|Jenny Rathbone AM|
|Mohammad Asghar AM|
|Nick Ramsay AM||Cadeirydd y Pwyllgor|
|Rhianon Passmore AM|
|Adrian Crompton||Archwilydd Cyffredinol Cymru|
|Auditor General for Wales|
|Debra Barber||Prif Swyddog Gweithredol, Maes Awyr Caerdydd|
|Chief Executive Officer, Cardiff Airport|
|Huw Lewis||Cyfarwyddwr Cyllid, Maes Awyr Caerdydd|
|Finance Director, Cardiff Airport|
|Matthew Mortlock||Swyddfa Archwilio Cymru|
|Wales Audit Office|
|Roger Lewis||Cadeirydd, Maes Awyr Caerdydd|
|Chairman, Cardiff Airport|
|Claire Griffiths||Dirprwy Glerc|
|1. Cyflwyniad, ymddiheuriadau, dirprwyon a datgan buddiannau||1. Introductions, apologies, substitutions and declarations of interest|
|2. Papurau i'w nodi||2. Papers to note|
|3. Maes Awyr Caerdydd: Sesiwn dystiolaeth gyda Maes Awyr Caerdydd||3. Cardiff Airport: Evidence session with Cardiff Airport|
|4. Cynnig o dan Reol Sefydlog 17.42 i benderfynu gwahardd y cyhoedd o’r cyfarfod||4. Motion under Standing Order 17.42 to resolve to exclude the public from the meeting|
Cofnodir y trafodion yn yr iaith y llefarwyd hwy ynddi yn y pwyllgor. Yn ogystal, cynhwysir trawsgrifiad o’r cyfieithu ar y pryd. Lle mae cyfranwyr wedi darparu cywiriadau i’w tystiolaeth, nodir y rheini yn y trawsgrifiad.
The proceedings are reported in the language in which they were spoken in the committee. In addition, a transcription of the simultaneous interpretation is included. Where contributors have supplied corrections to their evidence, these are noted in the transcript.
Dechreuodd y cyfarfod am 13:46.
The meeting began at 13:46.
Can I welcome Members and our witnesses to this afternoon's meeting of the Public Accounts Committee? As usual, headsets are available for translation and amplification. Please ensure that any phones are on silent. In an emergency follow the ushers.
We've received a number of apologies today, from Vikki Howells and Adam Price. Do Members have any declarations of interest that they'd like to make at this point in time? No.
Okay, item 2 and a couple of papers to note. First of all, the Auditor General for Wales briefed the committee on the series of reports relating to town and community councils, together with the discussion paper 'Fit for the Future', on 25 March. I wrote to the Welsh Government regarding the town and community councils, expressing concern about the auditor general's findings and the historical problems in this sector. I also wrote to the Welsh Government regarding the scrutiny discussion paper, asking for their reflections on the extent to which they can place reliance on local authority scrutiny functions and what this might mean for expectations on scrutiny functions in terms of the councils' own governance. I think these responses provide a fairly detailed response to the issues raised with no significant concerns as far as I'm concerned. However, the auditor general may have some observations on the detail of the 'Fit for the Future' response.
Like you, Nick, I think these are helpful, detailed responses. We've got a range of work on the go in this sector, not only in relation to town and community councils and scrutiny arrangements, but right across the local government sphere. So the committee might want to consider inviting Tracey Burke in perhaps later in the year, the second half of the autumn term, so we can catch up on a basket of things that we have in this field.
Happy with that course of action, if we, later in the year, invite Tracey Burke? Okay, thank you.
Also, I'm intending to write to the Equality, Local Government and Communities Committee as they may also have some interest in this in the wider local governance context. Are you happy for me to do that?
I think it's important that both committees don't do this. It should be one or the other.
Okay, turning to the substantive item on today's agenda, item 3, our evidence session with Cardiff Airport, can I welcome our witnesses? Thank you for finding the time to be with us today. Would you like to give your name and positions for the Record of Proceedings?
Roger Lewis, chairman of Cardiff Airport.
I'm Deb Barber. I'm the chief executive officer of Cardiff Airport.
Huw Lewis, finance director of Cardiff Airport.
Great, thank you. We've got a number of questions for you, and I'll kick off with the first couple. New routes have been announced from the airport by a number of airlines. What's the take-up of these additional seats, and has the growth in passenger numbers met expectations and targets?
Thank you, Chair. May I say thank you on behalf of Debra and Huw and the board of Cardiff Airport for this opportunity to speak once more to the Public Accounts Committee today?
To answer your question directly, I'm very pleased to report that our forecasts for the year ahead will show an increase of some 7 per cent with the new routes that have been added. That takes into account some of the changes that have been announced over the past few weeks. So, it's 7 per cent even with the changes that have been announced over the past few weeks. If one reflects back, Chair, that's 7 per cent on 7 per cent that's already occurred in this current year, 2019, 10 per cent the year before, 11 per cent the year before that, and 16 per cent the year before that. So, since the Government acquisition in 2013, we've put on over 60 per cent. I'm pleased to report that last month alone—April—we've done a year-on-year increase, in the month of April, of some 20 per cent in terms of our passenger numbers. But the headline, Chair, is that going forward, for this year ahead, we're forecasting a 7 per cent growth, including the changes that have recently been announced to some of the airlines that are flying out of Cardiff Airport.
