Aviation

The aviation industry has grown over the decades, globally allowing travellers to visit various destinations. Historically, with the first introduction of flight, the concept was a luxurious one, available to only the privileged. Today however, the aviation industry has grown to such an extent that low-cost carriers are making air travel a convenience, altering the concept of distance. A change in the demand for flights has meant airlines are also forced to make changes to adapt to their consumer needs. It is at this instance that the failure or success of a company is identified. This project will look at the aviation industry, analyse and discuss the issues which impact the companies within the industry, and how these issues affect their success.

This report will consider the companies which have been chosen for the aviation sector, including a PEST (Political, Economic, Social and Technological) analysis of the industry. An analysis of ratios will also be used to help determine the failure or success in the performance of the chosen companies. Consideration will also be given to the internal and external factors of the industry, analysing the financial performance of five chosen companies in order to establish an accurate idea of where the companies stand in relation to their competitors and the industry as a whole. This will enable the strongest and weakest companies to be determined after detailed analysis.

Rationale for the Aviation Industry

The aviation industry is an international venture, exciting, dynamic and forward-looking, operating at the edge of technological innovation. However it is a turbulent industry, constantly being affected by new developments and constraints. Its instability has been highlighted over the last decade, with a series of events such as the 9/11 terrorist attacks, the invasion of Iraq and the outbreak of the SARS epidemic in 2003, rising fuel prices and more recently the recession and the new epidemic of ‘Swine Flu’. Alongside these external problems, the industry has also had to deal with the destabilising developments internally, such as the impact of global alliances and the ‘open skies’ treaty. And at a time when the average fares are falling, with new low-cost airlines, internet bookings and privatisation, the industry has been affected immensely. (Doganis, 2006)

The aviation industry covers every corner of the world, providing services internationally. It has become an integral part of creating a global economy as well as being a major contributor. It is also a bridge to globalisation for many other industries, such as tourism and aircraft manufacturing. It has huge economic importance, thus the volatility behind the industry is a serious concern due to its dependency on good economic conditions.

The industry has available numerous options, with different airlines offering different services; scheduled airlines, chartered airlines and low-cost airlines offering international long-haul flights and short-haul flights. It can also be categorised into different travel classes, to suit the travel needs of each passenger, with financial and personal preferences. Alongside passenger services there are also cargo aircrafts taking packages to various destinations, and some airlines offer more than one of these services. As a global contributor, today, the aviation industry is an international venture with over 2,000 airlines, operating in excess of 23,000 aircrafts. The industry has over 3,700 airports worldwide and in 2007, almost 28million scheduled flights departed, holding over 2billion passengers making their way to various destinations across the globe. (web.mit.edu, 2009)

As the aviation industry is still large and continually growing, accommodating for economic growth, international investments, world trade and tourism, it has become globalised. This industry will be analysed throughout the report and was chosen because few technologies have changed the perceptions of people and enhanced the quality of living as the invention of the aeroplane, whilst operating in an intensively competitive market. Thus helping to understand the success or failure of companies in this highly unstable industry and to analyse how the companies operate in providing a service which has become a necessity.

Rationale for chosen companies The companies chosen are: British Airways Plc (BA) – As the UK’s largest international scheduled airline, flying over 550 destinations, with a market capitalisation of �1,918.48m, its main airports are in London Heathrow and Gatwick. As the founding member of the Oneworld Alliance, the BA cabin offers a four-class configuration of First Class, Business Class, Premium Economy Class and Economy Class. (British Airways, 2008)

easyJet Airline Company Ltd – The concept of easyJet is to lower its costs by cutting out the unnecessary ‘frills’ associated with the traditional airlines. It is one of the largest low-fare airlines operating domestic and international scheduled services in Europe. With a market capitalisation of 1,175.98m, it flies to over 100 destinations in 27 countries. (easyJet, 2008) Flybe Ltd – As one of Europe’s largest low-fare airlines, Flybe was the first airline to offer online check-ins and pre-assigned seating. And presently is the only low-cost airline to offer a business service. With revenues of 536m in 2008, Flybe operates over 150 routes. (Flybe, 2008)

Ryanair – Ryanair was the original low-cost airline in Europe. As an Irish low-cost airline, it is still the largest low-cost carrier. Ryanair has a market capitalisation of �4,581.18m, with a strong fleet of over 160 aircrafts, Ryanair flies to over 700 destinations. (Ryanair, 2008) Virgin Atlantic Airways Ltd – A British airline owned by Richard Branson’s Virgin Group, it is an international scheduled airline, flying over 5million passengers, in February 2008 it had an annual turnover of 2,010.9m. (Virgin Atlantic, 2008)

These companies all provide services both domestic and international, or both. They vary in size and are leaders in different sectors of the aviation industry, therefore by choosing these companies, one can compare and analyse the industry in an attempt to find an indication of which type of businesses are stronger within the industry compared to others, thus making them successful.

Regardless of aviation traumas that reach far into our industry, air travel remains a large and growing industry. In this intensely competitive yet volatile market, Aviation Technology Consultants draws from its aviation expertise to implement a marketing program to expand passenger base, increase revenue passenger mile, and vastly improve load factor The successful airlines know that marketing is one of the key instruments in order to reach its business goals.

Businesses that continue growing in these moments know that reducing investment in marketing is not an option when crossing an economic recession. Instead, these organizations have confirmed or increased their marketing budgets.. Aviation Technology Consultants provides a full range of strategic and creative marketing consulting services geared towards the aviation industry. We share our clients’ love of aviation and understanding of the aviation industry. We have extensive experience in all aspects of marketing, advertising, communications, sales and promotion, and we can handle any marketing project your aviation business requires.

Aviation Technology Consultants manages all aspects of your marketing initiatives from concept to full implementation. Our hands-on approach to marketing means that you can focus on client relations and operations while we enhance and expand your business with a professional and cost-effective marketing program. How we do it TACT can intervene in the planning process, helping to define the commercial, marketing and communication strategies, and your specific objectives.

TACT can count on a professional team with experience in the development of marketing projects for the airline transport industry. Our work developed into a new consultative and elaborative form, engaging in the process and the development of the identified actions. When we do it TACT helps identify new business opportunities for its clients. In markets with a highly competitive setting, the airline companies need to develop new growth strategies that guarantee the future of the organization.

With this aim, TACT has developed combined set of services that allow a 360 degrees approach to any kind of challenge. Page 1 of 5 Aviation Businesses Served We have a sound understanding of the aviation industry nuances and quirks. Don’t lose time with marketing companies that have little or no aviation experience. Aviation Marketing Consulting speaks your language and thoroughly understands the business of flying, while bringing a fresh perspective to your aviation-specific marketing challenges and requirements.

Air Indus Marketing Proposal By Axon marketing, advertising, sales and promotion. We can handle any marketing project you have from start to finish, regardless of how large or small the request. With its hands-on approach, TACT manages every phase of your marketing initiatives from initial concept to full implementation. With Aviation Technology Consultants on your team, you can focus on what you do best – running your business – while we manage he details of implementing an effective marketing program that will get your business soaring!

FOBS Regional Airlines Air Charter Services Non-profit Associations and Organizations Flight Schools Manufacturers Maintenance and Repair Facilities Avionics and Electronics Airports Travel & Tourism Destinations Creative Marketing Services for Airline Industry: Strategic planning: Establish short-term and long-term business goals and objectives; identify key core customers; and define the key attribute or U. S. P. (Unique Selling Proposition) to make your business most appealing to potential customers within the aerospace and aviation industries.

