Nurturing Norwich

Andrew Bell, CEO of Norwich Airport, spoke to Tom Allett about the prospects for his regional in the East of England.
Located almost as far to the east as you can go in England, Norwich International Airport serves a city with a population of about 135,000 people and the wider East Anglia area comprising a further 1.2m residents.
Although Norwich has had an airport since 1933, the current location was originally the military airfield of RAF Horsham St Faith, which was jointly purchased by Norwich City and Norfolk County Councils in 1967, and converted for civil aviation purposes.  Within four years the site had its own radar and customs facilities enabling charter flights to begin in 1971.
In the 1980s the airport became a limited company, bringing fresh investment that paid for the terminal building’s expansion.  A new corporate image added the word ‘International’ to its official name in 1998 but, with both council owners looking to raise cash for their many other projects, they offered to sell a majority shareholding.  UK-based airport investment and management company Omniport submitted the winning tender and bought an 80.1% stake in 2004.
New start
After many years of relatively little change under the two local councils’ ownership, Omniport found there was much to do.
Norwich Airport CEO Andrew Bell told Airports International: “When we took over it was a case of needing a terminal extension, extra apron space to be laid down, new lighting, ATC equipment and radar room; you name it, it probably needed to be done.”
Mr Bell was confirmed as the new permanent Chief Executive of Norwich Airport in May 2010 after performing the role on an interim basis for five months following the departure of Elliott Summers who had held the CEO’s position for all of 2009.
Omniport also owns Maastricht Aachen Airport in Holland, so when Bell joined the company as Finance Director in January 2007, although he has always been based at Norwich, he originally split his time between the UK and Holland, advising both senior management teams on commercial strategy.  A trained chartered accountant who originally started his career with PricewaterhouseCoopers, he is still in charge of the Group’s financial affairs alongside his responsibilities at Norwich.
He said: “When I took over here [as CEO] it was a pretty turbulent time really in terms of where the business was going, so I think the owners wanted an finance head to take a look at the airport company.
“There was a requirement for Omniport to invest a multi-million pound sum for various capital works that had been identified as part of the privatisation process.  That requirement was exceeded very quickly and to date we have invested well over £14 million [US$22.9m].  That’s partly because of those original capital projects that were identified but also because of the rapid growth profile that came with Flybe’s expansion here from 2005.
“Initially the airport experienced steady growth and it took us around 18 months before we reached the extent of the bubble, so we ended up accelerating development projects ahead of plan to meet the Airport’s requirements.
“As a result, we sit here today with roughly the same number of passengers that we had at the time of privatisation but in a facility that is really above the required specification for our level of business, but we are ready to handle significant passenger growth when it comes.
“Effectively we have the painful growth period in terms of capital improvements  behind us now, and in terms of being ‘future ready’, everything is ‘on the up’ from here.”
Though Norwich City and Norfolk County Councils only have a combined stake of 19.9% in the airport, Bell says that both councils still take an active interest in its activities.  “The city of Norwich is only about two miles from here and from the wider East Anglia area point of view, its road and rail networks are OK.  Having an international airport is also really important to the region because otherwise, if you look at map, the area could be viewed as being fairly isolated.”
Rise and fall
The development work gave the airport a new lease of life and surely the most exciting time in the airfield’s commercial history came with Flybe’s rapid expansion that began in 2005.
Over the next two years, the airline launched services to Alicante, Amsterdam (in competition with KLM), Belfast City, Bordeaux, Dublin, Edinburgh, Exeter, Faro, Guernsey, Jersey, Liverpool, Malaga, Manchester, Paris and Southampton.
However, things looked better from the outside than from within.  Mr Bell explained: “Unsurprisingly, the local market loved it, but load factors and yields did not meet expectations in the timeframe required.”