Sorry, Chair. For clarity, when you say 'growth', what do you mean?
That is in passenger numbers. Again, to be specific, when I joined the airport as chair in 2015, we just had over 1 million passengers. We've now got 1.6 million, and we hit over the 1.6 million figure last month. So, I'm really pleased to announce that today.
And is that where you hoped to be at this point in time when you did take it over?
Certainly, from my perspective, it certainly was the position, but we are hugely ambitious and we are totally focused on getting to 2 million as quickly as possible. We feel the enterprise has the opportunity to sustain 3 million, and that is within our long-term business planning. Deb, would you like to add anything to that?
Yes. Our real focus over the last five years has been to change the perception of the airport and also to grow confidence in the airport business, both from our passenger customers and also airlines. I think what we're beginning to see now is that confidence beginning to gain traction.
This summer, we've been really pleased to have a number of new progressions from our incumbent airlines. TUI, for example, have added an extra aircraft this year, which has added 100,000 passenger potential for an additional 100,000 passengers. Thomas Cook have uplifted their capacity—they've gone from an A320 to an A321 aircraft, which, again, is 29,000 passengers. TUI, in their effort, have introduced a number of new routes, including bringing back the routes that were lost a few summers ago for security reasons. So, we're getting back Turkey and Croatia, Tunisia, which gives us a great blend of passengers as those passengers are outside the EU and are duty-free passengers, which is always fantastic for the mix in the terminal. Ryanair, who we've been courting—I'm sure everybody will be aware—for a very long time, we've had three additional routes from them this summer. So, I think what's happened this summer has been, really, airlines coming to us and looking to incrementally uplift their capacity at the airport.
How are you achieving that? What sort of financial incentives do you offer them, or do you waive fees in any cases to try and encourage the airlines to come?
You'll appreciate that we have commercial contracts with each of our airline customers, and that can vary. No one contract is the same, effectively, but clearly the terms of those contracts are very confidential. You will appreciate, I'm sure, that we operate in an extremely competitive environment. None of our other airport competitors will be releasing that kind of information into the public domain, and if we were to do it, then it would place Cardiff Airport at a significant disadvantage.
But the headline I'd add—and as Debra quite rightly said, it's a mixed economy—the headline is that with this growth over recent years, we produced our first positive EBITDA last year—so, earnings before interest, tax, depreciation and amortization. We produced a positive EBITDA. That's the first time, Huw, in eight years?
Eight years. This year, I'm pleased to report, Chair, that we will also be producing an enhanced EBITDA. So, we've managed to achieve growth with a mixed economy of relationships with our commercial partners and produced positive results, and we're forecasting positive results in the year ahead. These results now are being put into the public domain. So, just to reassure you, this is an audited figure that is now within the public domain.
I appreciate commercial confidentially issues in terms of your agreements with different airlines, but it's obviously important from our point of view that we're able to assess value for money. So, what mechanisms—? Can you put a bit more meat on the bones about the mechanisms you've got in place to make sure that you are getting value for money from those agreements?
I'll hand over to Huw, but I'd say the key overarching metric would be the fact that we've had this exponential growth from 1 million to 1.6 million and we've improved our profitability. Huw.
Absolutely. With every deal that we enter into with an airline, we look at the number of passengers that it's going to generate and we look at the income that can be generated from the passenger through every income stream that we earn, so whether it be commercial, whether it be landing fees. And every deal is assessed on a commercial basis in terms of making a positive either internal rate of return or return on investment.
And perhaps the other thing strategically for a Welsh economic agenda, we've not only driven growth through passenger numbers and achieved results, but we see ourselves, we view ourselves, as an airport as a strategic asset for Wales and the south-west of the United Kingdom. So, we are doing things that other airports do not consider. So, we've entered, for instance, into supplying fuel to our airline partners. So, that is a good contributor to the business, and it will continue to enhance the business, but moreover we look at the freight and cargo opportunity, which we've just begun, and we see that will enhance our performance going forward. And, of course, we have taken in-house the management of St Athan as part of the enterprise as well, so we are doing that. Also, the one other important ingredient that we've worked incredibly hard on over the last four or five years has been securing the future of BAMC, the British Airways maintenance centre at Cardiff, which, as you know, employs over 600 very highly skilled jobs. And we took it upon ourselves to work with you within Welsh Government to ensure the security of those jobs and the future of that enterprise. So, we have interpreted the business in a far more holistic sense, and we've aligned our strategy with that of an economic growth strategy for Wales.
Yes, I think that's a really important point. If you look at the contribution that the airport makes, it is that wider economic benefit. The fact that, with the airport now sustainable into the longer term, we've got 1,900 jobs directly supported at the airport; we're putting £163 million of GVA into the economy. Also, when you look at the passenger numbers that we've got and the increased numbers of passengers that are coming through the airport, 30 per cent of them are actually now inbound visitors to Wales. So, if you look at the wider benefit of those passengers being business and leisure passengers, then I think that we always factor that into account as well when we're looking at the economic return of a route that we invest in.
So, the GVA, Huw, is what at the moment?
Yes, we looked at it, and it was over £93 million in terms of the last assessment that was done, which was in—
And it's now estimated to be up north of £150 million, based on the recent assessment.