Market Segmentation Analysis Market Research Both Primary & Secondary Trend Analysis Page 2 of 5 Marketing Mix & Model Determination of Pricing Strategies Pricing & Revenue Management Airline Business & Marketing Strategies Marketing Environment Study through PESTS Analysis SOOT Analysts Porter’s 5 forces and their application to the Airline Industry; Porter Generic Strategies Strategic Families, Cost Leadership Differentiation and Focus Focus Strategies (Value Added & Low Cost) Product Analysis in Airline Marketing Product Life Cycles in the Aviation Industry Managing a Product Port Folio; The Boston Box

Balancing Risk & Opportunity- the Anions Matrix Fleet, Schedules & Customer related product features Air freight Product Distribution Channels Strategies/Selection & Control Travel Agency Distribution System GAS (Global Distribution System) Super Profit Concept Advertising: to promote your aerospace or aviation business. We are experts at creating advertising for print, radio, TV and the Internet. Public Relations: This cost-effective marketing tool builds awareness and generates interest for your business through press releases, publicity, press kits and events.

TACT utilizes public elation’s to deliver long-lasting results to its clients in the aviation world. Advertisement on 7 popular magazines of Pakistan Bill Board on famous locations of Pakistan Flex designing for bill board Printing of stationary item for Air Indus Page 3 of 5 Printing of Uniform for Air Indus Flight Management System Travel Agents Information System for Air Indus TV Faceable Page Management & Optimization: TACT offers a wide range of services including community management and page optimization.

We dedicate a team of social media strategists, creative designers and copy writers to manage your online community on Faceable. Strategists and scheduled posts are made on your fan page with a weekly plan in place. Similarly, a set of creative designs will be made inclusive of Wall Photos, Cover Images and Wall Posts with images to cite a few. Faceable Advertising: Faceable advertising is a pay-per-click solution, and is needed to promote your brands across Faceable. DE’ DESIGNATION will create adverts, optimize them for your target market and do split testing. Reach thousands of targeted fans 0 Grow your user base diligent ad display 0 Engage more fans 0 Improves viral effect Your brand also needs Faceable adverts, with specially selected keywords and Argentina – streamlined to suit your target demographic. TACT will create and run these adverts for you, analyze the insights and change the advert so that it Online Marketing: Aviation Marketing Consulting develops and implements effective Internet strategies, vital for businesses to attain a national and global presence.

Services include web development, email promotions, search engine optimization (SEE), and e-commerce. Marketing Communications Techniques: We have produced many diverse forms of advertising (e. G. , websites, brochures, newsletters) Branding: Developing a brand identity is no longer optional in aviation’s competitive archetypal. We will create a memorable brand image that communicates your business’s key values in a manner that will resonate with your core customers.

Page 4 of 5 Direct Marketing: With direct mail and email marketing, Aviation Marketing Consulting puts the power of a targeted database at your disposal to generate measurable sales. Integrated Marketing: An integrated marketing program considers all forms of marketing communications and combines them into an effective program to best achieve your marketing objectives in the most cost-effective manner. TACT doesn’t waste a marketing dollar. Sales Development: The effectiveness of your marketing will ultimately come down to the effectiveness of your sales program.

We develop sales systems and processes that work effectively with your company’s products, services, pricing, distribution channels and sales personnel. Trade Shows & Presentations: TACT provides everything necessary for an effective experience at aerospace and aviation events. We’ll design your exhibit, create graphics for your booth, plan giveaways for your customers, and keep them interested in your services with multimedia presentations and on-floor talent.

Introduction

It will be considered in this assignment whether business aviation operations are a luxury or a necessity. This will be done by accessing relevant text books, journal articles and online databases. Once all of the applicable information has been gathered, a critical evaluation will then be conducted. An overview of business aviation operations will first be provided by considering the definition of business aviation as provided for by the NBAA. Arguments that business aviation operations is a luxury will then be put forward, which will include alternatives to business aviation. This will then be followed by the view that business aviation is a necessity because of the substantial benefits in which it brings to the economy and globalisation. Once both arguments have been considered, an overview as to which argument is the most convincing will then be given and it will be shown that whilst business aviation is considered a luxury, it is also a necessity for many businesses that would not be able to function as effectively without it. An appropriate conclusion will then be drawn summarising all of the main findings and demonstrating that business aviation is a vital part of any business operation and unless business were utilising business aviation, it would be unlikely that globalisation would ensue.

Main Body

Overview of Business Aviation Operations

Business aviation is defined by the National Business Aircraft Association (NBAA) as “the use of any “general aviation” aircraft for a business purpose” (NBAA, 2012a). General aviation thus consists of all flights that are not “conducted by the military or the scheduled airlines” (NBAA, 2012a) and is therefore considered to be an important aspect of most business operations. This is because, business aviation is said to “complement airline services in satisfying the nation’s business transportation requirements” (Wensveen, 2011: 133) which could not be achieved through scheduled transportation alone. Non-scheduled, also known as on-demand, transportation, therefore enables businesses to use air transportation as and when they need it, which is highly beneficial and helps to facilitate economic growth and world trade. It also “boosts productivity across the global economy” (Rochat, 2004: 9) and allows businesses to invest in different countries, which advances the economy overall. Whilst there are significant economic benefits of business aviation, however, it has been questioned whether it is a luxury or a necessity. This is largely due to the different types of people that use on-demand transportation since it is unclear whether the more expensive use of business aviation really is necessary (Sheehan, 2003: 1).

Arguments that Business Aviation Operations is a Luxury

It is undeniable that business aviation has become a way of life for many successful businesses. Because of this, it is very difficult not to associate this type of travel with being more of a luxury than a necessity since many would argue that business travel can be conducted in a more economical manner. This was certainly recognised by White and Bruton (2010: 330) when they viewed private jets as “unnecessary expenses” that could be avoided. The accuracy of this statement will undoubtedly be open to debate but, given the availability of business travel through scheduled transportation, the use of private jets may simply be a personal preference as opposed to a business need. Accordingly, it has often been pointed out that “business aviation is a costly luxury that has no place in the modern business environment” (Craig, 2012). This is because; costs need to be managed effectively if a business is to thrive, which is why a lot of businesses are actually considering videoconferencing as opposed to travelling: “42 percent of 610 business travellers and corporate travel managers responding to a 2008 poll by Business Traveller Magazine said they were exploring alternatives to business trips, including video or Web conferences” (Inc, 2012: 1).

In light of this, it could be said that business travel is unnecessary and therefore a mere luxury given that the majority of business activity can be conducted through video or web conferencing. Regardless of this, business aviation does appear to be on the rise and it is unlikely that innovative technology will replace business travel anytime soon. This which is evident by the findings of the Confederation of British Industry in 2001 when it was made clear that; “Despite the promises of the 1990s that video-conferencing and e-working would reduce its need, business aviation travel grew by 22% between 1995 and 1998 and is predicted to double on the 1998 level by 2015” (Leathley, 2004: 36). Consequently, although business aviation can be replaced, there is a great reluctance to do so since businesses would prefer to travel and undertake meetings in a face to face setting. Whilst this may not be the most cost effective way of conducting business, it is unlikely to change any time soon and as noted by Beaverstock (2010, 227); “video conferencing has had no noticeable impact on business traffic.” Arguably, this signifies that whilst there are other avenues available for businesses, individuals still prefer to travel in style, which demonstrates that business aviation is widely considered a luxury advantage to conducting business (Patiky, 2012).

