Executive Summary

The Scope of the Study

i. The focus of this study has been to evaluate the commercial outlook for Dundee Airport and identify, in the context of a range of short-medium term strategic approaches (or scenarios), potential problems and development opportunities that may undermine, or conversely help to improve its prospects. Based on this analysis, we have then sought to provide a set of overarching (as opposed to design or business case specific) conclusions and recommendations that Transport Scotland, in conjunction with other strategic partners (e.g. HIAL, Dundee City Council and TACTRANS), with an interest in ensuring the airport has a sustainable future, can take forward and implement.

ii. The original study brief from Transport Scotland, specifically included the flowing four core elements in the scope of work:

A review of current operations/infrastructure.
A detailed stakeholder consultation/engagement exercise.
Consideration of other regional airport initiatives/models.
Identification of development opportunities, scoping options for their delivery and then their appraisal using the STAG Stage 1 methodology.

iii. This Final Report draws together the work that has been undertaken to examine each of these areas while also having regard to the imprimatur in Transport Scotland's study brief, namely:

"to provide a clear explanation of the underlying analysis and approach, including the assumptions behind the work and its limitations"; while noting that,

"….. the intention of the study is not necessarily to come to one single conclusion or recommendation. …... there may be a range of options that could potentially represent a way forward".

iv. With this in mind, we have not sort to conclude our work with a single strategic recommendation for the future direction of the Airport - further more detailed work is required before final conclusions can be reached about this. However, on the basis of the work we have done we can:

draw some high level conclusions on the Airport's current direction of travel and its implications in the event that a strategy of non-intervention is adopted;
make some recommendations on a menu of short-term initiatives which HIAL, Transport Scotland and other key local stakeholders could pursue over the next 18 months to increase revenues and better understand the underlying market potential of the Airport;
agree the most promising looking medium term strategic options from this report and secure a consensus amongst key partners; and
identify any further more detailed work needed to refine the proposals, secure stakeholder support and secure funding for an agreed medium-term 5 year development strategy for the Airport site using the Airport business plan as the basis for determining when key aspects of strategy are taken forward and ensuring its commercial impacts are being closely monitored;
outline the least worse fallback positions if none of those options prove deliverable in terms of market, operational, environmental and land ownership constraints, or the cost and benefits of implementation.

A Route Map to the Report

v. The analysis undertaken during the study is extensive and consequently this Executive Summary does not attempt to provide a synopsis of all the work that has been undertaken and set out in the body of the report. Instead, its focuses on providing:

A clear route map to the rest of the report;
an easily digestible précis of its principal conclusions; and a distillation, in the form of recommendations to Transport Scotland and other stakeholders with an interest in the airport, of a range of short term initiatives that could help to stabilise Dundee Airport's immediate prospects while the most promising looking medium term (3-5 year) development options are examined in more detail for their operational integrity, budgetary implications and potential wider economic benefits.

vi. With the first of these objectives in mind, the following synopsis provides a guide to the main chapters in the report:

Chapter 2 provides a potted history of Dundee Airport's development, information about current commercial and General Aviation activity at the airport and details of existing businesses and hangars that are based there.
Current infrastructure, property assets and operational constraints are outlined in Chapter 3.
The difficulty of reducing the Airport's fixed cost base significantly without substantially reducing its fire and security cover, opening hours or ability to handle commercial passengers, is discussed in Chapter 4.
The Airport's core catchment area is defined in Chapter 5 alongside an analysis of the one million plus passengers that are leaking to other airports in Scotland; it is then used as a the basis for identifying potentially viable scheduled services and developing a range of airport forecasts. The opportunities and issues associated with generating other non-aviation (mainly property) related income is also considered in this chapter.
Chapter 6 examines the economic under-pinning for an air service market from Dundee and the policy context within which options for the Airport's development need to be considered.
Chapter 7 summarises the feedback from the stakeholder consultation including the important pricing and scheduling issues highlighted during interviews with key local businesses and public sector employers.
Chapter 8 offers a benchmark analysis of Dundee against peer regional airports, focusing on metrics such as operating costs per passenger, governance models and by comparison with other airports, the limited scope to attract non-passenger related aviation activity because of the lack of physical space for development within the Airport's control.
Chapter 9 sets out the key challenges facing Dundee airport.
Chapter 10 provides a structured analysis short and medium term development opportunities and options.
Chapter 11 appraises these using the STAG methodology; and
Chapter 12 sets out in full our conclusions and recommendations; but for convenience they are summarised below.

