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Britain’s airports battle for passengers, airlines ... and survival

11-Feb-2011

There was a time when any self respecting city craved its own airport. In 2011, such is the pressure from powerful environmental lobbies over emissions, noise, turbulence and wake vortex, protection of bird habitats etc, in addition to consistent economic pressures, that some cities have lost, or could lose, their airport. And as they are mainly in the private sector in the UK, some politically left-leaning councils don’t seem too concerned.

Loss of service at US airports has been a regular feature for the best part of a decade. Between 2007 and 2008, at least 97 small city airports across the US lost all airline service according to the Air Transport Association. Hardly any city was spared capacity reductions and that was before the recession. As CAPA recently reported [Cincinnati, Pittsburgh and St Louis airports most affected by carriers' moves over past decade] the three worst affected primary and hub level airports are Cincinnati (with 2.75 million seats available in Dec-2001 down to 841,000 in Dec-2010); Pittsburgh (2.8 million down to 897,000 in the same period); and St Louis (3.5 million down to 1.45 million). In California, there is a debate about what to do with Los Angeles World Airports’ Ontario Airport, where passenger numbers have been tumbling and staff have been shifted to LAX. A lease or even outright sale is a possibility (as is closure, apparently) and it isn’t clear who would buy it.

At the beginning of Mar-2011 the City of Los Angeles Department of Airports announced it is not interested in returning operation of Ontario Airport to the city. Several national and international firms have expressed their interest in managing the airport and LAWA executive director, Gina Lindsey, stated they have received 10 inquiries.

But most of these communities that have lost air service altogether are small ones such as Youngstown, Ohio; Rutland, Virginia; Greenbrier, West Virginia; and Hot Springs, Arkansas. Some are little more than general aviation strips, while most of them hosted no more than a few turboprop commuter flights to the nearest secondary hub each day, from where passengers would take a larger turboprop to a main hub like O’Hare or Atlanta and onwards from there. The alternative, the secondary level hub itself, isn’t usually too far away, and accessible by private vehicle in a country where long distance driving is a part of life.

Primary city airports at risk in UK

The situation in the UK is a little different, involving primary cities that are key to any successful private sector growth strategy to make up for the deep public sector cuts that are starting to take effect and, if it is symptomatic of the way the business is going, then it is worrying. An early casualty may well be Plymouth, a major city in the relatively isolated south-west of England that serves as a regional centre for the counties of Devon and Cornwall. Many people are at least vaguely aware of Plymouth if only from the historical connection; it having been where Drake famously insisted on finishing his game of bowls on the Hoe, before going off to defeat the Spanish Armada in 1588. It remains a major naval base, though serving a much smaller British navy. It is a city of 250,000 people but the catchment area for its airport runs to more than 1.5 million.

Plymouth lost its air service to London Gatwick Airport on 01-Feb-2011 following the takeover of Air Southwest by Eastern Airways, and an 18% rise in operating costs at the London airport. Local politicians are attempting to get the 1160m runway extended so that it can handle large business jets but that was an ongoing saga for many years before without a successful resolution. The increasing costs at London airports generally that followed the loosening of regulation in 2010 and, specifically, airport charges at Heathrow that can be as high for domestic flights as for international long-haul services means this isn’t a unique case by any means. British Midland International (previously bmi) has axed its London Heathrow-Glasgow services (up to seven times daily) altogether and is threatening to reduce them on the London-Manchester route, for the same cost reasons. For bmi and its parent, Lufthansa, the Heathrow slots are much more valuable for medium-haul use to its Middle East and CIS destinations.

But this leaves Plymouth with half of its previous air service by passenger volume and it is quite possible its owner, Sutton Holdings – which sold Air Southwest last year – may sell the airport off for housing. Part of it has been sold for that purpose already after the shorter runway closed in Aug-2009. It is a serious matter for local business. Road connections to the bulk of the UK are poor, as are rail services. Newquay Airport (see below), an alternative for the region, will also lose its Air Southwest Gatwick link but retains one through flybe, which will have a monopoly on a lifeline route and couldn’t be blamed for applying monopoly pricing. flybe also flies out of its Exeter main base. But both airports are 35-40 miles from Plymouth, which will lose much of whatever attraction it had for domestic or foreign inward investment along with its air service.