Can I just pick up on what you are saying about—you now provide fuel to the companies that operate out of your airports. Is this unusual or—? And who's subsidising who at this point?
Well, there's no question of a subsidy; that's the headline. For us to take a more, if you like, skin-in-the-game approach to the airport and aviation industry, that is unusual because people more often than not outsource activity. In fact, the previous owners of Cardiff Airport, whom the Welsh Government purchased the airport off, actually outsourced fuel provision to another company. We, through some skilful work on Huw's part, identified that there's an opportunity for us to source fuel ourselves and supply it to our stakeholders. So, we do that with a modest margin, so it is a net contributor to the business. There is no subsidy whatsoever involved in our fuel supply.
Okay. So, what are the risks involved in that, because, obviously, fuel prices can fluctuate enormously depending on international events and so on?
I'll hand over to Huw on that, but it'll depend on whether you hedge or whether you spot buy. Huw.
For us, the fuel supply is a direct pass through to the airline. So, we effectively don't bear any of the risk on the procurement with that. We really bear the risk of how efficiently we can deliver the fuel to the aircraft and the risks associated with that, which are very manageable. We use an external partner to help our provision with that so that we've got the right technical expertise and knowledge.
So, what we're not doing is giving a fixed hedged price for one year, two years out—that's what gives you the risk. We're, if you like, adopting a spot price opportunity for our partners.
Where we benefit from is the into-plane charge, so effectively the cost of transferring the fuel from the tanks to the aircraft. Previously, that was going to a third party, and we got a tiny, tiny percentage of that revenue. Now, we benefit from that revenue. So, that's where we make our benefit. It's not the actual fuel charges; it's the handling of the fuel at the airport.
And what I like about this—and Huw will smile because I was very passionate about us taking responsibility for this—is that you can't land the plane at Culverhouse Cross to fill up with petrol at Tesco; you can only fill up at our airport. So, then, as you know within Government, it's about levers and this is a fascinating lever for us, going forward, when we can be as economic to our partners as we possibly can, which then is part of our attraction for airlines to come to Cardiff Airport, because we're not going to be greedy on our margin for fuel.
Okay. So, how does filling up at Cardiff Airport compare with filling up at Bristol Airport?
It's difficult to compare between airports because economies of scale will vary depending on the number of litres that you use. So, an airport that has a significant number of movements will always be cheaper because the on-costs of delivering that fuel to the aircraft will be cheaper. Somewhere like Paris or Heathrow will be significantly cheaper than us because they have the economy of scale.
So, the headline is we're wanting to be as competitive as we can for any airport in the UK.
Well, you're not going to tell us you're going to be as uncompetitive as—
Well, we're not going to be greedy. Now, that's the key word. And, again, this is a fundamental point that comes to the heart of the relationship between Welsh Government and Cardiff Airport—that we're wanting to create a long-term, sustainable, profitable enterprise and we're not taking money out of the activity, we're reinvesting it back in the activity and that's what gives us a competitive edge. And that's a wonderful paradoxical position to be in.
I think the huge benefit that this gives us is that we've got more influence now over the fuel price that is charged at the airport. Previously, we didn't have any control over that and we were finding instances where airlines would deliberately be refuelling at the other end of the route, because it was uncompetitive to refuel at Cardiff Airport. We've now got those airlines actually refuelling with us, so we've significantly increased the turnover of fuel at the airport as a result of us being able to do that.
Okay. So, moving on to the slightly bigger headline around Flybe's decision to close its base—has that got anything to do with the price of filling up or—?
So, if I could kick off with Flybe—and thank you, Ms Rathbone, for asking this question—the headline is, as I said right at the very start, we're forecasting growth for this coming year, even with the change in relationship we had with Flybe. The headline for the Flybe relationship is that I think it was a very brave and ambitious move that the airport did to secure the relationship with Flybe, and it has been a key driver of the enterprise. We're working in a sector that is incredibly volatile and very dynamic, and airlines come and airlines go.
The most important thing for Cardiff Airport is to make sure that we continually position ourselves as an airport that's attractive for airlines. What we've managed to achieve over the last few years is that we've proved that there is a demand for Cardiff Airport, hence the 1.6 million passengers who now come to the previously 1 million. So, we've proved that there's a demand. So, what's been the issue with Flybe—and I'll hand over to the chief exec presently—the good news is that we've secured our relationship with Flybe going forward in the most volatile and dynamic of circumstances. We've worked very, very closely behind the scenes, with a regular dialogue with Flybe from day 1, and we've continually kept WGC Holdco, which filters and focuses the relationship between Welsh Government and the airport, in the loop on this. And, as I say, the good news is we've secured this relationship going forward and in a macro sense, it is not going to impact on our numbers.
To answer your question directly: is fuel an issue for Flybe? Not for our relationship, but within their overall business, it'll be one of a series of factors that creates the volatility in the airline sector, which is the price of fuel. But, Deb, do you want to pick up on this?
Yes. I think—sorry.
All right. Well, I was just going to ask: what was in the contractual obligations that were set out between Flybe and the airport in the 10-year agreement to simply prevent them walking away when they got a slightly better deal from a competing airport?
