Highlands and Islands Airports Ltd
Presentation to SEAPLANE
Lerwick21st April 2005
HIAL’s Mission Our remit from the Scottish
Executive is: To maintain and operate 10
airports To support economic development
and social inclusion Links to work of stakeholders in
councils, HIE, Visit Scotland, SCDI, Chambers of Commerce etc
HIAL’s Strategic AimsMaintain and improve air connectivity by: Supporting existing levels of service Achieving new routes and frequencies
Provide a value for money operation for shareholder (Scottish Ministers)
Continue to develop partnerships that benefit the region
.
HIAL’s Organisation
ETLLD (Transport Group)
Scottish Ministers
HIAL Board
Managing Director
Management & Staff
Shareholder
Sponsor
.
Finance 2003/04
Total Cost of Operation £34.9 million
Revenue £9.8 millionGross Deficit £25.2 million Non cash and othercontributions £1.4 millionScottish Executive subsidy £23.7
million
HIAL Revenue 2003/04Total Revenue £9.8 million
69%3%
1%
15%
7%5%
Scheduled
Oil
Tour/charter
Other traffic
Property
Other
Revenue by Airport 2003/04
Total Revenue £9.8 million
1% 6%1%
42%
2%10%
13%
19%
1% 5%
Barra
Benbecula
Campbeltown
Inverness
Islay
Kirkwall
Stornoway
Sumburgh
Tiree
Wick
2003/04 Passengers by Airport
1% 4% 1%
51%
2%
12%
12%
13%
1%
3%
Barra
Benbecula
Campbeltown
Inverness
Islay
Kirkwall
Stornoway
Sumburgh
Tiree
Wick
934,000 Passengers
HIAL Operating Costs Meeting regulatory, safety and
security standards: Staff and training A new fire appliance is £350k
Maintain and replace infrastructure: A runway rehabilitation is £2-3
million Utility and PFI charges Route development discounts
Airport Operating Costs
Airport operating costs are driven by:RFF operating category - aircraft type determines infrastructure and minimum manning
Opening hours which determine total manning levels
Cost Per Passenger 2003/04
Airport Passengers
Revenue operating cost (£ million)
Subsidy per passenger
Inverness
484,000 £8.007 £8
Sumburgh
118,000 £5.336 £30
Benbecula
34,000 £1.996 £70
Tiree 5,500 £0.755 £131
Outcomes – Passenger Growth
Year Total Passengers
Growth
2000/01 782,000 -9%
2001/02 832,000 +6%
2002/03 864,000 +4%
2003/04 934,000 +8%
2004/05 1,027,000 +10%
Economic Impact2003/04 inbound cross-border passengers at Inverness spent circa £131 million in the region
Full economic assessment has been carried out by HIAL/INE at Inverness. Draft report stage
Scheduled air services bring major economic benefits to the region
New Routes for 2005
Eastern AirwaysWick-Aberdeen-Inverness (start Feb)
easyJetInverness-Belfast (start July)Inverness - Bristol (start July)
Another eight routes are in discussionCross-border and international destinations from Inverness
Route Marketing/Advertising
Primarily carried out by airlines
But supported by HIAL and partners (HIE, VisitScotland, councils)
HIAL also seeks to raise awareness of and uptake on services via:PR and media/internetPrint and broadcast advertising
Route Development Market
Route Development Fund support available for new cross-border and international routes Funded by Scottish Executive and
HIE Target routes include N of
England, Midlands, S of England, Ireland, Germany, Netherlands, Scandinavia, France…
Challenges to New Routes
Airlines considerationsRemoteness and small populationRoutes rely on inbound passengers
Market forcesCompetition across Europe for aircraft
Airlines need best yield from operations
Every new route has been hard won!
Inverness Airport Overview
Greatest development potential of HIAL’s 10 airports 20% growth rate in 2004/05 On target for circa 575,000 pax in
2004/05 40% growth between 2000 and 2004
300 scheduled flights per week Cross-border pax traffic is 70%
inbound Business to leisure split is 40/60
Fund objectives and Fund objectives and featuresfeatures The Scottish Route Development Fund was
established in November 2002 to develop direct business links and stimulate inbound tourism
These objectives are being pursued by investing in new routes which are likely to have the greatest economic benefits for the region
Development of new Continental European routes and key long haul services are the priority of the fund
However the fund also works toward the provision of more domestic services from smaller/underserved airports e.g Inverness.
