 25 years. Presently employed in State Enterprise Air Navigation middle management position. Overall 38 years experience in the aviation sector. 6. Robert Appleton Senior consultant at ALG Euro-praxis Global consulting. Experienced with airport development, strategy, management, acquisition, policy. strategy. Overall 16 years experience in the aviation sector. 7. Rūta Jucienė SAS-Scandinavian Airlines Regional Manager for Lithuania, responsible for Vilnius and Palanga stations management and operations, sales, customer service and network planning. Overall 20 years experience in the aviation sector. 8. Tom Shearer Private consultant for the airport industry on business, air traffic development, non-aeronautical revenue management. Previously employed as a Business and Route Development Manager at Ryanair for 7 years. Overall 11 years experience in the aviation sector. 9. Vidmantas Vaškys General Manager of Ground handling company Litcargus, based in three Lithuanian Airports, few Polish airports. Previously employed in Lithuanian Ministry of Transport and communications, national airline Lithuanian Airlines. Overall 35 years experience in the aviation sector. 10. Vilius Veitas Presently Head of the Civil Aviation Division of the Ministry of Transport and Communications of the Republic of Lithuania. Chairman of Kaunas Airport Board. Previously 6 years in the Lithuanian Airlines, 3 years in Brussels as the Transport attaché for Lithuania. Overall 13 years experience in the aviation sector.

Appendix 3. The Coded Interview Responses

1. In your 2. What would 3.1. What are the 3.2. What are the 3.3. What are the top 3.4. What are the 4.What strategy should be opinion, is you say top 3 CSFs of a top 3 CSFs of a 3 CSFs of an O&D top 3 CSFs of an pursued with Lithuanian the research determines hub airport? low cost airport? airport? airport system? airport development? Why problem success of an do you think so? topical? airport? Yes. New Strong based Strong based An airline. Market size in the Ownership structure. Management should not be theory airline. airline. Geographic Geographic catchment. Mix of Coordinated centralized. Competition created Economic location. location. airlines. Operational management, driven. situation. Economically Operational and and cost efficiency. Capacity utilization. Geographic strong region. cost efficiency. location. Market size in the

Interviewee 1 1 Interviewee catchment. Yes. Strategic goals. Flight network. Non-aeronautical Demographic trends. Management Common strategy, Developmen HR Strategic revenue. Cost Strong local economy. strategy. segmentation. Competition t not competences, geographic efficiency. HR. Competitive pricing of Segmentation. Easy eliminated. Optimal coherent. perception of location. Strong Flight network. airport services for commute between the infrastructure utilization. Political strategy. based airline. Regional support. passengers. Ground airports in the system. Involvement of regional

decisions. Developed access. government. PPP projects for Difficult infrastructure. the future. competition Marketing. between KUN and

Interviewee 2 Interviewee VNO. Yes Market size in Geo-political Regional support. Based carrier. Flight Coordinated Competition eliminated. the catchment. location. Airport Geographic network to hubs. planning, strategy, Coordinated management. Strong based fare structure. location. Special Market size in the management. Based carrier introduction airline. Specific airport fare catchment. flight Eliminated plan. Political factor Management infrastructure. structure. reasoning. competition. elimination. System

and ownership Economically Segmentation of approach. Commitment to model. strong region. activities, pricing. long term goals. Vision Transport cluster Unanimous communication. PLQ creation. agreement to enter position vulnerable. system. Autonomy on

Interviewee 3 Interviewee a level.

Yes, beyond Market size in Geographic Regional potential Regional potential for Segmentation of Coordinated development. LT context. the catchment. location. Market for flight flight development. activities, pricing. Flight support programs to Too many Mobility and size in the development. Market size in the Individual and system stimulate network. airports in potential. catchment. Strong Regional support. catchment. Business strategy. Eliminated Diversified investment. Europe, Ground access. based airline + Cost efficiency. maturity. Strong local competition. System approach. chaotic Based airline or alliance Simple economy. Efficient Segmentation. Diversified development airline mix. membership. infrastructure. infrastructure long term strategy. In future . Too few Space for Specific Special airport management. competition may be airlines for development. infrastructure and fare structure. Systematic approach encouraged.

airports. Management. capability to to development and Coordinated Long and short expand. Common investment. Integral strategies of term strategy. strategy development within European understanding with the system. National airports based airline. goals for accessibility

Interviewee 4 Interviewee needed. stimulation. Yes. Geographic Geographic Cost efficiency. Market size in the Ownership structure. United management. location. location. Market Special airport catchment. Mix of pax Segmentation. Enforced diversity and Ground access. size in the fare structure. segments. Ground Political will for segmentation. Harmonized

Developed catchment. Specific Simple access. cross subsidizing. Big system approach. infrastructure. infrastructure. infrastructure. distance between Strong based Non-aeronautical airports. airline. Market revenue. liberalization. Geographic

Interviewee 5 Interviewee location. Yes. Many Geographic Geographic Strong regional Cost efficiency. Mix Coordinated strategy. Based national airline. studies done. location. location. Strong economy. Cost of airlines. Special Optimal ownership Competition eliminated. No strategy Economic based airline. efficiency. airport fare structure. structure. Simple Coordinated management. adopted. situation. Market size in the Regional support. Regional support. infrastructure. Right Diversified airport product.

Ground access. catchment. number of airports. Commitment to long term Airport meteo strategy. conditions. Mission from the passenger's

Interviewee 6 Interviewee perspective. Yes. Will it Connectivity Passenger volume. Based airline. Flight network to Coordinated strategy. Segmentation. Diversify mix

be useful with other Frequencies of Wicked circle. hubs. Ground access. Segmentation. of airlines. Developed non- depends on airports. flights. Specific Cost efficiency. Competitive pricing of Diversification. aeronautical revenues. the factors Frequencies, infrastructure. Special airport airport services for identified. airline type. Air Flight network. fare structure. passengers. fare levels. Based airline. Non-aeronautical

Interviewee 7 Interviewee Profitability. revenue.

Practice Safety. Flight network. Safety and security. Simple infrastructure. Common strategy. PLQ -

does not Developed Specific efficient Efficient infrastructure. Segmented pricing. O&D orientation. KUN - low work infrastructure. infrastructure. Coordinated strategy. cost. VNO legacy dominated, without Service level Transfer service. low cost remains, different theory. Yes. orientation. Developed retail. facility. Optimal charge

Interviewee 8 Interviewee structure. Results need Innovative route Based airline. Cost efficiency. Geographic location. Segmentation of VNO hub or O&D. KUN low

to be development. Geographic Simple Proximity to attractive, activities. Eliminated cost and hybrid. Business, presented to Ownership location. Mix of infrastructure. known location. Strong competition. local government support to relevant model. HR airlines. Specific Regional support. local economy. Mix of Coordination of RDF. people. competences. infrastructure and National policy. passenger segments. activities. capability to

Interviewee 9 Interviewee expand.

Yes. Developed Flight network. Regional support. Ground access. Coordinated strategy. System approach. VNO –

infrastructure. Developed specific Non-aeronautical Competitive pricing of Segmentation. capital, legacy, network, Strategy. HR infrastructure. revenue. Simple airport services for Capacity utilization. regional, little LCC. KUN – competences. Common strategy and effective passengers. Mix of all LCC, little regional. PLQ understanding with infrastructure passenger segments. – business, leisure traffic – based airline. Regional potential for O&D.

Interviewee 10 Interviewee flight development.