John Strickland: Airports forced to look for new ways of making money as airline income shrivels

Published on Friday 28 October 2011 00:12

AIRLINES, not renowned for their profitability, are facing a range of difficult challenges. Fuel prices have risen markedly in recent months and are on a long-term upward trend, government taxes are adding to ticket prices, and weak economic conditions and consumer demand dictate that they must continue to offer competitive pricing in order to keep their aircraft full.

The actual share of revenue received by airlines on any total ticket price is under pressure as taxes rise and fuel accounts – in cases such as Ryanair – for almost half of total costs.

One response of airlines is to tighten the screws on charges paid to the airports which they use.

The reality is that short-haul flights are notoriously difficult to make money on, and this is why we see “legacy carriers” such as British Airways reducing a number of short-haul routes and why others such as BMI are incurring huge losses.

It is the low-cost carriers (LCCs) who are able to make a success of the short-haul market, and that’s because they negotiate aggressively, wherever possible, to reduce costs from their suppliers, and airports are high on this list.

In recent years, as airlines have struggled with the problem of short-haul profitability, airports have seen many carriers and routes disappear from their portfolios.

In order to address this, there has been a much greater need to work with the more demanding LCCs.

Prestwick is almost wholly reliant on Ryanair for its passenger throughput, and a few years ago it would have seemed unlikely that an airport such as Edinburgh’s would have aircraft from both Ryanair and EasyJet based there.

Given the reality of this new environment, it is not surprising that airports see their “aeronautical revenues” from such carriers under pressure, and have to look elsewhere to claw back other income sources.

For as long as consumers want the best price available for a flight ticket, and as long as profit margins remain slim for airlines, it is likely we will see an increased prevalence of fees such as drop-off charges, for fast-track security channels and other discretionary elements as airports fight to maintain their own financial returns.

•  John Strickland, director of the aviation firm JLS Consulting, is a former airline executive who worked for companies including British Airways and KLM.

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