‘APD is a hindrance to our development and our activities’
massive drop from 1.6 million (2019). If you look at it on a rolling 12-month measure at the end of February 2020, we were 1.6 million and at the end of February this year we were 48,000, which is a huge gap. On the latest rolling 12-month figure, we are at 68,000, so we have started the recovery compared to where we were earlier this year.”
Mr Birns added: “So, this year we have spent an inordinate amount of time on making sure we kept the business alive and maintaining morale of our staff as it has been very hard.
“The first year of the recovery plan [five-year] has been limited because of the current travel restrictions. We are nowhere near where we would like to be, but the Welsh Government absolutely acknowledge that we cannot be.
“For us it is just about making sure we encourage the airlines to deploy capacity and working with consumers to help them have the confidence to buy that capacity. And it is a virtuous circle, as once those buying patterns develop and people buy tickets then airlines have more capacity.
“From that perspective we worked really hard with Wizz Air to get them on sale for nine routes and that has just been paused to next March. We are also working positively with Vueling.
“We are doing the same with Ryanair and saying to them how can we develop more with you and what packages they can offer to customers that makes it attractive to buy tickets.”
Prior to the crisis the Rhoosebased airport provided 52 none stop routes, of which five were hubs.
Mr Birns said: “We have said let’s go after the markets that we know are viable and get them back on as quickly as possible. We have had Flybe go out of business which has affected quite a bit of domestic travel, but we managed to get Eastern Airways to pick up Belfast, Loganair Edinburgh and Ryanair to Dublin. Paris is back on with Vueling and Jersey is on the agenda. Amsterdam (KLM) is back up a running, but is nowhere near the same frequency.
“These are profitable routes, but they are going to build over time, so for us it is about stepping stones. We have set ourselves what we think are realistic targets as a board and by the end of the financial year we are aiming to have 15 routes. And then we are saying how do we get to 25 routes next year.
“The important thing for us going into next spring, as more of the population becomes vaccinated, is it is going to ease (testing regime). We are currently only 10% recovered with the average for UK airports is 35%. However, we know there is pent up demand.”
Asked if the Welsh Government, despite being the airport’s ultimate owner, should drop its non essential travel guidance, Mr Birns said: “No. We have discussions with ministers and they y are fully y aware where we are at (trading outlook). The point is this is public health guidance and the safety and security curity of our staff and customers mers is our number one priority. iority.
“I personally ersonally believe if we were still owned by Abertis ertis we would have been sold last year. The privately-owned ned airports in the e UK have massively vely struggled through this crisis and they are still. At t an industry CEO and senior executive ive level they will talk to me with th envy, along, g, with
Manchester Airports Group (majority owned by 10 Greater Manchester local authorities whose portfolio covers Manchester, East Midlands and Stansted airports) and say they wish we were in that stability position knowing that our owners are 100% game for an airport being in existence because they know the economic value of having one.
“What is also not widely known is that Luton Airport is also 100% publicly owned by the local authority, y, but run as a concession. “We are aiming to get back within five years (on passengers) and most airports in the UK are on a similar trajectory. Airports globally, too, are saying it is going to be a five-year recovery process.”
Mr Harvey: “From a commercial perspective I think the biggest imponderable is what will the map of UK airports look like in five or six years. I am pleased to say that we are able to function and operate properly and our plan is continue to do so over the coming years. I don’t know if other airports are in a position to say that.”
One of the biggest wins for the airport, not on passenger numbers but on connectivity and prestige, was the securing of its first direct scheduled route into a hub airport in the Middle East with Qatar Airways to Doha.
Launched in the spring of 2018, the airline was encouraged by growing grow passenger take-up, but has not yet said when the route will be restarted rest following the pandemic.
Mr M Birns said: “We are in regular dialogue dial with Qatar Airways. The big challenge they have is that they are a network company with a hub and spoke system and typically 10% will go to Qatar with the other 90% going somewhere else. So if you have a flight going from Cardiff to D Doha, some 17% of the onward journeys jou were to Australia and New Zealand Zea which are closed. So, they are redeploying the assets and where whe they are seeing demand is between betw Africa and America, and between betw India and the Middle East to the t US too. The way Qatar Airways way are talking publicly is that they want to reinstate their entire network ne and we are actively
engaged e with them. They are
telling us when the time is right they will come back. So, for us it is about timing and making sure we remain on their radar.”
While the long-term pre-Covid masterplan, with as well as terminal also included plans for hotels, is on hold the airport is looking to increase the contribution of non-passenger related revenues.
The income the airport generates from passenger-related activities accounts for around 80% of its revenues.
It is now looking to building on the space it has assigned for operational activities like general aviation development activities and training.
Mr Birns said: “The whole objective is how do we use that asset and the runway to generates activity that provides more revenue for the business and offsets the urgency of needing passenger activity.
“If you compare us to say a much smaller airport like Bournemouth, 75% of their income is non-passenger related. For us it is how do we get to 50% as a first target. The infrastructure is already there so it is about what other things do we need to put in to help stimulate that.
“We are talking to aerospace companies where they may be looking at things like the future of environmental planning etc and how do we work with them so they undertake it here. The important point is that we have got an asset where people can showcase, develop and test and we can work with them accordingly. We have done this over the years with people like Airbus when they have brought their aircraft in for testing. We are not talking about Airbus building a factory here, but saying to them if you need somewhere to test and develop we can support them.”
