Our take-off plan needs government action

Our take-off plan needs government action

Birmingham Airport has just celebrated its most successful year. Now Paul Kehoe, its chief executive, is calling on the government to help it do more. Steve Dyson reports.

A wry smile appears on Paul Kehoe’s face when I ask how frustrated he feels at the government’s delay over whether or not to build a third runway at Heathrow Airport. “I’m entirely relaxed,” says the chief executive of Birmingham Airport. And from the way he says it, I’m almost convinced. But surely he must feel some irritation?  After all, not only was Birmingham’s plan for its own second runway expansion snubbed by the Airports Commission, but now the government is prevaricating – until this summer at the minimum – over the proposed Heathrow solution.

“I’m entirely calm,” Kehoe reiterates, before he then launches into a scathing appraisal of how the government – in his opinion – handled the future of UK aviation with bias. “We said it was going to be like this and guess what? It is. George Osborne and David Cameron, back in 2010, were saying: ‘No ifs, no buts, there can be no runway three at Heathrow.’

“But they were hit by lobbyists like the Chamber of Commerce – nationally, not locally – the CBI and others, and so they brought in the commission, chaired by the eminent Sir Howard Davies. And my cynical view is that he was told: ‘The answer is Heathrow; now go away and make sure it’s Heathrow.’

“But when you look at what manufacturers are doing, it’s not the right answer. Everyone was told we can’t serve industry without ‘Heathrow three’. Well, we’re serving it now, and even if the government goes ahead with Heathrow, it’s still 15 years away.

“And so it’s a living lie, because if the UK faces the same problem for 15 years we have to use existing capacity. Heathrow and Gatwick are full, Stansted is nearly full, and with an overall requirement for an extra 20 million passengers, where are flights going? Manchester, Bristol, Birmingham and other regional airports.”

Paul Kehoe 03The government, says Kehoe, is in a sticky situation over Heathrow: “Boris [Johnson, current London Mayor] is anti-runway three, Zac Goldsmith [Conservative candidate for London Mayor] is anti-runway three, and so is Labour, and the Lib-Dems, so the whole London mayoral process is anti-runway three. So the government has pushed it back – causing more delay.

“We can do so much in that time. Fifteen years ago, Birmingham had no Emirates’ flights and no Airbus A380s landing, and look at us now [Emirates flies from Birmingham to Dubai three times a day, and the A380 starts in March]. In 15 years’ time, Emirates could be flying six times a day, and we’ll have a pretty good infrastructure for more airlines.”
It’s this short and medium-term future that Kehoe concentrates on, as he reveals what sounds like Birmingham Airport’s new marketing strapline: “A world class airport for a world
class city.”

He says this with emphasis, and I fear my deadpan face might be disappointing him. Like many in the West Midlands media, I still cringe at memories of Mike Whitby, Birmingham’s former Conservative leader, constantly harping on about ‘a global city with a local heart’, and how we’d bet on how many times he’d utter that hackneyed phrase in his speeches.
I retell this anecdote to Kehoe because I desperately don’t want him and the airport – so crucial to the regional economy – to fall into the trap of meaningless soundbites.

But Kehoe – a former RAF air traffic controller – bounces back to defend his ‘world class’ maxim: “What does it mean? It means delivering what that city wants. And that’s a city and airport that will soon have HS2 [high-speed trains]. Passengers are sticky. If we can get them into a habit, then behavioural economics means there are opportunities. We can reinforce the short-haul market, take up more long-haul opportunities, and make more of the low-cost operators. To passengers, we become a good option.

“The question is, how do we remodel Birmingham Airport to bring it up to world class status? Our old terminal 2, built in 1991, is now looking tatty outside. But we’ll soon have a brand new HS2 rail station.”

At this, Kehoe points to the airport’s site viewed from his 5th floor office window at Diamond House, and shows me where the HS2 line could snake in, giving the airport a great chance to use the construction work as a trigger to smarten up its terminal.

The airport, he explains, has just started a ‘master plan’, proposing and consulting on what it could look like in the next ten to 15 years. “It might be that we end up with a modest plan, or perhaps we’ll be ambitious,” he says. “Personally, I want to be ambitious.”
Kehoe proudly reminds me of the contribution the airport’s operations currently make: for the UK, an estimated £1.7bn in GVA (gross value added), supporting 40,000 jobs, with £1.1bn GVA of this and 25,000 jobs in the West Midlands.

“If we can double that, think what we could do,” he says. “Back in 1991, Manchester said they would double passengers by 2001, and they did.”

Such growth levels sound ambitious, but Kehoe’s optimism is backed up by Birmingham Airport celebrating its most successful in 2015, when it handled 10.2 million passengers, 5% up on 2014. “2015 was an outstanding year,” he says, “better than our expectations. That’s because of brilliant marketing, of course, but also because the Midlands economy is – despite the recent caution – making quite significant progress.

