Working Title: Exploring the prospect of operating low cost carriers and legacy carriers from the same main airport terminal by interventions on the revenues generated by the airport.
Proposal: This thesis strives to explore the prospect of operating low cost carriers and the legacy carriers out of the same main airport terminal. In doing so, this thesis also strives to explore a possible correlation of reducing the aeronautical charges for low cost airlines at the main airport terminals by seeing the potential of the airport to cover up those reduced charges by the expected increase in the non aeronautical revenue that the airport stands to gain by this measure.
Literature Review: A large amount of the existing literature on these aspects have been consulted and referred to, on the course of this work. It is believed that while the secondary airports seem to be a solution for the low cost phenomenon, it can be seen only as a solution, which will keep things at bay in the short term (Forsyth., 2007). Many airports which serve the LCCs maybe unable to take any advantage of the economies of scale which are bound to come up with the booming low cost revolution. Local authorities may believe in subsidising as a means to attract more traffic which will stimulate the local economy. But this might not be a stable solution for the secondary airports which may simply use subsidies to finance lower charges to win traffic from main airports with spare capacities, since it will lead to a misallocation of traffic (Forsyth., 2006).
On the argument for low cost carriers using the main airport terminals, it has been observed that there is no statistical difference between a passengers flying by a low cost carrier or one who is flying by a legacy carrier (Manzano, C., 2010). This has been observed in the study involving 7 Spanish airports. The passengers flying low cost have the probability to make a purchase or consume food and beverages before a flight. (Manzano, C., 2010) There is mixed evidence which proves that passengers on low cost carriers are no more ‘budget shoppers’ at airports, particularly because low cost carriers do not have in – flight catering, thus requiring these passengers to make purchases for food and beverages before the flight (Graham., 2009). Further studies on Canadian airline companies Westjet (low cost carrier) and Air Canada (legacy carrier) by McDonald and Gillen (2003) have shown that while a Westjet passenger spends an additional C$6.20 at the airport while an Air Canada passenger spends C$1.22. This has been attributed to the fact that low cost carriers do not provide in – flight meals and thus have higher chances of passengers purchasing Food and Beverages from the airport terminals. Another reason is due to the fact that a major portion of the passengers flying low cost carriers are leisure travellers who are expected to spend more than the passengers flying by legacy carriers, thus increasing the revenues at the airports.
De Neufville (2006) explores further on the aspect of accommodating low cost carriers in main airports – both as a means of describing the problem at hand and a possible solution for the same. According to him, the managers of the main airports have not formed a consensus about how to deal with the rise of the low – cost carriers. Some airports have taken a no compromise decision when it comes to providing cheap facilities while some others have started work in that direction (cheaper landing fees, budget terminals, refurbishment of old terminals etc.). He also describes the inevitability of the situation at hand and expects the main airport managers to show merit to the rising trend, by providing differentiation in the products they offer to the airlines as a possible solution to this problem.
Literature regarding the methodology to be proposed has been studied in detail as well. James (2009) discusses on a framework for developing categories of simulation models related to strategic, operational and tactical problems of an airport terminal. The airport terminal under the study was the Cochin International Airport Limited (CIAL) situated in the southern Indian state of Kerala. The simulation software used was Extend (of Imagine That Inc.). Brunetta and Jacur (2001) conduct a similar study by creating a new flexible simulation model adaptable to the various airport configurations for determining the capacity and delay experienced at airport terminals. The validation of this model, called AIRLAB has been conducted by comparison with similar research on the Milan Malpensa Airport, Italy.
Methodology: The methodology being proposed for the current work shall involve interviews being carried out of the experts in the field of aviation – possible both academia and industry. Main actors in this process would be the airport managers of airports across Portugal and the rest of the continent on the basis of availability of information and the willingness of the professionals in sharing the information for the purpose of this study. Economic Models shall have to be resorted to, to determine the expected change in revenue from Non Aeronautical revenue by operating the low cost carriers out of the main airport terminal instead of the existing low cost terminal or the secondary airport.
A word of thanks already for Prof Juergen Muller of the German Aviation Performance (GAP) Project (Berlin School of Economics and Law) for being kind enough to mail his work for reference and possible inspiration on this regard.