HUBS, COMPETITION AND GOVERNMENT POLICY Airports Canada Aeroports 2011 Ottawa April 20, 2011 Fred Lazar (flazar@yorku.ca) Schulich School of Business York University Toronto, Canada
Airports, Airlines and Trade GATT, NAFTA, CETA (Comprehensive Economic and Trade Agreement with the EU) Importance of trade and rules for goods Trade in services not subject to as extensive set of rules Aviation industry (airlines and airports) critical
Connectivity and Productivity Networks and externalities Aviation Telecommunications Financial Services Energy Transportation Network industries critical
Airports, Airlines and Trade Air transportation is an essential tool to connect Canadians with one another and the world: it directly contribute to a dynamic economy moving people and goods, supports tourism and economic development, produces significant value by connecting all parts of Canada, creates and maintains specialized, highly paid employment throughout Canada, and supports Canada s trade agenda. (Transport Canada, 2006) Aviation and transport infrastructure is the fundamental catalyst for the creation of global cities. (Sheikh Mohammed bin Rashid Al Maktoum, Emirates 2010 Annual Report) Policy makers must understand that a well designed aviation network creates huge benefits for users, and for growth and investment in the wider economy. Indeed, an extensive air transport network represents one of a country s essential infrastructure assets like banking or telecoms network. It is a vital component for economic development and growth. (IATA)
Airports, Airlines and Trade Typology of Hubs: International gateway (tier 1) 30+ M pax per year Full range of scheduled service, freight and maintenance Inter regional/continental connections long haul flights National hub (tier 2) 15 30+ M pax per year National interlinking role Limited inter regional/continental connections Regional hub (tier 3) < 25M pax per year Intra regional networks Connected to domestic tier 1 and tier 2 hubs
Airports, Airlines and Trade Hub cities have important economic development advantages for certain types of economic activity. These advantages reflect two key distinctions that hub cities share: (1) the concentration of large passenger and cargo flows and (2) the high degree of connectivity with other points in domestic and international airline networks. The way in which these advantages intersect with economic development has been described as circular and cumulative to the extent that additional air services facilitate development which in turn stimulates demand for further air services. This virtuous cycle tends to reinforce and perpetuate the privileged position that hub cities enjoy. (John Bowen)
Airports, Airlines and Trade Dubai, Munich, Atlanta, Singapore, Charlotte, Denver St. Louis, Cincinnati, Pittsburgh, Hamburg Toronto, Vancouver, Calgary, Montreal, Winnipeg
Airports, Airlines and Trade Where is the Canadian Government? Open Skies Agreements, BUT limited recognition, at least publicly, of importance of costs Rents, security, infrastructure Leakages cross border; BUT more important in global context
Airports and Airlines Top 25 airports (2009 passenger traffic) Atlanta (ATL) DAL London (LHR) BA Beijing (PEK) Air China Chicago (ORD) UA, AA Tokyo (HND) ANA, JAL Paris (CDG) AF Los Angeles (LAX) UA Dallas (DFW) AA Frankfurt (FRA) LH Denver (DEN) UA, SW Madrid (MAD) Iberia New York (JFK) AA, DAL, JB Hong Kong (HKG) Cathay Amsterdam (AMS) AF/KLM Dubai (DXB) Emirates Bangkok (BKK) Thai Las Vegas (LAS) SW Houston (IAH) UA Phoenix (PHX) US San Francisco (SFO) UA Singapore (SIN) SIA Jakarta (CGK) Garuda Guangzhou (CAN) China Southern Charlotte (CLT) US Miami (MIA) AA
Airports and Airlines What stands out? Airports serve as major hub for an airline No Canadian airports on list Toronto barely makes the top 40, coming in at number 38 Montreal, with a population base comparable to Seattle, Minneapolis, Phoenix, Denver, San Francisco and Rome, does not even come close to making the top 40 Neither does Vancouver, although its population base is much smaller than all the cities on this list with the exceptions of Charlotte, Frankfurt and Munich Almost half are in US
YYZ and YVR City Pop n Pax/Pop (000s) Toronto 5,623 5.5 Atlanta 5,475 16.1 Dallas 6,448 9.9 Houston 5,867 8.3 Miami 5,547 9.9 Madrid 6,387 8.0 Sydney 4,504 7.4 Singapore 5,077 7.3 City Pop n Pax/Pop (000s) Vancouver 2,328 7.0 Frankfurt 1,930 28.3 Denver 2,552 19.7 Munich 2,005 16.3 Charlotte 1,745 19.8 Dubai 1,600 25.6 Pittsburgh 2,355 3.4 Kuala Lumpur 4,815 6.2
Evolution of Hubs Post de regulation in US Legacy carriers created hubs to gain competitive advantage vs. low cost entrants More scope in US because of geography and demand for air travel US hubs focused towards domestic market, but changing DAL and Atlanta, UA and LAX European and Asian hubs focused towards international markets 6 th Freedoms Next stage: connecting continents YYZ: Europe NA Latin America YVR: Asia NA Latin America Competition: Chicago, Los Angeles, New York, Atlanta, Munich, Paris, Shanghai, Beijing, Singapore, Dubai, Istanbul
Boeing Forecasts: 2009 2029 RPK growth/y ear Africa Latin America Middle East Europe North America Asia Pacific Africa 5.7% 5.5% 6.5% 4.6% 7.3% 8.7% Latin 7.1% NA 4.6% 5.3% 6.3% America Middle 6.0% 6.0% 7.2% 7.5% East Europe 4.1% 4.8% 5.6% North America Asia Pacific 2.8% 4.8% 7.1%
Drivers of Growth Primary (60 80%) Economic growth Global trade Secondary (20 40%) Airline strategies networks, prices Market liberalization Infrastructure Costs and prices
Road Ahead Large population base important but not decisive consider current top 25 airports Geographic location, infrastructure/capacity, costs, success of hub carrier If hub carrier and hub airport do not achieve the density economies and the hub carrier is unable to gain a frequency advantage, both begin to fall behind and both risk becoming marginalized over time Given geography, traffic densities, and the current sizes of airports and hubs, it appears reasonable to surmise that most of the Tier 1 hubs (25 at most) likely will be located in North America (4 8), Europe (3 5), Asia (4 8), the Middle East (1 2), Latin America (1)
Road Ahead Where will Canadian airports fit in? Depends on government policies UAE investing in excess of $35 billion in airports Canadian Government continues to extract $250 million out of airports Depends on success of Canadian airlines Westjet critical for YYC and YVR AC critical for YYZ, YVR and YUL Porter critical for YTZ Depends on partnerships between airport and airlines Depends on whether there will be a level playing field in aviation industry
Thank you