As part of the writing off of previous debt and the new funding line from the Welsh Government, the airport now has a valuation of just £13m.
Mr Harvey said of the latest funding agreement with the Cardiff Bay administration: “The important point is that we only get that (£42m) on a draw down basis and that does not guarantee that the airport can operate fully, but it gives us a baseline of funding. So, there is a certain level of income that we need to generate each year to operate as we have fixed costs that are non-negotiable. In a typical year the airport needs £17m to operate. If we are able to spread £42m over five years that is about half of the base cost. That is subject to the recovery plan and some targets.”
On the valuation, not undertaken by the airport’s board, but the holding company of the Welsh Government that owns the airport, the chairman added: “A valuation is a photograph of a point in time. The net realisable value would be deemed to be significantly below costs, However, this is against a backdrop of a pandemic and an asset which at the moment, wherever it was, it would be very difficult to put a value on it.
“For me this is really about whether Wales wants an international airport that is fully functioning. What is not necessarily understood is the economic value the airport brings to the country from a trading perspective. Prior to Covid we were generating £260m year in GVA (gross value added). That has to be taken into account on value some where along the line, but it isn’t necessarily a simple valuation. That is the benefit of controlling a port as an strategic asset to the economy.”
The current valuation should not be seen as a guide to what the airport could be sold for if put into the marketplace. Any future deal would be down to a negotiation between what an acquirer would be willing to pay and what the Welsh Government would be willing to sell it for – even if for a non-majority stake.
With several hundred acres of land in a worse case scenario that the airport was closed, after accounting for decommissioning costs, its value would be far in excess of £17m.
On Cardiff Airport being designated as a freeport, potentially as part of a wider project with seas ports in south Wales, Mr Harvey said: “We have made it clear to officials at the Welsh Government who are involved in the freeport arrangements that we are interested in that, although we are not hanging our hat on it. So, we are very open to the concept of a freeport and Welsh Government are forming their own view and we remain open to the opportunity. Just in time may change to just in case, so from a supply chain perspective we may see a little more stocking going on around the world. We are interested to know how that is going to evolve over the next couple of years as we could become, irrespective of freeports, a very good location for a hub and spoke model for example on cargo.”
Freeports are a reserved matter for the UK Government, with continuing, although far from smooth talks, with the Welsh Government on how they could be set up in Wales.
The airport makes little in the way of income in landing fees from airlines, with the focus instead on the spend of passengers through the terminal. The challenge for Cardiff Airport is that its catchment area is not on average as wealthy as that of its rival Bristol Airport. So it needs to drive passenger volumes.
Mr Harvey: “We don’t really make any money, or do any other airports, from landing and take off fees. So, getting footfall through the terminal and passengers to spend is how we generate our revenue.”
Mr Birns said: “Each airline will have their own business models and it is about us making sure we are talking to those companies to understand how they work and making our marketplace attractive enough so they want to invest in it.”
The airport and the Welsh Government has called for the devolution of air passenger duty (APD), for the purpose of its bands being scrapped or reduced, to stimulate airline activity and in turn passenger numbers. The UK Government has steadfastly rejected devolving the tax to Wale. Boris Johnson though has begun a consultation on the future of the tax, which could the domestic band reduced or abolished stimulate more fights at UK airports.
But where does abolishing or reducing APD bands sit with a climate change emergency, as it would only encourage more flights and carbon emissions? And should the focus be on a new aviation carbon tax regime, which penalises those who flight most often and airlines not doing enough to reduced emissions?
The International Air Transport Association has set an industry carbon neutral target by 2050 achieved mainly by advances in synthetic fuels, although developing technology in yet to be proven longhaul electric planes and hydrogen powered aircraft could also help achieve the target.
Mr Birns said: “From our perspective taxation impacts demand. On APD if you go back to the original white paper as to why it was introduced in the 1990s, it was an environmental tax. However, there is no proof it was ever used for the environment.
“It is actually a burden that is thrown back at us by every airline we talk to. We say, ‘why don’t you fly to Wales’, but they say the ‘tax regime in the UK is ridiculous and if I fly from France or Poland I don’t have to pay it.’
“We reflect that back and our position has been the same for well over 10 years in that APD is a hindrance to development and our activities, so we would prefer that it didn’t exist or was reduced.”
He said in term of emission levels globally from the aviation sector, they were higher in the shipping sector. He added: “That said there is a place for aviation to develop and I would say it is developing quicker than any other industries.
“The airline industry will develop over time and will at some point come to a carbon neutral position, or through offsets.
“What I don’t know is what that taxation look like. We need to continue to develop our environmental agenda in line with government policies. All of our energy at the airport at the moment is renewable through green energy providers.
“We are also working with Cenin Renewables to build a solar farm here in our curtilage that will provide all our electricity needs.”
The joint venture will see the land being provided by the airport with Bridgend-based Cenin taking on the capital cost for the solar farm, with potential for any excess energy being sold into the National Grid.
Mr Harvey said: “From our side it is not just about reducing electricity costs, but fixing our energy costs over a 20-year period.”
On the airport’s long-stated goal of a direct North American scheduled route, Mr Birns said: “We still have conversations with Canada and North America and from our perspective we have always believed there is a connectivity opportunity from here for those areas. However, in terms of our priority the target to get those 52 pre-Covid routes back first.”