The Current Direction of Travel

vii. Dundee airport has a long history of providing scheduled air services alongside the General Aviation users it has traditionally served (see Chapter 2). However, these 'commercial' services have, for the most part, proven to be short lived as carriers have come on and off different routes. This historical pattern appears to be continuing, as present day passenger volumes have dropped from a highpoint of nearly 80,000 passengers in 2008, until only one service (to London) now remains. And while that service's short-term future seems assured, it appears likely that co-ordinated strategic stakeholder support may be needed to secure its retention in the medium term.

viii. With commercial air passengers representing much the largest source of the Airport's revenues, if the current London City route were to be withdrawn and not replaced, the short-term prospects for the Airport would be likely to include a requirement for rising levels of subsidy over and above the current estimate of £2.7m per annum. If the Airport is to remain open in these circumstances, a figure between £3.0m to £3.5m seems more realistic.

ix. The only alternative would be to close the airport to passenger services and lay-off the additional staff required to service them. A skeleton staff (particularly Air Traffic and Fire and Rescue) would need to remain to enable Business Aviation and GA traffic, which is actually growing, and an offshore operator (if one can be attracted), to continue to use the airfield. Complete mothballing of the Airport (at which point it would be returned to Dundee City Council, from whence it came, under the terms of the lease), followed by an attempt to re-start scheduled passenger operations at some later date outside the HIAL umbrella, would potentially involve significant start-up costs and regulatory/licensing risks.

x. The question of whether the Scottish Government can justify its current, or possibly an even greater, level of support over a protracted period will be at the heart of decisions about the airport's long-term future and they in turn will be heavily dependent on a realistic assessment of the prospects for attracting new airlines and other ancillary activity to Dundee. Our high level analysis of the airport's catchment and demand profile suggests there potentially is sufficient demand to support a modest network of scheduled and charter services from the airport and that there are a number of carriers that have the equipment to operate those services with the airfield's operational constraints. However, persuading them to enter into commercially sustainable contracts is likely to be time-consuming and require substantive investment in the form of marketing resource and monetary support. As such this could present an additional financial risk to the airport, albeit a relatively modest one.

xi. In this context, it is worth noting that the seminal study led by Cranfield University for the European Commission back in 2002^[1], which concluded that although there could be significant variances, 500,000 WLUs^[2] typically represents the median point (exempting depreciation and major capital investment), at which small regional airports should reach break-even. This is consistent with our own indicative analysis of what might be required to reach this longer-term aim at Dundee. The shorter term ambition, set out in this report, of securing full use of the existing terminal (i.e. 150,000 passengers per annum and more on site ancillary activity), provides a sensible and achievable first strategic stepping stone en route to achieving this ultimate objective).

