Professional Documents
Culture Documents
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Contents
Introduction 1
Conclusion 9
Bibliography 10
Appendix 1 12
Appendix 2 12
Appendix 3 12
Appendix 4 13
Appendix 5 13
Appendix 6 14
Appendix 7 14
Appendix 8 15
Appendix 9 15
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Introduction:
Commercial revenue and aviation revenue are two primary sources of income for
airports. Commercial revenue constitutes of car parking, catering, property
development, catering, transport operations and retail operations. Aviation revenue
consists of aircraft runway movement charges and parking charges for aircrafts, which
is regulated by the government regulations (See appendix 2).
• Security
• Retail facilities
• Cargo
• Property management
• Fire services
Airport companies have to work in close coordination and conjunction with many other
organisations to ensure smooth and safe operations of the airports. These organisations
could be listed as follows;
• Airline companies – These are responsible for delivering luggage and cargo,
checking in passengers and providing on board catering services.
• Civil Aviation Authority (CAA) – In charge of controlling all air traffic throughout
UK and regulating National Air Traffic Services (NATS)
• Commercial services - These are individual businesses which provide facilities
and services like car parking, catering, shopping, banking, etc. at the airports.
• Her Majesty Revenue & Customs (HMRC) – It is an UK governmental
organisation which controls the import and export of goods and is responsible for
prevention of illegal activities.
• UK Immigration Services (UKIS) – It is in charge of passport control and
managing the entry in the country for foreign nationals.
• National Air Traffic Services (NATS) – Responsible for UK airspace air traffic
control and management.
• Public Transport Operators – These include many private companies providing
transport facilities to and from the airport.
• Police – This is the local law enforcement authority securing the airports.
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(BAA CR Report, 2008; R. Doganis, 1992)
UK airports industry has been a leader in the commercial development of airports. Total
revenue generated by UK airports in 2007 was estimated to be £ 3.01bn; this was an
increase of 3.1% compared to 2006 and was 23.4% since 2003. This increase was
assisted by augmentation in the no. of passengers handled by the UK airports in 2007
and also constant increases in the number of freight aircraft movements and volumes.
A new EU-US Open Skies Agreement has been put into effect since 30th March 2008,
enabling any EU or US airline to operate between any point in the EU and the US.
London’s Heathrow Airport has been affected by this agreement as now more EU based
companies like Continental, Delta Air and Northwest are planning to begin services of
their flights from Heathrow to US cities. Reports show, despite a historical increase the
number of passengers handled by UK airports, the rate of growth has felled below 3%
since 1997 (excluding the 11th September terrorist attacks on USA in 2001). Reasons
cited for this are, increase in air-passenger duty rates in 2006, current economic
environment, increasing competition from railway and passengers' outlook of the
environment. Despite these, progressive growth is forecasted up to 2012.
(Keynote 2008)
- Peel Holding (Airports) Ltd: Operates and owns Liverpool John Lennon Airport,
City Airport Manchester and Robin Hood Airport Doncaster-Sheffield and joint owner of
Durham Tees Valley Airport
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- TBI Plc: Operates Cardiff International, Belfast International and London Luton
airports.
(Key
Note, 2008)
1.4 Key drivers of change and influences for the UK airport industry:
The key drivers of change and factors that influence the UK airport industry have been
identified by conducting a PESTEL analysis of the industry.
1.4.1 Opportunities
UK Air Travellers
Keynote reports that the amount of residents of GB who travelled by air in 2007 reached
50.8%, the highest number encompassing half the adult population of GB (Key Note,
2008). Half the population at least flies once a year (AOA report, 2005). Recent figures
also show that the number of people taking flights from smaller / local airports is on rise
due to lesser congestion thus playing in favour of low cost airlines who mostly from
these and ultimately benefitting the growth of these airports (BBC, 2007).
Population
UK is one of the main attractors of EU nationals for employment and this explains
steadily rising population figures. In 2007 estimated growth reached 61 million, which is
0.6% increase from 2006. This population growth profits the airport industry by
enlarging the number of travellers.