Plymouth Airport passenger numbers: 2006 to 2009

Durham Tees Valley hanging by a KLM thread

In the north-east of England, about 450 miles from Plymouth, another airport potentially under threat is Durham Tees Valley (DTV), previously known as Tees-side Airport, and serving possibly the last remaining bona fide industrial city-region (heavy engineering, chemicals, pharmaceuticals etc) in England.

Ryanair has announced it will suspend its weekly summer DTV-Alicante service, reportedly due to increasing charges at the English airport. DTV introduced these charges (GBP6 per person) because it needs them to survive – traffic fell for the fourth year in succession in 2010 to 225,000 from 918,000 in 2006. Many European airports have learned not to impose any charges where Ryanair is concerned because it will simply up sticks and leave. The Alicante route (collectively some of the best supported routes out of the UK owing to the very large presence of British expatriates on the Costa Blanca) is Ryanair’s only service from DTV, after cancelling services to Dublin and Girona (Barcelona). In 2010, DTV lost Flyglobespan flights when that company folded, and failed to entice bmibaby into setting up a base (and which led to a court case which DTV won).

That just leaves a handful of domestic services by niche operator Eastern Airways, a few seasonal charters, a critical link to Amsterdam by KLM and some military test flights to keep it going. One of the airport’s USPs – that it has its own railway station - is nullified both by the distance from the rail station to the terminal and the fact it is one of Britain’s infamous "ghost stations" with only two services a week. Efforts to attract cargo traffic haven’t paid off. 

A cargo and maintenance village was proposed, but then the operator, Peel Airports, changed the planning application to one for an industrial estate, which suggests that could be the eventual fate of the entire site. Moreover, DTV is sandwiched between other, larger airports such as Newcastle and Leeds Bradford, and Ryanair has shifted its Alicante service to another small airport to the south, Humberside. Part of the Manchester Airport Group, Humberside itself was heading into danger a few years ago and placed on MAG’s "potentially for disposal" list in 2008, but business picked up - though it is hardly thriving. Now (Mar-2011) its future is under review again.

Durham Airport passenger numbers: 2006 to 2009

The trouble with Doncaster-Sheffield is Doncaster

Also owned by Peel Airports and its 65% investor YVRAS, The brownfield Doncaster-Sheffield airport, which opened in 2005, sometimes gives cause for concern, too. It has found it difficult to hang on to important airlines such as easyJet, whose five-route network was supposed to add 300,000 passengers a year, came and went within eight months (and after easyJet had abandoned East Midlands Airport to move to Doncaster-Sheffield for cost reasons), and its Ryanair portfolio is minimal, with just three routes. An Aer Arran-Dublin service (on behalf of Aer Lingus) also lasted just a few months while the "Robin Hood" airport has also  lost its Flyglobespan long-haul flights and those of Thomsonfly without any replacement.

It is very heavily reliant on one charter airline (Thomson) supported by Thomas Cook with a smaller programme. (This industrial region of the UK, with a large share of ex-mining towns, is still wedded to the tradition of the vacation package). Also on a small but important network by Wizz Air that mainly services worker-immigration traffic from Poland. Passenger traffic climbed steadily to almost 1.1 million in 2007 but since fell back to 836,000 in 2009, a year during which local media reported it was losing GBP1 million each month. Provisional statistics for 2010 indicate a small traffic gain, perhaps 5%. There is ample space for land use at what was a large air force base but lack of on-site freight forwarders has hampered cargo growth. The airport’s future might lie in an aviation-focused business park being developed nearby, drawing on established and evolving steel industry skills in and around Sheffield.

One of the problems the airport has is based on image, in the sense it is oriented towards Doncaster rather than Sheffield. The former is a large town of 285,000 but Sheffield is Britain’s fifth largest city and a regional centre with international recognition. While the airport is only 3.5 miles from Doncaster it is 18 miles from the more important Sheffield and there is a feeling that the people of Sheffield have not taken to it. Sheffield business travellers are still inclined to use Leeds-Bradford Airport, over 30 miles to the north and with poor road access, especially since it was transferred into the private sector, attracting a Ryanair base as well as being the principal airport for Jet2.com. Sheffield did have its own, separate, airport, a short runway Stolport also owned by Peel Airports, but it closed in 2008. If not Leeds Bradford, Manchester is also accessible and particularly from the western side of the region.

