6. Current Economic and Policy Context
6. Current Economic and Policy Context
Introduction
6.1. The principal economic function of an airport is to provide connectivity that enables other businesses in its catchment area to access domestic, European and wider global markets, suppliers and external expertise quickly and efficiently whilst also enabling and encouraging endogenous and inward investment. Its value locally, is typically much greater in this 'facilitation' role, than as a direct or indirect supplier of jobs and income in its own right. This is particularly the case for small airports serving second tier regional cities such as Dundee; it is only at the larger regional airports such as Birmingham and Manchester, which are of a scale that they have become large employers in their own right and attractant of a lot of airport related or associated activity, where the balance is different.
6.2. For all, however, they serve the common role of being international gateways for the economies of the 'city regions' they serve and as in the case of other UK regional cities in the case of the other sectors, the Airport has an important role in helping to optimise the competitiveness, outputs and wider benefits derived from the established markets and new planned investment elsewhere in its catchment area.
6.3. As a city, Dundee is seeking to establish itself in a number of new business sectors (e.g. life sciences, creative industries and digital media and renewable energy servicing) all of which have above average propensities to fly. These new opportunity areas sit alongside the more mature markets associated with traditional economic sectors such as manufacturing, financial services (e.g. Alliance Trust, RBS, Aviva), public sector back office activity, Universities and tourism. The investment that is taking place in the development of the Waterfront Area and new "Victoria and Albert Museum at Dundee", for example, holds out the prospect of generating significant new visitor markets to sit alongside existing tourism offerings such as golf, the North East Fife Coast and St Andrews. With a billion pounds of investment planned over a 10-year period, the city is making major efforts to regenerate itself as a 21st century city.
6.4. It is in this context that the future of the airport is potentially so significant. Without an airport, Dundee would be the largest city in the UK without such an international gateway. With it, Dundee is connected quickly and independently to the rest of the UK and the wider world, rather than relying on three larger competitors an inconvenient 1.5-3.0 hours drive away.
6.5. The key to finding a sustainable future for the airport is therefore to identify a core offering of air services tailored to the needs of businesses and the wider travelling public in its catchment in a form which makes it convenient and cost-effective to use. Crucial to optimising this commercial alignment is to understand in detail the structure and prospective growth areas within the local economy, as well as the outbound leisure and VFR markets sought by its catchment population and how best to take advantage of as much of this inherent local demand as it realistically can.
6.6. This chapter explores this agenda, alongside some of the key policy issues that are likely to impinge on Dundee Airport's ability to respond, including fiscal impediments such as APD and ETS, regulatory burdens, state aid rules for regional airports, future decisions surrounding the use of the MoD estate in Scotland and access to London Airports.
6.7. It provides an analysis of the economy of the catchment of Dundee Airport as defined elsewhere in the report: that is, the local authority areas of City of Dundee, Angus, Perth and Kinross, plus the parliamentary constituency of North East Fife. The analysis is based largely on published data, along with bespoke data acquired from Scottish Government and information from our consultations.
Population Growth
6.8. Table 6.1 shows the population of the catchment area numbered around 486,000 in 2011. Within this, most residents live in either Dundee City or Perth & Kinross. The catchment is home to 9% of the total Scottish population.
| Area | Population |
|---|---|
| Perth & Kinross | 147,000 |
| Dundee City | 147,000 |
| Angus | 116,000 |
| North East Fife | 75,649 |
| Total | 485,649 |
Sources: 2011 Census; GRO (Scotland)
6.9. The population of the catchment is forecast to grow (see Table 6.2) in the period to 2021. The growth in the first five years is projected to be slightly over 3%, with that between 2016 and 2021 marginally less (just under 3%) adding around 30,000 people in the ten-year period.
Source: Based on 2011 Census and GRO (Scotland)
6.10. The highest rate and volume of growth is forecast for Perth & Kinross, which at over 12%, is much higher than the projected growth in each of the other three areas (all below 5%). The catchment area's total population growth by 2021 (around 6%) is forecast to be higher than for Scotland as a whole (around 5%). However, this is dependent on Perth & Kinross achieving its forecast growth.
