Low-Cost Airports for Low-Cost Airlines: Flexible Design to Manage the Risks

Abstract

The paradigm of airport planning and design is changing fundamentally. Low-cost airlines have become significant drivers of airport planning, along with aircraft size and other technical factors. They have different requirements than the “legacy” carriers. They focus on cost and on alternative ways to handle passengers. Now being sizeable participants in the air transport industry, they are influencing airport design. They are central to the proliferation of secondary airports and metropolitan multi-airport systems. They are catalyzing the development of cheaper airport terminals configured internally much differently than traditional designs. These factors lead to the creation of “low-cost airports” for low cost carriers around the “legacy main airports” built to serve the “legacy airlines”. Consistent with economic theory, the competition between the legacy and low cost airlines is extending to their major factors of production, that is, the airports. This competitive reality creates great uncertainty and poses substantial strategic issues for airport and airline managers and planners. The paradigm shift introduces great risks into practice. The paper proposes a flexible design strategy to deal with such uncertainties. This is significantly different from traditional airport master planning. The core element is to build “real options” into the design, which allow the airport owners to match the development to the way the traffic demands unfold in the decades ahead. A review of developments in Portugal illustrates the current risks in airport development, and suggests how airport owners and investors could apply flexible design process to develop a strategy that would manage these uncertainties to maximize expected value