Friday, August 10, 2007

The Vexed Question of UK Airports

In this week's Spectator, Graham Brady makes a compelling case for privatising Manchester Airport, which is owned by Manchester City Council and the nine neighbouring Boroughs. Manchester Airport also owns Bournemouth, East Midlands and Humberside Airports and has been valued at £3 billion.

Graham suggest some radical ideas about what could be done with the proceeds. Read the full article HERE.

I'm glad the Competition Commission is launching an inquiry into BAA's monopoly, but I am not holding my breath that it will be broken up (as I believe it should be). I've flown three times this year so far, twice from Heathrow and once from City Airport. It has been several years since I have been through Heathrow and I have to say I was shocked at the conditions there. It is very easy to lay all the blame at BAA's feet, and I do indeed lay most of the blame with them for failing to upgrade existing facilities and failing to prioritise properly. If they spent half as much time and money on passenger facilities as they do cramming shops into their airports the passenger might be better catered for.

However, we have to recognise that passenger numbers have mushroomed over the last decade to an extent where the planning process has failed to keep up with the needs of airport and indeed runway capacity. Terminal 5 will open soon, but the fact is that it was needed five, if not ten, years ago. I am not saying that we should acceded to all new capacity demands from airport operators or airlines, but we cannot allow planning inquiries to take the length of time they have been taking. I know the government has suggested some alterations to the process already.

Government has to make a clear choice soon. Either we recognise that people have the right to travel at will, and we make the facilities available for them to do so, or government will have to restrict air travel if it won't allow the building of new terminals, new airports and runways. If it takes the second choice it must do so in the full knowledge that Britain as a world economic power will be adversely affected.

So yes, BAA must shoulder the large part of the blame for the state of its airports, but they are not alone.


Chris Paul said...

Brady is nice but dim. He does not understand capitalism. State capitalism or otherwise. How much was MAG worth 10 years ago? Less than a billion I'd guess. And now three billion (in fact I'd say five). Brady is nice but dim.

Wrinkled Weasel said...

Iain said,"we cannot allow planning inquiries to take the length of time they have been taking"

A crucial point. Milton Keynes, argubly a modern success story of planning and one which is being copied, even today, had the foresight to ensure that planning applications took a matter of weeks, not months or years to be granted.

If we didn't give so much credence to the lentil eaters who turn up anoraked and caked in stale sweat at every protest we could progress. As with MK, we need to take the planning process away from local authorities and create a body that is more amenable to executing a national strategy.

Jonathan Sheppard said...

This is why localism and certain planning decisions do not and often cannot go hand in hand. We all want air travel - but no one wants an air port next to them. We all want our gas supplies to remain but no one wants a gas storage facility built in their community anymore which is why we got into the mess with did with security of supply (and indeed storage).

PS - I see Chris Paul is adding to the debate in a useful way as normal!!

graybo said...

My source within the management at BAA Gatwick reckons that Ferrovial may pre-empt any competition inquiry by flogging Gatwick off. Apparently it is far less profitable than it might appear to be, and flogging it off would leave them free to milk Heathrow and develop Stansted without the competition bods breathing down their necks. Asides, LGW is hamstrung by a covenant that prevents a second runway being constructed before 2020. Living under the flight path as we do, Iain, you no doubt will be aware that LGW is the busiest single-runway airport in the world and is in chronic need of expansion.

Barnacle Bill said...

If we had a decent road and rail infra-structure in this country we might be able to cut down on the number of domestic flights.
Thus freeing up capacity for the international market.
But no, governments just see the domestic travelling public in this country as some big milch cow to be milked at every opportunity.

Sea Shanty Irish said...

The envirnoment is an area where the Tory Party has some real opportunity, thanks to Labour's less-than-stellar record at all levels, the ineffectiveness of the highly-localized NIMBY response of the Lib Dems, and the inability (so far) of the Greens to break the first-past-the-post barrier.

Regardless of views on global warming, seems clear that major offsets to the downside of modern air travel - including local as well as global impacts - must be found for pressing economic and political as well as environmental reasons.

So there has to be more there there in the Big Blue game plan than broccoli on a stick.

BTW am sceptical that building more/better roads OR rail would significantly affect demand for intra-UK air travel. Here in great state of WA takes about four 1/2 hours (or less) to buzz 300 miles on 1st class interstate highway from Seattle east to Spokane. Lots of people do just that, but many others chose to fly, which doesn't save all that much time (if any) but for a lot of folks still beats driving. Portland, Oregon is even closer to Seattle and with frequent rail service to boot, yet many still prefer to fly, particularly for business.