Business and Employment Structure
6.11. Table 6.3 sets out the broad sectoral business and employment structure of Dundee airport's catchment area.
6.12. The largest sectors in terms of number of business sites are:
- Wholesale and retail;
- Agriculture, Forestry and Fishing;
- Professional, scientific and technical; and
- Construction.
These account for around half of the active sites in the area.
6.13. The position is different for employment levels. Wholesale and retail is the largest sector. However, this is followed closely by Human Health & Social work, with then a large gap to Education, followed by Accommodation & Food service.
6.14. The relatively large employers per business site are in the utilities and public sectors (i.e. Education; Public Administration & Defence; Compulsory Social Security; and Human Health & Social Work). The smallest ones are Agriculture, Forestry & Fishing; Professional, Scientific & Technical; other services; Real Estate.
Note: Data cover enterprises that are registered for VAT and/or PAYE.
* Estimated as full data not available due to confidentiality constraints
6.15. Table 6.4 compares the sectoral business and employment structure of the catchment with that for Scotland as a whole.
Note: Data cover enterprises that are registered for VAT and/or PAYE.
* Estimated as full data not available due to confidentiality constraints
6.16. The area is relatively well-represented in the following sectors:
- Agriculture, Forestry and Fishing.
- Electricity, Gas, Steam and Air Conditioning supply & Water supply; Sewerage, Waste Management and Remediation activities.
- Accommodation and Food Service activities.
- Education.
6.17. In contrast, the area's economy is relatively under-represented in terms of:
- Financial and Insurance activities.
- Mining and Quarrying.
- Administrative and Support Service activities.
1.1. 6.18. We have undertaken detailed analysis of some of the growth sectors identified in Scottish Government's Economic Strategy. The definitions of the sectors (in terms of SIC codes), are those used by Scottish Government.
- The Tourism sector accounts for 9.6% of airport catchment employment. This is higher than the sector's share of total Scottish employment (7.4%).
- In contrast the share of the area's employment is taken up by Financial and Business Services is lower than within Scotland as a whole: that is, 5.8% compared to 9.3%.
- Some 0.9% of the airport catchment employment is in Life Sciences. This is higher than the sector's share of all Scottish employment (0.6%). The official data show 1,673 Life Sciences jobs in the catchment. However, the actual number will be considerably higher. This is because the data does not take into account those employed as life scientists in the health or HE sectors.
6.19. Data constraints mean that it is not possible to produce the same analysis for either the Energy or Creative Industries in the catchment. This is because the official data cannot yet be used to isolate renewables-related activity, whilst data confidentiality issues mean that the jobs in the Creative Industries sector cannot be estimated. However, it is generally recognised that Dundee is home to a relatively large amount of activity in computer games and other electronic media.
6.20. Table 6.5 shows a number of economic activities which previous research has identified as aviation-intensive.
1.1. 6.21. In most of these sectors the catchment area's share of the activity's total Scottish employment is below its share of all Scottish employment (i.e. 8%). The two exceptions are public administration (which has an 8% share of all Scottish employment in that activity) and most notably the area's employment in Tertiary Education. It accounts for 16% of all Scottish employment in Tertiary Education-twice the area's share of all employment in Scotland.
6.22. This is reflected in the staff and student numbers within the HE sector in Dundee and North East Fife. University of Dundee has 12,000-13,000 FTE students on campus and around 3,300 staff. Some 15% of all students are from outside Scotland - both Rest of UK and international.
6.23. The University told us that it is one of most research intensive universities in the UK, in terms of the share of its funding that comes from research income. This reflects, in particular, Life Sciences and Medical Research activity. This is spread across two schools:
- Life Sciences. This is one of the top centres in the UK with around 50 nationalities among its researchers.