Govt Policies
The “Open Skies” agreement between the US and the EU is expected to end the
restrictions on airlines authorised to fly between Europe and US, thus giving more and
more EU and US companies a chance in the market share. It is likely to lead to a large
rise in the number of different carriers flying across the Atlantic.
The White Paper (2003), “The Future of Air Transport” gives a sketch for the future
development of the industry in UK. Leading airport operators design their
strategic plans encompassing these. The plans include considerable
investments in terminal refurbishments, infrastructure developments and the
building of new runways for airports (Key Note, 2008; UK Trade and
Investment, 2008)
Mr. Gordon Brown, PM, has pledged to deliver a range of measures to transport
industries in order to spark the UK economy
Market growth
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The continuing growth of the routes serviced by the low-cost airlines provides a strong
foundation for corresponding growth in the airports market (See appendix 4, 2008). The
airport market is highly concentrated in both the passenger and freight sectors (See
appendix 5)
Inflation
UK government official figures show that inflation in the UK has dropped in the month of
October, despite the downturn in the economy. This is due to the decrease in
prices of oil, transport and food (BBC, 2008).
Technology
New technologies are developing constantly in areas like luggage tagging, security etc.
which would aide boost image of airports.
The formation of EU benefits the companies operating within the region with EU policies
(European Commission Enlargement, 2008; Reuters, 2008)
1.4.2 Threats
Passenger Traffic
Growing idolization of travel by railways has aided in slowing the growth rate in air
travel. Keynotes has noted, Eurostar transporting record number of passengers in 2007,
which continued to advance in the first 3 months of 2008. During these months the
number rose to add 20% in comparison to the same period in 2007 (Key Note, 2008).
Security Challenges
Airports are always a favourable target for terrorists thus providing an ever looming and
unpredictable threat for the industry. Beefing up of security measures causes delays at
the airports making the journey for passengers unpleasant and thus driving them to
alternative transport methods.
UK Airport Capacity
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five. The new terminal at Heathrow provides extra terminal capacity, but does not
enable to increase the number of flights that are handled at the airport. BAA plans to
construct a third runway which is facing a lot of criticism and opposition (Key Note,
2008).
UK's GDP expanded by 11.6% between 2003 and 2007 and reached £1,033.69bn in
the first three quarters of 2007 in stark comparison to £969.9bn to that in 2006, which is
6.6% increase. Strong and growing economy is favourable for the industry by
contributing to increase in the disposable income of the consumers. However due to the
recent Credit crunch / crisis situation in UK the public sector borrowing s are set to 8%
of the GDP for the year 2009-2010. The latest figures quoted by chancellor A. Darling
show that the UK’s GDP has contracted by 3% within three months till September ’08.
Inflation
Although the inflation in the UK has stayed fairly stable it has recently increased from
4.7% to 5.2% (2008). The larger rates of inflation push up aviation charges at the
leading airports, like Heathrow and Gatwick, in particular because these are directly
linked to the retail price index (RPI).
Employment / Unemployment
Office of national Statistics (ONS) has stated that the total unemployment rate in UK
has risen to 5.5% by September ’08, meaning 1.72 million people are out of work
throughout UK (See appendix 3). The unemployment levels retard the air travel industry
thus affecting airport industry in turn.
Environmental concern
The invent of high speed rail and the growing popularity of the train travel due to
growing awareness among masses about the environmental preservation has given rise
to train travel within the country (G. Pepy, FT, 2008)
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2. Application of Porter’s Five Forces Model:
Applying Porter’s Five Force Model to the UK airport industry we can identify the
following:
The airport business if better managed churns out huge returns therefore the
competition in the business is suggested to be relatively high.
