Airports long term finacing problems

[Heathrow Harry]

This week's Economist has an article highlighting long term problems in airport finances

Passenger numbers are booming (up 6.3% last year) but revenue per pax is falling - Schipol, CdG & Frankfurt are down 4-8%

Uber etc are hitting US income where 40% of non-aeronautical income is from car parking (Yurop 20%) and car hire (20% (Yurop 3%) - US budgets are around 10% down

And airport coconstruction costs continue to rise at twice the rate of inflation..............................

[Peter47]

I think that the larger "hub" airports will be fine. They have a captive market and are able to "sweat their assets" as the troughs between peaks fill up. Overall revenue is up - its just not increasing as fast as passenger numbers. You will no longer have nice empty surroundings like you did in earlier years of aviation but that's a price of cheaper fares.

The problem is the smaller airports relying on fickle LCCs (possibly Irish based). I remember over a decade ago a knowledgable person predicting that Ryanair's growth would be limited by the ability of airports to subsidise them. He was wrong in this case (so far) but I wouldn't want to be manager of such an airport. Have a look at the thread on half of airports not having a water fountain. They are trying to make money with car set down charges, selling bottled water and other goods at stupid prices, offering expedited security for a fee so you catch your flight, etc because the landing fees are so low. That irks people off and is not good in the long term. (Parallel with BA?)

Heathrow may be a special case in that it is regulated and can raise prices for existing passengers who will efectively be cross-subsidising future travellers (a bit like London rail commuters) - an airline couldn't get away with this. Presumably that was the case for ZRH, FRA and other "hub" airports that have built new facilities.

If you look at "Boris Island" (ok the only way it will ever get built is if Mr Johnson becomes PM) the cost is quoted as £50 bn. I don't know the assumed cost of capital - it could probably be financed using cheaper debt rather than more expensive equity financing but I am certainly not the expert - but lets assume that depreciation and finance cost is £5bn p.a. Lets say that it has 100m passengers p.a. That would cost the passenger £100 per round trip. Hmm - doesn't look great to me.

[Piltdown Man]

"...revenue per pax is falling..." is an interesting term. Airports are forgetting why they exist. They are there to provide a service to airlines and in turn, the passengers of these airlines. They are not hotels, shopping centres, restaurants, retailers, hairdressers etc. Unfortunately their greed knows no bounds and they chisel, pry and prise every bloody cent out of their victims, because that's what they are. Until they fully understand why they exist they will continue to lose revenue. Take Schiphol. I'm convinced this place has a Flight Prevention Department. They make sure flights do not leave on time with CDM (a complete bloody joke) and flights do not arrive on time by reducing runway availability to appease a handful of tree huggers and moaners. The result is late running flights and passengers rushing from one place to another to catch a flight. Pissed off, rushing passengers are not good shoppers!

No doubt millions will be spent of surveys asking the wrong questions in order to find out what they already know. Then MBA'ed consultants will be commissioned and that will result in bonuses all round and even more shops. All the time the requirements of airlines and their passengers will be ignored. And the revenue will continue to decrease. The modern world we live in!

PM

[SWBKCB]

They are there to provide a service to airlines

You're missing the point - airports can't make money now on what airlines pay so they have to turn to the other revenue sources you list.

[Heathrow Harry]

The money has to come from somewhere

Airports cost a lot to build and run - whoever owns them has to get a return on the captal otherwise you're running a subsidised oepration and someone (eg the rate payer or taxpayer) is paying.

If you sell the asset to the private sector - becasue you can't afford to pour money in for updates etc - they're going to want to turn 10% at least profit over investment to be competitive in the stock exchange. Public Sector might want 5% margin butthey are constricted on what they can borrow for investment

If income continues to slide cp passeneger growth you'll get more over crowding, more "inovative" charges, less maintenance etc etc

[brian_dromey]

"...revenue per pax is falling..." is an interesting term. Airports are forgetting why they exist. They are there to provide a service to airlines and in turn, the passengers of these airlines. They are not hotels, shopping centres, restaurants, retailers, hairdressers etc. Unfortunately their greed knows no bounds and they chisel, pry and prise every bloody cent out of their victims, because that's what they are.
PM

Before the lo-co boom airports were predominantly government owned/run. Over the years they have been sold to private investors. Management are duty bound to show return on investment, so more passengers and/or more revenue every year to justify any capital investment in terminals/runways, etc.