Arguments that Business Aviation Operations is a Necessity

Not all agree that business aviation operations are a luxury and instead it has been argued by the NBAA in relation to their ‘No Plane No Gain Campaign’ (NBAA, 2012b) that air-transportation is vital for any business. Hence, it is believed that shareholder value is greatly increased where business aviation is utilised since those companies that were found to have used business aviation during and before the recession were better protected from the effects of the recession than those companies that did not use business aviation (NEXA, 2012). This clearly illustrates how effective business aviation is and although this type of travel is seen as luxurious, the main objective of using on-demand transportation is to provide frequency and convenience to businesses. Hence, as clarified by Capell; “instead of Kobe steaks and champagne, what passengers really want is frequency and convenience” (Cappell and Reena, 2007: 46). Accordingly, whilst private jets have become a symbol of unnecessary expense, for the majority of businesses air transportation is crucial to their business. Moreover, it has even been argued by some businesses that whilst their private jets are in fact comfortable they are not luxurious which brings the prior arguments into disrepute (CBS, 2009). Thus, because of the advantages business aviation brings to a business, it seems necessary for their continued use.

In addition, whilst the use of some private jets for business purposes may be less luxurious than others, this should not indicate that they are unnecessary. This is because, as has been put forward by McClellan (1991: 51); “business airplanes are useful, productive and make certain trips possible that could not be accomplished by any other means.” He went on to question whether they are also a luxury and concluded that although they are a luxury, there is nothing wrong with that. This is because, he added; “the fall of socialism proves that we need to strive for things beyond the bare-bone necessities. We do not need to apologise for the luxury of airplanes or their exclusivity.” Essentially, whilst business aviation is deemed to be a necessity, this does not mean that it is not also a luxury, yet businesses should not be prevented from using it merely because of this fact alone. This is because; economic growth and innovation is created from effective business production and if businesses can function more effectively through the use of air-transportation then this should be promoted rather than stifled. Flexibility is one of the main needs of a business and if business aviation provides such flexibility then the use of on-demand transportation is to be welcomed.

Arguments that Business Aviation Operations is both a Luxury and a Necessity

Conversely, it has been argued that although flexibility is an important aspect of any business, it is unnecessary for businesses to have private jets. This is because the majority of airlines in today’s society are able to offer a similar level of flexibility that one would acquire from a private jet: “Given the flexibility of and high level of service offered by many traditional airlines, the question remains as to why so many business traveller are using private aircraft” (Beaverstock, 2010: 90). This is particularly true in relation to the more price-sensitive small and medium sized enterprises since the costs of travelling privately will be disproportionate to the outcomes that are achieved. Consequently, whilst business travellers do require the flexibility and convenience of business aviation, they also prefer to travel in style and comfort. Therefore, are therefore are elements of luxury and necessity in business aviation operations and in deciding whether this type of travel is simply an unnecessary expense will be dependent upon the individual business. This is because, all businesses have different needs and requirements, and whilst one business may require that extra bit of flexibility, which would be considered proportionate in light of the costs, another business may be travelling by private jet simply because they want to indulge in the luxury surroundings.

Regardless of whether businesses make use of scheduled or unscheduled air transportation, it is evident that many business operations do need to be undertaken face to face. And, in today’s globalised economy business aviation has never been more important. Nonetheless, it is questionable whether business aviation is easily accessible for smaller companies and unless an efficient global management system can be produced, businesses will not be advanced. As put by Greer (2011): “In today’s economy, where the fast growth of emerging markets outpaces America and the developed world, if you haven’t gone global yet, it’s time to get moving.” However, it was also stated that; “going global is easier said than done — especially for smaller companies. One of the biggest challenges they face is how to manage a diverse group of people across a broad geographic scope” (Greer: 2011). Arguably, it is palpable that in order for a business to grow, globalisation of that business is a necessity. Nevertheless, unless business aviation can be integrated into business operations, it is unlikely that an effective global management system will be established. This clearly illustrates the importance of business aviation and although it may be considered a luxury by many, it is undoubtedly a necessity.

Conclusion

Overall, whilst business aviation is considered to be the use of any “general aviation” aircraft for a business purpose, it seems as though personal advantages are also being acquired from its use. This is simply due to the luxury surroundings that private aircrafts have and although business aviation is necessary for the economy and globalisation, businesses do prefer to travel in style, which can be considered another reason why many businesses choose non-scheduled transportation over scheduled transportation. Whilst many would argue that this is simply an unnecessary business expense, because of the fact that business activity can be conducted through other means such as video or web conferencing, it seems as though the flexibility and convenience that business aviation provides outweighs the cost implications. This will, nevertheless, be dependent upon the type of business that is utilising this type of travel because whilst it may be deemed suitable for large companies, it may not be for small and medium sized businesses. Still, because, shareholder value is greatly increased where business aviation is used, it seems vital that the majority of businesses carry on using this type of transportation. This is especially so significantimportant in light of the effects business aviation had on businesses during the recession and although this type of travel is seen as luxurious, the main objective of using on-demand transportation is to provide frequency and convenience to businesses. As such, it seems as though business aviation is both a luxury and a necessity, yet it provides real benefits to businesses within a globalised economy. Thus, if businesses wish to advance and grow within the economy the use of aviation ought to be maintained.

References

Beaverstock, J. V. (2010). International Business Travel in the Global Economy, Ashgate Publishing.

Capell, K. and Reena, J. (2007). Business Class at Bargain Prices. Business Week, Issue 4020.

CBS. (2009). Corporate Jets: Luxury or NecessityCBS Evening News, [Online], Available: http://www.cbsnews.com/8301-18563_162-5021145.html [01 December 2012].

Craig, S. (2012). Private Business Aviation Isn’t Just About Luxury, Globial Talks Business, [Online], Available: http://globial.com/globialtalksbusiness/private-business-aviation-isnt-just-about-luxury/ [01 December 2012].

Greer, S. (2011). Why Face to Face Meetings Make all the Difference. [Online], Available: http://blogs.hbr.org/cs/2011/02/why_face_to_face_meetings_make.html [01 December 2012].

Inc. (2012). How to Manage Travel Expenses. [Online], Available: http://www.inc.com/encyclopedia/travelexpenses.html [01 December 2012].

Leathley, B. (2004). Websites; Using the Web to Study the Health Effects of Flying, Tolleys Health and Safety at Work, The Journal of the Working Environment, Issue 9.

McClellan, J. M. (1991). Uncle Sam Can’t Tax Luxury, Flying Magazine, Volume 118, Number 9.

NBAA. (2012a). What is Business AviationNational Business Aviation Association, [Online], Available: http://www.nbaa.org/business-aviation/ [01 December 2012].

NBAA. (2012b). Business Aviation: Jobs, Productivity and Keeping America Connected, [Online] Available: http://www.noplanenogain.org/ [01 December, 2012].

NEXA. (2012). Business Aviation; Maintaining Shareholder Value Through Turbulent Times, NBAA, [Online], Available: http://www.noplanenogain.org/ [01 December 2012].

