When news first broke earlier this year that the Ministry of Defence had increased landing fees at Gibraltar airport, there was widespread concern that the hike could hit the local economy hard. Weeks later, when Monarch announced plans to ends its Manchester service over rising costs, it seemed the worst-case predictions had come true. Gibraltar had lost its only air link to the north of the UK and looked set to suffer further at the hands of rival Spanish airports. The Gibraltar Government blamed the MoD. Monarch blamed the Gibraltar Government. And the MoD revealed plans for a second, much larger increase. An unprecedented public row followed, pitching all three parties into a cycle of finger pointing and accusation. But above the noise, one fact was undisputed: Gibraltar airport is very expensive.

The MoD’s decision to increase landing charges came at a sensitive moment
This was barely news to those who worked in the airline industry, but rarely had the issue of the local airport’s competitiveness, or lack of it, received so much public attention. The MoD’s decision to increase landing charges came at a sensitive moment in the trilateral negotiations between Gibraltar, the UK and Spain, a key element of which was to hammer out a deal to expand the use of the airport. What impact would the rising fees have on these talks? And why was it necessary for them to increase anyway? Was it simply the MoD flexing its muscles and stamping its mark on a runway that it ran, but which others were negotiating over? Or was there a real economic reason? And how would all this affect the Gibraltar Government’s plans to attract new airlines

Assessing airport charges is a complex exercise that involves numerous factors. But whichever way the costs are calculated, the Rock is vastly more expensive than British or Spanish airports.

Comparisons of basic landing and navigation charges starkly illustrate the point.

There are two commercial aircraft types currently serving the local market, the Airbus A320 and the Boeing 757. These two planes are the workhorses of Europe’s short haul commercial fleet.

As of March 10, three months after the MoD increased Gibraltar landing fees by 8.4%, the charge for the Airbus A320 ranged from £1,228 to £1,245, depending on the aircraft’s configuration and total weight. Landing fees, including navigation costs, for the slightly larger Boeing 757 stood at £1,736.

British airports are hugely cheaper than Gibraltar. Off peak, an Airbus A320 is charged a total landing and navigation fee of £224 at London Gatwick, rising to around £463 at peak times. The same plane arriving at Luton is charged around £272 during the day, rising to £414 at night.

The most relevant comparisons, however, are with nearby Spanish airports. It is to Málaga and Jerez that Gibraltar risks losing business. The figures are bleak. Comparable charges in Spanish airports are between three and four times less than in Gibraltar.

Aeropuertos Españoles y Navegación Aérea [AENA], the state body that administers Spanish airports, classifies airfields into several categories and charges accordingly.

The combined landing and navigation charge for an Airbus A320 landing at Málaga or Seville, both Category 1 airports, hovers around the £431 mark, slightly more for the Boeing 757. For similar-sized planes landing at the Category 2 airport in Jerez, the fee is slightly less. Spanish airports charge a flat fee irrespective of the time of day.

“That huge gap means Gibraltar is pricing itself out of the market,” said one industry expert who preferred not to be named. And there are other costs that exacerbate the problem. The departure tax and security tariff charged by AENA, for example, add up to E5.41 in total, or just under £4 per passenger. Gibraltar’s departure tax, which is set by the Gibraltar Government, is more than double that at £10 per passenger.

The MoD believed the decision to increase landing charges was justified because at present, commercial operations lead to significant additional costs – totalling around £400,000 a year – that are unrelated to military operations at the runway. British government officials argued that by meeting those costs, the MoD was effectively subsidising commercial airline operations in Gibraltar.

The increase in landing fees – which had not gone up in nearly two years – aimed to reduce the bill incurred as a result of commercial flights.

But from the start of the affair Joe Holliday, Minister for Trade, Industry, Employment and Communications, said the move would have a “negative and detrimental” effect on the airlines.
Even before Monarch’s decision to pull the Manchester service, Mr Holliday had warned members of the House of Assembly that cost implications could force some flights to move to cheaper airports in Spain.

The Gibraltar Government attacked what it described as “the [MoD’s] totally unreasonable and unbusinesslike manner of implementing its sudden decision to immediately end 45 years of British Government policy of meeting some of the cost of civilian flights using the airfield.”

While it understood the MoD’s objective, the Government deplored the manner and timetable of the decision as “indefensible” and “reckless with Gibraltar’s interests”.

Monarch, meanwhile, acknowledged that the hike in MoD fees was an important factor in its decision to end the Manchester service. But it also blamed the Gibraltar Government for ‘dithering’ and for failing to ‘ameliorate the blow’ by reducing the high departure taxes paid by passengers leaving Gibraltar airport.