- Dentistry, Medicine and Nursing.
6.24. University of St Andrews has around 8,000 students. Some 1,000 are from the United States with 2,500 from the rest of world. The University has around 1,000 senior level staff.
6.25. University of Abertay is less research intensive than the other institutions. It has around 5,000 students on campus-one third of who are from outside the local area. The University employs around 550 full time equivalent staff.
Wage Levels
6.26. Table 6.6 shows the average (median) gross weekly wage in the catchment.
Source: Annual Survey of Hours and Earnings
6.27. The median gross weekly wage figure is around £376. The highest level is in North East Fife (around £403) and the lowest is Dundee City (about £358). The figure for the catchment area as a whole is slightly less (around 96%) than the Scottish average.
Inbound Tourism
6.28. Visitor statistics are presented below for Angus & Dundee and Perthshire. No comparable recent data are available for North-East Fife. However, Dundee City Region Economic Review (Scottish Enterprise 2009) indicated that North-East Fife accounted for 17% of visitor bed-nights in 2007. This suggests that the data shown below may account for around 80% of total visitor activity in the airport catchment.
6.29. All of the data reported below are for visitors that stay at least 1 night in the area. Thus, day trips from home are not included.
6.30. Table 6.7 shows total visitor numbers between 2009 and 2011, including both GB and overseas tourists.
| Area | 2009 | 2010 | 2011 |
|---|---|---|---|
| Angus & Dundee | 482,800 | 574,900 | 734,000 |
| Perthshire | 862,600 | 892,100 | 953,000 |
| Total | 1,345,400 | 1,467,000 | 1,687,000 |
6.31. There were over 1.6 million visitors in 2011. Slightly more than half (56%) of them were to Perthshire. The data suggest that visitor numbers increased in both 2009 and 2010. Those in 2011 were 25% (around 340,000) above those two years before. This growth has come very largely from Angus & Dundee. It has seen a growth rate far beyond that for Scotland as a whole.
6.32. Table 6.8 shows total visitor numbers between 2009 and 2011-excluding Scottish residents. This is because they are very unlikely to form part of the potential inbound tourism market for Dundee airport.
| Area | 2009 | 2010 | 2011 |
|---|---|---|---|
| Angus & Dundee | 265,761 | 284,200 | 272,000 |
| Perthshire | 374,200 | 354,900 | 446,700 |
| Total | 639,961 | 639,100 | 718,700 |
6.33. There were over 700,000 of these visitors in 2011. More than half (62%) went to Perthshire. The data suggest that visitor numbers were unchanged between 2009 and 2010 but increased by 12% in 2011. This was solely due to growth in numbers to Perthshire.
| Area/Source | 2009 | 2010 | 2011 | |||
|---|---|---|---|---|---|---|
| England/Wales | Overseas | England/Wales | Overseas | England/Wales | Overseas | |
| Angus & Dundee | 195,761 | 70,000 | 214,200 | 70,000 | 198,000 | 74,000 |
| Perthshire | 244,200 | 130,000 | 244,900 | 110,000 | 323,700 | 123,000 |
| Total | 439,961 | 200,000 | 459,100 | 180,000 | 521,700 | 197,000 |
6.34. Most (over 70%) visitors in 2011 were from England/Wales rather than overseas. The split between these two groups was very similar in each of the three years. Almost all (well over 90%) are from England.
6.35. Perthshire accounts for most English/Welsh visitors and most overseas visitors. The number of English/Welsh visitors grew by approaching 20% between 2009 and 2011-very largely in Perthshire. In contrast, overseas numbers changed little.
6.36. Table 6.10 shows the most common countries of origin of overseas visitors in 2011.
6.37. Germany and the United States are the most common sources. Each had more than 20,000 visitors to the area in 2011. The other countries shown -almost all of which are in the EU - produced similar numbers of between 13,000 and 16.000 visitors.
