SEAPLANE Activity 2: Airport Quality Improvement and Development Strategies

Introduction

Activity 2 - "Airport Quality Improvement and Development Strategies" consisted of the following five sub-activities:

• Sub-activity A: The Comparative Analysis of SEAPLANE Airports. This sub-activity compared the efficiency of the SEAPLANE airports according to a number of technical, commercial and mixed indicators. It was enriched by a workshop held in Malmö end of January 2004 to discuss the output trans-nationally with a number of SEAPLANE airport managers.
• Sub-activity B: Airport Ownership and Development. This sub-activity investigated whether the form of airport ownership (national, regional or private) influences the commercial success of an airport.
• Sub-activity C: Improvement of Public Transport Services. This sub-activity concentrated on a better information supply for the arriving airport passengers. As a result of the discussions with the relevant representatives of the airports Hanover, Bremen and Groningen, appropriate information terminals have been installed at the airports.
• Sub-activity D: Airport Development Concepts. This sub-activity investigated (under particular consideration of the regional and local sources) the particular strengths and opportunities of selected SEAPLANE regions including their airports to identify any potential for development options to the benefit of the involved airports.
• Sub-activity E: Air Cargo Market Development. This sub-activity investigated the potential for the development of the regional air cargo market at two SEAPLANE airports.

All sub-activities under Activity 2 have the objective to support the airport managers including their public stakeholders by providing information, data, business contacts and results of analysis activities. The aim is to develop - in trans-national co-operation with airport's and regional authority's representatives - the quality, functionality and economic sustainability of the involved SEAPLANE airports.

Sub-activity A: Comparative Analysis of Seaplane Airports

The airports participating in SEAPLANE have been clustered according to their 2002 work load units (see Fig. 1):

• Cluster 1: large airports with more than one million Work Load Units (WLU) per year (marked in blue)
• Cluster 2: medium-sized airports with more than 180 thousand WLU but less than one million WLU per year (marked in yellow)
• Cluster 3: small airports with less than 180 thousand WLU per year (marked in red)

Analysis of indicators

The development and regular use of measures suitable for comparing airports helps

• Airport managers, who can use efficiency and productivity measures to identify where there are gaps between actual and best practice levels of performance;
• Governments and Municipalities, which can use these measures to identify and reward those airports meeting their objectives cost effectively;
• Customers, who are able to use public information on the performance of different airports and make decisions on their preferred supplier of airport services

For the comparative analysis, three different types of indicators were defined:

• Physical indicators: any visible expression of airport activities, e.g. volumes of passengers and freight handled, aircraft movements, number of staff employed at the airport, number and length of runways, or size of the shopping area
• Financial indicators: comprising information on price, revenue, cost, profit and assets of an airport.
• Mixed indicators: relating physical airport characteristics to financial airport data, such as aeronautical and non-aeronautical revenue per Work Load Unit (WLU), Staff Cost and Operating Cost per WLU, Total Revenues and Total Cost per WLU, profit per WLU (including and excluding Capital Cost), revenue per Employee, or profit (excluding Capital Cost) per Employee

Results

The following charts show some of the results of the analysis across SEAPLANE airports.

Work load units (WLU) per employee 2002. Work Load Units per Airport Employee is a labour productivity measure indicating the capability of an airport to allocate labour to productive work processes. While there is roughly a correlation of airport size and WLU per Airport Employee, outsourced activities can reduce the input side (Employee) of this indicator.

Fig. 2: Work load units (WLU) per employee 2002

Share of total cost covered by aeronautical revenues 2002. This indicator provides information on in how far the single airport is able to recover its cost from the classical airport business, i.e. from aeronautical revenues (landing fees, passenger handling fees etc.).

Fig. 3: Share of total cost covered by aeronautical revenues 2002

Aeronautical vs. non-aeronautical revenues per work load unit 2002 (in €). This indicator allows comparison of the contribution of both major revenue generating airport activities between airports.

Fig. 4: Aeronautical vs. non-aeronautical revenues per work load unit 2002 (in €)

Conclusions

The analysis of three types of indicators reveals that for the investigated SEAPLANE airports in 2002 operating and financial performance seems to be closely related to airport size in terms of handling volumes. The issue of economies of scale obviously has a significant influence. However, some smaller airports, managed to outplay medium sized airports in some criteria (e.g. Kortrijk in terms of WLU per employee or reducing financial losses).

The investigation of employment related indicators (e.g. having number of staff as input factor) suggested that a deeper analysis into the level of outsourcing of airport services is necessary to validate our results, especially when the indicator relates total airport output to airport company staff, whose tasks are limited to mainly airport management, only.

Indicators related to financial figures showed that especially the centrally administrated Norwegian airports performed extremely well. However it cannot be ruled out that financial data are somewhat difficult to compare as Norwegian unified airport tariffs reflect system cost of the central AVINOR management system rather than the individual cost situation of an airport. Moreover, Norwegian financial data may not necessarily include (cost-based) fees for services of the central AVINOR administration.

Also, airport profitability is clearly related to size. Small airports operate at a relatively high level of losses (per WLU); for many airports revenues aren't even sufficient to cover staff cost. Handling volumes above 650 thousand work load units increase the possibility of overall cost coverage and even making some profits. However, even for (some) airports where revenues exceed costs the achieved profit margin leaves room for improvement.

