Wednesday, August 13, 2008

Anyone want to buy...

....a used airport? But it's not necessarily going cheap. There's news today that the Spanish owned BAA could be forced to sell off either Glasgow or Edinburgh airports by the Competition Commission. It's reported in today's Scotsman, but comments by the public on their web site are as usual wide of the reality mark. Airport landing fees are about the only way that airports can make themselves more attractive to an airline, after you remove the geographical factor. If it were as simple as lower landing prices then all flights would leave from Prestwick where they have lower fees than at either Glasgow or Edinburgh.

Even before the rising fuel prices landing fees were a relatively small percentage of an airline’s operating costs. Even if either one of the two main Scottish airports halved its landing fees then it’s not necessarily a big boost for the airlines – other than those already using the airport. Of course competition is such that if one airport did it, then the other would follow suit and there would be a short-term gain for the airlines but probably very little gain for the passenger.

Operators like BAA derive the lions share of their operating revenues from airport shopping, concessions and parking, so on the face of it they could afford to drop their landing fees somewhat. However, the splitting up of BAA (lowland) Scotland will not necessarily be the bonanza for passengers that some are predicting. There won’t suddenly be a long line of airlines wanting to fly from either one of the airports, even with lower landing fees, because the problem is passenger demand, not a falsely created competitive environment.

While the current high price of fuel may be a temporary blip there are many other factors that go towards making air travel less of a buoyant business moving forward. Rampant growth is just not going to happen for the Scottish airports. Already BAA Edinburgh is well below their lowest anticipated growth targets for 2013 that were made back in 2004/5. Their low forecast was 11.9 million passengers in five years time; their high was 13.7 million. The likely figure is in the range of 10.2 million to 10.9 million.

And one thing’s for sure. This competition will do little to improve the ‘passenger experience’. The pressures on security, check-in and all the other ‘on the ground’ aspects of flying will still be there and still be far less pleasant than we would all like. Downward pressure on costs in all these areas does nothing to improve things and this will not change. Our expectations as passengers far outweigh the airlines ability to deliver a product that can ever be achieved at the kind of fares we all would like.


Colin Campbell said...

One of the great benefits of my current life is not having to fly. I enjoyed it in the good old days of turning up about half an hour before a flight and breezing on with only limited security.

I would have to be on a significantly enhanced package to encourage me to fly regularly again.

It is such an ugly competitive and highly regulated business too. How do they ever make money, even leaving the soaring cost of liability insurance, funding, security and the massive revenues paid to the Oil Sheiks.

Ken Dyer said...

I don't really see the benefit to the travelling public, or the airlines come to that, in a sell off. Currently the landing fee at Edinburgh probably represents around 3% of the operating cost of a roundtrip flight from London-Edinburgh-London. Its much the same percentage (give or take) at Glasgow and Prestwick.

Landing and associated fees at these airports are reasonably competitive when compared to the rest of the UK. Even if the landing fee dropped to zero it would only represent £3-£4 off the price of a flight. However this won't happen and in reality in a sell off situation I would expect the fees to remain much the same, or even increase. And it must be borne in mind that should new owners wish to develop and expand the airport, they will need to derive their income from somewhere, be it an increase in landing fees, or airport taxes, or indirect costs such as car parking, ground rental etc.

Ultimately its all about the demand for flights and the ability of airlines to operate at a profit. This wont be dictated by a change in airport ownership.

Richard Havers said...

Interesting stuff Ken. It always used to be about 2-3% back when I had a proper job but I wasn't sure how things had moved so I was a bit cagey in saying too much. That reinforces the case for why this is such a daft idea. It could actually be worse for the travelling public as there will no be economies of scale. The BAA have long argued that their airports do compete, it's al rather going to come home to roost.

Ken Dyer said...

Not much changes fairness your 2-3% was probably based on long haul stuff. Back when fuel was at a sensible price, I used to work on the landing fee being about 4-5% of the DOC on short haul flights like LON-EDI.

BAA airports always have been competitive, and that is as you say, very much due to economies of scale. If EDI were to charge the same fees as say Cardiff or Bristol, then you would see a fare increase of some £5-6 per seat simply to cover the landing charges, plus a few more quid to cover the taxes!

Not sure if I call this a proper job...somedays it feels more like a charity!