Flight of fancy

Written by on 2 July 2014 in Feature

Airports are big business but government ownership poses all kinds of questions

In the past two decades, European airports have evolved from mere infrastructure providers to fully fledged businesses in their own right. Around 80 per cent operate as commercial companies and nearly half of Europe’s air passengers travel through airports that are either partially or fully privatised.

Many smaller regional airports, however, are still state-owned. “Regional airports play a vital role in connecting Europe,” said aviation expert Federico Bonaudi, “largely defining the economy of their communities and bolstering social cohesion. Proximity to an airport is still in the top five considerations of any international company considering investing in a region.”

But uncertainty over the sustainability of routes is “casting a significant shadow on Europe’s regional airports in particular,” he said. In 2010, whereas 4,741 new intra-European air routes were opened, more than 3,330 were closed. In the same year, 47 per cent of Europe’s small regional airports kept reporting traffic losses.

As natural counterparts of big and medium-sized hubs, regional airports provide them with a huge number of passengers and therefore complement Europe’s vast network of airports. “Regional airports provide accessibility, enhance social cohesion and development, and boost economic competitiveness,” said Bonaudi, who is the Parliamentary Affairs Manager at ACI Europe, the airport operators’ professional association.

“The presence of a regional airport influences a wide range of economic activities such as exports, boosting business efficiency and productivity, attracting inward investment, and influencing business location and retention.”

The UK is known for its very high ratio of privatised airports. The only significant airport operation still in the public sector is Manchester Airports Group (MAG), comprising Manchester, East Midlands, Bournemouth and now Stansted. But MAG is now 35 per cent owned by the Australian fund IFM as a consequence of the Stansted Airport acquisition.

In Scotland the three main airports are split between Heathrow Airport Holdings (Glasgow and Aberdeen) and GIP (Edinburgh). Glasgow and Aberdeen may change hands later this year. Peripheral mainland airports include the Scottish Government-owned Inverness, Dundee and Glasgow Prestwick.

Earlier this year, Deputy First Minister Nicola Sturgeon announced that the loss-making Prestwick, which the Scottish Government bought from New Zealand firm Infratil for £1 last year, is to receive nearly £10m of investment. The funding will go towards operating costs, a repairs backlog and to make improvements to the terminal building.

Sturgeon told the Scottish Parliament’s infrastructure committee the airport would be operated under public ownership “on a commercial basis”. She said the Scottish Government investment would be made “in the form of loan funding”, adding that there was “no quick-fix solution for Prestwick” and the airport may not be profitable for several years.

The airport had a pre-tax loss of £9.77m in its final full year under its previous owners. More than £5m has already been provided since the acquisition and the Scottish Government would be required “to provide a further £3m in operating support”. There will be nearly £7m in capital investment - £4.5m for repairs and £2.4m to make improvements to the terminal building, including refurbishment of the duty-free area.

Sturgeon argued that Prestwick had suffered from a lack of investment and there was a “backlog of essential maintenance”. The committee evidence session came after finance executive Romain Py completed a three-month review of the airport, including options for ownership, on behalf of the Scottish Government.

Sturgeon described Prestwick as a “non-typical airport”, with only about half of its revenue dependent on passenger traffic. She suggested that future revenue could come from freight and retail development. The airport’s executive directors would be tasked with developing commercial opportunities. A business plan would include an assessment of a reduced Ryanair schedule this summer and passenger numbers will be monitored.

A spokesman for Edinburgh Airport said: “Scotland’s main airports create jobs and attract routes with no public subsidy and we believe that the market should not be distorted. Competition should be allowed to flourish.” A statement from Glasgow Airport said: “We have previously received assurances that Glasgow Airport will not be placed at a competitive disadvantage, but will continue to seek clarity on how the Scottish Government intends to develop its asset.”

The Scottish Government acquisition of Prestwick Airport was predicated upon the protection of the 3,200 jobs directly or indirectly associated with the airport in the face of losses experienced by the previous owners. Small airports deserve subsidies, argues ACI Europe, because their fixed costs—from security and runway maintenance to mopping floors—are higher per passenger than at bigger ones.

Large airports make substantial sums from parking charges and renting space to restaurants and shops and do not have to charge airlines so much for landing fees and other services. Without subsidies, says ACI Europe, small airports would have to charge airlines more for flying to out-of-the-way places.

“Whatever the political manoeuvring behind the Scottish Government’s acquisition of Prestwick, it will have a job to make money out of it in the immediate future,” said an analyst at the Capa Centre for Aviation.

As Holyrood went to press last Wednesday, Ryanair had scheduled a press conference for the following day.

“Throughout the last decade or more, since Ryanair made it one of the carrier’s first bases, [it] has dominated proceedings at an airport that once hosted transatlantic services by British Airways, Northwest Orient and others, in the days before Glasgow International was permitted to host long-haul services.

“In sharp contrast, as of February this year, Ryanair had 100 per cent of Prestwick’s seat capacity. What this means essentially is that unless there is a sea-change in the organisation of air transport services in the UK, Prestwick is very much at the whim of Ryanair.”

This will be despite the efforts of the management to change the image of the airport through rebranding, for example, by removing the ‘Pure Dead Brilliant’ slogan from outside the terminal building and in marketing material.

The influence of Ryanair can work both ways for an airport. The airline had been increasing Prestwick services in the past year and it had enjoyed growth during that period, recording a gain of 7.3 per cent in 2013 to 1.14 million passengers.

But, equally, Ryanair has reduced services dramatically in the past and might be inclined so to do again, in line with its increasing tendency to reposition in favour of the business segment, a policy that is being rolled out throughout this year, according to the analyst.

In that regard a move to Glasgow International - itself possibly under new ownership - makes sense. At the same time the mere presence at the airport of the carrier in such bulk has not exactly been conducive to start-up services by other airlines or charter services.

A number of organisations have misgivings about the sale of Prestwick. Numbered amongst them is the Glasgow Chamber of Commerce, which is concerned about the impact that public ownership of Prestwick might have on the fortunes of the private sector Glasgow International in the light of “the direct stake Scottish ministers now have in the performance of the airport industry in the central belt of Scotland.”

Commented the Centre for Aviation analyst: “The Government may well have been influenced by all the right reasons in taking over Prestwick but at the same time it has handed itself a political hot potato.”

Categories

Tags

Categories

Related Articles

Scottish and UK governments dispute devolution of APD
5 October 2017

Scottish Government announces plans have been complicated by the need for exemptions afforded to the Highlands and Islands to be assessed by the European Commission

SNP urged to change course on ADT cut
5 October 2017

In June parliament voted to replace Air Passenger Duty with a new Air Departure Tax, which is expected to be substantially lower

Alex Cole-Hamilton: reopen the Forth bridge to ease congestion
11 September 2017

Liberal Democrat MSP calls for old bridge to be reopened while boom in visitors to new bridge causes delays

Share this page