Out of the mouth of a former airport employee comes a word about the airport’s viability. Or, rather, a word about its non-viability. Read on for lots of lovely facts.
As part of the redundancy consultation carried out between March and May 2014, the management team presented employees with the expected running costs for 2014-2015. With revenues of just £2.78m and costs of £6.47m, the airport was on track to make a thumping loss of £3.69m. This figure is, of course, entirely in line with Mrs Gloag’s report of a daily loss of £10,000 and with our own research into losses in the Infratil years.
The managers then looked at every cost saving that they could think of and every possible extra source of revenue. This brought the loss down to £2.75m in that year using the most optimistic assessment possible. However, another £2.85m would also be needed in that year for capital expenditure and the costs of restructuring to achieve the suggested cost savings.
It was then the employees’ turn. They were asked to come up with every idea that they could think of for reducing costs and increasing revenue. The KLM flights were hypothetically increased to run at 100% capacity, four times a day; some punchy estimates were added for increased cargo revenue; the margin on fuel sales was increased to make it well over the industry norm; the business rates were slashed. In short, any half-viable idea was added to the calculations and treated as if it were a dead cert or at least had a 75% chance of working. And yet, after all this wishful thinking, it was clear that the airport would still operate at a thumping loss.
Given this backdrop of substantial losses even if you take the most optimistic view of what could be achieved, we’ve been talking to experts about RiverOak’s fantasies. Let’s start with a key part of the RiverOak fantasy – teardown.
The biggest player in the European teardown market is Air Salvage International, handling about 50 planes out of the estimated annual market of about 600 planes. And not all of those 50 planes are handled here in the UK – these guys travel around the globe to do their work. If you handle every part of a plane’s decommissioning, you might clear something like £14,000 per plane. The old airport had permission to dismantle two planes a year. So, a teardown business at Manston could account for less than £30,000. Peanuts. Remember that multi-million pound annual loss?
Now let’s look at cargo – the other key plank in the wafer-thin RiverOak business plan. Revenues here have a lot of variables, so we accept that what we say next can be flexed up or down. However, let’s assume you can charge top whack to handle a fully-laden 747-400 (there are reasons why you can’t, but we’ll come onto those in a sec.). After costs, you might be able to clear £4,000 a plane. You’re going to need a lot of planes to cover a multi-million pound annual cost base at these prices, aren’t you?
Now, here’s the spanner in the freight works that tells you why you won’t cover costs at Manston by handling cargo. The market for dedicated freight is small. The vast majority of freight travels in the belly of passenger planes and Manston doesn’t have a passenger business.
The next biggest slice of the freight market is the consignment stuff (DHL, Fedex, UPS) and these guys don’t want to be at Manston. The tiny freight market that remains after these two segments are removed – the stuff that goes on dedicated freighters – is fiercely competitive. If Manston sets out to achieve a top price for cargo, Stansted will drop its own cargo prices like a stone. Why? Because it can. The passenger business at Stansted covers the airport’s costs so Stansted can afford to charge a nominal £10 to land a freighter and drive Manston out of the market very quickly. How do we know this? We’ve talked to people who have worked at Stansted at a senior level. Our industry sources are emphatic – you can’t make money out of a dedicated cargo hub at Manston.
“But Cargolux loved Manston,” cry the supporters. We think we know why. Every cargo flight has a loadmaster. It’s a cost the airline pays. At Manston, the Cargolux loadmaster was paid for by the airport. This is unusual, to say the least. Add to that the fact that the airport was so underused that Cargolux could get in whenever they wanted and you have the makings of a love affair between Cargolux and Manston. But it’s a love affair where one party is being used financially by the other. And Manston wasn’t the user.
In a nutshell:
- the airport lost money
- all the ideas generated during the redundancy consultation couldn’t make it profitable
- teardown is a small market with low margins and it won’t save the airport’s bacon
- cargo is a competitive market with powerful competitors and it won’t save Manston’s bacon either.
So what is this CPO idea all about? Houses, anyone? Lots of luvverly houses designed by RiverOak and wedged onto the old airport site? Student housing? Lots and lots and lots of domestic and office buildings? That’s the business that RiverOak understands and they sure as hell can’t make money out of the old airport site with the plans they’re peddling now.
Let’s get real – the airport “plan” is a smokescreen for property investors to get hold of a site that they don’t want to pay the going rate for. What a misuse of public resources.
Courtesy of Manston Pickle