AIRPORTS STATISTICS 1999/ PDF Free Download

STATISTICAL SERIES The UK Airports Industry AIRPORTS STATISTICS 1999/2000 Stuart Condie Peter Flanagan Jan Marchant

The University of Bath School of Management is one of the oldest established management schools in Britain. It enjoys an international reputation for the quality of its teaching and research. Its mission is to offer a balanced portfolio of undergraduate, postgraduate and post-experience programmes, research and external activities, which provide a quality of intellectual life for those involved in keeping with the best traditions of British universities.

Centre for the study of Regulated Industries (CRI) The CRI is a research centre of the University of Bath School of Management. The CRI was founded in 1991 as part of the Chartered Institute of Public Finance and Accountancy (CIPFA). It transferred to the University of Bath School of Management in 1998. It is situated on the 8 th floor of Wessex House (North), adjacent to car park H. The CRI is an interdisciplinary research centre investigating how regulation and competition are working in practice, both in the UK and abroad. It is independent and politically neutral. It aims to produce authoritative, practical contributions to regulatory policy and debate, which are put into the public domain. The CRI focuses on comparative analyses across the regulated industries. CRI activities and outputs include: Regulatory statistics, information and analysis Discussion papers and Occasional papers Regulatory Briefs, Reviews and International series Research Reports and Technical papers Seminars, courses and conferences Regulated Industries Forum Direct links with regulated industries, the regulators, the academic community and other interested parties are an important feature of the work of the CRI. The CRI is non-profit making. Its activities are supported by a wide range of sponsors. BAA BT CIPFA Denton Wilde Sapte Department of Trade and Industry The Environment Agency The National Audit Office NERA The National Grid Group OFWAT The Post Office Railtrack Severn Trent Water South East Water Western Power Distribution Thames Water Transco United Utilities Wessex Water Yorkshire Electricity Group Further information about the work of the CRI can be obtained from:- Peter Vass, Director - CRI, School of Management, University of Bath, Bath, BA2 7AY or the CRI Administrator, Jan Marchant, Tel: 01225 323197, Fax: 01225 323221, e-mail: mnsjsm@management.bath.ac.uk and from the CRI s web site:-http://www.bath.ac.uk/management/cri CRI Publications and publications list can be obtained from Jan Marchant as above.

AIRPORTS STATISTICS 1999/2000 PREFACE This is the sixth volume in the CRI statistical series covering the UK Airports industry. The CRI statistics are intended to facilitate objective comparisons between airports. The statistics help fulfil the CRI's objective to promote a greater understanding of the regulated network industries which play such an important part in providing essential public services. The CRI's series of statistics is intended to be accurate, relevant and accessible to a wide range of readers. It therefore sets the statistics in context by providing background information on the industry concerned and its regulation. This volume includes an Overview by Stuart Condie and Peter Flanagan of BAA and information on: the regulatory environment industry structure trends in passenger numbers. The accounts from which the financial information in this publication is derived are, for the most part, prepared in accordance with the requirements of the Companies Acts. In addition, those airports subject to economic regulation under the Airports Act 1986 must disclose certain economic regulatory information, and this has also been included in the publication. Acknowledgements The CRI is grateful to the participating airports for providing the information requested. Without their co-operation this publication would not have been possible. Whilst it is intended to be informative and a contribution to the better understanding of the airports industry, it does not necessarily represent the views of the organisations and individuals from whom facts and figures have been obtained. The CRI wishes to thank Gordon Parsons of Cardiff International Airport for his help in developing the publication and the collection of statistics and Stuart Condie and Peter Flanagan for contributing the Overview and their editorial assistance. Responsibility for any omissions or errors in publication remain with the CRI. Comments or suggestions on the statistics will be very welcome, addressed to: Peter Vass, Director - CRI, School of Management, University of Bath, Bath, BA2 7AY, Tel: 01225 323197, Fax: 01225 323221. Peter Vass Director, CRI February 2001 iii

THE UK AIRPORTS INDUSTRY STATISTICAL NOTES 1. Year-end for all accounts is 31 st March 2000 with the exception of Bournemouth, East Midlands and London City Airports whose year-end is 31 st December 1999. 2. Humberside s data for 1998/99 and 1999/2000 are for 14 month and 10 month periods respectively. This will effect percentage calculations. 3. Heathrow, Gatwick, Stansted and Manchester Airports (shown in capitals) are the four airports designated for price cap regulation as well as being subject to economic regulation by the Civil Aviation Authority (CAA). 4. The standard table layout in Airport Statistics 1999/2000 includes subtotals for four airports groups: BAA, Manchester Airport plc, TBI and National Express. These subtotals should be used with caution: they reflect the industry structure in 1999/2000. 5. The TBI subtotal is for Belfast and Cardiff only. It does not reflect the 25% interest which TBI has in London Luton Airport. 6. Highlands & Islands Airports (HIAL) comprises the following airports: Barra, Benbecula, Campbeltown, Inverness, Islay, Kirkwall, Stornoway, Sumburgh, Tiree and Wick. 7. London Southend and Biggin Hill belong to the Holding company Regional Airports Ltd (RAL). These are not represented with a subtotal in this edition. 8. Manchester - with Humberside International Airport results since acquisition excluded. 9. Glasgow Prestwick did not report for the current statistics. 10. n/a denotes data not available. 11. - denotes data not calculable. 12. Percentage changes for profit and loss are shown as a plus (the + sign is not shown) where there is an improvement in performance, ie, an increase in profit or a reduction in a loss. Where the percentage change is preceded by a minus, this is where there has been a worsening of performance, ie, a reduction in a profit or an increase in a loss. 13. All percentage changes are rounded to the nearest whole number. 14. As some figures are unavailable totals and subtotals should be used with caution, especially % changes. 15. Figures may not add exactly because of rounding. 16. Most figures in the tables in chapters 2, 3 and 4 are rounded to the nearest thousand or million. Percentage changes calculated from these rounded figures may be slightly different to those shown in the % change since columns, which are calculated from the unrounded raw data. 17. Percentage changes in the tables are wherever possible calculated from unrounded figures (eg, figures as shown in the appendices) whereas tables themselves may show rounded figures for ease of presentation. iv

