“AVIATION – FUTURE CHALLENGES & OPPORTUNITIES”
The Insurance Institute of London
by
Geoff Muirhead
Group Chief Executive
The Manchester Airports Group
Date: Wednesday, 15TH February 2006
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WELCOME & SPEECH SUMMARY
MR
CHAIRMAN,
LADIES
AND
GENTLEMEN,
I
FEEL
VERY
HONOURED TO BE ASKED TO ADDRESS YOU WITH RESPECT TO
THE FUTURE CHALLENGES AND OPPORTUNITIES IN AVIATION.
BUT, I MUST CONFESS TO BEING A LITTLE APPREHENSIVE.
THE LAST TIME I SPOKE IN LONDON, I MADE A FEW PREDICTIONS
ABOUT THE FUTURE OF AIR TRANSPORT. THAT WAS BEFORE
SARS AND THE SPIRALLING COSTS OF JET FUEL KNOCKED THE
INDUSTRY SLIGHTLY OFF COURSE.
THEREFORE, THE PROBLEM WITH PREDICTIONS IS THAT THEY
CAN QUITE OFTEN COME BACK TO KICK YOU IN THE, HOW CAN I
BEST PUT IT, IN THE “UNDER CARRIAGE”;
BUT I AM GOING TO STICK MY NECK OUT AGAIN AND MAKE A FEW
MORE PREDICTIONS.
PREDICTIONS 2006 TO 2016
I WOULD LIKE TO BEGIN MY ASSESSMENT OF FUTURE
CHALLENGES
AND
OPPORTUNITIES
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FACING
AVIATION,
BY
LOOKING FORWARD TEN YEARS TO 2016 AND GIVE YOU MY
SENSE OF WHAT I THINK THE OPPORTUNITIES WOULD BE:
ON AIRCRAFT
 I PREDICT LARGER, FASTER, QUIETER, MORE EFFICIENT
AIRCRAFT, CARRYING MORE PEOPLE POINT-TO-POINT THAN
EVER BEFORE TO MORE DESTINATIONS. THE AIRBUS A380 IS
ONLY THE FIRST OF THIS GENRE;
 I ENVISAGE NEWER, MORE ENVIRONMENTALLY FRIENDLY AND
HIGHER PERFORMANCE JET FUELS TO FACILITATE CLEANER
AND MORE EFFICIENT AIR TRAVEL;
I MIGHT NEED TO MODIFY MY LAST STATEMENT SLIGHTLY AND
SAY THAT AIRLINES MAY NOW BE LOOKING FOR ANY FUEL –
CHEAP!
ON AIRLINES

I PREDICT THAT LOW COST CARRIERS IN ONE FORM OR
ANOTHER WILL CARRY OVER 60% OF TOTAL GLOBAL
TRAFFIC.
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DEVELOPING CONTINENTS WITH PENT UP AIR TRAVEL
DEMAND SUCH AS ASIA AND AFRICA, INCREASING THE
PROPENSITY TO FLY.

I PREDICT THE EMERGENCE OF LARGER AIRLINES AND
AIRLINE GROUPINGS OR ALLIANCES; CAPABLE OF DRIVING
AVIATION FORWARD.
THEY WILL BRING IMMENSE PRESSURE TO BEAR ON
AIRPORT COSTS AND FOR AIRPORTS TO BE MUCH MORE
EFFICIENT THAN THEY CURRENTLY ARE.

SIMILARLY, I FORECAST THE EMERGENCE OF GLOBAL
AIRPORT SYSTEMS OR CHAINS - AKIN TO THE HILTON AND
SHERATON HOTEL CHAINS.
THESE WOULD DEVELOP IN RESPONSE TO LARGE AIRLINE
GROUPS AND USHER IN STANDARDISED OR ‘PRODUCTION
LINE’ BUSINESS MODELS AND SYSTEMS AT AIRPORTS, NOT
LEAST
AGGREGATED
PROCUREMENT
AND
OTHER
PRACTICES IN ORDER TO DRIVE DOWN AIRPORT COSTS.

