Airlines – optimism for 2011 and beyond

In April last year, amid much publicity and fanfare, start-up Spanish airline Ándalus Líneas Aéreas began flying between Madrid and Gibraltar. It was a service hailed at the time as opening a world of opportunity for the Rock, with the promise of new routes to follow thereafter. But by April this year, the airline was tangled in financial strife and the Madrid route cancelled. The demise of Ándalus offers a cautionary tale that underscores the challenge of sustaining air links outside the traditional London routes.

Ándalus stepped into the Madrid-Gibraltar air bridge after two airline majors had tried and pulled out. Both Iberia and GB Airways had served the route, but had found that passenger volumes did not justify the costs of the service, particularly at a time when the economic crisis and rising fuel prices was crippling the industry elsewhere.

Enter Ándalus with a different business model: where Iberia and British Airways had operated large passenger jets, the start-up airline – it operated just one other service at the time – was opting for a 50-seat plane. The idea was that a smaller capacity would result in higher passenger yields on a low-volume route.

The problem was that no one anticipated just how low those volumes would be. According to the 2009 Air Traffic Survey published by the Gibraltar Government, load factors on flights to Spain averaged a paltry 41.5% during the year. At times, services were pulled altogether because no one was booked to fly. The company tweaked its schedules and pricing, with flights aimed at enabling businessmen from the area to fly to Madrid and back in one day. Still however, the numbers were low.

Undeterred, Ándalus responded by launching a service between Gibraltar and Barcelona in July last year. But it was a short-lived exercise. By September, less than three months after they began, Ándalus pulled the Barcelona flights.

Carlos Pereira, the company’s chief operating officer, summed up the situation when he said at the time that the airline had “no interest in flying with an empty plane.” The Madrid schedule was also cut back, with the airline complaining – unfairly, according to the Gibraltar Government – that the promised help to promote the routes had not materialised.

Behind the scenes, the problems facing Ándalus were far deeper than simply low passenger volumes. In March this year, reports emerged that the company had allegedly built up un-paid debts running into hundreds of thousands of pounds. An Ireland-based aircraft leasing and financing company called GE Capital Aviation Services called in the lawyers and moved in. By April, Ándalus had announced that all flights between Gibraltar and Madrid were indefinitely suspended.

AIRPORT
After months defying an increasingly gloomy scenario, the abrupt collapse of the latest attempt at a Madrid-Gibraltar air bridge inevitably raised questions about one of the Gibraltar Government’s flagship capital projects, the construction of a new air terminal at a cost of £50m to the public purse.

In a series of statements to the local media, the GSLP/Liberals challenged the sense in spending such a huge amount on a terminal that, in their view, reflected the failure of the government’s aviation policy.

“The airline [Ándalus] has pointed to the poor load factors and the low demand that existed for the route to Madrid,” an Opposition spokesman said at the time. “This confirms the analysis of the Opposition that there was little or no market research conducted by the Government on the demand that existed in this part of the world for flights between Gibraltar and Spain. This should have been done before the decision was taken to embark on the costly air terminal project”.

The government’s aviation policy, the GSLP/Liberals said, was driven by party political interests and lay “in tatters”. Instead of investing £50m, the government should have opted for a more modest terminal.

The analysis drew a sharp rebuke from the Gibraltar Government. In a statement, No.6 Convent Place poked fun at the Opposition and said it remained “delighted to take full political responsibility for the excellent, correctly-sized, well-located and much-needed new air terminal project”.

The government said it was not responsible for the financial woes of foreign airlines and insisted that the terminal was a long-term project that had to be seen against the background of opportunities for air links under the terms of the Cordoba agreement, which allowed for ‘expanded use’ of the airport and the potential for flights from Gibraltar to destinations across Europe.

“The new air terminal is an investment in Gibraltar’s future, to satisfy Gibraltar’s present and future needs and opportunities, and to exploit our Europe-wide and international opportunities, the possibility of which the Cordoba Agreement delivered at a political level,” the government said at the time.

LOOKING AHEAD

As it ploughs ahead with the construction of the air terminal, the Gibraltar Government is engaged in a parallel exercise to drum up business.
Last May, transport minister Joe Holliday participated in the Routes Forum in Toulouse, accompanied by Chris Purkiss, the director of Civil Aviation, and Nicky Guerrero, chief executive of the Gibraltar Tourist Board.

The event was a major air conference that brought together airlines and airports to discuss new route proposals. The delegation met with both airline representatives and airport managers to explore possibilities for new business.

“The airline industry is currently experiencing difficulties as a result of the prevailing economic conditions worldwide,” Mr Holliday said.“However there is optimism that 2011, the year in which the new air terminal commences operations, will result in improved performance.”

One airline already known to have shown an interest in Gibraltar is Air Europa, which is linked to the Halcon Viajes and Globalia tourism group.
For the Opposition, however, the message was “propaganda” to justify the expense of the air terminal.

“The Government’s decision to attend the Routes Europe Forum conference in France in a bid to attract new airlines is a reflection of their desperation to bring in different players in order to justify the enormous cost of the new air terminal building,” said Dr Joseph Garcia, the Opposition’s spokesman for civil aviation matters.

“It is a fact that over many years, despite the propaganda, they have failed to attract new airlines and open new sustainable routes from Gibraltar airport.”

Dr Garcia said that while the government continued with its delusions of grandeur, air arrivals from the UK were static in 2008 compared to 2009, and dropped by 4000 in January and February this year.

“This is the harsh reality behind the propaganda,” he said.

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