Imrecon

The Office for National Statistics published its preliminary estimate for GDP for the first quarter of 2009 on 24 April and the CAA has recently added provisional data for the month of March 2009 to its UK airports monthly statistics.  For the first time in nearly a decade, they shine new light on what is going on in the airport sector.

Spotlight on a hidden decade

These are preliminary and provisional data, but I was waiting for them with special interest.  There has been a well established relationship over many decades between GDP and the numbers of passengers using UK airports.  But, for much of the last decade, that relationship has been barely evident because GDP growth has been so stable[1].  As the last decade has seen major developments in the aviation market, notably in the growth of low cost carriers, the new data provide some refreshing new light.

In addition, data from the last recession were difficult to interpret because of the coincident impact on air travel of the First Gulf War[2].  So far in this recession, the story is complicated by the rise and subsequent collapse in oil prices and the fall in the value of the pound towards the end of 2008, but the raw data nevertheless give us a perspective on the underlying effect of the downturn.

It's big

The Office for National Statistic's preliminary estimate of GDP for Q1/2009 is some 1.9% below Q4/2008, representing a drop in GDP of 4.2% overall for the year since Q1/2008[3].

Over the same year, Q1/2008 to Q1/2009, passenger numbers at UK airports fell by some 12.5%. 

The annual rate of reduction in the months of February and March was even greater, around 14-15%. 

In the last few years, the CAA has suggested the income elasticity for air travel might be expected to fall over time[4].  Because of this, we might have expected smaller reductions in air traffic, but there could be a number of factors adding to the effect of the recession.  The following table looks at three measures that reflect the latest data:

A health warning is necessary before interpreting any of these data - results can be notoriously volatile and new data in a few months time could lead to very different conclusions.  The new data we have are suggestive of a heightened sensitivity to factors in this recession, which could include a combination of revenue, house price, currency and other effects.  For Q2, the anticipated swine flu pandemic may have a further impact, unrelated to the recession. 

Impact on large and small airports

The table below analyses the impacts for airports by size[5].  Some observations:

• Heathrow demonstrates again that it is relatively protected from demand risk
• Stansted's ability to maintain high rates of growth, e.g. by discounting, feels like ancient history (capacity reductions this winter announced by both Ryanair and easyJet)
• Small airports appear still to be more sensitive (but see below)

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Regional insights

The following table analyses the rates of growth by region, with a bit more detail for regions with a significant number of smaller airports.

The table indicates that the recession is having its biggest impact on air travel in the North of England and the South West and least impact in the South and Scotland.

Any small airport effect is most evident in the North of England.  While data up to 2001 indicated similar small airport effects across England, the small airport effect in this recession so far can be attributed substantially to two airports, Blackpool (Ryanair pulled-out following the introduction of an Airport Development Fee) and Durham Tees Valley (a number of low cost airline capacity reductions).   The overall impression is that most small airports are successfully hanging on to what they can at the moment, but they are reliant on maintaining the goodwill of low cost airlines with sometimes minimal strategic commitment. 

Ian Rowson
28 April 2009

[1] From Q3/02 to Q2/08, the R-squared statistic for the elasticity relationship of GDP and passenger numbers is virtually zero.  I understand from the CAA that relationships for different passenger segments (UK and non-UK, business and leisure) have been more apparent.

[2] Iraq invaded Kuwait in August 1990 and accepted the terms of the ceasefire in March 2001.  GDP fell in four of the five quarters Q3/1990-Q3/1991.

[3] From the YBEZ series of data published by the Office of National Statistics, retrieved on 24 April 2009.

[4] Civil Aviation Authority, ‘Demand for Outbound Leisure Air Travel and its Key Drivers', December 2005; although this comment related to the income elasticity of demand for outbound leisure travel.

[5] A further health warning on the use of regressions in this table and the one following it: the relationships with GDP shown in the final column for individual airports and groups of airports are not uniformly statistically significant.  The results should be interpreted as broadly indicative rather than accurate.