Concurrently airlines like FR demanded low charges from airports who couldn't afford to turn away their business - the likes of Hann, Charleroi, Beauvais, Liverpool, etc Essentially a perfect enviornment for "competition" and "free market" spiral to the bottom has occurred. Thats meant shops where seats used to be. Minimum-wage ground handling monopolies where careers used to be. Thats what we, as customers, asked for. These are the consequences of cheap fares. The difference in farming, call centres, etc is the burdens of lowering costs are put on employees/animals, rather than the end customer.

The exponential growth of FR, U2, W6 while the network airline groups like AF/KL, LH and IAG continue to grow and lower their cost bases, headline fares and the size of premium cabins demonstrate what the travelling public want - low fares.

[Trinity 09L]

Airports owned by overseas wealth funds and pension funds altering the financial mechanism by loan notes that are repaid without tax paid (as in U.K.) a loss to HMG. :sad:

[Heathrow Harry]

"These are the consequences of cheap fares." - well said Brian!!!

Trinity - I'm not sure exactly what you mean - if you mean Financial Engineering then most of it is thought up in the City of London and that's one of our (only) export industries these days

[Piltdown Man]

...airlines like FR demanded low charges from airports who couldn't afford to turn away their busines

And now they are totally beholden to these foul, greedy heartless corporations. They now have no way out. They have sold their hearts to the devil and this is the additional price they must pay. For those with some backbone they way ahead to charge airlines but at the same time provide them with passengers and a service. Additional revenues can be made from ancillary activities, but the chiselling of passengers has to stop.

The short-term robbery of passengers is seen by them for exactly what it is - profiteering. Knowing you will get ripped off means offsite parking, taking your own food and sweets on board and buying books and magazines at supermarkets before travelling. When the travelling public feel they are getting value for money they might start spending again. Until then, the rapacious owners and avaricious management must start gettihg used to ever decreasing yields.

PM

[Heathrow Harry]

Piltdown

When you invest or buy a pension do you go for the most ethical shares or the ones that provide the highest return?

It's easy to say "foul, greedy & heartless" but that's what people who invest in them (or get a pension from them) want - maximum return.

If ANY outfit doesn't make a profit how does it re-invest? You finish up like so many publicly owned outfits with declining infrastructure, lack of maintenance etc

The profit motive isn't brilliant but its the best mechanism we have.

[SWBKCB]

Piltdown Man - I hope you always chose the highest airfare available in the expectation that the airline is then passing on a reasonable price for the airports services...

On the profiteering point - can you point out which airports are making excessive profits?

[Trinity 09L]

HH
"most of it is thought up in the City of London and that's one of our (only) export industries these days"
Those responsible for financial engineering are not based in the City of London, per se, and their incomes are shown in $. There "thinking" which will be a method to avoid taxation set by HMG is made under an umbrella of off shore entities, frequently used by large corporations to move their financial responsibility elsewhere. Like those enjoying coffee at the airport after purchasing goods on line for their travel.
The City of London is only a square mile of the whole, most bank HQ's & etc are elsewhere. :hmm:

[inOban]

I think most people understand that the term 'City of London' is often used to refer not to a geographical location but to the financial community. London is the world's largest centre, I believe, for what is euphemistically called Asset Management, AKA tax avoidance, tax evasion, and money laundering.

[davidjohnson6]

Could we possibly try to keep the scope of the discussion to that specified by the title of this thread ?

[Heathrow Harry]

Welll.... there is no doubt that any prolonged decline in income will be noticed by the owners pretty quickly and their future planning will be based on this.

They can cut costs and try and find more "innovative" ways of raising income - but I'd expect airline charges (and thus fares) to rise at the major airports. The LCO's will continue to play off the smaller airports as long as they can so expect more changes in routings from there.

In the long term you'd expect a steady decline in the smaller airports - losses, more value as housing, business parks etc so I'd expect more developers to buy in (think Manston, Carlisle, Doncaster, Teeside, Prestwick, Coverntry as airport s likely to disapear). This will reduce the LCO's options eventually I guess.....................

