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Identifying Strategic Issues, Strategies, and Long-Term Objectives 91 · Operating in a Changing Airline Industry Challenge: Our challenge is to remain financially viable as the structure of the airline industry con- tinues to evolve. The potential exists for more airline bankruptcies, mergers, dissolutions, and shifts in market share. · Transitioning the Organization through Changes in Leadership Challenge: A majority of senior staff are eligible to retire during the life of this plan. Retirements will also occur in a number of key technical and professional positions. · Evaluating and Determining MSP Development Plan Options Challenge: Our challenge is to match the development of expanded airport facilities to correspond with customer demands while remaining financially viable. · Addressing Unfunded or Underfunded Mandates Challenge: Federal, State, and local mandates continue to increase as funding is reduced or eliminated. · Complying with the 2007 Noise Mitigation Decree Meeting the timelines set out by the court to complete this process and maintaining high quality in the products and services delivered.82 An example of strategic issues that may typically be identified in strategic plans for GA airports was taken from Yuba County Airport's 2008 Strategic Plan (Yuba County is located in the north central part of California, 125 miles northeast of San Francisco and 125 miles west of Reno, Nevada): The strategic concern involves the constant generation of sufficient revenue to be a key contributor for the future economic development of the County. Other challenges are removing negative cash flow, increas- ing business opportunities, funding airport expansion projects and boosting revenues through recreational opportunities.83 By completing Worksheet 7.01, "Identifying Strategic Issues," members of the planning team will do the following: · Individually describe the most important strategic issues that should be addressed in the strategic plan and explain why each issue is a priority. Explain how the issue relates to the orga- nization's strengths, weaknesses, opportunities, or threats and how the issue relates to the organization's mission, vision, or mandates. · Jointly compile the individual lists of strategic issues into a master list and make certain that a balance exists between internally and externally focused issues. Each issue on the master list should also be examined against a set of criteria designed to ensure that the issue is strategic rather than operational. · Jointly develop a final list of six to eight of the most important strategic issues to be addressed, ranked by order of importance. To identify an organization's most significant strategic issues, complete Work- sheet 7.01, "Identifying Strategic Issues." 7.2 Determining a Generic Strategy The concept of "generic strategies" was developed by Michael Porter, a professor at Harvard Business School. According to Porter, these strategies--cost leadership, differentiation, and focus (for airports this translates into both cost focus and differentiation focus)--are the primary sources of competitive advantage.84 Exhibit 7-1 illustrates Porter's sources of competitive advantage and the resulting generic strategies. 82 Metropolitan Airports Commission, Strategic Plan 20082012. Available online at http://metroairports.org/mac/docs/strategic/ 2008-2012_strategic_plan.pdf (accessed June 2009). 83 Strategic Plan 2008, "Airport Strategic Planning." Available online at www.yubacounty.org/Strategic%20Plan/2008/ Airport%20Strategic%20Planning.pdf. 84 Ibid.
