A threat for Amsterdam Airport Siphon? Abstract The airports of ABA Dhabi, Doth and Dublin, together referred to as the ‘Gulf airports’, will have a combined capacity of 340 million passengers by 2020. Consequently, they are trying to redirect the traditional traffic flows east tot west. This research focused on the possible influence of the Gulf airports on Amsterdam Siphon Airport. The findings show that the Gulf airports have a good competitive position on the transfer market to and from Southeast Salsa and Oceania, but not to Northern and East Asia.
They pose no immediate threat, however, Siphon and the main Dutch airline KILL will have to continue their cooperation in order to minimize this upcoming competition and to ensure a sustainable position of Siphon as one of the most important hub airport on the transfer market. Keywords: Hub competition, Gulf airports, Amsterdam Siphon Airport, Gulf region Table of contents 1. Introduction After the deregulation of the European aviation market in the period 1992-1997, airlines gained the freedom to adept their strategies to market demand and to reorganize themselves spatially.
As the hub-and-spoke network structure was perceived to add value on both the demand and cost side, it consequently became the dominant choice of network structure (Gillie & Morrison, 2005). Amsterdam Airport Siphon In the Netherlands Is the fourth largest airport of Europe, and the main hub of KILL Royal Dutch airline. Airline hubs are essentially airports where passengers change airplanes to reach their final destination (Drudger et al. , 2007). By directing multiple flights through a hub, airlines can service more destinations while operating more cost-effectively.
Siphon airport has reached the position of he fourth largest airport In Europe, because It Is a hub airport. Without Its hub operations, Siphon would lose Its status as one of Rupee’s largest and most important airports (Billionth & Mueller, 2012). A few rapidly rising players may threaten these operations. Since the beginning of the 21 SST century the airline industry in the Arabian Gulf has grown extensively, becoming a relatively new player in the international aviation industry.
Airlines from the Gulf region, like Emirates, Edited and Qatar Airlines are rapidly expanding their network over the world, while multitudinously building new hub-airports In their countries of origin. Moreover, with other world regions, its central location offers a perfect gateway to both the Asia- Pacific and Western markets. When the new airports in the Gulf region are finished around 2020, the combined capacity will amount to c. 340 million passengers each year. These developments are likely to have great effect on major European and Asian carriers, as well as their respective hubs (Vestryman et al. 2008). In the academic literature a large amount of research articles are written on airport intention, airport regulation, airline mergers/alliances, and the hub-and-spoke network structure. However, the literature on the development of new airports, the rise of Middle-Eastern carriers and its effect on the airline industry is limited. Therefore, this paper aims to present a clear conclusion based on the existing literature on these developments, and to provide a valid contribution on this trending topic that is expected to have a significant impact on the airline industry in its current state.
This paper is a literature review of existing, peer-reviewed articles and official publications of the researched airports. The focus of the paper is Amsterdam Airport Siphon, and the scope is limited to the effects that the airports of Dublin, Doth and ABA Dhabi might have on Siphon. In the first part of the paper an overview will be given of the existing streams of literature on the airport market, as well as an elaboration on the research questions that have been formulated.
In the following part a layout will be presented which shows how the research was conducted, which publications and articles have been read, as well as how data has been gathered and processed in order to answer the research questions. The third art presents the results of the literature review and in the final part of the paper the results are discussed and a final conclusion is drawn. 2. Motivation and research questions Many people see airports as a place where they can get on an airplane, a simple transportation platform Just like a railway station or bus stop.
This, however, is not the case anymore. Major airports, like Frankfurt am Main, London Heathers and Paris-Charles De Gaulle, have developed themselves into full-grown enterprises, making profit for shareholders and providing Jobs and generating business for the regions surrounding the airport. The same goes for Amsterdam Airport Siphon. It has become the fourth largest airport of Europe, offering its services to 99 different airlines who transported 52,6 million passengers and 1,5 million tones of cargo to 323 directly serviced destinations in 2013 (Siphon Group, 2013).
