Innovative public sector partnerships with the aviation industry can help to secure new international services for Europe's regions, says Seamus Kealey, director at AviaSolutions, a consultancy that advised on setting up successful route development funds for Scotland and Northern Ireland.
Good air links are vital to the economic development of any region or country. Direct air links to key destinations enable local businesses to develop their exports, attract foreign business investment, and encourage tourism.
The challenge for most regions is to promote and develop those services that make a positive net contribution to their economy at a time when full service carriers have been reducing their regional networks as they concentrate on their hubs.
Leisure replacement
Such mainline services have often been replaced by low-cost and niche regional carriers, most of which are flying to leisure destinations, and which, in the case of airports in northern Europe, are carrying mostly outbound flows, which do not necessarily contribute to the overall economic growth of the region from which the services operate.
Airports have always sought to attract new services, but only in a few instances has the wider economic impact of a new service been examined. The growing trend for airport privatisation, focused on maximising profit, has further diluted the role of airports as promoters of those services that deliver economic benefit to the region they serve.
Most regional airports offer some level of incentive to airlines to attract new routes, usually through a package of discounts on airport charges and/or route marketing support. All too often these initiatives are offered for all routes, irrespective of the benefits to a region.
Airports generate more revenue from a 150-seater service to, say, southern Spain than from a 50-seater service to a business destination of key economic importance to the region.
However, the benefits of a new air service stretch far beyond the airport's revenues. Thus there is a role for public sector funding to motivate carriers to seriously consider new routes that contribute to regional economic development, creating a win-win partnership between all parties.
One recent UK initiative has seen the establishment of regional route development funds (RDF). These are based on partnerships between the public sector, airlines and airports aimed at encouraging new air services that promote business links and stimulate inbound tourism. The public sector invests only in those routes that meet the region's economic development objectives.
For the first time, the funds bring together the key stakeholders in the public sector concerned with economic development, including regional administrations, economic development agencies and tourism authorities to create an effective "one-stop shop" for the region.
This unified approach enables analysis of the forecast economic benefits from each new service, allowing a rapid decision on public-sector investment for a qualifying route. The main purpose of the fund is to reduce the start-up risk to the airline.
One of the real benefits of such a fund is that it allows the public sector to have real influence on the type of services attracted to their region. Closer co-operation and communication with airports as well as airlines fosters a better understanding of the objectives, issues and concerns for each party.
Two UK case studies, from Scotland and Northern Ireland, illustrate the potential benefits that can flow from carefully structured RDF packages.
Scotland
The Scottish RDF was established in November 2002 by the Scottish government through its economic development agency, Scottish Enterprise. The fund's budget is £6 million (€9 million) spread over three years.
In the 14 years from January 1989 to January 2003, the total number of scheduled international destinations served from Scotland on a year-round basis remained constant at 17. Since the fund began, 11 new international scheduled destinations have been added in under two years.
Northern Ireland
Northern Ireland has historically been poorly served with direct scheduled international air services. The devolved administration identified route development as a key component of industrial and tourism competitiveness. It established a fund in November 2003. The fund has a budget of £4 million spread over a period of three years.
Before the fund was launched, Northern Ireland had a single daily international service from Belfast to Amsterdam. Since then, six scheduled international routes have been launched, of which two received RDF investment. A new daily Belfast-New York service will be launched in summer 2005, also as a result of the fund.
| Destination growth post RDF | ||
| Region | Unique destinations | |
|
| pre-RDF | post-RDF |
| Scotland | 17 | 28 |
| Northern Ireland | 1 | 4 |
| NOTE: Figures are before and after the start of the route development funds in January 2003. | ||
Shaping an RDF
Route development funds need to be carefully structured and operated if they are to succeed. A good RDF needs to be:
* Realistic: a "gap analysis" identifies the extent to which the region is underserved compared with peer regions.
* Compliant: well-structured funds are unlikely to be affected by the European Commission's recent Charleroi decision.
* Transparent: a route should be funded only if it delivers economic benefits to the region, is non-discriminatory and the key funding criteria are made public.
* Cost-effective: the amount of funding needed to attract new routes to a region is often surprisingly low, provided it is applied where needed during the start-up phase of a new route, when an airline's commercial risk is highest.
Incremental: the investment provided by an RDF should be additional to existing airport route incentives.
* Time limited: the maximum period of investment in a route should be limited to a realistic period for the route to become sustainable without investment.
Source: Airline Business
