Market discipline needed says review into Aurigny
AURIGNY’S anticipated losses highlight the need for a new aviation strategy for Guernsey, the authors of a report into the airline’s efficiency have said.
The report was commissioned jointly by the Scrutiny Management Committee and the States' Trading Supervisory Board to establish the efficiency of the airline.
It concluded that Aurigny was generally well-managed, but that there were areas and opportunities for improvement.
The report by specialist aviation consultancy PA Nyras, part of PA Consulting, was written before the airline announced that it was set to lose £7.6m. this year and £9.6m. in 2020.
The reviewers said it would be reasonable to assume that a large part of the problem could be down to the supply of connections between Guernsey and the south-east of England exceeding demand: ‘This highlights the need for a realistic, holistic and optimised aviation strategy for the island,’ said PA Nyras.
Its overall conclusion was that while the airline was generally well-managed and in a good situation in terms of unit costs and revenues, plus the operation: ‘There are always areas for improvement and risks to be mitigated.
‘A number of the inefficiencies are either outside their control or only partially in their control.’
Among the high costs was that of crewing and this was driven by scheduling and needed to be reviewed.
Management was already looking at improving maintenance costs.
In addition: ‘the small operational size of the airline (a heavily regulated entity) and operation of three aircraft types means that the overhead is larger than would be desirable.’
The report said that the subsidised route to Heathrow being operated by Flybe probably had a negative impact on Aurigny’s Gatwick route, its most profitable, but it was not the only issue: ‘While we consider any subsidies in overlapping markets as not being good practice and likely to distort the market, it would be hard to attribute Aurigny’s recent revenue decline solely to this factor.’
It suggested that if Gatwick was not profitable Aurigny could benefit from a new route budgetary allowance so it could try out new routes while covering losses in the first year: ‘Ironically Flybe has received just such funding for Heathrow, which calls into question the need for the States to look at all aviation holistically.’
The biggest area of concern in the report was capacity management for what is a low-volume, slow-growth market.
Market discipline was needed, said the report, so that aviation could continue as ‘a lifeline and economic enabler in the short-, medium- and long-term at minimum possible cost to the taxpayer’.
Good use of the airline’s fleet of ATRs could be made by bringing in low frequency flights to new destinations, or possibly old ones.
The issue was known to management, and PA said that at the time of writing the report three new routes were under consideration.
Among the review’s other conclusions was that the major risks internally at Aurigny were related to skills and succession planning at the airline, and the report said the board needed to address this for the medium- to long-term. It recommended a review be carried out to forecast skills shortages.
Once the Public Service Obligation process for operating the Guernsey-Alderney route was concluded, PA Nyras suggested that a recapitalisation of the airline could be beneficial to the island ‘in the context of a forward-looking strategy’.
Among the proposals in this year’s budget, due to be debated by the States next week, is one calling for the approval of a ‘co‐ordinated and coherent government framework for the consideration of all aspects of air route operation and support that is under the control or influence of the States of Guernsey’.
This would involve Economic Development working with the STSB, and is something that the report said was necessary: ‘The broader review to cover purpose and scope shows that much strategic thought is needed around how Guernsey best uses its airline to the benefit of the economy and people.’