LONDON METROPOLITAN UNIVERSITY

COURSEWORK
(REPORT)
By

Nikola Georgiev
Student ID: 07059973

EMAIL: NIK_SINGERSTR@YAHOO.COM

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I. Introduction

II. Catchment Area Analysis

III. Forecasting

IV. Airport and Airline Network Fit

V. Incentives and Marketing Support

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I. Introduction

The following report evaluates the possibility to attract an airline to operate flights
from Gatwick Airport, UK to Varna Airport, Bulgaria. Detailed examination of
catchment areas, airport fit and marketing opportunities have been reviewed, as well
as forecast analysis of the route examined. The targeting airline to execute the
above – mentioned route is chosen to be Bulgaria Air – the Bulgarian national carrier,
based on the fact that they have the capacity (i.e. aircrafts, personnel, etc.) to do so.
Review of the passenger traffic for the above – mentioned destination has been
evaluated and forecasted for a period of five years.

II. Catchment Area Analysis

i. Gatwick Airport

The population of London is 7.5 million citizens. 44 % (forty four percent) of the
residents are aged between 20 – 44 years – old. Gatwick airport is located within Sussex
borough (Crawley town) boundaries and is mostly settled with families with children, with
relatively few pensioners. Crawley is home to more than 100 000 residents. It is likely that
the families will have two wage earners and with unemployment relatively low overall, family
incomes are around the national average (www.crawley.gov.uk).

Purchasing power may be limited, spending on credit cards is low and a range of
loyalty cards are used. However, most households run at least one car and take regular
holidays in Europe and the Mediterranean.

There is a great choice of hotels in and around Gatwick Airport and Crawley, as well
as variety of attractions including amusement parks, museums, leisure centres, theatres,
cinemas, shopping malls. One of the most popular attractions is the Tilgate Park & Nature
center. The park is very important part of the fabric of Crawley and includes three lakes, a
walled garden, nature center, craft outlets, picnic areas, etc. Crawley boosts many golf
courses, the famous one – Tilgate Forest Golf Center – an 18 hole championship course.
Crawley area is very attractive cultural area. There are many events and festivals including
Crawley festival, Crawley Folk festival, Crawley International Mela – Youth International
event, Crawley Irish festival (www.crawley.gov.uk).

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The proportion of businesses in Sussex by sector is in-line with the south east region.
The majority of business units in Sussex are within the banking, finance and insurance
sectors followed by distribution, hotels and restaurants. The smallest numbers of businesses
are within the agriculture and fishing, energy and water.

Source: Annual Business Inquiry workplace analysis (2004)

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Employment by sector

The number of employee jobs within Sussex by sector generally reflects the
proportion of the South East region. The largest employment sectors are public admin,
education & health along with distribution, hotels and restaurants.

Source: Annual Business Inquiry workplace analysis (2004)

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Business sizes by sector (number of employees)

Micro and small business sizes in Sussex make up 97.1% of all business in Sussex.
The largest employers are found in the public, admin, education & health sector but even
within that sector 58% of business units are micro-enterprises and 42% are small
businesses (www.satistics.gov.uk).

Source: Annual Business Inquiry workplace analysis (2004)

Micro-enterprises (1-10 employees) and small business (11-49 employees) make up

97.1% of all business units in Sussex. The largest employers are found in the public, admin,
education & health sector but even within that sector 58% of business units are micro-
enterprises and 42% are small businesses. The 13% of all public service businesses which
employ 50 or more employees are concentrated in West Sussex (www.statistics.gov.uk).

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Job density (2004)

Crawley has the highest job density within Sussex, (jobs in proportion to the working
age population), which can be explained by the large number of jobs created by Gatwick
Airport. While Adur has the lowest job density suggesting high unemployment or residents
are not employed locally. Part-time employment in Sussex is higher than other areas in the
South East at 37.6% of which 74% are female. While of the 62% of people in Sussex in full-
time employment only 40% are female (www.statistics.gov.uk).

Source: Job Density, LSC 2004

Job density shows the ratio between the total number of jobs to working-age
population. The total number of jobs is a workplace-based measure and comprises
employees, self-employed, government-supported trainees and HM Forces. Sussex has a
job density of 0.84, which is below the South East (0.86) but the same as England (0.84).
For an area with a low job density it means that residents are not employed locally or the
area is an area of unemployment or inactivity. Within Sussex Adur (at 0.64) has the lowest
job density (www.satistics.gov.uk).