Doncaster Sheffield Airport passenger numbers: 2006 to 2009

Peel Airports lacks a trail-blazing anchor airport

Peel Airport/YVRAS’s main airport holding is at Liverpool, where traffic growth has been strong, if inconsistent, over a decade but it fell back again dramatically in Nov and Dec-2010 and the winter weather can’t be entirely to blame as Merseyside and the west coast of northwest England was spared the worst of it. Both Ryanair and easyJet, which represent about 90% of the traffic, over-expanded at Liverpool and have had to make adjustments. EasyJet is growing at nearby Manchester in a way that is complementary to its focus on the business traveller, and the number of routes there is now over 70% of the total at Liverpool.

But it is what happens next with Ryanair that is exercising the imagination. Ryanair introduced nine new routes at Manchester in 2008 but in Aug-2009 they were withdrawn in a dispute over fees and shifted to Liverpool or Leeds Bradford. Since then there has been an across-the-board management change at Manchester and Ryanair has been welcomed back to commence five ‘sun’ vacation routes. The terms under which this is taking place have not been revealed, i.e. who wilted first, and especially as Manchester has traditionally sought to protect its (fast diminishing) charter business, which now accounts for only 43% of the total traffic, down from 60% ten years ago. (Indications are that it was Ryanair, which has agreed to pay a commercial rate for peak period flights, though that is unconfirmed.)

Ryanair is talking about bringing an extra 5.0 million passengers per annum to Manchester, by building on these four Spanish and Portuguese routes with more of them in the future. But 5.0 million passengers p/0a is the entire annual throughput of Ryanair, easyJet and other airlines at Liverpool. It is difficult to imagine how this can be done without switching some of those routes from Liverpool, which Ryanair has hitherto supported well: despite having tinkered with its route network there it has 43 routes at present.

Liverpool Airport passenger numbers: 2006 to 2009

The war begins

In a previous edition of CAPA's Airport Investor Monthly it was suggested that a war might break out between Manchester and Liverpool following the change of management at the former and the investment by YVRAS at the latter, which was followed by statements from the new Liverpool CEO to the effect that it would start to challenge Manchester in the long-haul segment. We may be seeing the first shots fired in that skirmish.

From a financial viewpoint the omens are not good. Peel Airport Holdings reported a loss of GBP26 million in the 12 months ended 31-Mar-2010, which is double its loss for FY2009, on the back of a 15% year-on-year decline in revenues to GBP41 million. In comparison, MAG, which has not had the best of times either, reported an operating profit of GBP49.7 million (-3.7%) on revenues of GBP203 million (-0.4%) in the six months ended Sep-2010. While profit has not been a widely used word at Liverpool in its entire history under various owners, the real concern comes from the fact there is no truly successful anchor airport for the group, of which 35% ultimately remains part of Peel Holdings, which is essentially a property developer and one that is moving back in that direction. YVRAS has a job on its hands to achieve the level of success it no doubt craves for these airports.

No casino, no airport

Yet another airport in turmoil is Blackpool, on the north-west England coast and possibly best described as England’s answer to the US’s Atlantic City but without the gambling. The town bid for the UK’s only super casino licence several years ago, hoping a successful application would encourage inward as well as outward traffic but the government then changed its mind and scrapped the process altogether. Blackpool is another airport that has witnessed a withdrawal by Ryanair; on this occasion for having introduced a passenger charge - a GBP10 per passenger airport development fee – upon which the LCC simply walked away. Its main supporter now is the LCC Jet2.com with a couple of regular services, but Jet2.com itself threatened to pull out in 2010 because the airport was unable to service its late night arrivals and departures. What saved the day was when the airline took over the job itself.

Blackpool Airport passenger numbers: 2006 to 2009

South-east is not immune

The south-east of England is not immune, despite being the wealthiest part of the country. It has possibly the largest collection of airports serving scheduled, charter, cargo, business and general aviation traffic of any metropolitan area, anywhere, and not all of them can be successful (though most are).

