Right now there is an ongoing discussion in Barcelona. A new airport terminal is being built that will be able to handle around 30 million extra passengers. But there’s something to be decided: which companies will be located there.
Barcelona’s airport is the eight in Europe considering the passengers that use the installation. That means it’s close to medium cities like Munich or Milan. But, being similar in size, there’s a big difference between Milan, Munich and Barcelona: the number of intercontinental flights.
Of course, in order for the airport to grow it will need more infraestructure. The third runway is already built and the new terminal will give it the capacity it needs to grow and expand.
But the proximity to the recently expanded Madrid Airport is a problem for Barcelona’s aspirations to be a hub. One of the main aviation alliances, One World, has already a hub there, and being at 700km (45 minutes by plane) makes it unlikely for this alliance to have more intercontinental flights in Barcelona. From an economic point of view they’d rather have them in Madrid. To complete the picture, this alliance includes Iberia, the old Spanish flagship company, and has the highest market share in Barcelona: around 40%, and steady, not decreasing but not growing either. In fact this alliance has no plans to have any international flights in Barcelona anytime soon and it’s moving towards a low cost profile.
There is a second alliance: Star Alliance. They are growing at a high pace, and they already have a market share of aproximately 20%. The spanish flagship of this alliance is Spanair, that is also an important Spanish carrier, growing quickly and aiming to overtake Iberia in a not too distant future.
This alliance looks like the only chance for Barcelona’s airport to position itself as an international hub. On the other hand this alliance also has a hub in Frankfurt, which won’t be substituted but complemented by Barcelona’s growth. So there’s an upper limit to Barcelona’s possible expansion with this alliance.
So, should the new terminal be allocated exclusively to Star Alliance?
Many people do believe so. It looks like the only alliance that has the possibility and will to bet for Barcelona. So I can agree partially on that: it’s important to have the best parts of the new terminal allocated to the alliance that has the most interesting prospects.
But why not share the terminal between the two alliances Star Alliance and One World? Many people refuse that thinking that One World just wants to be there to disturb Star Alliance plans for expansion. Or many people just want that based on an irrational approach to the rejection to expand Barcelona’s international connection from One World.
But, from an economic point of view, and beginning of a situation of a new terminal with only one alliance: Star Alliance and with excess capacity. Does a second alliance positioned there leave us better off or worse off?
Maybe the right concept to grasp would be “Pareto efficiency”: we reach the most efficient situation when we are not able to improve any participant’s situation without leaving another worse off.
And without worsening the behavior of Star Alliance, we can improve easily the situation of One World just allocating them the spare capacity of the new terminal (discounting of course future growth), as long as it doesn’t worsen the operation of Star. And we can do that defining the correct precedences and procedures.
Of course Star Alliance would be benefited if we threw out the other alliance to the existing -and worse- installations. That would give them some extra market power… but what for? To have an advantage over competition.
And to give one player advantage over another instead of fair competition always leaves the consumer worse off. And that’s not the objective. Free competition is good for Barcelona’s airport on the long run. That’s the point we should go to.
Why? Because even not having interconental flights, even his leaning to the low cost profile, One World is the market leader in Barcelona, providing the airport with most of its connections. And that gives high value to the airport. And it will drive even more value with the combination of another alliance’s hub in the same location. The two hubs will even be able to interchange passengers, helping build the critical mass of passenger an airport needs to have intercontinental connections.
Because it’s not the politicians who make the intercontinental flights. They can obstruct or help them, but it’s the market, and the consumer’s demand, that will establish new long range connections. And the market works best when all the players are given the most opportunities with a clear set of rules and without discriminations of any kind.
That’s, in my humble opinion, the best way to ensure a healthy growth for Barcelona’s airport.