The airline maintained that a difference of just a few pounds in the price of tickets was enough to make some passengers choose a flight to Málaga over a flight to Gibraltar.

Tim Jeans, managing director of Monarch Scheduled, said the competitiveness of Gibraltar airport had to be viewed within the context of other airports in southern Spain, particularly in respect of services to UK destinations outside London. The price rise in Gibraltar came at a time when several airlines were offering numerous services from the north of the UK into Malaga, bringing down prices to the Spanish city and offering passengers greater flexibility and choice.

Not only that, but the Monarch Manchester service had just come to the end of a two-year introductory period during which it paid reduced landing fees at Gibraltar.

All these factors combined to create a cost climate that made the Manchester flight unviable.
Commenting on the local airline market, Mr Jeans said the London flights enjoyed a ‘robust’ customer core that was bolstered by the business community. But this had been less evident on the Manchester route, where much of the passenger traffic was ultimately heading across the border into Spain.

In that respect, the Monarch MD said it was vital that Gibraltar addressed the issue of airport costs across the spectrum.

“Otherwise the services to the Rock are going to be reduced to a couple of flights a day into London and no more, and most of the traffic that would have used Gibraltar as a gateway to some of the hinterland regions in Spain will simply disappear into Jeréz, Seville and Málaga,” he said. The Gibraltar Government, while urging the MoD not to increase its charges, ruled out any drop in passenger taxes.

“It is not the policy of the Government to subsidise [airlines], whether through discounting passenger taxes or otherwise,” the Government said at the time. “That policy will not change.”

It is not the policy of the Government to subsidise airlines
In the wake of the first 8.4% increase in landing fees, the MoD and the two airlines currently serving the Rock – Monarch and GB Airways – entered discussions to try and avoid a further rise. The Gibraltar Government was not involved in these talks.

The MoD was planning to bump up its charges by a further 25% and that, the airlines maintained, would inevitably result in a higher fares for passengers.

Little information has emerged formally from these talks, but well-placed industry and official sources said a solution may have been found that ruled out the need for the second rise.

Under the terms of that deal – which had yet to be signed as this edition went to press – the airlines would operate their flights within a specified, tighter time window, and pay extra on a case-by-case basis should they fail to keep to it. That would enable the MoD to keep down staff and operating costs at the airfield, which is currently open from the morning through to late evening.

But while such a deal might be workable with the two existing airlines, it is not clear how it will impact on any new operators looking at the Rock, particularly if they are unable to keep their services to the same timeframe.

There are currently four airlines in exploratory talks with the Gibraltar Government. One of them is a locally-backed start up operation. The others are established carriers and include BMI, FlyBe and EasyJet, though the latter may have ruled Gibraltar out over costs. EasyJet chairman Stelios Haji-Ioannou, speaking in Gibraltar recently, told the Gibraltar Chronicle: “It’s too expensive when you have Málaga [nearby].”

The Gibraltar Government position is that more flights in and out of Gibraltar means more revenue for the MoD. Landing fees should be going down, not up, it said.

Perhaps the biggest unknown factor in all of this is progress at the ongoing trilateral talks.

Once again, very little formal information has been released as to the content of the talks between Gibraltar, the UK and Spain. But it is clear that rising airport costs are at odds with trilateral plans to expand the use of the airport.

Peter Caruana, the Chief Minister, made the point forcefully during a recent meeting with Geoff Hoon, Minister for Europe at the Foreign & Commonwealth Office.

Mr Hoon was formerly the UK’s Secretary of State for Defence and has intimate knowledge of both the MoD and Gibraltar.

“In the light of some very strong representations that Peter [Caruana] has made to me today, I will certainly be going back to discuss these matters with my former colleagues in the Ministry of Defence with a view to recognising that we…are moving towards some practical improvements in the use of the airport,” Mr Hoon said toward the end of June.

“I will ensure that all parts of the British Government work together on this and I will be discussing that with my colleagues in the Ministry of Defence.”, “It is an important
issue.”

Highlights
Retail & wholesale sector the most sensitive sector to cost increases
Private sector remains optimistic about future of Gibraltar’s economy.

Concern remains over tax reform
All sectors cite staff recruitment and retention as one of their biggest problems in future.

Sources of business
The firms responding said that slightly more than half (52%), of their business comes from local trade; nearly one third (31%) of their business came from international clients; day visitors, day trippers to Gibraltar accounted for 12% of business whilst cruise visitors contributed just 3% to respondents’ businesses.