Those airports include Heathrow, Stansted (both BAA); Gatwick, City (both GIP), Luton (Abertis/TBI); Southend (Stobart Group); Manston, Kent (Infratil Europe); Biggin Hill (Regional Airports); Farnborough (TAG Group); White Waltham (Berkshire); Elstree (Hertfordshire); Stapleford (Essex); Denham (Buckinghamshire); Blackbushe (Hampshire); Redhill (Surrey) and, on the periphery, Southampton (BAA); Oxford [which calls itself London Oxford] (Oxford Aviation Services Ltd); Bournemouth (MAG); Cranfield (Bedfordshire); Shoreham/Brighton City (West Sussex) and Cambridge (Marshall Aerospace).

Northolt to enter the ATC maze

As a result of the British government’s impasse on further airport infrastructure (see Airport Investor Monthly #76, Jan-2011) it is now being suggested that yet another airport be thrown into the equation by partly converting RAF Northolt in north-west London for use as a commercial airport as "Heathrow North", despite the fact that it has been mistaken for Heathrow before – the runways also run east-west and are in the line of sight of aircraft approaching Heathrow – prompting concerns about putting another airport in to the ATC maze around London.

Complicating the ATC position even more is a Feb-2011 decision by the UK government to permit TAG’s Farnborough Airport to double the number of aircraft movements at what is the UK’s only dedicated business aviation airport, from 28,500 to 50,000 movements by 2019 and thus overturning a rejection by the local council on noise and safety concerns. The Swiss-owned airport has seen business aircraft movements at Farnborough increase from 16,100 in 2003 - its first full year of operation at the site - to more than 25,500 in 2008. TAG Aviation has invested around GBP100 million (USD148 million) upgrading the airport since it became leaseholder of the site where the biennial Farnborough Air Show is held. On the other side of London, London City Airport received High Court approval in Jan-2011to increase annual aircraft movements from 80,000 to 120,000. The skies in and around London are getting ever-more crowded.

Lydd may have run out of time for its runway extension

The one airport in the southeast that appears to be most at risk presently is not on the list above. Lydd Airport, on the southern Kent coast and the closest UK airport to mainland Europe (and outside the London ATC control area), has been trying for several years to re-invent itself as ‘London Ashford’ (a nearby town that is also a station on the Eurostar rail line) and attract commercial air services to supplement what is a reasonably thriving general aviation and business jet FBO. But in order to do so, Lydd needs a longer runway (by 300 m) and a new terminal building, costing GBP25 million. The project has been held up for almost five years as a public enquiry has been successively delayed (it is now slated for 15-Feb-2011) and in the current climate it is more likely than ever that the government will not wish to see it go ahead. Should that happen it would throw into question Lydd’s long-term viability.

MAG’s Bournemouth Airport has also found the going tough of late, and only a short time after it was the group’s star performer. Palmair, a locally based airline and tour operator that was, almost unbelievably, voted in the top four airlines in the world by readers of a global consumer magazine in 2008, suspended then cancelled its services there after many years of operations, blaming the competition latterly offered by Ryanair. But Palmair only has one aircraft. Ryanair (which has 262 and counting) also suspended winter operations while Flybe and bmibaby suspended single destination services. Now it appears Ryanair will return for the summer 2011 season but with only three weekly winter flights remaining (all charter) the airport could close down for five months and no-one would notice.

The Managing Director recently stated the airport’s owners are “in it for the long haul” (a phrase beloved of Infratil, the owner of Glasgow Prestwick airport, see below), despite the “massive challenges” of recovering demand The airport now aims to increase business flights from the present 5% of operations and “fill the hole” in destinations in northern Europe, starting with the UK. The airport handles 800,000 passengers per annum, but the management believes this could be increased to three million. But with a recent change of top management at MAG the clock could be ticking.

There are several other examples of UK airports facing up to a tough future right now, including Newquay (on the north Devon coast), where Ryanair has ceased operations this year. In its favour is the fact that, almost uniquely in England outside of London, Newquay can attract inbound foreign tourism, even on designated scheduled services, such as Lufthansa’s seasonal service from Dusseldorf, courtesy of its international reputation as a surfing centre. Others might be Norwich, where Flybe and tour operators cut back heavily on flights at the beginning of the recession though the airport has rallied again since then. In the case of many eastern UK airports a key to survival is to retain at least a daily link with Amsterdam, as Norwich (and, so far, Humberside and Durham Tees Valley) have done as that permits access to the Air France-KLM and Skyteam network. Moreover KLM is a renowned air fare discounter, which adds to the appeal of the Amsterdam connection.