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For an area with a high job density means that working-age people commute to this
area for employment and there may be a high level of local demand for employees. Within
Sussex Crawley has the highest job density (at 1.40) which is probably explained by the
large number of jobs created by Gatwick Airport.

ii. Varna Airport

The population of Bulgaria is 7.5 million citizens. Varna region has a population of
over 1.6m citizens, of which 976 thousand men and 665 thousand women (57/43% ratio).
For the period 1997-2007 the population of the municipality of Varna has increased by 4.6
percent, while that of Bulgaria has decreased by 5.8% (www.nsi.bg).

Population distribution by age is:

working age

under working age pensioners

18%
Source: www.varna.bg

a) Human Resources

From 2000 to 2004 the number of economically active persons has increased by 7%
while the unemployment rate has dropped 2 times (from 11.7% in 2000 to 5.26% in 2004).
64% of unemployed are women (www.varna.bg).

b) Education and science

Varna has highly trained personnel who speak foreign languages, thus only the
students completing language schools are 600 per year. There are 5 000 students who
graduates every year in Varna. 25% of the working population are university graduates, 50%

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of the working age population have completed secondary education

(www.minedu.government.bg).

There are 12 (twelve) vocational schools that teach 8 (eight) thousand students at 72
(seventy) majors, 5 (five) private vocational high schools, 53 (fifty three) comprehensive
schools. 3 (three) special schools, 2 (two) technical Schools, 18 (eighteen) technical
colleges, vocational schools and Art schools, 8 (eight)universities, special institutes, colleges,
including University of Economics, University of Medicine, Technical University, Varna Free
University, the Naval Academy (the biggest on the Balkans), Institute for International
Tourism, Institute of Hydrodynamics Center, Institute of Oceanology, Institute of Metal
Science, BAS, Institute in waterways, Institute for Fisheries and Aquaculture. There are total
of - 28 thousand students and 2100 teachers (www.minedu.government.bg).

c) Economics

1. Sectoral structure

The Economy in Varna region is well represented at the national level produced by gross
domestic product, representing 5.4% of the total national. The District ranks third in the
country invested in foreign investments per capita. Equity ratio in the economy of the area:
25% industry, 20% transport, tourism 35%, 10% trade, 10% construction (www.varna.bg).
Leading to the regional economy sectors are agriculture, tourism, chemicals production,
shipbuilding and repair, food processing and manufacturing of electrical appliances.
Municipality of Varna has significant economic potential and its related infrastructure is well
developed. Structure in the economy is highly diversified.

The following Graph shows the distribution of the net revenue on sales by industry

Trade & Tourism Industry Transport Construction Others

6% 3%

14%

16% 61%

Source: www.varna.bg

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The two most developed clusters in Varna are marine and tourism industries. The
municipality also has businesses in sub-metallurgy and machine building, food processing,
clothing industry, electronics, footwear industry, production of building materials and
construction, furniture manufacturing.

Maritime Industry:

During the past 90 (ninety) years in Varna shipyard were built over 800 ships.
Odessos Ship Repair Plant JSC is the largest and best equipped plant in Bulgaria Ship
suitable for dry-dock vessels of up to 35 000 dwt and repair of ships sailing to 150 000 dwt;
1000 people own personnel, subcontractors - 500(www.varna.bg).

Navigation Maritime is the largest national maritime carrier state property. It has
tankers, container vessels, mass and general cargo, ferries with a total tonnage of 1 810 000
dwt. It provides about half of revenue in the region, and 90% of revenues from the transport
sector in the region and implements 20% of imports and exports to Bulgaria. Marine
engineering SA - manufactures marine equipment. Deck has produced equipment for over
190 ships and 75 000 tonnes of steel structures.

Tourism Industry:

Tourism is one of the major industries in the economic structure of Varna Municipality.
Resorts "Golden Sands", "St. Constantine and Helena "," Riviera " and " Sunny Day” are
world famous, three of them have won the Blue Flag award for best beach
(www.mi.government.bg). The resorts offer numerous opportunities for sports, spa and
entertainment. The potential of this sector of the municipality is characterized as unique
combination of natural resources (beaches, mineral waters) and cultural heritage and
traditions.

