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Performing a SWOT analysis on the Hong Kong Airport

1. Perform a SWOT analysis on the HK airport. Use the case material and the most recent annual report available online.

2. If this airport was privatized and you could acquire a stake in the airport would you recommend this as an investment? Explain your answer

3. How Serious are CIAL’s financial Difficulties?

4. What should Rajeev do to try to put the airport on a more profitable footing?

5. Should a facility like CIAL be self-supporting from user charges? What are the Pro’s and Con’s?

6. Should a facility like CIAL be built and operated by the private sector or public sector?

7. What was the Perfect Storm in 2001?

8. What does it take to manage over a sustained crisis? How well did Felder do?

9. What other Airports compete with Orlando MCO for business?  How Large of a threat are these Airports to MCO?

10. What is MCO’s Value Proposition to Airlines? Assume you are with Emirates route planning; is MCO’s Value Proposition appealing?

The SWOT analysis of the Hong Kong Airport is as follows:

  1. Consistent and competent on-airport amenities: According to Lee (2017) the Hong Kong International Airport (HKIA) has a strong competitive advantage in the market. It has secured fifth position in the best terminals as per a recent survey. It has secured top position for dinning and has been in the top 10 for its hotels, cleanliness, staff service and shopping.
  2. Fully- developed logistics infrastructure and freight management capacity: While in the best airport category, it has been on the fifth position amongst the world’s most profitable airports. The HKIA delivered a profit of HK$ 8.35 Billion in the FY 2015-2016. In the year 2016, the airport managed 70.5 Million passengers and more than 410000 flights. It has claimed to be the world’s busiest cargo hub managing the cargo of 4.52 Million tons in 2016.
  3. Well-organized passenger facilities: The HKIA catering to the diverse necessities of the passengers, the airport has enhanced many of its facilities such as enhancement in the capacity of the automatic passenger clearance system through the addition of 18 e-channels in the arrival and departure immigration halls. With the addition of these e –channels, the waiting time of the passengers will be decreased thereby helping in smooth customer flows. In the year 2016, a caring corner of 140 square meter has been opened for passengers with special needs and those with decreased mobility including the elderly and pregnant women (Hong Kong International Airport, 2017).
  1. High terminal cost of the cargo: Due to the lack of government subsidies and initiatives, the terminal cost of the cargo has increased as compared to the previous years. Besides this, a major expansion is construct a run way is due in 2023 costing HK$ 141.5 Billion.
  2. Inefficiency in handling the customer and cargo load: As HKIA is becoming more developed, the number of travellers moving to and from the territory has increased. In the year 2015 it saw the movement of 68 million customers and it is the busiest cargo hub in the world. As a result, the total travel time from Hong Kong has increased by half an hour as compared to 1999. So, the limitations will also affect the mobility of the transport planes which will slow down the economic growth of the territory.
  3. Lack of proper management: According to Cheng (2015) the existing runways are underutilized and HKIA is planning to construct another runway. The construction of third runway would increase the depletion of the natural environment and is a mere wastage of resources. The director general of civil aviation has restricted the aircraft movements to 64 flights per hour which is below the international standards. The efficiency can only be improved by enhancing the efficiency of the runway so that it can manage more aircraft movements.
  1. Increased demand for budget airlines: According to Sze et al. (2015) there is an increasing demand for budgeted airlines. As per the recent research executed by the Public Opinion Program at the University of Hong Kong, about 70 % of citizens of Hong Kong expressed their interest in travelling on a lost cost carrier. So, there are huge possibilities for the growth of the budgeted airlines on the HKIA.
  2. Competitive geographical location: The duration to reach the HKIA from countries including India and China is less than five flying hours. It has made HKIA competitive in the budget airline industry.
  1. Limitations of the Hong Kong International Airport and its policies: The Hong Kong International Airport is a challenging market for budget carriers as it has high servicing costs and is more restricted. The HKIA being a single airport has high landing fees. The airport does not grant any discounts on the landing fees to the budgeted airlines.  So as a result there are problems relating to the competitive from allotment for slots and high landing fees which can hamper the development of the airport.
  2. Slot congestion and traditional modes of air traffic control: The HKIA is already running at its full capacity. With the warning of the aviation officials, drastic measures are needed to divert the air traffic and cargo air carriers.

In the FY year 2016-17, it was analyzed that the passenger traffic was increased by 1.1 % to 70.5 Million thereby exceeding the 70 million mark for the first time in the history of HKIA. Also, the cargo mobility was increased by 6.7 % to 4.6 Million tones whereas   the movements of the flights were increased by 0.1 % to 410 thousand (Hong Kong International Airport, 2017).

