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Laguardia Airport vs Athens International Airport, Reaction Paper Example

Pages: 12

Words: 3359

Reaction Paper

Abstract

Nowadays, in order to conduct successful business, various industries target complete privatization and customer orientation. However, there are industries where public ownership proved to be as efficient as privately owned entities. The best example is the airport industry. Different airports are characterized by diverse funding patterns, security and management systems corresponding to their geographical requirements. On the other hand, the comparison of performances and approaches is the best way to learn best practices and apply them in the target project. The aim of this paper is to compare LaGuardia Airport (LGA) and Athens International Airport (ATH/AIA). Moreover, leadership potential of American airports in the airport industry is outlined.

Key words: the airport industry, LaGuardia Airport, Athens International Airport.

LaGuardia Airport vs Athens International Airport

In the contemporary globalized and internationalized world, doing business become more and more complex and the field of airports and civil aviation is not an exception. In this regard, various airports have different contextual characteristics, funding patterns, security and management systems that fit their profiles the best. On the other hand, in order to conduct business successfully nowadays, comparison of performances and business approaches is the best way to learn new know-hows and apply them in the target project. The aim of this paper is to compare and analyze two airports, particularly LaGuardia Airport (LGA) and Athens International Airport (ATH/AIA). Moreover, the paper is aimed to demonstrate how American airports will continue to be leaders in the airport industry.

LaGuardia Airport is one of the busiest American airports without non-stop service to the European countries. It was built in 1947 and functioned under the governance of the Port Authority of New York and New Jersey according to the lease with New York City. Although the potential privatization was considered, the lease was extended in 2004 to last until 2050. Consequently, LaGuardia Airport is in the public ownership. The total cost of its original construction estimated $40 million, with the further cost of expansion and maintenance of $1.4billlion. LGA is a crucial element in the local economy contributing $15.6 billion of related economic activities in the area of New York-Ney Jersey (Port Authority, 2015).

On the other hand, AIA is an international airport and the primary airport in the capital of Greece – Athens. Unlike LGA, it is a new airport that began its functioning in 2001. It is owned in terms of Public-Private Partnership (PPP) scheme which became very common in the European Union and was the first such scheme applied to the airport ownership:

AIA was established in 1996 as a public-private partnership with a 30-year concession agreement. Ratified by Greek Law 2338/95, the concession agreement grants the right to use the airport site for the purpose of the design, financing, construction, completion, commissioning, maintenance, operation, management and  development of the airport. AIA is a privately managed company with the Greek State holding 55% of shares (25% Greek State and 30% Hellenic Republic Asset

Development Fund – HRADF), while the private shareholders collectively hold 45%” (AIA Annual Report, 2014, p.12).

The difference in ownership between two airports is an essential comparative factor. From the perspective of stability and constancy, public ownership is more beneficial since irrespective of the governmental trends, funding and required maintenance would be taking place anyway. On the other hand, PPP ownership would largely depend on the national economy and in the case of downturn tendencies, funding from the private partners could decrease due to the disparity of profits (Eriksson and Steenhuis, 2015). In other words, in the case of negative implications of airport performance, private ownership is less reliable in terms of long-term commitments.

However, from the perspective of commitments to innovations under the conditions of stable performance of the airport, private stakeholders are more likely to invest in innovations and modernization programs than public owners. In this regard, irrespective of being one of the busiest airports in the USA, LGA requires tremendous modernization of its infrastructure and services provision schemes (Graham, 2013). Although the program of the redevelopment of LGA is introduced, it could have taken place earlier if the form of ownership contained private element like in the case of AIA. Comparing two airports, AIA is relatively new and requires fewer changes regarding its contemporary performance and services provision, while LGA requires essential spatial reconstruction to facilitate more modern and fuel-efficient planes in the airport. LGA redevelopment program aims to improve the standard of its performance and service provision:

LGA is undergoing an extensive capital redevelopment program in an effort to provide world-class airport facilities for passengers and airlines alike. The Program is expected to include the demolition of the existing CTB [Central Terminal Building] and associated infrastructure and the construction of a new 1.3 million square foot, 35 gate terminal building; a new aeronautic ramp; frontage roads that will serve the new terminal; a new central heating and refrigeration plant; and other utilities and site improvements” (Port Authority, 2015).

