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Heathrow subsidy is "unsustainable and destabilising the market" - Darby

Heathrow subsidy is

Tuesday 16 July 2019

Heathrow subsidy is "unsustainable and destabilising the market" - Darby


The longer the States subsidises a rival airline to run a Heathrow service at "unsustainable" prices, the more damage they will cause their own airline, Aurigny Chief Executive Mark Darby has warned.

Aurigny released its annual report for 2018 yesterday, which showed that yearly losses had been trimmed from £5.2million to £4.4 million, or from £6.3m to £3.6 million when excluding FRS1O2 adjustments.

However, the airline's management sounded warnings of headwinds in the present and future, as its passenger numbers on its most profitable route - London Gatwick - are being hit by Flybe's government-funded seven-month trial of the Heathrow route.

Not only has a competitor been given a £825,000 subsidy, Mr Darby said, Aurigny - whose shareholder is the States of Guernsey - is losing much-needed revenue from it and the Airport is missing out on landing fees because of discounts on the new route.  

"There is not a magic pot of people – these are the same people getting on different planes," said Mr Darby.  

"We have provided the States with a lot of information and evidence [of the impact it is having on Aurigny] and we have seen no objective evidence from the States of the benefits that are coming from the Heathrow route. 

"They are taking valuable traffic from the Gatwick route as the subsidy has been used to provide discounts."

heathrow.jpg

Mr Darby said the air fares on offer currently for Heathrow are not reflective of what they would be for a long-term service. 

He also criticised Economic Development for offering a subsidy when other governments had decided against doing so. 

"I think it is quite telling that the Isle of Man didn’t put anything in and Jersey didn’t want to participate - they didn’t want to be seen as destabilising the market when they know it won’t last in the long term and that it would damage the incumbents."

He said damage had come just as they were making inroads towards a break-even financial position, when excluding the Alderney route, which is currently subject to a Public Service Obligation process. 

"At the end of last year we had got very close to breakeven if you take out the exceptional factors," said Mr Darby. 

"We have made a submission for the PSO on the 5th of this month and obviously we see ourselves as being able to deliver that. We cannot discuss what that bid is - all that we would hope is that a decision is taken that brings a safe, secure and sustainable operator, because otherwise if it doesn’t tick all of these boxes then something could fail very quickly."

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As with the PSO process, Aurigny is looking to the future with the purchase of new aircraft with capabilities that will improve performance during the fog.

"The biggest positive from 2018 is the acquisition of the new aircraft. That took an awful lot of work by us and the States and it is a big step forward because we are securing the future of the airline and are expecting it to improve the experience of customers during bad weather."

On other developments last year, he said: "I don’t think Open Skies has changed much - a lot of the routes were available anyway and could have been started without Open Skies.

"What has made an impact is the States’ decision to subsidise our competitor, who is losing money even with the subsidy. So for us the really important thing is trying to offer that reliability and frequency of services and building on our reputation for getting people home."

Aurigny new ATR

The acquisition of new Clear Vision aircraft is expected to provide £6 million long-term savings whilst giving the airline a much younger fleet. 

If Heathrow were to become a long-term service, Mr Darby said Aurigny would have to consider dropping the number of rotations at Gatwick per day from six to two, three or four. However, he doesn't think that short term options should take precedence over long-term operations. 

"Our ground handling in Gatwick is now well established and has resulted in a marked improvement in customer service and that is only viable at a certain level of operations," he said. 

The airline is also in the process of setting its budget for 2020, which has been made harder by the recent changes. 

"We know where the figures are going but the longer these figures continue the more damage that will be done. Without this [the Heathrow subsidy] we would be heading for a good result."

Pictured top: Aurigny Chief Executive Officer Mark Darby. 

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