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

Getty Images
Show Hide image

Is there such a thing as responsible betting?

Punters are encouraged to bet responsibly. What a laugh that is. It’s like encouraging drunks to get drunk responsibly, to crash our cars responsibly, murder each other responsibly.

I try not to watch the commercials between matches, or the studio discussions, or anything really, before or after, except for the match itself. And yet there is one person I never manage to escape properly – Ray Winstone. His cracked face, his mesmerising voice, his endlessly repeated spiel follow me across the room as I escape for the lav, the kitchen, the drinks cupboard.

I’m not sure which betting company he is shouting about, there are just so many of them, offering incredible odds and supposedly free bets. In the past six years, since the laws changed, TV betting adverts have increased by 600 per cent, all offering amazingly simple ways to lose money with just one tap on a smartphone.

The one I hate is the ad for BetVictor. The man who has been fronting it, appearing at windows or on roofs, who I assume is Victor, is just so slimy and horrible.

Betting firms are the ultimate football parasites, second in wealth only to kit manufacturers. They have perfected the capitalist’s art of using OPM (Other People’s Money). They’re not directly involved in football – say, in training or managing – yet they make millions off the back of its popularity. Many of the firms are based offshore in Gibraltar.

Football betting is not new. In the Fifties, my job every week at five o’clock was to sit beside my father’s bed, where he lay paralysed with MS, and write down the football results as they were read out on Sports Report. I had not to breathe, make silly remarks or guess the score. By the inflection in the announcer’s voice you could tell if it was an away win.

Earlier in the week I had filled in his Treble Chance on the Littlewoods pools. The “treble” part was because you had three chances: three points if the game you picked was a score draw, two for a goalless draw and one point for a home or away win. You chose eight games and had to reach 24 points, or as near as possible, then you were in the money.

“Not a damn sausage,” my father would say every week, once I’d marked and handed him back his predictions. He never did win a sausage.

Football pools began in the 1920s, the main ones being Littlewoods and Vernons, both based in Liverpool. They gave employment to thousands of bright young women who checked the results and sang in company choirs in their spare time. Each firm spent millions on advertising. In 1935, Littlewoods flew an aeroplane over London with a banner saying: Littlewoods Above All!

Postwar, they blossomed again, taking in £50m a year. The nation stopped at five on a Saturday to hear the scores, whether they were interested in football or not, hoping to get rich. BBC Sports Report began in 1948 with John Webster reading the results. James Alexander Gordon took over in 1974 – a voice soon familiar throughout the land.

These past few decades, football pools have been left behind, old-fashioned, low-tech, replaced by online betting using smartphones. The betting industry has totally rebooted itself. You can bet while the match is still on, trying to predict who will get the next goal, the next corner, the next throw-in. I made the last one up, but in theory you can bet instantly, on anything, at any time.

The soft sell is interesting. With the old football pools, we knew it was a remote flutter, hoping to make some money. Today the ads imply that betting on football somehow enhances the experience, adds to the enjoyment, involves you in the game itself, hence they show lads all together, drinking and laughing and putting on bets.

At the same time, punters are encouraged to do it responsibly. What a laugh that is. It’s like encouraging drunks to get drunk responsibly, to crash our cars responsibly, murder each other responsibly. Responsibly and respect are now two of the most meaningless words in the football language. People have been gambling, in some form, since the beginning, watching two raindrops drip down inside the cave, lying around in Roman bathhouses playing games. All they’ve done is to change the technology. You have to respect that.

Hunter Davies is a journalist, broadcaster and profilic author perhaps best known for writing about the Beatles. He is an ardent Tottenham fan and writes a regular column on football for the New Statesman.

This article first appeared in the 05 February 2015 issue of the New Statesman, Putin's war