Developing Strategies for the Modern International Airport

East Asia and Beyond

Alan Williams

• Publisher: Routledge
• Year: 2016
• ISBN:
  9781317151807
• Edition: 1
• Topic: Technology & Engineering
• Subtopic: Transportation & Navigation
• Index: Technology & Engineering

Developing Strategies for the Modern International Airport identifies and analyses the primary issues facing the modern international airport, and their role in a global economy. Based on the premise that the aviation industry has a primary and decisive role in the economic and social development of the modern international economy, this book examines the modern international airport and its process of integration into the larger global economy. As the integration of the aviation industry within the larger context of international business grows, there are an increasing number of important airport sites world wide, which are exhibiting the characteristics of what has been called by one authority an 'aerotropolis', where major airports are integrated into the wider multi business dynamics of cities such as Shanghai or Beijing. Such pioneering developments are indicative of this region and bring with them a host of new issues and challenges for economic development. While international projections of the growth in demand for aviation services suggest that the key region for future expansion will be the ASEAN group of countries, there are marked differences between countries in their overall plans for viable economic development. As a result, the essential raising of funding required for international airport development must compete against other potential development projects all trying to attract the attention of national policy makers.

Chapter 1 The Changing Role of the International Airport in the Global Economy

DOI: 10.4324/9781315576848-1

Introduction

There can be no doubt that the recognition of the need to make various forms of structural change in the management of the aviation industry is now being increasingly acknowledged on an international scale. This is to a large extent a natural response to the demands being made for new organizational and operational paradigms, research into the causes of change and the need to find ways in which management should respond in the strategic sense. As a result, much attention is currently being focused on specific and internal aspects of the industry. The process is being driven essentially by academics, as well as professional analysts, seeking insights into the possible direction that the necessity for organizational reforms should be diverted.

This study, which takes as its primary emphasis the effects of change on the roles and functions of international airports, obviously fits into that genre, since the sector is facing multiple pressures to adapt and develop a range of new roles and functions. But it will also attempt to identify and comment upon a number of those larger change dynamics that are external to, but underlie and are having a profound influence upon, the managerial and operational parameters of the international airport’s roles and functions. In doing so, it will focus on the dynamic changes in the economic geography of the East and Southeast Asian region, and the geopolitical influences that are shaping the aviation strategies of the emergent market economies such as China.

Attention will also be given to the competitive positions being established within the region by those leading edge economies, notably Hong Kong, South Korea, Malaysia, Thailand and Singapore. It is they who are setting the pace in the matter of major hub development. In the case of Singapore and Hong Kong, their undoubted places, way out in front of the other airports, is reflective of the fact that they are already leading members of the global airport fraternity. Before commencing discussion, it remains to note that the term East Asia will be used in a general sense to include Southeast Asia, Northeast Asia and China.

Introducing the Primary Forces Shaping Change

This first chapter will attempt to widen the scope of the discussion on change, its antecedents and its future directions, beyond the purely reactive frame of reference. In doing so, the general focus will be upon the political, structural, commercial and economic forces that are now profoundly re-shaping the world economy and, with it, the international airport, on a truly global scale. The examination of these macro issues will include comment on the historical evolution of those major market forces that have shaped air transport as an international competitive market during the last quarter of the twentieth century. Further discussion will then involve a preliminary examination of a number of topics that will be addressed again in greater detail in the balance of this study.

We will begin by looking at the pressures on aviation being exerted by the increasing needs for inter-modal transport systems as a response to market growth, and the agglomerative tendency for national populations to create urbanization on a massive scale. Attention will then be focused on the major changes that continue to shape international business and trade, and with them the increasing convergence of industries through cross-border location between the various nation states and within specific regions through the creation of free trade areas. This phenomenon has become popularly known as ‘globalization’ and has actively re-shaped market structures since the early 1970s. The replacement of mixed market economies with free market arrangements has been another important geopolitical shift.

Discussion will then focus on the triadic processes of market liberalization, deregulation and privatization, which are the result of profound changes in the political economy of western developed economies as well as in an increasing number of developing countries, including the former command economies. The impulse to deregulate its market, first experienced by the United States airline industry, will supply the initial benchmark upon which to assess the ways and means that deregulation has seriously impacted on the aviation industry, among many others. Finally, consideration will be given to the ways in which geopolitical imperatives, driven by international agencies or national governments often have the final say in matters of ultimate strategic importance, especially in the areas of policy development and its implementation.

Some Current Imperatives Shaping the Development of Inter-modal Transport Systems

In the twenty-first century, which is already being identified in the popular literature as the age of globalization, international business is increasingly identified through the global branding of goods and services, increasingly competitive pressures from emergent markets, new firms and rising consumer demands. Consequently, the various means whereby passengers and goods are constantly being transferred to most points on the globe are increasingly being identified as the key inter-modal elements of an emergent and international mass transit system. Under such circumstances, the geographical location of any given country or city becomes an important plus or minus in an age where distance from, and speed to, the market have become primary assets in the competitive worlds of international trade and business.