The prices of tourist services in Bulgaria are competitive compared with those in
Croatia, Greece and Spain. There is an increased demand for Wellness and Spa services
and high demand in the months outside the active season. There are prerequisites for the
development of health, cultural and ecotourism. The municipality has over 485 hotels, which
have over 149 thousand beds capacity (www.mi.government.bg).

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The following graph (Graph 1) shows the tourist nationalities mix, who visited Varna
region in 2008.

Graph 1

Source: www.varna.bg

2. Infrastructure

Municipality of Varna occupies a key position in the trans-European networks as a port and
center as part of the current and future transportation corridors. A major competitor of Varna
and Bourgas ports is Constanta (Romania). In the territory of the North East region undergo
three pan-European transport corridors: № 7 (Danube waterway), № 8 (Durres - Skopje -
Sofia - Bourgas - Varna), № 9 Helsinki - Kiev - Ruse – Alexandroupolis
(www.mrrb.government.bg).

Road infrastructure is relatively well developed (density 709 km/1000 square km). Its
total length is 144.2 km. 12% of the roads within the municipality are highways, 41 percent
are first-class roads. 90% of the road network is in good condition.

The density of railway network exploited in the Municipality of Varna is 5.14 km/100
square meters and formed three railway stations. Topoli railway station is specialized in port
activity. Railway station Varna - West is intended as a freight station and engine house, a

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railway station Varna - East - primarily as a passenger terminal. Very important is the railway
line Karnobat - Sindel - Varna, since it is included in the Corridor № 8
(www.mrrb.government.bg).

Varna Airport is the second largest airport in Bulgaria. It is a civil airport for domestic
and international transport. Its development is in direct relation to tourism and it is typically
seasonal. Mainly charter flights are international - 89% of the total number of passengers
was on international routes. Its area is 2 414 ha. It is linked to international road E-70 and F-
87 and has modern navigation equipment.

First in importance to the financial results were passenger charters, the second -
international scheduled flights to a third - internal scheduled flights to Sofia and Bourgas, on
the fourth - cargo charter flights, and the fifth - general aviation. Liaise with the airport 36
countries and 101 cities (www.caa.bg).

Varna port connects directly to Russia, Ukraine and Georgia by ferry and ro-ro
connection through a railway line Rousse - Varna and the European Corridor Rhine - Main -
Danube. Trade and port activities are directed mainly towards the countries of Europe, the
Middle East and South Africa. Varna port handles all types of cargo - liquid, bulk, number,
containers and ro-ro. It is the most important seaport for North East region. It passes through
a quarter of the turnover of goods. Port clock mode of work and has very good relation with
the national rail network and good relationship with the national road network. It covers a
territory of 30 km. and has 35 berths, 76 142 sq. м. covered storage area, 458 870 sq. м.
open storage area, 66 pcs. quay cranes and other specialized machinery
(www.mtitc.government.bg).

Pass through the port mainly containers, grain, cement, clinker, fertilizers, calcium
soda. Servicing of vessels is carried out by agents, brokers, drivers, suppliers, freight
forwarders. The total number of services provided are over 25 000. Freight on the waterway
is mainly undertaken by the Bulgarian maritime fleet, and a minor share of some private
companies. Cargo handling is carried out by Port Complex Varna. Port of Varna consists of -
East, dry port, oil terminal, port poplar, timber port and naval base
(www.mtitc.government.bg).

Binding of Varna and the sea with Beloslavsko Lake and the building of Varna West port
and ferry terminal allows the water to penetrate deep, thus ensuring better interaction
between the four modes of transport, unloading port of Varna - East removal of cargo activity
and environmental contamination in the resort town.

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III. Forecasting

The following chart shows the total number of passengers on flights from UK to Varna for
the period 2004 – 2009 (CAA UK Statistics).

Passengers UK to Varna 2004-2009

250000

200000

150000 140492
131409
113182 113658
Passengers
100000
66282 69055

50000

0
2004 2005 2006 2007 2008 2009

Source: http://www.caa.co.uk/default.aspx?catid=80&pagetype=88&pageid=3&sglid=3

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The following chart shows the passenger traffic by cities (market share) UK to Varna for
the period 2004 – 2009 (CAA UK Statistics).

