The north-south divide in Europe is much in evidence, although struggling French flag carrier Air France has also made significant strides in reinvigorating feed at its Paris/Charles de Gaulle hub. Yet the challenges facing all these carriers, as they seek to implement a viable hubbing strategy, range from capacity and regulatory restrictions to operational and yield management issues.
Congestions at two of Europe's largest airports has caused a major shift in the hubbing strategies of the main 'home' carriers, with both Lufthansa and British Airways looking beyond Frankfurt and London/ Heathrow, respectively, to build supplementary hubs.
Lufthansa has selected Munich to take overspill from its main hub at Frankfurt. 'Traffic development demands additional capacity and as further expansion at Frankfurt was hindered, Lufthansa looked to the new Munich airport with its available capacity and slots,' says Walter Prensler, Lufthansa's network planning director. The carrier is focusing on establishing European feeder operations at Munich first and then plans to add a comprehensive intercontinental route network. The new hub in southeast Germany already offers five intercontinental destinations, as well as 60 continental routes operating through a three wave system, explains Martin Gaebges, Lufthansa's corporate strategy manager.
Lufthansa is also planning to strengthen its main hub at Frankfurt by increasing the number of waves from four to five within the next three years. The hub already offers 115 European and 61 intercontinental destinations, with a connection time of 45 minutes, says Prensler.
In the UK, traffic growth and capacity constraints at Heathrow have forced BA to alter its hubbing strategy radically over the last four years, leading the airline to develop an alternative hub at London/Gatwick. This in turn brought its own challenges as the UK carrier has had to work hard to overcome Gatwick's predominant charter image. 'British Airways has tried to kill off Gatwick's former image as a bucket and spade charter airport, promoting it instead as a international rival to Heathrow. People forget that Gatwick is one of the ten largest airports in the world for international passengers,' says John Patterson, director of strategy at British Airways. Gatwick now has 2,500 flight connections linking 48 cities daily.
The stimulus for British Airways' growth at Gatwick was the airline's takeover of UK independent Dan-Air in late 1992, which provided a badly needed, low-cost platform for expansion. The airline further boosted the hub when it moved 11 weekly central and east African services to Gatwick from Heathrow earlier this year. The carrier then focused on pricing in an attempt to attract the higher yield business traffic to the airport and strengthened its presence by launching further shorthaul services both itself and in conjunction with its franchise partners. A £4 million ($6 million) advertising campaign, promoting Gatwick as 'the hub without the hubbub', is also aimed at laying to rest the lingering perception of the airport as Heathrow's poor relation.
Patterson concedes, however, that Heathrow remains BA's lifeblood. 'Heathrow boasts an unique geographical position, on the way from Europe to the US. A large part of BA's success has been shipping passengers into Heathrow from the continent on shorthaul flights and then on to the US.'
According to Patterson, the development of Heathrow as a major hub has centred on establishing infrastructure able to cater for this transfer traffic, following a reassessment of the airport, which highlighted some shortcomings. A transfer study conducted in collaboration with the airport's operator, BAA, resulted in the building of a £20 million Flight Connections Centre, which opened in October 1994. The centre streamlines transfer procedures and has improved facilities for business travellers. The phased introduction of a new baggage transfer system began earlier this year.
According to Ed Smick, vice president at consultants SH&E, Heathrow exemplifies the increasing role airports are playing in carriers' hub concepts. 'Carriers now need to offer transfer passengers a range of luxury facilities, such as showers and fitness centres, at their hubs to remain competitive.'
In the future, British Airways aims to overcome capacity constraints at Heathrow by using larger aircraft, such as the proposed stretch of the B747. BA is hoping to coincide reaching saturation point at Gatwick with the completion of the proposed terminal five at Heathrow. The new terminal is planned to open in 2003 but must first come through an ongoing public enquiry unscathed.
The threat of constraints at KLM's Amsterdam/Schiphol hub is the result of a recent decision by the Dutch government to impose strict traffic limitations. The legislation limits the passenger capacity of KLM's hub to 44 million. Although Schiphol's 24 million passengers currently falls far below that mark, revised projections show that the capacity limit is likely to be reached much sooner than original projection of 2015. Completion of a fifth runway, scheduled for 2003, may need to be brought forward, to cope with the projected growth.