Business Climate
Half of those responding reported an increase in sales in 2005 compared to 2004. However, 29% said that they had seen a decrease in sales over the same period. The majority of these businesses were in the retail and wholesale sector. Just under one fifth of those responding (19%) said that there had been no change during the period. This confirms anecdotal evidence during the second half of last year that retailers have had their margins squeezed as costs have increased whilst sales have remained flat for many shops.

When asked about the outlook for 2006 the picture was more mixed. Half thought that trading would remain the same as 2005, but a third of those respondents, particularly in professional services, thought that business would be better. Less than one fifth (17%) thought that trading would deteriorate during 2006.

Beyond 2006 the picture was understandably more uncertain with a quarter of respondents not giving any view on the trading environment. However, just under two thirds of those responding (60%), thought that trading would be the same or better than 2005.

Seasonality of business
Two thirds of respondents said that there was no seasonality to their business. The majority of these were mainly in the non-retail/wholesale sectors.

Sensitivity to cost increases
77% of respondents said that the costs of rates and utilities had increased noticeably during 2005. With just one or two exceptions the respondents which had not noticed these increases were all trading in the finance and professional services sector.

Methodology
The last Trading Conditions Survey conducted by the Chamber was in Summer 2004. It covered the 18-month period between January 2003 and June 2004. This survey was conducted between January and the end of February this year and covers the whole of trading in 2005. This edition of B2B is the first since the full results became available. 279 surveys were posted and we received 83 completed surveys – a great response rate of 30%, very much in line with previous surveys. Those members responding employed 2,400 people in Gibraltar or about one fifth of the private sector workforce.

Thank you to all those members who took part.

Future Trading
What was perhaps more revealing was that nearly two thirds of respondents (64%) said that increased business costs would be the single most important issue facing their business in the year ahead. This was the largest single issue given by respondents, followed by recruitment and retention of staff (45%), competition with Spain (37%) and then increases in Government red tape (28%).

This was the first time that the Chamber asked members about dealing with specific Government departments and the effect this had on running their business. Comments were mixed but members in the main tended to heap more praise than scorn on various Government departments. Credit where credit is due. For ease of viewing we have summarised the various responses in the cross-tabulation below.

Pensions Debate
77% of respondents said they did not know enough about the proposed Provident No 3 Scheme with only a slightly lesser percentage (66%), expressing a desire to know more. Several respondents commented that there was no independent source of advice.

When asked if they thought whether pensions should be mandatory there were forthright views on both sides of the divide: 55% responded that they should not be mandatory whilst 41% said that they should be.

Government – Business Friend or Foe?
On a sliding scale, members were asked if they thought the Government was responsive to the needs of business. Just under one fifth (18%), responded yes in the majority of cases, one sixth (16%) responded by saying that the Government was sometimes responsive. By far the largest category (37%), said that it depended on the case.

Perhaps less optimistically 14% responded by saying that the Government was not usually responsive to the needs of business and 12% of respondents said that Government was not at all responsive to the needs of the business.

Future business needs
Respondents were asked what they thought would be their main business needs in the future. Always a tricky one due to the variety of businesses operating on the Rock. We tried to categorise the areas we thought most likely to coax respondents. The results were quite enlightening although as this was the end of the survey the response levels did tend to drop off somewhat. Nevertheless some discernible trends did emerge.

There appears to be a need for business advice, particularly with respect to planning and growth. This would appear to be good news for the Rock’s professional services industry of accountants, tax specialists and lawyers. It is likely to bring cheer to the business advisers of local banks too.

Staff development and training is an area that many respondents identified as one of their top three business needs in the next year. The increased number of training firms which have set up in Gibraltar offering business training are likely to be beneficiaries of this.

Summary
These results show that some burning issues persist for many sectors in Gibraltar: continued uncertainty over tax for the finance sector, cost increases for the retail and wholesale sector and staff recruitment and retention for just about every sector. Some of these, such as tax, are outside our control. We can influence others though. The Chamber has flagged up the issue of rates increases several times in the last 12 months, particularly for our members in the wholesale and retail sectors. It is good to see that our lobbying efforts have borne some fruit in the recent budget on this issue.

We will continue to lobby for our members’ interests. However, we can only do this effectively if we are aware of the particular issues you face.

Much useful information can be gleaned from this year’s survey. If you have any comments or questions on the results or suggestions about topics for future surveys, then please contact the Chamber on 78376 or send us an email to info@gibraltarchamberofcommerce.com

Two web scams have been doing the rounds in the last few months. They show the increasing determination of the scammers and their ability to reinvent new ways of turning old tricks.

