Research: The Competitiveness of the Istanbul Hub Airport

Chapter One

1.0 Introduction

In this chapter, the researcher will examine the background information about the Istanbul hub. A brief history of the hub will be given to establishing the basis of the study, which will involve the background, the statement of the problem and the objectives of the study.

1.1 Background Information

Istanbul is the main airport that is situated on the Rumelia side in Turkey. The airport was modernized in the year 2000 and its plan to extend went up to 2004. The airport has got a significant ability to carry a capacity of 20 million passengers per year. There is a new airport though that is in the plan of construction in Istanbul and it will amount to three when it is through. Istanbul has got six runways, and there are expectations that in time the airport will turn out to be one of the biggest airports in the world, serving more than 350 destinations and over 200 million of passengers per year. There have been plans to extend the airport, and a budget of 300 million pounds was issued to put additional capacity, terminals, and runways. There are two types of the airport so far with the addition of the one that is yet to be completed mounting to three. The two complete ones are the Ataturk and Sabiha.

1.2 Statement of the problemWith the glamorous design and structure that have been used to construct Istanbul hub airport, it is expected that the hub will beat away the competition by crowning glory to the passengers. Being the world largest aviation project in the 21st century, Istanbul is expected to serve more than 150 million passengers per annum. Such improvements will bring significant development in Turkey as the hub will expose some of the internationally recognized hub airports such as the Dubai International Airport that serve 70 million passengers per annum. With all these expectations in mind, it raised a concern to the researcher. The researcher opted to conduct an investigation with an aim of answering the question; how competitive is the Istanbul airport as a hub?

1.3 Research Objectives

The paper will have the following objectives that will reflect on the whole thesis. The objectives will entail:

- to determine what a hub is;

- to find out the criteria that can be used to make a hub exists;

- to identify how the competitiveness of the airport can be measured;

- to determine the competitiveness of the Istanbul hub airport.

The next section will discuss on the literature review mainly exploring on the scholarly materials that has been researched by different authors.

Chapter Two

2.0 Literature Review

2.1 What is a HUB and how they are created

There is no particular definition of a hub that is conventionally accepted. Some scholars define a hub as a big airport with many direct flights. Others define it as airports that are used as gateways to multiple destinations. A hub airport can also be identified as an airport that airlines use to transfer facilities for passengers who need to change planes prior to reaching their destinations. This paper will employ the definition of a hub airport as a concentration of air transport movement at a given airport, which are scheduled with an aim of maximizing the connection opportunities among them. These three definitions of airport hub refer to the same thing, which is viewed from different perspectives by scholars. A hub airport can be analogous to a supermarket that works to create economies of scale by the pooling demand to maximize output. Airport hubs combine the demand for different destinations and frequent flights to maximize the number of passengers by filling the flights with those using a central airport as a stepping stone to other destinations making the routes more viable.

In the above hub network, Los Angeles and Denver are the designated hubs where a disproportionate number of flights are routed to them. A passenger willing to travel from Phoenix to San Fransisco cannot use a direct route. Instead, the passenger will travel to Los Angeles then take another plane to San Fransisco. Such an airline hub network allows the passengers to travel to various connecting flights to their final destinations through the myriad direct flights. However, some destinations are not served by direct flight, and therefore, travelers are forced to take some airlines that take them to a gateway where they can be connected to their final destination.

2.1.1 Significance of a hub airport

Hub airports are crucial as they create a virtuous circle of connectivity that aggregates the demand for passengers and freights by drawing on a comprehensive mix of longhaul and shorthaul flights. The virtuous circle created by the hub promotes the development of an original /destination (O/D) and transfer traffic. Many routes are developed as a thus enhancing the attractiveness of an airport. In addition, the concentration of services, benefits the freights through the establishment of logistics cluster due to the economies of scale.

2.1.2 Characteristics of a hub airport

2.1.2.1 Sufficient capacity

For a hub to be successful, it has to offer sufficient capacity, so that new routes and frequencies can be developed. Launching of new routes and frequencies allows the hub carriers to organize their flights in order to promote the hubs resilience in cases of disruption or delays. It also promotes quick transfer time for the passengers.

2.1.2.2 Optimized facilities

For a hub to operate successfully, it has to compete with its rival airports through the provision of modern facilities that will attract airlines, passengers and freights. In turn, the freights processing time will be reduced, as well as the costs.

2.1.2.3 Twenty-four hours of operation

Successful hub airports support passengers and freight operations for 24 hours to enhance connectivity which attracts a critical mass of demand to allow greater frequencies and routes.

2.1.3 How hub airports are created

The history of development and growth of hub airport can be traced back in 1978 when the United States of America Deregulated its domestic market. The deregulation stimulated the conversion of many airline networks into the hub and spoke networks. Later in the 1990s, intra-European Union market was liberalized leading to an intensification of airline hub and spoke networks. Other hubs such as Istanbul and Dubai have increasingly developed since then, and they are significantly competing with the already established European hub airports. By 2012, the newly developing hubs were competing substantially with the European hubs as indicated by the chart below.

2.2 Introduction

The logic behind coming up with a hub is convenient and eases of carrying out operations such as enabling the carrier to handle comfortably higher frequency flights, low parking charges and perhaps reduced taxes (Ham, 2009). The rate of airport development in Istanbul is very impressive taking into consideration the other part of a raft of infrastructure objects.