AIRPORTS STATISTICS 1999/2000 CONTENTS Preface Statistical notes Overview Profit generated by airport charges Profit generated by other operational activities Trends in passenger numbers The political environment Economic regulation iii iv vii The Regulatory Environment Price caps Role of the Regulator International obligations The next review Competition Conclusions 2 Economic Regulation Table 2.1 Profit and (Loss) Generated by Airport Charges Table 2.2 Profit and (Loss) Generated by Other Operational Activities Table 2.3 Profit and (Loss) Generated by Non-operational Activities Table 2.4 Economic Regulation: Total Profit and (Loss) 3 Operational Trends Table 3.1 Terminal Passengers Table 3.2 Transit Passengers Table 3.3 Total Cargo Tonnage Table 3.4 Air Transport Movements Table 3.5 Average Number of Employees 4 Financial Trends Table 4.1 Operating Income Table 4.2 Operating Expenditure Table 4.3 Operating Income and Expenditure per Passenger Table 4.4 Operating Profit and (Loss) Table 4.5 Operating Profit and (Loss) per Passenger Table 4.6 Net Profit and (Loss) Table 4.7 Dividends Table 4.8 Fixed Assets at year-end and Additions to Fixed Assets during the Year Table 4.9 Total Assets and Liabilities at year-end Table 4.10 Net Assets at year-end Appendix A: Glossary 31 Appendix B: Statistical Information 1999/2000 35 Appendix C: Economic Regulation Accounting Information 1999/2000 41 Appendix D: Profit & Loss Accounts 1999/2000 45 Appendix E: Balance Sheets 1999/2000 51 Appendix F: Contact Points for the UK Airports Industry 61 1 7 13 19 v

THE UK AIRPORTS INDUSTRY vi

AIRPORTS STATISTICS 1999/2000 vii

AIRPORTS STATISTICS 1999/2000 OVERVIEW Stuart Condie & Peter Flanagan Profit generated by airport charges Figure 1 shows the fluctuating trend of profits/losses generated by airport charges over the last 11 years. For the current year, the total increase in profit for all reporting airports was 15.0m (+15.98%). Increases were most marked in value terms in the BAA London airports, where profits from airport charges increased by 46%. Other airports that reported significant increases were Bristol (51%) and TBI airports at Belfast and Cardiff (19%). This increased profitability from airport charges was offset by reductions in the reported results of Manchester (-71%), Newcastle (-55%) and Luton (-79%). Figure 1: Profit/loss generated by airport charges millions 100 80 BAA London airports Manchester Other participating airports 60 40 20 0-20 -40 88/89 89/90 90/91 91/92 92/93 93/94 94/95 95/96 96/97 97/98 98/99 99/00 BAA airports accounted for 88% of total profit generated from airport charges in the year for the 27 airports taking part (1999 was 73%), followed by TBI airports at 11% (1999 was also 11%) and Manchester s at 2% (1999 was 9%). For the remaining airports, net losses from airport charges (notably Luton) were greater than profits, accounting for approximately 1% of the total. Revenue from airport charges increased by 7% in the year, compared to an increase in passenger numbers (excluding transit) of 5.2%. Yield per passenger increased by 1.7% on average across the 27 reporting airports, up from 5.53 to 5.62. For those airports subject to economic regulation, namely Heathrow, Gatwick, Stansted and Manchester, the average yield was 5.00 per passenger, an increase of 2.3% over the previous period. This included some Stuart Condie, Chief Economist, BAA and Peter Flanagan, Senior Finance Manager - Strategy, BAA vii

THE UK AIRPORTS INDUSTRY recompense, allowed for in the regulatory formula, for the loss of income at those airports arising from the abolition of intra EU duty free sales as from 1 July 1999. Profit generated by other operational activities Figure 2 shows that, overall, profits from other operational activities fell by 57million to 514million (-10%). The principal reason for this was the abolition of intra EU duty free sales, which affected all airports serving EU destinations. Most of the reporting airports showed reduced profits from this source in the year, the exceptions being Belfast (+11%) and Exeter (+117%). Overall, revenue from other operational activities fell by 5.6% in the year, with costs up by 0.37%. Figure 2: Profit/loss generated by other operational activities millions 450 400 350 300 250 200 150 100 BAA London airports Manchester Other participating airports 50 0 88/89 89/90 90/91 91/92 92/93 93/94 94/95 95/96 96/97 97/98 98/99 99/00 For details of the profits earned by each reporting airport refer to Chapter 2: for details of revenue and costs see Appendix C. Trends in passenger numbers Trends in passenger numbers since 1989/90 are shown in Figure 3. The figures plotted include both terminal passengers, who join or leave an aircraft at the airport, and transit passengers, who are passing through the airport, arriving and departing on the same aircraft. These passengers do not as a rule pass through the commercial outlets at the airport. viii

STUART CONDIE & PETER FLANAGAN Figure 3: Passenger numbers Millions of Passengers 120 100 BAA London airports Manchester Other participating airports 80 60 40 20 0 88/89 89/90 90/91 91/92 92/93 93/94 94/95 95/96 96/97 97/98 98/99 99/00 Figure 3 indicates the continuing trend of growth in U.K. passenger numbers throughout the reporting period. In the current year under review terminal passenger growth was 5.0% to almost 167 million (this excludes Prestwick which was reported in 1998/99 but not in 99/00). BAA s seven UK airports account for 71% of the total (1999 was 71%). Within this, Stansted continued its strong growth, moving to an annual total of over 10 million passengers for the first time, an increase of 33% and a market share of 6%. The four London airports (Heathrow, Gatwick, Stansted and Luton) accounted for 65% of the total, the same as the previous year. Manchester s passenger numbers increased only marginally but the airport still accounts for 11% of the total (1999 was 11%). Of the regional airports, Liverpool recorded growth of 62%, and Luton 24% in the year, reflecting their increasing importance. A category by category analysis shows that the strongest growth was in scheduled international traffic, which grew by almost 7% in the year to a total of 97.6 million passengers. Of this increase of 6 million passengers, 5 million passed through the four London airports. Scheduled domestic traffic increased by 3.2%, whereas charter traffic was sluggish by comparison, growing by just 1.1%. There have been two noteworthy events concerning passenger traffic. One is the continuing spectacular growth of the so called low cost carriers (particularly Ryanair, go, and Buzz at Stansted, and EasyJet at Luton and Liverpool, which has been the main engine behind growth in short haul scheduled international traffic. The second is the recent announcement by British Airways about restructuring at Heathrow and Gatwick; details remain unclear but several US routes will transfer to Heathrow and certain short haul routes will either be taken up by franchise operators and City Flyer Express or be cut completely. ix

