Multiple Hub Network Choice in the Liberalized European Market

A key question that so far has received relatively little attention in the germane literature is that of the changes at various airports as a result of the EU liberalization policies. That is, presently, most major European airports still benefit from the so-called home-carrier phenomenon where the country's publicly or semi-publicly owned carrier uses the country's main airport as its gateway hub and, consequently, the home-carrier is also the principal user of this airport (in terms of proportion of total aircraft movements, number of passengers transported, connections, slots ownership, etc.). The country's main airport has substantially benefited from these monopoly conditions of airline captivity, strongly determined by the bilateral system of international air transport regulation. Therefore, European major airports were used to operate in essentially different markets, compared to the increasingly competitive markets of their home based carriers. This partly explains relative stability of transport volumes and financial results of European major airports compared to the relatively volatile financial results of most European national airlines. However, the liberalization of European aviation is likely to change this situation. Market access is open now to all community carriers, i.e. carriers with majority ownership and effective control in the hands of EU citizens. Ticket prices are free, governments can only intervene in case of dumping or excessive pricing. A community airline can choose its seat in any of the 15 member states. Licensing procedures are harmonized between member states. In the last few months community carriers have had unrestricted route access within the EU. Most probably this development will be extended to countries inside and outside Europe. Last year the European Commission got the mandate to start negotiations with 10 other European countries. In the meantime the EC has also started negotiations with the USA on so-called soft rights. In the meantime, open skies agreements have been concluded between the USA and most of the EU member states to facilitate strategic alliances between airlines of the states involved. As a result of this on-going liberalization the model of the single 'national' carrier using the national home base as its single hub for the designated third, fourth and sixth freedom operations will stepwise disappear. Within the EU the concept of the national carrier has already been replaced by that of the community carrier. State ownership in more and more European carriers is reduced. On the longer run mergers or even bankruptcy will further undermine the "single national carrier - single national hub" model in Europe. In the meantime, strategic alliances between national carriers in Europe will already reduce the airlines' loyalty to a single airport. Profit maximization and accountability to share holders will supersede the loyalty of these newly emerging alliances, probably looking for the opportunities of a multiple hub network to adequately cover the whole European market. As a consequence, some European airports might see a substantial decline in arriving, departing and transfer traffic, thus in revenues and financial solvency, as well as in their connection to other inter-continental and intra-European destinations. At the same time, other airports might realize a significant increase in traffic as they will be sought after by the profit maximizing airlines as their major gateway hubs. Which will be the losing airports and which will be the winning ones? Can airports anticipate the actions of airlines in deregulated markets and utilize policies which will improve their relative position? If so, what should be these anticipatory policies? These questions become the more urgent, since an increasing number of major European airports will be privatized in the near future. Although increasing airport congestion in Europe will also be reflected in a growing demand pressure for airport slots, this is not a guarantee for a stable transport volume growth of individual airports. The more volatile the market is, the more vulnerable privatized airports become. Therefore, the main issue of this study is the analysis of the opportunities of major European airports to become a central hub as a result of the network choices made by the new European airlines in a completely liberalized market. In a previous study (Berechman and de Wit, 1996), we already explored the potential of Amsterdam Airport Schiphol of becoming the major West-European hub, once European aviation markets are deregulated. A major hindrance of that study was the use of a single hub-and-spoke network. For example that model could not analyze the viability of different combinations of European hubs within a multiple hub network of alternative airline alliances. In this study, we have formulated the model of a multi-hub network where two West-European airports are used for inter-continental and intra-European travel to enable a more realistic analysis of hub choice. Like the previous one also this multi-hub model is primarily used to assess the potential ability of Amsterdam Airport Schiphol for becoming a major West-European hub. Thus, in particular, the policy tests focus on this airport in a double hub network.