Moreover, it houses around 500 different companies on its property, together employing more than 65. 000 persons. The contribution of the aviation industry to the Dutch GAP is estimated to be 26 billion euros in 2014. For a country with a reasonable small home- market (17 million inhabitants these are impressive numbers. These numbers are relatively high due to the major share of passengers that only uses Siphon as a transfer point to continue to their final destination. Over the past decade the share of transfer passengers at Siphon has fluctuated between 40 and 45 percent.
However, these numbers could decrease in the coming years due to competition from the Arabian Gulf region. The leaders of Qatar, Dublin and ABA Dhabi are looking for future income to replace the current income from oil, which eventually will run out, development of the aviation industry is one part of the overall master plan to develop he Gulf region into a global center for commerce and trade (Madly & Dillon, 2007). Another objective is to become a new tourist destination, with the construction of luxury resorts, large shopping malls, sport venues and, museums like Guggenheim (Walters et al. , 2006).
Moreover, the airlines Edited, Emirates and Qatar, together referred to as the ‘Gulf airlines’, alone have outstanding orders with Boeing and Airbus for a total of 685 aircrafts, worth an estimated $214 billion dollar on list prices. This will give them more seat capacity than their combined population, which implies he Gulf airlines will have to get their business from other regional markets like Asia, Europe and the Americas. The aforementioned projects are widely discussed in newspapers and on television, although the amount of research literature on this topic is limited. In the next paragraph the subjects of a few papers are stated.
Lehmann et al. (2009) analyzed how Dublin, similar to Singapore, is using its aviation traffic hub to become a tourist destination. Vestryman et al. (2008) describe the impact on incumbent players and their potential strategic reactions. Grimmer (2011) dewed the rise of the Gulf carriers from a German perspective while others looked at the business model of Emirates Airlines (Soul et al. , 2005; O’Connell, 2011). Hooper et al. (2011) documented the development of air transport networks over the past century in the region surrounding the Arabian Gulf and Feeler et al. (1994) focused on its airport and airline development.
All these papers conclude that the Middle East is becoming an aviation Junction again. Due to the absence of academic literature on the effect of aviation growth in the Middle East from a Dutch perspective the author cited to perform a literature review and use the findings to answer the following research question: Is the rise of new hub airports in the Gulf region an immediate threat for Amsterdam Airport Siphon? In order to arrive at a good, constructed answer the main research question is divided into four sub questions. The answers to these four questions will form the foundation on which the final conclusion is based.
The first sub research question is: Sub ARQ 1. Who are competing with Siphon? Although it becomes clear from the main research question that this paper is about he competition between Siphon and the new hub airports in the Gulf region, this question was formulated to show the boundaries of the research. The second sub research question is: Sub ARQ 2. Why are the Gulf airports competing with Siphon? As stated above, research shows that the Gulf States are going through a transformation, which could be a reason why they are choosing for full competition instead of cooperation. The third sub research question is: Sub ARQ 3.
On which characteristics are the Gulf airports competing with Siphon? In order to reveal whether the new competition is an immediate threat we will have ravel time, connections and quality of service. The last sub-research question is: Sub ARQ 4. Are they competing on a level playing field? To evaluate the possible threat properly, it is necessary to appraise whether the competing airports are operating on a level playing field. For example, Adler et al. (2012) listed barriers of expansion to include political interest, noise and environmental restrictions, as well as the time and expense involved in receiving planning permission.
The construction of the Polyhedral, Chipper’s fifth runway, took multiple years, due to many of these restrictions. In Dublin, the owner of Dublin Airports is H. H. Sheikh Aimed bin Eased AAA Maximum, who also controls Emirates airline, the airport authority and the region’s aviation policy. As such, Dublin airports are less constrained than Siphon. Airports serve three types of passengers, namely origin-and-destination (O&D), transfer and transit. O&D passengers start or end their journey at a specific airport, while transfer and transit passengers only have a temporary stop at an airport and then continue to their final destination.