Issues and Opportunities

xii. So in terms of issues and opportunities facing the airport, the highest priority must be to put an effective, well-timed and cost effective London service on a stable footing (through the use of a PSO if all other avenue fail), then to set about securing other scheduled routes where there is clear evidence of sufficient business or leisure/VFR orientated market demand. Concurrently, HIAL should also be looking to exploit other short term commercial opportunities (e.g. letting the Ex Scottish Water Board building and working with Tayside Aviation to help them expand their business so they remain committed to the Airport as a key anchor tenant), while putting in place a coherent 5 year development strategy and 3 year business plan, which will utilise much of the existing terminal capacity and turn the airport around commercially.

xiii. From a scheduled passenger network point of view, we consider that with the right financial support, the short-medium term actions could encompass a number of domestic routes (in addition to London), possibly an international link (to Amsterdam) and a range of longer distance charter destinations.

xiv. Capturing these services would certainly substantially improve the prospects for reducing the level of subsidy the airport requires over time. However, the high level demand assessment undertaken for this study will not of itself be sufficient to attract potential carriers to serve these routes: a combination of further in-depth route specific analysis, offering airlines attractive commercial terms (including potentially a risk sharing approach) and, initially at least, strong marketing support will all be required to make a compelling case that would put Dundee on the radar of a number of UK and European regional carriers.

xv. With the possible exception of additional aircraft stands, the terminal and airside infrastructure and operating cost base exist already to handle up to 150,000 passengers per annum and should not need to be increased until passenger volumes materially exceed that figure.

xvi. Scope also exists to generate additional revenues from Business Aviation, Helicopter and GA traffic and also from aviation related property development to service their needs as they grow (see Chapter 5). Some modest capital investment may be needed in relation to the latter, particularly if the use of the available land at the Airport is to be optimised.

xvii. If revenues per passenger can be sustained at current levels (c£13/pax), whilst growth is achieved in passenger volumes and costs are held steady, then the chart overleaf points to a breakeven at around 360,000 passengers, perhaps less if other income streams allow the intersection point between costs and revenues to be achieved earlier. However, we consider it unlikely all these conditions will come into alignment for some considerable time and based on a pragmatic view of unit operating costs and revenue per passengers (i.e. £11/pax to allow for discounts and route incentives), then even if the existing terminal is being used by 150,000 passengers and the site has been comprehensively re-configured in 5 years, we would still expect the Airport to have an annual operating deficit of £1.5-2.0 million.

Breakeven Analysis for Dundee Airport

Breakeven Analysis for Dundee Airport

Source: Consultant's analysis

xviii. Although investing in non-passenger based commercial activities at the airport could materially increase current levels of revenue in percentage terms for virtually no additional operating cost, at Dundee this element of the commercial strategy will only ever make a modest overall contribution because of the physical constraints of the site. In other words, it is unlikely to be the solution for the airport's on-going operating deficit. A commercially sustainable turn-round will need, therefore, to focus on attracting new routes and additional passenger volumes. In the face of strong competition from other Scottish airports this will not be achieved with current levels of route development and marketing spend.

xix. A premium therefore needs to be placed on:

Marketing the airport heavily to the right carriers so that services can be provided at a price and frequency that will prove attractive to the catchment area. We have good evidence that there is a willingness to pay a premium to use Dundee, but exactly what that premium is on each route and whether that will make the service viable requires further work.
Offering an airport environment that is attractive both to airlines (in terms of charges and route development support), and to customers (as a result of speedy processing, good local accessibility, competitive car parking prices and an attractive terminal environment).
Addressing as cost effectively as possible any infrastructure constraints that might prevent the Airport's ability to optimise operational flexibility.
Raising the level of awareness within the catchment area.
Maintaining a high quality service that attracts repeat users and local pride and commitment to look to Dundee Airport first for their air travel and only thereafter look elsewhere.
Securing the support of key local businesses and other stakeholders.

