UK’s Southampton Airport: part one – no airport ‘has right to exist if it can’t make money’
The demise of the UK's Doncaster-Sheffield Airport must have set many municipal authorities' nerves on edge. Now Southampton Airport on the English south coast says it will need to build back up quickly to at least 1.2 million passengers annually if it is to survive - while it will lose GBP4.5 million this year.
Candidly, the management admits it doesn't deserve to survive if it cannot make money.
The remedy appears to be a runway extension on which work should begin in 2023, the usual objections having been overcome in the courts.
But supply doesn't necessarily equate with demand, and with competitors for its catchment area - including the two London giants that are Heathrow and Gatwick, as well as Bournemouth, 30 miles to the west - there is much work to do just to get Southampton back to pre-pandemic levels.
This is part one of a two-part report.
- Southampton Airport needs to reach at least 1.2 million passengers annually to survive and is projected to lose GBP4.5 million this year.
- The airport plans to build a runway extension in 2023 to attract A320-size jets and increase its capacity.
- Southampton Airport is lagging behind the UK average for seat capacity rebound, with only 51% of the capacity it had in 2019.
- The airport's management believes that a passenger throughput of 1.2 million per annum is needed to break even, and they aim to reach three million passengers annually in the future.
- Southampton Airport successfully overcame legal challenges to its runway extension project, which had faced opposition on environmental grounds.
- The airport's growth has been uneven in the past decade, with a significant decline in traffic due to the failure of Flybe and the impact of the pandemic, but it saw a 365% growth in the first seven months of 2022.
Summary
- Following hard on the news of the impending closure of Doncaster-Sheffield airport, Southampton Airport says it needs 1.2 million annual passengers to survive.
- Southampton Airport says that it will lose GBP4.5 million this year.
- But the airport remains confident that a runway extension will get it back on track, as it will be able to attract A320-size jets.
- Southampton Airport lags the UK average for seat capacity rebound.
- Around 1.2 million passengers annually needed to break even: airport targets 3 million.
Many UK airport operators concerned with events at Doncaster-Sheffield
Several weeks ago the CAPA report UK's Doncaster-Sheffield Airport to close? Alternative use options discussed went into some detail about the proposed closure of Doncaster-Sheffield Airport in the north of England and the reasons behind it.
That appears now to be a fait accompli, with the airport's owners, the Peel Group, declaring on 26-Sep-2022 that it had plans to start suspending commercial operations there from 31-Oct-2022, owing to the airport's "fundamental and insufficient lack of current or prospective revenue streams". And despite the South Yorkshire Mayoral Combined Authority stating on 14-Sep that it had secured a "credible consortium interested in operating" the airport.
The new UK Prime Minister Liz Truss is reported to have said that the government would "protect" the airport, but that "protection" could be a long time coming - if indeed it arrives at all.
Many municipal authorities across the UK and further afield must be concerned at this development where they have leased or sold their airport to a private sector operator, which is most of them.
Although investors in the airport sector tend to be less fickle than those in some others - airports have typically be seen as long term investments with little risk - they do have the attraction of being 'flatland rich' and therefore appropriate to a range of alternative uses such as residential developments, business and technology parks, long term storage (for example of vehicles), warehousing and distribution and - in the spirit of the times - solar and/or wind farms, possibly battery production sites.
Airport land value can be extremely high
London City Airport is a case in point.
The airport being owned by a consortium of mainly foreign pension funds, which tend to take a hands-off approach to management, the value of the land there for housing alone (if the airport were ever to be deemed unviable) would be extremely high, which partly explains the very high and ever-increasing sale price whenever it changes hands.
Meanwhile, Doncaster-Sheffield is already partly developed as business park, with plenty of room for more, and is within 20 minutes of five motorways.
Southampton Airport anticipates a GBP4.5 million loss in 2022, but the future is rosier
So that concern must also be felt on the English south coast at Southampton Airport, once part of BAA plc and latterly owned by AGS Airports - a consortium of Spain's Ferrovial S.A. and Australia's Macquarie Infrastructure and Real Assets. The 'A' and 'G' of AGS are Aberdeen and Glasgow International Airports, which complete the group.
Southampton Airport's operations director Steve Szalay said recently that the airport was likely to record a GBP4.5 million loss in 2022 (slightly down from an earlier estimate), when most other British airports are indicating that they anticipate an operating profit (if only a small one).
It must be said straight away that there is no suggestion that the same fate experienced by Doncaster-Sheffield Airport awaits Southampton, and indeed, the opportunities there are at least equal to the threats. Both its owners are extremely well capitalised.
But then again, so is Peel Holdings (British infrastructure and property investment business), and both Ferrovial and Macquarie have a propensity to offload airports, or their share in them, as well as to take them on.
Indeed, recently there have been suggestions that Ferrovial could give up part, or even all, of its majority equity in London Heathrow Airport, as highlighted in the recent CAPA report: Ferrovial to sell stake in London Heathrow? Part one - French and Saudi interest in 25% ownership
Southampton lags UK average for seat capacity rebound
Nevertheless, a loss during which air transport has come close to the same seat capacity levels and passenger business as 2019 in the UK is worrying.
And unfortunately, Southampton has not come close to those capacity levels, lagging the UK average.
In the week commencing 10-Oct-2022 capacity at Southampton stands at just less than 51% of what it was in the same week of 2019, and is barely above 2020 and 2021 levels.
In the UK as a whole it is almost 89%.
Southampton Airport: weekly total system seats, 2019-2022
1.2 million passengers annually needed to break even
The airport's management argues that to break even, what it requires is a passenger throughput of 1.2 million per annum (which broadly tallies with ACI and academic sector estimates on financial sustainability for airports generally). It is a level easily achieved previously when the airport reached over two mppa (see chart below), but uncertainty will remain while they are measured in the hundreds of thousands.
That figure would be facilitated by a 538ft (163m) runway extension which is scheduled to begin in 2023. It will extend the runway to almost 1900m, with a width of 37m. That should enable it to handle most small and mid-sized jet airliners.
Southampton is one of several airports in the UK where there has been stiff opposition to infrastructural enhancements, usually on environmental grounds. Within the past year CAPA has reported on two other examples: at Bristol in Misplaced 'environmental stand' against Bristol Airport expansion, and at Liverpool in Liverpool Airport's expansion master plan to be reviewed on environmental grounds.
In Southampton's case it was successful at a judicial review. The final legal challenge to the runway extension was defeated at the Court of Appeal earlier in 2022.
'No airport has a right to exist if it can't make money'
Mr Szalay is reported locally to have said, "Without the extension, there's no nice way of putting it. We were screwed."
He has also been reported to comment, "No airport has a right to exist if it can't make money"; a refreshingly honest opinion.
Southampton's target is three million passengers
On the positive side, the airport's management believes the throughput can grow to three million passengers a year, which seems realistic, and 2,000 staff after the extension is built.
Before the COVID-19 pandemic, in 2019, it reached 1.8 million passengers, but that was a 10.5% shortfall on the previous year.
Traffic growth over the past decade has been patchy and uneven, reaching +14% in 2016, but with growth otherwise in single digits and also four years of falling traffic between 2010 and 2019 (no figures are available for 2014 and 2015).
The average annual growth figure in that period without those two years was just +1.3%.
The airport took a hit from the failure of Flybe just before the pandemic, resulting in an 84% passenger traffic loss in 2020, and a further -11.2% in 2021. But growth in the first seven months of 2022 was 365%.
Southampton Airport: annual traffic, passenger numbers/growth, 2010-2022 Jan to Jul YTD
