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STANSTED - 2

Old 21st Jan 2014, 10:14
  #2541 (permalink)  
 
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To be fair to MAG they have a pretty realistic view of Stansted's future, as a leisure-focused airport continuing to be dominated by its two major customers. They don't see STN as truly competing with LHR and LGW for long haul, but you can't blame them for trying to secure a small LH operation, despite the terrible history of LH at Stansted. But even if successful it will be small in numbers, and won't really change the nature of STN.

The improvements that Thompson mentioned are not really focussed at the long haul market - valet parking and airport-operated lounges have been quite successful at MAN and appeal to leisure travellers who want to upgrade their airport experience a bit. And the 80m terminal redevelopment is aimed at boosting retail sales by shifting the airside/landside boundary, while improving the security layout. It has nothing to do with long haul aspirations.

So I entirely agree with Skipness's realism about the STN market - the main issue is with the spin that has been put on the press release.
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Old 21st Jan 2014, 10:30
  #2542 (permalink)  
 
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I know STN is LCC central, but the infrastructure is fundamentally good. It has good ground transport, on-site hotels, lots of parking, plenty of gates, long runway, spare passenger capacity, available slots and doesn't feel like a tin shed.

I don't expect a startup to NY to succeed any time soon, but what would be the major barrier to persuading a big Middle East carrier from opening a daily route in the hope of picking up passengers from North and East of London ?

MAG know STN is overly reliant on one carrier - seems essential that they try to diversify a bit.
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Old 21st Jan 2014, 11:00
  #2543 (permalink)  
 
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I know STN is LCC central, but the infrastructure is fundamentally good. It has good ground transport, on-site hotels, lots of parking, plenty of gates, long runway, spare passenger capacity, available slots and doesn't feel like a tin shed.
Aside from change in drop off which is a PITA, going up dropping off and leaving or picking someone up already waiting was one of the things I liked about it.
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Old 21st Jan 2014, 14:43
  #2544 (permalink)  
 
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According to the Bloomberg release, STN provided 40% of the passengers, but only 30% of the revenue.

Evidently airlines aren't prepared to pay as much to use STN as they are to use MAN and EMA.

Worrying, when you've got all that debt to service.
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Old 21st Jan 2014, 15:13
  #2545 (permalink)  
 
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Actually the STN proportion is 35.5% of group revenues from 39.0% of group passengers.

Total group revenue 390m, of which STN 138.4m. Total group pax 25.9m, of which STN 10.1m. All figures for the half year to 30 Sept.

Your point still stands - STN's unit revenues (and profits) are lower than the rest of the MAG group. But this will have been factored into MAG's bid.
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Old 21st Jan 2014, 15:14
  #2546 (permalink)  
 
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Not necessarily as depends on what is happening to that Revenue last year, this year and next year as well as pax numbers. Need to see a trend not a snapshot.
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Old 21st Jan 2014, 18:16
  #2547 (permalink)  
 
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Basil,

You may be right, but I was wrong. The Bloomberg article, linked above, shows that STN contributed 31.5m operating profit out of 108.2m group operating profitin the 6 months. (not revenue, as I stated).
This means that op.profit of STN was 29% of the total, for 40% of the pax. Even worse for MAG, as they have to service their debts from the op. profit.
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Old 21st Jan 2014, 18:32
  #2548 (permalink)  
 
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This means that op.profit of STN was 29% of the total, for 40% of the pax. Even worse for MAG, as they have to service their debts from the op. profit.
Why is that so surprising? STN is "Farmfoods" whereas MAN is more akin to "Sainburys". One piles it high and sells it cheap and has a small range of products, the other has broader range of higher quality (profit) products.

MAG are probably quite happy with the mix within their business.
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Old 21st Jan 2014, 19:34
  #2549 (permalink)  
 
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ATN -

It's not surprising, nor am I surprised.

My point is that MAG paid 1,500,000,000 for Stansted. It has to be assumed that, however they financed it, that 1.5bn has to be serviced - by way of interest payments or dividends depending on the structure of the deal. It's also likely that "operating profit" excludes any such payments. So, having spent their 1.5bn, the owners are receiving 31,500,000 towards their servicing costs in half a year. That amounts to a gross return on capital of 4.2%. Before tax, before any additional capital expenditure, and presumably before any corporate overheads.