Also Glasgow Prestwick, which is heavily dependent on Ryanair, while the Irish LCC had seemed uncertain about its long-term future there. But some degree of certainty has come from Ryanair’s announcement on 16-Feb-2011 that it would open a GBP8 million maintenance hangar at Prestwick. The facility will be Prestwick’s second MRO facility and it will be supported by the Scottish Government, which has committed GBP1.5 million in training grants to develop the local economy and workforce.

Finally, Dundee Airport (also in Scotland), which is down to just two regular routes, operated respectively by CityJet and Flybe. Fortunately, one of them is to London City Airport, which is quite a coup when weighed against the suspension of British Midland International’s up-to-seven-a-day services to Glasgow from Heathrow.

Coventry challenged, but can rise from the ashes

What can happen to an airport when the viability runs out is epitomised by the story of an airport that came out of nowhere so to speak, grew phenomenally quickly, then closed down, all in the space of five years. The city is Coventry, population approximately 300,000, near Birmingham in the English midlands. Best known for live cargo (eg horses) flights, general aviation and pleasure trips, its lease was bought by German tour operator/airline TUI, which installed its own LCC and attracted so much traffic from Birmingham and East Midlands airports that it went through 0.5 million passengers in the first year and was heading towards a million the next.

But its infrastructure was of a temporary nature and wholly unsuitable to bulk traffic. TUI had assumed it would get planning permission for a new terminal but it did not. Some municipal councils in the UK appear to detest aviation as much as the central government does. In this case it was not Coventry’s council, but a neighboring one that caused all the trouble. Without the new terminal and associated parking the business plan was untenable, the airport was sold on a couple of times then simply closed for business in 2009. Since then a saviour has been found in a local businessman who runs a company named Patriot Aerospace and Coventry has come full circle back to general aviation and pleasure flights with a little cargo and (growing) business jet activity thrown in. It has ambitions to resume commercial services but that would appear to be some time in the future.

Too many airports, so some must go

There are more than 40 commercial airports in the UK; a country that (aside from Northern Ireland, just the part called Great Britain) is just 700 miles long by 300 miles at its widest, all vying for each other’s diminishing business in a political climate that isn’t going to get any better any time soon. That is too many and their number is almost certain to decrease even if the economic climate was starting to change before the GDP figures for 4Q2010 suggested that a double-dip recession remains a distinct possibility.

Of course, it is not only in Britain that airports are under threat in the British Isles. There are 13 airports in Ireland (Eire), supplemented by Belfast International, Belfast City and Londonderry in Northern Ireland; 16 in all, for a population of some 5.0 million. There are six or seven airports dotted around the western part of the country alone, where the population is only 2.0 million. Already Ryanair has successfully argued against the continuation of Public Service Obligation (PSO) route support schemes on the basis that Ireland’s much improved road system, delivered courtesy of EU funding, means Dublin Airport is now easily reached by surface transport from much of the country. As most of these airports have little in the way of international traffic they are simply becoming redundant.

In addition there is a private sector proposal to build yet another airport in the centre of the country and to the west of Dublin, in County Offaly, and close to the home of retiring Taoiseach (Prime Minister) Brian Cowen. Conceived before the recession, the Irish financial crisis and the introduction of the EUR10 pp tourist tax (since reduced to EUR2) the entrepreneurs envisaged it would not take traffic away from Dublin Airport but would provide relief’ Dublin Airport, which has lost 6.0 million passengers in three years, certainly needs relief right now, but of another variety altogether. But as Ryanair’s O’Leary has stated categorically: “There is not a hope in hell it will happen”, then it probably will not. 

STOP PRESS. BAA announced it will have to break up its network of airports after a court rejected its bid to challenge a sale order by the competition watchdog. In Mar-2009 the Competition Commission ordered BAA to sell London’s Stansted Airport and either Glasgow or Edinburgh airports within two years. BAA successfully challenged this motion; however the Supreme Court has since reconsidered it. BAA continues to insist the decision should be reviewed in the light of the government's policy to rule out new runway capacity in the South East of England.

None of these airports is in any danger of closure, even if Stansted does continue to lose traffic into 2011, but the enforced sale in an unappetising climate may dampen valuations elsewhere.


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