Patiky, M. (2012). The Enlightened Business Traveller, Business Aviation, [Online], Available: http://www.forbescustom.com/AviationPgs/TEBTUltimateProdToolP1.html [01 December, 2012].

Rochat, P. (2004). The Economic & Social Benefits of Air Transport, [Online], Available: www.icao.int/Meetings/…/ATAG_SocialBenefitsAirTransport.pdf [01 December 2012].

Sheehan, J. J. (2003). Business and Corporate Aviation Management: On Demand Air Travel, McGraw-Hill Professional.

Wensveen, J. G. (2011). Air Transportation: A Management Perspective, 7th Edition, Ashgate Publishing.

White, M. A. and Bruton, G, D. (2010). The Management of Technology and Innovation: A Strategic Approach, 2nd Edition, Cengage Learning; Business Economics.

Introduction

Yield management can be described as the collection of processes, techniques used by airlines to make its customers pay as much as possible for their seats, while maintaining load-factor., (Alderighi et al, 2012). Mittal et al (2013) added that it has become near impossible to sustain a business without affective yield management, in particular when capacity is constrained. It was also noted that increased competition through low-cost carriers has created an environment where yield management must be monitored to ensure carriers can compete effectively on price, (Vila, 2011). This assignment will consider how airlines use yield management as a tool to meet management strategies, providing examples to support research. The strategies that emerge from this use will also be considered along with their effectiveness.

The main strategy of the airline is to maximize revenue from its available inventory of stock (its seats). The strategy is to sell the right seats to the right people, (Kimes, 1989). The airline must find a trade-off between discounting its seat to increase sales and fill its inventory, while selling full-fare tickets to generate profits its operations, (Vila, 2011).

Airlines Fixed Capacity

The reasoning behind the need for yield management is the fixed capacity faced by airlines. Airplanes have a fixed capacity (seating) and so will attempt to generate the greatest income from the availability. Furthermore, airlines must also consider that their operations face a high-level of fixed costs in terms of staffing, fuel etc. Given this, the airline needs to manage capacity to ensure profitability, (Sheehan, 2013). The equation for yield management could be shown as:

The formula above compares the revenue achieved with the maximum potential revenue. For example, take an aircraft with 200 seats, which could each sell for ?100, adding up to maximum potential revenue of ?20,000. However, the carrier has only sold 150 seats at an average of ?80 (total ?12,000 revenue) per seat given early discounts and last-minute offers. Given this, the equation will be:

Market Segmentation

With the above, airlines have generally been successful given their ability to segment the market with a number of strategies. Firstly, airlines have adapted their strategies to offer a number of ticketing options, allowing them to differentiate prices, also seen in the hotel sector in terms of room offering, Dunbar (2003). One main factor is flexibility; some consumers will prefer the lowest-cost ticket with non-cancellation or change, while some will be willing to pay more for the same seat given the flexibility to cancel/change their booking. Another example could be the timing of flights; some consumers will be willing to pay more for daytime flight than an overnight flight, while again, some consumers will be willing to pay more for a direct flight than a flight with numerous changes, (Shaw, 2012).

However, airlines are able to use connection flights as a way to control inventory by flying consumers to a hub airport, where they can then fill up other flights capacity. For example, take a journey from London Heathrow to Tokyo; a consumer could either fly direct with British Airways for around ?900/ return or fly with Emirates, with a connection in their Dubai hub, for around ?650/ return, with Emirates benefitting from filling up inventory on its flights, (Expedia, 2014) [Online].

Finally, one the most common forms of segmentation is different ‘classes’ available on flights. While some of the cheaper airlines only offer standard class to focus on the price-sensitive consumers, major airlines have developed a number of classes to differentiate pricing. For example, a consumer could fly economy, premium economy, extra-legroom, business-class and first-class, which all over a slightly different service, allowing the airline to charge a different price as well as appealing to different customers, (Belobaba et al, 2009).

Inventory

To airlines, their inventory is their seat capacity, which could be seen as ‘perishable’ – if the plane departs with empty seats, the capacity is lost and no revenue can be derived. Again, this brings into question a trade-off, between selling advanced tickets at a lower price to ensure a desired ‘load-factor’, while also saving capacity in the hope that a higher-paying customer will purchase. This brings into question fluctuating demand by time and season.

Yield Management may be used as a tool to smooth the demand pattern, which may see some airlines fares change by the hour/ day, (Alderighi et al, 2012). For example, an airline may increase its business class seats during the week, working hours; given the main demand for this offering will be business travelers, who would be more likely to make the booking during the working week. Furthermore, an airline may also increase its price during peak seasons, given the higher underlying demand, leading to increased revenue, which could then be used to support lower prices in the low season to entice customers. Airlines will respond to increased demand by upping prices; an example could be seen with flights from the UK to Brazil for the upcoming World Cup (Clarke, 2013) [Online].

According to Lufthansa Systems (2014: 1) [Online]:

“Today’s airline business is evolving into a two-tier industry: global alliances are reaching worldwide coverage and no-frills carriers are gaining market share with a low-cost, point-to-point product.”
No-Frills airlines increase competition
The continued expansion of no-frills airlines coupled with the recent economic depression has combined to dampen demand for major carriers such as British Airways (BA), KLM on some routes, (Alderighi et al, 2012). This move has been supported by new, more fuel-efficient aircraft and also development of infrastructure, which has allowed these low-cost carriers to operate from new ‘hubs’, (Weiss, 2014) [Online]. For example, in London, the majority of major international carriers such as BA, Emirates, Virgin operate predominantly from London Heathrow, however, the development of Stansted airport has provide greater capacity for Ryanair and EasyJet, at lower costs, while the infrastructure development has allowed the airport to be a viable option for customers throughout London and the South, (Neufville, 2008).

Closer Integration to Control

In a bid to counter increased competition and improve capacity efficiency, airlines are continuing to integrate and form alliances, (Merkert, 2012). For example, BA recently merged with Spain’s Iberia, given it greater access to South American routes, (BBC Business, 2010) [Online], while also buying smaller regional UK carrier BMI, to take control over its Heathrow landing slots, (CAPA, 2013). Furthermore, BA is also part of the ‘OneWorld’ alliance, with other airlines such as American Airlines (AA) among others, (OneWorld, 2014) [Online]. Apart from OneWorld, Star-Alliance and SkyTeam are the other major alliances.

These alliances allow airlines to share capacity, reducing the need for direct competition on a number of routes, which could then lower price. According to IATA (2013), customers now demand a ‘from anywhere to anywhere’ service, which is impossible for one airline to supply efficiently, increasing the need for connection flights and multiple carriers. On their own, few airlines would be able to generate the needed traffic to justify a daily non-stop service; furthermore some airlines may be constricted by availability of infrastructure and flight capacity, (CAPA, 2013). For example, take BA, the airline is currently restricted by capacity at Heathrow airport, which may restrict its opportunity to serve each US route; however through joining with AA in the alliance, BA could offer services a selected number of major US hubs, where AA could then fly customers onto their final destination, (Wu, 2014). This will also reduce the need for major capital deployment into new aircraft from BA, BA could focus these resources on new routes and emerging markets for example.

Research from Brueckner and Spiller (1994), Bailey and Liu (1995) and Brueckner and Whalen (2000) all concluded that consumers put great emphasis on price and network scope. Network scope is increasingly relevant for business travelers as globalization opens up new markets and opportunities, increasing the need for services to a wide range of destinations. Network depth, with a choice of convenient timings for travel, is also important for these passengers, (IATA, 2013).