I PREDICT THAT WE WOULD END UP WITH THREE OR FOUR
FLAG CARRIERS IN EUROPE BY 2016.
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I SUSPECT MANY OF TODAY’S FLAG CARRIERS WILL CATCH
A COLD BUT HOPEFULLY NOT AVIAN FLU AND FALL BY THE
WAYSIDE. I PREDICT TOO THAT OVER THAT TIME, WE WOULD
SEE MERGERS BETWEEN EUROPEAN AIRLINES AND A GREAT
MAJORITY
OF
THEIR
COUSINS
ACROSS
THE
NORTH
ATLANTIC.
ON AIRPORTS

I PREDICT THE VASTLY INCREASED USE OF INTERNET
TECHNOLOGY
FOR
PEOPLE
PROCESSING,
BAGGAGE
HANDLING AND OTHER TASKS, LEADING TO SOME 90% OF
PASSENGERS USING HOME CHECK-IN RATHER THAN AT THE
AIRPORT. THIS, MR CHAIRMAN, LADIES AND GENTLEMEN, IS A
COMPLETE REVERSAL OF THE SITUATION AS IT IS TODAY.

I FORESEE AIRPORTS EMPLOYING GREATLY IMPROVED
INTER-CONNECTED SAFETY & SECURITY SYSTEMS SUCH AS
3RD
GENERATION
BIOMETRICS,
ADVANCED
PASSENGER
INFORMATION SERVICES AND A MULTITUDE ARRAY OF
TECHNOLOGIES, TO COUNTER THE THREAT OF TERRORISM
AND OTHER SIMILAR ISSUES.
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THESE
SYSTEMS
ALGORITHM,
WOULD
FINGER
INCLUDE
PRINTS,
IRIS
FACIAL
SCANS,
GEOMETRY
EXPLOSIVES
SNIFFERS AND HIGHLY ADVANCED X-RAYS AND AIRPORT
COMPUTERISED AXIAL TOMOGRAPHY OR ‘AIRPORT CAT
SCANS’.

GLOBALLY,
MORE
AND
MORE
AIR
TRAVELLERS
WILL
ORIGINATE AS CLOSE TO THE PASSENGER AS POSSIBLE
LEADING TO POINT-TO-POINT AIR TRAVEL DOMINATING AIR
TRAVEL IN EUROPE.
WITHIN THE UK I PREDICT THAT REGIONAL AIRPORTS WOULD
GROW MUCH FASTER THAN THE CONGESTED LONDON
AIRPORTS SYSTEM, WITHIN EUROPE WE WILL BE LEFT WITH
ONLY FOUR MEGA HUBS CONSISTING OF THE SO CALLED
“FLAMP” GROUP: I.E. FRANKFURT, LONDON HEATHROW,
AMSTERDAM & PARIS CHARLES DE GAULLE – WE LOVE
ACRONISMS IN AVIATION.
AIR TRAFFIC CONTROL SERVICES

AS AN INCREASED NUMBERS OF AIRCRAFT PLY OUR
INREASINGLY CONGESTED AIRSPACE, I PREDICT A SINGLE
EUROPEAN
AND
ENCOMPASSING
WESTERN
NORTH
HEMISPHERE
AMERICA,
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EUROPE,
SKY
THE
SCANDINAVIA
AND
POSSIBLY
THE
FORMER
USSR
COUNTRIES,
IN A DRIVE TO MAKE AVIATION SAFER AND MORE EFFICIENT
THROUGH
COLLABORATIVE
DECISION
MAKING
BY
AIR
TRAFFIC CONTROL SERVICES.
CONSUMER TRENDS AND DEMAND

I PREDICT THE TREND FOR CONSUMER DEMAND WILL
CHANGE
SIGNIFICANTLY
WITH
RESPECT
TO
TRAVEL
DESTINATIONS, PATTERNS AND DURATIONS.
CONSUMERS WILL DISCOVER NEW AND EXOTIC HOLIDAY
DESTINATIONS AND LEISURE PLAYGROUNDS SUCH AS
SOUTH AMERICA, THE FORMER USSR COUNTRIES AND
CURRENTLY UNTAPPED PARTS OF AFRICA. SPECIFICALLY,
CHINA, WITH ITS IMPRESSIVE AND LONG ESTABLISHED
CIVILISATION AND FAST GROWING ECONOMY, WILL BE ONE
OF THE FAVOURED DESTINATIONS BY 2016.
THE INTERNET, TECHNOLOGY & CONSUMERS