Before Deb answers—they haven't got a slightly better deal, they have had—and it's been widely reported—a fundamental structural issue in their business. So, they've not taken their activity elsewhere at the hurt of Cardiff. But, Deb—
Yes, I mean, there are obviously clauses within the contract that safeguarded the position of both parties, but the main thing—I mean, I don't know if you saw the H1 results, the half-year results, that Flybe released in November. Basically, the airline, at that stage, was hemorrhaging money. It was all down to currency—that was a huge one—global fuel charges, and carbon charges that had really hit airlines in an unexpected way this year, and also—
Just the level of increase. No, it wasn't unexpected, but they hadn't accounted for the rises that they would face last year. There were also issues within the company and their maintenance structure. So, the long and short of it was that they were in a precarious situation, and the airline came very close to being another casualty in the period that we're going through.
They then managed to negotiate a deal with Connect Airways, which is a consortium between Stobart and Virgin. So, what we've been working on with them now, having been in the situation in November when the airline could, quite easily, have collapsed—we've spent the last few months in really detailed negotiations with them, looking at how we go forward. You'll have seen we've now—summer 2019 was completely unaffected, so that's continued to operate as before. Going forward—
But was that at the expense of your bottom line or—? How has that come about, given that their financial—?
Again, if I may come in on that. Again, Ms Rathbone, we're not only looking for increased passenger performance in the year ahead, but we're also going to look at enhanced EBITDA as well, so we have put in a range of contingencies, a range of relationships that actually address the drop with Flybe passengers.
Just one point—may I reassure the committee that every single month since 2015, we have monitored the performance of all of our suppliers, all of our airlines. So, the performance of Flybe did not come as a surprise to the board of Cardiff Airport, because we monitor their performance in a range of different ways, and we will have a range of different contingency plans in place. We have already addressed this issue, so we'll increase our passenger growth this year ahead, and we'll improve our EBITDA.
Okay. So, do you think that the deal with Flybe was oversold originally, because I recall that the Welsh Government told this committee in November 2016 that doing the deal with Flybe was the catalyst for the growth of the airport?
And indeed it has been. I think, if you look back to 2015, before we entered into the arrangement with Flybe, we were down around 1 million passengers, and we were going backwards. What the Flybe deal has enabled us to do is to—you know I talked earlier about building confidence in the business and turning perceptions of the business, the key thing with airlines—. We liken it to an empty restaurant syndrome—if you see an empty restaurant, you will not go in to eat. If you've got to book three months in advance, you're very keen to get a seat, and it's exactly the same with airlines. They thrive on competition and if they see something going on in an airport, they want to be then taking notice of what's going on, which is why now we've got Ryanair coming to us and we've now got five routes with Ryanair, whereas three years ago, we couldn't even get in through their front door.
So, one of the key purposes of Flybe was to enable us to start to turn the airport around and to begin to rebuild the confidence, and Flybe has absolutely done that. If we hadn't had Flybe, would we have got Qatar Airways? I'd say, 'Probably not', because we'd still be bubbling around the 1 million passenger mark. Would we have got TUI increasing their offer? Probably not. So, as I say, what Flybe has done is enabled us to really turn the perception of the airport around, to get customers looking again at Cardiff Airport. When I started in 2012, people just—. I remember speaking to an eminent businessman in Cardiff who said to me, 'It's pointless doing business in Cardiff, you can't fly anywhere from there', and that was what we had to turn around, and that's what Flybe enabled us to do.
And, again, to reassure you, we have a range of options as a business. We avoid dependency on one particular carrier. Everyone thought we were so dependent on one carrier, and we've proved that not to be the case. That is part of our strategic thinking.
I think the other thing, though, just in terms of—Roger mentioned just now, even with what is happening with Flybe, we're still forecasting 7 per cent growth this year. The new arrangement with Flybe will still enable us to retain eight routes, 120 flights a week and a minimum of 320,000 passengers. So, we're still going to be ahead of where we were last year, even with the change to the Flybe route network that we've got.
The Chair asked at the very start how we achieve this. It's quite literally we're out every week talking to airlines, and Deb and I spoke this morning about one particular airline that we haven't spoken to for a while. Our commercial director, Spencer Burns, who can't be with us today, was talking to them last week, and we'll go and talk to them again and we'll call upon yourselves to help us in this, to give that team Wales message out to airlines, which is what we've done with a number of airlines. We mustn't forget that this business, as well as being volatile and dynamic, is also incredibly connected, so you have the British Airways maintenance centre. British Airways is owned by IAG, which also owns Aer Lingus but also Iberia, but then 20 per cent of IAG is owned by Qatar. This complex matrix, again, is something that we as team Wales are playing, dare I say, very well, and I thank everyone around the table who's supported us on this.
Okay. I just want to take you back, Mr Lewis, to what you said in April last year about the plan to grow passenger numbers. You were talking about the need for new airlines if we're going to reach the 2.5 million passenger number quicker. You argued in your earlier answers that Flybe coming to Cardiff was a way of attracting others to come to Cardiff, but it's difficult to not assume that Flybe leaving Cardiff will also have the opposite effect.
Flybe hasn't left Cardiff.
We just put on literally—this is hot news; you might not have caught this—we just put on sale the Flybe winter programme.
So, they're now on sale until March 2020, and then we'll be releasing the summer.
They might not have left Cardiff, but they've significantly changed their role with Cardiff Airport, haven't they?