Defining the Region to be Analysed

Given the adage that Hong Kong is at any time 6 hours’ flying time from 50 per cent of the world’s population, the strategic significance of East and Southeast Asia becomes increasingly obvious. By contrast, Australasia, giving the current state of their aircraft technology, has to accommodate an initial 10- to 12-hour outbound non-stop stage in order to access its growing markets on the Pacific Rim, which is replicated if Europe or the east coast of the United States is the home of the appropriate gateway hub.

The region in question has another important addition to its location due to the fact that is rapidly becoming the home of a significant number of those international airports that can best be described as multi-purpose mega hubs. These are extremely expensive forms of national investment, by countries, including China, whose government perceives aviation as a key tool in its plans for economic development and further growth. Having invested heavily in both domestic and international capacity through the development of new sites and significant airport upgrades, they now have, in keeping with other developing countries, to search for increasing revenue sources and flows if they are to first cover their development costs and then make a profit for the equity holders. They are also motivated by the fact that China is emerging as an economic superpower with an investment strategy in Southeast Asia that both parallels western firms and includes a significant strategy for the development of its aviation industry.

Key sites such as Hong Kong–Chek Lap Kok and the newly opened Baiyun International in Guangzhou are already trying to plan for an expanded role servicing the current and expected growth in international traffic both coming into and passing through the region. It is important to note here that there are some four other international airports in the PRD, which are clearly going to be in direct competition, for inward, through and outward-bound international passenger and goods traffic. All of them without exception are seeking, through the development of their capacity in cargo logistics, to maximize the comparative advantages that accrue from large scale urbanization and the larger industrial and commercial activities, all of which are going on within their geographical proximities.

The spatial parameters of the region that is the location of study have been defined as East and Southeast Asia. They have been chosen while mindful of the fact that cross-border dynamics, both political and economic, tend to blur and make less precise areas defined as having distinct political boundaries. With this in mind, East and Southeast Asia will be used conterminously, throughout the text, with East Asia as the general case. In addition, the term Asia-Pacific will be used where the larger regional context becomes the focus of discussion. This will be very much the case where organizational entities such as ASEAN and Asia-Pacific Economic Cooperation (APEC) are part of a particular discussion.

Aviation's Status as a Service Industry

The industrial classification of aviation as an industry finds it listed in the international market for services. This is a relatively recent categorization, since formal recognition of the scope and size of services generally was only finally obtained when the sector was added as a formal class of business activities to the General Agreement on Tariffs and Trade (GATT) agenda for the Uruguay Round in 1986. As a consequence, it was then incorporated for further advancement in the form of international recognition by member states of the GATT in the General Agreement on Trade in Services (GATS), with the ratification of the Uruguay agreement in 1993. This multinational agreement, which is now administered by the WTO covers all modes of transportation.

There is, however, a vital and important operational distinction to be observed with regard to aviation. The material purpose of the reforms instituted by the GATS, are in fact diametrically opposed to the notion of regulation as reflected in the rules for compliance specified by international conventions such as the Chicago Convention of 1944. Its prime objective is to liberalize the international trade in services and, in doing so, it tends to focus upon the modification through liberalization of the various forms of regulative restrictions for cross-border entry that are usually imposed by national governments. This means that it differs materially from International Civil Aviation Organization (ICAO) and International Air Transport Association (IATA) procedures, with their stress on international conventions covering all member states, which are then endorsed and administered by agencies in those member states. As a result (Findlay et al., 1996), aviation as a service industry has tended to remain largely outside the purview of the GATS administration, with a very limited focus on minor aspects of the industry to be found in an annex to its main conventions.

Within the general definition of transportation services as a multi-modal system, air travel fits the conceptual framework of a modal industry in three specific particulars. First, it creates a close proximity between the producer and the consumer. Second, it is both produced and consumed at the same time. Third, it requires the physical carriage of the consumer from the point of origin to the point of destination.

Air travel is also a highly differentiated product, which can be split into market segments. Movement by air is distinguished by such variables as business schedules, leisure plans and personal matters of significant urgency, cargo requirements and other factors. A clear understanding of all factors relating to the purpose, length and type of a given flight is also important, since the measurement of profit yield is an essential part of the airline’s flight planning. Further variables such as short haul–long haul and point-to-point or multiple transfers also shape the mix, while the type of aircraft and quality of lounge accommodation influence business class choices. The development of transportation technologies has increased both pressures and the propensity for transport planners to develop inter-modal systems. From a market perspective, it is also important to note that the growth of the world’s largest business sector, international tourism, has identified and created the urgent need for more seamless forms of integration between transport modes.

