The aviation sector is full of varying dynamics that affect performance and cost-savings. While the industry discussed in this analysis is non-profit, it is greatly influenced by for-profit companies. The airport authorities, which operate all major U. S. airports, are government entities. They are usually run by the county. This provides some opportunities and protection, but the authorities must hold on to a competitive advantage in order to retain the airlines that sustain facilities. Airport authorities are non-profit organizations, usually independently run by and loosely tied to the county in which they reside.
This status provides some financial protection and a great deal of government funding. Employee benefits are distributed through the government, which helps to retain talent. The Chief Executive Officer's boss is usually a powerful elected official or group of officials. This can be a great strength when surrounding property needs attention or when the budget begins to pose a problem to the local economy (i. e. layoffs). Airport authorities are also seated comfortably in a necessary industry. The transportation sector, namely the aviation sector and its related industries may go through turbulent times, but it is not going to disappear.
The customer demand is too great. As long as the county where the airport is housed or the surrounding counties don't build new airports, many of Porter's five forces don't come into play. The risk of entry by competitors and the threat of substitutes are minimal (Hill & Jones, 2004, p. 40). There is also little brand loyalty. Unless there are two airports in a small area, there isn't much competition. Most citizens don't have much choice about where to catch flights. The airport authority is dependent on customers (both airlines and passengers), but the buyers are dependant on the airport as well.
This somewhat neutralizes the threat of buyers (Hill & Jones, 2004, p. 70). For many international airports, capacity is a great strength. Capacity is defined in three dimensions; airside, terminal, and landside. Runways, taxiways, and airspace make up the airside portion. The terminal part refers to the building, which holds people and gates airplanes. Finally, the landside component speaks to the airport's ground transportation system, which moves people and goods ("Case Study", n. d. , p. 1). If all of these aspects of capacity allow for growth, capacity is a great strength.
This is the case with Pittsburgh International Airport (Belko, 2004, Para. 3). Many of the abovementioned strengths can quickly turn to weaknesses, given the right circumstances. Non-profit entities often leave their management open to lawsuits. They are also restricted regarding the amount of money they can make in a good year. This can cause difficulties in attempts to use extra money to expand programs and facilities. Airport Authorities, due to their non-profit status, are also subject to public scrutiny and audits of their finances. Like the non-profit status, capacity can also become a weakness.
If the airport has no room to grow, its strategic plan is severely crippled. This is the case with Chicago's O'Hare International Airport ("Case Study", n. d. , pp. 1-10). If the airport has too much capacity and a flight load that doesn't support it, capacity quickly becomes a weakness. Two years ago, this was the case with Pittsburgh International Airport (Belko, 2004). The Allegheny Airport Authority (PIT International) built a new terminal to house U. S. Airways. The airline moved its hub soon thereafter, causing major financial strain on the authority (Belko, 2004).
Like many other aspects of this analysis, capacity can be a strength, weakness, and opportunity. An airport that is ready to grow can do so without encountering problems with facilities along the way. It can immediately accept gate and landing fees for new flights and airlines. It can also use its capacity to entice airlines to use the facility. As traffic increases, the airport authority can gain financial support through vendor profit sharing and the associated rent fees. The authority is also able to make money off of parking lots and garages, if it owns them. The threats to airport management are abundant.
The events of September 11, 2001 showcased many of them. Security threats, decreased flight traffic, airline profit loss, and vendor profit deficiency all result in a decrease in available funds to safely operate large airports. There are also threats of liability suits should there be an incident in the airport or on its grounds. Security events, like those of 9/11 or the threat of an event can shut down an airport for extreme lengths of time. They can create fear among the flying public, slow down operations to the point that airlines take their business elsewhere, anger customers, and even result in loss of life.
The threats and events are costly as are the steps necessary to prevent them. The expenses associated with underground detection equipment, screening devices, and personnel to manage the Transportation Security Administration (TSA) immensely strain county budgets. Decreased foot traffic through the terminals puts airport vendors in jeopardy. In the recent past, it has put several out of business. The cost that the airport authority must absorb when it loses rent from these vendors is great. Its strategic plan must include ways of allowing the public to walk by vendor locations.
Any decrease in flight traffic will cause airlines to reduce prices. When other carriers follow suit, a devastating price war can result. Decreases in flight traffic also cause airlines to reduce flights in and out of airports. It can even force some airlines to move their "hubs," or base cities, to less-expensive areas. This can be economically devastating to the city providing much of the labor for these hubs. The resulting decrease in or complete loss of gate fees and landing fees strains the airport's resources as well. It is at this point, that competitive forces become perceptible.
For example, Southwest Airlines uses a Chicago hub out of Midway Airport, rather than O'Hare. Midway's landing and gate fees are significantly less than those of Chicago O'Hare. Midway also redeveloped its airport in order to re-attract airlines it lost to O'Hare in the 1950's ("Case Study", n. d. , p. 8). As a result of several law suits, airport authorities must employ safety supervisors to prevent accidents, respond to those that do occur, and document all incidents. Any incident, injury, or loss of life could quickly turn into a damaging law suit, negative press, and loss of revenue.