Yes, and this is part of the restructuring that they've had to do across the whole business as a result of their H1 results and the fact that, as I say, they've now acquired a new buyer, who has got a different company philosophy in terms of how it's going to operate. But I think the most important thing for us, as I say, is that we still have Flybe now operating beyond summer 2019. Winter 2019 is on sale, with 120 flights a week, eight routes—our core routes—still operating, so the core routes that, from a business and a leisure perspective, are really important for Wales—like Edinburgh, Dublin, Paris. Those routes are going to be the ones that sustain the whole business—
Isn't part of the issue with running an airport that airlines are peculiar beasts to manage, and a lot of it isn't longer term, is it? It's a very competitive marketplace. You mentioned using Flybe at the start to attract other airlines. Is it very difficult in the longer term to have the sustainability there that you can always rely on building up and building up the business? Because if Flybe are cutting back, if other airlines leave, then you can find yourself back at square one quite quickly.
Two things, if I may. First of all, it's a mindset. If you're looking at this strategically from a business point of view, you cannot be complacent. You cannot think that this business is going to be an iterative, straightforward business and that the relationships and partners you've got will always be there. So, that's why it's important that Deb, myself, Spencer, Huw, the team are continually out networking with airlines. Perhaps it would be inappropriate to mention names, but there are certain airlines that we have knocked on the doors of continually and continually and continually, and they've been closed, but all of a sudden, one opens, and we'll continue to knock. So, complacency cannot exist within this business, because, as you rightly say, it is so volatile and so dynamic. New entrants are arriving into the business all of the time and other players are falling out of the business. There have been a number of casualties since we last spoke to you over this last year, but we are planning all the time for contingency for those what ifs.
And that's what we need to balance all of the time in our dealings with airlines. What tipped Cardiff over the edge back in 2008 was over-reliance on one airline. Bmibaby represented over 50 per cent of the airport's business, so, when Bmibaby collapsed, suddenly the airport lost 50 per cent of its passengers. So the key thing for us is to mitigate that risk as far as possible and to ensure that we spread that risk across a number of airline partners, as we can. We've got 18 airlines routinely working from Cardiff at the moment, including British Airways, obviously, who don't carry passengers. But I think that's been a key focus for us, to ensure that, wherever possible, we are not overly reliant on one single airline.
Thank you. In regard, then, to what looks like your internal practices, good practice is absolutely critical, then, in this sector. Obviously, that's ongoing. Before I get to my question, I know there's one a little bit later on, but, in regard to the potential malaise that there is stacking up around Brexit, do you feel that your mitigation in place is going to somehow stop people not spending their money on European travel? How have you mitigated that? I'll come to my next question in a minute.
Okay. Let's address the Brexit issue. We took a decision as a board to basically crack on and not dwell inappropriately on Brexit, no Brexit, when, if, whatever. I was literally in Qatar the Monday in 2016 after the Friday of the Brexit announcement, and we decided just to push on and push on and push on and push on, and we've not stopped pushing on and trying to think as creatively as we can.
Interestingly, up until recently, there was no measurable impact of the Brexit uncertainty on our business. So, for instance, this summer, we have a very, very strong summer indeed. We put in the best Christmas for eight years, was it, Deb?
Ten years. And previously, we put in, again, another strong performance last year. We will show a 7 per cent increase on the coming year. However—again, we're trying to be very factual here—what we have noticed is that longer term bookings have now begun to slow, and I think that is the uncertainty that surrounds so much decision making in the UK at the moment. So, we've noticed that. We have put together some very strong, robust business cases for destinations out of Cardiff that are fabulously attractive to us all, and the business case is strong, but we're not getting a commitment from airlines at this particular moment. And there's one case that we've put together that is hugely attractive and would be fabulous for us, but we're not getting the take-up at the moment.
So, we've continued to address our business, but what we've also done, which runs through all of our business, is to diversify. So, we're looking at diversification. Perhaps, Deb, if you'd like to expand on the Brexit point and the diversification point and pick up the education, the fuel, the cargo, et cetera.
I think the issue with Brexit, mainly, is outside our control as an airport. The impact is, as you've said, more on airlines. But we've been working really closely with the influencers in industry to make sure, as far as we can, that the issues we need sorted out have been. I've sat, for instance, on the Secretary of State for Transport's industry workshop that was set up literally weeks after the announcement last year. We sit on the Welsh ports group, looking at the impact of a 'no deal' on the Welsh ports. We've been doing a huge amount of work with the border force in terms of the issues at the border. The Welsh Government funded, through security grant funding, e-gates at the airport, which are critical in a post-Brexit environment.
So, we've been doing as much as we can as an airport to mitigate the risks for our passengers, which generally, for an airport, are around currency, issues at the border, and then, indirectly, the ability of airlines to continue flying. So, it goes back to what we've been saying all along: it's about understanding the risk and then, as far as we can within the control measures that we've got, looking to diversify and have as many strands as we can in place.
So, in regard to your general philosophy, which is having that mixed portfolio and that diversity in terms of airlines and being generally in touch with what's happening in the sector, you feel that you'll be able to pick up and, in a sense, utilise what's coming forward as well as necessarily mitigating where it's topping off.
We'll just pick up on that diversification point, if we may.
