Southampton Airport in the UK: Part 1 – No airport ‘has the right to exist if it can’t make money’

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  • Following news of the imminent closure of Doncaster-Sheffield Airport, Southampton Airport said it needs 1.2 million passengers a year to survive.
  • Southampton Airport says it will lose £4.5m this year.
  • But the airport still believes the runway expansion will put it back on track, as it will be able to attract A320-sized jets.
  • Southampton Airport’s seat capacity rebound lags behind the UK average.
  • About 1.2 million passengers need to break even each year: the airport’s target is 3 million.

Many UK airport operators eye Doncaster-Sheffield events

A few weeks ago, CAPA reported the closure of Doncaster-Sheffield Airport in the UK? The alternative use options discussed detail the proposed closure of Doncaster-Sheffield Airport in northern England and the reasons behind it.

This now appears to be a fait accompli, with airport owner Peel Group announcing on September 26, 2022 that it plans to suspend commercial operations at the airport from October 31, 2022, due to the airport’s “basic and inadequacy”. Lack of current or future revenue streams”. Although the South Yorkshire Mayor’s Joint Authority said on 14 September it had secured a “credible consortium interested in operating the airport”.

According to reports, the new British Prime Minister Liz Truss has said that the government will “protect” the airport, but “protection” may take a long time If it does arrive.

This development must be followed by many municipalities in the UK and further afield, who have leased or sold airports to private sector operators, most of whom are private sector operators.

While investors in the airport industry tend to be less fickle than some other investors – airports are often seen as a long-term investment with little risk – they do have “plains of abundance” appeal and are therefore suitable for a range of alternative uses such as residential development, commercial and technology parks, long-term storage (e.g. vehicles), warehousing and distribution, and In the spirit of the times Solar and/or wind farms, possibly battery production sites.

Airport land value can be extremely high

London City Airport is a good example.

The airport is owned by a consortium of mostly foreign pension funds that tend to have a hands-off approach to management, and the value of land for housing only (if the airport is deemed unviable) would be very high, which partly explains when it changed hands. Very high and rising sales price.

Meanwhile, Doncaster-Sheffield has been partially developed as a business park with plenty of room for more and is less than 20 minutes from 5 motorways.

Southampton Airport expected to lose £4.5m in 2022, but more optimistic ahead

So this concern must also be felt by Southampton Airport on the UK’s south coast, which was once part of BAA plc and later owned by AGS Airports A consortium of Ferrovial SA in Spain and Macquarie Infrastructure and Real Assets in Australia. The “A” and “G” of AGS are Aberdeen and Glasgow International Airports respectively, which make up the group.

Steve Salley, director of operations at Southampton Airport, recently said the airport could record a loss of £4.5m in 2022 (slightly lower than earlier estimates), at a time when most other UK airports said they expected Operating profit (if only a tiny one).

It must be bluntly stated that there is no indication that Doncaster-Sheffield will face the same fate awaiting Southampton, in fact the chances there are at least equal to the threats. Both of its owners are well-capitalized.

But then again, the same goes for Peel Holdings (UK infrastructure and property investment business), Ferrovial and Macquarie both tend to offload airports, or their share of it, and take them.

In fact, it has been suggested recently that Ferrovial might give up some or even all of its majority stake in London Heathrow, as highlighted in a recent CAPA report: Ferrovial to sell London Heathrow stake?Part 1 – 25% ownership by France and Saudi Arabia

Southampton’s seating capacity rebounds behind UK average

Still, losses in air transport are approaching the same level of seat capacity and passenger business as the UK in 2019, which is worrying.

Unfortunately, Southampton has yet to come close to these capacity levels, falling behind the UK average.

In the week commencing 10 October 2022, Southampton’s capacity was just under 51% of the same week in 2019, slightly higher than 2020 and 2021 levels.

In the UK as a whole, it is close to 89%.

1.2 million passengers need to make ends meet every year

Airport management believes that to break even, it needs to handle 1.2 million passengers per year (this is roughly in line with ACI and academia’s overall estimates of the airport’s financial sustainability). This is a level that was easily achieved when airports previously reached over 2 mppa (see graph below), but in the hundreds of thousands there will still be uncertainty.

A 538-foot (163-meter) runway extension scheduled to begin in 2023 will boost that figure. It will extend the runway to almost 1,900 meters and have a width of 37 meters. That should allow it to handle most small and medium-sized jetliners.

Southampton is one of several UK airports that have been strongly opposed to infrastructure improvements, often for environmental reasons. Over the past year, CAPA has reported two other examples: in Bristol the “environmental error” against the expansion of Bristol Airport, and in Liverpool, where the master plan for Liverpool Airport’s expansion will be reviewed for environmental reasons .

In Southampton’s case, it succeeded in judicial review. A final legal challenge to the runway extension was dismissed in an appeals court in early 2022.

“No airport has the right to exist if it can’t make money”

According to local reports, Mr Szalay had said: “If there is no extension, there is no good way. We are screwed.”

He also reportedly commented that “no airport has a right to exist if it can’t make money”; a refreshingly honest opinion.

Southampton targets 3 million passengers

On the positive side, the airport management believes that the annual throughput can grow to 3 million passengers, which seems realistic, with 2,000 employees after the expansion.

Before the COVID-19 pandemic, passenger numbers reached 1.8 million in 2019, but this was 10.5% lower than the previous year.

Traffic growth over the past decade has been uneven and uneven, reaching +14% in 2016, but growth rates elsewhere are in the single digits, and traffic has also declined for four consecutive years between 2010 and 2019 (there was no increase in 2014 and 2015). data).

The average annual growth rate for that period without the two years was just +1.3%.

The airport was hit by Flybe’s failure before the pandemic, resulting in an 84% loss in passenger traffic in 2020 and a further -11.2% decrease in 2021. But the growth rate for the first seven months of 2022 is 365%.

In the second part of this report, CAPA will consider Southampton Airport’s view that 2019 levels are ‘unattainable’ without extending runway; take a closer look at its current network activity; ask if it’s youCannot be used as a business airport; and recommends future A “niche” full-service/commuter airport with greater capacity on viable routes.

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