Written evidence submitted by Highlands and Islands Airports Limited (AIS0016)
Highlands and Islands Airports Limited (HIAL) is a private limited company wholly owned by Scottish Ministers and is responsible for the management and operation of 11 airports located at: Barra, Benbecula, Campbeltown, Dundee, Inverness, Islay, Kirkwall, Stornoway, Sumburgh, Tiree and Wick John O’Groats.
We receive subsidies from the Scottish Government in accordance with section 34 of the Civil Aviation Act 1982 and are sponsored by Transport Scotland – Aviation, Maritime, Freight and Canals Directorate.
Working with our stakeholders, we are committed to supporting the essential socio-economic role of aviation in Scotland by maintaining and developing our airports and the connections they provide for some of our country’s more remote communities.
Safety underpins every aspect of our operations. We have a robust safety and security programme that achieves regulatory compliance throughout our organisation. We continuously review our systems and procedures to ensure that our organisation and every one of our airports has the very highest standards of safety performance and resilience.
1. Pandemic Impact
The impact of the pandemic on aviation within the Highlands and Islands was profound for HIAL and for the communities we serve in terms of reduced connectivity, the comparison to pre-pandemic levels is best demonstrated as below.
Thus far, and looking at the performance year to date compared with pre-pandemic levels our situation is as follows:
At the height of the pandemic, air services operating to, from, and within the Highlands and Islands were those identified as lifeline or for essential purposes, other air services were unable to operate due to Covid restrictions.
These lifeline and essential services operated throughout the pandemic under an arrangement between the Scottish Government and Loganair for the provision of a “skeleton schedule”. This provided limited connectivity between island communities and the mainland, typically one service per day which facilitated lifeline links for health and essential business only. A close working relationship between HIAL, the various local authorities, the Scottish Government and Loganair meant that flight timings were adjusted to ensure health needs were met in addition to requirements from other areas.
Ultimately, with the relaxation of Covid restrictions and the need for continued operation, the skeleton services gradually diminished. As communities came back online, commercial services re commenced.
Of course, and as expected, some communities came back online quicker than others and this reflected the nature of the business for the community and for the airline. By way of example, Shetland recovered relatively quickly whilst Islay did not.
As of October 2021, except for those services operating under the auspices of a PSO, all other services are operating commercially. Arrangements put in place to help airlines increase their levels of activity have thus far been successful in that all routes operating pre-pandemic have resumed. However, some are at very much reduced frequencies and unlikely to pick up as we enter Winter and the threat of future Covid restrictions ever present.
The link between aviation activity and Covid restrictions is demonstrable. Restrictions, or the threat of future restrictions, flow through to market uncertainty and consequent loss of trade. The Highlands and Islands is a relatively small area of business activity, and consequently we were able to make that link with reasonable certainty.
In terms of our operations, our teams recognise the lifeline nature of the links they support and continue to ensure that all workplaces are Covid secure environments. The Company operated throughout the pandemic without any airport closures which were Covid related.
2. Air Services in the Highlands and Islands
Business Base and Catalytic Impacts
There are several economic specialisms/strengths in the catchment area. Many of these sectors are heavily reliant on customers, suppliers, advisers, and funders from outside the Highlands and Islands, Scotland, and internationally. This reflects the small local population and business base (just 6% of Scotland’s jobs are in the catchment area).
Therefore, the key sectors that tend to be intensive users of air services include tourism, life sciences, manufacturing (notably food and drink), primary production/processing, and the nuclear industry. In particular, life sciences, tourism and energy are generally recognised as sectors whose staff have a relatively high propensity to fly.
Some of these sectors are major employers in the catchment area. For example, food and drink has 18,000 direct jobs - one in six of the Scottish total. Sustainable tourism has 19,000 direct jobs - 9% of the Scottish total.
Many catchment area companies are operating in global markets. A recent survey of businesses that use Inverness Airport showed that more than one third are exporters. Their main markets are mainland Europe (of which Germany and France were most common) and the United States. A number of these companies are inward investors to the Highlands and Islands.
