PPRuNe Forums - PRESTWICK

Saw this on another website, taken from Glasgow Herald:

PRESTWICK Airport has always stuck with its “Pure Dead Brilliant” moniker, despite the outcry from squirming west coasters when it was adopted five years ago.

But if you were asked to come up with an accurate description of the airport at present, those of a cruel disposition might be tempted just to omit the last word.

From a peak in 2007 when more than 2.4 million people passed through arrivals and departures at the Ayrshire airport, last week New Zealand owner Infratil confirmed that the average over the past year has been little more than 1.5 million. Prestwick has not made a profit in its two most recent financial years and it doesn’t expect to turn one this year either. This despite the fact that it has made almost 200 staff redundant – nearly two-fifths of the total – in that period. Having once famously hosted what might have been Elvis Presley’s only visit to the UK in 1960 (others insist he visited London a couple of years earlier), the airport’s airy terminal is in danger of becoming Heartbreak Hotel.

The good news is that things are still nowhere near as bad as in the early 1990s. However depressed the passenger numbers may be at Scotland’s fourth-largest airport after Edinburgh, Glasgow and Aberdeen, they are still a million miles from the 10,000 that followed the tumbleweed through the terminal in 1993. That was the era when Prestwick was sold by BAA to BAe Systems. Having once handled transatlantic passenger flights for British Airways, Prestwick had been scraping by throughout the 1980s on freight work and occasional charter flights.

BAe had no interest in running an airport, but it built planes next door and needed to fly them in and out. With BAA being privatised, there was a real possibility Prestwick would close altogether. BAe soon sold the terminal to a group of local interests operating as PIK Limited, which built a railway station. This turned out to be perfectly timed for the start of the budget airlines boom. Prestwick started offering flights to Dublin in 1994 for an ambitious little airline called Ryanair, which soon added flights to London and Continental Europe.

The airports that are hurting most are the ones that were growing the most

By the middle of the decade passenger numbers were up to half-a-million a year and the freight business was gathering momentum.

This model continued through a couple of changes of ownership to Infratil’s full takeover in 2003. By then passenger numbers were knocking on two million, not just thanks to Ryanair but also to the likes of BMI.

Just as Prestwick’s marketing people decided calling the place Glasgow Prestwick might make the one-hour journey from Scotland’s biggest city seem shorter, the airport had become the route to obscure places within similar distance to Europe’s top destinations. As travellers seemed prepared to get out their maps to work out how to get from Beauvais to Paris or Ciampino to Rome, the new owners believed they were on course to overtake Aberdeen and become Scotland’s third-busiest airport.

The numbers, in fact, plateaued around the 2.4 million mark from 2005 until 2008 while Aberdeen boiled over three million, but this was hardly a disaster. As profits rolled in the management turned its attention to drawing up a new masterplan. In October 2008, just as the UK Government was scrambling to save HBOS and RBS, Prestwick’s chief executive at the time, Mark Rodwell, was unveiling proposals to take passenger numbers to 5.7 million by 2018 and 12 million by 2033.

The only thing that can be said in defence of these figures is that they were no crazier than those of any other airport. By the time the consultation period was up, the freight business had plummeted from around 35,000 tonnes a year in 2007 to little more than 10,000 two years later. Ryanair was chewing fingers off the hand from which it had once fed, moving routes to Edinburgh when it had become Prestwick’s dominant partner. By Christmas 2008, Prestwick had been running at a loss for two months. It announced shortly after that 50 staff, mainly on the freight side of the business, would be losing their jobs.

Passenger numbers started drying up in 2009, partly due to the lost routes and partly through declining demand, exacerbated by Government duties. Passenger numbers to Stansted, at one time 25% of Prestwick’s passenger business, fell from over 400,000 in 2008 to 224,500 in 2010; Dublin, Prestwick’s second-most important route, fell nearly 20%. Belfast routes stopped altogether after Ryanair severed its ties with the Northern Irish airport. Donegal, Derry, Shannon, Gothenburg, Milan and Budapest were among those that went, too. This is no different to the trend that saw BMI cancel its Glasgow-Heathrow route earlier this year, but it hurt more from Prestwick’s smaller base. When it was informed about further Ryanair cutbacks last spring, including more Stansted reductions, the management decided to act again. By last autumn, another 120 staff had been made redundant.

According to Louise Congdon, managing partner at leading consultancy York Aviation, Prestwick’s troubles are typical. “With the possible exception of Heathrow, all airports are suffering high amounts of pain,” she says. “The ones that are hurting most are the ones that were growing the most. The traditional rule of thumb is that airports could make money at one million passengers per annum. But the budget operators’ model has pushed that up to the two million mark. Foreign operators that came into the market in the past 10 years didn’t always see that coming.”