2.2 Suppliers
The industry due to its sheer size has numerous suppliers. Understanding the functions
and the daily activities at the airports helps one understand the suppliers that exist for
UK airport industry. Scientists and information technology (IT) experts from many
companies enable airport companies to constantly upgrade and better their services by
providing assistance in expansion plans, advance systems for security measures,
Greenfield projects, etc. Other suppliers include companies supplying / providing
furniture, catering services, car parking, banks / money exchange companies operating
at the terminals, manpower companies, heavy machinery and equipment companies,
power companies, IT / computer companies, oil / fuel companies, maintenance /
cleaning companies, retail companies, security companies, air traffic control companies,
transport companies and many more (UK Trade & Investment, 2008)
An airport seems more like a facilitator where many businesses converge to provide
one product / service. Also it is a very attractive business option for many businesses.
Hence the power of suppliers is considered to be moderate depending on the product /
service they supply.
The obvious customers for the UK airports are the passengers arriving and departing
the country. Other customers include airline companies, cargo companies, etc. (UK
Trade & Investment, 2008; key Note, 2008). Some of the suppliers are also the
customers of these airport companies. E.g. Banks, Retail companies.
Since airport do not function as sole entities of a business and over a period of time the
airports developments and the developments around the airport keep encompassing the
image of a particular airport. Hence the power of buyers is suggested to be relatively
low.
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2.4 Potential entrants
The entry into the business environment is relatively easy due to the favourable
legislations in the UK (UK Trade & Investment, 2008). However the sheer size of the
capital required and laws to fulfil to own an airport business does not invite many
entrants into the market. However at the same time airport business being very
attractive business and investment option many large organisations and investment
companies are always on the look to take over which makes the entry threat into this
market is relatively very high.
2.5 Substitutes
Identification of substitutes for airport industry needs very careful analysis. The
substitutes for airports are none; however the mode of transport for the goods and
people would affect the business. i.e. If the train transport is preferred over the air
transport then the railway stations become a substitute for the airports. The substitutes
of the airport industry are very closely related to its main customers. Hence sustenance
and growth in these key customers business is in the interest of the airports. Looking at
the above information of environmental concern it may seem that the growth may tend
to diminish for the local market, however the international travel / transport (urgent) is
more likely to be on air transport. Therefore the threat of substitutes is relatively lower
for UK airport industry.
3. Conclusion
Analysis of the external environment in which the UK airport industry operates, using
the PESTEL model, explains the importance of the industry and its vulnerability. Further
on applying Porter’s Five Forces model to this industry various growth and threat
aspects of the industry were identified. The five forces identified above affect the
profitability of the airports to a great extent. Evaluating the relative influences of each of
the five forces it can be noted the profitability of in his industry is greatly driven by
efficiently and effectively managing the customers and suppliers, at the same time
keeping the competitors (competitors and entrants) at bay and keeping a watchful eye
on the trends in the travel modes. All the companies in the industry may need to
formulate new strategies aligning to the present recession scenario. The airport industry
is set to grow following the demise of this recession. The dominant operators in the
market would benefit from this trend and may strategically use it to benefit themselves.
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Bibliography:
BBC News, 2006 Airlines attack security delays [Online] Available at:
<http://news.bbc.co.uk/1/hi/business/4789633.stm> [Accessed on 21.11.08]
BBC News, 2004 Bank warns about household debt [Online] Available at:
<http://news.bbc.co.uk/1/hi/business/3848243.stm> [Accessed on 27.11.08]
BBC News, 2008 Consumer inflation falls to 4.5% [Online] Available at:
<http://news.bbc.co.uk/1/hi/business/7734522.stm> [Accessed on 27.11.08]
BBC News, 2007 Regional airports cleared for take-off [Online] Available at:
<http://news.bbc.co.uk/1/hi/business/6235181.stm> [Accessed on 21.11.08]
BBC News, 2008 UK unemployment total rises again [Online] Available at:
<http://news.bbc.co.uk/1/hi/business/7620451.stm> [Accessed on 22.11.08]
BBC News, 2008 Where now for UK inflation? [Online] Available at:
<http://news.bbc.co.uk/1/hi/business/7669841.stm> [Accessed on 27.11.08]
Eco Travelling, 2008 The benefits of Rail Travel [Online] Available at:
<http://www.ecotravelling.co.uk/TheBenefitsOfRailTravel.html> [Accessed on 26.11.08]
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G. Johnson, K. Scholes, R. Whittington (2008) Exploring Corporate Strategy 8th Ed.
