Thursday, December 18, 2008

The Great Edinburgh Airport Sell-off – Panacea or Problem?

According to the Scotsman today in an article on the proposed sale of Edinburgh Airport 'passengers should eventually benefit from competition, meaning lower prices and possibly better route choice. The airports should be expected to vie with one another to offer airlines better terms and services.' This is according to Michael Dean, partner, EU, competition and regulatory team, Maclay Murray & Spens LLP. This is typical of the misguided thinking that has got us into the crazy position where our airports are treated like real businesses that have any serious level of control over their own destiny. Even more bizarrely the SNP said: "We need real competition between the lowland Scottish airports to ensure the best services." The fact is that airports have very little influence over which destinations get served and which airlines serve them.

According to the Competition Commission's report back in August "In Scotland, BAA has until recently been noticeably slow to develop new routes at Glasgow and Edinburgh, whilst at Aberdeen, its investment plans are regarded as unambitious despite relatively high levels of profitability." It's not the BAA's job to develop new routes, that's a job for the airlines; they have a part to play, but it's a very small part. For Scotland's size, and with all the other factors taken into account, air travel is comparatively well developed and will not be magically bettered by a bit of airport competition. The Competition Commission's report reads like a student's thesis and they need a sharp dose of reality. Many of the problems that exist are about capacity, government, planning and CAA regulations; all this is against a background of demand for air travel.

The landing fees at Edinburgh probably represent around 3% of the operating cost of a roundtrip flight from London. Landing fees are about the only way that airports can make themselves more attractive to an airline, after you remove the fact of their geographical location. If it were as simple as lower landing prices then all flights would leave from Prestwick where they have (slightly) lower fees than at either Glasgow or Edinburgh. Just by way of example BAA Edinburgh already charge less in landing fees than Bristol or Cardiff's airports.

Even if either one of the two main Scottish airports halved its landing fees then it would 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 slash their landing fees, then the other would follow suit and there would be a short-term gain for the airlines, but probably very little benefit for the passenger. BAA derive a significant proportion 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 be the bonanza for passengers that some are predicting. There won’t suddenly be a long line of airlines wanting to fly from either the airports, even with lower landing fees, because the problem is passenger demand, not a falsely created competitive environment.

BAA Edinburgh is performing well below their own 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 nothing to influence that situation or improve the ‘passenger experience’. It will of course severely hit BAA's results because of the reduced volume of travellers that will produce less revenue from shopping, eating and parking.

While it's easy to talk about the abstract concept of airport competition it's much harder to fix it. Splitting the ownership of Scotland's two main airports is not a panacea, nor anything to do with a solution.


James Higham said...

The fact is that airports have very little influence over which destinations get served and which airlines serve them.

Quite right. It's this type of mindset which drives me out of my tree.

Richard Thomson said...

Richard - in your opinion, does BAA make a good job of running our airports?

Airports may have little influence, but that's not the same as no influence. I'm thinking, to use what may be an extreme example here, of Dundee Airport.

There isn't the congestion trying to reach Dundee of a morning as there is getting to Edinburgh or (even worse) to Glasgow. Anyone trying to get to Dyce from the wrong side of the Haudagin Roundabout on the A96 could find themselves in difficulties also.

So, potentially, Dundee has a catchment area from the south side of Aberdeen, all the way down to Fife and down as far as Stirling. Yet, when it was run by Dundee City Council, there was only one route - the Scot Airways service to LCY.

The airport was sold off to HIAL a while back. Since then, Dundee has gone from one route to 3, with the possibility of a route being opened up to Schipol in the New Year. It's still running at a loss, but it does suggest that there's more to it than simply waiting for an airline to turn up to start a route.

It might be a while away yet, but if that route to Schipol came off, I bet BAA would start to take notice at Aberdeen, which is a hell of an expensive airport to fly from, it seems. All of a sudden, Aberdeen wouldn't be the only airport in the North East from where you could fly to a hub and onto the rest of the world.

That's a lot of leisure travellers, as well as oil executives who would no longer have to tolerate the high prices of flights from Aberdeen, the Gehenna that is Heathrow, or in the case of folk who use Edinburgh, the overcrowding and delays of an airport apparently bursting at the seams. Competition in action?

jams o donnell said...

Happy Christmas Richard

James Higham said...

Richard, Merry Christmas from me too. Enjoy.

Welshcakes Limoncello said...

Hope you are having a good Xmas.

James Higham said...

... and Happy New Year.

Pear tree cottage! said...

Richard this was such an in teresting post and I do hope the people can make the wrong wright!! It has been so lovely visiting you - not knowing from were I came to be here but very pleased I do arrive (smiles)

Happy New year for 2009 fromhere in Australia