6.38. The two main markets in Angus & Dundee were the United States and Ireland. Only in one case (Ireland) were the numbers higher in that area than in Perthshire.
6.39. Across 2009-2011, the United States and Germany were the two largest markets in each year. The differences across the period are that:
- In 2011 visitor numbers from Belgium, Sweden and Poland were much higher than in the two previous years.
- 2011 numbers from France in particular and also Canada and Netherlands were much lower than in 2009.
6.40. Table 6.11 describes the seasonality of visitors from England and Wales. Please note that no comparable data are available for overseas visitors.
Note: Assumes England/Wales visitors seasonal profile is the same as that of all GB visitors
6.41. A third of all the annual visitors come in July-September. Slightly lower numbers arrive in April-June. Thus, around 60% in total visit during the six months of April-September. In the last two years activity in Perthshire has been more seasonal than in Angus & Dundee.
6.42. Table 6.12 shows the trip purpose of England/Wales visitors.
6.43. Holiday trips predominate; 2011 saw around 372,000 of them, over 70% of the total. VFR and Business had broadly similar shares of the visitor market, with 72,000 and 55,000 trips, respectively.
6.44. A clear majority (around two thirds) of the 2011 Holiday trips (c 250,000) are focused on Perthshire. In contrast, Angus & Dundee and Perthshire have quite similar numbers of VFR and Business trips. The overall splits between the four trip types do not differ significantly across the three years.6.45. Table 6.13 shows the trip purpose of overseas visitors.
6.46. As with the domestic market, a holiday accounts for the travel of more than half the overseas visitors to the catchment area; however, VFR also accounts for a significant share (around one in three). The absolute number of VFR trips by overseas residents is quite similar to that in the domestic market. In contrast, business accounts for a relatively small share and thus a low absolute number of overseas visitors - around 12,000 in 2011.
6.47. Perthshire accounts for a very large proportion of the holiday trips shown at Table 6.13. In contrast, it is Angus & Dundee largely accounts for the overseas business visitor trips.
V&A Project
6.48. The current plan is for the V&A to open in 2016. The project as currently envisaged will have three elements:
- Exhibitions-both touring and permanent.
- Education-school and student activities on site, plus outreach.
- Interaction with businesses to encourage design-led business innovation.
6.49. The project sponsors have discussed plans with third parties. The feedback they have had on transport is a concern about the potential impact on visitor numbers of the lack of air airlines serving Dundee, and also the quality and speed of rail services to the city.
6.50. A project business plan was developed in 2010. It projected annual visitor numbers of 500,000 in Year 1 falling to 300,000 from Year 3 onwards. These forecasts were checked and approved by a third party.
6.51. However, it is recognised that given the elapsed time there is a need for the numbers to be revalidated as part of a new business plan. However, at this time the project sponsors expectation is that any revisions will still leave the totals in the 300,000-500,000 per annum range. They also expect that:
- Most of the education-related visitors will be from Scotland rather than further afield.
- After Year 1 there will be few repeat visits to the exhibitions by local residents. Rather, they will visit the facility to use the bar, public area or restaurant.
- The majority of all visitors will be from outside Dundee.
6.52. It is expected that the V&A facility/presence, which will form an important part of the Dundee's 2017 City of Culture bid, will draw international recognition and interest to the City. Some will visit it as the main purpose of their trip. Others will visit as part of a wider holiday in Scotland.
Dundee Waterfront Project
6.53. This project aims to transform Dundee's waterfront area and thus transform the city's economy. The elements of the project are shown at Table 6.14.
Source: Discover Dundee Waterfront - An Investment Opportunity
6.54. The development will be based on public and private investment. It is forecast to create around 7,500 direct jobs. The initial infrastructure investment is expected to lever in other investment. This will generate activity in areas such as digital media and creative industries, financial, retail, leisure and renewables.
6.55. In terms of the latest progress, Dundee City Council told us the following:
- City Quay. This zone has already seen two new office blocks built. One is fully let, and the other one partly let. They have attracted energy-related companies (particularly with a renewables focus) to relocate from Aberdeen area.
