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Can GIP turn LGW around? October 28, 2009

Posted by supersonicswan in Swan Song.
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With the industry’s widespread approval, Mr O’Leary preaching the end of BAA’s monopoly, Virgin Atlantic hoping a new monster hadn’t been created and some analysts claiming GIP got ripped off, one week down the line LGW’s sale remains a hot topic. Not least because of BAA reporting £784.7m in pre-tax losses for the first nine months of the year (over £250m worse y.o.y) and Grupo Ferrovial’s shares constantly losing worth on the stock exchange in Mardrid ever since the LGW deal was announced. There is a lot of talk on BAA’s future and how Ferrovial should pull it off but the excitement that followed last week’s sale of LGW is by far gone now with the focus switching from ideological arguments to a pursuit of real-life outcomes on both sides. Intelligibly, most of this pondering involves GIP and LGW rather than BAA and whatever is still left in their hands.

I have already written about GIP’s good reputation resulting from their activities at LCY and I strongly believe they will benefit from it once the purchase is approved by the EU in december 2009; a factor that GIP will need so badly given the amount of work LGW requires. The new owner will obviously not announce any plans before the sale is finalised with Michael McGhee’s (one of the partners) appropriately evasive statement:

“We will upgrade and modernise Gatwick Airport to transform the experience for both business and leisure passengers.”

But what exactly needs to be done in the first place, what are GIP’s options at London’s second airport?

The biggest task will surely be to upgrade existing infrastructure since we can easily outrule the simplest way of changing experiences – knocking it all down and building over from the scratch. A big chunk of the work is already underway though, with LGW signing a £31.3m contract for redevelopment of the South Terminal in mid-October 2009. Even so, it seems like the “to-do” list is endless: streamlined security and pax flows, car park to terminal transfers, additional walkways & escalators, an exclusive rail link to Central London (currently shared with a rail operator) and improved retail facilities (LGW has lost numerous tenants this summer only) can only serve as an excerpt.

A thoughtful thing to do would be to initiate the re-make with some cosmetic changes that would enhance the experience without emptying the investors’ pockets. Additional seating and sanitary facilities, working walkways or shorter immigration lines would do just fine. That would show goodwill of sorts towards the flying public’s needs but also indicate that small steps are needed and no change of huge magnitude will happen overnight.

Consequently, GIP should focus on how to attract more customers to the airport. On one side there are passengers for which LGW is more of a necessity than of pleasure. Two most important reasons for that are:

1. Stereotypes held about the airport – getting there and back is a hassle, security and immigration are inefficient, it is not as prestigious as LHR, etc. – these should be aimed at by means of better communications and probably an ongoing public relations campaign;

2. After the first stage of the US-EU Open Skies agreement has been introduced, the airport started losing out on long-haul traffic as many an airline transferred their operations to LHR. Because of that reduced choice of connections, LGW ceased to be the airport of choice for many travellers and is left with an increasing rate of domestic and European links.

Going to the other side of LGW’s customer base, is it possible for the airport to bring full service airlines back (together with their long-haul routes) and give more choice to the travellers? Yes, but only if passenger and landing fees are lowered and (what brings us back to point zero) there’s infrastructure investment. To lure one of the alliances from LHR over to LGW could be an option, however there is a catch with this one – LGW is already a pretty busy airport and at current capacity I have my doubts it would manage to handle a whole alliance’s movements.

Whichever way we look at the problem, it seems that all comes down to infrastructure – airport needs airlines, airlines need pax, pax need choice and choice means more capacity at the airport. What LGW needs is a new runway and that might be a long battle for GIP – according to last releases LGW’s second runway simply won’t be out there before 2019.

Or does it really need one?

GIP have been operating the highly successful LCY largely as a business airport for domestic and European markets with a relatively small leisure factor to it – a perfectly exploited niche. Development based solely on competing against LHR mustn’t be the only option for the airport. LGW could successfully become an aspirational low-cost base with carriers like easyJet and AerLingus based there. Domestic movements could be encouraged given the good results being achieved by FlyBe. Not to forget about charter airlines that contribute a big chunk of total movements and are what the public think of when they think Gatwick.

Just as about any airport, LGW is not perfect. Hopefully GIP will surprise us coming up with a sound plan for its development.

What do you think will be GIP’s first move? What should they do first? Can they get the second runway approved earlier than 2019? Can LGW become the public’s airport of choice?

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