However, not all airlines have adopted alliances, instead moving on with major expansion plans, with the main example Emirates. The airline has increased its fleet in a bid to expand routes rapidly; however, this has been supported by major capacity at its Dubai hub coupled with a favorable location between the growing African and Asian markets. Furthermore, backing from Dubai, who are pushing to turn the emirate into a major tourism destination are supporting major capital outlays on new aircraft, also allowing the carrier to undercut on prices, (Arabian Money, 2013) [Online].

Technology

Carriers can also use technology in a bid to aide yield management. For example, carriers can use a Computer Reservation System (CRS) to track purchases of seats in terms of time, price. As more sales move online and onto carrier websites, carriers will find it easier to track demand for their flights. With this information, carrier ay determine optimum times to sell higher-priced tickets or levels at which to discount to attract sufficient demand to fill the plane. Carriers could also utilse information from Global Distribution Systems (GDS) such as Galileo Desktop, which is:

“Galileo Desktop is a sophisticated global reservation, business management and productivity system that gives you vast content options, accurate pricing capabilities, and highly capable booking tools.” (Travelport, 2014) [Online]

These systems could be used along with information from Passenger Name Records (PNR) to analysis customer behavior and buying habits to ensure greater achieved revenue. For example, a carrier such as Ryanair may use the data to determine its optimal pricing, given the focus on price for low-cost airlines. This may prevent the carrier from over-discounting on tickets, increasing achieved revenue. The more information that a carrier can collect on customer behavior, the greater chance they have of determining a pricing strategy to achieve the greatest revenue, (Wensveen, 2011)

Concluding Remarks

From the discussion above, the issue of yield management has gained greater emphasis as the continued expansion of ‘No-Frills’ airlines and a more price-sensitive consumer have led to greater need to control costs.

In a bid to control their revenue, airlines have adopted a number of methods, with market segmentation continuing to be a main point. Airlines have focused on splitting the market, offering new seat/booking options to justify a differing price; to add, with the deliveries of the new Airbus A380’s, a number of airlines are increasing the top-market offerings such as individual cabins and lay-down beds to increase revenue from the business/first-class segment, allowing them to compete more effectively for the price-sensitive consumer in economy class.

Furthermore, airlines are now concentrating on joint ventures and alliances to further increase efficiency and reduce costs in a bid to maintain yields as increased competition put little potential for price increases. The discussion has shown that these ventures provide great potential for airlines when faced with capacity and infrastructure issues.

References

Alderighi, M, Nicolini, M and Piga, C (2012): Combined Effects of Load Factors and Booking Time on Fares: Insight from the Yield Management of the Low-Cost Airline, Italy, Italy, Fondazione Eni.

Alderighi, M, Cento, A, Nijkamp, P and Rietveld, P (2012)1: Competition in the European aviation market: the entry of low-cost airlines, Journal of Transport Geography, 24, pp223-233.

Arabian Money (2013) [Online]: Seat sale as Emirates expands aggressively for market share, Available at http://www.arabianmoney.net/business-travel/2012/02/08/seat-sale-as-emirates-expands-aggressively-for-market-share/, Accessed 04/03/2014.

Bailey and Liu (1995): Airline Consolidation and Consumer Welfare, Eastern Economic Journal, 21 (4), pp10-24.

BBC Business (2010) [Online]: British Airways and Iberia sign merger agreement, Available at http://news.bbc.co.uk/1/hi/8608667.stm, Accessed 04/03/2014.

Belobaba, P, Odoni, A and Barnhart, C (2009): The Global Airline Industry, USA, Wiley.

Brueckner and Spiller (1994): Economies of Traffic Density in the Deregulated Airline Industry, Journal of Law and Economics, 379.

Brueckner, J and Whalen, W (2000): The Price Effects of International Airline Alliances, The Journal of Law and Economics, 43 (2), pp42-56.

CAPA (2013): Heathrow Airports slot machine, UK, CAPA.

Clarke, D (2013) [Online]: England fans warned to expect high-prices in Brazil, Available at http://www.direct-travel.co.uk/travel-insurance-news/england-fans-warned-to-expect-high-prices-in-brazil-801650475, Accessed 05/03/2014.

Dunbar, I (2004): Market segmentation: How to do it, how to profit from it, USA, Elsevier Publications.

IATA (2013): The economic benefits generated by alliances and joint ventures, USA, IATA.

Kimes, S (1989): Yield Management: a tool for capacity-considered service firms, Journal of Operations Management, 8 (4), pp348-363.

Lufthansa Systems (2014) [Online]: revenue Management and Pricing, Available at https://www.lhsystems.com/solutions-services/airline-solutions-services/commercial-solutions/revenue-management-pricing.html, Accessed 05/03/2014.

Merkert, R and Morrell, P (2012): Mergers and Acquisitions in aviation-management and economic perspectives on the size of airlines, Logistics and Transportation Review, 48 (4), pp853-862.

Neufville, R (2008): Low-Cost Airports for Low-Cost Airlines, Transportation Planning and Technology, 31 (1), pp35-68.

OneWorld (2014) [Online]: Member Airlines, Available at http://www.oneworld.com/member-airlines/overview, Accessed 04/03/2014.

Mittal, P, Kumar, R and Suri, P (2013): A Genetic Simulator for Airline Yield Management, International Journal of Engineering Research & Technology, 2 (9).

Shaw, S (2012): Airline marketing and management, UK, Ashgate Publishing.

Sheehan, J (2013): Business and Corporate Aviation Management: Second Edition, USA, McGraw Hill Professional.

Travelport (2014): Galileo Desktop, Available at http://www.travelport.com/Products/Galileo-Desktop#, Accessed 04/03/2014.

Vila, N and Corcoles, M (2011): Yield management and airline strategic groups, Tourism Economics, 17 (2), pp261-278.

Voneche, F (2005): Yield Management in the Airline Industry, USA, Berkeley.

Wensveen, J (2011): Air Transportation; A Management Perspective, London, Ashgate Publishing.

Weiss, R (2014) [Online]: Lufthansa targets lower costs on new aircraft’s fuel use, Available at http://www.bloomberg.com/news/2014-01-10/lufthansa-targets-lower-costs-as-new-aircraft-help-savings-plan.html, Accessed 04/03/2014.

Wu, C and Lee, A (2014): The impact of airline alliance terminal co-location on airport operations and terminal development, Journal of Air Transport Management, 36, pp69-77.

Virgin Atlantic is the second largest long haul airline in the UK and it is a popular and well known airline all around the world. It is also the third largest European carrier over the North Atlantic and over the years has rapidly grown and includes destinations in the US, Caribbean, Far East, India and Africa.

Virgin Atlantic flew its first flight in 1984 after Richard Branson who is the owner announced to the world that a high quality, value for money airline would begin operating within three months. After 10 years from its launch the airline had flown over 1 million passengers and started bringing up services onboard. It became the first airline to offer individual TVs to their business class passengers. Then In 1992 Richard Branson made a huge investment. He sold his Virgin music store and invested the profits into Virgin Atlantic, improving on an already great service. Within the same year the first super economy service was launched and it then went on to become an award winning Premium Economy.

