Multi-airport system and territorial competitiveness: evidence from an Italian case study.

by Vincenzo Fasone* and Pasquale Maggiore**

Abstract

During last decades airport has been substantially transformed in a dynamic and competitive industry. Today each airport faces the challenging task of coordinating all the services provided to work efficiently. Airports need to find a way to overcome economic and financial problems in a coherent attempt of definition of a conceptual framework of the airport business as a whole. Furthermore, some studies show how a specific linkage exists between territorial competitiveness and airport system models. In effect, the existence of a competitive airport, on one hand, can enhances the competitiveness of the local system in which it operates and, in the other hand, the competitiveness of an airport is strongly influenced by the existence in the area of industrial activities, infrastructures and public services that work in a competitive manner. In this context, an increasing relevance has the model of multi-airport system (MAS) for a twofold reason: to overcome economic and financial issues and to sustain the connection between airport system and territorial/local competitiveness.The research uses as a methodological approach case study analysis. We made use of the so-called purposive sampling, to obtain illustrative outlines of specific reality through the analysis of particularly representative case. Empirical evidences from the research highlight how the choice of the creation of a MAS can sustain airport and local competitiveness.

Introduction

In the recent years, many studies on competition have investigated the relationship existing between airport system and local

1

** Assistant Professor of Business Management, University Kore of Enna, vincenzo.fasone@unikore.it

**** Ph.D. candidate in Technologies and Management of Aeronautical Infrastructure, University Kore of Enna, pasquale.maggiore@unikore.it

development (Percoco, 2010; Siciliano and Zucchetti, 2006; Senn and Zucchetti, 2001).

In fact, assuming that airport business is not only merely an infrastructure or an economic activity, these research show how airports can play a crucial role for increasing the competitiveness of a territory.

In this sense, airports are absolutely fundamental elements within the economic context for generating a multiplier effect on social and economical competitiveness of a geographical area (Baccelli and Zucchetti, 2001).

Thus, airports can generate economic and social value on two different sides:

- as business activity;- as infrastructure for the development of the regional economy.

Furthermore, some studies show how a specific linkage exists between territorial competitiveness and airport system models. In effect, the existence of a competitive airport, on one hand, can enhances the competitiveness of the local system in which it operates and, in the other hand, the competitiveness of an airport is strongly influenced by the existence in the area of industrial activities, infrastructures and public services that work in a competitive manner.

An evidence of this concern the case of a number of significant international experiences1 such as Schiphol Area in which lot of companies choose to locate in the area surrounding the airport of Amsterdam its logistics center and headquarters in Europe.

This establishes a virtuous circle between the airport and territory under which the airport becomes an effective tool for local marketing and its ability to increase the attractiveness of the area where it is located makes it a conditioning element of the policies of territorial

2

1 Sinatra A. edited by (2001), Aeroporti e sviluppo regionale: rassegna di studi, Guerini, Milano.

competition. Basically, then, in the airport system must balance two key missions:

- the first, refers to the identification of the airport as a primary tool of trade, for the growing and competitive consolidation of the geographic area and of its economic structure in national and international markets;

- the second, from a business point of view, related to the nature of the company that operates in the airport, refers to the production of economic results which will ensure the financial sustainability of the business in the long term.

Relevance of the airport infrastructure for the socio-economic development of the local area, then, makes these of strategic interest for local institutions and various levels of government, causing a real need to increase the number and type of stakeholder groups2.

Then, to consider the relationship between airport system and territory, in order to develop a coherent and appropriate analysis of the dynamics it seems to be necessary the consideration of airport services provider. The role played by air carriers, transportation and handling companies, commercial operators within the airport is very important for understanding in a better way the dynamics of airport business management.

At the same time, moreover, can not be ignored the fundamental role played by the various agencies of regulatory and control.

All together represent those individuals from whom, in the airport, develop relationships aimed to the real and appropriate functioning of air transport infrastructures.

In synthesis, the main stakeholders are: shareholders, employees, airlines, lobbies, banks and others financial institutions, public institutions of regulation and control, local community, etc.

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2 Cepolina S. (2007), Il contributo di un approccio manageriale alla gestione di infrastrutture aeroportuali: il caso di Orio al Serio, in atti IX Riunione Scientifica della Societ Italiana degli Economisti dei Trasporti, Napoli.

The following table shows in more detail the different types of stakeholders of the airport company.

Background

Starting from the previous considerations it is possible to better understand the impact of the transportation industry on the territorial development.