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92 Strategic Planning in the Airport Industry Competitive Advantage Low Cost Unique Product Broad Cost Competitive Scope Differentiation Leadership Narrow Cost Differentiation Focus Focus Source: Michael E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors (New York: Free Press, 1998). Exhibit 7-1. Sources of competitive advantage. 7.2.1 Cost Leadership A broad cost leadership strategy aims to place an organization among the lowest cost produc- ers. Low costs are achieved by focusing on low-cost inputs and capital programs, by offering a stan- dardized product, and by achieving a high volume of operations and economies of scale. Southwest Airlines uses this strategy in the airline industry. Memphis International Airport is an example of an airport where a broad cost leadership strategy is practiced. According to an April 2008 presen- tation, the Memphis-Shelby County Airport Authority is attempting to position the airport as "America's Low-Cost Model Airport Hub."85 An example of an airport outside of the United States where a broad cost leadership strategy is practiced is Frankfurt-Hahn Airport in Germany.86 7.2.2 Differentiation In adopting a broad differentiation strategy, an organization aims to develop a product or range of products that are perceived to be unique compared with products offered by its competitors. Singapore Airlines uses this strategy in the airline industry by offering superior in-flight service. An example of an airport where a broad differentiation strategy is practiced is Austin-Bergstrom International Airport. In May 2008, the low-cost, no-frills South Terminal opened. This terminal is the first dedicated facility constructed in the United States to accommodate low-cost airlines (but is currently temporarily closed until a new ultra-low-cost carrier tenant can be found). The South Terminal has common ticket counters and gate areas for all airlines occupying the terminal and no loading bridges for passengers. The airport's architectural award-winning Barbara Jordan Termi- nal continues to cater to full-service airlines. An example of a non-U.S. airport where a broad differentiation strategy (with a dedicated low-cost terminal) is practiced is Kuala Lumpur Interna- tional Airport in Malaysia. 85 The Airport's low-cost strategy, based upon low traffic delays, relatively brief taxi times, tight spending controls, maximization of non-airline revenues, and no PFC charge is detailed in the presentation, "America's Hassle-Free Connecting Hub." Available online at http://www.memphisairport.org/notes/mem_2008_april_fastfacts.pdf (accessed May 28, 2009). 86 Further information on this airport's low-cost strategy can be found in "Basic Information," available online at http://www.hahn-airport.de/default.aspx?menu=press_basic_infos&cc=en (accessed May 28, 2009).
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Identifying Strategic Issues, Strategies, and Long-Term Objectives 93 CASE STUDY Adopting a Broad Differentiation Strategy--Austin-Bergstrom International Airport Since Austin-Bergstrom International Airport (the Airport) opened in 1999, the City of Austin's Department of Aviation, the airport operator, has attempted to leverage a broad differentia- tion strategy by developing unique products for both airline tenants and passengers. The most visible manifestation of this strategy is the low-cost, no-frills South Terminal that opened at the Airport in May 2008. According to Airport Director Jim Smith, the idea for the South Terminal originated with an environmental scan revealing that the ultra-low-cost airline model, which had already been successfully used in Asia (AirAsia) and Europe (Ryanair), would soon be adopted in the Mexican marketplace. Reasoning that the Airport would eventually be competing with the airports in Houston and San Antonio for potential trans- border service operated by this type of airline, the Department of Aviation decided to contact the ultra- low-cost Mexican airline, VivaAerobus. In an article in Airport Business Magazine, Mr. Smith explained that "Once we started to get into negotiations with VivaAerobus, it became clear to us that to compete successfully, we needed to differentiate our product. In addition to having the main [Barbara Jordan] terminal here, we needed to have the type of facility that was more suited to the business model of these carriers."a To meet the needs of VivaAerobus and other ultra-low-cost airlines, the Department of Aviation entered into a partnership with General Electric's subsidiary, GE Commercial Aviation Services (GECAS), to operate a stream- lined, one-story terminal building (previously owned by the National Guard) with no jet bridges or complex baggage system and common use holdrooms, gates, and ticket counter areas. GECAS also operated the parking and rental car facilities at the terminal, while the Department of Aviation operated the airfield and security. The reduced frills level allowed the Department of Aviation to charge rental rates at the South Terminal that were roughly half of what the airlines in the main terminal building paid. However, the airlines operating at the South Terminal paid the same airfield charges as the airlines operating at the main terminal. VivaAerobus started with twice-weekly service to Cancun and Monterrey, Mexico, in May 2008 and added new service between the Airport and Puerto Vallarta, Mexico, in January 2009. In fall 2008, VivaAerobus, which is partly owned by the large Mexican bus group, IAMSA, also began offering $20 bus service between the South Terminal and downtown San Antonio and Houston. This unique service competitively benefitted the Airport as well, by expanding the Airport's catchment area to include passengers in the San Antonio and Houston areas. In June 2009, however, the negative impact on bookings from the swine flu virus caused VivaAerobus to announce a suspension of its service from Austin. The Airport has temporarily closed the terminal until a new ultra-low-cost carrier can be recruited to begin new service. aJohn F. Infanger, "A Need to Differentiate," Airport Business Magazine, January 2008. Available at http://www.airportbusiness.com/ print/Airport-Business-Magazine/A-Need-To-Differentiate/1$16502. 7.2.3 Focus Organizations that use focus strategies concentrate on a particular niche segment of the mar- ket and within that segment attempt to achieve either a cost advantage or differentiation. For example, in the airline industry, Allegiant Air uses a cost focus strategy by providing nonstop service to leisure travelers in smaller markets while maintaining low operating costs. OpenSkies, a British Airways affiliate, uses a differentiation focus strategy by offering a high level of service, including an all-business class (84 seats) configuration onboard its B-757-200 aircraft, to travel- ers in the New York-Paris market.
