View metadata, citation and similar papers at core.ac.uk brought to you by CORE provided by UWL Repository VISTAS: Education. Economy and Community Volume 1 (2) October 2011 Challenges facing regional airport operations in Great Britain: a case study perspective of the South West of England & Wales James Edmunds | [email protected] The London School of Hospitality and Tourism, University of West London The deregulation of the European airline industry has had a dramatic impact on regional airports across the Union. Furthermore, the policy has changed the strategy of the so-called traditional full service network carriers, such as British Airways who as a consequence of this legislation have created powerful alliance networks and consolidated their position at fortress hubs. In comparison, low cost carriers have built a network presence around regional airports as they offer such carriers a variety of cost savings. The demise of charter airlines due to the continued fall in holiday makers booking package tours has further changed the management dynamics of regional airports. This paper examines the consequences of the above actions and evaluates how these issues have been played out within the South West of England and Wales. Keywords | Deregulation; consolidation; regional airports; full service network carriers; gini coefficient; low cost carrier; airline alliances The past two decades have created some had passed. This first package concentrated of the most stimulating and yet challenging on stimulating new entrant carriers to the market conditions for regional airports within market, banning capacity sharing strategies Great Britain. This process of change is as and removing airlines abilities to set fares evident in the South West of England and based on past tariff systems. The second Wales as it is anywhere else. The cause and package of measures introduced by the EU effect of these changes are numerous but in 1990 included further removal of price have been driven in no small part by the fixing practices and the creation of multiple deregulation of the air services across the designation carriers. Finally in 1993 full open European Union. This paper examines the access to the market was introduced with a challenges faced by regional airports within relaxation on European ownership rules and the South West of England and Wales, namely harmonisation of licensing requirements. It Bristol (BRS), Cardiff (CWL) and Exeter (EXT), was not just airlines however, who needed and how they have responded to these to learn and adapt to these new commercial circumstances. Regional airports have been characteristics, as airports across Europe defined by the Transport Select Committee underwent a steep learning curve with regards (1983, p.2) as a category B facility ‘which to how they treated current users (both airline provide a network of short-haul scheduled and passenger) which used their facilities and international services, a significant range of how they fostered relationships with possible charter services and domestic services new entrants. Deregulation has undoubtedly including links with gateway airports.’ created a period of volatility within airport traffic flows according to Burghouwt (2007) The deregulation of air services within the and increased levels of uncertainty for airport European Union (EU) was initiated during managers (de Neufville and Barker, 1991). 1987 when limited levels of competition were The deregulation of air services within Europe introduced to the market. This process of changed the dynamics of the monolithic deregulation within Europe was an extremely Full Service Network Carriers (FSNCs), such protracted affair with the third package as British Airways, Lufthansa, Air France not being approved until almost a decade and Olympic. Here the need for change was 7 James Edmunds VISTAS: Education. Economy and Community Volume 1 (2) October 2011 driven by price competition created by the the danger is that competition and network introduction of Low Cost Carriers (LCC) which reorganisation by the airlines will focus on the had started to eat into these carriers traditional major airports and cities leaving the smaller passenger base as well as stimulating new communities with much reduced services or markets of their own, with their low fares with a loss of all air services.’ and mass market advertising campaigns. The FSNCs were not only having to take on To help protect their markets from deregulation LCCs to maintain their market share, but they and increase market share, FSNCs developed in also needed to develop strategies to protect the 1990s a range of cooperation agreements themselves from the increasing levels of termed alliances which were aimed at reducing competition that they faced from the new competition whilst at the same time offering Middle Eastern carriers such as Emirates, Etihad passengers a multitude of global destinations. and Qatar Airways. This new breed of carrier Doganis (2001) illustrates that as competition cleverly exploited their geographical position has increased, airlines have looked for greater and sixth freedom rights granted under various protection from such commercial realities bilateral agreements to create super hub by grouping together and creating airline airports which channelled passengers from one alliances. This strategy has impacted on international flight to another smoothly and at regional airport facilities as airlines have been a lower price than was currently available on able to reduce the level of service offered as direct flights from Europe. FSNCs furthermore they have been able to code share with their experienced intense competition from the alliance partners. This reduction of services established Asian carriers of Singapore Airlines, has created vulnerabilities within airport Cathay Pacific and Malaysian. Williams (2002, operations as the level of destinations serviced p.1) notes ‘deregulation has radically altered may no longer support the revenue required the way in which airlines are operated and to efficiently operate the facility or to invest in managed. The cosy world of the past in which new infrastructure requirements. carriers were protected from the onslaught of competition by the actions of regulators has Strategically FSNCs have not only opted to join been replaced by one in which each party has alliances as a mechanism of protection from to ensure its own wellbeing.’ With the inception potential competition but have furthermore of deregulation Reynolds-Feighan (2000) adopted a policy of network consolidation argues that smaller airports have become through the purchase of carriers which vulnerable due to the FSNCs changing their have allowed them to gain synergies as network characteristics due to the introduction well as reduce potential competitors. The of the free market and economic downturns. consolidation of European airlines is growing apace. This strategy has had implications for The role of deregulation within the US regional airports as again it raises the prospect and Europe is well understood from the of network duplication. This replication of air work of Graham (1997); Hanlon (2007); services may also be seen in the personnel Williams (2002); Doganis (2001) and Page found at the airport from check-in operatives (2005). Whilst these authors have tended through to maintenance staff. Examples of to concentrate on the function deregulation European FSNC consolidation is best evidenced has played within the major market areas through the merger of Air France and KLM particularly focusing on hub airports and FSNC and more recently the formation of the versus LCC competition, scant regard has been International Airlines Group formed by the paid to the impact of deregulation on regional merger between British Airways and Iberia. airports across Europe. Burghouwt et al. (2003, Whilst these two examples help to illustrate p.310) emphasized that ‘in contrast to the the level of merger activity which is currently large amount of empirical studies regarding impacting on regional airports within Europe, the changes in airline network structures in it is the development of the Lufthansa Group the deregulated US air transport market, the of Airlines which clearly demonstrates how number of empirical studies with respect to a consolidated European airline industry will changing airline network configurations in challenge regional airport strategies. Figure Europe is still somewhat limited.’ Whilst the 1 illustrates the airlines which are currently loss of any air service can have a major impact found within the three major airline groupings on all sizes of airport its effect will be most within Europe. As this article goes to press greatly felt at the regional airport level. Here the future of one of the Lufthansa Group of Reynolds-Feighan (1995, p.467) warns that Airlines – BMI is somewhat uncertain. As of 4th ‘for small communities with limited air services, November 2011 Lufthansa has signalled its 8 Challenges facing regional airport operations in Great Britain: a case study perspective of the South West of England & Wales James Edmunds VISTAS: Education. Economy and Community Volume 1 (2) October 2011 intention to sell the mainline operations of BMI The future challenge faced by all three airports to the International Airlines Group, the parent within the research area (BRS, CWL & EXT) is company of British Airways. The implications of linked to the continued consolidation which this deal for competition at London Heathrow