By considering also regulatory changes occurred in the sector, during last years some Scholars have focused their attention on the topics of airports companies management.

In fact, gradually abandoning the monopoly perspective3, this typology of firms started to manage economically (i.e. effectively and efficiently) one or more airports, with the aim to boost both companys and territorial development.

In this context, the configuration of a multi-airport system (MAS) it seems to be a potential key element for local competitiveness.

In effect, the MAS could be a model for this industry particularly interesting because of the possibility to get a good balance between social and economical goals. In this way, the analysis of a MAS can be conducted, at least, under two different strategic point of view:

- socio-territorial;- financial-economical.

According to de Neufville (1995), MAS is the set of airports that serve the traffic of a metropolitan area4. For example, the MAS in London is formed, in addition to Heathrow, Gatwick and Stansted

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3 Doganis R. (1992), The airport business, Routledge, London.

4 de Neufville R. (1995), Management of multi-airport system. A development strategy, in Journal of Air Transport Management, vol. 2 (2).

airports, which are under the ownership and management of the British Airport Authority (BAA), also by the independent Luton Airport.

A MAS, consistent with the definition cited above, is also defined as the set of two or more major airports that serve commercial traffic within a metropolitan region5.

According to these definitions, the crucial element to define a multi-airport system is the territorial one. In contrast, in this paper a managerial approach is developed in order to highlight the importance that companies ownership and management can play in the identification of a multi-airport system.

The definitions provided by the literature, focusing only on the territorial aspect and considering generally all airports located in a geographical area - more or less wide - as part of a system, it seems not perfectly adequate to describe the real configuration of a MAS.

Unlikely, these definitions can be accepted without the correct consideration of all aspects relating to the governance of the system.

In the light of this, an essential element for the identification of a MAS is the integrated direction and coordination of the airports belonging to the system, which serves the air traffic of a defined area, at a metropolitan or regional level.

Then, a first attempt of classification of the different multi-airport system might be done considering both the geographical aspect (metropolitan or regional) and the managerial integration.

Tab. 1 A first attempt of classification of multi-airport system

Managerial integration

High I II

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5 Bonnefoy F., de Neufville R., Asce L. and Hansmann J. (2010), Evolution and development of multi airport systems: a worldwide perspective, in Journal of Transportation Engineering, vol. 136 (11).

Managerial integration

Low III IV

Regional Metropolitan

Geographical areaGeographical area

In this way, we can define as a MAS, from a business management point of view, only I and II cases characterized by an high level of managerial integration of different airports belonging to regional or metropolitan area. In these cases in fact, regardless of the ownership and the number of companies, airports are managed in an integrated and coordinated manner.

In the other cases (III and IV) is not configurable a MAS because the airports are not submitted to an high level of managerial integration and lacks, then, of any coordination.

A MAS indeed, now omitting the geographical aspect, is a set of airports that, through more or less formal agreements, tacit or explicit, form a real network.

In other words, it refers to a set of airports that share a common strategic plan - regardless of ownership or control relationships - as a result of a voluntary process of strategies definition which, respecting the territorial vocation of each individual airport, aim to compose a coherent framework of development of the system.

In this sense, the following table shows a potential way through which can enrich the first classification, by encompassing on one hand the ownership and management integration or differentiation and on the other hand the strategic planning integration or differentiation.

Tab. 2 A new attempt of classification of multi-airport system

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Ownership and

management

Integrated I II

Ownership and

managementDifferentiated III IV

Integrated Differentiated

Strategic planningStrategic planning

The table shows how there are some cases in which several airports - with a common ownership and management - adopt an integrated strategic planning and follow a consistent and shared mission (I) or, despite an integrated ownership and management, each single airport defines and follows a differentiated strategies (II).

In the other cases - characterized by differentiated ownership and management - the regional or metropolitan airports define and follow, through more or less formal agreements, shared strategies (III) or, instead, seek independent and single strategic plan (IV).

In the light of the above, a set of airports can be classified as a multi-airport system when there is an adequate level of coordination and integration between its components not only by a territorial point of view but also by a managerial perspective. In other words, one can speak of the system when the relations between the components, usually understood in terms of strength-weakness, are seen in a collaborative manner leading to a value creation approach6.

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6 Normann R. and Ramirez R. (1993), From the value chain to the value costellation: designing interactive strategy, in Harvard Business Review, July-August.

Moreover, as emphasized by Chandler7, cooperation between companies is one of the most plausible and fruitful paths of development in a global context, in which it is difficult to believe that a single entity may, in some way, be self-sufficient.