I PREDICT WIDESPREAD PROLIFERATION OF A “PUSH
INTERNET” THAT WOULD PUSH NICHE SERVICES AND THE
LASTEST OFFERS TO COSUMERS IN REAL TIME. I CALL THIS
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DEVELOPMENT “MASSCLUSIVITY”! A TAILORED OFFER FOR
THE MASSES! NO MORE WOULD THE CONSUMER HAVE TO
SIT AT A PC AND SEARCH GOOGLE UNPRODUCTIVELY.
GOOGLE AND OTHER PUSH ENGINES WOULD COMPETE
FOR THE ATTENTION OF THE CONSUMER BY PUSHING
CONTEXTUAL OFFERS AT HIM OR HER. THE OFFERS I
SPEAK, OF WOULD BE PUSHED TO THE CONSUMER BASED
ON HIS OR HER LOCATION, TIME OF DAY, SEASON, SEX,
ETHNICITY, LEVEL OF DISPOSABLE INCOME AND OTHER
DEMOGRAPHICS CRITERIA.
THE INTERNET HAS CHANGED AND WILL CONTINUE TO
CHANGE THE WAY CONSUMERS INTERFACE WITH AIRLINES
AND AIRPORTS.

I PREDICT THE MOBILE TELEPHONE, WHICH I SUSPECT
WOULD BE REFERRED TO IN 2016 AS THE “PERSONAL
COMMUNICATOR”, WOULD TURN THE CONSUMER INTO A
DIGITAL DICTATOR.
THE CONSUMER THROUGH HIS OR HER TELEPHONE,
WOULD BE ABLE TO CONNECT TO AIRPORT AND OTHER
SERVICES, AT ANYTIME, IN ANY PLACE, FROM ANYWHERE –
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I BELIEVE THIS IS REFERRED TO AS “MARTINI INTERACTION”
– THOSE OF YOU WHO ARE OLD ENOUGH WILL KNOW WHAT
I MEAN BY “MARTINI INTERACTION”!
FASTER, CHEAPER & SAFER
SO IN BRIEF, I PREDICT FASTER, CHEAPER, SAFER,
GREENER AIR TRANSPORT, THE EMERGENCE OF THE
DIGITAL DICTATOR CONSUMER AND AN INTERNET WITH
HYPER-INTELLIGENT PUSH TECHNOLOGY THAT IS UNLIKE
ANYTHING AVAILABLE TODAY.
BUT WHAT I DON’T THINK I WOULD OR COULD HAVE
PREDICTED, WAS THAT LAST YEAR, NO FRILLS CARRIERS
WOULD
TRANSPORT
OVER
30%
(RECENT
ROUTE
DEVELOPMENT COMPANY FIGURES FOR 2005) OF INTRAEUROPEAN PASSENGERS FROM A STANDING START OF 0%
IN 1999. I PREDICT THEREFORE THAT BY 2016, LCCs WOULD
CARRY CIRCA AT LEAST 75/80% OF ALL INTRA-EUROPEAN
PASSENGER TRAFFIC.
Main Presentation…..
THAT, MR CHAIRMAN, LADIES AND GENTLEMEN, ARE MY
PREDICTIONS LOOKING 10 YEARS AHEAD. WHAT I WOULD LIKE
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TO DO NOW IS TO LOOK IN MORE DETAIL AT ONE OR TWO
CHALLENGES THAT AIRPORTS CAN EXPECT TO FACE IN THE
COMING YEARS AHEAD.
FROM WHERE I AM STANDING, THE TRADITIONAL AIRPORT
BUSINESS MODEL IS BROKEN AND THERE IS NO SOFTWARE,
MICROSOFT OR OTHERWISE, THAT’S CAPABLE OF FIXING IT.
THAT’S DOWN TO THE AIRLINES AND US. YOU WILL NOTICE I
HAVE NOT INCLUDED GOVERNMENT IN THE SOLUTION. THAT IS
BECAUSE THERE’S HARDLY ANYONE LEFT IN OUR INDUSTRY,
INCLUDING AIRLINES, WHO BELIEVE IN REGULATION.
THE
INTENSIFICATION
OF
COMPETITION
AND
MARKET
