Transport expert Martin Evans assesses the performance and prospects for Cardiff Airport a year since its acquisition by the Welsh GovernmentPosted: April 2, 2014
By Martin Evans,
It is now a year since the Welsh Government announced the acquisition of Cardiff Airport from Abertis, the Spanish infrastructure group.
At the time of takeover passenger numbers were dropping, there was widespread criticism of the airport and the airport was being micro managed by owners who were both absent and apparently not as interested in the airport as we are here in Wales.
The Government intervention was made to stop the fall in passenger numbers, to improve the passenger experience and to save the airport from, we are told, the risk of closure. It was intended that private investment could be brought back into the airport at some point in the future after the business had been stabilised.
We haven’t seen any urgency from the Welsh Government to move the business back into the private sector. Whilst a decision over whether the Welsh Government did or did not overpay for the business is for history to decide, the valuation put on the business may be a block to bringing the private sector back in.
This won’t, at this stage, be an impediment to the development of the business. Cardiff Airport needs a management that can make commercial decisions without interference from Government and sufficient capital to develop the business.
The first requirement was met by having management at arms length from the Government and bringing back a chief executive with extensive knowledge of the business. The second requirement was met by a loan from the Government of £10m to make changes to the terminal and to bring in new carriers.
Because the airport terminal has excess capacity, investment can be spent on making the building work more efficiently and improving the passenger experience.
What has the new management brought that was so lacking in the previous management?
First is to manage the business well on a day to day basis. That requires helping your customers to be successful and by customer I mean not all of us who use the airport but the small number of airlines who provide flights from the airport.
That portfolio of airlines will never stay consistent over time, the airline business is volatile with airlines entering the business, some leaving the business, some growing, some consolidating. The sign of good management is that important routes are maintained even if airlines leave or go out of business and successful airlines are helped to pursue new opportunities to grow their business.
The fall in passenger numbers has now stopped and the airport is growing again.
An important element in getting the airport back to the 2 million passengers that passed through the airport in 2007 is finding a low cost carrier to base aircraft at Cardiff. Passenger forecasts that emerged last week show that the airport is expecting to find that low cost airline by 2016.
Cardiff already has a low cost carrier but one that has had to work hard to establish a name in the UK market. Vueling started out as a low cost carrier based primarily in the Spanish market but following a complete takeover by International Airlines Group has provided the answer for the problem of how an airline group dominant in two European markets, the UK and Spain, can create a pan European airline.
However the expansion across Europe has focused on established markets with weak competitors. Cardiff wouldn’t fit into that model, however, expansion in the UK is a challenge for Vueling. It has to avoid London where it would compete with its own sister company, British Airways.
In the UK regions it would find sufficient passenger numbers at Birmingham and Manchester but would be fighting with other low cost carriers. Perhaps that does only leave Cardiff as the option for UK expansion?
Certainly Vueling can find sufficient passenger numbers for flights to Spain in the summer but the challenge for any low cost airline based at Cardiff is building a business that works all year round.
The weakness of the Winter market at Cardiff was always given by bmibaby as the reason why they couldn’t build a profitable and sustainable business. However Vueling have been testing the Winter market at Cardiff this year and they will certainly now have the figures which will tell them if Cardiff works as a year round base for them.
I suspect that bringing Ryanair back to Cardiff is a long shot. They would not want to compete with their existing successful flights from Bristol Airport unless the Welsh Government made them an offer they couldn’t refuse or there was a substantial differential between Air Passenger Duty in England and Wales.
Of course they will keep on dangling Cardiff on the end of a piece of string to see what may be on offer because they will use that information in negotiations with their existing airports.
Control over Air Passenger Duty (APD) is a key fiscal power that needs to be devolved to the Welsh Government. The devolution of APD is one recommendation of the Silk Commission, the UK Government Commission looking at further devolution for Wales, that has been ignored by the UK Government.
It has been labelled a market distortion if an airport in Wales should have a lower rate of APD than an airport in England. APD is an unfair tax that already distorts the market because lower incomes in Wales means that a passenger in Wales pays a higher percentage of their income in taxes when they fly than a passenger in London.
The development of the economy here in Wales will be better served by the Welsh Government having control over this tax. The difficulties that might create over the border in England will be for the UK Government to address, it is not a reason to constrain the fiscal maturity of the Welsh Government.
It is to be expected that an amendment will be laid to the Wales Bill currently going through the UK Parliament to devolve APD. To base a decision on whether to devolve more powers to Wales on whether you will or will not like the subsequent policies would not be a sensible way deal with Welsh devolution.
Martin Evans is Visiting Fellow in the Faculty of Business and Society at the University of South Wales
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