This is common to medium and large enterprises and it is considered true, a fortiori, with reference to the activity of small businesses, which often face to associative and cooperative strategies as a path for their continuity and development8.

The networks in fact, defined as sets of cooperative relations organized, non-collusive, functional for inter-action between businesses, independent in competitive terms, for the exploitation of complementarities and specific competences and access to the opportunities offered by complex development of environment9, can enables10:

- to obtain the minimum size for the implementation of certain strategies;

- to achieve specific economies (for example: scale and scope);- to manage and reduce risks;- to overcome barriers or exploit opportunities of legislation;- to influence industry dynamics and competition.

Network, in other words, can be defined as a quid heterogeneous and complex, involving a number of actors driven by specific and shared objectives. The case of multi-airport system according to this hypothesis it seems to be a specific example of a well-functioning network.

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7 Chandler A.D. (1990), Scale and scope: the dynamics of industrial capitalism, Balknap Press, Cambridge.

8 Ruisi M. (2004), Analisi strategica. Per una ricerca delle determinanti del successo aziendale, Giuffr, Milano.

9 Albertini S. (1991), Gli accordi strategici, Egea, Milano.

10 Cassandro P.E. (1982), I gruppi aziendali, Cacucci, Bari.

Martn and Voltes (2011) compared the different levels of efficiency that are found in MAS to that obtained in the case in which airports services were aggregated. Because of the results indicate the presence of non-exhausted scale economies at the current levels of production, it concludes that the atomization of air traffic increases operating costs at a system level11.

Curi et al. evaluate the efficiency of Italian airports by analyzing the production process from two perspectives: physical and financial12. The airport, in fact, could be considered as a multi-product firm, where disparate elements and activities are brought together to facilitate, for passengers/customers and freight, an interchange between air and surface transport.

In their study, they argue that airport dimension is not necessarily critical in creating differences in operational efficiency in Italian airports and assumes, instead, greater weight when the entire business is considered.

In synthesis, as shown also in the Portugueses experience13, the results of these research demonstrate how, especially for the existing small airports, the creation of an airport network, by reducing the duplication of services, can promote a widespread and non-centralized regionals development.Aim and hypothesis of the work

In this study we seek to understand if, and under which conditions, multi-airport system might be implemented to sustain the durable competitiveness both at a business and at a territorial level.

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11 Martn J. C. and Voltes-Dorta A. (2011), The dilemma between capacity expansions and multi-airport systems: Empirical evidence from the industrys cost function, in Transportation Research, vol. 47, n. 3.

12 Curi C., Gitto S. and Mancuso P. (2011), New evidence on the efficiency of Italian airports: A bootstrapped DEA analysis, in Socio-Economic Planning Sciences, vol. 45 (2).

13 Marques R. C. (2011), Together or separately? The efficiency and market structure of Portuguese airports, in Journal of Air Transport Management, vol. 17 (2).

Where this positive outcome is achieved we seek to determine what role was played by managers and public decision-makers.

The analysis uses data from the experience of the case of Puglias airports. These are interesting laboratories implemented using the framework of local development policies defined by European Union funding.

The basic hypothesis of the study is that a good multi-airport system can contribute significantly to local territorial development if, and only if, it is supported by the definition and subsequent enactment of specific and effective coordinated managerial approach for the functioning of the activities and is also assisted by effective partnership-building action.

In this sense, the related hypothesis is that the implementation of a good multi-airport system can be useful:

to overcome economic and financial issues related to the airport business;

to sustain the connection between airport system and territorial/local competitiveness.

Method

The methodological approach used is the case analysis. To carry out a research through the use of case studies is like performing laboratory experiments (Yin, 1994).

More specifically, the analysis of a number of case studies usually presents specific advantages and drawbacks when compared with a method that has but one case. The results of a research based upon more cases are often considered more effective, and more generally the whole study is considered stronger. On the other hand, the depth of analysis reachable through the single case cant be usually achieved through multiple case method. rare cases, critical cases and revelatory cases often are single cases (Saunders, Lewis, and Thornhill, 2003).

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In this research, for the selection of case studies we have used a non probabilistic (judgemental), sampling technique. We used so-called purposive sampling, often used to obtain illustrative outlines of specific realities through the use of particularly representative cases.

The study was carried out, and the relevant analysis performed with data directly gathered by the website and by financial reports or through semi-structured interviews. Interviews enabled us to confirm the analysis of the gathered data.