Pearson Education Ltd. England
Reuters, 2008 EU Commission to urge two-year dash for growth [Online] Available at:
<http://www.reuters.com/article/bondsNews/idUSLP67477320081125> [Accessed on
27.11.08]
UK Trade & Investment, 2008 The short cut to setting up [Online] Available at:
<http://www.ukinvest.gov.uk/United-Kingdom/4008542/en-GB.html> [Accessed on
27.11.08]
UK Trade & Investment, 2008 The UK Airport sector: Helping the world’s airports in the
21st century [Online] Available at:
<http://www.ukinvest.gov.uk/UKTI-publications/4012994/en-GB.html> [Accessed on
27.11.08]
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Appendix 1:
PESTEL Analysis:
Political – “Open skies” agreement boosts competition and performance within the
industry. The government of the UK supports the sustenance of such industries by
favourable strategies and policies. Airport industry is regulated by the CAA.
Economic – The economy and market segment has been seen to be booming until the
recent upstage of the recession.
Social – The focus for greener alternatives to air transport is the voice of the day and is
observed to affect the airport industry. However the international logistics (for certain
goods) and passengers airport industry is vital.
Technological – with the advent and aide of new technology the airport industry can
work out greener alternatives reducing their carbon footprint and boosting their trade
and commerce.
Environmental – One of the main customers of the airport industry, the airlines have
been accused of the creating most pollution on earth. This has given rise to many green
organisations to come together against the airport and airline industry.
Legal – The UK legislation allows for open trade within this industry while in many
countries around the world the airport industry is protected and run by the government.
Appendix 2:
Revenue (£m)
Commercial revenues 1, 1, 1, 1, 1,
Aviation revenues 1, 1, 1, 1, 1,
Total 2, 2, 2, 2, 3,
% of Total
Commercial revenues 52. 52. 52. 52. 51.
Aviation revenues 47. 47. 47. 47. 49.
Appendix 3:
12
Source: Key Note, 2008
Appendix 4:
Appendix 5:
13
Source: Key Note, 2008
Appendix 6:
Appendix 7:
The UK’s 20 large airports and fast-expanding regional airport network is an impressive
showcase of the sector’s scale and skills.
• London is the busiest aviation centre in the world, handling a total of almost 120 million
passengers annually if Stansted, Luton and London City are combined with Heathrow.
• UK airports generate US$5.6 billion in revenue a year.
• One fifth of all international air passengers in the world are on flights to or from a UK
airport.
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• The number of passengers travelling through UK airports has risen 31 per cent to 235
million in the past five years.
• The UK’s no-frills service sector served eight million passengers in 1998 but by 2003 the
number had risen to 47 million.
• It is predicted that the number of passengers travelling through UK airports will rise to
500 million by 2030.
• Cargo handled by UK airports increased from 1.8 million tonnes in 1996 to 2.3 million
tonnes in 2006 – an increase of 28 per cent.
Appendix 8:
Terminal passengers
(million) 200. 215. 228. 235. 240.
% change year-
- 7. 5. 3. 2.
on-year
Aircraft
movements (000) 3,463. 3,527. 3,655. 3,638. 3,651.
% change year-
- 1. 3. -0. 0.
on-year
Freight moved
(000 tonnes) 2,208. 2,371. 2,363. 2,315. 2,325.
% change year-
- 7. -0. -2. 0.
on-year
Source: UK Airport Statistics, Civil Aviation Authority;
Key Notes 2008
Appendix 9:
Total 87, 2.
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† — loaded and unloaded freight and mail
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