4. Airport Operations and Management
4. Airport Operations and Management
4.1. As with all small airports that have limited passenger traffic and under-developed sources of alternative revenue generation, the fixed costs and overheads associated with meeting the core safety and security requirements of running an airport, impose a significant financial burden on Dundee Airport that it is simply not possible to pass on in full commercially at current traffic levels.
4.2. This can be seen in the proportion of the operating budget - nearly 80% - taken up by fixed costs such as staffing and security costs, rates, utilities and insurance in Figure 4.1, compared with what might be categorised as variable costs in the form of the remaining categories.
Figure 4.1: Distribution of Operating Costs by Category 2012/13
Source: Airport Budget for 2012/13
| Section | Staff No |
|---|---|
| Admin + Passenger Handling | 10 |
| ATC | 7 |
| ATE | 1 |
| Security | 18 |
| RFFS | 26 |
| Airside Ops | 1 |
| Cleaning | 1 FTE |
| Other | 1 |
| Total | 66 |
Source: Airport Data
4.3. As might be expected, a multi-tasking environment has long been a feature of the Airport, including pre HIAL's takeover. This is particularly the case in terminal and ground handling, where the Administration staff combine providing check-in and passenger information alongside their other duties, and fire fighters carrying out baggage handling, grass-cutting, bird scaring and some maintenance. This is reflected in the staffing roster in Table 1; whereas at larger airports at least some of these tasks might typically have dedicated staff or be contracted out.
4.4. From a relatively brief look at the data provided by the Airport and a single afternoon's visit, it is not obvious that the Airport is significantly over-staffed, save for potentially in the RFFS, where 26 rostered personnel to provide standard Category 4 fire cover (upgradable to Cat 5 or Cat 6 with 24 hours notice) seems excessive. It is understood, however, that the roster is in the process of being reduced to 22, which seems more in line with the fire cover required given current traffic (i.e. D328 on the London City service and GA with limited numbers of business jets), and the current operating hours:
Monday - Friday 06.30 - 22.00 Local
Saturday 08.00 - 16.45 Local
Sunday 09.15 - 22.00 Local
4.5. In terms of revenues, Figure 4.2 indicates the primary sources.
Figure 4.2: Sources of Income 2012/13
Source: Airport Budget for 2012/13
1.1. 4.6. Aeronautical charges make up 63% of total income, with nearly three-quarters of that (or nearly 50% of the total) coming from scheduled passengers. This reflects recent declines in passenger numbers and a return to average levels of scheduled passengers in the last decade would produce a materially different pie chart. Non-aeronautical income is 23% of the total if you include net profits on fuels sales; Jet A-1 is available from Dundee Airport, but Avgas has been outsourced to Tayside Aviation, which was its principal customer. This figures is low, even compared to other small airports. This is partly a function of the airport's limited passenger throughput and its business orientation, where speed and convenience rather than dwell-time and discretionary expenditure are the order of the day, but property income, which is an important source of alternative revenue for many small airports, is also low at 7%.
4.7. This analysis gives rise to four observations, which are particularly relevant to the Airport's future development and commercial viability:
- Firstly, it is highly dependent for its revenues on the most variable and highest risk source, notably passenger throughput. This means that every effort must be made to increase this traffic; with this in mind the extremely small marketing budget is particularly noticeable.
- Second, the introduction of car parking charges was raised a number of times in our stakeholder consultations. Although not on the same level of some of its competitors, in the context of the modest sums it generates, there must at least be a question mark about the cost benefit of this policy given the overriding need to make Dundee Airport as attractive as possible to passengers.
- Third, like most small airports, it must of necessity place diversifying income streams at the heart of the airport's business strategy if the dependence on passenger flows is to be reduced.
- Fourth, the limited income received from GA related sources when compared with the extent to which it dominates activity at the airport. Tayside Aviation would argue that the Airport's operating budget would be substantially lower if the scheduled traffic were removed. But even with fire cover reduced to Cat 3, lower security and admin/check in costs and less expenditure on maintenance and consumables, it is unlikely that the Airport could be run for the c£200,000 a year it receives from Tayside Aviation - or close to it.
4.8. Dundee Airport had been operating at a loss of over £2 million per year from 2004 to 2007 under the management of Dundee City Council. In the first full financial year of operation under HIAL, 2008/9, the airport's loss was reported as £2.6 million. The operating budget for 2012/13 forecasts an operating loss of £2.435m, based on income of £815,000 set against costs of £3.25m; a charge for HIAL overheads, will prospectively raise the overall subsidy requirement to c£2.75m.4.9. The increased losses since HIAL took over operation of the airport are in part a function of the requirement to make a contribution to Group overheads, but also reflect the requirement to standardise terms and conditions with the rest of HIAL under TUPE Regulations. This was done as part of the 2011 pay offer following the settlement of a dispute which saw the terms and conditions of fire fighters, air traffic controllers and others in the Prospect Union harmonised in return for an agreement on flexibility from the staff.
4.10. Since taking over the management of the airport HIAL have implemented a number of initiatives to seek efficiencies, harmonise procedures and bring operating standards in line with those of the group as a whole. These include:
- Key management and 'accountable manager' positions (route development and marketing, financial, senior Executive and Board responsibilities) are shared across the group.
- Airport security has been brought in-house in common with the rest of the HIAL group. The roster of fire fighters is due to reduce from 26 to 22.
- There have been synergies across the group in terms of training and recruitment for key staff such as ATC and fire fighters, and in the acquisition and maintenance of equipment and supplies.
- Airport advertising is being offered on a group-wide basis by Airport Partners of Harrogate.
- Dundee Airport has been incorporated fully into the HIAL website and marketing effort with initiatives such as the Aurora HIAL group glossy consumer magazine featuring Dundee alongside its other Scottish airports.
4.11. So there is clear evidence that HIAL have been endeavouring to keep a tight rein on costs while integrating Dundee fully within the wider Group. While there is always more that can be done, it does suggest cost cutting is likely to be an area of diminishing returns unless the intention is to shut the Airport to scheduled traffic. Instead the focus needs to be on revenue generation across a number of markets, but done in such a way that there is little upward pressure on costs, at least until the existing fixed cost resource base is being used much more productively as a result of enhanced activity.