The difference between transfer and transit is that transit passengers are staying in the aircraft during a technical stop (Muriel & O’Connell, 2011). In this paper transfer and transit are considered similar, because transit represent merely a small fraction of the total traffic at the discussed airports. When looking at airports we can define two types of competition. Treachery and Candid (2010) define airport competition as local demand located in overlapping catchments areas. This demand consists of O passengers, residing in between two or more airports from which they can decide to leave.
For example, passengers living in Bread are located in between the airports of Amsterdam, Brussels and Dјselfless. The competition between Siphon and the four airports from the Gulf region can be classified as hub competition, referring to the competition for transfer passengers. Figure 1 illustrates this competition. Figure : Hub competition When passengers want to travel from A to B, and there is no direct connection available they will have to transfer through a hub airport.
Airports are competing with each other for these passengers to transfer through their airport instead of the competitor’s. The catchments area for the transfer passengers is defined by the destinations where such passengers originate and terminate, encompassing, for a rage hub, the entire world (Billionth & Mueller, 2012). The following section will discuss how this literature review was conducted. 3. Research method and data analysis The search for literature was preformed using the library database of the Verve Universities in Amsterdam, as well as Google Scholar.
Keywords like hub-and-spoke, airport connectivity and hub competition were used to find relevant papers. As the amount of papers based on these topics was significant, secondary keywords were applied in the search field to narrow down the results. The search for literature also showed the author which Journals were most relevant on the topic. Other Journals were excluded to find the best papers. The papers that came out on top after keywords, titles and abstracts. Based on their keywords they were divided in maps. The search for literature was conducted in May 2014.
Primary keywords Secondary keywords Hub-and-spoke, airport connectivity, airport competition, hub competition, regulation, business model/strategy Middle-east, Europe, Amsterdam Airport Siphon, Gulf region, Emirates Table : Keywords used in search The papers that were divided in maps qualified for a full paper review. During the full paper review, parts that were relevant for answering the research questions were slighted. Articles that were used or discussed in the papers and considered possibly relevant were checked by reading the abstracts. If the abstracts and keywords were relevant, they also qualified for a full paper review.
Although most papers found through this backward literature search were not suitable, a couple of them were. For statistical data about the airports the author used some official publications like annual reports and a competitors analysis. Information and data found during the full paper reviews were selected based on which research question they contributed too. By dividing the results per research questions they could easily be compared to each other. This contributed to a clear discussion of the found facts later in the report. 4. Results The results of the review will be presented in this section, and discussed in the next.
As the results were divided based on which research question they contributed too, they will be presented likewise. Results that did not have a clear contribution to one of the questions are presented in the final part of this section. 4. 1 Research question Some of the articles reviewed referred to the Middle East, while others discussed the Gulf region. The Middle East consists of 12 countries, and within these boundaries the Arabian Gulf is situated. The Arabian Gulf region comprises Bahrain, Kuwait, Qatar, Saudi Arabia and the United Arab Emirates (AAU) (Grimmer, 2011).
In this paper the analysis is limited to the airports of Qatar (Doth), the Emirates of Dublin (Dublin International, AAA Maximum) and ABA Dhabi, together referred to as the ‘Gulf Airports’ and the potential threat for Amsterdam Airport Siphon, as they pose the biggest threat based on the increased capacity the airports. Clearly defining who is omitting with Siphon will help to determine the scope of this research. Originally the research was on the competition between airports, but the results suggest otherwise. Graham (2008) stated that airport competition is based on the competition between airlines.
Similar statements were found in other research. Redound et al. (2011) claim that the overall competitive position of a hub is the Joint result of the competitive behavior of airlines and airports and Vestryman et al. (2008) state that it is going to be a competition of systems, comprising airlines and their respective hub airports, rather than of individual actors. This is because they are linked to each other; an airline cannot perform its service without an airport and vice versa. Furthermore, the airports in this research are situated in small countries, giving the nations’ main carriers no other possibilities to operate from.
