Airport Alliance

Airport Alliance

Since the 1980s, one of the most fashionable tools to reinforce firm’s market presence has been through alliance paths within industry boundaries (horizontal alliances or by including companies from related sectors, as in the case of value chain or cross- industry alliances. 

·      Implemented in equity-based or non-equity contractual agreements, Alliance may assure partners a bundle of competitive and commercial opportunities.  Through alliance a number of strategic and operational goals can be achieved much faster than in the case of a purely internal approach.

Benefits that alliances have proven to create for the partners involved are:

·      A dramatic cut in both the scope of financial support needed and in the level of risk compared to a stand-alone situation;

·      A mutual sharing of operational and marketing costs associated with the business venture;

·      A chance to enter or have better coverage of some value-adding markets and demand clusters, especially in the case of tight regulatory regimes that limit the sharing of capacity 9as is the case in the air transport industry),

·      The evolution of the behavioral patterns of the industry, from a publicly-regulated monopoly or oligopoly to a players-driven industry. In this case, some acceptable forms of trust may enable players to achieve higher returns on investments (higher incomes and lower costs) that are, once again, a consequence of lower levels of competitive intensity.

In the aviation world, some Bilateral agreements between Airlines, can be traced back to the 1960s which took the form of Interline and Pro-rata agreements under the IATA umbrella.

The Main types of airport partnerships

Three categories:

1.  Point-to-Point Alliances

2.  Multi-Point Alliances

3.  Management Contact Alliances

 1. Point-to-Point Alliances

The origin of this partnership, which can be either non-equity or equity-based, lies in cooperation practices between a pair of airports, not necessarily located in the same or close markets.

·      Partnership may involve a bundle of managerial issues, from jointly handling production to joint purchases of airport retailing goods or below-the-line operational support of airport practices.

·      A temporary transfer of managers, employees or machines to the partners, the broader the partnership, the greater the number of functions and departments that tend to be involved.

·      When the cooperation becomes tight, a natural step is the transformation of it from a purely contractual one to an equity-based formula or a full merger of airport enterprises. 

2. Multi-point Alliances

The multi-point co-evolutionary view involves a significant stretching of the dimensional boundaries of the alliance

A panel of airport operators to sign a cooperation agreement, which can be equity based or non-equity based, to include expertise sharing on some functions or on the whole package of operations. Airports will be able to choose a single brand, like in the case of the trilateral alliance branded as Partners, or maintain a stand-alone positioning.

The strategic goal of this multi-point agreement lies not only in the dimensions of critical mass which can be used in negotiations, but also in the stronger lobbying power that partners may put into practice when relating with some supranational ‘met regulators’  

3. Management Contract

A final form of partnership for the airport business deals with the so called ‘management contract’. Here no ownership clauses are involved and the agreement usually occurs between a government and a private subject.

The contractor takes responsibility for the day-to-day operation of the airport and agrees to pay an annual management fee, usually related to the performance of the airport. The overall economic risk will be shared between the owner and the management company. For the Government owner this may be politically more acceptable, whereas for the contractor such an arrangement may be attractive in countries where greater financial exposure may be seen as too great a risk.

This kind of agreement may, thus be beneficial for both parties. On a short-term view, the government will see the economic potential of its airports maximized, thanks to the competences of the contractor.

In a longer-term perspective, the government involved will also be able to improve the local knowledge of airport management in its own infrastructures, with a chance of cross-cultural fertilization of management practices by the contractor and, eventually, a possible return to a stand-alone perspective.