Regional Airports in Decline

All over the BBC news this morning is the story about the serious decline in passenger numbers from regional airports. It's being dressed up by calling into question the so called 'hidden charges' that regional airports are introducing. The fact is that there are too many airports in Britain for the size of the country. We get away with it in a time of rampant passenger demand but this is only going to get worse over the next year or so. We can expect more airlines to fail and more services to be cut. It's all about economics.

What's more surprising is that no one has linked what's going on to the proposed sale of some of the BAA's airports. There's a lot more to come on this story in the next few months.

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.

Scottish Air Travel Market - It's Getting A Lot Worse

The BAA's results for September are out and they don't make pretty reading, but then again that's far from surprising. Overall in the UK passenger numbers are down by 1.7%; that equates to over a quarter of a million passengers. For Scotland's two main airports the results are much worse; in August there were 50,000 fewer passengers flying through Glasgow and Edinburgh. In fact it looks like the number of passengers using both airports this year will decline by between 450,000 and 500,000 people. Passenger numbers have declined for eight of the last twelve months from the two airports. In fact both Edinburgh and Glasgow could show a reduction in their total number of passengers this year - Glasgow definitely will. Because of the summer bookings being made well before the credit crunch took hold there has been something of a cushion effect on traffic; over the winter there will be no such cushion.

Of course the most worrying trend is that how much faster traffic is falling to and from Scottish airports than it is from the other UK airports. As consumer buying power continues to get squeezed this trend could get significantly worse. My money is still on Ryanair introducing a much reduced set of new services come November. These are the ones that have already been delayed from a late September start-up - supposedly because of new aircraft deliveries being held up by a strike at Boeing that started a couple of days before their announcement. In the airline business November is a traditionally dire month to start any new Northern hemisphere services. Even if they do start up there will be some blood-letting as the carriers fight for traffic; six of the eleven new Ryanair routes already have existing service from other airlines.

UPDATE – The news this morning of XL will only make things worse.

Further UPDATE – If you want to know why there are problems in the airline business just check this out.

The BAA is Not That Badly Broke

I've been a critic of the BAA and I remain so in some aspects of what they do. However, having read the Competition Commission's report I find myself agreeing with the BAA that it is flawed. Take this one statement. "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. At Southampton, it has shown a reluctance to respond to its customers’ demands." It's not the BAA's job to develop new routes, that's a job for the airlines. Of course they have a part to play, but it's a small part. For Scotland's size and with all the other factors air travel is well developed and will not be magically bettered by a bit of airport competition.

The Competition Commission's report reads like a 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. While it's easy to talk about these things it's much harder to fix them and splitting up the airports is not a panacea, nor much of a solution. I remain unconvinced that it will help and once again I'm minded to think that none of this may have happened if BAA had not been bought by a Spanish company.

Scotland's Air Travel Market is in Trouble

The Scottish air travel market is going through lean times. Today's figures from the BAA show that Glasgow and Edinburgh's combined passenger numbers were down 2.3% for the month of July. For the year to date the total number of passengers using the two airports is down by 1.4%. It's quite likely by the year end that they will be down by around 2% on 2007 and even showing a decline on 2006. Things are much worse at Glasgow, but Edinburgh seems to be slipping into decline as well.

This tells you two things; VisitScotland are not cutting the mustard and all the euphoric talk about a rapidly expanding scottish travel market, that was being mentioned within the last year, is tosh. Edinburgh is going to fail to even reach it's lower passenger forecasts for the year 2013 - none of which is good news for the economy. The decline in July is not restricted to Scotland's airports. London's airports are 1.6% down, whereas Scotland's three BAA airports (the third is Aberdeen) are down by 2.3%.

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.

BAA-Humbug. The Next Instalment

Talk in the press the last few days is about the BAA's expansion plans at Glasgow Airport. It is on the face f it not much of a story, but it could mask activity on the part of the BAA that is all part of some Machiavellian planning.

Naturally it involves the BAA once again peddling out of date figures, numbers that show wildly inflated passenger estimates. They are forecasting 24 million passengers by 2030, a number that has been around since 2005 and is at the upper estimate of the BAA's forecast for the airport. Glasgow's growth has slowed to a trickle, last year it was less than 1%, having been 2.5% in 2005 and about 5% p.a. for the three previous years. If Glasgow's passenger numbers increase this year in line with where they have started they could well be below 1% in 2007. Let's say it is 1% and that will still mean the airport will see below 9 million passengers for the calendar year 2007.

This means that the BAA's total passengers for Glasgow will likely be around 16 million by 2030.

Of course it could be that the BAA is trying to build up the value of both Edinburgh and Glasgow because it may still happen that they are forced to sell one of them off. The OFT is on the warpath. My money is on the fact that either Glasgow or Edinburgh will be sold, but who will the buyer be? The Scottish Executive?

