Why a merger of Belfast's airports remains unlikely
There is an arguable case that Northern Ireland should continue to be served by four airports, including Dublin. Three can be expected to pay their way independently, whilst the fourth, Derry City, will continue so long as local interest groups, particularly the local cross-border councils, provide financial supplements.
There is a recurring suggestion that Northern Ireland should seek advice on a formal airports policy, to be created by a high-level economic, social and environmental study. Would there be a benefit in Northern Ireland if there was only one Belfast airport rather than two?
The evidence of recent developments points to the merit of non-interference.
Understandably, the private sector owners of the George Best Belfast City Airport (GBBCA) and the Belfast International Airport (BIA) would welcome any change which gave one or the other a larger slice of the growing business.
Their shareholders have invested in expensive assets which, although profitable, are less profitable than many other UK airports.
In addition, there is a tension on whether there should be any policy changes to keep more local business in the two Belfast airports by deflecting passengers away from using Dublin Airport. If that was the objective, what policy instruments are possible, except the abolition of APD (Air Passenger Duty), which has already been shown likely to be cost ineffective?
Arguably, Northern Ireland is well served by the different and distinct balance of airline services offered to local customers (and visiting tourists or business groups) by the balance of services from the four airports, including Derry City.
Dublin Airport is now, for convenience, within easier access and is serving a large range of international destinations and can rival Heathrow and Amsterdam for hub connections. Northern Ireland, with a population of 1.8m people, is unlikely to generate enough passengers to sustain a range of daily-scheduled, long-distance international services.
The balance of services has evolved very much as might have been predicted. The financial performance of both Belfast airports is modest. In the most recent financial year to the end of 2014, both airports registered results broadly similar to other recent years.
In 2014, Belfast International handled 4,034,000 passengers, generated revenue of £29.4m, and after deduction of operating costs, had an operating profit of just under £2.5m. With a balance sheet shareholder value of £86m and outstanding borrowing of nearly £30m, pre-tax profits faced an interest bill of £2.2m which meant that pre-tax profits were only £0.24m. The shareholders have not received any dividend since 2012.
Last year, Belfast City handled 2,560,000 passengers, generating revenue of £19.8m. For Belfast City, deducting operating costs left an operating profit of £2.4m, just marginally lower than Belfast International. The cost of £14m of borrowed funds deducted £1.4m from the operating profit at Belfast City, leaving pre-tax profits of £0.96m.
For the first time in recent years, Belfast City drew £3.1m from its funds to pay a shareholder dividend. However, this had the consequence that the balance sheet value of shareholders' funds fell approximately to match this dividend.
In the last five years, neither of the Belfast airports have enjoyed an upward trend in passenger numbers. Passenger numbers have varied only marginally.
The passenger numbers in 2009
and 2014 were:
Belfast City2.6m and 2.6m
Belfast International 4.5m and 4m
Belfast City revenue is just over £7.70 per passenger: Belfast International is nearer to £7.20 per passenger. Part of that difference may be explicable in terms of car parking services.
Neither of the two airports now publishes a breakdown of their revenue showing the impact of landing charges separately from car parking and other commercial revenue. The regulatory requirements mean that there is only a limited range of published information.
The published results do not point towards an early merger of the Belfast airports. The owners continue to seek a wider business agenda to improve the results.