Billionth & Mueller and Steam should also be taken into account. The explanation for this is that airlines in an alliance use each other’s hubs to transfer their passengers over the world. For example, if a passenger from North America is traveling to Doth with Qatar Airways (member of Enroll) and no direct flight is available, the passenger ill transfer through Heathers London Airport, which is the hub of British Airways, also a member of the Enroll alliance. This is a clear example of how an airline and its respective alliance influence which hub airport is used to transfer passengers.
It is therefore important that an airport and its hub operator act together in order to give an airline and its alliance a competitive advantage, as well as to make the airport more favorable for channeling transfer passengers in comparison with other airports. In the Gulf region they operate the strategy of Joint airline-airport ownership, forcing both parties to co-support each other’s activities (Muriel & O’Connell, 2011). On Dublin International Airport for example, they built an entire terminal that is only used by Emirates, ensuring smooth operations and short connection times for its passengers.
Based on the above results the first research question can be answered by saying that the competition is between the Gulf airports and their respective carriers on the one hand and Siphon and KILL on the other. The table below shows the airports, the planned increase in capacity, and the respective airlines and the alliance memberships, where applicable. Airport capacity 2012 Planned Capacity 2016 Home carrier Airline alliance ABA Dhabi 20 million 32 million Edited No, but icosahedra with multiple airlines including KILL Doth (Ham Into. 24 million 50 million Qatar Airways Enroll Dublin 70 million Emirates Partnership with Santa Dublin (AAA Maximum Into. ) 5 million 160 million Siphon 51 million 56 million KILL Steam Table : Airport data, adapted from (Muriel & O’Connell, 2011) 4. 2 Research question 2 This research question tries to explain the explosive growth of aviation in the Gulf region. The results show two main reasons for the increased competition coming from the Gulf region. Lehmann et al. (2009) refer to a master plan that must transform the countries under research into a new tourist destination.
Hence the big investments in projects, ranging from the artificial islands The Palm and The World, seven-star hotel the Bur] AAA Arab and a mall with indoor skiing (Ski Dublin) in Dublin, to a Guggenheim museum, a branch of the Louvre museum and Formula One racing track in ABA Dhabi, to make the Gulf region attractive for travelers. However, tourism is not the only element that is part of the plan. Dillon and Madly (2007) state that the development of the aviation industry is one part of an overall master plan to develop he Gulf region into a global center for commerce and trade.
With the development of this industry, the Gulf States are preparing for the time when the oil and gas resources will be depleted, their number one source of income, by creating new streams of revenue. The development of a mega-hub is seen as positively affecting: industrial development; the positioning of corporate headquarters; growth of light manufacturing; hosting of international conferences and trade shows; increased tourism receipts; and growth of a logistics and distribution hub (O’Connell, 2011).
Apollo & Karakas (2011) claim that Siphon and the air service provided is held to be a significant factor in the decisions of over 1,000 international companies to locate in the greater Amsterdam region. According to the literature on the developments in the Gulf States, it appears that the leaders of the region working to achieve the same status and appeal for international business and tourism, and they are using aviation to get there. The choice for aviation to be a major part in this master plan is based on the geographical location of the region. It is estimated that around 4. Billion persons side within an 8-hour flight of the Middle East, providing the potential for a large part of the world’s population to connect through a single stop (O’Connell, 2011). And because of this central location the Gulf States are trying to transfer all these people through their airports with their airlines. While it can been seen that the Gulf region is strongly promoting itself as an end-destination, a seat offer that goes beyond the region to destinations around the world will provide an additional and presumably the most important possibility to fill the region’s aircrafts and airports (Vestryman, Wald, & Sleigh, 2008).
This is necessary because the Gulf carriers have ordered such a large amount of new aircrafts, far exceeding the amount of tourists the Gulf States expect to draw. Muriel and O’Connell (2011) showed in their report that the Gulf airlines have 60% more long-haul seat capacity on order than Air France, British Airways and Lufthansa combined. This capacity will have to be filled, mainly by transferring passengers through their airports.