Recommendations

xx. With the forgoing in mind, our recommendations to Transport Scotland from this study of Dundee Airport are in three parts:

Short Term Initiatives

xxi. First that, in conjunction with relevant strategic partners (e.g. HIAL, Dundee City Council, Scottish Enterprise, Visit Scotland and Tactrans) - they consider implementing over the next 12-18 months a programme of short term initiatives aimed at stabilising and then turning round passenger throughput at the airport whilst optimising as far as possible other existing commercial opportunities. These should include:

Working with Cityjet to see if their existing service to London City can be retained, or should that not prove successful, finding a replacement carrier to serve the London market should that prove necessary - we understand Transport Scotland may have already implemented this proposal by securing Cityjet's continued commitment to the route over the 2013/14 winter season.
Build-up an in-depth understanding of the Dundee to London market and the economics of maintaining such a service given the constraints the airport imposes on the aircraft that could operate it.
Pursue the potential to support the service, if required, through use of a PSO or the Government's recently announced £10m Route Development Fund - we understand work is already underway on this too.
Undertake a survey of potential demand for air services within the core catchment area, using a combination of survey monkey style techniques supported by the local media and follow up discussions with key local companies and the wider business community to provide evidence to support the CAA based analysis and hard market data for presentations to airlines.
Draw-up a wider route development strategy (i.e. beyond the core London service) and identify the likely financial implications of implementing it.
Develop an airport marketing plan to raise the profile of the airport within its core catchment area and engage pro-actively with a range of market segments (i.e. business fliers, in and out-bound leisure travellers, tertiary education, VFR passengers and the offshore sector) and the local community using a variety of marketing techniques including social media in particular.
Seek third party advocates in the form of high profile champions, ideally with a strong connection to Dundee, to help build public awareness and support for the airport.
Develop a commercial offer, not just in the form of pricing but also convenience and customer experience that will make the airport a preferred choice for travellers within its catchment area.
Prepare a prospectus to market the airport as a base for offshore, but particularly, renewables related helicopter operations, and market it pro-actively.
Engage with Tayside Aviation in negotiations on a joint plan to develop their flying school and maintenance businesses, increase apprenticeships, jobs and long-term rental income.
Secure a productive use for the Ex Scottish Water Board building that generates rental income now without foreclosing the potential for attracting a blue chip use down the line.
Draw-up designs, cost and an associated business case for additional aircraft stands for commercial or business aviation use.

xxii. It is envisaged this agenda may require additional resources in the form of dedicated staff or specialist external consultancy support, alongside appropriate capital, marketing and route development budgets.

xxiii. It will also need careful management to a set of clearly defined timetable and output targets, all designed to turn round the airport's decline quickly and create a platform for further medium-term growth.

xxiv. The evidence from some of the peer airports we benchmarked is that those who have:

remained committed to marketing themselves to airlines and passengers during he economic down-turn,
sought to engage actively and openly with their key stakeholders, local communities and customers, and
have been ready to make judicious investments to position themselves for the recovery when it comes (e.g. Gloucestershire Airport with £4m on runway improvements and Norwich to develop new offshore facilities and hangars for spray-painting)

have not only done better during the recession, but will be better placed to benefit from the upturn when it comes.

xxv. The message to the key stakeholders with an interest in the airport is clear, therefore: do nothing and preside over what is likely to be an ongoing decline and at some point closure; or make some targeted pro-active investment now to ensure no stone has been left un-turned in the effort to giving Dundee Airport a chance of survival.

Medium Term Strategy

xxvi. Route development is not normally a process that generates quick wins; it is as much about persistence and long-term development of relationships with airlines, knowing and being able to articulate clearly the commercial opportunity your market offers while being committed to providing strong and consistent financial and marketing support, if they are ultimately to be secured.

xxvii. In our view this means that HIAL needs to be able to find additional resource to support their existing Commercial and Marketing manager in taking forward the Airport's business development agenda, not only in the short-term, but the medium term as well. Dundee is not an easy sell, but also not an impossible one; if the issue of whether there is a market to be served at all is to be bottomed out once and for all, this effort requires appropriate priority and funding as the UK, Scottish and local economy recovers over the next 2 years. In the context of current operating losses, the resource required is unlikely to be disproportionate.

xxviii. Consistent with the forgoing would be HIAL spending time to build-up and get firmly established the potentially important relationships identified by the stakeholder survey undertaken for this study, and by any work undertaken during the proposed short term initiatives. The aim would be to tap into the goodwill that clearly exists towards the airport amongst the business community, so that this can be presented to airlines in the form of potentially beneficial corporate relationships to help attract services.