EFFICIENCY PRESSURES, HEAPED ON AVIATON BY LCCs OR ‘NO
FRILLS CARRIERS’, ARE SUCH THAT AIRPORT DESIGNATION OR
REGULATION ARE NOW WELL PAST THEIR SELL BY DATE.
LEAVING THAT PARTICULAR ISSUE ASIDE FOR ANOTHER TIME, I
WOULD LIKE TO RETURN TO MY ORIGINAL ARGUMENT.
WHY
WOULD I SUGGEST THE AIRPORT BUSINESS MODEL IS BROKEN?
INDEED IF I AM HONEST, IT IS THE ECONOMIC MODEL THAT’S
BROKEN. I WILL GIVE YOU MY REASONS WHY I THINK THIS IS THE
CASE.
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TODAY IN OUR INDUSTRY, WE FACE A CONUNDRUM. THE
CONUNDRUM IS THIS: “HOW DO WE MAKE NEW INVESTMENT
PAY, WHEN THE FEES PAID BY SOME AIRLINES FOR AIRPORT
SERVICES, BEARS NO RELEVANCE TO THE AIRPORT’S SUNK
COSTS IN CAPACITY AND OTHER AREAS.”
HOWEVER, I HAVE TO CONFESS THIS HAS NOT ALWAYS BEEN
THE SITUATION.
IN THE PAST, IT WAS THE CASE THAT AIRPORTS WITH SUNK
COSTS AND EXCESSIVE CAPACITY, TOOK ON BOARD ADDITIONAL
AIRLINE TRAFFIC AT MARGINAL COST AND BENEFITS.
THAT WAS BEFORE NO FRILLS CARRIERS DROVE DOWN
AIRPORT FEES TO THE POINT WHERE AIRPORTS CAN NO
LONGER IN MY VIEW, MAKE NEW INVESTMENTS IN ADDITIONAL
CAPACITY PAY BASED UPON THE HISTORIC INVESTMENT
CRITERIA.
IN A SIGNIFICANT NUMBER OF CASES, THE EXPLOSIVE GROWTH
BY NO FRILL CARRIERS AT REGIONAL AIRPORTS, HAVE BEEN
ACHIEVED IN THE FACE OF THE OPPORTUNITY COSTS OF
ALTERNATIVE TRAFFIC DEVELOPMENT, IN PREFERENCE FOR
HIGHER MARGINAL COSTS THAT BECOME INEVITABLE DUE TO
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DIMINISHING RETURNS ASSOCIATED WITH THE LCC BUSINESS
MODEL. ALL IN THE NAME OF PASSENGER VOLUME “GROWTH”.
WHAT I CALL UNPROFITABLE GROWTH.
A CASE IN POINT IS THE DEBATE SURROUNDING THE FUTURE
PROVISION OF RUNWAY AND TERMINAL CAPACITY AT STANSTED.
IN THE COURSE OF THAT DEBATE, WE HAVE SEEN MICHAEL
O’LEARY, THE CEO OF RYANAIR, THE LARGEST AIRLINE BASED
AT STANSTED, LAY DOWN THE GAUNTLET THAT RYANAIR WILL
NOT PAY FOR ‘GOLD PLATED’ CAPACITY THROUGH INCREASED
AIRPORT FEES, WHICH ARE SUPERFLOUS IN ITS VIEW.
AT THE SAME TIME, AIRLINES AT LONDON HEATHROW AND
GATWICK HAVE WRITTEN TO THE REGULATOR TO BAR CROSS
SUBSIDIZATION OF STANSTED BY ADDITIONAL LEVIES ON
AIRLINE OPERATORS FLYING OUT OF HEATHROW AND GATWICK.
GENERALLY THROUGHOUT EUROPE NO FRILLS AIRPORTS ARE
NOT HUGELY PROFITABLE ENTERPRISES, AND THAT WILL
REMAIN SO FOR SOME TIME TO COME BECAUSE THEIR
ECONOMICS IS FLAWED.
INDEED, THE RETURN ON INVESTMENT AND PROFIT MARGIN BY
REGIONAL AIRPORTS DOMINATED BY LCC ARE SO LOW, THAT
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THEY’RE NOW ON A PAR OR WORSE WITH THOSE OF SOME