“That’s seeing our business passengers and our leisure breaks grow, helping us across a number of markets. Long haul is up 25% to 30%, the European schedules are growing again, and there’s a little bit of a resurgence in the low-cost sector, taking advantage of the oil market. All came together to deliver 2015.”

The airport, which directly employs around 700 people, with another 7,300 employed by partners in and around the site, saw full year revenues to March 2015 reach £125m. After costs, it recorded around £54m in EBITDA (earnings before interest, taxes, depreciation and amortisation). This was up from revenues of around £112m and EBITDA of £48m in 2014.

But even Kehoe sounds a note of caution for 2016: “Cheap oil is great for fuel costs but a problem for economies and confidence. We were looking at growth of 10% to 15% in 2016, and this might be down to 7% or 8%, or if George Osborne’s pessimism is right, more or less flat.

“That’s because the China downturn, US migration issues, and security issues in Turkey, Tunisia and Egypt will all impact on some parts of the flying public. But I’m an eternal optimist, and I still think we can deliver 7% to 8% growth.”

But what capacity is Birmingham Airport already operating at? And how much growth can it cope with, given that its second runway plans were rejected? Kehoe says: “We’re 75% to 80% full in early morning slots, and we’re planning extra lanes of security to help, and other minor remodelling, like a new fast track. But we have loads of space for the rest of the day. There are peaks at lunchtime and early evening, when we’re at 50% capacity, but in between we’re empty. Our opportunity is how we maximise that down time. We need to provide incentives for non-based airlines to fly into our gaps.”

And so even without a second runway, and before HS2, Kehoe believes Birmingham can increase passengers by 50% to 15 million by 2025, with only “minor remodelling”. And then he says HS2 will add around another one million passengers, putting Birmingham’s growth at 60% to 16 million passengers a year from 2026.

Paul Kehoe 02

Kehoe says: “That means another six-tenths of £1.7bn GVA for the UK, and six-tenths of £1.1bn GVA for the metro area – or probably more, as GVA is higher with long haul flying. But if our shareholders said: ‘We’re seeking to make sure we are HS2 ready,’ then they might ask for a major reinvestment before 2026, which means we could grow faster.

“I’ve not had that discussion yet with John Clancy [the new leader of Birmingham’s Labour council, one of the airport’s majority shareholders]. If he wants a great city, and a great region, the master plan could change. And government policy will shape it too.”

At this, Kehoe’s back to what he sees as the government’s limited choice to cope with the UK’s growing aviation demands, before any Heathrow expansion.

He says: “There will be growth, and there’s competition for that growth, but Heathrow’s full. Are our passengers going to go to Gatwick instead? Some will, but it’s a horrible journey. Luton? Perhaps for some short haul. Stansted? Probably not. But Birmingham can rise to the challenge in the next 10 to 15 years.”

Away from London, Birmingham Airport’s main competitor is Manchester, a battle that’s seen spoils going both ways in the last year. Kehoe’s proud that Birmingham landed direct Air India flights, but admits Manchester has more recently “stolen China from under our noses” with its Hainan Airlines direct scheduled flights to Beijing starting in June.

He’s not giving up on China, though, with Birmingham set to run a summer charter service for the third consecutive year: “We’ll get the tourists on our summer flights again, and eventually where tourists go, business follows. The Chinese told us: ‘Manchester is good for football’, but they also said: ‘Birmingham is good for retail, history – Shakespeare – and London.’

“And that’s our advantage, for once – we’re closer to London. It’s a four-hour drive from Manchester, versus two hours from Birmingham. Or an hour and ten minutes by train. So Manchester won a battle, but not the war. We’re still in China discussing options, and can demonstrate how our summer flights work. We look after Chinese visitors in Birmingham with a very slick operation, and the Chinese like it, whereas they’ll only get the same level of service as anyone else in Manchester.”

As I leave, I ask Kehoe what he’d say if he could tell the UK government one thing. The man who calls himself the ‘chief plate spinner’ is swift and direct with his answer: “Use Birmingham Airport now. Forget the hub [a reference to Birmingham’s second runway plan], that’s been rejected – fine. But use Birmingham now to maximise the opportunity for this city and the Midlands engine for the UK’s economy.

“Come on government: Birmingham’s one of the UK’s key gateways. We don’t need money to support routes like Scotland and Wales (although that would be nice). But we do need tourism organisations aligned, and for the government to call Birmingham a national gateway for international traffic, because that will encourage people in.

“Support Birmingham with a strategy of integrated transport. That’s already happening with HS2 – no-one else is getting that in the next 20 years. Help us maximise and shout about that great opportunity.”