A year ago tomorrow the Welsh Government announced its acquisition of Cardiff Airport. Business Editor Sion Barry examines what is needed to hit the target of three million passengers at the Rhoose-based airport
It certainly took most of us by surprise when First Minister Carwyn Jones announced that the Welsh Government had acquired Cardiff Airport from Spanish owner Abertis in a £52m deal this time last year.
While the Welsh Government’s relationship with Abertis had become increasingly strained, the inside track had pointed to the Welsh Government pursuing a private-public vehicle to acquire the airport – having held advanced discussions with a leading UK financial institution.
However, regardless of whether the Welsh Government paid too much in light of acquisitions of Exeter and Prestwick airports, it was certainly a bold decision with any return on investment having to be viewed very much over the long-term.
Abertis was not going to over-invest in the airport during the economic downturn. So when an offer came from the Welsh Government it was too good an opportunity to refuse – allowing it to focus on what was always the crown jewel in its portfolio of UK airports, in Luton.
A year on, passenger levels, although well below the 2.3 million high point achieved by TBI (the owner previous to Abertis), are moving in the right direction.
Latest figures from the Civil Aviation Authority show it achieved a 5% lift in the 12 months to the end of January, at just over one million.
The airport has an excellent chief executive in Jon Horne, with a first class team around him, including Spencer Birns, director of aviation business development.
The airport’s board is equally impressive too, chaired by former chairman of the WDA Lord Rowe-Beddoe with other non-executives including property entrepreneur David Goldstone and former senior partner for Grant Thornton in Wales, Geraint Davies. Andrew Sergeant brings huge experience to the board, having worked with a number of regional airports in the UK on change and transformational strategies.
While it is encouraging to see Mr Horne engaging more with the business community, that in itself is not going to convince airlines to invest in new routes.
But discussions are continuing with all the major low-cost carriers. However, they will only commit to Cardiff Airport if they can be guaranteed at least the same occupancy levels achieved at current bases.
New routes have been added since the acquisition and following the scaling down of Flybe’s services they have been filled by CityJet.
However, the biggest challenge will be convincing the likes of a Michael O’ Leary to bring an airline like Ryanair to Cardiff Airport. This is going to require a major support package from the Welsh Government – using the dark arts to get around state aid rules.
However, there is potential that low-cost carrier Vueling – which is now part of IAG and operates a number of services from Cardiff to Spain – could significantly ramp up its offer. The chief executive of IAG, Willie Walsh, has talked in the past of Vueling becoming a major low cost carrier in the UK.
For Cardiff, it has around one million passengers a year from its catchment area now taking flights from Bristol Airport.
This is lost market share which could be quickly recaptured if the airport offers some of the current routes offered by Bristol – providing, of course, ticket prices are not prohibitive.
The Welsh Government itself –whose ownership of the airport is through an arms length company – is confident of landing a low-cost carrier.
Evidence of this is contained in a recent external ministerial review on the dedicated express bus service from Cardiff to the airport.
It contains an interesting table on the airport’s long-term passenger forecast. In the current year – 2014-15 – passenger numbers are forecast to increase 7.8% to 1.15m.
However, for 2015-16 passenger numbers are forecast to increase by 37% to 1.59m. Such a rise could only be accommodated by a low-cost carrier setting up a two plane base at the airport.
For 2017-18 the forecast is for the passenger numbers to be nearly touching the two million mark at 1.95 million.
Until the airport reaches much higher passenger numbers, you can forget about the Welsh Government entertaining off loading an element of its equity in the airport.
When passenger numbers start pushing towards three million, then the airport is going to need to invest in a larger terminal facility – which is going to require a multi-million pound capital investment.
Despite Sir Howard Davies’ interim report ruling out Cardiff as a hub airport, there is potential for international point to point routes from Cardiff. Due to the length of its runway it could accommodate direct flights to the US.
This could free up landing slots at Heathrow, if that is where the next UK Government opts to focus on increased hub capacity as a result of the final recommendations of the Davies Commission.
So a year on and the airport is moving back towards profitability and increasing passenger numbers – although set against the context of a low base inherited from Abertis.
And at some stage, if it is to land a game-changing carrier, the Welsh Government is going to have to provide a compelling support package.
But there is no reason why over the next decade that passengers cannot break through the three million mark – which would trigger the need for a new terminal investment.
Sourced from walesonline