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94 Strategic Planning in the Airport Industry Table 7-1. Requirements for adopting generic strategies. Commonly Required Skills and Common Organizational Generic Strategy Resources Requirements Cost Leadership Ability to increase non-aeronautical Tight cost control; frequent, detailed revenue; efficient capital cost-control reports; structured development process; low-cost organization and responsibilities; access to funding; intense incentives based on meeting strict supervision of labor; common use quantitative targets. facilities. Differentiation Strong marketing abilities/resources; Strong coordination among deep local traffic/user base to marketing, facilities, and capital support different target markets/ development functions; subjective services offered; strong reputation of measurement and incentives instead airport in marketplace; access to of quantitative measures. sufficient funding to support product development initiatives. Focus Either of the above, directed at the Either of the above, directed at the particular market segment targeted. particular market segment targeted. Source: Adapted from John A. Pearce and Richard B. Robinson, Strategic Management: Formulation Implementation and Control, 9th ed. (New York: McGraw Hill, 2005), p. 196. An example of an airport where a cost focus strategy is used is St. Petersburg-Clearwater Inter- national Airport. The airport operator's vision for the future is to continue its low operating costs to attract new entrant airlines that provide low-cost, point-to-point service, as well as new inter- national nonstop transatlantic flights to Europe. An airport where a similar cost focus strategy is practiced is Phoenix-Mesa Gateway Airport. According to its 20082009 Strategic Business Plan, the Williams Gateway Airport Authority (the airport operator) strategy is to provide a very low cost operation to the airlines to encourage the establishment of passenger airline service at the airport as an alternative to Phoenix Sky Harbor International Airport.87 The Authority would specifically like to position the airport as a reliever airport for point-to-point North American service. The Williams Gateway Airport Authority is also pursuing the same strategy for air cargo, as the City of Phoenix does not intend to build addi- tional cargo facilities at Phoenix Sky Harbor International Airport. An example of an airport where a differentiation focus strategy has been adopted is Fort Worth Alliance Airport. The first purely industrial airport in the western hemisphere is the anchor of a thriving master-planned development focused on intermodal distribution and residential devel- opment. A differentiation focus strategy has also been adopted at Rickenbacker International Airport in Columbus, Ohio, where the focus is on air cargo operations and charter passenger services. Table 7-1 shows requirements for successfully adopting a particular generic strategy. Risks associated with each of the generic strategies are as follows: Cost Leadership: · Myopic viewpoint toward cost reduction (overlooks user wants and needs) · Rivals may successfully imitate the low-cost strategy · Heavy investment in a low-cost approach can lock an organization into this strategy 87 Williams Gateway Airport Authority, Phoenix-Mesa Gateway Airport Strategic Business Plan: Fiscal Year 20082009. Available online at: http://www.phxmesagateway.org/Documents/Reports/2008-2009%20Strategic%20Business%20Plan.pdf (accessed May 28, 2009).