The previous remark does not preclude the generalization of the result, although not in statistical grounds, if it is compared to situations in which one can observe similar characteristics of the context.

Case study analysis: the experience of Aeroporti di Puglia S.p.A.

IntroductionThe company Aeroporti di Puglia S.p.A., established in

February 1984, obtained in 2003 by ENAC the total management contract of (until 2043) for the design, development, implementation, adaptation, management, maintenance and use of facilities and airport infrastructure of airports of Puglia region (i.e.: Bari, Brindisi, Foggia and Taranto).

Other companies activities refers to the handling, security services and other non-aviation. In fact, the company may, also, carry out all commercial and financial operations useful for the achievement of its goals.

Companys profileAs already mentioned, the company was created in 1984 under the

name of SEAP S.p.A. to become, in 2006, Aeroporti di Puglia S.p.A. (AdP). AdP has, according to data from the 2009 annual financial report, a share capital of about 13,000,000 subscribed,

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almost entirely, from Puglia Region and, marginally, by local and economic authorities.

Consistently with the framework already defined, it is configured as a multi-airport system subjected to the management of a single legal entity in which the main shareholder is the Puglia Region. It is, therefore, a situation in which the integrated ownership and management is exercised from a public entity that clearly aims to define an harmonious development of the business and of the regions territory.

The company manages a complex multi-airport system that results in a step of strong growth. This evolutionary trend has occurred since 2003 and, a decline affected the airports of Bari and Foggia in 2005, shows significant growth rates in passenger traffic.

In 2009, the indicator that measures the number of aircraft movements (Air Transport Movements) amounted to 44,395 between landings and take-offs, the number of passengers almost 4 million units and transport the cargo 3,400 tons (ENAC, 2010).

0

1.000

2.000

3.000

4.000

5.000

6.000

0

500.000

1.000.000

1.500.000

2.000.000

2.500.000

3.000.000

3.500.000

4.000.000

4.500.000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Pass

enge

rs

Year

PassengersCargo

Fig. 1 Passengers and cargo traffic of Puglia airports. Source: Dati traffico, 2009.

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Regarding the financial aspects, detectable considering the annual financial reports of the years 2007, 2008 and 2009, we can say that the results were somewhat fluctuating.

First, with respect to capital assets, it emphasizes an increase in total assets determined largely by an increase of tangible and intangible assets (financial ones are reduced) which is also accompanied by a slight increase in current assets; the increase in activity, however, has been supported, significantly in 2008, through a substantial increase in short-term debt, which were reduced (about 50% in 2009).

The total amount of sources, however, draws the uses through a relevant increase (about 240%) in accrued expenses and deferred income determined by massive fees for freely transferable assets, for facilities provided by the National Operational Programme (PON-CIPE) and contributions for the opening of new routes.

Referring to the income components, although the revenues is steadily increasing, the operating profit was positive in the years 2007 and 2009 and largely negative (-4,844,055 ) in 2008, due to a significant increase in other operating expenses14.

In addition, the financial area shows a negative result, while the extraordinary area, ontologically ungovernable, it shows largely negative results in 2008 (-2,509,834 ) only partially compensated by the positive data obtained in 2007 and 2009.

The global net result was slightly positive in the last annual report (+558,129 ) and largely negative in 2008 (-7,634,575 ).

Strategic business planning and territorial developmentThe non-exciting results, highlighted above, may be somehow

linked to the difficulties that AdP has faced and which are related to the events of the Italian carrier Alitalia.

Nevertheless, the AdP management has tried to anticipate the collapse of national carrier by developing the supply of air mobility

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14 As shown in the notes to the 2008 annual report, was detected a loss on loans largely attributable to Alitalia of 4,955,686.55 .

from Puglia airports of type point to point, with the gradual inclusion of the low cost in domestic and international routes, at detriment of the management model hub and spoke of Alitalia that favors the transition from the airports of Rome-Fiumicino and Milan-Malpensa.

The foresight of AdP, in fact, led to seek strategic partnerships with carriers in the past had a marginal role. In 2002 the supply of Alitalia affected for about 80% on the supply of air transport in Puglia and Brindisi, actually, there was only one not Alitalia flight.

With regard to the strategies followed, with the primary objective to allow Puglia to assume an important role in building networks, tangible and intangible, that promote to economic integration in the European and Mediterranean area, the management of AdP jointly operated in three directions:

- activate two operating bases operated by Ryanair;- increase frequencies toward major domestic and European

destinations;- ensure the link effectively with the most important hub of

reference for international and intercontinental networks.