Franken & John (2011) state that the geographical location of Europe puts European hub and spoke carriers into a grown big because of their strong network of connecting services, but now are Halloween by competitors from the Middle East due to a similar central geographic location. Consequently, the aviation industry from the Gulf region is aiming for their traffic, trying to redirect it via its hubs in Dublin, ABA Dhabi and Doth (Vestryman et al. , 2008). Muriel & O’Connell (2011) even say the Gulf region is reshaping the competitive dynamics of the industry as they are changing the traditional traffic flows between East and West.
Redound et al. (2011) identified the three major markets for indirect connections to be between I) North America and Asia, it) North America and Europe, and iii) between Europe and Asia. Except for the North America to Europe market, the Gulf region has a competitive geographical location which it will use to compete against the incumbent players. So, in summary, why are the Gulf Airports and Gulf Airlines competing with Siphon? Because the leaders of the Gulf States have formulated a master plan to develop new income streams for the replacement of future decreasing revenues from the petroleum industry.
The Gulf States realized that aviator is the key to transform the current petroleum industry dependence by capitalizing on the central location of the Gulf Airports in comparison to airport hubs in other regions in the world. To conclude, the underlying motives are both the possibility and the necessity of the Gulf States to enter the competitive field of aviation. 4. 3 Research question 3 In order to compare the airports under review, the following characteristics have been identified for a valid benchmark: a) Total travel time and route frequencies (Hansen, 1990; Reynolds-Feigning & McKay, 2006), b) total costs of travel (Bruins et al. 2000), c) number of connections available within a given time window(Brought & Dewitt, 2005), d) average waiting times (Retrieve & Boron, 2001; Line, 2006), and e) quality of service at the airports (Redound et al. 2011). As mentioned in the previous section, the three major markets for indirect connections are between North America and Asia, North America and Europe and between Europe and Asia. Looking at total travel time, the first factor that passengers claim to be important, Siphon has a strong competitive position on the North America – Europe market.
This is driven by the fact that travel through Siphon will always be faster due to smaller flight distances. Similarly, the geographical location of Siphon will be a competitive advantage for flights to Eastern and Northern Asia as total flight time will be shorter o these destinations as well. Competition will be most fierce on the traffic flows to South East Asia and Oceania, for the main reason that the Gulf Airports have a geographical advantage in that area, giving them the possibility to connect passengers faster and with only one stop. The second factor that is important for travelers are the total costs of travel.
Research conducted by Grimmer (2011) revealed that the Gulf airlines are rarely price leader on flights between Europe and Asia. This could indicate that they don’t feel the need yet to lower their fares, and first try to compete on the other characteristics. Another way the Gulf region is competing with Siphon is by adding new destinations to its network, and increasing the frequencies to these destinations. If a passenger can reach more destinations through one stop, at a wider variety of departure times at one airport versus the other, the passenger will choose the prior airline-airport combination.
This type of competition can be seen at Newcastle. From these airports, one-stop flights to destinations in Asia and Australia are offered through its hub airport in Dublin, whereas passengers who would travel through Siphon would have to stop in Koala Lump or Singapore as well before caching their final destination, making it a two-stop flight. Using secondary airports in their network is an important part of Emirates strategy (Soul et al. , 2005; Grimmer, 2011). Table 3 shows the amount of destinations served by the researched airports.
Siphon clearly has the most served destinations, although if the Gulf airports keep adding new destinations they will improve their competitive position. Airport Destinations served in 2013 323 93 Doth 260 Table : Destinations served (source: Siphon Group, 2013;ABA Dhabi Airports, 2014;Dublin Airports, 2014) Another way the Gulf airports are competing with Siphon s through average waiting times and amount of connections available within a certain time window. As the Gulf airports do not have any congestion and regulations on noise and night curfews, it allows their carriers to arrive in coordinated waves.