THE UK AIRPORTS INDUSTRY The political environment During the period since the last report, the following political developments have been significant for UK airports. Competition Review In the Budget of March 1999 the Chancellor announced a review of airports competition, primarily to decide whether it was in the best economic interest of the country to maintain the current ownership structure of BAA s south east airports. On 9 November 2000, the Deputy Prime Minister announced his decision that BAA should keep its three London airports. BAA, however, will continue to be subject to economic regulation. John Prescott said: New regulation for BAA will ensure it invests properly to help meet demand for air travel where this is appropriate, and improve the quality of services it offers. The review concluded that, due to the shortage of capacity in the south east, the scope for competition between airports is limited. Industry and passengers would benefit more from modified regulation than from BAA being required to divest itself of one or more London airports. The review also concluded that airlines should be allowed to trade airport take off and landing slots, and that newly created ones should be auctioned. Economic regulation Periodic reviews The next periodic reviews for those airports subject to economic regulation by CAA (Heathrow, Gatwick, Stansted and Manchester) will cover airport charges for the period April 2003 - March 2008. The process leading up to these reviews has commenced and is more fully described in Chapter 1. Regional airport studies The Government s 1998 White Paper on integrated transport set the scene for the development of airport policy over the next 30 years. A number of regional studies were set up, which now includes a study of the South East and East of England (referred to as SERAS). A framework was proposed for the appraisal of any airport capacity or proposal for traffic management that might be brought forward. This was published in November 2000. The regional consultation documents to be published in 2001 will appraise the economic environmental and social impacts of a range of levels of capacity and distributions of capacity between airports, to consider the best use of capacity in each region. x

STUART CONDIE & PETER FLANAGAN SERAS will look at all options for future development in the south east, ranging from the impact of no additional capacity provision, other than that already in the planning system, to various options for additional capacity within the region. This study will be followed by public consultation but will not be issued until a decision has been taken on a fifth Terminal at Heathrow. The future of aviation On 12 December 2000 the Minister for Transport, Lord Macdonald, launched the Government s Air Transportation Consultation document, the first step in developing the 30 year strategy for the aviation industry. This strategy will eventually be set out in a new White Paper on air transport. The consultation examines the following issues: the need for the industry to improve passenger services; the most effective use of airport and airspace capacity, including runway slots; the effects of aviation on the environment and the best means of limiting these; through, for example, regulation, economic instruments and voluntary agreements; integrating airports with existing surface transport infrastructure; how to further boost the success of the UK s airlines; the potential development of the UK s air freight sector. In a very important speech for UK airports, Lord Macdonald said: The UK has always been at the forefront of aviation. As we enter a new century, the question is what course do we want aviation to follow for the future? Continuing, he said: Demand for air travel seems set to continue to grow. Our forecasts show that demand may almost double over the next 15 years. Yet some of our airports are already close to the limits of their current capacity and expansion of airports almost always has significant environmental impacts. The deadline for responses to the consultation is 12 April 2001 Heathrow Terminal 5 The Inspectors report was delivered to DETR in December 2000. The Government decision is not expected until after the 2001 General Election. xi

THE UK AIRPORTS INDUSTRY xii

AIRPORTS STATISTICS 1999/2000 1 THE REGULATORY ENVIRONMENT The principal aspects of regulation are airport licensing and safety, economic regulation, international obligations, traffic regulation, aviation security and noise. This section looks in some detail at the framework for economic regulation of airports. The regulatory system aims to provide safeguards against distortion of the air travel market through predatory pricing or other monopoly abuses by airport operators. It also aims to prevent lax cost control and inefficiency. Under the system established by the Airports Act 1986 economic regulation applies to all those airports whose annual turnover has exceeded 1m in at least two of the three previous financial years. These airports must seek permission from the Civil Aviation Authority (CAA) to levy charges and must also meet certain conditions in the presentation of their accounts. At present, the CAA s Economic Regulation Group regulates forty-five airports which exceed the 1m turnover threshold under the Airports Act and the Airports (Northern Ireland) Order 1994. Price caps Under the Airports Act, airports can also be designated for price cap regulation as well as being subject to economic regulation. Currently, Heathrow, Gatwick, Stansted (owned by BAA plc) and Manchester are the only four designated airports. These airports are subject to a revenue yield RPI-X price cap. The revenue yield approach applies the price cap to the ratio of revenue to a major output, ie, revenue per unit of output. In this case, airport charges are regulated by a price cap in terms of revenue per passenger handled. The basic charges to which the price cap applies are the runway charge, the aircraft parking charge, and the departing passenger charge. The formula to govern the revenue which may be raised through airport charges is set every five years. Prior to setting the price caps, the CAA is obliged to refer the designated airports to the Competition Commission (CC), formerly the Monopolies and Mergers Commission (MMC), which then make recommendations which the CAA considers, but is not obliged to follow, when setting the price limits. Between 1987 and 1992, BAA s London airports were subjected to RPI-1 capping on airport charges. Following MMC recommendations, the CAA proposed price caps for the next five year period beginning 1 April 1992. The CAA's final decision came after consultation with the aviation industry, including BAA: price caps for 1992 to 1997 were set at RPI-8 for the first two years, RPI-4 for the third year and RPI-1 for the remaining two years. A similar process determined the price caps for BAA's London airports for the current five year period that commenced on 1st April 1997. Heathrow and Gatwick's combined charges are subject to an RPI-3 formula; within this combined price cap the differential between the two airports charges is required to rise by at least 1% each year. This will result in charges at Heathrow rising relative to those at Gatwick. For Stansted the price cap is RPI+1. Following the delay in the conclusion of the Public Inquiry into Terminal 5 at Heathrow (completed in March 1999), the CAA decided to extend the current regulatory period for the London airports by one year to March 2003. This will enable the next Review to take into 1