I think the Chair mentioned the robustness of passengers and the variation of passengers and, actually, one of the key things that we've focused on over the last three years is trying to diversify our business. Passengers are our core and our lifeblood, but we're looking at things like the introduction of our fuel facility, looking to expand cargo, which is not only of benefit to us but to the wider economy, and looking at other opportunities around the airport. We're a 500 acre site. Airside, we've got 100 acres of readily developable land, plus the wider campus. We're looking to tie in with educational facilities as well to make it broader than just being reliant on pure passenger numbers for the future, because, to everyone's point, sustainability moves.
And I think one of the key things we've been looking at this year as well is that, back in 2013-14, we brought most of our services at the airport in-house. They'd previously been completely outsourced; I think we had about 40 people actually employed by the airport. We've now got over 300 working directly for the airport, and we've got a fantastic pool of resource and skill within that airport team.
One of the things we've done this year is sign a joint venture with the Welsh Government to take over the operating contract at St Athan. So, that again is a means of using the skill that we've developed in-house. We're looking to do that more now. We've just signed a contract with NATS for our air traffic services. We're looking at how we can work with other airports in Wales to, essentially, use the skill and expertise that we've got at Cardiff to enable them to expand and grow, and potentially introduce facilities that they couldn't afford on their own.
So, I think, in terms of connectivity across Wales, there's a double strand there. One, it enables us to diversify and mitigate risk within our business, but also, as a national airport for Wales, it enables us to look beyond Cardiff in the south-east and look at how we might help connectivity across the whole of Wales.
And the overarching headline is that we will weather these circumstances. We are prepared for them. We've planned for it, and we've proved that there is demand for the airport, and we are confident—very confident—of the future and where we'll be in two, three, four, five years from now. I'm absolutely confident that we will be in robust shape.
Okay. In terms of the projection for passenger numbers and in terms of the growth of passenger numbers, all of that, in terms of the EBITDA, in terms of your general growth prediction—the best, I think, in eight years—are all highly, highly positive. Could you simply, in a nutshell so that I can understand fully, articulate to me, and it would be interesting to—. So, you had that growth in passenger numbers at 45 per cent, but your turnover has only gone up by 20 per cent. So, what's the gap in terms of that data? Is it reinvestment? How would you articulate that ?
Thank you. It's a good question and, Huw, we've got a good answer for you.
From a relationship through the airlines' point of view, all of the deals are different and they have different commercial aspects to them. We've seen our revenues improve in the last published accounts by £1.2 million, or across 100,000 passengers. In terms of our passenger income, that was £3 per departing passenger from the airport that we received. In terms of commercial income, that increased from £4.53 to £4.78 per departing passenger.
Additionally, what we've seen at the airport is we spent a significant amount in investing in the passenger experience last year, with the expansion of our departure lounge, really with the key focus on enhancing the customer experience and, ultimately, generating more spend per passenger.
We've looked at the sources of funding, and the only way for us to grow is with continued investment. Having looked at the sources of investment, currently our only source is from the Welsh Government. Those are the constraints with which we work. We've done some research into the markets to look at other regional airports that may have slightly bigger passenger numbers than us. If you look at some of the deals in terms of financing that have been done for other airports in the regions around the UK, looking backward in the last six years or so, Newcastle International Airport had a total investment of about £273 million, which was a mixture of debt and bonds. Birmingham Airport, one of its transactions was £90 million investment, and if you look at our nearest competitor, Bristol Airport—this was prior to them investing in their new terminal facility—they had a credit facility arranged of £270 million.
In terms of the development of our business across the six years post acquisition, with a mixture of equity and debt that's been invested in this, that's £42 million, which is—
I accept that as a wider point, but in regard, then, to your answer to my question directly—I don't want to put words into your mouth—but in terms of that disparity, in terms of turnover versus growth, you would put that down to what?
I think one of the issues as well is that there are different kinds of passengers. It's not just purely passenger numbers. Different routes have different performance in terms of what passengers tend to spend when they're travelling to those destinations. What we've had in the last couple of years is external security events that have effectively turned off the most highly lucrative routes in terms of spend within the terminal—Turkey, for instance, and Tunisia; the ex-EU countries. The security events that happened—again, completely external to our control—meant that those routes disappeared for a couple of years, and instead the airlines switched to Spanish routes or Greek routes. So, we may have retained the same number of passengers, but we now have a different mix of passengers. So, it's not a simple equation between 'Passenger numbers are this, therefore spend is this'; it's also 'Passenger numbers are this; here's the mix of routes, here's how it impacts on spend.' You change one of those variables, and it will impact on spend. So, I think that was a big factor for us last year, and we've now got—I talked earlier about TUIs new routes; those routes are starting to come back now, so we expect to see, potentially, that mix change again.
Okay. In regard to the terminal and infrastructure improvements that you've mentioned, how much has been spent on those improvements?
Again, I'll hand across to Huw on this, but I would, Chair, if we get a chance to in this session, like to return to the points that Huw made in terms of investment. And also, I do feel it's of critical importance to this committee, and to the Welsh Assembly, in terms of the future investment into the enterprise and how this is managed. But, Huw, do you want to address that specific point?