I'm surprised that the taxpayers of Manchester are not up in arms about their council entering in to such a deal with their money.
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Old 21st Jan 2014, 19:52
  #2550 (permalink)  
 
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Yep, I'm up in arms at the prospect of Manchester Council benefitting from another potential 15m dividend. (last year's basic dividend being 42m with IFM and Manchester Council getting 35.5% each and other 9 local councils 29%). I can't think of too many business ventures that can benefit the council in such a manner. Let's hope they continue to "squander" money in such a beneficial way.
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Old 21st Jan 2014, 20:03
  #2551 (permalink)  
 
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Ringwayman,

Your dividend is from the success of Manchester Airport, East Midlands and Bournemouth.
Stansted is an albatross around the neck of MAG, as I'm sure will become clear soon. And the one-off dividend was (presumably) a gain from giving away 35% of the existing group to fund the new purchase.
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Old 21st Jan 2014, 20:44
  #2552 (permalink)  
 
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Guys

Assumming its repayable debt (like your mortgage) then capital repayment is never shown on Profit and loss account.

No idea of debt structure used to buy Stansted. Interest charges are................charges not what is physically paid.

What is most important is cash flow........companies go bust making losses, companies go bust making profits, few go bust having very good cash flow.

First 7 months MAG will have done little other than understanding how it works, getting its future plans in order and talking to customers and suppliers.

Would expect the profit to go up very quickly with new ways of doing things and new growth.
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Old 21st Jan 2014, 22:27
  #2553 (permalink)  
 
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And the one-off dividend was (presumably) a gain from giving away 35% of the existing group to fund the new purchase.
Those 'one off dividends' have actually been paid the past few years, despite some circles trying to convince us the council props up the airport.
Also, AFAIK funds made from the sale to IFM went into STN, not paid back to the councils.
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Old 22nd Jan 2014, 07:37
  #2554 (permalink)  
 
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My understanding is that last year's dividend was 72m, of which 30m was a one-off special dividend resulting from the refinancing that was done at the time of the STN deal. The 'normal' dividend was 42m, up from 20m the previous year.

Historically the dividends have been relatively low compared with the potential value of the airport, leading to suggestions that the local authorities would be better off selling the airport and investing the proceeds elsewhere. But with a new shareholder on board at MAG, a new more generous dividend policy seems to have been adopted. The new shareholder will certainly want a better cash return on its investment than what the local authorities have been getting these past years!
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Old 22nd Jan 2014, 11:14
  #2555 (permalink)  
 
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I know STN is LCC central, but the infrastructure is fundamentally good. It has good ground transport, on-site hotels, lots of parking, plenty of gates, long runway, spare passenger capacity, available slots and doesn't feel like a tin shed.

Do those factors substantially improve revenues though ?

I get the impression the LCC market at STN is dominated by a much more discerning and highly cost conscious clientele.

The couple who have found they can get to Pisa for a long weekend for 100are not going to then spend a further 100, on car parking , chauffeur pick ups, duty free, et al.

East European migrants heading home twice a year , not likely to spend anything in retail ?

Backpackers to London !

I'm sure Basil can help us out here re projections but if pax numbers hit 20m at STN as promised by RYR what is the revenue stream then ?

If its on a like for like basis and assumes costs are broadly similar and there are no hidden charges for investment etc then I feel it will be a much lower proportion than Manchester BUT I may be wrong !

OK Manchester has RYR, JET2, EZY but it also has a wide variety of passengers on AF, LH, SIA, EK , UA etc etc

I also get the impression that a significant number of passengers using our LCC flights have swapped from IT and whilst a number will indeed be "a bit tight", a further number will pay for higher privileges.

I'm still confused on landing fees as well as I thought the catalyst for RYR at STN was a decrease in these as routes expanded ?

With the announcement last week that MAG could reset these in the future IF they did crank them up would RYR not just walk away again !

There seems to be a lot of store set by MAG in terms attracting new airlines but as I have said before who on earth is going to jump into RYRs bear pit ?

On long haul re EK the MAN flight are booked out solid, would they take a chance on a new service out of STN which has been a graveyard for long haul and would cost a lot to set up when they can simply up frequency in a proven market ! Personally I think this is where the focus is getting somewhat blurred in terms of strategy.

Have we lost focus on MAN in a attempt to woo traffic to STN, don't know, cannot complain at SAUDIA, Flynas, AC Rouge, USAir but are these routes initiatives DRIVEN by MAG OR the airlines themselves ?

Another one for Basil, how do the proposed synergies work ?

There seemed to be a lot of talk that buying STN lowers overall costs, are you able to elaborate with an example or two ?

Last edited by Bagso; 22nd Jan 2014 at 11:30.
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Old 22nd Jan 2014, 12:07
  #2556 (permalink)  
 
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New Route To Dundee

Loganair operating as flybe will operate a twice-daily weekday service, and once on a Sunday, to Dundee from March 30.

This route is to replace the current Cityjet flight from LCY which is due to end of March.

Flight will be operated by a DO328.

Source
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Old 22nd Jan 2014, 13:23
  #2557 (permalink)  
 
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Bagso

You raise a lot of fair points and I certainly agree that MAG faces a lot of challenges in earning an attractive return on its investment.