AIRLINES. WHAT IS MORE, MANY REGIONAL AIRPORTS NOW
SUFFER
FROM
A
SIGNIFICANTLY
WORSE
RISK
PROFILE
COMPARED TO FIVE OR SIX YEARS AGO, BECAUSE THE FEES
THEY CHARGE FALL WELL SHORT OF WHAT IS REQUIRED TO
FUND FUTURE DEVELOPMENT AND GROWTH.
IN CONSEQUENCE, THIS IS PROOF IF PROOF WAS NEEDED, THAT
GROWTH ALONE OR WORSE, GROWTH AT ANY COST, IS NOT
ENOUGH TO SUSTAIN A PROFITABLE AIRPORT BUSINESS.
CERTAINLY
PROFITABLE
AIRPORT
BUSINESS
IS
OUR
UNRELENTING GOAL AT THE MANCHESTER AIRPORTS GROUP,
HOWEVER, CASTING A WEATHER EYE AT SOME OF OUR
COMPETITORS, IT IS DOUBTFUL WHETHER THEY SHARE OUR
AMBITION IN THIS PARTICULAR REGARD.
AIRPORT INVESTMENT IS LUMPY IN NATURE, HENCE, THE
SIGNIFICANT SUNK COSTS IN ASSETS, MADE IN EXPECTATION OF
PROFIT IN FUTURE YEARS. IN RECENT YEARS, SOME REGIONAL
AIRPORTS, WHICH HAVE GROWN ON THE BACK OF NO FRILLS
CARRIERS, ARE LUCKY IF THEY MAKE THE COST OF MONEY
BORROWED LET ALONE PROFIT.
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YET
UNLIKE
AIRLINES,
WHICH
ARE
QUITE
CAPABLE
OF
DIVESTING THEIR PORTFOLIO OF EXTRANEOUS ASSETS SUCH
AS LEASED AIRCRAFT DURING BAD ECONOMIC CYCLES SUCH AS
9/11, GULF WAR AND SARS, AN AIRPORT, ONCE A COST IS SUNK,
CANNOT DO SO.
MR
CHAIRMAN,
LADIES
AND
GENTLEMEN,
THIS
IS
AN
UNSUSTAINABLE SITUATION AND I DARE SAY THAT AIRLINES AND
AIRPORTS NEED TO REACH AN ACCOMODATION VERY SOON, ON
A BUSINESS MODEL WHICH ALLOWS AIRLINES TO REALISE
GREATER EFFICIENCY AT MUCH REDUCED COSTS, WHILST
ALLOWING
AIRPORTS
TO
MAKE
A
RETURN
ON
THEIR
INVESTMENT WHICH GOES BEYOND MERE COST RECOVERY
ALONE.
GETTING THOSE TWO MODELS TO TALK TO ONE ANOTHER IS
THE CONUNDRUM THAT WE FACE.
IT IS OUR VIEW THAT THE ‘HYBRID AIRPORT MODEL’, WHICH
MAINTAINS
A
BALANCE
BETWEEN
NETWORK
AIRLINES,
INCLUSIVE CHARTER AND NO FRILLS CARRIERS, IS ONE WAY
FORWARD.
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AS THE LEADING PROTAGONIST OF THIS
‘HYBRID AIRPORT
MODEL’ IN THE UK, OUR FINANCIAL PERFORMANCE OVER THE
LAST FIVE YEARS AND THE QUANTUM OF VALUE CREATED FOR
OUR SHAREHOLDERS OVER THAT TIME, IS TESTAMENT TO THE
ROBUSTNESS OF OUR APPROACH AND SO WHILST THE
BUSINESS MODEL OF MANY OF OUR ‘PURE PLAY’, NO FRILL
COMPETITIOR AIRPORTS MAY BE BROKEN, OURS IS ALIVE AND
WELL
AND
DELIVERING
EXCELLENT
VALUE
TO
OUR
SHAREHOLDERS AND USERS.
WITHIN THE FRAMEWORK OF THE HYBRID AIRPORT MODEL THAT
I HAVE JUST DESCRIBED, LOCATION IS CRITICAL AS IS SURFACE
ACCESS TO HUGE POPULATION CENTRES AND A LARGE
CATCHMENT.
BECAUSE AT THE END OF THE DAY THE MAIN
ATTRACTION OF ANY AIRPORT TO AIRLINES IS MARKET ACCESS.
LASTLY, GOVERNMENT HAS A ROLE TO PLAY, BUT ONLY A
