The real costs of using our airport

Airplane British AirwaysWhen 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.

Gibraltar Rock closedThe 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.

MonarchIn 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.”

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