Published in February 2016 issue

For the Oneworld global alliance, London, São Paulo, and Tokyo have more in common than one might think. All are premier global business markets, Oneworld hubs, cities with over 8 million inhabitants—and homes to multiple airports.

This can be advantageous—and sometimes not—for Oneworld carriers and their strategic partners.

By Rohan Anand

London, São Paulo, and Tokyo are sometimes referred to as LON, São, and TYO. But any road warrior would be quick to point out that London’s primary airport, Heathrow, goes by LHR as its airport code designation. In fact, both airport codes are technically correct. LON, however, encompasses the entire Metropolitan Airport Code system for London. That includes secondary airports serving the Greater London area, such as Gatwick (LGW), Stansted (STN), City (LCY), Luton (LTN), and all the way to airports nobody has heard of, such as Biggin Hill (BQH) airport.

Of course, Heathrow is the most renowned globally, despite the fact that LON takes in seven airports in total. São for São Paulo contains three airports, with the primary Guarulhos (GRU), inner-city Congonhas (CGH), and Viracopos (VCP) in the nearby city of Campinas. TYO for Tokyo represents just two airports, Narita (NRT) and Haneda (HND), serving the entire Tokyo commercial aviation metropolis. Haneda, although a larger and busier airport than Narita, hosted only regional and intra-Asia flights until 2010.

Within each of the three metropolitan regions, the local airport authorities, as well as the governments and private owners that run them, are encumbered by numerous challenges when it comes to air service development and growth. Geographically, all three cities are located in congested air-traffic corridors with limited surrounding land space to grow airport infrastructure, such as runway and terminal facilities. They often deal with criticism from NIMBYs (“Not in my back yard”) and startup airlines advocating for more balanced competition.

But evolution is multi-faceted in the airline industry. Rapid change doesn’t happen just at regulatory levels. In today’s commercial aviation environment, the impact created by evolving strategic partnerships, bilateral agreements, alliances, and codeshares can have a huge effect on expansión opportunities. To say that airlines must adapt or die in the modern world is an understatement.

Over the past decade, attention has shifted to the rise of the Gulf Coast carriers in connecting mass passenger volumes between major population centers around the globe. Yet, for all the negative press surrounding the Gulf carriers and the alleged ‘subsidies’ received from their respective governments for unfair competitive practices, traditional network carriers will shell out millions to increase access into resource-constrained airports in both developed and developing countries.

At Heathrow, for example, American Airlines (AA) purchased a landing slot pair from Cyprus Airways (CY) for a whopping US$31 million in 2014. That’s just for one single departure and arrival per day. Imagine trying to compete with a single airline that possesses dozens of those slots?

Heathrow, whose equivalents are Guarulhos in São Paulo and Narita airport in Tokyo, has a ‘curfew’ in place between midnight and 06:00 that places restrictions on the number of takeoffs and landings it can handle as part of a noise-abatement procedure for surrounding neighborhoods. Guarulhos is limited to a maximum 45 aircraft movements per hour. Narita has also curfews between midnight and early morning hours.

All three airports are also required to comply with IATA’s Worldwide Slot Guidelines (WSG), which governs how the airports must coordinate with airlines to acquire, retain, and exchange slots at airports with limited resources, such as runways, terminal facilities, gates, customs/immigration infrastructure, and personnel and highways and roadways accessing the airport facilities.

Carriers like American Airlines believe there is significant return for investment for these precious landing slots at Heathrow. With massive constraints in the form of gate space, runway departure and arrival slots, and bilateral air service agreements (which limit the number of flights and seats an airline can operate between certain regions), carriers will pay astronomical prices to operate at restricted airports.

While good for local residents near the airport, it places a severe strain on the airport itself, especially in context of today’s world where traditional megaconnection hubs—such as London, Frankfurt, Paris, and Tokyo—are being threatened by the likes of the Middle Eastern carriers, namely Emirates (EK), Etihad Airways (EY), and Qatar Airways (QR), all of which have Little to no operational restrictions at their respective hub airports in Dubai (DXB), Abu Dhabi (AUH), and Doha (DOH).

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However, the boon for more traditional markets like London, São Paulo, and Tokyo is the lucrative and voluminous levels of premium and leisure traffic headed to these airports, especially from large markets such as New York, Los Angeles, Miami, Chicago, Hong Kong, Shanghai, Seoul, Paris, Osaka, and Moscow.

In other words, while Emirates may operate four Airbus A380s between New York and Dubai each day, the market between New York and London is much larger—and higher-yielding—than New York-Dubai. As such, it takes careful precision, creativity, and luck to pioneer fortitude in such highly strategic markets. Hence, the value of operating into secondary airports becomes much more nuanced as a potential source of increased revenue and market share opportunities.

Expansion opportunities into restricted markets can come in all shapes and sizes: relaxed bilateral agreements, mergers and acquisitions, joint venture agreements, new terminal and runway facilities, or response to Low-Cost Carrier invasion. However, more often than not, airlines make poor planning decisions when it comes to balancing their networks across two airports located in the same metropolitan area.

It can also become an ego show: hasty reactions to receive coveted Access to an airport can bring out a lot of personality types from airport, airline, and regulatory leadership officials.

In Asia, for example, increased Access rights for US carriers into Chinese and Japanese airports over the past 10 years have prompted the CEOs of US carriers to trash talk each other, touting the merits of their individual airlines. The concept of ‘go-global, act-local’, appears to be neglected in environments where concepts such as guanxi are imperative to conducting business. Even worse, airlines often show poor sportsmanship when new markets fail to meet expectations.

Stay tuned for the next installment of this report, which will provide a deeper analysis into some of the metrics in the aforementioned markets and the tactics that Oneworld employs to compete in airspace-restricted regions.