But MAG's strategy is pretty clear. They want to kick start growth by doing deals with the incumbent carriers. Even though this involves discounting airport charges MAG will have calculated that there will be an overall increase in revenues due to higher volumes and also to commercial revenues from these extra passengers. Because STN has oodles of spare capacity MAG doesn't need to invest in new facilities to handle this growth in traffic, for the medium term at least. Secondly they want to boost commercial revenues, for example by the works to expand the departure lounge to create more retail facilities, at the expense of the underused check-in area. Thirdly they want to reduce operating costs, by a combination of running the airport more efficiently than BAA did, and sharing some support functions with MAG's other airports.

The theory is that all of this will lead to a rapid increase in profitability. Time will tell. I don't have inside info so I can't answer your question as to how STN's profits at 20m pax will compare with MAN.

On some of your other points.

Yes, LCC pax often spend less (on average) than other pax. But this is not always the case - some pax respond to having got a great deal on the air fare by splurging on things like lounge access etc. And airports can tailor their offer to LCC pax, for example by better 'grab and go' catering.

On landing fees, STN is now technically able to charge what it likes, subject to general Competition law. But the airport has only been removed from regulation because it is thought that the airlines now have enough power to stop the airport from putting up charges, for example by threatening to reduce traffic.

On synergies, I agree that these are limited, at least in relation to airport operational activities. But I'm sure there are a range of support activities (Board, marketing, procurement, insurance, planning, engineering support etc etc) that can be shared across MAG airports, reducing overall costs.

As I said earlier, time will tell as to whether MAG's 1.5bn gamble has paid off. But one thing is certain - by the time we know whether it's a good or bad deal all those responsible will have long gone, spending their bonuses etc!
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Old 22nd Jan 2014, 14:43
  #2558 (permalink)  
 
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Yes, LCC pax often spend less (on average) than other pax. But this is not always the case - some pax respond to having got a great deal on the air fare by splurging on things like lounge access etc. And airports can tailor their offer to LCC pax, for example by better 'grab and go' catering.
Based on Last year numbers each passenger generated 2.47 in operating profit. Operating Profit / Number of Passengers from 1st March to End Sept.
As said way back when new FR deal was being discussed the addition of 1 million passengers will not cause costs to go up that much as simply the resources are already there. Thereby adding a million passengers could make substantially more.

On landing fees, STN is now technically able to charge what it likes, subject to general Competition law. But the airport has only been removed from regulation because it is thought that the airlines now have enough power to stop the airport from putting up charges, for example by threatening to reduce traffic.
Agree

On synergies, I agree that these are limited, at least in relation to airport operational activities. But I'm sure there are a range of support activities (Board, marketing, procurement, insurance, planning, engineering support etc etc) that can be shared across MAG airports, reducing overall costs.
Not convinced as Stansted went from being the runt we can ignore in BAA to a growth opportunity for MAG. Focus alone will get things done better.

As I said earlier, time will tell as to whether MAG's 1.5bn gamble has paid off. But one thing is certain - by the time we know whether it's a good or bad deal all those responsible will have long gone, spending their bonuses etc!
Think it will pay off and will no way sooner than you think.

Operating Profit is important but its ability to generate shed loads of cash to get debt down and invest in upgrading facilities.

Seeing what happened at Gatwick following investment shows what can be done.
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Old 22nd Jan 2014, 15:05
  #2559 (permalink)  
 
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Not convinced as Stansted went from being the runt we can ignore in BAA to a growth opportunity for MAG. Focus alone will get things done better.
Hang on, you're being terribly selective. BAA re-built Stansted for a role that never actually materialised. It was built to be a new airport for London and after having spent millions on a very nice facility (Ryanair's best btw) they discovered the newly liberalised and de-regulated market didn't want it for that purpose. Iit was then virtually gifted to the locos after based carrier Air UK failed to maintain a viable base there as the growth of the locos began.

BAA built a very nice new STN against all airline advice then paid the price when reality kicked in. It has lovely facilities and growth potential galore as it's not as busy as it was supposed to be.
MAG are looking to make something of STN but the main reason BAA gave up and concentrated on LHR is that they tried everything to get other airlines in and no one was having it. BAA got badly burned by the whole debacle, all credit to MAG if they get things on a surer footing, but the transport strategy that got us to where are now was a fantasy in the 80s, compounded in the 90s then forgotten in the noughties. #goldfish
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Old 22nd Jan 2014, 20:00
  #2560 (permalink)  
 
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Skipness anti. STN

Was it not the case that BAA were forced to sell STN but wanted to keep hold of it right up to the end.

Skipness why do all of you recent posts all seem to be anti STN, are you joining LGS & the Luton Fanboys?
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