Turbulence won’t slow airportdown

May 12 2009 by jez Davison, Evening Gazette

DURHAM Tees Valley Airport is forging ahead with ambitious expansion plans despite the recession’s best efforts to blow them off course. JEZ DAVISON reports.

IT’S BEEN a turbulent year for Durham Tees Valley Airport (DTVA).

Falling demand, soaring taxes and the winds of recession have battered every regional airport and DTVA - one of the smallest - has been feeling the full force.

Last year, passenger numbers dropped by 12% to 645,138 and, according to the Airport Operators Association (AOA), year-on-year through-put fell by a whopping 50% - although this figure was skewed by an early Easter in 2008. Although by no means the worst performer, the figures nevertheless raise questions over its long-term viability.

But DTVA says it hasn’t taken its eye off a 3m passenger target - although it might take longer to get there. It has moved the timeline back five years to 2020, admitting even that might be optimistic if the recession drags its heels.

Hugh Lang, group airports director for DTVA owner Peel Airports, said: “Regional airports all over the country are suffering. East Midlands is down 21% - these are unprecedented reductions in throughput.

“The aviation industry is very much a volume business with high fixed costs. All it takes is for passengers to say ‘we’re not flying’, and it has a big impact.”

Despite “extreme pressures” facing the aviation industry, he’s confident the North-east has room for two airports and that DTVA will survive alongside Newcastle, which he dismisses as being too far for business travellers to Teesside.

“Imagine if Tees Valley’s petrochemical companies had to go up to Newcastle or down to Leeds if they wanted to get to Schipol?” he says.

Others have posed the same question and come up with a slightly different answer - notably Conservative Party deputy leader Lord Bates, who has called for a more strategic approach to flight travel in the region.

Mr Lang is scathing.

“In a recession there will always be people questioning whether smaller regional airports will survive. It’s a case of trading through the recession and coming through the other side a leaner, fitter organisation,” he says.

“The recession is setting the industry back by two to three years but we are undertaking a long-term development here.”

Peel, which last week denied it intended selling any or all of its 75% stake in DTVA, despite actively pursuing talks with co-investors over John Lennon Airport in Liverpool, is likely to see a quicker return on its property investments at DTVA than from the operational side of the business. Without an influx of new carriers and passengers it has little option but to cut costs.

DTVA has already begun its efficiency drive by integrating some of its services with two of Peel’s other airports - Liverpool John Lennon and Robin Hood Airport, between Doncaster and Sheffield. A centralised control room has been developed to provide passenger information at all three airports, while a centralised finance function has been installed at Liverpool.

But the push for efficiency is being dragged back by powerful forces.

Potentially the most serious was last month’s High Court decision in favour of Bmibaby, which Peel had sued for £12m. The airline dumped DTVA from its schedules in 2006, just two years into what the airport understood to be a 10-year deal.

Peel has since appealed the judge’s decision, but if one airline is seen to have successfully rid itself of an unprofitable partnership - Bmibaby claimed it stood to make a thumping year-on-year loss by flying from DTVA - others may follow, spelling a possible mass exodus from regional airports, tipping them into terminal decline.

DTVA’s income - annual turnover is around £11.5m - has been hit by not one but a series of route cancellations, including BMI Midlands’ popular Tees Valley to Heathrow service, which carried 88,000 people in 2007.

Around one quarter were businesses passengers who used Heathrow to reach destinations around the world. The Tees Valley Joint Strategy Unit estimates that this loss of service will cost the local business community around £1.4m a year.

At the crux of BMI’s decision was Heathrow’s controversial landing fees which have long been argued to work against the interests of regional operators. BAA’s London terminal charges largely fixed landing fees regardless of aircraft size or type (see table). Only if an aircraft is exceptionally quiet (and usually small) does it qualify for a reduction in the fee.

Despite BAA’s aspiration to make the London terminal a “hub” airport, it is left with just two regional services - from Newcastle and Manchester - as escalating landing fees force out smaller domestic flights. The decline has sparked widespread criticism of Heathrow operator BAA and Government aviation policy.

Hugh Lang is lobbying aviation minister Jim Fitzpatrick for more Government support for regional airports - a move backed by Minister for the North-east, Nick Brown, and Stockton North MP Frank Cook, although last week Mr Cook said progress had been painfully slow. He was disappointed that Transport Secretary Geoff Hoon and Nick Brown had “taken so long to produce so little” in response to the campaign to restore air services between Teesside and London.

The Department for Transport has pledged that a forthcoming review of aviation policy will include for the first time an impact assessment of that policy on UK regions - something never considered before - and Mr Hoon, while saying the government has “no powers” to intervene over Heathrow’s charges, appears to favour the imposition of a Public Service Obligation on the route. This would mean landing slots at Heathrow being ring-fenced for flights to and from Durham Tees Valley.

Mr Lang agrees that radical action is needed to restore Heathrow as “a gate- way to and from Tees Valley” - and will have been heartened by yesterday’s news that Excelsis Airways is planning a three times daily service for premium business travellers on this route.

“There should be differentiated prices for domestic feeder services in and out of Heathrow and so many slots per day allocated for regional airlines,” he says.

He sees restoring this link as crucial if the airport is to fulfil its function as a key strategic spoke in the region’s infrastructure. Millions of pounds are being pumped into major developments at the airport including the Skylink International Business Park, a 2m sq ft industrial development designed to support the region’s logistics and distribution sector. Construction work on the £110m first phase is due to begin next year.

The capital expenditure needed for this and the upgrade of facilities at the airport means that DTVA, which has a turnover of £11m, currently runs at a loss.

Mr Lang dismisses that as a short-term concern. “These are 10 to 30-year projects,” he says. “Peel is firmly committed to this airport.”