By aligning the waves of arriving and departing planes, it is possible to offer a large number of connecting destinations while keeping connecting times low for transferring passengers (Muriel & O’Connell, 2011). KILL operates its network on a similar wave configuration, however,due to night restrictions and the resulting ingestion at certain time slots, it is more difficult to operate a tight schedule. Hence the importance for Siphon and KILL to co-operate in order to maintain the competitiveness of both parties. Redound et al. 2011) indicated that the quality of service provided at hub airports was the third criteria in a passenger’s choice of travel route. Therefore the quality of service at the newly built airports in the Gulf region will be of high standard, in order to attract both more passengers and airlines. However, in 2013 Siphon also started with improving its facilities and services in order to maintain its competitive position (Siphon Group, 2013). Each year, Ashtray hands out the best airport awards, based on passenger reviews.
Siphon has been in the top ten for many years, and in 2014 was awarded the fifth place; none of the Gulf Airports made it to the top ten. In the category ‘best transfer airport’, Siphon was ranked fourth, Dublin tenth (Ashtray, 2014). Considering that Siphon is updating and renovating its resources, it should be able to sustain its competitive position for quality of service provided. Following the above results, it can be said that the airline-airport combinations from the Gulf region compete with Siphon/KILL mainly on the transfer market from North America and Europe to South East Asia and Australia based on geographical advantage.
They can offer shorter travel times and higher frequencies with a large fleet. Due to the absence of restrictions an efficient offered while minimizing the connecting times. Additionally, the Gulf airports and airlines try to compete by offering high class services and facilities at the airports, however, Siphon simultaneously started updating its facilities and services in order to stay competitive and attractive for transfer passengers. . 4 Research question 4 Analysis of the literature has to indicate whether the Gulf airports are competing with Siphon on a level playing field.
As mentioned before, the business model of Emirates, Edited, Qatar Airways and their respective airports is largely formulated on transfer traffic, which is a key underpinning strategy for future growth (Muriel & O’Connell, 2011). Because the owners of the airlines are the same owners of the respective airports, airport charges are kept low. Muriel & O’Connell (2011) calculated that airport charges for an Airbus AWAY-600 are approximately nine times higher at Siphon than at the Gulf Airports. Moreover, airlines are not charged for any connecting passengers.
The combined effect is that airlines that use the airports as transfer hub can offer passengers cheaper tickets due to lower operational costs. The result is that the Gulf airlines are more attractive for passengers, and the Gulf airports more attractive for airlines. Siphon, on the other hand, is also charging airlines less for transfer passengers then for O&D passengers (Billionth & Mueller, 2012). So, all airports researched provide incentives to airlines to use their airport, only the Gulf airports are cheaper than Siphon. As already stated in section 4. , the development of the aviation industry in the Gulf region is part of a bigger master plan. Therefore it is likely that the Gulf airports and Gulf airlines are granted backings from their governments that are necessary to ensure their competitiveness and financial health (Vestryman et al. , 2008). If they fail, so will the plan to transform the Gulf region in a new center for commerce and trade. Moreover, there are no congestion problems or night curfews at the airports, lower labor costs and a labor force that is not permitted to Join a union or go on a strike, giving the Gulf airports an operational and cost advantage on Siphon.
The Joint airline-airport ownership of the respective governments also gives them political advantages, as a government will not be counter-productive against its own company. Per contra, Adler & Galilean (2012) stated that over the history of the aviation industry, both airlines and airports have been heavily regulated and subsidized, including KILL/ Siphon. And due to its importance to the Dutch economy, the national government has taken an active interest in the airport’s development strategies (Apollo & Karakas, 2011), and owns a majority share in its owner the Siphon Group for 69. % (Siphon Group, 2013). Furthermore, it is worth noting that the CEO of KILL, Mr.. Camille Rulings, was the Dutch minister of Transport, Public Works and Watermarking from 2007 to 2010. Based on the results it can be said that the Gulf airports and airlines are not competing on a level playing field with Siphon and KILL. They are better off on an operational, financial and political level, even though Siphon/KILL also received financial help in the past and have their political connections. 4. 5 Main research question Results that were found during the literature review and that could not be listed