As airport and airline struggled to make many of the routes profitable, perhaps the lowest point came in 2008.  When faced with the prospect of losing a six-figure rebate for narrowly failing to achieve the agreed figure of 15,000 passengers on its Norwich – Dublin route in the 2007/8 financial year, Flybe unsuccessfully tried to agree a compromise deal with the airport.  With the March 31 deadline approaching, the airline offered ‘free flights to Dublin this weekend’ on its website and advertised on an actors’ website for ‘extras’ to fly the route as part of an effort to top-up the total passenger figures so it could avoid losing the rebate.  In the end the actors were not used but the situation did lead to an angry exchange of words between the two organisations.  The then airport manager, Richard Jenner, said that Flybe’s actions didn’t “seem to be in the spirit of the agreement” and went on to criticise the airline for needlessly damaging the environment.  The airline hit back by saying that although it regretted its “unusual” move, the “ridiculous, intransigent and downright greedy attitude” of Norwich Airport left it with no option.  The carrier subsequently said it would offset its additional carbon emissions.
Later, with yields still not at the required levels, Flybe withdrew the majority of its Norwich routes though it still operates services to Edinburgh, Guernsey, Jersey and Manchester.
Looking back, Mr Bell compared the withdrawal of such a large number of services to: “falling off a cliff,” but added that “it wasn’t Flybe’s fault; we were just as eager to embrace the rapid expansion as they were to do it.
“Although things may have been a little fractious at the time, I get on very well with them.  They still operate from here and still actively consider introducing new services.
“We have learnt from that experience though.  If you want to run a business with a three to five-year lifecycle then that [expansion] method is fine, but trying to run an infrastructure asset in Norwich Airport’s situation that way is difficult.”
I asked if Norwich Airport had experienced a ‘famine or feast’ type of situation.  Bell said yes, but added: “The problem is well documented: you don’t make enough profit during the feast to sustain things afterwards, because you constantly have to extend, expand and improve and so you end up falling back into rounds of cost-cutting.”
Bell compared the Flybe ‘rise and fall’ period at Norwich to “taking two steps forward and almost two steps back – but at least we now have the facilities to handle much more than we could before which positions us well for the future.
“If Flybe came to us with an idea for a sustainable route for ‘X, Y or Z’ then that would be great and we would consider everything very carefully.”
Airport development fee
As the airport was still struggling to make a profit – even through its rapid rise in volume during the height of the Flybe development era – Norwich’s management team was forced to look for an extra revenue stream.  As a result an Airport Development Fee (ADF) was introduced by the management team in April 2007.
It applies to all terminal-based departures, so GA and offshore helicopter passengers don’t pay as they fly from the opposite side of the airfield.  The initial levy was £3 (US$4.8) for adults and £1 (US$1.6) for children aged between two and 16.  Passengers pay at a machine similar to one you would expect to find in a car park.  Cash or credit cards are accepted and the customer receives a ticket upon which is a barcode that is read automatically at the security barrier – this then grants access through to the central search area.
Of course, like every other kind of charge or tax, it was immediately unpopular with airlines and passengers alike.  In September 2008 the adult fee was raised to £5 (US$8.1), and in September 2011 Bell announced that the adult fee would rise again to £10 in January 2012, though the child fee would be abolished.
Norwich wasn’t the first British regional to have such a charge; it followed Newquay Cornwall’s example.  Bell explained that the ADF was introduced to help fund some of the company’s £14million (US$22.7m) development.  He added that he had thought that more regional airports would promptly follow suit but: “for whatever reason that hasn’t happened to the extent that we thought it would.”  However, Blackpool and Durham Tees Valley now levy similar charges.
As well as helping meet the airport’s major infrastructure needs, for the time being, Bell explains that the ADF is also vital for the maintenance and development of scheduled and charter flights from the Airport, and he is trying to change peoples’ perception in this regard.  “I’m trying to move people away from seeing it solely as a capital development fee and show them that it is much more fundamental than that.  It is a revenue stream that allows the airport to continue operating as it is.  Without it we wouldn’t have the money to offer things like start-up deals to airlines and meet carriers’ demands for more competitive fees if the deal is right. The recently announced increase reflects this and will put the Airport in a sustainable position for the future, maximising its chance to grow routes. With this in mind, I can’t see the fee ever being dropped.