In 2003 the Virgin Atlantic’s revolutionary Upper Class Suite was launched; it was the longest and most comfortable flat bed and seat in business class. Then in 2007 Virgin Atlantic went on to launch brand new check in facilities at Heathrow Terminal Three. For the Economy and Premium Economy passengers Zone A became wider and more spacious, enabling passengers to check-in at kiosks in a faster and more stress-free way. For the Upper Class passengers, an Upper Class Wing which offers private security corridor so passengers can speed through the terminal to the Clubhouse quicker than before.http://www.virgin-atlantic.com/en/gb/allaboutus/ourstory/history.jspaccessed 01/08/2011 at 17:17

In 2008 virgin Atlantic went on to operate a pioneering bio fuel demonstration with Boeing and engine manufacturer GE Aviation on a 747 between London and Amsterdam. This became the world’s first flight using bio fuel by a commercial airline. Then In June 2009, Virgin Atlantic celebrated its 25th anniversary with a series of special fares, campaigns and events in the run-up to its birthday, as well as promoting red hot fares to red hot destinations.

I chose virgin Atlantic because I personally have travelled with them on many occasions and I receive the best service any other airline could offer. Due to its good reputation it appeals to a much wider market as it is a reliable and trusted airline and has a lot to offer its customers.

Market it faces today

Virgin Atlantic uses a wide range of marketing techniques. It promotes its products and services through a wide range of sources which include direct mail, Television, press, magazines, outdoor posters and taxi sides, all featuring their distinctive logo.

Virgin Atlantic targets specific customers by advertising the comfort and quality of the airline. Their tickets are sold through various sources such as the Internet, travel agents, and direct communication with customers to suit different customer needs.

To attract more customers Virgin Atlantic has differentiated their product by taking the customers’ expectations one step further through communication with the customer. A prime example can be seen in providing in flight ice cream, something other airlines do not offer.

On the aircraft passengers experience spacious setting arrangements, state of the art in-flight entertainment system, and most importantly a high level of customer service. In addition, Virgin Atlantic offers a distinctive upper class service at business class prices.

The Virgin Atlantic market is segmented into classes. There is the economy class where passengers are a much broader group, travelling mainly for leisure and are evenly spread across most socio-economic groups, and age ranges. Then there is the

Premium economy class where there passengers are split evenly between travelling for business or leisure and most are male, average age 41. Those travelling for business purpose in this class are often doing so because their company operates an economy travel policy. Lastly there is the upper and business class which is the virgin atlantics major target market as they bring in more money. They are predominately travelling on business and are usually male, 35 to 45 years old and earning 50K plus per annum.

A virgin Atlantic s criterion for segmenting is:

• Who buys their product
• Who does not buy their product
• What need or function does their product serve
• What problem does their product solve
• What are customers currently buying to satisfy the need or solve the problem for which their product is targeting
• What price are they paying for the product they are currently buying
• When is their product purchased
• Where is their product purchased
• Why is their product purchased

With virgin Atlantic there is something for everyone .Examples of how virgin Atlantic markets its segments is by offering value for money products and services to bring in the customers. For upper class passenger, In-flight beauty therapy – massages and manicures, Onboard stand-up bar, Personal 10.4 inch video screen, A dedicated sleeping area ,Fast track-priority service through immigration, Sleep service – pyjamas, full size pillows, feather duvets and fleece blanket and a Drive Thru check in from the limo etc are al offered within the price.

For the premium economy class a Dedicated check-in desk, Priority baggage handling, Flexible ticket – no penalty for last minute changes, Comfortable wider seats with up to 6 inches of extra leg room, Seatback video screen, Fast track-priority service through immigration etc is all offered to them.

For the premium economy class a Seatback video screen with up to 43 channels of movies, music, and video games, Free amenity kit, Children’s services including K-iD backpacks, TV channels and special meals, Choice of three entrees, including a vegetarian option, Ice cream during movies etc is available to them whilst onboard.

References

1. http://www.virgin-atlantic.com accessed 01/08/2011 at 17:30
2. http://www.virgin-atlantic.com/en/gb/allaboutus/ourstory/history.jspaccessed 01/08/2011 at 17:17
3. http://www.virgin-atlantic.com/en/gb/allaboutus/ourstory/history.jspaccessed 01/08/2011 at 17:17
4. http://www.virgin-atlantic.com/en/gb/allaboutus/ourstory/forstudents.jspaccessed 01/08/2011 at 17:10
5. http://www.nyama.org/mhf98.htm accessed 01/08/2011 at 17:10
6. http://www.safarigraphics.com/salterquest/portfolioPDFs/ws_Virgin_Atlantic_Marketing_Case_Study.pdf accessed 01/08/2011 at 17:10
7. http://www.safarigraphics.com/salterquest/portfolioPDFs/ws_Virgin_Atlantic_Marketing_Case_Study.pdf accessed 01/08/2011 at 17:10
8. Keegan, Warren J & Green, Mark S., Global Marketing, 2nd Edition, New Jersey: Prentice Hall, Page 40,2001.
9. PR News Wire, London, Virgin Atlantic Implements Galileo International, 5 September, 2001.
10. Virgin Atlantic Customer Service Representative, Quick Reference Guide, 2001.

Organization:  United Airlines

Name: ___________________

HELPS

Help No.1: The price of jet fuel is on a decreasing trend due to the weakening of the dollar in light of the current financial crisis affecting the United States.

Justification:

            According to the Air Transportation Association (ATA), fuel is an airline’s second largest expense. Since fuel makes up a significant portion of an airline’s total costs, a decrease in the price of this primary input becomes an opportunity for United Airlines to save on operational cost. This is true especially in its short-haul flights in which planes consume more fuel due to their constant take-offs compared to planes who handle long-haul flights.

Help No. 2: After the 9/11 crisis, there is increasing demand in airline travel. However due to current capacity shortages in airports this limits the entry of new competition.

Justification:

            This entry barrier limits the entry and expansion of low-cost carriers. In this situation market leaders such as United Airlines have the opportunity to be the only key players in the market without the intrusion of low-budget airlines who cannot afford to overcome the entry barrier. In other words, this limits the competition.

Help No. 3: Change in US administration in the following weeks which could have a positive impact on the national economy.

Justification:

            It is usually the case that the US economy improves based on the optimism in having a newly elected government sit in office, whether the new President is Democrat or Republican. It is a historic trend that could have a beneficial effect on the economy thereby improving market opportunities for United Airlines.

Help No. 4: Advancement of new technologies in selling flight tickets.

Justification:

Since buying tickets nowadays has become as easy as paying for a movie ticket, this could have a very positive impact on United Airlines in terms of saving on ticket production costs and eliminating the need for the infrastructure needed to facilitate the selling of tickets (like ticket booths). The current technology saves both time and money for the airline and the traveler.

HURTS

Hurt No.1: There is an emergence of airline alliances and other partnerships which could hurt major market players like United Airlines.

Justification:

             Although in the short-term the effect of these alliances may be beneficial, the  longer-term effects of these alliances may be exclusionary. This ultimately forces some unaffiliated U.S. airlines out of international markets by diverting their feed traffic and weakening their overall route structure to the detriment of domestic competition.

Hurt No. 2: There is still the problem of congestion and delays caused by the inefficient provision of airway and airport capacity.

Justification:

             The situation above affects not only the on-time performance of airlines, but also the routes airlines, the schedule and design of airline networks, and the types of equipment used. For a major player like United Airlines which caters to almost 12% of the entire US market, this could prove to be a big headache.

