Air trade

Atkins | 05 Dec 2008 | Comments

With falling passenger numbers, rising fuel costs and growing concern over carbon emissions, these are interesting times for the aviation industry. Yet, at London City Airport, a key Atkins client for more than ten years, business is booming and capacity is expanding. We ask chief executive Richard Gooding how the competitive landscape is changing.

How have recent events in the economy affected business at London City Airport ( LCY)?

I don’t believe that the current turmoil in the financial markets will greatly impact on the throughput and size of our business. However, it may affect when we decide to do things in the future. Our long-term masterplan sets out what we will do, rather than defining when we might do it. We have to be able to react to market circumstances, and the advantage of being a smaller organisation is that we’re more agile, so can react more quickly.

One of the biggest mistakes in the aviation industry is raising capacity too soon – that’s when businesses go bankrupt and people get fired. Just this year, we have seen huge additional capacity at Heathrow with Terminal 5, at a time when market conditions are rather flat. The ideal, which is rarely achieved, is to add capacity at exactly the point that you need it. The big problem with forecasts, however, is they are often inaccurate, with new figures released all the time.

It is our core market, the financial services industry, that has been hit the hardest. Yet, in order to find solutions and get things back on track, people need to travel. So, in one sense, we have actually benefited from recent events.

As the economic downturn continues, we may see some drop in demand for our off-peak services, but if any of our peak slots were to become available, someone would grab them very quickly. All of the airlines at LCY work hard to position themselves here and they are unlikely to give their slots away gladly. Companies will take a long-term view.

In the aviation industry more generally, we’ve already seen some of the weak carriers go to the wall. But it has been more because they lacked sufficient cash to see them through the difficult times, rather than due to a bad business model. We can probably expect further casualties, as well as more consolidation among the airlines. This might reduce consumer choice in the short-term, but it’s important that supply and demand are brought into balance if the industry is to survive.

Do you expect to lose out in the future, with the push towards a low-carbon economy?

Aviation, along with all other industries, must minimise its carbon footprint and cover its external costs. The biggest step forward in this will come in the next three or four years with the introduction of the Emissions Trading System for aviation. That will prove expensive for the most polluting operators.

From an environmental perspective, it isn’t so much a question of whether we should have aviation or not, but how we manage and mitigate the environmental impacts. The ongoing development of more fuel-efficient aircraft will, therefore, be very important, as will progress towards finding an alternative fuel source for aircraft. London City Airport has always been a green airport since it opened 21 years ago, and we’ll continue to push this issue forward.

What effects do you think the sale of Gatwick airport might have?

The proposed sale of Gatwick marks a big change in the provision of airport services in London and the south-east. We believe this could lead to improved customer choice, along with better service quality and value for money. A strong, competitive airport sector will enhance London’s position on the global stage, which in turn will be good for LCY.

Aside from that, the sale of Gatwick shouldn’t impact on business at LCY, because Gatwick has never featured largely for business travel. It is possible that it could be repositioned by the new buyer for that market, but some drastic changes would need to be made first. The only direct transport into central London is the Gatwick Express, while travelling anywhere else by public transport is very difficult.

You mention Gatwick’s limitations – just how important is access for the success of an airport?

Surface transport is essential, because business travellers need speed and certainty. When we first started, we didn’t even have much of a road, but gradually the infrastructure of east London has changed. We got a road, then some buses and eventually the Docklands Light Railway (DLR), which has transformed the business. Without it, we’d be unable to handle the sort of passenger numbers we see today, because we don’t have sufficient room for the necessary roads and parking.

The DLR will get you from LCY to Bank, central London, in 22 minutes. More than 50 per cent of people using the airport travel on it, compared to less than 10 per cent of people driving to the airport. And, once you take into account people with lots of luggage or with a disability, that figure is really very low.

What do you think of the proposals by London Mayor Boris Johnson for an airport in the Thames Estuary?

Mayor Johnson is strategically right – he’s trying to replicate what has been done in Hong Kong, Japan and Paris. However, experience elsewhere in the world tells us that such airports only succeed if the original airport is closed. Where the old airport remains open, as was the case in Montreal, it keeps all the business and the new one closes.

So the core question concerning the mayor’s proposal is not whether a new airport should be built in the Thames Estuary, but whether Heathrow should close.

Will any of the airlines move from fortress Heathrow to the new airport? I strongly doubt it. Every time an airport has been opened as an overflow from Heathrow (Gatwick, Stansted) the airlines have stayed put. Closing Heathrow would be a very complex decision that would affect the whole economy from London to Cardiff. Many businesses have positioned themselves in the Thames Valley area to be near to Heathrow. However, without taking that step, any new airport is bound to fail.

British Airways will fly to New York from LCY next year. Is your growth strategy to go longer haul?

All-business class flights to New York are scheduled to start next autumn, and promise to be a huge success. British Airways (BA) already operates the similar OpenSkies service from Paris and Amsterdam, so it has experience in this market and has shown that the concept works.

Because of the length of our runway, aircraft will need to refuel at Shannon, Ireland, before continuing on to New York. However, this will actually work to our advantage, because US immigration and customs can be dealt with there. Anyone that has travelled to the US knows that this can be a lengthy process on arrival, so it will save them valuable time. Return flights will operate non-stop from New York to LCY.

I think the whole airline community will be watching the new BA service very closely. The A318 aircraft has the capability to fly for up to five hours from LCY, so it’s certainly possible that longer-haul routes could play a greater part in the future of the airport.

However, we’re not forecasting that just yet. We’ll examine the opportunities carefully so that when the right opportunity comes along we’ll have a thorough understanding of whether or not it would work.

As a city airport, how important is it to maintain good relationships with the local community?

We receive far fewer complaints than other airports, partly because of our community work. We have a dedicated community relations team, and are currently running some 140 different schemes, the main theme of which is up-skilling local people so they can get jobs at the airport. Around 70 per cent of our employees live within a five-mile radius. This is especially valuable considering that some of the poorest parts of the city fall within that area. And, if the majority of people living nearby benefit from the airport, they are less likely to complain.

We are also far less intrusive than most airports – we shut at night and also for 24 hours from Saturday lunchtime until Sunday lunchtime. We have always been very strict about that.

And when things don’t go right, or people aren’t happy?

What many businesses can’t get their heads around is that what matters most is not whether you make mistakes, but how you deal with them. You just have to put your hands up, admit you were wrong and explain what you’re going to do about it.

Once or twice, we’ve mislaid the bags of very high profile passengers. Our response was to immediately charter a plane to go and fetch them. It cost us a small fortune, but it was the correct thing, and actually the easier thing, to do. While we may never get the money back through business directly with that passenger, they will tell many others about their experience. By responding as we did, we turned it around so that they talked in positive terms about us, rather than negative. People underestimate just how important gossip can be to the success of a business.

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