The most important trading markets for HIE’s Account Managed businesses include both the EU and the rest of the world as follows:
Around one third of local businesses using Inverness Airport to fly internationally go to a country outside the EU. Research with businesses and stakeholders identified the importance of connections at Heathrow and Amsterdam in facilitating, for example:
- Life sciences businesses’ travel to the US west coast
- Oil and gas companies/workers travel across the globe, e.g. Central Asia, South America.
Approximately one third of overseas business passengers are from outside the EU. Finally, more than half the overseas leisure visitors using Inverness are from non-EU countries.
Inverness Airport is cited in every inward investment proposition by HIE. It is considered that being able to refer to Inverness’ international routes provides the right image and messaging to potential investors.
The main economic challenges the Airport catchment area face are, first, an over-representation of lower value-added sectors. This results in relatively low GVA/productivity and wages.
Second, and in the rural parts in particular, a higher cost of living than in urban areas.
Third, the low population density produces a settlement pattern of small communities, often distant from each other, key markets, and services. This results in additional costs in the provision of goods and services due to a lack of economies of scale and a corresponding enterprise base.
Companies in low density areas have few chances to do business with, and communicate with, local firms due to the small number spread across relatively large geographical areas. This constrains business development and economic growth. Around half of HIE’s designated Fragile Areas (which cover the whole of the Highlands and Islands) are within the Airport catchment area.
Survey evidence shows that the main business benefits from the presence of the Airport and its route network are increased:
- Productivity through reduced travel time and cost savings.
- Ability to attract and retain staff.
- Ability to sell to the rest of the UK and global markets.
- Access to external expertise.
Increasing productivity is a key aim for UK Government, as part of rebalancing the economy through, as the Green Paper notes, “economic growth of the regions”.
It is also an essential part of Scottish Government’s Scotland’s Economic Strategy which notes that improving productivity “is the principal long-term driver of economic growth”.
Research with businesses and stakeholders has also shown that Inverness Airport is viewed as being:
- Critical for regional economic development and growth.
- A contributor to growing confidence in the local economy and supporting attraction of inward investment.
- Increasingly important in attracting international students and generally supporting the growth of the University of the Highlands and Islands, an anchor institution in the region.
- A positive influence on retaining population and thus addressing the ongoing issue out-migration of young people.
Route Profile
There was significant growth (30%) in the number of terminal passengers at Inverness between 2008 and 2017. This amounted to an increase of over 200,000 passengers: from around 670,000 to 875,000. The level of growth was above that seen at both Glasgow and Aberdeen airports in the same period.
Inverness’ passenger growth since 2009 has been aided by the introduction of the Amsterdam service plus the reinstatement of flights to Heathrow and Dublin. There has been also good growth in carryings on the Gatwick, Luton and Manchester routes.
The market segments that have seen the strongest growth are outbound business travel and
inbound leisure-both UK and overseas
However, Inverness’ route network continues to face challenges/limitations, including:
- The inability of business travellers to do day trips on some routes - notably inbound from London - is a recognised gap in service provision.
- Many routes operate at no more than a single flight per day all year round. That includes significant business destinations such as Bristol and Birmingham, to which day trips are not possible and flight times are not business oriented.
- There are services to only two non-UK airports.
- Overall passenger volumes are highly dependent on a small number of routes and airlines.
The services to the hubs at Heathrow and Amsterdam are vital given the very limited direct international flights from Inverness. However, leakage of trips from the catchment area is still significant. In a recent survey the vast majority of the businesses (84%) use other Scottish airports as well as Inverness for their own travel, while those other airports are also used by their business visitors.
Inverness Airport very clearly serves the north west mainland of Scotland as a whole. More than one third (300,000) of its passengers have a surface origin in either Moray, Caithness and Sutherland or Lochaber, Skye and Wester Ross.
Inverness is distinct in that most (around 55%) passengers are inbound to the area rather than being local residents. Some 14% of all passengers through the airport are from overseas.