A particular feature of this redevelopment is that partial financing will be conducted by the private developers selected through the procurement process, which makes the scheme slightly similar to the PPP in the case of AIA. This approach would provide extra funding to the program and also incorporate private sector know-how, technologies, and expertise into airport performance and operational efficiency.

From the perspective of performance, the two airports are on different scales. In 2014, LGA plane movement was estimated in 360,834 while AIA less than half of that number 154,500, which was 10 percent increase in its performance compared to 140,400 in 2013. In terms of passenger traffic, the increase from 12.5 million in 2013 to 15.2 million in 2014 was characteristic for AIA demonstrating 21.2 percent increase (AIA Annual Report, 2014). On the other hand, LGA passenger traffic increased only by 1 percent from 26.722 million in 2013 to 26.954 million in 2014 (Port Authority, 2015).

Although it may seem that AIA is performing better than LGA irrespective of the difference in size, the recent growth of passenger traffic is conditioned by previous post-crises stagnation and poor economic situation in Greece which makes travelling and recreation in the country incredibly cheap (Eriksson and Steenhuis, 2015). Consequently, the significant increase in passenger traffic for AIA demonstrates catching up with the previous period of decline, while LGA demonstrates the constant and stable growth of passenger traffic.

On the other hand, in terms of total cargo uplift AIA has greater estimates 3.3 percent increase from 74.9 thousand tons in 2013 to 77.3 thousand tons in 2014, while LGA air cargo increased from 7,001 tons in 2013 to 7,141 tons in 2014 (Port Authority, 2015). This demonstrates that LGA is more passengers oriented, while AIA also has substantial industrial cargo function as part of its profile. In terms of air mail, LGA is characterized by increase of 1,439 tons in 2013 to 1,608 tons in 2014, while AIA had a decline from 9,500 tons in 2013 and 9,300 tons in 2014 (AIA Annual Report, 2014). The decline in air mail was largely conditioned by the decreased reliability of AIA due to the economic crises in the country and reluctance of various airlines to do business with AIA and Greece in general. The best example was Delta Airlines that canceled its contract with AIA and eliminated the only direct flight from Greece to the USA in 2012 (AIA Annual Report, 2014).

Comparing the two airports, it can be concluded that they differ in size, orientation in performance, age, ownership scheme and the potential for further modernization and functionality. Both airports are incredibly busy and attempt to facilitate numerous flights within very tight schedule. On the other hand, the two airports are also influenced differently by their national environments. In the case of LGA, the American market of air flights is relatedly stable and was even less affected by the global economic crises than some other sectors (Graham, 2013). However, AIA is very dependent on the economic trends and in the recent economic situation in Greece and governmental debts, AIA was significantly damaged with decrease of passenger traffic, cancellation of contracts with various global Airlines and poor quality of the national Greek airlines damaged the image and performance of AIA (Eriksson and Steenhuis, 2015). In this regard, although LGA requires refurbishing and modernization, it still demonstrates long-term quality and functional performance irrespective of any external factors, while AIA irrespective of its young age already had significant time of decline in performance and quality of services provided.

Taking into account aforementioned comparison, it becomes clear that there are various factors that influence performance and success of airports. On the other hand, there are national trends in airport business which make certain countries more successful in airport industry than the other. In this regard, American airports will continue to dominate the airport industry due to the national trends in airport business conduct. The following discussion demonstrates these advantages and also the potential improvement.

From the perspective of governance structure, most of the 4,000 airports in the USA are owned by governments. In 2003 estimate, 38 percent were owned by city authorities, 25 percent – regional, 17 percent – single county, and 9 percent – with multiple jurisdiction (Eriksson and Steenhuis, 2015). On the other hand, while ownership is often public, the governance structure demonstrating how the airport is managed and operated can differ like in the case of LGA. The diversification of governance structures gives an opportunity for airports to fit into local legal and service requirements. In this regard, while private-owned airports are managed as businesses and are aimed at gaining profits alone, public owned airports with different governance structures are aimed at local sustainability of the airports and their correspondence to the given requirements. In other words, mixed governance structures are aimed at returning the gained profit into the airport, it further modernization and consequent effective performance. Thus, consistency of programs and their implementation are achieved:

The Port authority of New York and New Jersey pays a substantial amount annually to the cities of New York and Newark to lease JFK International, LaGuardia, and Newark Liberty International Airports. This is permissible in part because the Port Authority is grandfathered from the prohibition on revenue diversion for such payments. However, in the instance in which a city or county transfers power to an airport authority but continues to act as an airport sponsor, the prohibition on revenue diversion seemingly would apply and preclude use of rent payments for non-airport purposes ”  (Reimer, et, al., 2009, p.20).