“In an ideal world we would avoid it, but it a strategic decision to finance the Airport in this way which we believe makes us as or more competitive than other regionals. But the bottom line is that without the ADF at the level it will increase to in January 2012, there is unlikely to bethe Norwich Airport that the region demands.”
Looking forward
Bell says that looking forward, Norwich’s future is built upon four of the “five pillars” – passengers, freight, property, MRO (maintenance, repair and overhaul) and General Aviation (GA).
“Those are the five main things that Omniport looked for when it was considering buying a majority share in the airport,” Bell explained.
“The airport is very well positioned with four of them; it’s only freight that we don’t currently have in large quantities at the moment due to our location.
“We have four scheduled airlines [Eastern, Flybe, KLM and bmi Regional], several tour operators – the main ones and a good number of niche ones – so we clearly have a passenger business here.  It’s low at the moment, but there is a huge unserved demand from our catchment area.  Over 2m passenger journeys a year leak out of the airport’s catchment area and we are working hard to change this.
“We also have a good property portfolio which is fully let and generating around 17% of the airport’s revenue.  It includes a state-of-the-art call centre that is actually off-site.  That building was originally KLM UK’s ticketing office but it is currently leased to the Royal Bank of Scotland, so even though it is now involved in a non-aviation activity, it is still generating an income for the airport.
“In terms of MRO, perhaps the best-known names we have are KLM UK Engineering and Air Livery Ltd, which is really the market leader for aircraft refinishing.  We also have quite a number of other smaller aviation companies.
“We have 100 acres of airside land that is earmarked for aviationpurposes and that is available to be developed for maintenance facilities or similar.  We would need quite a big project to make opening it up worthwhile because the amount of infrastructure it would require is high.
“We are currently in the process of evaluating a project that could unlock this site and enable further future MRO focused development
“For GA we have the Klyne Business Aviation Centre which opened this year. Although it has nothing to do with the airport authority in terms of its development, we have an agreement with Saxon Air who are based in the facility as our preferred GA handler which is driving business forward.   We also have flying schools and the regional air ambulance based here.  Our offshore helicopter flights are a major part of our business and all our North Sea movements operate from the GA sides of the airfield.
“Norwich hosts Bristow, Bond and NHV  and the level of activity here makes us second only to Aberdeen in terms of oil and gas field operations.”
Norwich’s management team is commercialising its fire training ground because Bell said: “it is extremely expensive to keep and doesn’t generate a direct income.”  Omniport bought the facility in 2008 and has been taking advice from its counterparts at other regional airports about how to make the best use of the fire crews and at the same time minimise the cost of running the Norfolk airport’s fire service.
“Certain other regionals have very successful training set-ups and we aspire to do what they do there,” said Bell.
“As a result we are working towards running short non-aviation fire training courses on a commercial basis.  Legal restrictions prevent many fire-fighting agencies from lighting real fires for training purposes, but we are able to.  “Overall then, our revenue streams are diverse which is very good from a business management point of view and we aim to grow as many of these strands as possible.”
The airport company’s current annual turnover is about £10 million (US$16m).  This income is split 60/40 between aviation and non-aviation revenues, though non-aviation does include property and travel agency-generated figures.  Car parking – managed by NCP – provides an important income though as the nearest train station is about four miles away, arriving by taxi is feasible.  Inside the terminal building there are duty free, car hire, an executive lounge and ICE currency exchange concessions while out on the ramp, fuel is provided by North Air, 49% of which is owned by BP.
Bell explains, “Some of those concessions that arrived before the airport’s privatisation have very long contracts, but those that joined after Omniport took over tend to be on shorter deals.”
Opportunities
Like many other businesses, Norwich Airport has a rolling five-year plan and it will soon produce a longer-term Master Plan; though at the time of the interview the details were not available.  Although Mr Bell worked on the previous four annual updates to the rolling document, the 2011/12 plan was the first he had written himself.
“Its general theme is one of building sustainable passenger growth.  We’re not currently a pure low-cost airport and I don’t see any long term benefit to the business in being one.  That is because, for example, we have [London] Stansted ‘just down the road’ and we don’t have the catchment area for the sustainable low-cost model [there are about 1.4 million people within a 90-minute drive]. We have the space to handle about 1.5 million passengers in the facility we have.”