THE UK AIRPORTS INDUSTRY account the decision on Terminal 5, which is expected following the next General Election, currently anticipated in 2001. Manchester Airport s five year price cap periods used to start one year later than for BAA. Its price cap formulae were RPI-1 for 1988-1992 and RPI-3 for 1993-1997. The CAA decided in 1997 that the price cap for the five year period commencing 1st April 1998 would be RPI-5. Following the extension to BAA s current review period, both BAA s and Manchester s reviews now will take place at the same time. There is an additional security component to the formula for both BAA and Manchester, giving RPI-X+S. The security component, S, allowed the airport to pass through 75% of any additional security costs imposed by government between 1987 and 1992 (Manchester 1988 and 1993). Subsequently, S has been set at 95%. The current formulae also allowed recovery of some of the intra-eu duty and tax free revenue which was lost following the withdrawal of allowances on 30 June 1999. For BAA's London airports this is achieved by a D factor; for Manchester it was taken into account when calculating X. The role of the Regulator The economic regulation of airports by the CAA dates from the 1986 Airports Act. The objectives of the CAA are to: further the reasonable interests of airport users; promote the efficient, economic and profitable operation of airports; encourage investment in new airport facilities to satisfy anticipated user demand; impose the minimum amount of regulation consistent with these duties. When imposing the initial limit on charges and before making any subsequent amendments to the limits on charges the CAA is compelled to refer the case to the Competition Commission. The Commission is then charged with investigating and reporting on: the question as to what are the maximum amounts that should be capable of being levied by the airport operator by way of airport charges at the airport; whether an airport operator has at any time during the relevant period pursued a course of conduct which has operated against the public interest and if so whether the adverse effects could be remedied by the imposition of further conditions on the airport operator. These courses of conduct relate to the levying of airport charges and any other operational activities carried out by the operator. Airports regulation is therefore unique amongst the regulated industries in that the Competition Commission has a direct interventionist role rather than being limited to receiving references from other regulators, the Secretaries of State and the Director General of Fair Trading. There is therefore no appeals body within the current system of regulation for airports 2

AIRPORTS STATISTICS 1999/2000 The Airports Act 1986 and associated price control conditions do not include any explicit protection for airport users in respect of quality of service. The Competition Commission and the CAA may, however, take account of service quality when determining appropriate price controls. The CAA s Safety Regulation Group is responsible for airport safety but security is a matter for the Department of the Environment, Transport and the Regions. The CAA also advises the Secretary of State on traffic distribution rules and capacity allocation schemes, having regard to the reasonable interests of air transport service users. International obligations Although the CAA is the airports economic regulator, the international nature of the airports business means that there are certain international agreements which have to be observed. To this end the Secretary of State has the power to override the price controls imposed upon the designated airports by the CAA in order to meet the UK s international obligations. Article 15 of the Chicago Convention provides a basic framework of non-discrimination, stipulating that no airline should be penalised with regard to access or level of charges compared with a national carrier. The 1977 US/UK Air Service Agreement, known as Bermuda 2, provides more detail about the structure of charges. Further agreement in 1994 meant that Bermuda 2 was amended to eliminate passenger charges from the definition of user charges. The 1983 Memorandum of Understanding between the US and the UK meant that the UK could look for no more than a reasonable rate of return on investment. In particular, when computing revenues that contribute to the rate of return, no distinction could be made as to the sources of airport revenues, including duty free sales and other commercial revenues (the so-called single till ). The March 1994 arbitration settlement cancelled the 1983 Memorandum of Understanding and the single till is no longer an international obligation, although the settlement acknowledged that there was at the time no intention to depart from the single till principle. So, although the price cap mechanism only applies to airport charges, its level is determined after taking into account the expected profitability of an operator s commercial activities. This single till principle is one of the sources of charging inefficiencies at British airports. Commentators have highlighted the ludicrous result of commercial success leading to reduced airport charges at Heathrow and Gatwick in spite of growing congestion due to limited capacity. The International Civil Aviation Organisation (ICAO) - a branch of the UN - held a conference in Montreal in June 2000 on the Economics of Airports and Air Navigation Services. One item discussed was reform of the current ICAO guidelines to member states and in particular the recommendation that airport related income from commercial as well as operational activities be taken into account when setting airport charges. A majority of member state representatives felt that the time had come to drop this recommendation and the ICAO secretariat is now establishing the next steps in this regard. ICAO guidelines also provide for: a reasonable rate of return concept non-discrimination against airport users. 3

THE UK AIRPORTS INDUSTRY The next review The next price review covers airport charges for the period 2003-2008 for BAA s London airports and Manchester. Before the Competition Commission reference in December 2001 (see above), the CAA announced in July 2000 that it intended to review the current issues in airport regulation. Following a consultation period, CAA published in October 2000 a position paper entitled The CAA Approach to Economic Regulation and Work Programme for the Airport Reviews This set out its interpretation of its statutory objectives and covered a number of possible lines of approach which it intended to follow. The key elements it is considering are: the form of the price cap, pricing structures and a default price cap benchmarking of airports incremental cost pricing treatment of capital expenditure reform of the single till service quality the scope for competitive provision of facilities within airports. More detailed consultation papers on each of these areas have already been issued for single till, service quality and benchmarking (December 2000), with further papers due in January/February 2001. Further details are available on CAA s website www.caaerg.co.uk. Competition Airports are nodes in the network of air corridors that cover the globe. The promotion of competition is not currently a feature of airport regulation; indeed, the CAA has no legal obligation to promote competition between airports. BAA was privatised as a near monopoly in the supply of airport services to the London area. However, its market share has fallen gradually over time with the increasing importance of regional airports and passengers transferring via competing European hubs such as Paris, Amsterdam and Frankfurt. A competition review was announced by the Chancellor in his March 1999 Budget to investigate BAA s ownership of the three largest airports serving London. Following much debate the review was concluded in November 2000 by the Deputy Prime Minister stating that BAA should keep these airports. The review also concluded that airlines should be allowed to trade airport take off and landing slots, and that newly created ones should be auctioned. Landing slots at congested airports are preciously guarded by existing operators because of their high commercial value. A set of rules dominated by grandfather rights is used to allocate slots between carriers. Under these rights at Heathrow the existing airline holding a slot retains it for the next period (95% of runway traffic is allocated by this method). Under a EC Regulation 95/93 an airline must relinquish its slot if it fails to use it for a minimum number of times (80% of allowable 4