Another feature is the significance of London routes in passenger carryings, as the 2018 profile shows:
- London: 507,000 (57% of scheduled passengers).
- UK regional: 232,000 (26%).
- International: 97,000 (11%).
- Islands: 50,000 (6%).
Another distinctive feature of Inverness’ services are the flights to the islands. The services to Orkney, Shetland and the Outer Hebrides operate on a commercial basis (i.e., they are not PSOs).
Business travel accounts for a significant proportion (around half) of passengers on these services. As well as the private sector this includes organisations that require staff to travel between the regional centre of Inverness and the islands. For example, Scottish Fire and Rescue Service, Police Scotland, NHS, local authorities and HIE.
Travel by island residents to Inverness is to access health and education facilities and visit friends and relatives. They are also used by island residents who work away from home for periods, e.g., offshore, merchant navy.
The effectiveness of the Inverness to Orkney and Shetland routes is reduced as there is only a single rotation per day in the winter, thus a day trip is not possible in either direction at that time of year. These social aspects are also reflected in the Inverness passenger profile across all of it routes, with more than 25% travelling to visit friends and relatives. However, these and other leisure trips by catchment area residents also support economic development by making the area a more attractive place to live and helping employers to attract and retain staff.
Quantified Economic Impacts
On-Site Impacts
Inverness Airport is a very significant employment site within the Highlands and Islands. Businesses located at the airport site or immediately adjacent to it employ over 550 Full-Time Equivalent (FTE) jobs. Around one quarter of these employees live outside the local (Inverness & Nairn) area.
These jobs are very well paid-with an average wage of over £34,000 per FTE. That is higher than the average gross annual pay for full-time employees in both Scotland and the Highlands and Islands.
Notable aviation-related employers include:
- PDG Helicopters.
- Bristow’s regional search and rescue base.
- Scottish Air Ambulance staff base.
- Marine Scotland-reconnaissance aircraft.
When indirect and induced impacts are included, the Airport site generates:
- Catchment area: 748 FTEs and £23 million of employee income.
- Scotland: 916 FTEs and £27 million of employee income.
(We do not hold these figures for the rest of the network)
Off-Site Impacts
Off-site impacts are generated by the spend of inbound visitors to the catchment area who arrive and/or depart via Inverness Airport. Their total annual spend is estimated as £89 million. Around 30% of this is from visitors using the regional UK and islands routes, while over one quarter comes from visitors on the two hub routes (Heathrow and Amsterdam).
Approaching 40% of the total visitor spend is with businesses outside the Inner Moray Firth area. Some 25% of it is in either Caithness and Sutherland or Lochaber, Skye and Wester Ross. This again highlights the airport’s impact in the more remote and fragile parts of the catchment area.
The total visitor spend supports around 1,775 FTE jobs (direct, indirect and induced) in the catchment area.
Growth in passenger numbers at Inverness Airport mean that it is now a major employment site, a generator of significant tourism impacts, and the means of business access to markets outside Scotland. The Heathrow and Amsterdam services are a crucial part of this as they allow ready access to global markets. The overall impacts of Inverness Airport reflect the general evidence for the economic contribution of regional air services as noted by Peak Economics[1]:
“There seems a consensus in the literature that airports in peripheral regions have some stimulating effect on employment and population growth … there are positive economic impacts in the vicinity of airports from good quality regional air connectivity”.
Further, research by Baker, Merkert and Kanruzzman[2] has developed the case for catalytic effects, by providing the first empirical evidence of strong short and long run bi-directional causality between enhanced regional air transport and economic growth based on an examination of 88 regional airports in Australia over a period of 1985–86 to 2010–11.
Using the same kind of analysis, Derudder has been able to point to evidence of positive causality where air links have been materially enhanced in remote and peripheral regions. In a study using employment as a proxy for economic development[3], Derudder was able to demonstrate that improvements in connectivity, particularly in more peripheral and less well-developed economies have a positive and fast acting stimulative effect. The Highlands of Scotland was identified as one such region as shown below. This has implications for justifying state intervention to improve air connectivity.
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