There are lots of myths about airports. Only some are true

We need to get this business right.

The global airline industry is one marked by change and contrast. There’s increasing pressure for legislation to tackle carbon emissions, competition from low cost airlines have driven consolidation among full service carriers (such as BA and Iberia and BA and BMI), and new technology is promising to reduce the time it takes between entering an airport and boarding a plane, while meeting increasingly stringent security requirements.

There’s also a significant disparity between the prosperity of major high profile international airports and smaller more regional operators. Passenger numbers at Heathrow, Europe's busiest airport for example, hit a new September record of 6.3 million last year. When compared to September 2011, European scheduled traffic at the airport rose by 0.2 per cent and North Atlantic numbers 4.5 per cent, while Brazil and China numbers increased by 14 per cent and 5.9 per cent respectively.  Elsewhere, Asia-Pacific is somewhere that’s enjoyed particularly rapid growth, with Airports Council International announcing that 16 of the 20 fastest growing airports in the world were in this region.

Despite the many variations however, there are, broadly speaking, encouraging indicators of future growth and demand across the industry. Business travel is predicted to increase by a further 1.5 per cent throughout 2013, while competition between low cost airlines continues to result in cheaper flights, making air travel more accessible in emerging markets and generating new untapped demand in mature markets.

Furthermore, the greatly improved connectivity between airports, cities and other forms of transport is spearheading change. Higher-speed connections like the Heathrow Express in London, the City Airport Train in Vienna and the AirTrain connecting JFK to Manhattan illustrate how road, rail and air are becoming better integrated, delivering an accessible, ‘multi modal’ transport network across the world to reduce the total journey time of travellers.

Mirroring the growth Heathrow has seen; investment, and the desire to invest in major airports is thriving. Mature airports such as Heathrow are seen as solid long-term investments because they require low investment volumes, are fairly low risk and assets are long-lived. This makes them very attractive for private investors such as pension funds, which are generally more risk-adverse.

Airports are also attractive for investment as they usually have backing from a diverse range of businesses, which brings with it a variety of different levers to pull to increase revenues and reduce costs for those involved. The concept of the airport as a city itself – complete with hotels, conference centres, public transport interchanges, retail parks, banks and postal services – is gaining momentum. It’s true that airports generally focus their retail offerings airside where passengers are more relaxed and therefore more inclined to shop, but there are still significant real estate opportunities that come with the ever-growing number of facilities and services contained within these sites. Major airports can now act as powerful commercial hubs with the ability to generate substantial revenues and create jobs across the world. This makes them, on paper at least, an extremely attractive and rewarding case for investment. 

Airports also have a relatively fixed cost base and therefore a high degree of operational leverage as passenger numbers increase. They are GDP and inflation linked assets with traffic growth showing a strong and proven link to economic growth, and revenues, in particular aeronautical related revenues, driven by annual inflation linked adjustments to the tariff. As a result, investments have the potential to deliver consistently high and stable returns. Well-run privately managed airports should be looking to achieve EBITDA margins around the 50% mark and deliver a significant return on investment to those that have provided financial backing.

Investors must be shrewd, however. They have to understand the risks associated with airport infrastructure and be able to prudently plan to minimise their exposure to these wishes, whilst maximising the revenue generating opportunities. Managing the balance between capacity supply and demand must be done carefully. Airports are generally capital-intensive businesses, especially those that are experiencing a period of strong growth. What’s more, airport infrastructure, in particular the terminal facilities and runway, can only deliver so much financial return before they need to be expanded. This return is governed by a broad range of factors, including the daily and annual profile of demand, the size of the terminal, the length of the runway, the type of aircraft using it, and the skill of the Air Traffic Controllers, for example.

It is also a common misconception, borne by the success of large, high-profile international airports, that all airports are profitable organisations. Due to their operational and financial structure, airports require a certain number of passengers to break even and move towards profitability. This level has historically been around 500,000 to one million passengers per annum, however, with the advent of low cost carriers and significantly lower aeronautical yields, this has in a number of cases increased to nearer two million. Hence the importance of prudent capacity and investment planning to deliver infrastructure that is in line with the type of operation.  An airport wholly dominated by low cost airline operations, for example, will be unable to sustain the level of investment that can be supported by a full service airport. 

The above is not intended to dissuade investment in major airport infrastructure – far from it. It should simply indicate that, to generate a satisfying and significant return, there needs to be an awareness that investment opportunities are by no means homogenous and can range in terms of size, characteristics and investment categorisation. Today’s airport opportunities are generally focussed on larger scale and greenfield opportunities, as interest from financial, trade and construction investors has established these as an attractive asset class with a good balance of risk and reward.

With the above considerations taken into account, the appetite for shrewd investment should only grow stronger, alongside the demand for air travel across the world. And it’s an important point that this is the case. In addition to offering stable and rewarding investments for those involved, a successful airport has the potential to enhance the surrounding area’s international prestige; opening doors to new markets and industries, cementing the area as a "destination of choice" and thereby helping secure future revenue generation. With this in mind, the balance between risk and reward is well worth looking into.