Hurt No.3: Current high cost of credit wherein banks even refuse to lend.

Justification:

            The high cost of credit would affect significantly United Airlines ability to pay for its labor cost. Labor cost comprises the largest chunk of operational cost in the airline industry. This refers to salaries and bonuses paid to flight attendants, pilots and other airline employees.

Hurt No: 4: In May 2008, the American Customer Satisfaction Index scored United Airlines last among US-based airlines in customer satisfaction with a 21% decrease since the study began in 1994 and an 11% decrease over the previous year.

Justification:

            With this low rating, this potentially hurts United Airlines translating into loss of sales. If a key market player is rated very low in customer satisfaction surveys, this represents the low regard of consumers of the services provided by the airline. In this case, it is like a death sentence foir United Airlines if it does not improve and act on customer complaints.

References:

1.      http://www.iata.org/whatwedo/economics/fuel_monitor/price_development.htm

2.      http://www.investopedia.com/features/industryhandbook/airline.asp

3.      http://www.reuters.com/article/pressRelease/idUS66487+11-Feb-2008+BW20080211

Introduction

London’s airports are operating close to capacity and there are challenges associated with the location particularly of Heathrow airport, such as noise pollution and safety of London’s populace (DOT, 2003; Helsey and Codd, 2012). Capacity expansion pursuits have been long drawn over half a century involving two airport commissions and political intrigues (FT, 2014). The Third London Airport commission popularly known as the ‘Roskill Commission’ anticipated growth in air transport and speculated that by the end of the century London might have to accommodate 100 million passengers (Abelson and Flowerdew, 1972). It was an appropriate estimate as the actual number was 115 million (CAPA, 2013). This ceiling has been surpassed and London airports are operating under strenuous volumes.
The pursuit of an alternative airport, additional runways to expand capacity, among other options continue to feature in public discourse almost half a century later with myriad arguments and counterarguments (FT, 2014; The Independent, 2014). This report explores the works of the airports commissions (Roskill and Howard Davies commissions), as well as the consideration of the controversial Boris Island alternative. It focuses on the demand and supply of airports among other considerations significant for such ventures as the development of new airports or aviation facilities.

History of commissions and development of arguments

A 1964 interdepartmental committee on the Third London Airport forecast that the capacity of Heathrow and Gatwick airports combined, even with the addition of a second runway at Gatwick, would be insufficient for London’s air traffic by 1972 (Mishan, 1970). After the consideration of options, the commission on the Third London Airport (Roskill Commission) was set up in 1968. With their evaluation of the timing of need, expansion capacity requirement, and after a careful study of a total of 80 proposed project sites, the commission finally chose four sites, among them a new airport at Cublington (Abelson and Flowerdew, 1972).
It was the first time that a full range of environmental and economic arguments were brought to bear on a major investment decision, providing substantial and significant systemic evidence on which to base decisions (HC, 1971). Its excellence in approach and output was however to not much good as government, with a variant perception and opinion immediately rejected its findings choosing instead a scheme to build an airport at Foulness, in the Thames Estuary (Mishan, 1970). Interestingly, this option had been considered and had been decisively rejected by the Roskill Commission on the basis of cost, distance and convenience to prospective passengers (FT, 2014).
Neither of the two propositions (Cublington and Foulness) was built and a subsequent change in government and complexion led to the devise of a different scheme – a limited expansion of an existing airport at Stansted which was accomplished a decade after proposition. This option had also been considered by the Roskill Commission and never made its shortlist of key options (Helsey and Codd, 2012). It was a predictable failure and is still challenged by the lack of success in supporting long-haul operations by airlines, only benefitting from low-cost carriers (principally Ryan air) drawn by attractive landing charges which offset consequent inconvenience to their passengers (AOA, 2013). A proposal which has re-emerged and gained prominence is the new airport at the Thames Estuary.

The ‘Boris Island’ alternative

Dubbed ‘Boris Island’ as a consequence of its support by London Mayor Boris Johnson, the London Britannia Airport (a name adopted for the latest iteration of the idea in 2013) is a proposed airport to be built on an artificial island in the River Thames estuary to serve London. Plans for this airport go several years back but the idea was revived by the Mayor in 2008 (CAPA, 2013; Mayor of London, 2013).
Proponents of the project cite the significant advantage it portends in the avoidance of flights over densely populated areas with consideration of noise pollution and attendant safety challenges. However, its critics who include some local councils, nature conservation charity – RSPB, as well as current London airports, oppose the scheme, suggesting that it is impractical and expensive (AC, 2013b). It is still under consideration of the Howard Davies Airports Commission, which estimates the entire undertaking including feeder roads and rail to cost ?112 billion, about five times the presently shortlisted short-term options (AC, 2013c). The overall balance of economic impacts of the project would be uncertain given the requirement for the closure of Heathrow and by extension London city for airspace reasons (CAPA, 2013).

Renewed pursuit – Howard Davies Airports Commission

In spite of the myriad arguments and criticisms of the various alternatives, not much has changed and the Howard Davies Airports Commission set up in 2012 still wades in the long running controversy (CAPA, 2013; AOA, 2013). There has evidently been little learnt in the several decades of bad policy making given the hedging, stonewalling, and political posturing that still characterizes the endeavour, a readiness to oppose policies espoused by those of different complexions or the persistent complication of issues when there is requirement for bold action. This characterizes policy today as it did half a century earlier with elaborate models being grossly misused and deliberately disregarded. Minor challenges and disadvantages are greatly amplified overshadowing potentially more substantial benefits (FT, 2014).
The Airports Commission was set up to examine the need for additional UK airport capacity and to recommend to government how this can be met in the short, medium and long term. The commission is tasked with creating economic, sustainable and socially responsible growth through competitive airlines and airports. (AC, 2013a).
The findings of the Howard Davies Airports Commission contained in their interim report released in December 2013 (preceding a final report expected in 2015) are mainly focused on the continued growth of air travel, mainly in the South East of England. The Commission considers that the region needs an extra runway by 2030, and another possibly by 2050. On the shortlist for the expansion of airport capacity are three options comprising a third runway at Heathrow 3,500m long; lengthening of the existing northern runway to at least 6,000m enabling it to be used for both landing and take-off; as well as a new 3,000m runway at Gatwick (CAPA, 2013; AOA, 2013).
Not included is the brand new hub airport in the Thames Estuary, which is side-lined citing uncertainties and challenges surrounding the proposal at this stage (AC, 2013d). However, the Commission promises an evaluation of its feasibility and a decision on its viability later in 2004 (The Independent, 2014). The Stansted and Birmingham options, however, failed to make the shortlist, although the decision remains open for their qualification in the long term (CAPA, 2013).
In the Commission’s view, the capacity challenge is yet to become critical although there is potential if no action is taken soon. However, capacity challenges and the jostling and vying for a slice of anticipated extra capacity by airports signals need (AC, 2013d).

