UK market lacklustre despite awful weather

Image: Sharks surrounding Big Ben
Taxes, terrorism, ecologists, record anti-competition fines – what a terrible summer for UK aviation.

The UK air travel market is going through some tough times at the moment. The heydays of 2004, when traffic at UK airports grew by over 8%, are gone. Last year, traffic at UK airports grew by less than 3% and the signs are that growth will be even lower in 2007. Despite being the biggest low-cost airline market in Europe, it seems that other factors are contributing to the lacklustre performance in the UK.

Heathrow: waiting for T5

A look at traffic growth in the first six months of 2007 shows that many major airports are performing poorly.

Chart:Top 10 UK Airports 2007 v 2006
Source: UK CAA Airport Statistics

The further north you go the better the airports seem to perform, with the two major Scottish airports (at Edinburgh and Glasgow) and Newcastle performing above average. Glasgow’s poor June can be blamed on the terrorist attack on the airport at the end of the month.

The real problem is Heathrow. Traffic here has been down around 2% in most months, which is serious given that Heathrow represents nearly 30% of all UK airport traffic. Manchester, which represents a further 10% of traffic, has also struggled in 2007 with traffic below 2006 in every month bar March. Bristol’s poor January can be explained by runway drainage issues that resulted in a number of diversions and cancellations.

Security measures impact domestic market

An analysis of the traffic flows by destination at BAA’s seven UK airports (which account for some 62% of all UK airport traffic) shows that domestic and Irish markets have been particularly hard hit by the introduction of more stringent security measures.

Chart: BAA Airport Traffic Growth by Region 2007
Source: BAA

Passengers making short-haul flights are thinking twice about the increased hassle involved in air travel, especially from the major London airports which were perceived as most vulnerable to attack. Rail operators have been particularly keen to stress their advantages to consumers in recent months.

A recent statement by the head of IATA regarding the need for harmonised security commented that “Particular focus will be the UK, where unique screening policies inconvenience passengers with no improvement in security. The only beneficiary is the airport operator – BAA – that continues to deliver embarrassingly low service levels by failing to invest in appropriate equipment and staff to meet demand.” Hardly surprising then that UK passengers, as well as those transferring through the airport, are finding more appealing alternatives.

APD, strike threats, interest rate hikes and ‘going green’

Image: Financial Times Heathrow story cutout
Page 1 and 2 of Wednesday’s Financial Times: following car-making and ship-building, Britain’s citizens and rulers set about their favourite sport of self-destructing great businesses; this time a world-leading service industry. Other press reports were even more hysterical.

There are a number of other factors likely to have impacted UK demand this year. The doubling of Air Passenger Duty (APD) by the then Chancellor, now Prime Minister, Gordon Brown will have had some impact. The threat of strike action by British Airways staff in January and the reported ‘chaos’ of thousands of stranded baggage items at Heathrow will not have done the airline any favours either. Since the beginning of the year, the Bank of England has also raised interest rates several times leading to increased costs for homeowners, resulting in less disposable income.

The UK media has also been obsessed this year with the issue of climate change and the (apparent) causes of it. Air travel in particular has been singled out as an activity that is supposedly contributing significantly to the problem. The general tone of such coverage has been that people should feel guilty if they travel by air.

And yet the British weather has been awful since May. Demonstrating perfect British irony, the top selling song of the last 10 weeks has been ‘Umbrella’ by Rihanna. With record rainfall, devastating floods and a general lack of decent weather, demand for air travel to warmer climes should be at record levels. July and August may yet see surges in traffic as the school holiday periods see families heading south. Perversely, the weather in April was really good, which could explain some of the dip in April’s traffic figures.

Traffic declines are not country specific

Close examination of CAA data for all airports in April 2007 shows that of the Top 20 country destinations 11 showed decreases over the previous year, including all of the Top 5 – Spain (-1.6%), USA (-1.1%), Ireland (-3.3%), France (-4.3%) and Germany (-0.4%). The only country markets in the Top 20 growing by more than 10% were Poland (+24.1%) and Turkey (+17.2%).

The growing maturity of the low-cost market in Europe and the airlines’ renewed eagerness to concentrate on profitability have also contributed to the UK now being one of the slowest growing markets in Europe.


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