Docklands light airways
London City airport’s passenger numbers have grown, despite the declining market for air travel. Now it is to expand further.
One of the most striking features of London City is the lack queues. Looking around the terminal building on a weekday afternoon one is hard pressed to discern more than two people standing in line – and they are waiting for a cappuccino.
However, London City is set fro rapid expansion. A consortium headed by US insurer AIG and Global Infrastructure Partners paid £742 million for the airport in October 2006, and the new owners require growth if they are to achieve a return on their investment.
The compact Docklands airport has proved popular with business people. Passengers only need to arrive 20 minutes before their flight departure. Such rapid service allows a daily commute from Zurich.
The airport’s owners claim its small size – 2.9 million passengers passed through London City in 2007 compared with 67.8 million at Heathrow – has made it easier to maintain the high quality of service its business users expect.
Richard Gooding has been chief executive at London City since 1995, when the airport handled half a million passengers a year. He believes the airport can deal with a similar level of growth over the next couple of years.
“When I first came here we were losing money and had to at least double the number of passengers,” he says. “Everybody threw up their hands and told us we would spoil it, but we didn’t just improve the previous service quality – we enhanced it.
“We only sell one thing and that’s time. Our mindset has been fixed on one thing: to get people through quickly. It isn’t such a leap of faith to say that we can double or treble passenger numbers again and sustain service standards.”
Growth in the Slowdown
Gooding predicts that passenger numbers will reach around 3.5 million this year and that modest growth will continue next year, despite the difficult economic climate.
“Most of the airports market is pretty flat, but out niche market has held up and there are still new buildings going up at Canary Wharf,” he says.
Nick van den Brul, a transport analyst ay Exane BNP Paribas, agrees. “Growth is slow globally, but London City is really a business-only airport using small aircraft,” he says. “It has attributes, such as proximity to Canary Wharf, that mean it will have some additional demand in a weak environment. Air France bought VLM Airlines (the biggest carrier at London City) in December because they could see growth there.”
Gooding claims that London City has so far outperformed its new owners’ expectations. While he praises the former owner, Irish investor Dermot Desmond – who bought the airport in 1995 for £23.5 million and realized a heavy profit on the sale – he adds that the new shareholders have provided easy access to capital that will make London City’s growth feasible.
One of AIG and Global Infrastructure Partners’ first moves was to bring in developer Milligan, which specialises in airport retail and manages Manchester airport’s non-aeronautical income. Appointed last August, Milligan immediately set about re-arranging the terminal to create an extra 13,000 sq ft of airside retail.
A new bar and coffee area, an extended duty free shop, newsagent and lounge opened in May in an attempt to maximise the revenue generated by the airport’s wealthy customers.
“Our job is to bring life to the existing planning permissions, making sure that we have properly commercialised all the space and to make the terminal fit for 5 million passengers,” says David King, Milligan’s head of business development.
Around 66% of the airport’s passengers are men and their average income is £82,600 a year, although 27% earn more than £100,000 a year. The challenge for King is to get them to part with some of that cash.
“This is a business airport and behaviour is different here,” he says. “They don’t do shopping, but they do a lot of gifting. About 70% of them are regular passengers, so it’s about engaging the consumer with brands. We have the perfect vehicle for brands to form relationships with wealthy individuals.”
Much of what Milligan has created so far will be temporary. The repositioning of the airport’s baggage handling facilities will allow further development, doubling London City’s retail and food space to around 64,500 sq ft by the time Milligan’s brief comes to an end in 2012.
That will be an important year for the airport when a large increase in passenger traffic is expected because of the Olympics. London City needs to expand its facilities to take full advantage of the games, but strategy and communications director Charles Buchanan is looking to the long term.
“We are more interested in the legacy for east London than the characteristics of traffic for three months in Summer 2012,” he says. “We are going to be a vital element in providing international connectivity for the businesses that will be engines of that regeneration.”
The London Borough of Newham is considering a planning application to increase the maximum number of flights from 80,000 to 120,000 a year. This can be achieved within the confines of the airport’s present infrastructure. Buchanan hopes for a favourable response from the authority in the next few months.
“There are 2,000 people employed at the site, which makes us the largest employer in the borough,” says Buchanan. “Newham has policies that support the development and growth of the airport.”
Crossrail Conundrum
Not all authorities have been so supportive. Last year, London’s then mayor, Ken Livingstone, argued that Crossrail would reduce demand for London City by making Heathrow more accessible. London City disputes this, and says the capital’s east-west rail route will open up new markets and encourage growth.
Buchanan is optimistic that Livingstone’s successor, Boris Johnson, will share this view. “We haven’t got any indications of how that attitude has changed, but we take comfort from the clear pro-business sentiment coming out of City Hall,” he says.
The current planning application will only provide an interim solution, however. Another application is due to be submitted in around a year’s time for a masterplan that will set out the airport’s future to 2030.
Produced in 2006 as a response to the government’s 2003 aviation white paper, which called for increased capacity to accommodate passenger growth, the masterplan provides for an increase in aircraft movements to 170,000 and passengers numbers to 8 million a year.
This will be achieved through the creation of a taxiway running parallel to the runway, increased parking and an expansion of the terminal. The restricted opening hours – it closes at 10.30pm on weekdays and for 24 hours from midday on Saturday – will remain.
“Over the next 10 years we expect to double our current size, “says Gooding. “How we sustain service quality will be our measure of success. It is core to our thinking that we will. If we do that then we will reap the benefit. If not, then you will be talking to someone else.”