Airport operation concepts of Dusseldorf and Cologne/Bonn

Table of Contents

1 Introduction

2 Rhine-Ruhr Metropolitan Region - A Market Profile

3 Airport Operation Concept and Development
3.1 Dusseldorf Airport (DUS)
3.2 Cologne Bonn Airport (CGN)
3.3 Airport and Traffic Development DUS & CGN

4 Competition vs. Cooperation
4.1 Competition
4.2 Cooperation
4.3 Recommended Management Actions

5 Conclusion and Outlook

6 Appendix 1 - Overlapping Catchment Areas

7 Appendix 2 - Airport Data DUS

8 Appendix 3 - Airport Data CGN

9 Appendix 4
9.1 List of Abbreviations
9.2 Bibliography
9.3 Images
9.4 Tables

1 Introduction

Airports all over the world are regional centers of growth. They provide access to the world's most important markets for the domestic economy. Airports interlink economic regions and are the basis for international business relations. Without any doubt, the Federal Republic of Germany has one of the densest airport network in Europe. Especially in populous areas, multiple international and re­gional airports are competing for potential passengers. Against the background of converting tradi­tional airfields into multi-faceted facilities and 'shopping malls with runways', in the last decade air­ports tout for more than only people willing to leave the city by airplane. They are competing for prospective customers (Honegger 2013).

As a result of these tendencies, the European airline and airport market is facing emerging competi­tion. The question to be asked under this continuous cost pressure is not whether to react or not on the circumstances. Every single airport shall ask how to deal with that rat race and what its competi­tive advantage is (Garvens 2008, p. 362).

The competition between the recently renamed Dusseldorf Airport (DUS) and Cologne/Bonn Airport (CGN) is exemplary in this situation and is perfectly illustrating the new competitive situation. Sepa­rated by only 50 kilometers air-line distance, it can be assumed that both airports are in a race for supremacy in the Rhine-Ruhr metropolitan region since many years.

The key question to be answered in this context is: Do both airports really compete and if, what are the business segments they are struggling for? How can the airports react on present developments and might they even benefit from a kind of cooperation?

This paper is trying to give answers on the questions mentioned above. In the first part I am going to describe the local aviation market and current airport concepts of each location. Both airports will be classified in regard to their German and European airport market environment. Describing the traffic development within the last five years and analyzing the recent situation of both companies, I will try to forecast how the airports are going to evolve in the midterm horizon. In a second step I will exam­ine kind and degree of competition between CGN and DUS. Moreover I will discuss whether an air­port cooperation might be useful or even other solutions represent a valuable solution to guarantee a financially healthy future for both airports. Based on a conclusion drawn by the data at hand, I am going to develop strategic management recommendations for the (airport) operators.

2 Rhine-Ruhr Metropolitan Region - A Market Profile

Before I start with a detailed description and analysis of the airports DUS and CGN, it is necessary to take a closer look on the economic environment of both business locations.

The airports Dusseldorf and Cologne/Bonn are endemic to the most populated German Federal State of North Rhine-Westphalia (NRW). Additionally, both cities are located in the mentioned Rhine-Ruhr metropolitan region, the so called 'industrial heart of Germany'.

With over 11 Million inhabitants Rhine-Ruhr is the most densely populated and most powerful eco­nomic region in Germany and even the third strongest region in entire Europe. Today, the Rhine-Ruhr metropolitan region accounts for roughly 15% of the German GDP and about a quarter of Germany's total exports originate from North Rhine-Westphalia (City of Dusseldorf 2012, p. 2 f.; Garvens 2008, p. 371). In the last two decades, the region depicted below, has developed a diversified export econo­my and a leading environment for information technology and media industry. Furthermore, Rhine- Ruhr has a high concentration of corporate headquarters and serves as an important location for political and economic decision-making. An obvious explanation for these conditions is the beneficial location in the middle of Europe. From here, almost every European center can be reached within a flying time of one and a half hours. (City of Dusseldorf 2012, p. 2 ff.; Dusseldorf Airport 2013b, p. 1; Grier 2002, p. 6.).