[WHBM]

One of the bizarre aspects is how airport management will make longwinded public pronouncements about how they favour public transport etc, but given they now can make more per pax from car parking than from aviation ops, their actual management goals are the reverse.

The recent case where Heathrow was trying to charge the new Crossrail service what came to several pounds per arriving rail passenger, which was thrown out by the courts, was a notable new one.

[M-JCS]

The problem begins when airports (and airlines) think about passenger numbers rather than profitability. A LCC goes to an airport and says "we can triple your passenger numbers, but we're not going to pay you a penny because of the additional footfall we create and retails profit you can thrive on." The LCC CEO will be a hero for bringing on board another destination (even if that means one flight each week) and bigger passenger numbers. The airport manager figures triple passenger numbers is going to make him a real hero in his employer's eyes, and is enthused. Problem? The airport facilities need to be expanded in order to accommodate triple passenger numbers and larger aircraft. So funding is called in --- at a price, it must be said ---- and now the airport is faced with lower revenues per passenger from the carrier as well as the cost of finance and higher overhead. Who covers the revenue requirements? You guessed it, it's Joe Dokes walking through the door. So long as everyone is convinced a flight across the globe in the equivalent of a sardine can for the price of a ticket on a carnival ride is a good thing, the business infrastructure provided by regional airports and regional operators will continue to deteriorate.

[Barnstable]

Welll.... there is no doubt that any prolonged decline in income will be noticed by the owners pretty quickly and their future planning will be based on this.

They can cut costs and try and find more "innovative" ways of raising income - but I'd expect airline charges (and thus fares) to rise at the major airports. The LCO's will continue to play off the smaller airports as long as they can so expect more changes in routings from there.

In the long term you'd expect a steady decline in the smaller airports - losses, more value as housing, business parks etc so I'd expect more developers to buy in (think Manston, Carlisle, Doncaster, Teeside, Prestwick, Coverntry as airport s likely to disapear). This will reduce the LCO's options eventually I guess.....................


You really think DSA is likely to disappear? Brexit brings uncertainties I know but Wizz had carried it for years and has been adding routes. As long as Wizz remains I think Donny is safe whatever else happens. It has a decent catchment area and awareness and PAX are growing.

I do agree that some smaller airports are likely to face tougher times or fold altogether though, especially if we have another major recession. Blackpool is a good example of how a smaller airport's fortunes can decline for the reasons you suggest above.

[LGS6753]

Success must be influenced by catchment area. I am aware that many of the airports whose doors have closed to pax, or that are struggling, are in close proximity to the coast: Manston, Plymouth, Blackpool, Prestwick, Teesside, Humberside.

[ratchetring]

Brace for Brexit: UK air traffic faces slump without deal, airports warn (http://news.sky.com/story/uk-air-traffic-faces-slump-without-brexit-deal-airports-warn-11000318)

[Harry Wayfarers]

Success must be influenced by catchment area. I am aware that many of the airports whose doors have closed to pax, or that are struggling, are in close proximity to the coast: Manston, Plymouth, Blackpool, Prestwick, Teesside, Humberside.

SEN, NQY, LEQ, SOU, NCL, BRS, CWL, EXT, GLA etc. are also close to the coast and without the same problem!

[southside bobby]

HarryWayfarers.....Blimey Harry...you obviously were never a costermonger in a previous professional career then...... you have a lot of "apples & pears" in that list me ole mate...:))

[Planespeaking]

HarryWayfarers.....Blimey Harry...you obviously were never a costermonger in a previous professional career then...... you have a lot of "apples & pears" in that list me ole mate...:))

Could we have that in English please. Coastal airports, JFK, AMS, NRT, HKG.and many others, not English true but very successful. Oh! and at one time there was going to be Maplin and Boris Island in the Thames Estuary.The rest of the world gets on with it, we can't even put down a few extra feet of concrete to the west of London. 'Apples and bleedin' pears is just about right!

[WHBM]

I'd expect more developers to buy in (think Manston, Carlisle, Doncaster, Teeside, Prestwick, Coverntry as airport s likely to disapear). This will reduce the LCO's options eventually I guess.....................
The Low Cost operators are progressively departing those minor airports they started off with, even Ryanair is leaving them behind for mainstream ones - for example, they have left Prestwick mostly behind for Glasgow and Edinburgh. I'm not quite sure how they get on for landing fees, but presume they now are pretty much up with the rest - same terminal etc.

