Analysis

Things you should know about Edinburgh Airport

by | 17 Apr 2024

Edinburgh Airport is being sold again. It provides a useful opportunity to understand properly why airports are such a terrible rip-off.

Right, I don’t have time for this today but I suspect nowhere else will just give you some quick facts about the sale of Edinburgh Airport. Let me kick off by pointing out that this is hardly seismic news – rather than a US company ripping you off and exporting half the wealth generated, it’ll now be a French company.

But let’s just look at it a little further. Edinburgh Airport was one of a group of airports publicly owned by the British Airports Authority until Margaret Thatcher privatised it. That took a public monopoly and turned it into a private monopoly. This then led to 30 years of generous profits and rapid expansion of airport capacity, though it was Heathrow that was the real cash cow.

At the end of that 30 years the UK Competition Commission couldn’t ignore the blatant monopoly profiteering any longer and demanded the breakup of the company. Thus in 2011 BAA announced its intention to sell (there are more than one shareholders; the companies named throughout own a controlling stake)

In 2012 Edinburgh Airport was sold to Global Investment Partners, the New York-based corporation (which in turn was inevitably bought up by behemoth venture capital fund Blackrock). It then made stupendous profit rates. In 2022 the total revenue at the airport was a touch under £200 million and the owners took out a touch over £80 million in profit.

The average rate of profit for a private company is about ten per cent, stretching up to 15 per cent in financial services. Edinburgh Airport operates a profit margin of 42 per cent – in 2022 during a pandemic. It made 48 per cent profit in 2019. It’s almost like it has a monopoly of flights for half of Scotland…

That is pretty substantial in Scotland terms, but it isn’t in New York terms. Hence the airport is being sold to a French company VINCI. This is the biggest private airport operator in the world (the sale price is £1.3 billion). The airport makes six per cent of that total sale price in profits every year. Even at half ownership, the new owners will have recouped their entire capital expenditure in 30 years.

Anyway, the good news is that this isn’t going to cause any turmoil at all, because the great and the good of Scotland who govern it are all being protected – they keep their positions under the new ownership structure.

The airports in Scotland have one of the most powerful lobbying capacities around the Scottish Government, with key figures (both political and officials) in a revolving door relationship

The Chair of the Board is the former chief civil servant in Scotland, Sir John Elvidge. This is not irrelevant. Elvidge became the Permanent Secretary at the Scottish Government 2003, having been a career civil servant. Let’s be clear here; the Scottish Government is generous to airports. It is very generous to airports.

It’s not just direct subsidies, its not just the pursuit of more and more tax cuts for airports, it’s the infrastructure that supports the airport. In the early years in his new role as Permanent Secretary, one of the initiatives which emerged was the Edinburgh Tram project. The non-negotiable part of that plan was a city centre tram link to the airport.

Of course it was; senior civil servants love airports. I mean, this their world, these are their people. Except you probably don’t quite see this because over three years the civil servants alone spent £10,000 of public money upgrading their own flights. This means you’ll only see them at the ludicrous ‘champagne and oyster bars’ at airports if they’re too late to make proper use of private lounges.

It is clear then that fast, direct travel from say the Leith area to the airport would not only be convenient for the civil servants, all the business leaders (without personal drivers) will benefit too. This clearly therefore increases the asset value of Edinburgh Airport.

So work on the trams begins in 2008. In 2010 John Elvidge announces his ‘retirement’. In 2012 Edinburgh Airport is sold with its value-increasing tram link on its way. Then in 2012 Elvidge is appointed as the Chair of Edinburgh Airport. Two years after that in 2014 the Edinburgh trams airport link is opened. (All links above.)

Is this all about the civil service? Nope. The airports in Scotland have one of the most powerful lobbying capacities around the Scottish Government, with key figures (both political and officials) in a revolving door relationship. They lobbied for a £300 million tax cut (that involved 14 meetings with Ministers and politicians).

They lobbied relentlessly for the Glasgow Airport Rail Link. The Scottish Government agreed to their demands in both cases (though in both cases they failed to deliver based on the fact that they were very expensive and should never have been agreed). And of course the SNP opposed the expansion of Heathrow until a relentless lobbying campaign and very high investment in SNP conferences (remember the ‘Heathrow Lounge’) led Angus Robertson to reverse that position.

These are only some examples. It should be noted though that the Scottish Government doesn’t like all airports and is cutting support for lifeline airports in the north of Scotland and the islands. It might also be worth noting that Edinburgh Airport took about £200 million in pandemic support.

If Edinburgh Airport was a not-for-profit public service you could pay an ‘airport fee’ of less than £2 each time you pass through the airport and for that you would get everything – free parking, much cheaper shops, no imperative to make you spend

Back to Elvidge. It isn’t entirely clear what Non-Executive Director remuneration is – ten years ago it was reported as £650,000 between six of them. This is for a part-time job of probably only a handful of days a year. Remember, Elvidge also has the most generous public pension in the UK having been on a top-one-per cent salary before retiring on a defined benefits scheme.

The good news is that this relentless profiteering makes a number of people rich. We’re supposed to prevent our teeth from grinding by accepting some kind of trickle-down effect from their wealth. For example, while it might not be ideal, at least the very rich support good causes. Except they actually hand over much less of their money than the average household.

Which means that when the Aye Write! Festival is cancelled it isn’t an oil baron, a doyen of the financial services sector who rescues it or some figure who made a fortune out of privatised utilities who stumped up but the fund set up by a working class man who happened to win the lottery.

I want to leave you with one last thing to stick in your mind. It is best to understand the commercial entity which is Edinburgh Airport as mainly a monopoly car park operator. It’s income is split almost in half with half coming from ‘retail’ (parking, shop rents, a cut from shop sales – £79 million) and the other half from airline aviation fees (£88 million, all info in annual accounts linked to above).

They then spend £114.5 million on running the actual airport. That means dividing expenditure by passengers means total spend per passenger is actually £6.88. That is the amount that is actually spent on you as a passenger from the point you enter the airport grounds to the moment your plane is in the sky.

Except of that expenditure, £88 million is fixed aviation fees. That means of the £6.88 per passenger turnover, about £5 is taken out as corporate profit. This profit does not remain in Scotland. What that means in practice is that from all other income, the expenditure on you is only about £1.65.

It is helpful not to miss what this means; if Edinburgh Airport was a not-for-profit public service you could pay an ‘airport fee’ of less than £2 each time you pass through the airport and for that you would get everything – free parking, much cheaper shops, no imperative to make you spend.

All of this is based on a monopoly which is created as the private sector is given exclusive rights to send planes in and out of the sky from an airport built with public money and wholly financed through its customers and clients at a 48 per cent profit margin.

It really is worth checking in on modern capitalism from time to time…

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