Asked if Stansted’s wide range of low-cost services meant that Norwich was just too close to London’s third airport to make another budget operation attractive to potential airlines Mr Bell replied: “I don’t think Stansted actually puts them off, but we are cautious about our approach to this business model.”
Was it, I suggested, because introducing a low-cost carrier can sometimes mean that the airport has to subsidise it?  “Well, passenger growth has to generate a return,” he said.
“At the moment we have a route network that is pretty limited in terms of its schedule connectivity, but we have the chance to fill up some gaping ‘holes’ in that network.There are many opportunities to add targeted connectivity for the business and leisure traveller alike.  I don’t want to dilute those possibilities by just opening everything up to a low cost carrier without exploring all the options for targeted growth first because it won’t earn us any money.”
Mr Bell said that another likely downside that might result from the introduction of a low-cost operation is that it “will kill off the charter market almost overnight; we saw that with Flybe’s expansion.
“If the low-cost carrier starts a large number of services and then withdraws, you are then left with no diversity and, in fact, [by introducing an LCC] you are potentially undermining your diversified business model.
“I’m not saying that this will never, ever happen, but we have learnt from direct experience and through the experience of other regionalsthat if you have ‘everyone’ flying with one carrier, then of course you can leave yourself exposed [if it leaves].
“I know it is pretty idealistic to say that, because many regional airports rely on one carrier to provide them with significant volume.  And, having said all that about the potential pitfalls, if a low-cost carrier came here tomorrow and wanted to launch a large series of routes it would be hard for us to resist the volume one could bring.
“However, I don’t think that the catchment area we have here is big enough to support a massive [budget] operationand whether it would generate enough yield to make it worthwhile to an airline and the airport, I don’t know.
“East Anglia is sparsely populated; is, generally speaking, a nice place to retire to and also has pockets of wealth that means that some people are prepared to pay a little extra to fly from a regional airport, and that is obviously good news for us.  But, we’re not in the south east of England where there are 3 or 4 million potential passengers and we are not on a train line and we never will be, and our airport is north of the city of Norwich so most people have to travel through it to get to us, which isn’t ideal, but we have to work with that.  So those are the things that work against us.”
As the old saying goes, small is beautiful, and this certainly applies to Norwich Airport.  Because it is a relatively modest operation it has the ability to add those extra little service touches that are not possible in a big operation.  “Many of our passengers are such frequent fliers that they recognise our customer service staff and vice versa,” said Bell, adding: “Obviously this makes check-in a nicer experience.  It’s a small thing I know, but, for example, during snow disruption – when we were able to stay open but the destination airports were closed – our staff came out and served tea and biscuits to stranded passengers as they queued to be re-booked.
“The passengers would rather have been flying than standing there in the queue with a cup of tea of course, but some old-fashioned customer service is important when you are so reliant on repeat business.”
Neighbours
Helicopter operations and high power engine testing bring noise complaints from time to time, but Bell says that the airport is working hard to manage it and has a good relationship with most of its neighbours.  KLM UK Engineering relies on having the ability to conduct engine ground runs in order to carry out its business.  At the time of Airports International’s visit, the airport was ready to move its engine-running location to a purpose-built screened area, but a legal objection to the planning procedure has arisen and so this has been delayed for the time being.
With a view to encouraging dialogue with its passengers the independent Norwich Airport Passenger Consultation Group was launched this summer.  It is chaired by a local man, Richard Barker, who is a very frequent flier and: “very knowledgeable about the airport,” says Bell.
“He has brought together a group of other frequent fliers and they will talk to the airport’s management team about any issues that may arise.  “We will also use the group’s views as an important independent source of feedback added Bell.  In addition, the airport launched Facebook and Twitter pages in April this year.