Arguments on the expansion of airport capacity

The Howard Davies Commission acknowledge the ‘over-optimism’ in recent forecasts of growth in demand for the aviation sector, but consider the level of growing demand as prominent requiring focus on the earliest practicable relief (AC, 2013c). This is in response to contentions by opponents that the current capacity is adequate basing their primary argument on earlier inaccurate demand forecasts. These opponents posit operational changes including quieter and bigger planes could serve to accommodate more passengers negating the need for ambitious and expensive ventures. Some also argue that constraining growth in the aviation industry would be the best option for emissions reduction and that government should utilise available capacity, pushing traffic from London’s crowded airports to others around the country, (AC, 2013b; c; d; AOA, 2013 DOT, 2013).
The Commission accepts the changes in aviation practice and aircraft design could deliver modest improvements in capacity but argue that none of these submissions suggested significant transformational gains (AC, 2013c). It also stresses that deliberations were alive to the issue of climate change and were focused on the delivery of the best solution for the UK, which entails the achievement of carbon targets and delivery of required connections for the economy and society(AC, 2013c; d). The Commission notes that doing nothing to address capacity constraints could have unintended economic and environmental consequences with the possibility of some flights and emissions being displaced to other countries (AC, 2013d; CAPA, 2013; Mayor of London, 2013).
Reliance on runways currently in operation would likely produce a clearly less ideal solution for passengers, global and regional connectivity, and would be sub-optimal in the endeavour to minimize the overall carbon impact of aviation (AC, 2013a; AOA, 2013). To achieve statutory mechanisms aimed at operational efficiency and emission reduction are critical. Conservationists, such as the Friends of Earth, decry growth arguing that the building of more airports and runways will have a major impact on local communities and the environment (Mayor of London, 2013; AC, 2013b). The argument for sustainable growth is welcomed by industry players in light of calls for constraint (AOA, 2013; The Independent, 2014).
Through time, the argument has significantly centred on the timing of need for expansion of capacity with the uncertainty over growth and demand estimates. The drive for more intensive use of existing capacity is most appropriate in the short-term given that operational and aircraft design improvements have enabled the handling of more volumes than anticipated. Though limited, there is still capacity for improvement benefitting environmental conformity and overall efficiency. Several tactical improvements are proposed by the Davies commission to enable full and efficient use of available resource and capacity (DOT, 2013; AC, 2013d).
The Davies Commission proposes the encouragement of greater adherence to schedules by airlines through stricter enforcement of aircraft arrival time. This would enhance efficient sequencing of arrivals ending the practice of ‘stacking’ especially at Heathrow (Europe’s busiest airport), which is expensive in fuel costs and time and has adverse environmental impact. They also propose ‘smoothing’ of timetables and the tackling of surges in traffic and bottlenecks, such as restrictions of arrivals before 6am and the designation procedures of runways which impede efficiency (AC, 2013d). Also considered are ‘mixed-mode’ operations which entail simultaneous use of runways for take-offs and landings. Through this mode, Heathrow expects to gain 15% in airport capacity without extra building (AOA, 2013).
The Airports Commission rules out proposed mixed-mode operations suggesting its use when arrival delays arise and eventually to allow envisaged gradual traffic build up and increase in operations towards the opening of additional runways rather than a flood-gate of activity. In their consideration of noise pollution and impact on residents, the Commission recommends ending of simultaneous landings at both runways with an exception of times of disruption (AC, 2013d). Presently, Heathrow designates different runways for landings and departure which are switched daily at 3 pm to allow for respite for communities near the airport (AOA, 2013; FT, 2014).
The Howard Davies Commission suggests that there might not be need for one huge hub airport as growth in recent years has come from low-cost carriers (AC, 2013a). This view makes the case for expansion of Gatwick Airport. In anticipation of confirmation of expansion priorities and solutions, airport bosses are at loggerheads with Gatwick bosses suggesting that it would not make business sense for their second runway if Heathrow is also given a green light for simultaneous expansion (AOA, 2013). This is in consideration of an extension of time to achieve return on investment from the expected 15-20 years to 30-40 years. Gatwick’s case is compelling given that it is cheaper, quicker, has significantly lower environmental impact and is the most deliverable solution in the short term (CAPA, 2013).
Heathrow rejects this argument insisting there is a clear business case for a third runway regardless of development at Gatwick. With the airport operating at 98% of its capacity, they highlight potential for parallel growth delivering choice for passengers (AOA, 2013). Mayor Johnson is, however, opposed to Heathrow’s expansion citing the misery inflicted on a million people or more living in west London. He notes that there has been significantly more concern for the needs of passengers superseding the concerns of those on the ground. Johnson proposes focus on the new hub airport (Boris Island) to relieve impact on residents as well as to enhance UK’s competitiveness (Mayor of London, 2013). Supporters of Heathrow’s expansion say it will be quicker and will help to maintain the UK as an international aviation hub increasing global connections. Paris, Amsterdam and Frankfurt are closely competing for this business (DOT, 2013).

Conclusion

The examination of need for additional airport capacity and recommendation of solutions for the short, medium and long term, has taken the UK half a century and two commissions and still there is no confirmed venture despite the raft of proposals. The earlier Roskill Commission reached conclusions on four promising sites-including a new ‘Boris Island’ airport, which are still under consideration in the later commission the Howard Davies Airports Commission. Considering several arguments with regard to their mandate, the latter commission has proposed additional runways one at Gatwick and possibly two at Heathrow despite potential adverse effects to London residents. They are still to deliver a verdict on the new Thames Estuary project, promising a decision later in 2014 after evaluation.

References

Abelson, P. and A., Flowerdew, 1972. Roskill’s successful recommendation.” In: Journal of the Royal Statistical Society. Vol. 135. No. 4, pp.467

Airports Committee, 2013a. Emerging thinking: Aviation Capacity in the UK. 7th October. Viewed from: https://www.gov.uk/government/news/aviation-capacity-in-the-uk-emerging-thinking

Airports Commission, 2013b. Stakeholder responses to Airports Commission discussion papers. 25th October. Viewed from: https://www.gov.uk/government/publications/stakeholder-responses-to-airports-commission-discussion-papers

Airports Commission, 2013c. Airports Commission discussion papers. 29th July. Viewed from: https://www.gov.uk/government/collections/airports-commission-discussion-papers–2

Airports Commission, 2013d. Short and medium term options: proposals for making the best use of existing airport capacity. 7th August. Viewed from: https://www.gov.uk/government/publications/short-and-medium-term-options-proposals-for-making-the-best-use-of-existing-airport-capacity

CAPA, 2013. The Davies Commission’s Interim Report on UK airports: the big loser remains UK competitiveness. Centre for Aviation.

Department of Transport, 2003. The Future of Air Transport – White Paper and the Civil Aviation Bill. [online] viewed on 14/1/2014 from: http://webarchive.nationalarchives.gov.uk/+/http:/www.dft.gov.uk/about/strategy/whitepapers

Financial Times, 2014. London’s new airport held to ransom by folly. December, 2013

Helsey, M., and F., Codd, 2012. Aviation: proposals for an airport in the
Thames estuary, 1945-2012. House of Commons Library. Viewed from: http://cambridgemba.files.wordpress.com/2012/02/sn4920-1946-2012-review.pdf

House of Commons Hansard, 1971. Thhird London Airport (Roskill Commission Report). 4th March. Vol. 812. cc1912-2078. HC

Mayor of London, 2013. Why London needs a new hub airport. Transport for London. Viewed from: http://www.tfl.gov.uk/corporate/projectsandschemes/26576.aspx

Mishan, E., 1970. What is wrong with RoskillLondon: London School of Economics
Airports Operators Association, 2013. The Airport Operator, Autumn 2013.

The Independent, 2014. Sir Howard Davies’ Airports Commission: Air travel could be transformed within a few years – with no more ‘stacking’. 17th December, 2013