Also, the revenue has increased from HK$ 18184 Million to HK$ 18627 Million thereby recording an increase of 2.4 % from the previous year. The debt equity ratio of the company has been arrived to the ideal ratio of 2% which is a good indication of the financial health of the company.  HKIA has been given AAA credit ratings by the Standards and Poor’s. However, the profits available for the shareholders have decreased from HK$ 8359 Million to HK$ 8276 Million thus recording a decrease of 1 % as compared to previous year. But considering the overall scenario, it can be said that it is recommendable to invest in the airport, if it gets privatized.

 The series of financial difficulties started when the Airport Authority of India (AAI) which managed all the domestic and international airports, announced to close the Cochin airport because of its inability to develop the airport. There was no scope for its up gradation and to accommodate the larger airplanes which Indian Airlines was planning to introduce. The approval was granted for the new location but the financial constraints did not permit the Airport Authority to invest in the project (CIAL, 2018).

Evaluating the privatization of airports

With the help of the Mr. V.J.Kurian   , an IAS officer of 1983 batch, who accepted the challenge to reestablish the airport, the project was estimated at a budget of Rs. 200 Crores. Since the Government of Kerala was not financially strong enough to bear the financial burden of the budget, Mr. Kurian developed the idea of joint participation of the public and private ventures. With the help of the financial assistance of the Airport users who were mainly the Non Residential Indians working in the gulf countries and the Government of Kerala, the development of the Cochin International Airport paved a way for the establishment of many other airports subsequently.

Mr. Rajeev should take the following steps to put the airport in a more profitable condition:

  1. New shops shall be opened on the departure gates. Shops relating to the retail outlets including the duty free markets and   the international sim card kiosks can be opened in the international terminals. The local stores specializing and representing the Indian traditional  culture should be opened at the airport.
  2. The Italian coffee shops and bakery items including the local sweets and saviors of India will help in generating revenue from the foreigners at the airport. They should be provided at the subsidized rates to increase the sales and profitability of the Cochin airport.
  3. The Flybus services should be started for the tourists to help them to connect to the various parts of the state easily (Kempegowda International Airport Bengaluru, 2017).
  4. Also, various cultural events and shopping carnivals should be organized at the airport premises to attract the international tourists and increase the revenue of the airport. These shopping carnivals should represent the culture of the state to give the tourists an enhanced experience. They should be traditionally welcomed at the airport, so that they would visit Kerala repeatedly thereby increasing the revenue of the airport and the state as well (Otieno and Govender, 2016).
  5. The human resources at the airport should be well trained and well versed in different international languages to enhance customer service experiences.
  6. Furthermore, the leadership development programs at the Senior Management Level should be organized to train the senior staff to focus on customer centricity. The functional and technical capability enhancement programs shall be organized to train the technical staff at all the levels.
  7. The Grievance redressal mechanisms shall be put in place so that the customers can register their complaints and get them resolved at the earliest . Customer Satisfaction pays and it is the sole technique to help the airport generate more sales and profitability (Chumakova, 2014). 
  8. The implementation of the efficient methods which will help to minimize the time of check-in, immigration and security checks thereby enabling the minimize the passenger stress and maximize the dwell time inside . It will increase their shopping time as the shopping behavior is dependent upon passenger mood, availability and time.
  9. Additionally, a balanced retail offering should be provided to optimize the revenue. Hence food should be provided in a low cost carrier environment while fashion accessories and perfumes can be provided in a premium carrier environment.
  10. There are growing expectations of the customers regarding the provision of Wi-Fi on the airports. There should be free Wi Fi facility on the airport which could be used for tracking the foot traffic on its premises which will help the vendors to message the special offers pertaining to the location (Domingo and Martín,2016).
  11. The smart security technology should be adopted for tracing security threats. The airport should be designed to include this technology without hampering the processing time and increasing the stress of the passengers.
  12. Lastly, the optimum terminal arrangement can assist in an efficient building design, thereby lowering the overall costs. The establishment of the longer link bridges will increase the convenience of the customers thereby minimizing the wastage of their time .

The advantages of  charging user fees  by CIAL are:

  1. By the imposition of Rs. 500 fees on the international passengers, there would be additional revenue to the airport. It enhances the experience of the customers and helps them to make their travel time better. It helps in reducing flight delays as the user charges have led to fewer bags being checked in and thus the  planes board and take off faster.