AIRPORTS STATISTICS 1999/2000 use). Despite new entrants being allowed 50% of slots relinquished in this manner, as well as 50% of newly created slots, plus those voluntarily returned to the slots co-ordinator, there is in practice little new entrant access by these means due to the small number of slots involved. Further EU legislation in this area has been promised but finding a compromise with Member States is likely to be difficult. Apart from airport charges, airlines also pay ground handling charges for airport services such as check-in, baggage handling and ramp services. Such services are provided on a competitive basis, either by third party operators or by the airlines themselves (selfhandling). The licensing of these handling activities is governed by recent EU and U.K. legislation. Conclusions The airports industry is structurally different from many other regulated entities for the following reasons: the industry has always been very vertically separated (travel agent/tour operators/ airlines/handling agents/airports/atc) even before privatisation; airports have a heterogeneous range of outputs - serving both passengers and airlines; airport charges are paid by airlines who have high market power and are often politically well connected and litigious; a large proportion of airport costs are related to compliance with safety legislation laid down by CAA Safety Regulation Group and security legislation specified by the Department of the Environment, Transport and the Regions (DETR); aviation has always been an international business so that cross-border airport competition is becoming more significant and EU and international legislation increasingly to be taken account of by U.K. regulators. The main problem facing price controlled airports and their customers today is one of capacity and investment. Capacity additions are not only becoming more expensive on a unit cost basis but are also subject to increasingly time consuming and unpredictable planning procedures. The forthcoming CAA review of Manchester and BAA s London airports will have to try and balance the legitimate interests of all the parties concerned. 5

THE UK AIRPORTS INDUSTRY 6

2 ECONOMIC REGULATION Introduction AIRPORTS STATISTICS 1999/2000 All airports whose annual turnover has exceeded 1m in at least two of the three previous financial years are subject to economic regulation (unless the owner and operator are not the same or a separate airport company has not been set up). At present this applies to 45 of the UK Airports. As well as having to seek permission from the Civil Airports Authority (CAA) to levy charges, these airports must also meet certain conditions in the presentation of their accounts. The accounts must disclose the income and expenditure attributable to airport charges, other operational activities and non-operational activities. In the Airports Act 1986 airport charges are defined as: charges levied on operators of aircraft in connection with the landing, parking or taking off of aircraft at the airport (including charges that are to any extent determined by reference to the number of passengers on board the aircraft, but excluding charges payable by virtue of regulation under section 73 of the 1982 Act (Air navigation services etc.)) and charges levied on aircraft passengers in connection with their arrival at, or departure from, the airport by air. Other Operational activities, in relation to an airport, are defined in the Act as any activities which are carried on wholly or mainly for the benefit of users of the airport or the revenues from which are wholly or mainly attributable to payments by such users. Other operational activities include apron services, baggage handling, hangarage, retailing, on-site property rental and car parking. Non-operational activities essentially cover off-site activities such as international diversification and consultancy services. Index to tables 2.1 Profit and (Loss) Generated by Airport Charges 2.2 Profit and (Loss) Generated by Other Operational Activities 2.3 Profit and (Loss) Generated by Non-operational Activities 2.4 Economic Regulation: Total Profit and (Loss) 7

THE UK AIRPORTS INDUSTRY Table 2.1: Profit and (Loss) Generated by Airport Charges Airport Charges Profit and (Loss) % change since: 1988/89 1997/98 1998/99 1999/00 1988/89 1997/98 1998/99 ( 000) ( 000) ( 000) ( 000) HEATHROW (7,600) 27,578 69,730 84,580 1,213 207 21 GATWICK (30,700) (16,905) (269) 5,915 119 135 2,299 STANSTED (6,500) (21,471) (16,417) (13,243) -104 38 19 Southampton n/a 492 1,179 1,377-180 17 Glasgow (400) 1,354 5,879 6,985 1,846 416 19 Edinburgh (1,000) 5,339 7,511 7,565 857 42 1 Aberdeen (4,300) 3,538 3,731 3,073 171-13 -18 BAA (50,500) (75) 71,344 96,252 291 128,436 35 MANCHESTER 16,805 1,038 8,571 2,523-85 143-71 Humberside 9 (1,060) (1,247) (228) -2,633 78 82 Manchester Airport plc 16,814 (22) 7,324 2,295-86 10,532-69 Birmingham International 168 8,738 5,326 7,349 4,274-16 38 Newcastle 2,490 7,988 7,011 3,124 25-61 -55 Belfast International n/a 5,987 7,607 8,544-43 12 Cardiff International 664 1,945 2,713 3,710 459 91 37 TBI 664 7,932 10,320 12,254 n/a 54 19 Bournemouth (630) (921) (1,325) (1,415) -125-54 -7 East Midlands 2,128 3,711 3,585 4,649 118 25 30 National Express 1,498 2,790 2,260 3,234 116 16 43 Blackpool (176) (681) (657) (715) -306-5 -9 Bristol 982 2,590 3,541 5,331 443 106 51 Exeter (248) (703) (529) (604) -144 14-14 Highlands and Islands n/a (1,647) (1,173) (1,052) - 6 10 Leeds Bradford 870 (112) (10) 30-97 127 400 Liverpool n/a (1,159) (959) (1,562) - 35 63 London Biggin Hill n/a (494) (495) (519) - -5-5 London City n/a 779 1,089 914-17 -16 London Luton (1,190) (5,031) (8,361) (14,962) -1,157-197 -79 Norwich 139 (729) (779) (554) -499 24 29 Prestwick (3,400) n/a n/a n/a - - - Southend n/a (663) (642) (660) - 0-3 Teesside (62) (450) (162) (617) -895-37 -281 Total of all airports (31,951) 18,604 94,448 109,538 443 489 16 8

