Airport Traffic Growth and Airport Financial Performance: Has the Low-cost Airline Boom Been Successful for Airport Operators?
N Dennis, A Graham, University of Westminster, UK
This paper examines the recent development of air services and assesses the impact on airport financial performance. It is shown that low-cost airlines have created strong traffic growth but this is not always profitable for the airport operators.
Many regional and secondary airports in the UK and Ireland have enjoyed strong traffic growth in the last decade, driven by the expansion of low-cost airlines but it is less clear whether this growth has been profitable for the airports concerned and how far it has increased accessibility to and from these regions. The study focuses on the UK and Ireland as it is the 'lead market' in this respect but implications will be drawn for other parts of Europe where low-cost carriers have developed more recently. Most UK airports are privately owned whereas in Ireland (and mainland Europe) the major airports remain in the public sector. Differing commercial rationales are therefore explored. The extent to which these new services meet policy objectives in terms of improving communications from remote regions is also considered.
A sample of 14 medium/small sized UK airports and three Irish airports is used. The traffic analysis shows that low-cost carriers have been largely responsible for strong passenger growth at these locations. The number of flights has not grown so rapidly however as low- cost carriers tend to obtain a high passenger load per aircraft compared to regional airlines. Many new routes have been added but these are often at low frequency compared to existing links to London and European hub airports.
Two divergent strategies can be identified in the low-cost carrier sector. One, exemplified by easyJet but also adopted by Jet2, Fly Globespan and Aer Lingus uses primary airports and significant regional airports to fly a network where there is an established demand. This includes major domestic routes, Mediterranean holiday destinations such as Alicante or Faro that were previously the preserve of the charter airlines and a specific set of mixed business/leisure destinations ideal for short-break traffic (e.g. Amsterdam, Barcelona, Geneva). The alternative model is pursued by Ryanair where demand is created from secondary airports chosen on the basis of favourable financial deals. Thomsonfly and flybe also can be placed in this category; flybe, with its turbo-prop equipment, operating routes that are too thin for even Ryanair!
Aeronautical revenue from landing charges etc is shown to be lower at airports with a large low-cost carrier presence. Most airports have also seen their unit aeronautical revenue decline in real terms since 1998. A large divergence is identified between the published charges and the income at airports such as Nottingham East Midlands and Belfast International, indicative of widespread discounting to capture new traffic. The alternative source of income for the airport is from commercial activities (shops, car parks etc). Here there is little correlation with low-cost carrier activity although large airports with more facilities such as Manchester perform better than some of the small airports. The secondary airports also have lower costs however leading to a mixed picture in terms of overall financial performance.
Specific marketing initiatives are analysed, including published incentive schemes on airport charges at Manchester, Glasgow and the Irish Airports. The route development funds in Scotland and Northern Ireland, where government subsidies are available for new air services are outlined. The extent to which these may contribute to the economy of the region or merely stimulate outbound leisure traffic is discussed. It is concluded that traffic growth alone may not be a desirable objective for an airport and while there are arguments for marginal cost pricing of spare airport capacity, problems can arise when demand is stimulated to the point that new airport infrastructure has to be constructed.
Association for European Transport