Beside the two airports of concern (marked yellow), the metropolitan area boasts several region­al/national airports like Dortmund Airport, Monchengladbach Airport (subsidiary of DUS) and Weeze Airport. Additionally the city of Cologne is also connected to Frankfurt Airport via the 1 hour Co­logne-Frankfurt high-speed rail line. Even the whole ground transport network is densest in Germa­ny, while Duisburg and Dortmund have large industrial inland ports available.

Summarizing one can say that the entire locational and comparative advantage of the region is based on the excellent ground or air connections for passengers / air cargo and the resulting favorable cost factors (Thießen 2010, p. 37ff.).

With 20 middle sized cities with a population of more than 100,000 and 11 administrative districts of over 250,000 inhabitants, the area is a classic example of a polycentric region. Largest city in the re­gion is Cologne, with over 1 million inhabitants, followed by Dusseldorf, Dortmund and Essen, each having a population of over 500,000 (Grier 2002, p. 4).

All prescribed information give an idea of the potential market and catchment area of both airports and the manifold opportunities as a result. For sure, the airport situation and catchment area are of high significance. The catchment area of Cologne/Bonn Airport with a radius of 100 kilometers is the home of 15 million inhabitants (Garvens 2008, p. 370). At the same time, Dusseldorf Airport also boasts a catchment area of almost 18 million people. With this, the population of the whole region is comparable with the structure of areas like Greater London or Paris. Moreover, it represents a huge market potential for the entire economy of NRW and other adjacent federal states (Dusseldorf Air­port 2013b, p. 1). In short, the metropolitan region offers an enormous catchment area for both airports. Furthermore, it is a unique situation, as areas of three European countries are covered. On the other hand the existence of two competing airports with such well-funded catchment areas has resulted in an unrestricted competition to win the favor of potential customers. In Appendix 1 I tried to sketch a simplified illustration of common catchment areas. According to Manila (2010) the substi­tution coefficient of CGN and DUS, which is mainly based on their overlapping catchment areas, is on a high amount of 0.75 (Malina 2010, p. 253).

For a better understanding of the competitive situation between DUS and CGN, I will continue with a characterization of each airport in the following.

3 Airport Operation Concept and Development

At this Point it is a good moment to examine the operation concept of each airport in detail. This includes a characterization and description of traffic developments of both airports within the last five year. In addition I will try to reflect on how the airports do see their operations and market posi­tion in a medium-term horizon.

3.1 Dusseldorf Airport (DUS)

In 2013 Dusseldorf Airport is Germany's third largest airport in terms of passenger numbers accord­ing to latest data (compare Image 2) published by the German Airports Association (ADV). Beyond that, DUS is the market leader in NRW as well. The airport had its highest passenger volume with 20.83 million passengers in 2012 and the greatest route network with plenty of destinations offered.

Over the last decade Dusseldorf was always ranked third in Germany.

Frankfurt Munich Dusseldorf Berlin-Tegel Hamburg Stuttgart Cologne/Bonn Berlin-Schönefeld Hanover Nuremberg Almost all major airports in Germany are linked to DUS and it also offers several long-haul flights to North/Middle America, Africa, Asia and the Middle East. It is hard to get the exact airline traffic shares from the traffic data since they are confidential in most cases, but Lufthansa is the main cus­tomer of DUS with approximately a third of carrier capacity share. Lufthansa operates three hubs in the country is concentrating the majority of its long-haul flights in Frankfurt and in Munich. Neverthe­less, Germany's largest carrier operates up to 70 non-stop passenger destinations from Düsseldorf until the end of 2012. Second largest customer of DUS is Air Berlin followed by Air China (Innovata 2013).

In October 2013 Air Berlin was the leading airline in regard of available seat kilometers (ASK). Over the last years Air Berlin is moving away from its former positioning as a Low Cost Carrier (LCC) to- wards a full-value network carrier. The airline introduced HUB operations with long-haul services connecting to short/medium-haul flights at Dusseldorf and Berlin accordingly. In June 2012 DUS has been chosen as its HUB of preference for Air Berlin's flights to North America (CAPA 2012; Innovata 2013). This encourages the airports endeavor to refine their operation concept from a basic origin and destination (O&D) airport to an ambitious HUB airport. In the end of 2011 the program called 'Next Generation Hub’ was introduced to underline the expansion attempt of the airport (Dusseldorf Airport 2011a, p. 16 f.). Additionally the airport benefits from passengers from the neighboring Neth­erlands, who increasingly use Air Berlin's services at DUS too.