In recent times, if you go back to 2018, the end of, that was the last significant spend in terms of our customer facilities. We invested a total of £6 million into improving the departure experience—so, the departure hall expansion. We introduced additional retail opportunities and food and beverage opportunities to improve the customer experience. We redesigned our car hire area, introduced a car park meet and greet facility. All of these are aimed at not only giving a better customer experience, but also clearly generating a return on investment to us as well.
I think the main thing as well to look at is that we're the national airport of Wales and our customers have expectations in terms of the airport. What we're also turning around is a massive period of underinvestment—indeed, no investment—in the airport infrastructure. I arrived at the airport in 2012 as the operations director, and we looked that year at our capital programme, which included things like upgrading the terminal area, looking at better toilet facilities, all that kind of stuff. We put in a capital budget request of £5 million. We were asked to go away and re-evaluate that and prioritise it. We ended up with red, amber, green—three shades of red—and it came down to about £3 million. We actually got £600,000, which just about paid for repairs on the runway and things like that. Now, you look at that over the number of years that we were in that ownership with TBI and the infrastructure in the terminal was in a really shambolic state. So, I think £6 million is actually quite a modest amount to spend when you look at the infrastructure that we had to turn around.
And that's perfectly understandable in that context. So, how much of the additional £6 million investment from Welsh Government was used in this refurbishment?
A total of £4.5 million was used for the refurbishment. The remaining £1.5 million was on a mandatory security upgrade.
Okay. Thank you. And finally, then, in regard to the big question about devolving air passenger duty, would you be in favour of lobbying for this to be cut, and how do you feel that that reduction would fit with wider responsibilities?
If I could kick off on this. We have lobbied and argued for air passenger duty to be either reduced or abolished. That's our starting point. We've not argued—just for the sake of clarity—that this is a devolution point, even though I am passionate about devolution. We've not argued it from that point of view. We've argued it from a business perspective. And I thank everyone around this table who has supported us, because we have, in Wales, collectively failed—we have not managed to persuade Westminster that air passenger duty should be addressed within Cardiff, within Wales, even though it has been addressed within Scotland and Ireland.
In our most recent lobbying to Westminster, to the Wales Office and the Secretary of State, we've said it makes economic and business sense for this to be addressed. And we can present a range of reasons why it doesn't impact on, for instance, our neighbours in Bristol Airport. But we are acutely aware that Bristol have lobbied against us for any change in air passenger duty. That is the realpolitik; that is the reality. Collectively, we in Wales have failed to address this. And we feel there are a range of arguments that we could put forward that make sense for air passenger duty to be a responsibility of Welsh Government, to be devolved. However, our argument has been not driven by devolution; our argument has been driven by the fact that, in these very uncertain times—the point that was made earlier on—we need everything we can at our disposal, every lever—and you as politicians know it's all about levers and leverage—that we need every lever to drive this enterprise forward.
Because we've had this incredible growth, but we're now at a tipping point, I feel—and I'll perhaps return to this, Chair, if I may, about the tipping point. Because we need to go forward. And it's a phrase I used back in 2016: Cardiff Airport can be a Brexit booster. If we're heading towards Brexit, you need to back the winners, and we've got a sense of win here, not least with Qatar Airways. Because, in the south-west of the United Kingdom, the only scheduled flights to the gulf exist within London, Birmingham and Cardiff. So you could construct an argument for APD to be given the responsibility here in Wales, and then relaxed within Cardiff Airport only on those long-haul flights. That's one example, because we've lobbied in Westminster with a range of arguments—that was one argument, which I think is pretty solid. Another argument could be, 'Let's test it for three years, and let's look at the impact on the market—we are confident that this will not impact negatively on our neighbours'.
What sort of tangible difference do you think the devolution of APD would make to Cardiff Airport, for instance? How do you quantify that?
We spoke to one airline carrier about this prospect, and they put it in writing that, if we could abolish APD into Wales, they would put significant services into the airport.
And I think, to take one example, if you remember the London City flight that Flybe introduced from Cardiff Airport, the main thing that completely crippled that flight was APD, and the fact that it was £13 each way on that flight. And Flybe said on many occasions that, without APD, they could absolutely see the sustainable future for that flight. Long haul as well is a massive one. When we talk to the carriers in the US, one of the key things that they talk about is APD and the fact that £75 of their ticket price goes directly as taxation, which is the highest rate in the world. So we've got real, clear documented evidence from our airline partners that, without APD, or significant reduction in APD, they would look far more favourably at expanding into Cardiff, if it was just in Wales, or into the UK as a whole if it was reduced across the piece.
We've gone out of our way to depoliticise, if you like, Cardiff Airport, and it's been a pleasure to welcome all parties to Cardiff Airport and to speak to all parties. And I do feel, over the issue of APD, that this now needs to be depoliticised as well, because I feel this decision rests with yourselves as politicians—here in Cardiff, and in Westminster. We've pushed it as hard as we possibly can in terms of our lobbying, and perhaps ruffled a few feathers on the way as well, but we've given it our best shot.
—difficult when you've got a Secretary of State for Wales who seems to be backing Bristol Airport? It's a very unusual situation, isn't it?
We couldn't possibly comment on that.