Route development
Currently KLM generates the bulk of the Norfolk airport’s passengers.  About 120,000 people fly to Amsterdam each year with a very significant propotion connecting onwards via the Dutch carrier’s worldwide network.  This represents about a quarter of Norwich’s passengers and makes the airline the airport’s biggest revenue generator.  The Amsterdam flights operate three times daily all year round, though the volumes indicate a fourth rotation is within easy reach
Bell says that the ideal objective, from a passenger point of view, is to match the business demand from East Anglia.  The likes of Newcastle, Glasgow, Düsseldorf (because of its motor industry connections) and Dublin are key destinations that Bell said “we keep getting asked about.  We also want to serve a leisure market, almost in harmony with what Stansted, Luton and further afield offer.  We know we are good at holiday charters; we need to maximise that because that has a good yield.  If we then get into a position where we can’t offer a particular destination because no tour operator will look at it, you then say, ‘OK, who will come and fly that route?’.  It’s a pretty step-by-step approach.”
I asked Mr Bell that if the god that looks after airports could grant him a single wish, thereby providing Norwich with one sustainable route, which one would he choose.  He replied, “at the moment we are looking at commutable routes; places where you can make a return trip in a day, so from a business point of view that would be London, but it’s never going to happen, because it just doesn’t make sense now [due to congestion].”
Not even with a third, shorter, runway at Heathrow providing slots for short-haul traffic? I asked.  “I’m not sure,” he replied before adding, “There is a similar situation evolving at Frankfurt right now, isn’t there?  As its new runway is about to become operational, suddenly slots [at Frankfurt] aren’t a problem anymore.
“I think London would bring the biggest demand because of the connections it offers and the fact that for the business day-tripper it takes two hours to reach [the capital’s] Liverpool Street Station from Norwich by train.
“I can’t see London being eclipsed by anywhere else, but if we can’t have London then, as mentioned before Newcastle, Glasgow, Düsseldorf, Bristol or Dublin – and to some extent Blackpool – because they are all very difficult places to get to from here.
“Having said that, if my wish was granted on the number of requests I receive, then it would be Malaga…or maybe Alicante.  The yield might not be there but the demand definitely is.
 
 

“The business is in better shape now”
– Andrew Bell.
(Photo: Simon Finlay / Eastern Daily Press)
Next step
Summing up, Andrew Bell said, “Norwich was a good value acquisition for Omniport, we’ve had our challenges, but what regional airport hasn’t?
“What we set out to achieve is just taking longer to realise than we originally envisaged, but we are getting there.
“Currently Omniport isn’t looking at acquiring any other airports and, wearing my ‘two hats’ for a moment we certainly still look at Norwich and Maastricht as having the potential to earn a good return on investment.  “The business is in better shape now; we’ve spent a significant amount of time working to solve ‘behind the scenes’ issues over the last few years so we are in a position to move forward with growth, and our shareholders are very supportive of the airport.”
“Today we are looking at a number of routes that might work for us, but we are studying these opportunities very carefully because having already expanded and failed here, nobody wants that to happen again.
“The airport suffered a round of redundancies at an operational level in 2009 and then, following my appointment,  in November 2010 I completely restructured the middle management set-up which resulted in nine management positions being lost.  There has been quite a lot of blood, sweat and tears here in the last three years.
“Despite all that, the staff are really supportive and a great asset to us.  Many of them have worked here for years and have been through a really tough times due the problems the airport has had in recent years.  We do everything here; we run our own air traffic (it’s not NATS), we do our own handling, etc, only security is contracted out, to Wilson-James.
“The staff are very flexible and have supported the business rather than just sitting back and folding their arms during the tough times.  They have carried out duties that they probably wouldn’t have had to do if they worked at other airports. I am extremely grateful for that.
“We are working on the numbers for our Master Plan now and we are looking at around 1 million passengers a year in the longer term, though that will fluctuate.  However, with the business demand and catchment area that we now have, and assuming we have the same runway length etc, then we might achieve one or 1.5 million passengers per annum within 20 years.”
Asked if there is anything that the government can do to help the airport it’s no surprise to hear Bell reply – in chorus with every other UK airport and airline manager – “get rid of APD, because it is damaging us.”  The much-hated Airport Passenger Duty, is one of the few topics that unites everyone in the UK commercial aviation industry – but that’s another story…