Working paper template - MBA Programme der HWR Berlin

Institute of Management Berlin (IMB) Working Paper No.28
Fachhochschule für Wirtschaft Berlin - Berlin School of Economics
airports. Land is becoming more expensive and most large airports are located in populated
areas, and this means that airports have to go through expensive planning and permission
processes.
Coming back to our two initial questions, it is clear that size might matter, but probably not so
much for the typical medium-sized airports such as Cologne, Düsseldorf, Hamburg, Munich
and Berlin-Tegel. These medium-sized airports seem to operate more or less in the range of
constant economies of scale and scope. However, Frankfurt might be a size where
diseconomies of scale start to play an important role. Prima facie relatively high labour costs
and scarcity of cheap land might be relevant and explain part of the poor performance of
Frankfurt.
For the GAP project size will play an important factor, since most of the German airports
should operate with falling average costs and airports such as, for example, Munich might
grow so fast that diseconomies of size become inevitable.
3.2. Product differentiation and strategic positioning of airports
The last few years have seen a number of changes in the German and European airport
sector. The most important one has been the development of low-cost carriers (LCC), which
already accounted for more than 40% of all passengers in the UK in 2003. In the same year,
the European share of LLCs was 15% and set for rapid growth (John, 2005, p.11). A further
important factor is the increasing significance of air freight and the emergence of airports
focusing on freight services, for example, Cologne-Bonn in the past and Leipzig in future.
We have argued above that, in the long run, airports could be perfectly adjusted according to
local demand volume and product orientation. That would imply that the airports are, in the
long run, similar to flexible units and can be adjusted to local conditions. However, we have
also seen that airports themselves, through specific marketing, pricing and interlinkage
strategies, can affect their demand and market conditions, especially over time. In order to
reach a new equilibrium, these adjustments are clearly not achieved instantaneously. It takes
time for capacity and service adjustment to be fully optimized to local conditions.
Consequently, airport capacity and output orientation may not always be in an equilibrium,
but in a continuous disequilibrium while trying to adjust to new conditions.
Let us first look at the case of repositioning due to changes in demand. This might well be
illustrated by the case of the Cologne-Bonn airport. Originally it was designed as a regional
airport, capable of serving the transport needs of Bonn, the previous German capital. When
Germany's capital moved from Bonn to Berlin in the mid-90s, the airport found itself with
significantly underused capacity. It was thus a logical step to reorient the airport strategy
towards freight and, later, to LCCs. Over the last few years and as already indicated in our
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