What Makes The Airport Industry in a Competitive Environment

SIZE AND DIVERSITY In spite of its relatively small area, the UK in general, and England in particular, have a surprisingly large number of airports with scheduled passenger services; in 2007 there were about 40 such airports. Their size distribution, with reference to passenger numbers, is bimodal with four large airports with numbers in excess of 20 million and the remainder with less than 10 million passengers. There is one major transfer (connecting) hub, London Heathrow, which of course is a supreme example of its genre. I could continue to cut and slice the data on UK airports countless ways and possibly bore you in the process. Instead, can I refer you to the comprehensive airport data on the UK Civil Aviation Authority’s website.2 I am more interested in the ‘airport’ as a business entity, or enterprise, operating as the UK airports do within a competitive market economy with economic regulation limited to three co-owned London airports; this gives the analysis of the data a particular slant. I have already referred to passenger numbers and it is a common practice to use this as the defining characteristic of an airport’s size, but to do so tends to diminish the fact that airports are in most cases multi-product entities supplying to the market a bundled group of services (OFT, 2006). Apart from handling passenger traffic, other activities include shipping airfreight (including mail), providing for air-taxi services and general aviation, acting as a base for flying training, aircraft maintenance, flight testing and corporate jet activity, and providing for a large number of other specialist aviation services. Further complexity is added because the activities of the airport company can extend beyond the supply of airport services per se. The property assets within the airfield boundary might also servenon aviation-related activities. At the smaller airfields, it is not unusual to find former hangars and similar obsolete or stranded assets used for storage or as units for light industry. OWNERSHIP AND CAPITAL MARKETS Until little more than 20 years ago, virtually all runway and terminal assets at UK airports were owned by the public sector, (although the private sector often played a major role, through concession agreements in the running of the airports or, more typically, parts of them). The transfer in 1987 to the private sector of all the share capital of the British Airports Authority, a corporate enterprise owned by central government, was the first important change of ownership in the UK industry. This transfer, by flotation of shares on the London stock exchange, established BAA plc, (confusingly referred to as a public quoted company) with a substantial capitalisation. Between 1993 and 1999 many local government owned airport assets were also sold. This was a period when strict controls were imposed on local government spending on airport assets so that, to expand such airports, private capital was needed, but further privatisations have occurred since removal of the capital spending constraints (See Table 2). Unlike the public flotation of BAA, disposals by local governments to the private sector took the form of trade sales, that is, sales to existing trading entities. The majority of the financial transactions have been outright sales to the private sector but with some exceptions. Local government retains a majority share in Newcastle-upon Tyne airport; a minority share in Birmingham airport and a tiny share in Blackpool airport; whilst London Luton airport is a 30 year concession agreement. The latter commenced in 1998 and recent events suggest that this approach is not without its problems. The concession holder, ACDL, has now decided not to pursue earlier plans for major investment citing as a reason the limited period remaining before the end of the concession agreement, (although central government’s support for, arguably, premature expansion of near-by London Stansted has probably complicated matters). Not all airports have been sold to the private sector or introduced private equity capital. Manchester (UK’s fourth largest) which belongs to a consortium of local governments in North West England is a significant exception. The UK airport industry is thus a mixed private-public sector industry but one currently dominated by the private ownership of assets.