For all that we hear of hard times, airports continue to change hands for ever increasing sums. London City has been sold a few times over the years, each time it's for a substantial amount more than the previous occasion. Profitability seems to come from increase of asset value as much as trading.

[LGS6753]

Those airports on the coast that do prosper are likely to be close to a major conurbation, or serving an otherwise-isolated region: SEN (London/Essex), LEQ, NQY (isolated but hardly prospering), SOU (affluent Hampshire), NCL (Tyneside/NE). BRS (affluent westcountry), CWL (Cardiff/valleys), EXT (affluent Devon/isolated), GLA (Strathclyde).

However, I reiterate that it is noticeable that a significant proportion of the airports that have closed (in Britain) are coastal.

[Harry Wayfarers]

Those airports on the coast that do prosper are likely to be close to a major conurbation, or serving an otherwise-isolated region: SEN (London/Essex), LEQ, NQY (isolated but hardly prospering), SOU (affluent Hampshire), NCL (Tyneside/NE). BRS (affluent westcountry), CWL (Cardiff/valleys), EXT (affluent Devon/isolated), GLA (Strathclyde).

However, I reiterate that it is noticeable that a significant proportion of the airports that have closed (in Britain) are coastal.

Coventry's problem isn't being close to the coast, it's being close to Birmingham!!!

SOU doesn't merely serve Hampshire, SOU's success, despite all it's restrictions, comes from having an airport rail station with direct services from/to London, as far as, in particular, the Channel Islands are concerned SOU is another London airport!

How about Cambridge, nowhere near the coast and passenger services have failed dismally ... Pretty much ditto for London/Oxford also.

And as for why 'Leeds East' isn't prospering ... Now that's quite a story :)

[crackling jet]

[QUOTE=Heathrow Harry;9865794]

"Quote = Airports cost a lot to build and run - whoever owns them has to get a return on the captal otherwise you're running a subsidised oepration and someone (eg the rate payer or taxpayer) is paying."



Well it seems to work for a certain non English airport not a million miles from here

[Navpi]

The next major expansion in UK will probably be Heathrow.

The surrounding infastructure will be picked up as part of national infastructure spend, whilst there is a recommendation that even actual runway costs will be underwritten by the Government as this will ensure shareholder confidence.

I suspect those MPs who are against Heathrow have picked on this.

They may use air quality as an excuse but is there a reluctance not to ring fence investment in a national asset which will pull in many billions in corporation tax and dividends.

(I have excluded Manchester and indeed Stansted as they appear ti be fully funded by MAG) so are not part of the debate

[Ernest Lanc's]

As long as Wizz remains I think Donny is safe whatever else happens. It has a decent catchment area and awareness and PAX are growing.[...]Blackpool is a good example of how a smaller airport's fortunes can decline for the reasons you suggest above.

Yes but Blackpool had a decent catchment area. Blackpool had decent pax numbers. The airport not long before it closed, jet2 was expanding it's number of routes. Also Blackpool was easy to use and a runway better than SEN at the time. The difference was BB owned Blackpool Airport.

Blackpool also has the ADF at £10 a head.

Yet Blackpool closed to commercial flights.

One can only assume it was poorley managed and despite high pax numbers and route expansion - Jet2 must have been paying a pittence for landing fees.

Lots of factors are against small airports and IMO none are safe.

[Barnstable]

Yes but Blackpool had a decent catchment area. Blackpool had decent pax numbers. The airport not long before it closed, jet2 was expanding it's number of routes. Also Blackpool was easy to use and a runway better than SEN at the time. The difference was BB owned Blackpool Airport.

Blackpool also has the ADF at £10 a head.

Yet Blackpool closed to commercial flights.

One can only assume it was poorley managed and despite high pax numbers and route expansion - Jet2 must have been paying a pittence for landing fees.

Lots of factors are against small airports and IMO none are safe.

You're probably right. If the owners think they can make more money from the site without a passenger airport, there's not much that anyone can do about it. BB had no obligation to the people of Blackpool. Not sure how many passengers Blackpool was handling at its height. Over a million?