Others allege that players like Infratil underestimated the market’s potential. They assumed the steep growth of the 1990s and early 2000s would continue indefinitely, failing to recognise that there was only so much demand for city breaks and cheap holidays in each area of the country.

Congdon adds that they have also been hit by the fact that spare capacity at bigger airports caused by their own passenger declines has made competition for airlines tougher than before. Hence Edinburgh’s growing relationship with Ryanair.

And Prestwick is not the only one losing money: Doncaster, Durham Tees Valley and reputedly Newcastle are all in similar positions, while Plymouth City recently announced that it will be closing at year’s end.

Iain Cochrane, the well-regarded chief executive of Prestwick since last March, is determined that the airport is not heading in the same direction. For a man with a tough challenge, he is unexpectedly upbeat. On the passenger side, he has been seeking to make up for losing city breaks to Edinburgh by turning Prestwick into a bigger player in so-called sunshine destinations.

“This was an opportunity that came up after the closures of FlyGlobespan and XL, both of which used Glasgow Airport,” he says. “Rather than try and fill the gap with other charter operators, we thought let’s try and encourage Ryanair to offer new destinations and increase existing ones to give us a better chance to increase our passenger numbers.”

The result has been decent increases to routes like Alicante and Palma. New routes like Faro and Gran Canaria have been added. In total, numbers to the airport’s top six sunshine destinations are up 30%. “Sunshine” now make up 40% of all passenger destinations, twice that of a couple of years ago (albeit partly because of European “city” routes falling away). The airport is hiring 90 seasonal staff to handle demand, essentially temporarily hiring back most of the workers it axed last year.

“If we do well over the summer,” adds Cochrane, “it will demonstrate that Prestwick can be successful in that sector and will give us the opportunity to make the case for more capacity. There are still destinations we don’t serve, like in Turkey.”

That might not be quite on a par with winning a new airline to add to Ryanair and Polish player Wizz – Prestwick’s Holy Grail in recent years – but it would certainly help. In total, despite the promising signs, Ryanair’s Prestwick flights for the summer are still down from 136 last year to 107.

With passenger flights making up 60% of the business, freight makes up 15%, predominantly from aircraft engines for GE, which has a base at the adjacent business park, and from oil and gas equipment (the rest of Prestwick’s approximately £15m turnover comes from aircraft parking and maintenance at its hangars and refuelling military planes).

Prestwick has always been one of the main UK airports for freight because it has a very long runway and a good reputation for handling loads that are very heavy or wide. Cochrane says that the airport’s freight tonnages are still not far from the bottom of the cycle, but he can point to seven straight months of consecutive growth and a 5% increase year on year. “We are buoyant,” he says. “We are looking to grow from that base.”

This all helps to move the airport back to profitability. On the other hand, Prestwick is having to contend with the expensive price of fuel and the fact that airlines have to join the European emissions trading scheme next year.

The big question is how long Infratil will keep funding a loss-making airport. Cochrane says the owner is in it for the long haul, believing that the prospects are good for the British market. Irrespective of the green stigma against air travel and the eventual prospect of high-speed rail, there is still a general view in the industry that passenger numbers can grow substantially ahead of GDP. Less vested interests are not so sure, but such beliefs at least prevent calamitous contractions of the balance sheets of airport owners until they are proven wrong.

The future of the airport will also be heavily influenced by what happens at Glasgow Airport. In the next few weeks the Competition Commission will publish its final ruling on the BAA break-up, where it is expected to insist on the sale of either Edinburgh or Glasgow. Although no final decision has been taken, Glasgow will almost certainly go. Cochrane reckons it is too early to say what this will mean for his airport, but Louise Congdon is in no doubt.

“A new owner can only mean increased competition for Prestwick,” she says. “For whatever reason, BAA has chosen to promote growth at Edinburgh more than Glasgow. A new owner with only one airport in the central belt would behave differently.”

There have been rumours that Infratil could be among the bidders, which would neutralise this threat. But with numerous airport owners and other investors lining up to make bids, several sources say that the Competition Commission is likely to opt for a new competitor.

Whatever the future holds for Prestwick, it is facing these tough times with the same three-word moniker as before. Cochrane says there are no plans to change branding at present. If there are to be more Pure Dead Brilliant times at Prestwick, there are plenty of other things to worry about in the meantime.

Coming to the end of the runway? - Herald Scotland | Business | Analysis