12. Conclusions and Recommendations

12.1. The purpose of this study has been to assess the short-term future prospects for Dundee Airport based on an examination of potential development opportunities in the context of a range of potential alternative scenarios. Specifically, the brief from Transport Scotland included the following 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; and
Identification of development opportunities, the scoping of options for their delivery and then their appraisal using STAG Stage 1 methodologies.

12.2. This Final Report has sought to draw together the work covering all these areas while 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".

12.3. With this in mind, it is not our intention to recommend a specific 'single' option for the airport's future - significant further work is required before any such final conclusions on this could be reached on a fully informed basis. 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 the implications if this is not addressed;
make some recommendations on short term initiatives which HIAL, Transport Scotland and other key local stakeholders should seek to pursue while further work to define an agreed short to medium term strategy is being undertaken;
identify the most promising looking options which merit further work; and
outline the least worse fall-back positions if none of those options prove to be deliverable or acceptable in cost benefit terms.

The Current Direction of Travel

12.4. In the absence of an approved and funded PSO to underpin its core London route, Dundee Airport is likely to face a significant threat to its last remaining passenger service particularly after the concerns it may be withdrawn during the summer 2013 season. The loss of the Belfast and Birmingham services that were being flown by Loganair resulted in rising levels of subsidy, currently estimated at £2.7 million per annum (a figure that could be expected to rise to between £3.0 million to £3.5 million if Cityjet withdraw their London City service) and the real prospect that the airport would need to close to commercial passenger services and the additional staff required to service them laid-off. A skeleton staff would need to remain to enable Business Aviation and GA traffic, which is growing, and an offshore operator (if one can be attracted) to continue to use the airfield and so avoid the potentially significant costs and risks associated with the complete mothballing of the airport followed by an attempt to re-start scheduled passenger operations at some later date.

12.5. Whether the level of financial commitment that Dundee Airport currently receives from the Scottish Government via HIAL can be justified for a protracted period, if there are no real prospects for attracting new airlines and other ancillary activity, is likely to be at the centre of decisions about the airport's long-term future. Based on our analysis of the airport's catchment, demand profile, operational constraints and a number of other potential business opportunities that an operational airport might attract, we believe that there may be scope for a number of domestic routes, a potential international link (to Amsterdam) and a range of charter destinations. If delivered, these would certainly help to improve the airport's prospects for reducing the level of subsidy it currently receives over time. Moreover, there are a number of carriers that have the equipment to operate those services.

12.6. Our high level market analysis alone will not be sufficient to attract those carriers - a combination of further detailed route specific analysis, attractive commercial terms, a risk sharing offer and strong marketing support will all be needed to make a strong case for airlines to put Dundee on their radar and persuade them to place aircraft at the airport in the face of competition for those assets from numerous alternatives within the UK and overseas.

Short Term Initiative

12.7. It is with this in mind that our principal recommendation to Transport Scotland is that, in conjunction with relevant strategic partners (most notably HIAL and Dundee City Council) they implement a short term initiative covering the next 12 -18 months at the heart of which would be the following measures:

Working with Cityjet to retain their existing service to London City or, should that not prove successful, finding a replacement carrier to serve the London market - Transport Scotland have already implemented this proposal by secured 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 UK Government's recently announced £20 million of funding to improve air links to London where there is a risk that regional connectivity may be lost;
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 but especially social media;
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 building that generates rental income now without foreclosing the potential for attracting a blue chip use down the line; and
Draw-up designs, costings and an associated business case for additional aircraft stands for commercial or business aviation use.

12.8. It is envisaged this agenda will require additional resources, which could potentially be shared with other HIAL airports where there is growth potential (e.g. Inverness, Sumburgh and Wick) to help HIAL in its ongoing efforts to attract new routes. This resource would be in the form of dedicated staff, specialist external consultancy support and capital, marketing and route development budgets. 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 longer term growth. Ideally, the major stakeholders with an interest in the airport would join Transport Scotland in committing resources to the delivery of such an initiative, because their active engagement is considered crucial to its success.

12.9. Some of the peer airports we benchmarked have:

remained committed to marketing themselves to airlines and passengers during the 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).

