Recently there has been comment about the costs of air transport, a subject that is so significant for the future well-being of both business and leisure travelers that it warrants a response. Various issues are outlined below, but in reality they are more complicated than implied by this short overview.
There are two distinct markets, Business and Leisure. Business requires certainty and reliable, sustainable services to key destinations such as London, Manchester and Liverpool. Business traffic is prepared to pay a premium for well-timed day trips to London. Without such services there would be serious losses to the economy, some existing companies would quit the Isle of Man while attracting new activities would be immeasurably more difficult. Lack of suitable services is estimated to reduce National Income each year by 15%, Government revenues would be reduced and 2,000 jobs would be lost. Leisure travelers tend to be less demanding in the times they are prepared to travel but they are more price sensitive, often having to pay for families out of restricted budgets.
Last year, after FlyBe announced the removal of its Gatwick services, MBC researched the various options of providing flights to London; all sources, airlines and independent analysts included, suggested that the annual costs of operating a reasonable service is between £6-7 million per annum. If we assume this is the cost of the current schedule to London City then simple maths suggests that at a load factor of 70% the 90,000 seats provided each year on the regular scheduled services would require a one-way fare of £100 simply to cover operating expenses. After adding the unavoidable taxes and charges of some £55 per leg it becomes clear that a single ticket price of £155 is needed just to cover costs, charges and taxes on this route. Thus, it can be seen that the "use it or lose it" expression requires the extra phrase "and at a sensible price" in order truly to reflect what is required to make a commercial success of the route and maintain its viability in the long run. In the last year of operations to Heathrow, Manx Airlines’ standard return fare was £330, equivalent to some £600 today. In recent years air travelers have benefited from highly competitive conditions; this era has now ended so sadly, apart from the occasional special deals and short-term positions such as predatory pricing, we must anticipate a period of increasing air fares, rising to levels approaching those of the past.
Now that the era of competition and low cost air fares is over, those who still contend that it is possible to have much lower fares and then evidence this by saying how little they paid for a recent trip should really understand the context of their special deal. Airlines often have many different fares on each flight to reflect what the different markets will bear and to maximise their total revenue by differentiating the market. The early or late booking traveler may have an attractive deal, particularly when an airline needs to fill empty seats; there is no marginal cost so any fare is better than none. On long-distance flights the premium paid by Business and First Class passengers subsidise the fares in Economy; of course, it is always necessary for the total revenues achieved by the mix of fares to cover all the airline’s costs or the route will be unsustainable.
In addition, an airline may find it to be financially sensible to utilise an aircraft on a short route, making some return, rather than incur the heavy parking charges, staff and overhead costs of leaving the aircraft on the ground; aircraft utilisation reaches eleven hours per day for some operators, compared with half that for others. Reliance on opportunistic services is unwise, while lack of continuity may be tolerated by leisure travelers who do not need sustainable, reliable flights, such uncertainty is damaging for business. The recent announcement by EasyJet that in November its flights between Gatwick and the Isle of Man will reduce by 25% (from 12 to 9 per week) implies that it has a more profitable use for the aircraft and we can expect higher prices on that route during the period because of the laws of supply and demand. Also, at periods of reduced demand, it is more difficult for an airline operating large capacity aircraft to adjust its schedule, this reduced flexibility offsetting the economies of scale provided by large aircraft.
An intriguing recent development has been the publication of EasyJet’s timetable for next year when they will be offering a useful schedule for day passengers. Isle of Man originating travelers will have a morning outbound at 0950, returning from Gatwick at 1900. Gatwick originating traffic will have a morning departure at 0805, returning from the Island at 2045. EasJet’s utilisation of aircraft is high, so combined with the other operating advantages outlined above, there should be some interesting competition on the London routes, for both business and leisure travelers, which will counter the trends to higher prices. This once again highlights the importance of the debate between the short-term advantages of price competition and the sustainability of those routes in the long run. Will this development further affect the viability of the City route and should we rely on EasyJet to continue operating this lifeline service in the long run?
The involvement of MBC and Microgaming in negotiating and funding the City schedule was not undertaken lightly and hopefully not undertaken naively. This support is imposing actual costs on both companies but will be worth it if it leads to the certainty of services required and the many direct financial benefits and employment protection it will provide. Certainly, the Isle of Man Government is fully supportive and has been extremely helpful with this initiative. It is also encouraging to report that a number of other companies have now agreed to join the initiative, either by providing financial guarantees or by participation in the Advance Ticket Purchase Scheme. Their involvement is welcome and Government has kindly agreed to recognise their contribution by providing publicity at the Airport and elsewhere.