xxix. We would also recommend an ongoing commitment to social media based surveys of the views of the local population within the airport's core catchment area towards the kind of pricing they would respond positively to, on which routes, and their feedback on how well the airport is doing in optimising its own service offer. This can be done very efficiently and cost-effectively using the same online tools mentioned earlier, especially if local newspapers and other media outlets remain actively engaged in helping the airport to attract airlines.

xxx. HIAL, supported by Transport Scotland, Visit Scotland and the City Council as required, should consider committing to attending key networking conferences providing opportunities to pitch to airlines (e.g. Routes Europe and French Connect), in addition to seeking bilateral meetings with key carriers where appropriate. They should also seek to adopt a 'Team Dundee' approach in which all the key partners are not just said to be, but seen to be, involved in helping to deliver the success of their route.

xxxi. This kind of sustained campaign and the supporting financial package needed to attract carriers will not come cheap. Realistically, a minimum budget of £250,000 should be set-aside in each of the two years after the Short Term Initiative and that could double if new carriers are actually attracted to begin routes.

xxxii. Another priority should be to engage pro-actively with the offshore renewables industry to position Dundee Airport as a construction and servicing base for wind turbine arrays of the East Coast of Scotland. This may eventually require some modest capital investment to make the airside infrastructure suitable for helicopter operation, but the potential direct and indirect commercial returns from capturing a share of this sector could be very significant to the airport's long-term sustainability as well as the city's wider ambitions in this area.

xxxiii. In parallel, a plan for rationalising and optimising the development of the estate, including where appropriate acquiring developable land adjacent to, but outside, the current airport boundary ought to be drawn-up. That way its full revenue potential and the costs of delivering this, in a series of phases if necessary, is clearly understood. This means that key tenant relationships (e.g. with Tayside Aviation and Loganair Maintenance) should then be advanced constructively, car-parking facilities optimised and the scope for developing on-site renewables and other revenue generating activities explored.

Strategic Development Options

xxxiv. Finally, having examined a range of development options for Dundee Airport based on a number of core strategic scenarios, and then subjected them to appraisal in line with STAG Stage 1 requirements, our analysis points to the following generic conclusions:

The airport is well located within its catchment area, has existing passenger facilities that can be expanded at more modest cost than is likely to be possible at Perth and is potentially capable of generating material economic benefits for its sub region.
Retaining a passenger airport at Dundee, at least in the short-medium term, would be a better option than closing it altogether as long as there are commercial services using it, it is affordable and represents value for money in terms of economic benefits retained or secured.
Accordingly, further work should be done on exploring options D1 and D2 alongside the Do Minimum to allow the next stage of the STAG assessment to be undertaken.
It may, therefore, be prudent to delay closing the airport to commercial services until the extent of the market for air services from Dundee is more definitively understood and all avenues to attract carriers have been exhausted.
Similarly, the relative merits of operating a joint-operational facility at Leuchars may be something that Transport Scotland could explore privately with the MoD while these other short-medium term initiatives are being implemented, to see if this would result in material cost savings relative to the anticipated ongoing levels of subsidy required at Dundee.
The costs of mothballing commercial operations should be examined carefully so that if the existing London City services are lost and not immediately replaced, the relative costs of temporary closure or maintaining a functioning facility are understood.
In parallel we consider it would be pragmatic for alternative uses for the site to be evaluated, so that in the event that the airport does need to close, the value and benefits it might generate in non-airport use are also clearly understood.

xxxv. This is a big agenda, but as anyone in the aviation industry in the UK will recognise, closing down an airport and losing a runway is a significant issue affecting connectivity, infrastructure capability and potentially requiring significant cost. It is therefore far better to explore and test the alternative avenues before any such final decision is reached.