Humberside is one that is struggling for sure, and I imagine its not being helped by the growth at DSA. Humberside has a decent catchment area too, Hull is a big city, plus Grimsby and Scunthorpe.

In their favour, there will always be people who will choose to fly from a smaller local airport when possible. I'm from Sheffield and certainly prefer to avoid MAN when possible, despite the train link.

[WHBM]

If airports were such a poor financial prospect you wouldn't have significant numbers of them falling into the hands of various financial organisations very much at the speculation end of the scale.

Profitability may be one goal, but another is the increase in asset value over the short/medium term (these sorts of businesses don't do long term).

London City, pretty small in the scale of things, now seems to be regularly sold on from one financial organisation to the next, each time at a notable increase (maybe double) what was paid for it some years before.

[Ernest Lanc's]

In their favour, there will always be people who will choose to fly from a smaller local airport when possible. [...]I'm from Sheffield and certainly prefer to avoid MAN when possible, despite the train link.

If you want a lot of shops, fly from Manchester. I chose Blackpool because the plane was just about 100 yards from the gate. I never flew to shop at the airport.

After Blackpool closed (and I never thought a niche airport would close), I had to use Manchester.

Going was not to bad, coming back paticular late was a nightmare after Blackpool which was just a couple of hundred yards from the carousel.

I don't know how SEN copes with all the massive competition they have to face - Luton, Heathrow, Gatwick and Standstead.

Mind you they have Stobart we had BB at BLK.

I am sure there is a place for small airports, people like them but they are an endangered spieces.

[Heathrow Harry]

"If airports were such a poor financial prospect you wouldn't have significant numbers of them falling into the hands of various financial organisations very much at the speculation end of the scale."

Buying a failing airport doesn't cost very much - and when it becomes uneconomic you get a vast area of open, flat LAND that you don't have to decontaminate, drain, is normally connected with reasonable roads or even rail links and with locals who have no great love for the noise etc from current operations. A developers dream TBH

[mustrum_ridcully]

SEN, NQY, LEQ, SOU, NCL, BRS, CWL, EXT, GLA etc. are also close to the coast and without the same problem!

CWL was bailed-out / bought by the Welsh Government Cardiff Airport is sold to the Welsh government for £52m - BBC News (http://www.bbc.co.uk/news/uk-wales-21952079)

CWL was given "loans" by the Welsh Government (that might have been illegal) include marketing support for Flybe routes Welsh government loans to airport 'could breach rules' - BBC News (http://www.bbc.co.uk/news/uk-wales-politics-34188588)

[TimmyW]

You really think DSA is likely to disappear? Brexit brings uncertainties I know but Wizz had carried it for years and has been adding routes. As long as Wizz remains I think Donny is safe whatever else happens. It has a decent catchment area and awareness and PAX are growing.

I do agree that some smaller airports are likely to face tougher times or fold altogether though, especially if we have another major recession. Blackpool is a good example of how a smaller airport's fortunes can decline for the reasons you suggest above.

Wizz are scaling back though. Compare next summers schedule with that of a couple of years ago. There is a big difference. Add to that a few more years, and you'll see it cut back even further. That leaves Thomson and Flybe (who are looking at going back to their core services which won't include DSA).

DSA's only hope is in freight.

[jumpseater]

Wizz are scaling back though. Compare next summers schedule with that of a couple of years ago. There is a big difference. Add to that a few more years, and you'll see it cut back even further. That leaves Thomson and Flybe (who are looking at going back to their core services which won't include DSA).

DSA's only hope is in freight.

Can't you just tell its first of September? Timmy's out with the there's no flights from DSA next year, they're all being cut infantile dross he rolls out year after year.

Here's a reply to him earlier
http://www.pprune.org/7398498-post81.html
Note the date and year :D

[TimmyW]

Can't you just tell its first of September? Timmy's out with the there's no flights from DSA next year, they're all being cut infantile dross he rolls out year after year.

Here's a reply to him earlier
http://www.pprune.org/7398498-post81.html
Note the date and year :D

Compare Wizz's 2018 schedule to 2016 and come back to me.

[jumpseater]

Is that the Wizzair that's left Doncaster like you said they were, or the other Wizzair that operates through Doncaster?:}