Etihad is also increasing the number of destinations from and to DUS day by day since a new strate­gic partnership with Air Berlin was initiated. With this Air Berlin terminated services to Thailand which are now offered over Etihad's hub in Abu Dhabi. Several destinations in the Asian Pacific are now offered through code sharing flights operated by Etihad and the network changes also allow Air Berlin to deploy the freed up capacity for its US expansion (CAPA 2012; Innovata 2013). Detailed visu­alizations and all data concerned can be found in Appendix 2.

All in all, the rising number of intercontinental flights and airline partnerships are two of the factors affecting the yearly growth of passenger volume at DUS. Over the last five years DUS looks back on steadily increasing passenger traffic, while the share of air cargo operations is only growing very slightly (Image 3). Based on an excellent cooperation with airlines and driven by the young HUB con­cept of the airport, the market share of DUS within NRW increased up to 58% (Ruhnau 2013; Dusseldorf Airport 2013a, p. 12).

illustration not visible in this excerpt

Image 3: Passenger and Air Freight Development DUS (Own Illustration / Dusseldorf Airport 2013a, p. 2)

If we now go into detail of DUS's cargo business, we can see clearly that cargo turnover is only slight­ly growing for years in contrast (Image 3). Not least because of a new founded full cargo subsidiary increasing freight volume by more than 70% within the last 12 years. But even if cargo business is conducted very seriously, DUS was only placed on the 6th rank in comparison to other big German cargo transshipment airports in 2012. Additionally the majority of all cargo (90%) is leaving DUS in the belly space of passenger aircraft and not with genuine cargo aircraft (Dusseldorf Airport 2011b, p. 3; ADV 2012, p. 10).

In my opinion air cargo at DUS is still in its infancy while no mentionable forwarder or even integra­tor is retained in a long-term contract. Especially those companies won't be potential customers in the future, since DUS still suffers from a strict night curfew which was first introduced in 1959 (Breitkopf 2012).

Nevertheless DUS is an important economic partner and gives important impulses for the entire in­dustrial location of the metropolitan region from the year one. The airport is reconfirmed as NRW's biggest job engine for the region with an average of 14 new jobs created per week. Based on scien­tific surveys one can say, that one job at the airport implies at least two further jobs in the region. Altogether this means that over 50.000 jobs in the region are depending on the existence of DUS. Aside from its significant function as an employer and provider of mobility the airport plays a key role as a customer of the home industry. Alone 2009, the company received goods and services at a total value of some €140 million (e.g. for construction and planning services, purchasing of materials, se­curity services or advertising) from North Rhine-Westphalian companies. With this, DUS is adding enormous contribution to the region (Dusseldorf Airport 2010). Beyond that, the airport gained a significant growth in the field of non-aviation business like DUS Airport City, retailer acquisition, es­tablishment of event location (Dusseldorf Airport 2013a, p. 16).

3.2 Cologne Bonn Airport (CGN)

At first glance, one might think, Cologne/Bonn Airport plays the second fiddle in the Rhine-Ruhr Met­ropolitan Region all along. But this appears only at a shallow look. To understand this, the reader needs to know, that the airport operation concept of CGN is completely different to the strategy of Dusseldorf. Not so long ago the airport was eminently influenced by dynamic changes which had the ability to turn traditional airline hierarchies upside down. The market entry of LLCs rapidly changed the entire airline and airport environment in Germany at the beginning of 21st century (Garvens 2008, p. 362).

Like many German airports, CGN was trapped in a downward spiral caused by the world economic crisis and own mismanagement. The airport was in stormy waters when top management decided a comprehensive reshuffle and developed a survival strategy for the cash-stricken company. The new goal was to align the airport's policy to attract more of these new 'No-Frills airlines' to gain a higher share of LCC traffic. In 2002 first deals were closed with Germanwings and Hapag-Lloyd Express. In­deed their strategy and risk paid off in terms of passenger numbers and an extremely positive busi­ness development. Thus, the airport was able to handle a maximum number of passengers with low­er costs. Only between 2003 and 2006 Cologne was able to increase its passenger volume by more than 80%. Alone in 2003, CGN poached approximately 800.000 passengers from DUS.

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