KLM means to combat the passenger limit by being more selective about the type of traveller it takes through its hub. 'When we hit the passenger capacity ceiling, KLM will home in on its main revenue generators, the longhaul passengers,' says Hans de Roos, director of planning at KLM. The introduction of high speed European rail services, such as the recent Amsterdam- Paris linkup, will help enlarge the airport's catchment area and curb demand for shorthaul air travel. Like other major European carriers, KLM is shifting more of its thinner routes to its regional partners.
KLM has redesigned its hub to capitalise on the shift towards more longhaul services, following a benchmark study of hubs in North America, southeast Asia and Europe. The Dutch carrier plans to expand the number of waves from three to six by winter 1997 with an overall objective of increasing connections by 60 per cent over the next two years. Waves will be added at the beginning, middle and end of the day to enable the airline to offer business travellers same-day returns from the major European commercial centres. KLM has previously neglected this segment of the business market. Improved passenger handling at Schiphol will also ease congestion during peak periods.
At the heart of KLM's hubbing strategy, however, lies a sophisticated yield management system. The system is currently being upgraded under a project dubbed Future Generation Revenue Management. 'This aims to move revenue management from segment control to origin and destination control, which will be geared more to the passenger's overall journey and the fare he pays,' de Roos says.
Smick of SH&E concurs and suggests that hubs will falter if an effective yield management system is not in place. 'Airlines need to discriminate between lower and higher fare passengers and work out the right fare level for a service. US hubs only took off when they adopted the system'. David Stuart of Mercer Consulting agrees that Europe's carriers need yield management systems to make their hubs competitive and suggests Europe will witness an increase in price wars as a result.
Air France is currently working on a yield management system and acknowledges that it must be in place before its redesigned hub at Paris/CDG can achieve the estimated FFr1 billion (US$193 million) annual revenue boost.
The French flag carrier has been slow off the starting blocks in the race to build a viable hub. Air France says 'hubbing is one of the three or four strategic factors which airlines cannot afford to ignore', yet the carrier only inaugurated the new hub at the end of March this year. 'The principle and knowledge were in place before; what was lacking was the implementation,' explains Bruno Matheu, vice president of scheduling at Air France. The architect of the hub is Rakesh Gangwal, formerly of United Airlines, and now back in the US at USAir. He started design work on the hub in June 1995, simplifying its itinerary to facilitate processes, then reducing the number of waves from eight to five.
Air France is already reaping the benefits of the new system, offering 8.5 per cent more longhaul flights and 6 per cent more European flights. The airline boasts it has 177 per cent more European to longhaul connections, 90 per cent more intra-European connections and 77 per cent more origin and destination markets. It has set a target of a 43 to 50 per cent increase in connecting passengers by tapping new sixth freedom markets.
In Smick's opinion, however, high domestic volume dulls the urgency at the French carrier to pursue a more aggressive hubbing policy. Air France has failed to adopt a series of suggestions made by SH&E, which was asked to evaluate the hub's potential benefits by Air France's bankers. The carrier rejected the principal proposals of using smaller aircraft and complimentary connections for traffic flows from North America to other European cities via Paris without an overnight stopover. This is 'why Air France will still run to the European Commission for help,' Smick warns.
While some airlines are looking to secondary hubs because of capacity constraints, Swissair has been forced to concentrate its resources at one hub on economic and operational grounds. Swissair's efforts to maintain hubs at both Geneva and Zürich meant that neither was served effectively, making them unprofitable. Swissair is now concentrating most of its intercontinental operations at Zürich - the consolidation should be in place for the carrier's winter 1996 timetable. A fourth wave will be added at Zürich, moving North Atlantic departures forward from the present midday peak time to a new mid-morning slot, thereby easing congestion and freeing up capacity.
The move has led to strong protests from the Geneva business community, which the federal government is trying to placate with promises of encouraging a new carrier to offer direct longhaul services from the city in the southwestern corner of Switzerland. Although located centrally in Europe, politically Switzerland is isolated from the European Union and the liberalisation process. Full liberalisation in 1997 will theoretically allow EU carriers to establish hubs in any member state. Swissair, therefore, took a 49.5 per cent stake in Sabena, and gained a foothold in the single European market through the Belgian carrier's Brussels hub.
