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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Brexit could destroy our NHS – and it would be the government's own fault

Without EU citizens, the health service will be short of 20,000 nurses in a decade.

Aneurin Bevan once said: "Illness is neither an indulgence for which people have to pay, nor an offence for which they should be penalised, but a misfortune, the cost of which should be shared by the community."

And so, in 1948, the National Health Service was established. But today, the service itself seems to be on life support and stumbling towards a final and fatal collapse.

It is no secret that for years the NHS has been neglected and underfunded by the government. But Brexit is doing the NHS no favours either.

In addition to the promise of £350m to our NHS every week, Brexit campaigners shamefully portrayed immigrants, in many ways, as as a burden. This is quite simply not the case, as statistics have shown how Britain has benefited quite significantly from mass EU migration. The NHS, again, profited from large swathes of European recruitment.

We are already suffering an overwhelming downturn in staffing applications from EU/EAA countries due to the uncertainty that Brexit is already causing. If the migration of nurses from EEA countries stopped completely, the Department of Health predicts the UK would have a shortage of 20,000 nurses by 2025/26. Some hospitals have significantly larger numbers of EU workers than others, such as Royal Brompton in London, where one in five workers is from the EU/EAA. How will this be accounted for? 

Britain’s solid pharmaceutical industry – which plays an integral part in the NHS and our everyday lives – is also at risk from Brexit.

London is the current home of the highly prized EU regulatory body, the European Medicine Agency, which was won by John Major in 1994 after the ratification of the Maastricht Treaty.

The EMA is tasked with ensuring that all medicines available on the EU market are safe, effective and of high quality. The UK’s relationship with the EMA is unquestionably vital to the functioning of the NHS.

As well as delivering 900 highly skilled jobs of its own, the EMA is associated with 1,299 QPPV’s (qualified person for pharmacovigilance). Various subcontractors, research organisations and drug companies have settled in London to be close to the regulatory process.

The government may not be able to prevent the removal of the EMA, but it is entirely in its power to retain EU medical staff. 

Yet Theresa May has failed to reassure EU citizens, with her offer to them falling short of continuation of rights. Is it any wonder that 47 per cent of highly skilled workers from the EU are considering leaving the UK in the next five years?

During the election, May failed to declare how she plans to increase the number of future homegrown nurses or how she will protect our current brilliant crop of European nurses – amounting to around 30,000 roles.

A compromise in the form of an EFTA arrangement would lessen the damage Brexit is going to cause to every single facet of our NHS. Yet the government's rhetoric going into the election was "no deal is better than a bad deal". 

Whatever is negotiated with the EU over the coming years, the NHS faces an uncertain and perilous future. The government needs to act now, before the larger inevitable disruptions of Brexit kick in, if it is to restore stability and efficiency to the health service.

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