- Seabraes. Small units for start-ups in the creative sector will be available by summer 2013. These companies will also be provided with financial assistance and business advice.
- Central Waterfront. Efforts are being made to attract a 5 star hotel to this zone in addition to the Malmaison that will open late 2013.Regarding Dundee Port, Dundee has been identified by Scottish Government as one of the top two potential locations in Scotland for the manufacture of offshore renewables devices, as well as a possible base for subsequent operations and maintenance support. The port has Enterprise Zone status. There has been interest from several potential manufacturing inward investors. A Memorandum of Understanding between Forth Ports, Dundee City Council and SSE has strengthened the marketing of the port.
6.56. The Council recognise that taking the project forward will require the attraction of further public as well as private investment. However, they expect the job impacts shown at Table 6.14 to begin to come on stream within the next three years. And crucially from the airport's point of view, they will all be within easy reach of the Airport.
Implications
6.57. The economic analysis has the following implications for actual and potential air travel to/from the catchment:
- The area contains a significant proportion of the Scottish population, whose wage levels are close to the Scottish average.
- The population is forecast to grow in the next decade, and at a rate above that for Scotland as a whole. However, this is dependent on relatively high growth being achieved in Perth & Kinross.
- The catchment's economy has a degree of specialism in a number of sectors of above average growth potential. These include life sciences, which is generally recognised as quite air intensive and tourism (see below). In contrast, there is an under-representation in financial and business services, which is an especially air intensive sector, although there are several substantive financial companies with operations in the UK.
- There is also evidence of the potential to further develop other identified growth sectors. These are creative industries (notably digital media) and energy (renewables), based around Dundee port).
- A notable feature of the area's economy is the degree of specialisation in tertiary education. This is generally recognised as an air intensive sector. Both St Andrews and Dundee universities have strong links with student markets and institutions outside Scotland. This will increase the sector's air intensity.
- The tourism market within Angus, Dundee and Perthshire is predominantly UK in rather than overseas origin. Holiday trips are a big part of the overall tourism market, but visitor numbers, and non-Scottish tourism activity as a whole in the area, is quite dependent on the Perthshire market.
The main overseas markets are the United States and Germany (with the US being the largest with around 24,000 visitors per annum), then a range of EU countries. There is also a degree of seasonality to the visitor market; 60% of annual demand is between April and September. So even though this analysis excludes international visitors to North-East Fife (i.e. particularly St Andrews) and the potential for market stimulation direct air access might provide, the absolute size of most of these markets is sufficiently small that in themselves they will be unlikely to sustain a scheduled route to Dundee. Inbound bespoke charter services, particularly from Germany, might be worth looking at, however, and the data serves to emphasise the importance of a route to London because of the gateway it offers to access Dundee from a range of markets of domestic and international visitor markets.
- The business tourism market-and the overseas one in particular - is small in absolute terms. In contrast, VFR forms a relatively large share of all overseas residents' trips.
- The V&A project could be highly significant project for the profile and visitor activity of the area. However its impact on air travel cannot be properly assessed until the revised market forecasts-including visitor origins-are completed.
Established Policy Directives
6.58. The most recent version of the Scottish Government Economic Strategy was published in 2011. It sets out the Government's Purpose which is that "all our efforts and actions.. (are to)..be directed (to) make Scotland a more successful country, with opportunities for all to flourish, through increasing sustainable economic growth." As such, the Strategy is an overarching one that covers all activities of the public sector in Scotland-including transport.
6.59. The Strategy contains six Strategic Priorities that structure the activities through which the Government's Purpose will be achieved. These are:
- Supportive Business Environment.
- Transition to a Low Carbon Economy.
- Learning, Skills and Well-being.
- Infrastructure Development and Place.
- Effective Government.
- Equity.