Photograph: Getty Images

Dervilla Mitchell and Crawford Burden are Transport Directors for Arup

Photo: Getty
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After Richmond Park, Labour MPs are haunted by a familiar ghost

Labour MPs in big cities fear the Liberal Democrats, while in the north, they fear Ukip. 

The Liberal Democrats’ victory in Richmond Park has Conservatives nervous, and rightly so. Not only did Sarah Olney take the votes of soft Conservatives who backed a Remain vote on 23 June, she also benefited from tactical voting from Labour voters.

Although Richmond Park is the fifth most pro-Remain constituency won by a Conservative at the 2015 election, the more significant number – for the Liberal Democrats at least – is 15: that’s the number of Tory-held seats they could win if they reduced the Labour vote by the same amount they managed in Richmond Park.

The Tories have two Brexit headaches, electorally speaking. The first is the direct loss of voters who backed David Cameron in 2015 and a Remain vote in 2016 to the Liberal Democrats. The second is that Brexit appears to have made Liberal Democrat candidates palatable to Labour voters who backed the party as the anti-Conservative option in seats where Labour is generally weak from 1992 to 2010, but stayed at home or voted Labour in 2015.

Although local council by-elections are not as dramatic as parliamentary ones, they offer clues as to how national elections may play out, and it’s worth noting that Richmond Park wasn’t the only place where the Liberal Democrats saw a dramatic surge in the party’s fortunes. They also made a dramatic gain in Chichester, which voted to leave.

(That’s the other factor to remember in the “Leave/Remain” divide. In Liberal-Conservative battlegrounds where the majority of voters opted to leave, the third-placed Labour and Green vote tends to be heavily pro-Remain.)

But it’s not just Conservatives with the Liberal Democrats in second who have cause to be nervous.  Labour MPs outside of England's big cities have long been nervous that Ukip will do to them what the SNP did to their Scottish colleagues in 2015. That Ukip is now in second place in many seats that Labour once considered safe only adds to the sense of unease.

In a lot of seats, the closeness of Ukip is overstated. As one MP, who has the Conservatives in second place observed, “All that’s happened is you used to have five or six no-hopers, and all of that vote has gone to Ukip, so colleagues are nervous”. That’s true, to an extent. But it’s worth noting that the same thing could be said for the Liberal Democrats in Conservative seats in 1992. All they had done was to coagulate most of the “anyone but the Conservative” vote under their banner. In 1997, they took Conservative votes – and with it, picked up 28 formerly Tory seats.

Also nervous are the party’s London MPs, albeit for different reasons. They fear that Remain voters will desert them for the Liberal Democrats. (It’s worth noting that Catherine West, who sits for the most pro-Remain seat in the country, has already told constituents that she will vote against Article 50, as has David Lammy, another North London MP.)

A particular cause for alarm is that most of the party’s high command – Jeremy Corbyn, Emily Thornberry, Diane Abbott, and Keir Starmer – all sit for seats that were heavily pro-Remain. Thornberry, in particular, has the particularly dangerous combination of a seat that voted Remain in June but has flirted with the Liberal Democrats in the past, with the shadow foreign secretary finishing just 484 votes ahead of Bridget Fox, the Liberal Democrat candidate, in 2005.

Are they right to be worried? That the referendum allowed the Liberal Democrats to reconfigure the politics of Richmond Park adds credence to a YouGov poll that showed a pro-Brexit Labour party finishing third behind a pro-second referendum Liberal Democrat party, should Labour go into the next election backing Brexit and the Liberal Democrats opt to oppose it.

The difficulty for Labour is the calculation for the Liberal Democrats is easy. They are an unabashedly pro-European party, from their activists to their MPs, and the 22 per cent of voters who back a referendum re-run are a significantly larger group than the eight per cent of the vote that Nick Clegg’s Liberal Democrats got in 2015.

The calculus is more fraught for Labour. In terms of the straight Conservative battle, their best hope is to put the referendum question to bed and focus on issues which don’t divide their coalition in two, as immigration does. But for separate reasons, neither Ukip nor the Liberal Democrats will be keen to let them.

At every point, the referendum question poses difficulties for Labour. Even when neither Ukip nor the Liberal Democrats take seats from them directly, they can hurt them badly, allowing the Conservatives to come through the middle.

The big problem is that the stance that makes sense in terms of maintaining party unity is to try to run on a ticket of moving past the referendum and focussing on the party’s core issues of social justice, better public services and redistribution.

But the trouble with that approach is that it’s alarmingly similar to the one favoured by Kezia Dugdale and Scottish Labour in 2016, who tried to make the election about public services, not the constitution. They came third, behind a Conservative party that ran on an explicitly pro-Union platform. The possibility of an English sequel should not be ruled out.  

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.