Passenger Traffic by cities (market share) UK to Varna 2004 - 2009

Gatwick
1,17%
Heathrow
4,54% 0,12%
Luton
9,65% 20,40%
Stansted

Aberdeen
2,78%
Belfast Intl
3,24%
Birmingham
3,16%
Blackpool
2,02% Bristol
1,28%
Edinburgh
2,52%
2,12% Glasgow
1,42% Leeds Bradford
31,18%
7,60%
Manchester

Newcastle
6,80%
East Midlands

Southampton

Source: http://www.caa.co.uk/default.aspx?catid=80&pagetype=88&pageid=3&sglid=3

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The following chart shows the passenger traffic by regions (market share) UK to Varna
for the period 2004 – 2009(CAA UK Statistics).

Passenger Traffic by regions (market share) UK to Varna 2004 - 2009

6%
Total London
9,14%

Total Midlands
6,40%
Total North East

Total North West

9,65%
Total Scotland

4,54% 65,98% Total South East

1,17%
Total South West

Source: http://www.caa.co.uk/default.aspx?catid=80&pagetype=88&pageid=3&sglid=3

The following chart shows the predicted forecast for the new route LGW - VAR for the
period 2010 – 2014. Average rate of growth (based on average annual rate of growth of
3,4%).

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Average rate of growth 2010-2014

250000

200000
160596 166056
145269 150208 155315
150000
Passengers
100000

50000

0
2010 2011 2012 2013 2014

Financial Forecast

The market share of Bulgaria Air for the route VAR-LGW-VAR proves to be close to
100%, since there is no direct competitor flying on the above mentioned route. Therefore,
we can make the following financial forecast for a 5 year period of servicing the route
based on the above passenger demand making assumptions of average fare levels and
load factor. Flights from LHR to Sofia (the capital of Bulgaria) generally cost 120 British
Pounds (based on research of airlines flying the route including BA, Bulgaria Air, etc.) on
average for a return ticket. As an estimate we take this average fare cost in our financial
forecast in order to calculate possible gross revenue.

2010 2011 2012 2013 2014

145,269X120 150,208X120 155,315X120 160,596X120 166,056X120

17,432,280 18,024,960 18,637,800 19,271,520 19,926,720

GBP GBP GBP GBP GBP

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IV. Airport Facilities and Network Fit

Within easy reach of London, Gatwick Airport is the busiest single runway airport in the
world, the second largest airport in the UK and the eighth largest in Europe. There are
currently around 90 airlines which operate from the two terminals, serving over 200
destinations. Gatwick Airport serves around 32 million passengers every year and received
the ‘Best UK Airport’ award for the sixth time at the Travel Bulletin Awards in 2009
(www.gatwickairport.com).

The airport is virtually operating on a non-stop basis – 24 hours a day, 365 days a year
and represents the following flight statistics ( April 1, 2009):

Scheduled flights 43%

Charter flights 23%
Low-cost flights 34%
Domestic 11%
European 65%
Long-haul 24%
Leisure 84%
Business 16%
Origin and destination 90%
Transfer 10%

Around 90 airlines operate from Gatwick airport, serving 13 domestic and 200 overseas
destinations. There are 108 stands in total - 32 pier served stands in each terminal and 44
remote stands serviced by coaches. Across the two terminals there are 317 check-in desks -
191 in South Terminal and 126 in North Terminal. The airport facilities include:

1 Runway
Runway length: 3,316m long by 45m wide

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2 Terminal Buildings - South (which is opened in 1958) and North (which is opened in
1988)
South Terminal has 120,000 square metres of which 14,768 square metres is retail
facilities
North Terminal has 75,000 square metres of which 12,530 square metres is retail
facilities
Airport Lounges
Fast rail links to London: Gatwick Express, 30 minutes to London -
www.gatwickexpress.com

Which Airline and why Gatwick Airport?

Our targeted airline is Bulgaria Air, which we find will best fit to operate the route –
London Gatwick – Varna. Bulgaria Air is the national air carrier of the Republic of Bulgaria.
The airline operates regular flights from Varna and Sofia to 28 major destinations in Europe
and the Middle East, but also charter and business flights upon request to more than 100
other destinations. Together with its partners, Bulgaria Air offers its customers opportunities
for travelling to over 400 cities in Europe, Asia, Africa and Northern America. Bulgaria Air
operates seven B737-300, five B737-500, two A-319 and A-320 as well as thirteen BAE 146-
200 and BAE146-300 (www.air.bg). They can regularly operate one of their B737-300 or
B737-500 (depending on passenger traffic) for their flight LGW-VAR. According to their
flights schedule, there is a gap that could best fit operations of this flight on the following
days:

