Passenger growth major airports Europe falling behind

08 October 2015 Consultancy.uk

21 major European airports have, for the most part, been able to cut costs while passenger numbers are on the increase, boosting EBITDA growth, research by Strategy& finds. Although the airports saw an average 15% increase in the number of passengers, their growth remains below wider European (at 24%) and international (at 32%) increases experienced between 2010 and 2014.

Airports are an important commercial establishment, providing easy access to regions for both business as well as pleasure seekers. Airports themselves are often run as commercial enterprises by large conglomerates with a wide range of other entities under management. In a recent study from Strategy&, in a report titled ‘European airport operating cost benchmarking, 2010–14*’, the consulting firm explores the commercial activity of 21 major European airports. The report uses the annual reports from those controlling the airports. Estimates are made in operating profiles where accounts do not provide clear separation from wider business activities of conglomerates.

Airports in study

Passenger numbers
The number of passengers passing through 21 of Europe’s major airports is growing steadily. Brussels and Geneva airports saw the largest growth between 2010 and 2014, up 28% each to 21.9 million and 15.2 million respectively. Oslo airport saw 27% more passengers to hit 24.3 million in 2014, while Amsterdam saw the number of passengers grow 22% to 54.9 million. The largest airport in Europe is London’s Heathrow, which grew 12% to 73.4 million, followed by Paris Charles de Gaulle at 63.6 million. Two airports saw decreases in numbers; Athens experienced a decrease of 1% in total passengers to 15.2 million and Stansted a decrease of 4% to 18 million.

Although passenger growth stood at 15% between 2010 and 2014 on average for the 21 airports, this is 9% below the passenger growth across all European airport passenger numbers – at 1.8 billion per year. Globally, passenger numbers grew even faster, up 32% to 6.6 billion in the same period.

Passenger traffic by airport 2014

Operating cost per passenger
The operating cost per passenger varies considerably across different airports. In a bid to remove the local macroeconomic factors affecting different operators, the consultancy adjusted estimates for expenses related to personnel, contracted services, and energy and utilities, indexing everything to London’s Heathrow. According to the standardised operating costs, Munich has the highest operating cost at €17.2 per passenger in 2014, followed by the benchmark Heathrow at €17 per passenger. In Paris Charles de Gaulle a passenger costs €16.1 in operational costs and in Amsterdam €12.5. The lowest operating costs are booked in Copenhagen and Dublin, both at €6.6 per passenger.

Operating costs have been falling steadily between 2010 and 2014, according to the report, with Dublin shaving 20% off the total cost per passenger. Hamburg managed to cut costs by 17% and Amsterdam by 13%. On the other side, Oslo saw its costs increase by 15% and Manchester by 14%. Across the board operating cost dropped an average of 7%, with the improvements in operating efficiency and growth in passenger volumes cited as the most important contributing factors.

Change-in-operating-cost-per-passenger

Revenue per passenger
The revenue per passenger is also assessed in the report. London’s Heathrow attracts the most money from passengers at €43.3 per passenger on average, followed distantly by Munich at €31.8 and Zurich at €31.1. Revenue from passengers in Amsterdam stands at €23, while the lowest revenues per passenger are found at Edinburgh and Birmingham, at €13.5 and €15.3 respectively. 

According to the report, the biggest factor correlated to low passenger revenue is low passenger volume. The proportion of transfer passengers, the proportion of premium passengers, and the number of runways are all correlated to higher revenues. Large hubs have the advantage that they can use their high demand to levy tariffs which drive high revenue, while their larger terminal size allows them to increase non-aeronautical revenue.

Revenue growth has stayed relatively flat over the period 2010-2014, with Athens and Hamburg seeing the largest falls, at 12% and 11% respectively. Heathrow saw the largest increase, at 17%, mainly on the back of increases in tariffs.

Revenue per passenger

EBITDA per passenger
The EBITDA** garnered per passenger is by far the highest at Heathrow, at €26.3 per passenger, followed by Zurich at €16. Athens, while coming at the bottom in most metrics still generates a healthy €13.4 from each passenger. Brussels Airport pulls in €13 and Amsterdam manages a middle of the road €9.7. Luton comes in last at €5.2.

EBITDA has gone up and down based primarily on cost reductions rather than increases in revenue per passenger – with the major exception Heathrow. Heathrow has seen its EBITDA jump 41%, by far the largest jump. Vienna saw an increase of 33%, followed by London Gatwick, up 27%. The biggest drops were at Oslo Airport, down 15%, and Manchester, down 13%.