Thus user fees are a good method to finance a publicly provided service because it reveals the cost of providing the service to the customers (Brannon, 2018).

  1. Due to inflation, the revenues of the airlines have been decreasing so it is logical to charge user fees at the CIAL. It helps the airport to borrow against its future incomes to develop itself. The user charges can help the airport to finance its new projects.
  2. Also the user charges are beneficial for imposing the cost upon those who use the services of the airport. It avoids the service from being overused. It helps to put a value to that service (George, 2015).

The disadvantages for charging user fees by CIAL are:

  1. By charging user fees at the CIAL, there is a fear of dropping the passenger count. This would further lower the demand for air travel. It will become a burden for the low class customers and they would shift their preference from air travel to the other mode of transport.
  2. The travelers travelling to nearby destinations viz. Chennai, Hyderabad and Bangalore have shifted their choices by travelling in trains and buses because the air travel is becoming more expensive. So, in the case of low fare air carriers, the CIAL should not charge user fees from its customers (Gillen and Morrison, 2015).  
  3. Many of the user charges implemented may not provide the right economic incentive for the airport authorities. Some of the user charges should not be charged. Thus the risk of the undertaking must be borne by the owners and not by the customers (Airlines.IATA, 2014).

The advantages of the government held airports are many as it emphasizes on the role played by the government in managing the airport. The attitude towards the government owned and administered airports are that of the public utility service responsibilities. So, because of the need to meet many objectives, the public sector enterprise does not necessarily commercialize the facility. It may have social objectives such as guarantee of safety and security for the passengers and employment creation (Gössling, Fichert and Forsyth, 2017).

Also, there are some disadvantages attributing to the public sector. The objectives of the government owned management are not clearly defined. They tend to change according to the political and social situations arising in the country.  There can be poorly designed customer services and a call for increased investments which can  create burden on  the tax payers (Singh,2016). 

The major advantage of private sector owned business model of airports is the enhanced ability of the airport to raise additional capital. It can seek new avenues for investments from the private market thereby improving the efficiency and minimizing the cost of production. It helps the airport to become more customer oriented and lessen the cost for the travellers.

Irrespective of the potential benefits of privatization of airports, it also increases the risk which is disadvantageous for the public policy. As the airports are observed as the crucial catalysts for the local economic growth, so the public believes that the government should play an important role in evolving and monitoring the administration of the airports. So, the public at large trusts the government by keeping it involved in the regulation and supervision of the airport. Without the involvement of the government, privatization of the airports would bring more user charges and landing fees which would result in higher ticket charges for the customers (Gleave and Move, 2016).

Understanding CIAL’s financial difficulties

However, CIAL should be built and operated by the private sector as it has more advantages and would add on to the efficiency of the airport services. It can enter into agreements with government enterprises to provide the services to its customers at subsidized rates thereby helping it becoming customer centric (Tomová, 2017).

The perfect storm in the context of Zurich airport   had arisen due many factors. Firstly, after the 9/11 terror attacks, very few passengers passed through the airport as most of the flights between US and Switzerland were cancelled. As a result the travellers travelling through the airlines were reluctant.

Secondly, the financial backer of the airport’s infrastructure expansion project amounting to SFr. 2.2 Billion cancelled the project due to which several half-finished projects were left with indeterminate future (European Commission, 2017).

Additionally, in the early October, the bankruptcy of Switzerland’s national airline removed 40 % of the airline traffic and prospective revenue.  To add on the misery, after a month an airplane crashed while the taking off in which all the passengers and pilots were killed (Next Gen Leaders Club, 2017).

Also, Sussie, an arm of the Swiss Aviation Insurance pool and the provider of war and terrorism insurance of the Zurich airport canceled its policy . Without the insurance, the Zurich airport would be compelled to withdraw its operations and forced to close.  

Besides this, the European analysts suggested the investors to sell the stock of Zurich Airport. The concern was that due to the weak financial situation of Swissair, the revenue and the market value of the airport would come down and decrease its profits.

The above mentioned incidents had a great impact on the operations of the Zurich airport. The crucial event in this series was the bankruptcy of Swissair. It affected the revenues of the airport to a great extent. Coupled with the effect of the 9/11 attacks, the airlines came under intense financial strain and was unable to carry on its operations. So as a result it was unable to pay its landing fees and fuel. Hence, it was forced to ground all its aircrafts on October 2, 2001 thereby having a great impact on the revenue earning capability of the airport (Baker, 2014).