Inflated rates for domain names
Several local companies and Chamber members have been contacted by telephone recently by European Domain Solutions (EDS) based purportedly in Leicester UK. They call to advise local companies that another unidentified company, implying it is a competitor, has been attempting to register a similar web address but with a different domain extension – .net, .biz, or .eu. They also tell the local companies contacted that this is likely to damage their business.

EDS claim that there is no UK legislation to protect domain registration. What they omit to tell companies is that ICANN (www.icann.org) does just that. Mysteriously EDS were unable to provide further details as to the identity of the companies attempting to register these similar domain names.

Using a trumped up claim that under some non-specified UK legislation, EDS go on to say that they are obliged to inform the local company when another firm is trying to register a website with a similar name.

The sting comes when EDS tells the local firm that they can register a website on their behalf to protect their business. The rate EDS charges for this is £30 per year per name for a 5 year contract, paid up front. This could be reduced to £25 per year per name for a ten year contract, again paid for in advance.

So for a fictitious company with a web address like www.xyzgibraltar.gi if another company was trying to register www.xyzgibraltar.net or www.xyzgibraltar.eu or www.xyzgibraltar.biz EDS would charge £30 per year for each of these. If you registered all three of these for 5 years with EDS, it would cost you £450.

Most domain hosts charge currently between US$15 – 35 per or £ sterling equivalent per domain per year, depending on whether you want email diversion, number of email addresses and so forth.

Legally EDS do not appear to be breaking any law but they are using fear to pressurise local firms to register names they don’t want or don’t necessarily need at an inflated price. Anyway, registering a name is the easy bit. What really makes the difference is whether anyone can find your website. To do this effectively you need good search optimisation which does take time, money and a bit of expertise. There are plenty of locally based firms who can do this for you. No need to go to the UK for this.

Ransomware
This scam is somewhat more pernicious and happens when your computer is hijacked by hackers who blackmail you into making a payment in order to be able to access the files stored on your own PC. Thankfully it is not widely known in Gibraltar yet but hopefully forewarned is forearmed.

Criminals encrypt files with complex passwords, leaving a ransom note telling victims not to contact police. The first that users are aware they have been hacked is when they discover that their computer files have vanished and have been replaced by one 30-digit password-protected folder. Sometimes hackers will also create a file with a name like “instructions how to get your files back” onto the user’s desktop.

A trainee nurse in the north of England recently became a victim of this new internet scam. In her case the crooks left a virtual ransom note on her desktop saying that she would have to buy drugs from an online pharmacy to find out the password.

This type of scam, known as Ransomware, means victims cannot access any of the files stored in their My Documents folder. It is thought the message was part of the scam and she inadvertently downloaded it. One particular virus is known as Archiveus and victims are coerced into buying pharmaceutical drugs from an online pharmacy, thought to be based in Russia.

A Greater Manchester Police spokesman said: “Our High Tech Crime Unit is aware of this new type of crime and incidents of this kind could increase in future.”

PROTECTION TIPS

• Be sure to use a firewall
• Update your antivirus software regularly
• Scan your pc on a weekly basis
• Make a back up of your documents at least once a month

Hackers sometime create a folder with instructions on how to get your old files back

A Chamber member reported that whilst driving on the M40 on a recent trip to Madrid, an unmarked car drove alongside, flashed what seemed like a police badge and gestured to the driver to pull over which he duly did. One of the two individuals (in plain clothes) in the unmarked car then approached the stationary car, flashed the same badge momentarily and introduced himself as an Interpol officer and asked for documentation which the driver duly supplied. The alleged official then asked the passenger in the car for her documentation and when she reached for her bag, the “Interpol Officer” lunged into the car and grabbed her wallet.

Alarmed at the move, the driver in an agitated state asked the “agent” to see his identification badge again and to get his body out of the car. Since the passenger had little money in her wallet, the “agent” suddenly lost interest and walked briskly back to his car and drove off at high speed, but not before the driver took a note of the licence plate. This was immediately reported to the police by mobile phone.

After taking details, the real police (Guardia Civil) said that this has become a frequent occurrence. A variation on this scam is that the driver is asked to step out of the car and then the “agents” drive off with the car.

The fraudsters appear to target foreign-registered cars. So if you are driving in Spain on Gibraltar-registered plates you should drive with extra caution.

Our member further reports that on leaving Madrid, another unmarked car approached them in the same way but this time, using the camera on his mobile phone to take a picture the other car disappeared briskly. Again the licence plate number was given to the police.

Be warned. Do not stop for any unmarked “police car” on any of the Madrid orbital motorways and if they persist, call the police on 061 and tell them what is happening and ask for advice.