EBITDA per passenger

* Authors of the report are John Potter and Andre Medeiros, both London based partners.

** EBITDA stands for earnings before interest, taxes, depreciation, and amortisation.

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BDO administrates Flybmi amid aviation industry turbulence

21 February 2019 Consultancy.uk

Around 400 jobs in the UK, Germany, Sweden and Belgium have been lost following the collapse of commercial airliner Flybmi. The administration, which will be overseen by professionals from BDO, constitutes the third failure of a commercial carrier since the start of 2019, with the industry having suffered from sustained turbulence for the duration of last year.

The initial 4 a.m. announcement informing customers that Britain’s longest-surviving airline, Monarch, had been placed into administration meant that many passengers arrived at airports only to find their flights cancelled and holiday plans inconvenienced, while many were left with no means of returning to the UK. Beyond the immediate ramifications, however, the collapse of Monarch also drew to a close six years of steady improvement for commercial carriers across the world. 

Since the economic shock of 2011 – an echo of the 2008 financial crisis – the number of commercial airlines falling into administration across the world declined at a relatively consistent rate. According to data from ProtectMyHoliday.com – barring an anomaly of a year which saw only four airlines falter in 2014 – the number of collapses in the sector declined continuously. In 2017, the figure stood at just 10, compared to a huge 46 in 2011, and a  staggering 61 in 2008.

Global number of airlines to have failed since 2005

Following Monarch’s precipitous fall, however, the situation once more seems to have commenced a nose-dive in the following year. 15 airlines failed in 2018, and less than two months into 2019, another three have followed suit. That puts 2019 on pace to reach 24 airline collapses. 

The latest of these firms to spiral into administration is Flybmi, an East Midlands-based airline which until February operated 17 regional jet aircraft on routes to 25 European cities. The company operated more than 600 flights a week from regional airports including Bristol, Newcastle, Aberdeen and the East Midlands.

News of the firm’s demise emerged as it cancelled hundreds of flights at short notice over the space of a single weekend, leaving many passengers stranded and out of pocket. Flybmi advised customers to seek refunds from credit and debit card companies, or to rebook with other airlines, before eventually appointing administrators from professional services firm BDO.

The appointment, initially reported by UK paper The Telegraph, came following a weekend of chaos, with passengers and staff desperate for information, but without an administrator to turn to, as authorities had remained tight-lipped on the matter. The process was reportedly delayed until the following Monday by a Scottish law which prevents insolvency specialists being appointed over the weekend.

Turbulence ahead

Commenting on the task at hand, BDO Business Restructuring Partner and joint administrator Tony Nygate said, “As joint administrators, we are taking all necessary steps to ensure customers, staff and suppliers are supported through the administration process. Our job is to maximise recoveries and minimise distress for all parties, acting as smoothly and swiftly as possible.”

Administrators from the firm now face questions over what preparations were in place prior to the carrier’s collapse, including actions that could have softened the blow for thousands of stranded passengers. Meanwhile, some 376 employees in the UK, Germany, Sweden and Belgium have been made redundant, with the remainder staying to assist with the administration. Unions have since demanded urgent talks with Flybmi’s administrators, with Unite, which represents about 40 of the airline’s 376 staff, calling for a buyer to be found in order to ensure wages are paid in full.

Unite Regional Secretary Paresh Patel told the press, “Unite is shocked and saddened by the news that Flybmi has gone into administration…  This is a terrible blow for the airline’s workforce and their families, as well as the East Midlands economy. We will be giving maximum support to our members who work for the airline across the UK at this very difficult time for them.”

The Brexit process seems to have played a key role in the downfall of Flybmi. Airlines are required by law to purchase carbon credits to offset their carbon emissions – something which until recently was subsidised through a free allocation of credits by European authorities. Now, however, Brussels has excluded UK firms from their allocation of credits ahead of the UK’s divorce from the EU in March, and it is anticipated that this may  well lead to more casualties in both the airline industry, and the broader British economy.

Glen Flannery, a Partner at law firm CMS, told The Telegraph, “The European Commission has started to implement its No Deal Brexit contingency plans. With effect from January 1st, it has temporarily suspended the UK’s free allocation of carbon allowances, auctioning, and the exchange of international credits. This has created a huge amount of uncertainty for UK participants, the full effects of which have yet to play out.”