A further global pressure is derived from a more negative source involving the active relocation of significant human populations. The world is experiencing a rate of growth of urbanization, which is in turn reflected in the growth of cities at something approaching an exponential rate. From an aviation perspective, the pull effects of agglomeration are to be clearly seen (Davies, 2002), for example, in the significant and growing levels of congestion being experienced at major airports in the United States and Europe. According to Davies, cities with populations in excess of 20 million are now well advanced in the process of emergence, and on a truly international scale. The situation is further complicated by the fact that world air traffic is expected to double over the next 20 years and yet again by about 2048.

Some serious problems with capacity management have emerged for the leading international airports, notably in Europe and the United States. These tend to be related to the rate of haphazard growth that has occurred in and around airports, as a result of the increasingly competitive markets for the usage of adjacent land. In fact, the problem has become worldwide in its impact, notably because of the ‘knock-on effect’ from congestion particularly in Europe. Limited potential for the expansion of existing sites is also becoming a source of considerable anxiety.

In addition, it must be borne in mind that a new airport development, on a greenfield site, is by definition a medium- to long-term project, often delayed in many countries by the need for environmental and resource and planning consents, which ultimately makes the construction process itself extremely expensive. A noted example here is the popular reaction to the location of a new airport for Sydney, a decision on which is becoming increasingly urgent over time. At the time of writing, proposals for a second airport in West Sydney, have met with strong resistance from local authorities, which appears to have left the decision on a site to some extent in limbo.

The actual decision to invest either in new sites or extensions to current locations is a high-risk activity, especially in developing countries. This is because it is often the case that the existence of a centralized multi-modal transport planning strategy may require that any specifications for a new airport be folded into the larger strategic context. From a governmental perspective, it is logical to do so, especially if the plan itself requires the assent of a major international donor seeking the greatest collective benefits from lending for such projects. As a result, arguments in support of a major airport project have to compete internally against what competitors would claim to be equally valid commitments to rail, road and seaport developments.

The ‘Mainport’ Concept

Suggested responses to what is a growing problem internationally stress the essential complementarity between air travel and high-speed rail services as personified in the French TGV system. This has given rise in Europe to the concept of ‘mainports’ in which the inter-modal link between air and rail at key terminal points is being developed under the proposed Trans European Transport Network (TETN). The further development of the network of inter-modal airports linked by fast rail services will include Brussels, Amsterdam, Dusseldorf, Munich, Frankfurt, Cologne-Bonn and Milan-Malpesa, coupled with the expectation that the total system will be operative by 2010.

This concept envisages an extended inter-modal solution to the urbanization and congestion problems at international airports, which suggests a linked airport-based terminal system where both point-to-point and transfer traffic can be broken up and serviced by the most efficient mode. High-speed trains, for example, can offer inter-city movements up to a radius of 500 km, although it has been noted that they could take over the business of short point-to-point commuter traffic from local air shuttle services. It has been further suggested (Graham, 1995) that a seamless bi-polar system of rail, high-speed rail, road transport and air links, servicing the national, regional and global services of an international airport, might well offer a more rational approach to the growing demand for air travel, given scarce airport capacity and the need for more new runways.

We have examined, albeit briefly, the effects of urbanization and congestion and the need for a reactive strategy to manage the problems they are creating for air transport. In specific terms, they also exist as a by-product of the growth effects of air transport demand on the physical location of international airports as increasingly multi-functional hubs. The immediate question that now arises is what then is causing urbanization on its international and current scale? This, in turn, becomes a cue to examine what has been called the increasing globalization of business and trade as a primary factor shaping the role of both airlines and airports.

The Significance of Globalization as an Instrument of Structural Change

The traditional definition of a firm engaged in international trade is that of a commercial entity seeking to expand both its production and markets by setting up operations to do so across the national boundary of another country. By the 1970s, the individual firm locating in an overseas market, and with a market growth strategy based on arms’ length competition with both local and other international competitors, had given way as a primary agent of international business (Buckley and Casson, 2002, originally published 1977) to the ubiquitous multinational enterprise (MNE).

The MNE was identified in the 1977 study as the primary agent driving postwar economic growth. One of the key drivers propelling MNE development was identified as a structural shift into the production of technologically based goods. This had the further significant flow-on effect since it then raised the general level of investment in research and development. On the demand side the general rise in consumer incomes was coupled to increased sophistication in the use of discretionary incomes. At the same time (Buckley and Casson, p. 102), government investment on defence and ‘prestige’ projects ...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Contents
• List of Figures
• List of Tables
• Preface
• Acknowledgements
• Introduction
• 1. The Changing Role of the International Airport in the Global Economy
• 2. Structural Changes in International Business: Implications for the Airport Industry
• 3. Some Impacts of Deregulation on International Airport Development
• 4. The Influence of Geopolitical Factors on Major East Asian Hubs
• 5. Urbanization in East Asia: Its Impact on the Major Regional Airports
• 6. Forces Shaping a Multi-modal Future for ASEAN Airports
• 7. Political and Market Issues Confronting East Asian International Airports
• 8. The Future for East Asian Airports: A Speculative View of Emerging Problems
• 9. Reflections on the Future of International Airports in East Asia
• Bibliography
• Index