6.60. Of these, three are particularly relevant to this study. First, a 'Supportive Business Environment', which encompasses Policy Areas such as:
- International Trade and Investment;
- Supporting Business Growth, which includes attracting inward investment; and
- Assisting seven key growth sectors - The Creative Industries; Energy; Financial and Business Services; Food and Drink; Life Sciences; Sustainable Tourism; and Universities.
6.61. Second, 'Transition to a Low Carbon Economy'. This is underpinned by the Scottish Government's Low Carbon Economic Strategy, which is based on the targets contained in the Climate Change (Scotland) Act of 2009, namely to reduce emissions by 42% by 2020, and by 80% by 2050.
6.62. The Low Carbon Economic Strategy notes the importance of technology advances, and their widespread uptake, in reducing transport emissions. The extent to which this successful will depend on the rate of growth in carbon-intensive parts of the sector such as aviation. If the rate of growth seems likely to negate lower carbon emissions elsewhere, then this will require effective local policy aimed at influencing planning and transport behaviour in order to reduce overall transport emissions by the requisite amounts.
6.63. 'High Speed Rail' (HSR) is also seen as making a longer-term contribution to achieving Scotland's climate change targets, by offering a low carbon alternative to domestic aviation, reducing mid and long distance car travel and providing opportunities for increased displacement of long distance road freight to rail.
6.64. Third, is 'Infrastructure Development and Place'. This Strategic Priority includes transport-related actions. The relevant ones here are:
- Focusing investment on making connections across, within and to/from Scotland better, improving reliability and journey times, seeking to maximize the opportunities for employment, business, leisure and tourism.
- Ensure Scotland is well connected with the rest of the world by working closely with the air, rail and sea transport industries. This is to actively promote new international routes, services and sustainable infrastructure.
- While written as long ago as 2006, the Scottish National Transport Strategy (NTS) remains the one that the Scottish Government works to. NTS has three Key Strategic Outcomes, which are to:
- Improve journey times and connections, to tackle congestion and the lack of integration and connections in transport which impact on economic growth, social inclusion, integration and safety.
- Reduce emissions, which impact on protecting the environment and improving health.
- Improve quality, accessibility and affordability, to give people a choice of public transport.
6.65. In terms of aviation NTS states that:
- To remain competitive in international markets (including inward investment and tourism) it is important to ensure that Scotland has direct air access.
- The aim is also to reduce and minimise the impact of airports on the environment.
- There is a requirement to make the best use of existing capacity where possible.
- There is a need to respects the rights and interests of those affected by airport development.
- Transport interchanges must be of the highest quality, including those at airports.
6.66. The TACTRAN Regional Transport Strategy (RTS) was completed in 2008. It refers to Dundee and Perth airports, while also noting the need to travel to Aberdeen, Edinburgh and Glasgow airports to access a wider range of destinations.
6.67. The RTS contains a number of objectives, grouped under six themes. The relevant ones here are:
- Economy - this contains three sub-objectives:
- Ensuring that transport infrastructure and services in the region help deliver economic growth, particularly in key business and employment sectors.
- Improving the efficiency, reliability and integration of the movement of goods and people.
- Addressing issues of peripherality associated with the TACTRAN area.
The Strategy notes that the region suffers relative peripherality as a result of the quality of transport links with the Central Belt and the remainder of the UK. It also states that further improvements are needed to external transport connections in order to maintain and improve economic, social and environmental wellbeing.
The RTS also refers to TACTRAN working with the relevant airport authorities to promote flights from Dundee and improved facilities at Dundee Airport.
- The Environment, which contains three sub-objectives:
- Contributing to the achievement of the Scottish national targets and obligations on greenhouse gas emissions.
- Promoting a transport system that respects both the natural and the built environment.
- Promoting a shift towards more sustainable modes.
- And finally, Integration, which has as one of its sub-objectives:
- 'Improving integration of all transport modes'; that includes a reference to ensuring that the role of airports in supporting the economy is supported by appropriate transport infrastructure including improved road and rail connections.