LIMITED ROLE – WHICH IS TO CREATE THE RIGHT ECONOMIC
CLIMATE FOR AVIATION TO FLOURISH, AFTER ALL, REGIONAL
AIRPORTS
OF
ALL
GENRE
HAVE
PROVED
IMMENSELY
BENEFICIAL TO THE REGIONS IN WHICH THEY ARE LOCATED.
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CONCLUSION
IN CONCLUSION, I WOULD LIKE TO LEAVE YOU WITH THE
TANTALISING NOTION THAT MORE WILL BECOME LESS. AND, AS
WITH MANY INDUSTRIES WE WILL SEE A REPOSITIONING AS
CUSTOMER REQUIREMENTS CHANGE. A SMALLER NUMBER OF
LCCS WILL DOMINATE SHORT HAUL, PROVIDING CAPACITY TO
THE HOLIDAY/ SHORT BREAK SECTOR.
THE TRADITIONAL CHARTER COMPANIES WILL LOOK TO LONG
HAUL PRODUCTS AND WE WOULD SEE A CONSOLIDATION OF
FLAG CARRIERS ACROSS EUROPE JUST AS WE WOULD SEE
FEWER GLOBAL AIRLINES SURVIVE IN THEIR CURRENT FORM.
Larger, faster…
WHETHER WE DEVELOP FASTER, LARGER OR CHEAPER PLANES
WILL
BE
LINKED
TO
ENVIRONMENTAL
AND
POLITICAL
CONSIDERATIONS.
Passengers have control…
BUT WHAT WILL HAPPEN IS THAT PASSENGERS WILL HAVE MORE
SAY AND A GREATER INFLUENCE ON THE FUTURE OF AIR
TRANSPORT.
THE INTERNET HAS PROVIDED THEM WITH THE
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ABILITY TO CONTROL THIS FORM OF TRAVEL AND THAT WILL
NOT CHANGE.
IN CLOSING, I WOULD LIKE TO LEAVE YOU WITH ANOTHER
SCINTILATING THOUGHT. IT IS AN ANALOGY FROM AFRICA,
WHICH I FIND HIGHLY RELEVANT, GIVEN THE IMMENSE SCALE OF
CHALLENGES AND OPPORTUNITIES BEFORE US, BUSINESS IN
GENERAL AND AVIATION IN PARTICULAR.
WHEN A LION WAKES UP IN AFRICA, IT KNOWS THAT IT MUST
RUN FASTER THAN THE SLOWEST GAZELLE, OTHERWISE IT WILL
STARVE TO DEATH.
EQUALLY, WHEN A GAZELLE WAKES UP, IT KNOWS THAT IT MUST
RUN FASTER THAN THE FASTEST LION OTHERWISE IT WILL
BECOME A STATISTIC. THE MORAL OF THE STORY IS, IT DOESN'T
MATTER WHETHER YOU ARE A LION OR A GAZELLE, WHEN THE
SUN COMES UP, YOU HAD BETTER BE RUNNING FAST!
AND THAT MR CHAIRMAN, LADIES AND GENTLEMEN, IS EXACTLY
WHAT WE’RE DOING AT THE MANCHESTER AIRPORTS GROUP.
OUR SUCCESSFUL HYBRID MODEL THAT BLENDS THE OLD
(NETWORK AND CHARTER CARRIERS) WITH THE NEW (NO FRILLS
CARRIERS) IS A POINTER ON HOW TO FIX THE BROKEN AIRLINE
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MODEL. AND WHILST THE LIONS OF CHALLENGES MAY BE
SNAPPING AT OUR HEELS, THEY HAVEN’T CAUGHT US YET AND I
CAN ASSURE YOU I HAVE NO INTENTION OF BEING CAUGHT IN
THE FUTURE.
MR CHAIRMAN, LADIES AND GENTLEMEN, THANK YOU FOR
INVITING ME HERE TO TALK ABOUT THE FUTURE CHALLENGES
AND OPPORTUNITIES FACING AVIATION AND THANK YOU FOR
LISTENING TO ME.
ENDS (2408 words)
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