Monday: Departing 14:35 Varna – Arriving 16:20 LGW, Departing LGW 17:20 – Arriving at
Varna 22.35*

Wednesday: Departing 14:35 Varna – Arriving 16:20 LGW, Departing LGW 17:20 – Arriving
at Varna 22.35*

Friday: Departing 14:35 Varna – Arriving 16:20 LGW, Departing LGW 17:20 – Arriving at
Varna 22.35*

Sunday: Departing 14:35 Varna – Arriving 16:20 LGW, Departing LGW 17:20 – Arriving at
Varna 22.35*

* Local times

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Gatwick Airport will be the most convenient airport for the airline to operate to, based on
passenger background and route evaluation (orientated towards the leisure market).
Furthermore, the carrier is operating flights to the USA with its partner Virgin Atlantic (on a
code share basis) from Gatwick airport; hence passengers will have only airside transit,
rather than changing airports (i.e. Gatwick to Heathrow).

In general, the route Varna – LGW provides many opportunities for both ends to increase
passenger traffic. According to the Bulgarian Civil Aviation Authority (www.caa.bg), there is a
demand of approximately 150 000 passengers yearly on the above mentioned route (from
Varna). British citizens are the 2 nd largest visitors in Varna region (according to statistics as
per graph 1 above), both for tourism and regular visitors that own properties in the area.
Furthermore, the flight can be used as connecting flight for many travellers wishing to fly to
destinations beyond UK, through connecting flights, including USA, Australia, Asia, etc.;
Varna has a catchment area of over 2.8 millions people (www.varna-airport.com), which
makes it a strategic destination. Another important issue to take in consideration is the fact,
that there are no direct flights from Varna to London, which drives all the passenger traffic to
the capital of Bulgaria – Sofia (565 kilometres away).

V. Incentives and Marketing Support

There are different techniques that can be used by Gatwick airport to support the
creation of the new route VAR-LGW-VAR. Currently, Gatwick airport has the following
pricing structure for aircrafts type B737 to land/take of (www.gatwickairport.com):

 Landing charges (off peak – as per the flight schedule above) - 264 British
Pounds.

 Emission charge – 2.02 British Pounds/ per Kg of Nox

 Navigation charge (per landing) – 85 British Pounds + 0.50 British Pounds per
metric tonne

 Passenger charges – 11.21 British Pounds

 Parking charges (per quarter hour) – 4.82 British Pounds + 7.5p per metric
tonne

 Departing charges – 155 British Pounds

Because this is a new route creation, the airport can adopt the following discount
structure in order to attract the airline to operate the above mentioned route, as well as to
boost the passenger traffic.

Discounted Charges:

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New route incentives 1 year – 80%, 2 year – 60%, 3 year – 40%,

4 year – 20%

Passenger Traffic Growth, Number of routes Flat (all in one) fee

developed, based aircrafts, etc.;

Based on projects (i.e. co-branding,

destination advertisement, local tourism authorities
Marketing Support involvement, etc.;

Usage of Airport office space Free or discounted

The marketing activities of the airport to promote the new route will be focused
towards passengers and travel agents/tour operators.

Passengers Marketing Travel Agents Marketing

• Local Press (newspapers, magazines, etc) • Workshops

• Radio & TV • Fam Trips

• Outdoor Advertising (Posters, Billboards, • Events

etc ;)
• Website
• Internet (Banners exchange, internet ads,
through airport website, etc.) • Exhibitions

• PR activities • PR activities

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REFERENCES:

Websites:

National Statistic Institute of Bulgaria - www.nsi.bg

Varna Municipality - www.varna.bg

Varna Airport - www.varna-airport.com

Ministry of Education of Bulgaria - www.minedu.government.bg

Ministry of Regional Development of Bulgaria - www.mrrb.government.bg

Ministry of Economy, Energy and Tourism of Bulgaria - www.mi.government.bg

Ministry of Transport, Information Technology and Communications -

www.mtitc.government.bg

Civil Aviation Authority Bulgaria - www.caa.bg

Civil Aviation Authority UK -

http://www.caa.co.uk/default.aspx?catid=80&pagetype=88&pageid=3&sglid=3

Bulgaria Air - www.air.bg

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Gatwick Airport - www.gatwickairport.com

National Statistics UK - www.statistics.gov.uk

Borough of Crawley - (www.crawley.gov.uk)

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