PS - Years ago made the mistake of taking local bus from LGW to center of London instead of the train; was wall-to-wall gridlock then, must be even more frightful today.

Most flights in have been to Heathrow which I've always liked due to tube connection. Reminds me (esp. environs) of some futurist city gone to seed, with inhabitants who are gruff but have hearts o' gold (at least in my experience).

Have only used Stanstead once, was rather surreal but also seemed to have room for expansion. Bus connection from Golders Green was great.

Can well believe that the airport situation in the Midlands is dire. Is there possiblity of developing brownfields sites (of which there must be a great number) for air & other transportation?

Therese Coffey said...

I travel through Heathrow a lot - especially Terminal 4 and Terminal 1. BAA let themselves down with processing people through security. There is no concept of timeliness or that it is worth their while getting people through quickly. Having one security gate for two lines, not allowing men through if the male "checker" is already frisking someone else and vice-versa (never mind 90% of people walk through without hte need for frisking or the idea of having a "spare" person) leads to unnecessary backlogs, not having longer trestle tables allowing people to unload their bags or coats and so on. It is a shambles - it has got worse with Ferrovial and they are simply not interested in doing anything to improve. Supervisors aren't looking to see why one line is moving more quickly than another. The list goes on. Hopeless.

That's just the security check. I won't start on the rest of the airport.

Manchester isn't great on processing people through security quickly (they seem to check every handbag manually) but Gatwick and Southampton are both good.

Enlightened Despot said...

There is a perception in the industry that MAN has improved its game over the past few years and the airlines are generally happy with its current service standards. Privatisation would raise a few bob (particularly as it is likely that MAN will be removed from price regulation - and don't expect charges to fall if that happens) but it is unlikely that a new owner would change much.

We should remember that without the security requirements that have been piled on our airports, life would be a lot more tolerable for passengers. Yes, BAA does act like a monopolist and its new owner is no more customer-friendly: it knows it has a captive market because, whatever the Competition Commission economists put into their models, the fact is that Heathrow and Gatwick have massive locational advantages and the airlines know that they move from bases (including MAN) where they have massive sunk costs and from which their passengers want to fly at their peril.

So Ferrovial will be quids in whatever the CC decides. If Gatwick has to be sold, there will be a queue of bidders because relatively little capital investment is needed there. If higher service standards are demanded at Heathrow, charges will be permitted to rise. If Heathrow and Gatwick are run under separate ownership, there will still be little competition between them because new slots are almost non-existent and the scope to move services betwen the two is limited. More likely once again is higher prices as paper competition persuades the CAA to relax price controls.

The airlines are all venting their justified dissatisfaction with BAA by calling for its break-up; but as with MAN, new ownership will probably not mean New Deal.

Tapestry said...

Build a new Heathrow on Salisbury Plain connected to Central London by Maglev running at 250 mph. It would take 20 minutes to get there which would be quicker than most journeys to Heathrow.

Then you have all the space in the world. Problem solved.

Jeremy Jacobs said...

"If it takes the second choice it must do so in the full knowledge that Britain as a world economic power will be adversely affected".

Lost on NuLabour I suggest

vanfuertes said...

Brady is my local MP, I like the guy, and there's no doubt he cares about Altrincham and the whole of Manchester.

However, he has got it all wrong here. If the airport were sold to Peel Holdings then not only would there be a risk of falling standards at the airport, the money generated from the sale wouldn't go towards improving trams. It would fund tax cuts, which in the long run would not benefit the area.

James Higham said...

...Either we recognise that people have the right to travel at will, and we make the facilities available for them to do so, or government will have to restrict air travel if it won't allow the building of new terminals, new airports and runways...

Do you think perhaps this is their motivation all along? To let the facilities run down and then throw the hands up and say: "Well we'll either have to restrict you or slug you."

Anonymous said...

I work financing companies such as airport companies. Personally, I'd be surprised if you could reach a valuation of GBP3bn let alone GBP5bn for MAG. MAG is a relatively mature asset which is unlikely to grow spectacularly. Last time I looked at MAG's accounts, it made c150m EBITDA, a key factor for a valuation. To achieve £3bn would imply c18-20x EBITDA, a very high multiple. In current market conditions, this would be an aggressive price to pay.

I'd further suggest that using the cash as collateral for other debt would be a poor use of cash. Why put cash on deposit to borrow more? It doesn't make sense. How many corporates behave like that?

Finally, I doubt Whitaker and Peel would be a buyer. If anything they are a seller, eg Peel POrts. Given Peel owns Liverpool, there would be possible competition issues for them in buying MAG. More plausible buyers would be infrastructure funds