AIRPORTS STATISTICS 1999/2000 Table 2.2: Profit and (Loss) Generated by Other Operational Activities Other Operational Activities Profit and (Loss) % change since: 1988/89 1997/98 1998/99 1999/00 1988/89 1997/98 1998/99 ( 000) ( 000) ( 000) ( 000) HEATHROW 79,600 207,352 244,008 228,069 187 10-7 GATWICK 56,200 102,965 125,405 104,226 85 1-17 STANSTED 2,600 25,067 33,161 33,504 1189 34 1 Southampton n/a 791 977 825-4 -16 Glasgow 6,400 13,987 17,486 16,262 154 16-7 Edinburgh 3,100 5,779 6,548 6,050 95 5-8 Aberdeen 1,900 5,473 6,038 6,085 220 11 1 BAA 149,800 361,414 433,623 395,021 164 9-9 MANCHESTER 20,180 50,692 55,618 46,180 129-9 -17 Humberside n/a 679 996 686-1 -31 Manchester Airport plc 20,180 51,371 56,614 46,866 132-9 -17 Birmingham International 4,264 15,338 17,098 14,385 237-6 -16 Newcastle 506 1,865 5,872 5,340 955 0-9 Belfast International n/a 6,477 7,730 8,564-32 11 Cardiff International 892 4,309 4,627 3,753 321-13 -19 TBI 892 10,786 12,357 12,317 n/a 14 0 Bournemouth (15) 721 864 764 5193 6-12 East Midlands 1,344 6,135 7,976 7,420 452 21-7 National Express 1,329 6,856 8,840 8,184 516 19-7 Blackpool (160) 32 (4) (91) 43-384 -2175 Bristol 646 2,805 6,247 4,519 600 61-28 Exeter (214) 112 295 639 399 471 117 Highlands and Islands n/a 655 652 99 - -85-85 Leeds Bradford n/a 3,214 4,243 4,106-28 -3 Liverpool n/a 365 519 557-53 7 London Biggin Hill n/a 498 551 578-16 5 London City n/a 3,480 3,746 2,074 - -40-45 London Luton 4,247 14,734 17,611 18,359 332 25 4 Norwich 176 1,165 1,224 (146) -183-113 -112 Prestwick 800 n/a n/a n/a - - - Southend n/a 523 564 610-17 8 Teesside 31 841 921 826 2565-2 -10 Total of all airports 183,622 476,440 570,973 514,243 180 8-10 9

THE UK AIRPORTS INDUSTRY Table 2.3: Profit/(Loss) Generated by Non-operational Activities Non-operational Activities Profit and (Loss) % change since: 1988/89 1997/98 1998/99 1999/00 1988/89 1997/98 1998/99 ( 000) ( 000) ( 000) ( 000) HEATHROW 2,900 5,171 9,276 11,844 308 129 28 GATWICK 700 2,116 2,735 1,947 178-8 -29 STANSTED n/a 494 644 814-65 26 Southampton n/a 0 0 0-0 0 Glasgow 200 (138) 1,320 1,525 663 1205 16 Edinburgh 200 119 639 1,078 439 806 69 Aberdeen n/a (13) 322 357-2846 11 BAA 4,000 7,749 14,936 17,565 339 127 18 MANCHESTER 0 0 0 0 - - - Humberside 16 0 0 0-100 - - Manchester Airport plc 16 0 0 0 - - - Birmingham International 0 0 0 0 - - - Newcastle 0 0 0 0 - - - Belfast International n/a 0 0 0 - - - Cardiff International 0 0 0 0 - - - TBI 0 0 0 0 - - - Bournemouth 880 814 1,186 1,177 34 45-1 East Midlands (12) 213 105 113 1042-47 8 National Express 868 1,027 1,291 1,290 49 26 0 Blackpool n/a 0 227 88 - - -61 Bristol 0 0 0 0 - - - Exeter (17) 78 136 172 1112 121 26 Highlands and Islands n/a 0 0 0 - - - Leeds Bradford 0 0 0 0 - - - Liverpool n/a 75 (176) (819) - -1,192-365 London Biggin Hill n/a 24 35 37-54 6 London City 0 0 0 0 - - - London Luton n/a (1,300) 0 0-100 - Norwich 0 0 0 n/a - - - Prestwick 0 n/a n/a n/a - - - Southend n/a 143 130 164-15 26 Teesside 0 0 0 0 - - - Total of all airports 4,867 7,796 16,579 18,497 280 137 12 10

AIRPORTS STATISTICS 1999/2000 Table 2.4: Economic Regulation Total Profit and (Loss) Total Profit and (Loss) % change since: 1988/89 1997/98 1998/99 1999/00 1988/89 1997/98 1998/99 ( 000) ( 000) ( 000) ( 000) HEATHROW 74,900 240,101 323,014 324,493 333 35 0 GATWICK 26,200 88,176 127,871 112,088 328 27-12 STANSTED (3,900) 4,090 17,388 21,075 640 415 21 Southampton n/a 1,283 2,156 2,202-72 2 Glasgow 6,200 15,203 24,685 24,772 300 63 0 Edinburgh 2,300 11,237 14,698 14,693 539 31 0 Aberdeen (2,400) 8,998 10,091 9,515 496 6-6 BAA 103,300 369,088 519,903 508,838 393 38-2 MANCHESTER 36,985 51,730 64,189 48,703 32-6 -24 Humberside 25 (381) (251) 458 1732 220 282 Manchester Airport plc 37,010 51,349 63,938 49,161 33-4 -23 Birmingham International 4,432 24,076 22,424 21,734 390-10 -3 Newcastle 2,996 9,853 12,883 8,464 183-14 -34 Belfast International n/a 12,464 15,337 17,108-37 12 Cardiff International 1,556 6,254 7,340 7,463 380 19 2 TBI 1,556 18,718 22,677 24,571 n/a 31 8 Bournemouth 235 614 725 526 124-14 -27 East Midlands 3,460 10,059 11,666 12,182 252 21 4 National Express 3,695 10,673 12,391 12,708 244 19 3 Blackpool (336) (649) (434) (718) -114-11 -65 Bristol 1,628 5,395 9,788 9,850 505 83 1 Exeter (479) (513) (98) 207 143 140 311 Highlands and Islands n/a (992) (521) (953) - 4-83 Leeds Bradford 1,995 3,102 4,233 4,136 107 33-2 Liverpool n/a (719) (616) (1,824) - -154-196 London Biggin Hill n/a 28 91 96-243 5 London City n/a 4,259 4,835 2,988 - -30-38 London Luton 3,057 8,403 9,250 3,397 11-60 -63 Norwich 315 436 445 (700) -322-261 -257 Prestwick (2,600) n/a n/a n/a - - - Southend n/a 3 52 114-3700 119 Teesside (31) 391 759 209 774-47 -72 Total of all airports 156,538 502,840 682,000 642,278 310 28-5.8 11