These airports (e.g. Gloucestershire and Norwich) have not only done better during the recession, but will be better placed to benefit from the upturn when it comes. Blackpool and Newquay are both showing signs of growing again after protracted declines and Exeter appears to be slowing the speed at which it has been losing traffic and has just been sold to a new investor. The message to the key stakeholders with an interest in the airport is clear. 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 stones have been left un-turned in the effort to giving Dundee Airport a fighting chance for survival.

Medium Term Strategy

12.10. Route development is not normally a process which generates quick wins; it is as much about persistence and long-term development of relationships with airlines as it is about knowing your market, understanding the operating models of different carriers and being able to present a well-targeted story to the right carrier with comprehensive and high quality analysis. Such things are the essential prerequisites to getting an airline's interest, but they won't close the deal. Small regional airports, operating in what is a very competitive industry, usually require consistent strong financial and marketing support for that to be achieved.

12.11. In our view, HIAL have the in-house capability to manage this agenda. They may, however, need support in the form of supporting resources to deliver the kind of marketing effort required to target all the airlines mentioned in Table 5.6 with the right kind of supporting analysis and the intensity and persistence of follow-up contact needed to 'convert' proposals into new routes being started from the airport. This may require additional resource not just in the short term, but probably for at least the next 3 years until all the opportunities have been 'chased down'. Dundee is not an easy 'sell' but if the issue of whether there is a market to be served at all is to be bottomed out once and for all, there is a requirement for this effort to be given appropriate priority and funding.

1.1. 12.12. Consistent with the forgoing would be HIAL spending time to build-up and firmly establish the potentially important relationships identified by the stakeholder survey undertaken for this study, and by working on the proposed Short Term Initiative. The aim is to develop a clear and comprehensive picture of business usage to present potentially beneficial corporate relationships to airlines. There is clearly a lot of goodwill towards the airport in the business community if the appropriate services can be provided at the right price but, they also need to be engaged in the effort to attract those services.

12.13. 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 Airport, 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. The surveys, correctly specified, can also help to identify the best methods of communicating with potential passengers in the catchment area, the improvements they would like to see at the airport and the facilities and ancillary services that will persuade them to spend their money while using it. For example, issues such as car parking prices, the introduction of an Airport Development Fee and opening hours could all be market tested using this approach to ensure informed decisions are made before their introduction.

12.14. HIAL, supported by Transport Scotland, VisitScotland and Dundee City Council as required, should commit 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 and regular ongoing meetings with existing airline customers. Distilling the feedback from these meetings is the key to refining the offer to airlines. They will also be impressed by 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. For example, if an airline shows any sign of interest, they should be invited to see the airport, key businesses, the City, and its environs (e.g. the Fife Coast, golf courses, the City's development plans, Perth etc.) and hosted as well as any other major potential investor would be.

12.15. 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. This may seem like a substantial sum, but in the context of an airport potentially losing +£3 million a year, and the need for its stakeholders to develop a measure of confidence/certainty about is long-term future or more optimistically the case for future investment, a pragmatic view may need to be taken about the significance of these figures in an industry such as aviation. For example, is raising £75,000 a year from car parking charges worthwhile, if all they do is serve to encourage passengers to choose to travel to Edinburgh to access their flight?

Property Assets

12.16. Another priority should be to ensure all the airport's existing property assets are being let, even if only for short term tenancies. The Ex Scottish Water building has been vacant for a protracted period as HIAL have searched for a long-term high quality tenant. This is a laudable aim, and it is understood there has been genuine interest, but as suggested earlier if someone will take it now, it may be better to offer it on a temporary license to them while that marketing effort, for example to the offshore renewables is exhausted. The key is to make sure the building could be re-let at relatively short notice if a long-term blue chip tenant able to afford full market value or generate substantive wider economic benefits were to be found.

12.17. 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 so that its full revenue potential and the costs of delivering it, in a series of phases if necessary, is clearly understood. We found no evidence of such an asset strategy or a coherent plan to market any opportunities that might be thus identified. This means that key relationships (e.g. with Tayside Aviation and Loganair Maintenance) cannot be advanced constructively, based on a shared vision of how the airport might best be developed in the medium term (say 5 years). Given the limited resources available within HIAL to dedicate to this task the current approach is of necessity reactive and incremental.

