TIME FOR THE FINAL TAKE OFF?

TONY MACKAY

The Scottish Government bought Prestwick Airport for just £1 in 2014. The airport had made huge financial losses for years because of a large decline in passenger numbers and other air traffic.

I was very surprised at the Government’s decision, which was clearly done for political rather than economic reasons.   I believed that it would have been much more sensible to allow Prestwick Airport to close and am still of that opinion.

I also believe that Dundee Airport should be closed. It also makes large financial losses each year and is currently managed by Highlands and Islands Airports Ltd (HIAL).

There has been big growth in air traffic in recent years, partly stimulated by the low cost airlines such as EasyJet and Ryanair.  However, Prestwick and Dundee airports have struggled not only to share in that growth but have also actually suffered large falls in passenger numbers.

It seems obvious that Prestwick is too close to Glasgow Airport to be able to compete successfully.  Similarly, Dundee cannot compete with Edinburgh and (to a lesser extent) Aberdeen.

In such circumstances it is essential that thorough and objective analyses are undertaken of the long term prospects for both airports.  Reports have been produced but both were very poor and in the case of Prestwick appalling.

Both reports were essentially what economists call “whitewash reports” telling the proponents just what they wanted to hear. I am amazed that senior politicians and officials in the Scottish Government paid any attention to them….never mind agreeing to buy Prestwick Airport!

PRESTWICK

The Scottish Government purchased Prestwick Airport from Infratil for a nominal £1 in November 2013. Infratil had made big losses and had tried unsuccessfully to sell the airport.

Audit Scotland recently published an excellent report  -The Scottish Government’s Purchase of Glasgow Prestwick Airport – which should be essential reading for anyone interested in Prestwick.

It states that “the Scottish Government’s long-term aim is to sell Glasgow Prestwick Airport back to the private sector, once it is financially viable.”

After the Scottish Government acquisition Transport Scotland commissioned a business plan from someone called Romain Py, described as the “senior adviser appointed by Transport Scotland”. The Government has refused to publish that plan and related reports.

However, in October 2014 Prestwick Airport published Glasgow Prestwick Airport Strategic Vision, a 53 page report based on Mr Py’s work.  It is an embarrassingly poor document, which I am amazed that Transport Scotland and Scottish Government agreed to.

The main hope, apparently, for Prestwick is to become a Spaceport, flying the likes of Richard Branson to the moon!  Enough said.

The Audit Scotland report is objective and well- reasoned, but also scathing about the Strategic Vision.

The report also states that the Government provided £9 million in loans (?) to the end of January 2015 and promised a further £16.2 million to end March 2016. It seems therefore that at least £25 million of public money is at risk.

Prestwick did well for about 20 years. One of the main reasons for that was that Glasgow Airport was poorly run when part of the British Airports Authority (BAA) and offered little competition, particularly in attracting low cost airlines such as Ryanair. Since both Glasgow and Edinburgh airports left BAA they have become much better managed and there is now strong competition between those two.

Consequently, Prestwick has been squeezed out and lost market share. The prospects are grim unless you believe in the Spaceport. That is “pie in the sky”, if you will forgive my description.

It is clear from their report that Audit Scotland believe that the Scottish Government should cut its losses and close Prestwick airport.

The Ayrshire economy is struggling, as illustrated by the unemployment statistics earlier in this report, and the closure of Prestwick would be a further blow.  However, the local councils and Scottish Enterprise could do much more to boost the economy with £25 million.

DUNDEE AIRPORT is in a similar position, with a large fall in passenger numbers and huge financial losses.The loss in the 2013-14 financial year was £4.1 million.The published statistics show that 26,774 passengers used the airport in that year, which was a    -45% fall on the previous year.

Dividing the loss by the number of passengers implies a subsidy of about £150 per passenger flight.

That is probably more than most passengers paid for their tickets!

The situation has worsened further in the 2014-15 financial year.  The latest statistics from HIAL show a -19.5% fall in Dundee passenger numbers in the 2014 calendar year to just 22,865.

The annual financial loss in 2014-15 is expected to be at least £4.5 million. That implies that the annual subsidy per passenger flight will have risen to about £210. That is an almost incredible figure, which is being paid by the taxpayer – you and me!

In 2013 Transport Scotland commissioned “Scoping Study into Potential Development opportunities for Dundee Airport.”

Most of the report is good and it includes a lot of very useful information.

However, the economic analysis is very poor and the traffic forecasts ludicrous – it says “there is the underlying market to develop new domestic and add international services, and this could give rise, depending on the success with which the Airport can attract airlines who can then attract passengers from within Dundee’s core catchment areas to passenger throughputs of between 75,000 and 400,000 passengers.”

Passenger numbers at Dundee in 2014 totalled just 22,865. How can anyone forecast an increase to 75,000, never mind 400,000?

I fully understand the reasons why local people want to keep Dundee Airport open, because of the threat of job losses and problems for local businesses involved.

However, I am sure that Dundee City Council and Scottish Enterprise could generate much more economic benefits with an additional £4.5 million per year than subsidising air passengers at about £210 per flight.

I believe that the Scottish Government should close Dundee Airport and give additional money to bodies in Dundee for economic development to compensate for the closure.

ACKNOWLEDGEMENT: We thank economist Tony Mackay for his kind permission to reprint this article which first appeared in the March edition of the Scottish Economy Monthly Report. Full details, please email at info@tonymackay.co.uk.

 

 

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