It led to the several crises for the airport. The disorder of the operations of the Swissair had an impact on the working of its subsidiaries and their commercial activities at the airport. It disturbed the accessibility to the working capital and the managements of the subsidiaries were dried out of cash. It affected the operational activities and revenue generation of the Zurich airport to a great extent.  

Exploring the Pros and Cons of charging user fees

To manage the crisis of the ‘Perfect Storm’ Mr. Felder chose the privatization initiative to revive the management of the airport. It consisted of integration of the management of two separate organizations which had managed   the airport for 50 years.  He selected 10 members for his team consisting of young, energetic and inexperienced executives who did not have the exposure to work in the senior level management.

As a chief executive of Flughafen –Immobilien-Gesellschaft (FIG), Felder assessed all the operations of the airport and began to develop the strategic plans to privatize the airport and integrate the management of FIG and Flughafen Direktion Zurich (FDZ). He worked with his team to formulate the plans regarding the management of the significant threats confronted by the airport (AMADEUS, 2016).

In this process the political influence played an important role. The process of public opinion was conducted for the privatization of the airport. The main issues confronted by Felder in  sorting the public opinion was their concerns regarding the  privatized airport and the environmental issues arising out of the establishment  of the fifth expansion  initiative  which increased the  yearly occupying  capacity of the airport from 18 million to 34 million travellers .

Finally in 2001, with the passing of the privatization law regarding the public airports and the permission of the public referendum, the airport as granted a lease concession of 50 years.   

When the aircrafts of Swissair were grounded, Felder assisted the confused passengers and helped by handling blankets to them. He formulated a crisis management team who had a 24 hour presence at the airport. The team assisted the passengers and arranged emergency accommodations for them (Koç and Durmaz, 2015).  

Post 9/11 attacks, Felder formulated a crisis team of 10-15 personnel to manage the situations in case Swissair would go bankrupt. The heads of daily operations, IT, communications and security were included in the team. The team met twice or thrice in a day to discuss actions and review the changes to manage the after effects of the Swissair grounding. Felder made a lot of efforts to ensure to the public that Zurich airport was open for business.  

The Miami international Airport (MIA), Los Angeles International Airport and John F. Kennedy Airport are the largest competitors of Orlando MCO in terms of business. The largest threats posed by these airports are passenger traffic of their airlines. Miami airport is the 28th busiest airport in the world while MCO stands next to it. So, Miami airport is the biggest competitor of MCO (Orlando International Airport MCO, 2018).

Discussing the private sector involvement in airport management

MIA serves approximately 80 airlines while 50 airlines are served by MCO. Apart from this, Miami has recorded it presence in the intentional market. MIA has posed a real threat to MCO as most of the passengers were willing to cover360 kilometers to bypass a connecting flight to an international city.

The value propositions of MCO in the context of airlines are many. Since Orlando International Airport is the 13th busiest airport in the country and 29th busiest airport worldwide, so its four parallel runways and 96 gates are capable of handling the largest aircrafts. Due to its bigger available space as compared to its competitors, it handles more than 30 domestic and international aircrafts which results in the lowest cost per passenger at the MCO airport.

In the context of Emirates route planning, the value of proposition of MCO can be helpful. Since Emirates operate in the Middle East Countries, the airlines cover a long distance from the middle east to U.S., so the airlines would get a sufficient space for its aircraft to be parked for longer hours( Kamarudin, n.d.).

The second value proposition of MCO is that with the help of its operational efficiency and flexibility of the IT systems, the airport could enhance the experience of the passengers as well as the airlines. These are important parameters as they have a great influence on the capability of the airport to deliver effective operations on the ground level to smoothen the management of the airlines as well as to provide a comfortable journey to the passengers (Nõmmik and Antov , 2017).   

In the context of Emirates route planning, this value proposition of MCO can assist in enhancing the experience of the customers of the Emirates as well as that of the airlines. With the help of its high tech infrastructure including easy accessibility to the highly trained and qualified workforce and efficient systems to manage and regulate the internal management of the airport, the airlines would be able to manage their operations efficiently (Accenture, 2017).

Lastly, with the help of trained and qualified workforce, the airport can access to the customers of the airlines in a better way. In this manner, the airport would be more customers centric and would help Emirates in generating more revenue. However, due to the pre conceived notions of the customers, the airport or the airlines might not be able to enhance their experiences (Sricharoenpramong, 2018).

Analyzing the Perfect Storm in 2001 and Felder's management crisis


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