A massive capacity expansion is planned for the airports in Istanbul taking into account the competing private interests (Postorino, 2011). Among the various requirements that should be met by a hub include:

2.2.1 High level of connectivity

It is easy for passengers to connect with their next flights with as many flights as possible in a day. The airline has to be in a position to serve these passengers and remain profitable. Istanbul is well situated at the thriving center of Turkish Airlines where there are tremendously growing networks with an ability to operate in the developed countries in the world. Ataturk Airport has been very key to THYs ambition of rocking the airlines and hubs with an international and intercontinental airport hub location (Darke, 2014).

2.2.2 High origin

Destination traffic The Hub should cater for reduced traffic that is caused by taking different flights before getting to ones destination. For the local traffic, referring to anyone who flies into or out of the hub non-stop, the hub carrier could extract the non-stop premium from all the passengers who value the convenience of a non-stop over that of a connecting flight (Ham, 2009). These non-stop premiums are typically not big, but in our current world where the very thin margins matter, it is very significant. From reduced traffics, passengers enjoy minimal waiting time, especially when compared to the previous points.

2.2.3. High Capacity

An airport can handle large volumes of inbound-outbound as well as transiting traffic. The upcoming hub should be well placed to support comfortably as many flights per day. In so doing, the airport hub can gain higher profits by slightly raising the charges on the readily available departure times. The expansion of the initial airport should render it the ability to sustain this level without pressure to pull back the schedule (Shiu, 2013). Initially, Istanbul Ataturk airport attracted most travelers, setting the Turkish Airlines base on itself as the third-busiest airport in Europe. The airport experienced growth consistently which encountered the main obstacle to low capacity as the new hub raised its limit to about 60 million passengers per year (Transport, 2005). The upcoming Istanbul hub airport will tackle this problem better due to the increased capacity of serving about 150 million passengers annually and still having the potential to expand to serve 200 million passengers per annum (Shiu, 2013).

The population of the metro area served

The population of the metro area served by a hub airport is the major determining factor of how an airline operates based on the size of the local market. The largest cities in terms of population are the best for hubs. Istanbul records some of the busiest airlines in the world. It also has a large population with most people residing in the city and as such the metro-area served population has the potential to sustain such a hub. As a result of the strong and ever-growing demand for air traffic from the city, the new airport qualifies to be a hub.

Geographical location

The airports physical layout determines the potential of a hub airport to handle effectively high volumes of traffic and trans-con flights as well as intermediary shift point (Darke, 2014). Most ideal cities using the criteria of population and site station enjoy numerous benefits and stand out above the rest. The Istanbul hub will be constructed at the junction where the Gokturk, Arnavutkoy, and Catalca roads intersect. It also has the advantage of being situated in the north of Europe amidst the Black Sea regions of Akpinar and Yenikoy, a region that covers seven thousand, six hundred and fifty-nine hectares. It is also located near Lake Terkos and about thirty-five kilometers from the initial Ataturk airport. The Istanbuls new airport hub geographical location offers it an upper hand in relation to population and to site.

2.2.6 Weather and Climate

The hub airports that experience weather-related delays are more inconsistent as compared to those that are not affected by weather and climatic changes. Istanbul current location has no record of unfavorable weather conditions that would influence the performance of the airlines. Since the intended location is in the same vicinity, there is a high possibility that the new airport hub will not suffer from bad weather (Ham, 2009). The favorable climatic condition will place the Istanbul in a better position in the face of competition. As a result, the new airport qualifies to be a hub as most factors favor its establishment.

Terminal design and the physical airport layout

This aspect of the hub airport narrows down to the airport facilities. It helps in assessing whether the airport can accommodate additional traffic from the airline based on factors like the current gate availability and runway capacity. The airport should be well equipped to handle comfortably frequent flights without congestion(Chang, 1994). The largest airlines are those that are based in hub cities. It has the required infrastructure in place, such as the six runways, indoor and outdoor parking space and aircraft bridges for passengers at all terminals.

Infrastructure

An airport hub demands that the airport has good and favorable infrastructure that ensures easy fuelling and proper management of the airport. It should be able to contain high traffic turnovers (Ashford, 2011). The airport hub in Istanbul will have all these facilities ranging from hotels, aviation medical center, six runways, indoor and outdoor parking space, cargo and general aviation terminals, aircraft passenger bridges at all terminals, terminal buildings with rail access between them, ramp control towers , aircraft rescue and firefighting stations and an air traffic control tower. In a big way, this hub qualifies as far as facilities and infrastructure are concerned.

A hub airport aggregates demand passengers and freight

The hub airport builds a critical mass of demand for local origin/destination (O/D) and transfer traffic (Darke, 2014). This means giving support fully to a wide range of routes and frequencies that make the airport to be even more attractive. In turn, it supports more routes and frequencies, making a virtuous circle of connectivity that develops within the hub and bringing about convenience to the passengers. For those in the hubs catchment area, they enjoy a high level of direct connectivity regarding the routes and frequencies that would otherwise not be possible. The resulting global connectivity meets the needs of business and leisure travelers as well, with a particular role in supporting trade, inward tourism and the inbound investment. For most manufacturers and the service related businesses, hub airport translates into directly r...