12.18. We suspect this means the scope to improve car-parking facilities (i.e. where is the best place for short and long term expansion and what are the costs of doing so) and optimise both direct and indirect revenues (e.g. by developing a good understanding of relevant price elasticities) is not as well understood as it might be. Similarly, we anticipate that, if explored thoroughly, opportunities to develop renewables commercially on site and improve retail income could be found, even if the sums involved are not material in the context of the airport's current operational losses.

Commercial Focus

12.19. The focus of the on-site airport management is overwhelmingly on safety, security and operational integrity. These are important, and the focus on them means that the airport has been brought up to HIAL Group standards (at an enhanced cost compared to under Dundee City Council's ownership), but with the risk of non-compliance with CAP168 and other regulations substantially reduced. There is no question in our mind that the airport is run relatively cost effectively - there is evidence of multi-tasking for airside functions, clever use of administration staff to provide check-in in response to the 2-3 periods of the day when there is demand for it and of efforts to minimise the RFFS rosters consistent with the airport's traffic profile. However, there was less evidence of commercial initiative and action orientated forward planning that might help to address the airport's fundamental problem, a lack of revenue income.

12.20. For example:

Has the concept of an Airport Development Fee been examined, and if not why not? Several peer airports (Newquay, Norwich, Blackpool etc), have introduced such a charge and the impact on passenger numbers has depended on the price sensitivity of the market, airline co-operation, the level the fee has been set at, how it is collected and what it is used for;
Has the potential for advertising hoardings facing onto the A85 been considered?
What about naming rights (within the limits of CAA rules) for a sponsor?
Could part of the forecourt area be used for drive-in car washing/valeting operation, which could also be offered to passengers and generate ancillary revenues? and
Similarly a shared taxi service.

12.21. The airport ought to be exploring these and all other such options in an attempt to maximise commercial revenues.

12.22. Based on the forgoing, we would recommend the preparation of a strategic 5-year development plan, which might also seek to address issues such as:

What is needed to keep Loganair at Dundee, or even better increase their presence building on their existing facilities and ties to Tayside Aviation?
Is there the scope to develop an Academy proposition, perhaps in conjunction with Perth College?
How could additional hangar facilities be developed and where?
How can Tayside Aviation's current success be supported long term and how can the Airport most appropriately benefit from it?
What is the scope for marketing to Business Aviation users and how can the Airport ensure leakage to Leuchars of this valuable traffic is minimised?
How far can the airport's dependence on aeronautical revenues associated with commercial passengers be reduced?
What are the priority capital projects needed to meet some or all of the forgoing or respond to airline interest emerging (e.g. incremental apron for commercial and business aircraft) and do they fall within PDR's or should planning approvals be sought in advance?
What would be needed if several new routes were to start and how long and at what cost would it take to deliver? and
How could the additional traffic be managed without any rises in operating costs up to a 150,000-passenger threshold, and ideally beyond.

Concluding Remarks

12.23. Although the initial brief for the study included provision to look at long term options, based on our investigations we believe Transport Scotland are right to ask us to focus in this report on identifying, appraising and recommending short and medium term initiatives for the development of Dundee Airport, as these need to be actioned quickly and successfully if it is to continue to have a long term future as a passenger airport.

12.24. In doing so we believe our analysis points to the following initial, but by no means final, generic conclusions:

Retaining a passenger airport at Dundee could 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;
The costs of mothballing commercial operations should be examined so that if these services are lost the comparative costs of temporary closure or maintaining a fully functioning facility are understood;
The airport is well placed in the catchment area, has existing passenger facilities that can be expanded at more modest cost than is likely to be possible at Perth to achieve the same service standards and is capable of generating material economic benefits;
It would, 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;
Further work should be done on exploring options D1 and D2 alongside the "Do Minimum" baseline to allow the next stage of the STAG assessment to be undertaken if required;
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.

12.25. This is a big agenda but as anyone in the industry 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 better to explore all the alternative avenues before any such decision is reached. We hope this report has contributed substantially to that objective. We believe there could be a potential future for the airport, but there is significant work to be done, by a number of key stakeholders, to maximise the opportunity for this outcome to be realised.