THE UK AIRPORTS INDUSTRY 12

3 OPERATIONAL TRENDS Introduction AIRPORTS STATISTICS 1999/2000 This chapter provides some basic statistical information gathered on the UK Airports industry, including data on the number of terminal and transit passengers as well as the number of Air Transport Movements (ATMs) at each airport. Comparisons between airports in this publication are to be made with some caution because of the differences between airports in the way that services are provided. This applies in particular to Table 3.5 which shows the average number of employees at each airport. For example, at some airports Air Traffic Control facilities are provided by the Civil Aviation Authority whereas at others the Airport Company employs its own Air Traffic Control staff. Similarly, services such as car parking, aircraft refuelling, ground handling services and other commercial activities are provided by retailers at some airports and by the direct employees of airport companies at others. A few airports also contract out office and administration services and have no direct employees. Index to tables 3.1 Terminal Passengers 3.2 Transit Passengers 3.3 Total Cargo Tonnage 3.4 Air Transport Movements 3.5 Average Number of Employees 13

THE UK AIRPORTS INDUSTRY Table 3.1: Terminal Passengers Number of Terminal Passengers % change since: 1988/89 1997/98 1998/99 1999/00 1988/89 1997/98 1998/99 (000s) (000s) (000s) (000s) HEATHROW 38,058 58,166 61,037 62,294 64 7 2 GATWICK 21,057 27,333 29,555 30,432 45 11 3 STANSTED 1,125 5,587 7,535 10,024 791 79 33 Southampton 470 631 754 767 63 22 2 Glasgow 3,711 6,101 6,566 6,793 83 11 3 Edinburgh 2,125 4,258 4,614 5,225 146 23 13 Aberdeen 1,620 2,613 2,626 2,444 51-6 -7 BAA 68,165 104,689 112,687 117,979 73 13 5 MANCHESTER 9,684 15,899 17,405 17,456 80 10 0 Humberside 142 338 434 362 155 7-17 Manchester Airport plc 9,826 16,237 17,839 17,818 81 10 0 Birmingham International 2,888 6,039 6,716 7,001 142 16 4 Newcastle 1,428 2,653 2,988 2,966 108 12-1 Belfast International 2,175 2,483 2,669 3,087 42 24 16 Cardiff International 642 1,140 1,250 1,308 104 15 5 TBI 2,816 3,623 3,919 4,395 56 21 12 Bournemouth 191 306 355 304 59-1 -14 East Midlands 1,427 1,881 2,140 2,218 55 18 4 National Express 1,618 2,188 2,495 2,523 56 15 1 Blackpool 148 81 87 90-39 11 3 Bristol 748 1,717 1,824 1,979 165 15 8 Exeter 170 215 249 287 69 33 15 Highlands and Islands 761 1,002 888 810 6-19 -9 Leeds Bradford 726 1,297 1,409 1,475 103 14 5 Liverpool 355 684 932 1,513 326 121 62 London Biggin Hill n/a 22 25 24-9 -4 London City n/a 1,165 1,358 1,388-19 2 London Luton 2,876 3,389 4,385 5,450 90 61 24 Norwich 186 279 329 339 82 22 3 Prestwick 322 574 644 n/a - - - Southend 161 9 5 5-97 -43 0 Teesside 313 589 670 732 134 24 9 Total of all airports 93,317 144,429 159,450 166,774 79 15 5 14

AIRPORTS STATISTICS 1999/2000 Table 3.2: Transit Passengers Number of Transit Passengers % change since: 1988/89 1997/98 1998/99 1999/00 1988/89 1997/98 1998/99 (000s) (000s) (000s) (000s) HEATHROW 323 340 311 300-7 -12-4 GATWICK 102 157 155 138 35-12 -11 STANSTED 65 59 32 28-56 -52-12 Southampton - 13 13 1 - -94-94 Glasgow 70 115 77 49-30 -58-37 Edinburgh 74 53 36 26-64 -50-27 Aberdeen 23 8 12 13-43 65 8 BAA 657 745 636 556-15 -25-13 MANCHESTER 569 411 316 343-40 -17 8 Humberside 33 3 5 4-87 48-11 Manchester Airport plc 602 414 321 347-31 -22 8 Birmingham International 103 121 100 82-21 -32-18 Newcastle 54 58 63 61 12 5-4 Belfast International 5 21 43 25 419 18-42 Cardiff International 26 32 33 29 12-9 -11 TBI 31 53 76 54 76 2-29 Bournemouth 2 7 4 4 100-35 9 East Midlands 4 7 5 13 25 227 162 National Express 6 13 9 17 50 32 94 Blackpool 1 1 1 0-92 -94-91 Bristol 24 30 55 53 121 75-3 Exeter 11 14 9 8-28 -42-13 Highlands and Islands 85 69 59 51-40 -26-14 Leeds Bradford 13 8 8 16 20 91 98 Liverpool 5 7 4 3-51 -65-37 London Biggin Hill n/a 0 0 0 - - - London City n/a 0 0 0 - - 0 London Luton 35 17 20 n/a - - - Norwich 29 5 0 0-100 -98 - Prestwick 84 16 7 n/a - - - Southend 1 0 0 0-100 - - Teesside 24 16 4 8-68 -52 94 Total of all airports 1,763.6 1,587.2 1,372.0 1,254.8-29 -21-9 15