Fund objectives and Fund objectives and featuresfeatures The fund operates by encouraging investment in the The fund operates by encouraging investment in the
development of new routes through incentivising airports. development of new routes through incentivising airports. This investment takes the This investment takes the form of discounts on charges form of discounts on charges levied by airports to airlineslevied by airports to airlines
Investment by the funds must be additional to incentives Investment by the funds must be additional to incentives currently offered by airport operators to attract new trafficcurrently offered by airport operators to attract new traffic
There is no direct contractual relationship between the There is no direct contractual relationship between the funds and any airlinefunds and any airline
Investment is time limited and can only be provided for a Investment is time limited and can only be provided for a maximum period of 3 yearsmaximum period of 3 years
The funds operate on the basis of risk sharing between the The funds operate on the basis of risk sharing between the parties, i.e. the airport, airline and the public sector parties, i.e. the airport, airline and the public sector
Investment in new routes is determined by the results Investment in new routes is determined by the results from the agreed Route and Economic appraisalsfrom the agreed Route and Economic appraisals
Fund set up – UK Fund set up – UK compliancecompliance
Fund set up as part of ongoing Scottish transport and economic policy development
No specific legislation required
Aviation matters in Scotland are ‘reserved’ by the UK government’s Department for Transport in London
Route development funds are now UK aviation policy following publication of the aviation White Paper in December 2003
Fund set up – EU Fund set up – EU compliance compliance
Informal discussions with European Commission with some advice given on aspects of public sector operational aid
Manchester ruling used as precedent for fund rules
Initial Charleroi ruling in February 2004 and detailed Charleroi ruling in April 2004 not in conflict with the structure of the Scottish fund
Charleroi detailed ruling provides more scope for public sector operational aid but it must be carefully structured
Funding mechanism Funding mechanism A total of £6.8 million was allocated for the
fund in Scotland for routes commencing in 2003/04.
The fund comprises:
£5.5 million via the Scottish Executive
£1 million from Scottish Enterprise
£300k from Highlands and Islands Enterprise.
In addition, the airports contribute marketing monies to the airlines for the promotion of new services
VisitScotland also works with airlines on marketing campaigns to promote the routes in the destination countries
Funding mechanism Funding mechanism Funds only paid to the airport when
passengers have been carried
Funds are paid on a per passenger carried basis on the production of invoices on a monthly basis from the airports
The invoices are subject to an audit to verify passenger numbers
Funds are only paid in arrears
Funds are capped at 75% load factor on an agreed frequency and capacity of aircraft
Funds can only be made available for a route for a period of up to 3 years
Economic appraisal Economic appraisal framework framework
Appraisal Framework
Business Efficiency Economic Structure Inbound Tourism Employment Impact
Social Impact
Journey Time Savings
Air Fare Savings
Day Return Trip
ConnectivityEconomic Clusters
Air Intensive Sectors
FDI Markets
Export Markets
Journey Time Savings
Air Fare Savings
Target Markets
Visitor Expenditure
Direct Employment
Tourism Induced Employment
The fund one year on - The fund one year on -
successes were deliveredsuccesses were delivered
Edinburgh• Newark• Cologne
Prestwick• Girona• Rome
• Bergamo• Skavsta
• Gothenburg
Glasgow• Dubai
Inverness• Birmingham
Sumburgh• Oslo
Aberdeen• Groningen
FAQs - Would success have FAQs - Would success have happened without happened without
intervention?intervention?No, for the following reasons:No, for the following reasons: Risk shareRisk share Puts pressure on the airports to offer their best Puts pressure on the airports to offer their best
dealdeal TimingTiming Potentially accelerates commencement of routePotentially accelerates commencement of route Gives the airlines reasons to seriously examine Gives the airlines reasons to seriously examine
the opportunities in Scotland the opportunities in Scotland
FAQs - Would success have FAQs - Would success have happened without happened without
intervention?intervention? Objectives alignmentObjectives alignment Airport operator objectives may not be fully Airport operator objectives may not be fully
aligned with those of the funds aligned with those of the funds Scotland finally has a say in the type of routes Scotland finally has a say in the type of routes
that could be attractedthat could be attracted
FAQs - Does public FAQs - Does public investment replace investment replace airport investment?airport investment?
Airports are involved in process in a transparent Airports are involved in process in a transparent mannermanner
Initiative pushes airports beyond where they Initiative pushes airports beyond where they would have gonewould have gone
Clarity on the benefits and costsClarity on the benefits and costs Basis for a better understanding of airport route Basis for a better understanding of airport route
development approach / strategydevelopment approach / strategy
FAQs - Does it distort the FAQs - Does it distort the market?market?
Demand in Scotland has been proven Demand in Scotland has been proven to exist, therefore rather than to exist, therefore rather than distorting the market, this initiative is distorting the market, this initiative is helping to correct market helping to correct market imperfectionsimperfections
Airlines are now more aware of the Airlines are now more aware of the opportunity that exists in Scotland opportunity that exists in Scotland than beforethan before
The initiative is helping to shift airline The initiative is helping to shift airline perceptions of the respective marketsperceptions of the respective markets
Summary Summary
The Scottish fund has been successful to date in The Scottish fund has been successful to date in meeting the initial objectivesmeeting the initial objectives
It shows the value of limited public sector It shows the value of limited public sector interventionintervention
Has shifted the perception of Scotland as a market Has shifted the perception of Scotland as a market place in its own rightplace in its own right
Will lead to significant demonstrable economic Will lead to significant demonstrable economic benefitsbenefits
Airlines and airports have embraced the concept of Airlines and airports have embraced the concept of the funds as true partnering and risk-sharing vehiclesthe funds as true partnering and risk-sharing vehicles
Regions can finally contribute to how air services Regions can finally contribute to how air services develop – without distorting the marketdevelop – without distorting the market
Thank You
Questions