Concerning the role of ownership (central administration and ownership versus regional/local administration and ownership) as influencing factor for an airport's performance the analysis has demonstrated that none of the indicators analysed support the hypothesis that regionally/locally owned and administrated airports perform better than Government-owned airports. For many indicators we find centrally administrated airports among the very top performers as well as among the "backbenchers".

Sub-activity B: Airport Ownership and Development

The aim of this sub-activity was to develop recommendations for the SEAPLANE project partners on what constellation of airport ownership (national, regional, private, or a mixture) best serves the needs of the North Sea region's spatial, social and economic development.

The recommendations are derived from experiences of other countries (based on desk top research, technical literature and information from the Seaplane project partners), from the needs and ideas of regional stakeholders in Norway, and from views of national airport authorities like AVINOR.

The ownership issue involves two aspects:

• Should ownership be private or public?
• If public, should the ownership be centralised or decentralised?

In practice, aspects of both questions intermingle in the variety of solutions chosen and implemented around the world. In addition, regardless of ownership, models of sub-contracting, concessioning or other agreements may invite private parties to engage in the operations of an airport.

Recommendations. The following recommendations are derived from above experiences and issues raised:

Regions consider airports as nucleus for regional development, looking also at employment and income effects stimulated by increased airport activity. Contribution of local private capital may ensure that the interest of the users is satisfied and lead to more professional airport operation.

A 100 % private airport may lead to exertion of monopoly power or under investment. Besides there is no need for full privatisation of ownership since all sorts of operations may be privatised regardless of type of ownership.

Transfer of ownership is a complex and lengthy process. Use of experiences from other airports that have undergone a transfer process is vital.

Studies have shown that airports with a diversified business focus and larger share of non-aeronautical revenues also operate more profitable. Thus, one should establish a market development department if possible (depending on size of airport and the potential).

Developing activities around the airport is not only about searching for new opportunities. It may also strengthen the commitment of the region to its airport. Reservation of available space round the airport is essential.

Plans with respect to business and land use development may have bearings on which partners one would like to invite as owners because of their competence, capital or decision power.

Looking at UK and Norwegian data there seems to be a critical threshold of somewhat less than one million passengers p.a. to be profitable. Airports below this threshold may need support until the limit is reached.

Long-term deals make the airlines more committed to the airport. The deals could include start up discounts, marketing support, access to facilities etc. However, because of the risk that the airline might go bankrupt it is recommended that the commitment of too large sums in advance is avoided.

There are different types of privatisation (share floatation, trade sale, concession, project finance privatisation and management contracts). The benefits of privatisation are assumed to be:

• Reduction of the need for public sector investment and free access to commercial markets
• Reduction of government control and increase in the ability to diversify
• Improvement of efficiency and creation of more competition and wider share ownership

Some countries like Norway, Sweden, Finland and Spain have developed a public national system and see the following benefits:

• Possibility of cross-subsidising between airports
• Economies of scale in airport management (acquisition, marketing, contracts with national service providers, concessionaires etc.)
• Concentration of specific expertise

Most countries rely on regional ownership, either public or a combination of public and private. The main arguments for regional ownership are:

• Regions have a deeper understanding of the airport environment and its value as regional employer
• Regions have incentives to integrate the airport into regional development planning and land use development
• Tighter budget control through close local ties

Sub-activity C: Improvement of Public Transport Services

For a limited number of three airports, the existing regional public transport system services have been analysed in order to contribute to an improvemnet of the modal split to the benefit of public transport. The airports of Groningen, Hanover and Bremen have been chosen for this analysis under consideration of current developments and future plans of the airports. A concept has been devised together with the airports involved as to how to increase the modal split in favour of public transport systems serving the airport. Limited funds were available to finance infrastructure measures such as passenger electronic information or guiding systems.

Sub-activity D: Airport Development Concepts

The objective of sub-activity D was to identify possible business activities in and around the airport which might generate additional income as well as economic and social opportunities for the airport and its region, supporting the regional airport's sustainable existence. The analysis was carried out for five different regions, respectively airports: Bremerhaven, Braunschweig, Cuxhaven, Ljungbyhed, and Växjö.

Information was gathered through intensive desk research concerning geographic, socio-economic and economic data, including information on particular regional characteristics relevant for the airport. These data formwed the basis for a comprehensive SWOT-analysis (Strengths / Weaknesses / Opportunities / Threats).

As an example, Table 1 shows SWOT results for Växjö Airport.

After analysis of available data, concrete and realistic development options could be identified for only two out of the five airports:

• Development of package tours to Växjö under consideration of regional points of attraction (Astrid Lindgren's World, Crystal World )
• Development of a sophisticated European Pilot Training Centre at Ljungbyhed Airport

Sub-activity E: Air Cargo Market Development

In order to compensate for low population density or lack of tourist attractions in the catchment area of a regional airport, airport management often tries to market their airport as air freight hub or at least as feeder airport for such a hub.

For two participating airports, Cuxhaven-Nordholz and Oostende, potential trade and cargo handling volumes under specific frame conditions have been investigated. The airports have been selected to best cover the broad range of different conditions with which the SEAPLANE airports are confronted. Therefore, the identified general trends in air cargo industry as well as at least part of the results for the investigated two airports can be applied also to other small and medium-sized regional airports.

It needs to be stressed that centrality and accessibility to major conurbations play a decisive role in the decision making of air freight operators and forwarders. Therefore, it seems difficult for remote airports to find a specific niche sufficiently large to generate significant revenues.