These strategic guidelines are pursued through several actions. In this light, in fact, must be read a series of agreements with some carriers such as Ryanair, Air Berlin, Wizz Air, Tarom Carpatair that, despite the crisis of the carrier Myair, produced remarkable results both in terms of connectivity - with the most important region of Europe - and in terms of fares.

Moreover, thanks to the guideline of the European Commission that established a regulatory framework to allow for regional airports to grant subsidies to air carriers for the opening of new routes (start up), AdP has defined a system of contributions to the development of air routes with origin or destination airports of Puglia, which led to the activation of 26 new links.

The strategic decisions, briefly mentioned above, received full support from the Puglia Region, through the Regional Department of

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Tourism, shared a project to the activation of promotional activities in support of the development policies of incoming tourism and with the aim of qualifying the image of the Puglia Region in the origin markets of tourist flows. These and other activities, briefly outlined, show have allowed a progressive reduction of the impact on total revenues generated by relations with Alitalia that, at the close of the 2008, touching 18%.

Furthermore, in order to promote the territorys development, the Region is trying to extend the catchment area of Puglias airport to areas more distance (Molise, Abruzzo, Basilicata, Campania, Calabria) reducing the connection time trough important infrastructural investment. In this sense, in addition to rail, the Regional Department of Transport has boosted the road transport trough the definition and funding of the project Pugliairbus.

Concerning planning, the company of airports management decided to implement a master plan, integrated development planning tool, designed with the intent to intercept and convey the real needs of traffic.

The master plan, a tool for decision making, is an essential document to define the characteristics of intervention, financing sources and collaborative strategies with the regional area. It produced in collaboration with ENAC and may be considered a prototype model of strategic planning of Italian airports.

Final discussionThe case of Puglia airports, however, in a perspective that moves

from general to particular, is an emblematic case of creating a multi-airport system as a tool for regional development.

It represents a concrete attempt of realization of a MAS, in which a single legal entity, with major shareholder Puglia Region, is delegated to the government of four regional airports.

The multi-airport system, as highlighted above, it is a path that can facilitate, together, the missions that company of airport management should reconcile:

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- financial sustainability for the single airport;- social and economic development of the area.

The first profile, economic and financial sustainability, suggests the formation of multi-airport especially to secondary airports that, when define autarkic policies that lack any logical reticular, preclude the possibility of continuity and compromise, moreover, the development of the territory in which insist.

In this context, achieve conditions for continuity and development depends, substantially, of the level of air transport movements and the ability to offer a specialized services, in compliance with the vocation of the individual areas served by airports, avoid duplication of supply of the system with consequent and inevitable cannibalization of system service.

Referring to the second point, social and territorial development, the creation of a multi-airport appears to be important, although not essential, for the revitalization of regional or metropolitan areas. This revitalization cannot be separated, clearly, by the adoption of a logical system which allows to reason in overall terms and involve the major stakeholders.

In light of the above, we can highlight certain difficulties related to the creation of a regional airport network.

First, the main problems are largely caused to an air traffic that, although increasing, is not enough, a partial specialization of secondary airports of Foggia and Taranto and, more generally, the lack of a transport infrastructures that enable a more rapid and economical connection also intra-regional.

Despite the difficulties, however, the path undertaken is particularly interesting and potentially successful.

Puglia, in fact, intends to establish an airport system that modern, efficient, with high levels of service and fully integrated with the territory, promotes an harmonic process of economic and social development of the region, strengthening the role and image in the Mediterranean area.

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In other words, the regional multi-airport managed by AdP, understanding the a need to achieve in the long term, solid and sustainable economic and financial conditions, is one of the main tools that the region has at its disposal to achieve its strategy of social development-territorial.

Conclusions and implications for further research

Although still far from full and complete implementation of a multi-airport system, sustainable in economic, financial and patrimonial terms, in which the components (airports) define strategies perfectly complementary and follow a common strategic plan, Puglia seems to be beginning a development path from the results unpredictable, and therefore risky, but potentially positive from all points of view.

In general this research seems to demonstrate that the basic hypothesis, those according to which a good multi-airport system can contribute significantly to local territorial development if, and only if, it is supported by a coordinated managerial approach, it is valid.

In this sense, the MAS can be useful to better perform in economical and financial terms, and for improving territorial/local competitiveness.

In conclusion, it should be noted that a multi-airport system, result of a complex and nonlinear path, and it is not the only way forward nor, even less, a solution valid in any space-time context.

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