Except for the securing the return of revenues into airport-related activities, public ownership of American airports also secures correspondence of standards of airports to the required regulations rather than being only profit and customer experience oriented. Another advantage of American airports over the others is that the constancy of public ownership is combined with strong and continuous regulatory environment. Since airport industry includes various aspects such as airside market, which deals with actual passenger and cargo, and the non-airside market, which refers to the retail and customer services across the airport area, in order to manage the entire airport functionality, governmental control demonstrates to be functional in the USA (Eriksson and Steenhuis, 2015). This is because an airport has to abide not only with local regulations, but also state and federal level standards. Moreover, different airports gain certain restrictions on traffic like LGA in 2007 conditioned by the inability to facilitate the increased number of flights (Port Authority, 2015). Under such multi-faceted regulatory environment which is driven by concerns of security and quality, a single privately-owned entity would not secure the same level of efficiency.

For instance, although the airport industry in most of the countries of the world is privately owned and deals with different regulations of the national and international levels, they are still drive by commercial concerns and customer thinking. In this regard, the benefit of American airports over other is that they also think about profits and customer service satisfaction, but also are driven by concerns about proper health and safety standards and security considerations. In other words, the presence of public ownership makes American airports a part of the national system of security and customers’ well-being and thus standards of security and safety are much higher than in any commercialized airport. This is reflected in terms of the quality of facilities, flights traffic, the number of routes prescribed for a certain airport (Eriksson and Steenhuis, 2015). For instance, LGA no longer has non-stop European trips, cancellation which was aimed at decreasing the pressure on the airport and its efficiency in the national air flights market. In the same situation, a commercial entity would be thinking in terms of using the routes to their fullest capacity rather undermining safety issues (Graham, 2013).

In terms of funding schemes, the aforementioned comparison demonstrated that American airports are primarily owned by public entities and thus receive funding from the governmental institutions of various levels. Consequently, most of the funding is coming from the local budgets and various renovation programs. Although it may seem that private ownership is more likely to secure continuous funding of innovations and modernization of facilities, various European examples including AIA demonstrated the opposite. Under the conditions of the global recovery from the economic crises, hospitality, and tourism industries just begin to recover. Consequently, private companies that cannot see profit in the modernization of an airport would be reluctant to invest under such conditions of uncertainty (Graham, 2013).

On the other hand, governmental ownership and commitment to secure efficiency of airports performance give an incentive and consequent funding of their modernization. In this regard, to take the burden of funding commitments in various airports facilities, the tendency towards involving private funding becomes more relevant in financing of the American airports. However, private funding can be beneficial only if they are not dominant and public authorizes retain the majority of ownership (Eriksson and Steenhuis, 2015).

From the perspective of the customer service, it can be argued that privately-owned airports are more likely to orient on the comfort and satisfaction of customer experience. In fact, customer satisfaction in business is the primary target. Comparing LGA and AIA, it can be stated that the customer experience in AIA might be viewed as a better one than LGA. In this regard, the common criticism of LGA was the difficulty with parking, due to the lack of space, heavy flight traffic, delays of flights, etc. (Port Authority, 2015). The nature of the outlined criticism is that the LGA is a very busy airport, and it cannot expand any further due to its location in Queens, New York, surrounded by watersheds from both sides. Since the actual geographical properties cannot be changed, the emphasis was placed on improvement of efficiency of the available space, which is the primary purpose of the current renovation program (Eriksson and Steenhuis, 2015).

In this regard, it is universally acknowledged that American airports are incredibly busy, and their various renovation schemes are aimed at making the customer experience as enjoyable as possible. However, unlike most of the renovation programs, the American approach is primarily aimed at optimization of efficiency and productivity with available spaces when expansion options are not possible (Eriksson and Steenhuis, 2015). Another tendency is making deals with various airlines that are specialized in high standards of customer service and quality of services provided. In this regard, governmental authorities in cooperation with private and R&D entities create various programs on smart technologies and customer suggestion surveys that are aimed at achieving the most functional and enjoyable experience possible (Graham, 2013).

