IT WAS a year ago that Michael McGhee touched down in Edinburgh and began work at what he likes to call the “city gateway”, writes Terry Murden.
The £807 million acquisition of the airport from BAA by Global Infrastructure Partners (GIP) had been a tightly-fought battle and the giant international firm’s head of transport projects has wasted no time putting his plans “to improve the passenger experience” into effect.
“Queuing,” he says, disapprovingly. “People hate to queue, so we have put a lot of emphasis on shortening the times people have to wait at security. For 95 per cent of the time it is less than seven minutes and that is an improvement.
“It is a positive start, but we are not satisfied and a big priority over the next 18 months is on check-in and security. There will be a revamping of the terminal facilities.”
This will include new gates to accommodate wide-bodied aircraft and improvements to the range of shops in the international arrivals area. These will come on top of work already done to re-brand and de-clutter the signage and simplify the IT system, having inherited more than 100 from BAA which had been forced to sell the airport by the Competition Commission.
McGhee, a partner in GIP, is a veteran of the transport sector with a worldwide list of projects and connections to his name that should ensure he knows a thing or two about correcting any of Edinburgh airport’s shortcomings.
He headed up the global transport divisions of Credit Suisse and BZW and has advised governments on several privatisations in the transport sector. He helped steer GIP’s £1.5 billion acquisition of Gatwick airport in 2009 and three years earlier of London City and sits on the boards of both, as well as those of Great Yarmouth Port Company and International Port Holdings Jersey.
There have been big problems to resolve, not least last week’s decision by regional airline Flybe to pull out of Gatwick amid claims that the airport’s landing fees were too high. The dispute blew up after this interview took place and he was unavailable for comment, but the Gatwick media office said its fees were a third of Heathrow’s and similar to those at Stansted.
EasyJet will take the 25 slots at Gatwick from Flybe in a £20m deal, but the row has left a bad taste after Flybe boss Jim French claimed “Gatwick simply doesn’t want smaller, regional aircraft at their airport”.
McGhee had to deal with a similar dispute over landing fees at Edinburgh, inherited from the previous owner and involving Ryanair. The ever-combative Ryanair boss Michael O’Leary axed five summer routes and threatened to halve the winter service. There was a lot of talk about job losses and a loss of prestige and vital services for the airport. However serious O’Leary intended to be, the row had to be settled and McGhee made it a priority. While the Civil Aviation Authority is responsible for regulating landing fees and had allowed BAA to raise them to ease its debts, it was clear that some compromise had to be reached which incentivises growth. More to the point, both Ryanair and EasyJet now offer additional routes.
McGhee, understandably, is keen to attract new airlines. Virgin Atlantic’s Little Red recently began a London shuttle service, Air Canada begins flights to Toronto in July and Turkish Airlines is providing daily services to Istanbul. The intention to provide for wide-bodied aircraft hints at further and more ambitious announcements to come. International traffic in April was 10 per cent higher on the same month last year, but domestic travellers have declined, partly because of the economy but also, says McGhee, because of the controversial air passenger duty (APD) which the industry united in opposing. Edinburgh lost 225,000 passengers last year, a fall of 2 per cent to 9.1 million.
“APD is a big drag on growth at other UK airports,” he says, “Pressure is increasing from the aviation industry and from economic groups because we feel the government has miscalculated the net impact on the economy. From the Exchequer’s point of view there is more revenue but it is at the cost of low growth and we think the overall effect will be negative. APD is choking off growth and in some places we are seeing a decline.”
Shuttle traffic is the key market, so the need to get it moving back into growth is critical. Early figures from Little Red show that only one in four passengers is linking up with Virgin’s long haul flights, a key justification for taking on the routes from Bmi. It is early days, but McGhee will be keen to see Virgin satisfied that the service is working.
One focus of growth is to attract more passengers from the west of Scotland and now that Glasgow and Edinburgh airports are under different ownership, the latter still part of the old BAA business, he sees it as fair game for competition. “We are planning to put that to the test,” he says, expecting market share from the west to rise as passengers are lured by the new facilities and routes being provided at Edinburgh. The ability to house wide-bodied aircraft again features as BAA only installed such facilities at Glasgow which has meant Edinburgh being unable to compete.
GIP is effectively a giant US fund which has just raised $8.25bn (£5.45bn), the biggest ever capital-raising exercise by an infrastructure fund. It is in the process of buying a portfolio of 30 container ports, its fourth ports investment, and is bidding for an airport in Portugal. To fund its ambitions for Edinburgh airport it has pledged £100m of investment over five years which, apart from improvements to facilities will also include greater efficiencies. New targets will be set for the time it takes passengers to board and depart from arrival at the airport. At London City, for instance, there is a 20:10 target, 20 minutes for the passenger to board from arrival, 10 minutes to exit the aircraft and leave the airport.
Questions have been raised about its commitment to Edinburgh, partly because GIP has a track record of making operational improvements to prepare the asset for sale. The argument was given greater traction because it sold a 25 per cent stake in Gatwick just two months after buying it. The first 12 per cent of equity was bought by the Korean National Pension Service, and a few days later the Abu Dhabi Investment Authority acquired 15 per cent. However, this was part of a strategy of bidding alone for Gatwick and syndicating once the deal was done. McGhee insists GIP is investing in Edinburgh for the long-term.
Beyond the financial and technical efforts to stamp its mark on the facility, he says the objective is a quite simple one. “We want people to see it as a low stress, convenient, punctual and easy to use airport which is also an interesting place to spend some time.”
Michael McGhee: 30-second CV
Job title: Partner, Global Infrastructure Partners
Education: Manchester University, studied politics and economics
Home: Woldingham, Surrey
Ambition while at school: I could never make up my mind
Car you drive: BMW 6 Series
Kindle or book? Book
Interests: Theatre, tennis and cricket
Best thing about your job: We make an impact