THE UK AIRPORTS INDUSTRY Table 3.3: Total Cargo Tonnage Total Cargo (in tonnes) % change since: 1988/89 1997/98 1998/99 1999/00 1988/89 1997/98 1998/99 (000) (000) (000) (000) HEATHROW 723 1294 1293 1385 92 7 7 GATWICK 205 280 298 324 58 16 9 STANSTED 32 148 206 184 473 25-11 Southampton 1 1 1 1 0 0 0 Glasgow 22 15 12 12-45 -16 4 Edinburgh 13 40 40 49 293 22 22 Aberdeen 8 8 6 6-21 -24-6 BAA 1,004 1,785 1,857 1,961 95 10 6 MANCHESTER 77 103 104 115 50 12 10 Humberside 0 0 0 0-5 0-16 Manchester Airport plc 77 103 104 115 50 12 10 Birmingham International 13 18 26 26 96 40 0 Newcastle 3 5 4 4 51-10 -5 Belfast International 34 40 39 41 21 4 6 Cardiff International 2 3 3 3 57-2 17 TBI 36 43 42 44 21 2 5 Bournemouth 11 11 10 10-1 -3 7 East Midlands 29 140 136 142 395 2 4 National Express 40 150 146 153 282 2 5 Blackpool 1 0 0 0-91 -4-4 Bristol 2 8 6 n/a - - - Exeter 2 4 4 4 117-2 3 Highlands and Islands 5 6 5 6 20 0 20 Leeds Bradford 0 1 6 6 1322 713 4 Liverpool 15 43 41 41 178-5 0 London Biggin Hill n/a 0 0 0 - - -25 London City n/a 1 1 1-8 7 Luton 18 25 29 32 76 30 12 Norwich 1 3 3 4 152-3 14 Prestwick 18 35 45 n/a - - - Southend 29 0 0 0-99 38-5 Teesside 0 0 2 3 3884 5185 25 Total of all airports 1,253 2,230 2,321 2,401 92 8 3 16

AIRPORTS STATISTICS 1999/2000 Table 3.4: Air Transport Movements Air Transport Movements % change since: 1988/89 1997/98 1998/99 1999/00 1988/89 1997/98 1998/99 (000s) (000s) (000s) (000s) HEATHROW 330 432 442 454 37 5 3 GATWICK 183 234 244 247 35 6 1 STANSTED 25 85 115 140 465 64 22 Southampton 18 25 27 25 39 2-7 Glasgow 62 82 84 87 39 6 4 Edinburgh 41 73 76 86 108 18 13 Aberdeen 69 88 90 80 16-9 -11 BAA 729 1,018 1,078 1,119 54 10 4 MANCHESTER 115 150 168 172 50 15 3 Humberside 0 10 11 11 6780 9 0 Manchester Airport plc 115 160 179 183 59 15 2 Birmingham International 54 82 92 102 88 25 11 Newcastle 20 42 42 43 114 2 1 Belfast International 43 41 44 61 42 48 38 Cardiff International 10 17 18 18 84 6 0 TBI 53 58 62 79 50 36 27 Bournemouth 9 8 9 9 1 14 1 East Midlands 34 44 46 45 36 4-1 National Express 43 52 55 55 28 5-1 Blackpool 10 7 8 12 16 84-1 Bristol 14 33 34 32 126-5 44 Exeter 9 8 9 10 13 19-7 Highlands and Islands 49 57 52 49 0-14 -6 Leeds Bradford 21 26 25 27 27 3 8 Liverpool 18 29 28 29 59 1 4 London Biggin Hill n/a 2 2 2 - -13-17 London City n/a 32 37 44-38 19 London Luton 36 42 50 50 42 20 1 Norwich 11 16 17 17 53 6 0 Prestwick 4 10 12 n/a - - - Southend 24 4 3 3-87 -26 0 Teesside n/a 16 18 20-20 10 Total of all airports 1,220 1,695 1,806 1,875 54 11 4 17

THE UK AIRPORTS INDUSTRY Table 3.5: Average Number of Employees Average Number of Employees % change since: 1988/89 1997/98 1998/99 1999/00 1988/89 1997/98 1998/99 HEATHROW 3,696 3,703 3,614 3,409-8 -8-6 GATWICK 1,819 1,890 1,810 1,766-3 -7-2 STANSTED 240 569 610 656 173 15 8 Southampton n/a 223 248 200 - -10-19 Glasgow 540 481 483 474-12 -1-2 Edinburgh 282 358 339 377 34 5 11 Aberdeen 230 273 258 229 0-16 -11 BAA 6,807 7,497 7,362 7,111 4-5 -3 MANCHESTER 1,514 2,187 2,244 2,454 62 12 9 Humberside 62 131 140 131 111 0-6 Manchester Airport plc 1,576 2,318 2,384 2,585 64 12 8 Birmingham International 470 693 630 667 42-4 6 Newcastle 395 554 566 499 26-10 -12 Belfast International 376 242 259 332-12 37 28 Cardiff International 120 152 153 100-17 -34-35 TBI 496 394 412 432-13 10 5 Bournemouth 99 165 167 163 65-1 -2 East Midlands 420 242 243 245-42 1 1 National Express 519 407 410 408-21 0 0 Blackpool 58 59 61 62 7 5 2 Bristol 186 322 203 187 1-42 -8 Exeter n/a 132 137 152-15 11 Highlands and Islands 126 218 228 231 83 6 1 Leeds Bradford 160 215 245 245 53 14 0 Liverpool 145 11 12 187 29 1600 1458 London Biggin Hill n/a 0 50 49 - - -2 London City n/a 142 166 178-25 7 London Luton 545 683 756 717 32 5-5 Norwich 108 205 266 284 163 39 7 Prestwick 239 288 n/a n/a - - - Southend 69 47 49 49-29 4 0 Teesside 132 175 151 156 18-11 3 Total of all airports 11,958 14,384 14,088 14,199 19-1 1 18

4 FINANCIAL TRENDS Introduction AIRPORTS STATISTICS 1999/2000 This chapter provides some basic financial information extracted from the companies profit and loss accounts and balance sheets. Table 4.1 provides figures for operating income, this comprises traffic income and commercial income. It should be noted that traffic income is not the same as revenue raised from airport charges. Traffic income, which is wider, encompasses airport charges as well as apron services, baggage handling and hangarage. Once again comparisons between airports in this chapter are to be made with some caution because of the differences between airports in the way that service are provided. For example, at some airports Air Traffic Control facilities are provided by the Civil Aviation Authority whereas at others the Airport Company employs its own Air traffic Control staff. Similarly, services such as car parking aircraft refuelling, ground handling services and other commercial activities are provided by retailers at some airports and by the airport company at others. Index to tables 4.1 Operating Income 4.2 Operating Expenditure 4.3 Operating Income and Operating Expenditure per Passenger 4.4 Operating Profit and (Loss ) 4.5 Operating Profit and (Loss) per Passenger 4.6 Net Profit and (Loss ) 4.7 Dividends 4.8 Fixed Assets at year-end and Additions to Fixed Assets during the year 4.9 Total Assets and Liabilities at year-end 4.10 Net Assets at year-end 19