According to Erik Follet, vice-president of planning and scheduling at Sabena, the Swissair-Sabena alliance confirms the Belgian carrier's commitment to developing its hub. 'Since the start of this summer, Sabena and Swissair have invested in a high frequency link between Brussels, Zürich and Geneva as well as in the RJ85, to harmonise the airlines' fleet,' Follet said. East-west and south-north traffic patterns are scheduled into a three-wave system at the Brussels hub, though Sabena intends to increase the number of waves to five by increasing capacity and including intercontinental routes into the system.
Airlines are increasingly turning towards alliances to capitalise on routes better served from their partner's hub. KLM acknowledges that its needs a number of European partners to ensure adequate market coverage. 'KLM wants to set up a global airline system, with room for several European partners, allowing KLM to offer destinations better served from other parts of Europe,' says de Roos.
Lufthansa, on the other hand, already has a strong European partner in SAS. The two carriers are developing codeshare services over each other's hubs. Lufthansa will feed its traffic into SAS' Copenhagen hub to connect on to northeast Asian and northern European services. SAS in turn will feed into Lufthansa's system at Frankfurt and Munich. 'Frankfurt, and to a lesser extent Munich, are convenient hubs for traffic between Scandinavia and South America, Africa, the Middle East and parts of southern Europe and Asia,' explains Mats Valinger, SAS' vice-president of strategic development.
Within its own operations, the Scandinavian carrier's tri-national ownership structure means it has to operate three hubs, of sorts, at Oslo, Stockholm and Copenhagen. Oslo and Stockholm operate on a two wave system and cater for domestic, intra-domestic and some international traffic. In contrast, five waves operate out of Copenhagen - SAS' main hub owing to its prime geographical position in Scandinavia.
In contrast, little progress has been made by southern European carriers in establishing a viable hubbing system. Geographical isolation at the extremities of the continent make it hard to compete with the more natural traffic flows into the hubs of northern Europe. This leaves carriers, such as TAP Air Portugal, with little option but to establish niche hubs to secondary destinations or concentrate on point to point service, suggests Richard Bond of consultants Arthur D Little.
Some observers are sceptical about other southern European carriers' hub strategies. Bond questions why Alitalia plans to develop a northern hub in 2000 at Milan/Malpensa, to supplement its main Rome/ Fiumicino hub, and suggests Torino would be a better alternative. 'Torino would be an ideal location for a hub - Alitalia could flow passengers from the Iberian peninsular or southern France to southeast Europe. Milan is cumbersome to deal with.'
Southern Europe's carriers have done little to prepare for the potential increase in competition when full liberalisation comes into force, although most will be hoping their governments will continue to afford them the protection they have grown accustomed to.
Global alliance building, particularly with the strengthening of ties with US majors, will further heighten competition between the key European hubs, and southern carriers will falter as the increasingly uneven balance tilts further towards the north. Certainly BA's Patterson feels that the US majors' experience can only help their European partners. 'The major European hubs will benefit via alliances from American expertise in hub management,' he says. The UK carrier's alliance with American Airlines should help it to address the imbalance in traffic flows over the Atlantic. BA has succeeded in staging European passengers over Heathrow into the US, but has been less successful in the opposite direction, says Patterson.
In the short term, hub development may be eclipsed by more pressing operational and strategic issues as alliances continue to develop. But eventually the hubs of Europe's major airlines will become their main competitive tool in a single aviation market. Cultural and national differences may still influence consumer choice, but an airline operating out of a well established hub will ultimately be able to offer prices and services that European longhaul travellers, at least, will find hard to resist.
In the short term, hub development may be eclipsed by more pressing operational and strategic issues as alliances continue to develop. But eventually the hubs of Europe's major airlines will become their main competitive tool in a single aviation market. Cultural and national differences may still influence consumer choice, but an airline operating out of a well established hub will ultimately be able to offer prices and services that European longhaul travellers, at least, will find hard to resist.
Source: Airline Business