Regarding, airlines mix, the best practice is diversification of airlines and correspondence of quality and price to the target audience of a certain type of airports. For instance, in the UK and across the Europe, there are budget airports that work with budget airlines. In the case of AIA, various international airlines are present in the market and tend to renew contracts after the period of stagnation. In the case of LGA, there are around 20 airlines that are primarily American and also Canadian (Eriksson and Steenhuis, 2015). The primary benefit for the American airports is that most of the primary destinations can be covered by big national airlines or international airlines. In this regard, the benefit is on the side of the American airports since the USA remains one of the main destinations in the world. Thus, unlike other countries American airports can choose among the airlines and routes that suit their profile the best. On the other hand, AIA and many other European countries struggle to keep and secure high-profile airplanes among their lists. Consequently, the high diversification of airlines provides stronger competition and improves the quality of the services provided.

From the security perspective, American airports are better equipped than any other airports. This is conditioned by a few reasons. First of all, the issue of security remains the primary concern in the global traveling. Since the airports are in public ownership, the security is treated from the point of national security matters rather than simple checks in airports across the world. Although after 9/11, airport security was strengthened, and long security checks seemed inconvenient, their necessity was well-understood by passengers (Graham, 2013). Nowadays, although American airport security might be viewed as more detailed, it is well-accepted by travellers, because they realize the benefits of security checks and consider security of airports as one of the factors of airport reliability. Moreover, the American approach to security in airports is based on the national security standards rather than commercial-style short-term checks and economy on security systems (Eriksson and Steenhuis, 2015).

Taking into account the case of public and PPP ownership, it has to be outlined that private ownership does not necessarily mean high revenues and direct profits. In the case of AIA, the crises related to government debt resulted in the decline of the airports performance and heavy burden on the private partners who would have to deal with the credits taken through various European funding schemes (Graham, 2013). However, with the increased tourism in the country AIA financial performance is improving with each year:

In 2014 AIA recorded profit before tax of € 126.7 million, increased by 34.8 % compared to 2013… Aeronautic Revenues, inclusive of AIA’s share from the Airport Development Fund, amounted to € 214.5 million, contributing the most to business, with around 61% of total income” (AIA Annual Report, 2014, p. 24).

On the other hand, LGA revenues are ten times greater, although they are hard to estimate due to the complexity of ownership scheme. However, according to the data for 2008, total aeronautic operating revenue was around $205,844 thousand, followed by non-aeronautic revenue of $101,899 thousand, and non-operating revenue (grant receipts and passenger facility charges) – $90,763 thousand (Port Authority, 2015). These estimates demonstrate that in both cases aeronautic revenue remains the dominant source of revenues, while the tendency is towards spreading of the non-aeronautic revenues that are directly related to the diversification of available services at airports.

From all mentioned above, it can be concluded, that airports as any business industry has its own key to success. Although the predominant trend in the world is toward privatization of airports, the American approach demonstrates to be functional and competitive in the current global market of the airline industry. Although the private sector has more opportunities to invest and modernize airport infrastructure and services facilities, government-owned airports have the advantage of constancy and endurance.

In this regard, although LGA requires substantial renovation program that is on its way, the airport provided productive service for almost fifty years and after the end of its renovation will be able to perform even more efficiently. On the other hand, the case of AIA showed that under certain circumstances, even PPP consortium schemes tend to be dysfunctional when governmental stability is weak. Thus, for the American airports to preserve their superiority on the global scale, more privatization would be beneficial and make innovation programs easier and faster to implement.

References

Athens International Airport Eleftherios Venizelos: Annual Report (2014). Retrieved from http://www.aia.gr/ebooks/AnnualReport/ar2014/index.html.

Graham, A. (2013). Managing Airports: An International Perspective. Oxon, OX: Elsevier.

Eriksson, S. and Steenhuis, H-J. (2015). The Global Commercial Aviation Industry. Oxon, OX: Routledge.

Port Authority of NY & NJ (2015). La Guardia Airport. Retrieved from http://www.panynj.gov/airports/lgareimagined/index.html.

Reimer, D. et al. (August 2009). Airport Governance and Ownership. Legal Research Digest, 7, 1-71.

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