Come Fly With Me (Courtesy of the Scottish Executive)

Last year under the Freedom of Information Act I wrote to the Scottish Executive requesting details of how much money had been paid, and to who it had been given, under the Scottish Route Development Fund. This is the scheme to attract more airlines to fly direct services to Scotland from cities in the UK, Europe and elsewhere. In July I got their reply which showed that the development fund has been set at £14.4 million and by March 2006 £3.6 million had been spent. They gave me a list of new routes, and the airlines serving them but couldn't tell me how much had been given to each one as the amounts of money were "commercially sensitive"

Of the forty seven routes that were started up by March 2006, fifteen have ceased operating. It's unclear from how the Executive's reply is worded whether or not the money that was paid to these airlines is recoverable or it just goes to the BAA who repay it to the Executive. A 32% failure rate is not great, even by the standards of new route start-ups. The whereabouts of the money would be interesting to know. Edinburgh got the most route start-ups (15) and the highest failure rate (7).

The boast of the BAA and the Executive has been how good this has been for business flyers. This is untrue. Most of the routes still operating are holiday destinations and timings are as often as not pretty unsatisfactory if you are a business traveller.

Of the thirty two routes still operating, 8 were domestic flights within the UK, five were to Poland, 3 to Spain, 3 to Germany, 3 to Italy, 2 to the USA.

I'm going to ask some more questions.

BAA-rking Mad

Today's Scotsman is full of articles about air travel out of Scotland's airports. I've only read the online version because the Postie (that's postman to all you southerners) doesn't get here until about 10 a.m. but I assume it's a pull out section on the joys and wonders of air travel - no global warming and taxes on aviation in Scotland thank you very much.

As usual the BAA are at the forefront of promoting their wonderful selves and the fantastic performance at both Edinburgh and Glasgow. As usual it's mostly 'lies, damn lies and statistics.'

One of the articles says that passengers flying from Edinburgh and Glasgow on direct flights to foreign cities is increasing and set to rise even more. This is true because of the increase in overseas destinations over the last two years, and the coming year. What the BAA is doing is masking a rapid slow down in overall growth from both Edinburgh and Glasgow. Last year saw the lowest overall growth in passenger numbers from both Glasgow and Edinburgh in a decade and the trend is continuing again this year. In fact Edinburgh's growth in 2007 slipped to under 2%, when they had been achieving closer to 10% since 1996 - Glasgow's performance is even worse.

These new routes are taking people off the London flights and onto the new direct flights, which makes for a better flying experience for the people using them, but it will mean that the growth in the overall airport numbers that the BAA are predicting will not be achieved. In fact the growth rates at Edinburgh have slipped to the point where the BAA are unlikely to achieve their lowest forecast numbers for 2013, they of course continue to peddle the highest numbers in their PR.

One of the clarion calls from the airport and airlines alike is the boost that all this will bring to Scottish business. In the main the schedules offered by the new routes are not at times that best suit business passengers. This will continue to keep passengers flying through the London airports.

Some of the statistics used in the articles are manipulated to the point of absurdity. Of course there will be a massive surge in international passengers if, in the previous year, some of the international flights were not operating. The fact is we should never lose sight of the overall growth rates at Glasgow and Edinburgh, which will continue, for the conceivable future, to show smaller increases than the last decade.

Behind all this fluff and nonsense from the BAA are a couple of underlying scenarios that are interesting.

1. The BAA is trying to get ground that is currently used/owned by the Royal Highland Show. This land is 'vital' say the BAA for their expansion. Expansion to accommodate the vast numbers of additional passengers that Edinburgh airport is going to be seeing - according to their own flawed forecasts.

2. The new rail and tram link from the city of Edinburgh has been passed. I assume they've used the BAA's passenger forecasts to justify the new surface links. I'll think I'll look into that a bit more.

Added to which the BAA, Spanish owned now, is a listed company and without growth then share price could stagnate. The fact is that with airports ‘competing’ in the way that they do a ‘managed’ approach to aviation involving governments and airlines is tricky. It will be interesting to see if the next party in power at Holyrood continues with the new route subsidies or tries a different approach. I can think of several better ways to improve on the current ways.

BAA HUMBUG

Having worked in the airline industry I've always kept a keen eye on what the BAA are up to. Not least because a lot of the time they forget they are an airport operator and get a little confused and think they are running out of town shopping malls.

In Edinburgh the argument put forward in the 'Master plan' in 2005 for expanding the airport is fundamentally flawed. The BAA at Edinburgh is waging a campaign to fool people about its growth. They continually talk about passenger numbers trebling to 26 million by 2030. This is absolute nonsense. These are the 'high' expectations as predicted in their Edinburgh master plan. This annual growth rate of 4.6% is totally unachievable. Since publishing their master plan back in May 2005 the traffic at the airport has shown a slowdown in growth. Last year it grew by 0.3% and already this year the year over year growth rates are running at less than half the 2006 levels. In fact the increase in passengers in 2007 over 2006 is about an aircraft load a day in and out of the airport - hardly stellar growth. When you consider the new routes that are operating this year over last and the fact that they will have taken passengers away from connecting flights over London it's even more pathetic.

The passenger numbers in their plan for 2013 at the high level are predicted to be 13.7 million. I reckon they will be lucky to make 10 - 11 million. which is below their low estimate.

Given the 'soaring' growth in the number of routes this year it's even less likely they'll do very well. The destinations that have been added are thin routes and there's little or no major city wide-body expansion.

Always remember that the BAA need to keep bandying around these growth figures because a, they want to expand the airport and b, it's a share price driven company.