But we did take the opportunity at the Welsh Affairs Committee hearing on devolution of APD—when I was sat in a room very similar to this next to the CEO of Bristol Airport—and I think we were able to give really compelling evidence that actually the impacts on Bristol Airport had been hugely exaggerated in the evidence that had been put forward. I think we were also equally able to demonstrate that there would be huge economic benefit, not just to Wales but also to the south-west of England—and the Qatar flight is a fantastic example of that, where we're providing services from Cardiff that will have direct economic benefit for businesses and travellers in the south-west.
And just for the record, to be fair to the political groupings here—getting away from Westminster for a minute—I think all the groups here have supported the devolution of APD.
Thank you, Chair. You've been fabulous, and we really thank you for that, because that's given us the confidence, when we've gone to Westminster, to make reference to that. Again, we've been very cross-party in Westminster as well.
Thank you very much and good afternoon to our witnesses. My question is around the financial statement and the financial performance of Cardiff Airport. How would you describe Cardiff Airport's financial position at the moment? Is it possible that it'll be sustainable or will you need more financial assistance from Welsh Government?
I'll ask the finance director to give you a very black-and-white position on that, but dare I say, as the chair and as a business leader, this is about not being complacent as a business; this is about being ambitious, this is about the whole team working hard—and we've got a fantastic team at Cardiff Airport who are working hard all the time to consider the options. Because this business, as I said at the start, is very volatile, very dynamic. You cannot take aviation and airports for granted. The history of aviation and airports throughout the United Kingdom is very checkered indeed. The history of this airport is very checkered indeed. But I do feel we have turned a very significant corner and we're on a tipping point and perhaps we might talk about the future in terms of investment presently. But, Huw, as finance director, what would be your answer to Mr Asghar?
Thanks for the question. I think the airport has done significantly well to turn around the financial performance in the last five to six years. On Roger's point, we are at a tipping point. We need to continue to grow and be sustainable, and for that we've got to explore all options in terms of how we can generate the investment to take the airport forward. On Deb's point—to make sure that we continue to invest to rebuild the airport from a very low base. So, for me, the airport is in a good financial position, but we will look at all opportunities for investment going forward.
And most probably that is the elephant in the room, if I may say: how do you take this enterprise forward, what is the investment required to take the enterprise forward? And that's why I'd like, perhaps, Huw to go back over those numbers of other similar airports, in terms of Bristol, in terms of Newcastle, in terms of Birmingham. We've chosen them; we could give you, actually, about 30 different examples, but we've decided to focus on those because they have a similar resonance to ourselves. We are realistic that the moneys cannot come from Welsh Government. We're realistic on that. Because the pressure on Welsh Government to address so many challenges within Wales is considerable.
So, we do need to come up with a new model for investment in Cardiff Airport that the shareholder, Welsh Government—ultimately, the people of Wales—are comfortable with. My headline would be that Welsh Government has got to retain a controlling position. The market failed Cardiff Airport for various reasons, because it was a bundle deal—we've talked about this previously. We cannot allow that to happen again, because strategically it's far too important for Wales on a number of sides: one is economic benefit, one is perception around the world; the relationship that we're developing, and the jobs that it sustains.
So, we do need to come up with a different investment model, and the points that Huw made I think were really very well made in terms of what's occurred in other airports. So, to take us forward—we had this tipping point, we will require further investment. The loans that we've had from Welsh Government are that: loans on commercial terms. As I say, we do need to have a dialogue, which we've begun very discreetly, with the holding company in terms of how do we take this forward. But to reassure Government, we're not looking for the control to be lost from Government. Huw.
If you look at the structure of airports and the ownership of airports around the UK, they're predominantly in private ownership, and if you look at the ultimate owners of these businesses, they tend to be pension funds or long-term investment funds. They tend to look at investment over a 25-, as a minimum, to a 50-year life. With those funds there is significant investment, and I touched on Newcastle—£273 million; Birmingham, £90 million; Bristol, with a credit facility of £270 million. Those are the kinds of investments that have been made from those parent companies with the debt facilities to ensure that those airports can grow.
And what would make us attractive to an investor is that we have analysed our leakage—how many people leave our direct catchment area to take flights from other airports to other destinations. That's why we are so confident in our investment case going forward. To give you a few examples, we've got down to Heathrow, down the M4, Debs, over a million.
Yes, 1.2 million.
Yes, 1.2 million people drive through Wales. There's, by the way, a very strong argument on carbon footprint here, in terms of that journey time from Wales to London. We're looking—. For Bristol, we've got a leakage of around about—
Yes, just over a million, a million.
Something like that, yes.
So, that's why we're confident in the 3 million number for Cardiff, and that's why we would be—. In terms of 'What next?', as it were, we feel we do need to discuss with Welsh Government the investment strategy—not over the next year, two, three, four, five, but we're looking at the long-term investment strategy. And that's why—and our colleagues from the Welsh audit office will know this ever so well—large-scale capital projects must be capable of moving through the political cycles. That's why I'm so passionate about embracing all parties here within the Assembly; you must see this as an asset for Wales and our strategy must be endorsed and supported by all parties in Wales, because that's what will give us the long-term opportunity to attract external investment.
Roger, your question—thank you very much, even though your answer is giving me some feeling to ask many more questions, one you mentioned is 30 more airports. You can give us the answer about how they develop. So, don't follow these British airports. Look at Doha, look at Dubai—30, 40 years ago they were desert. So, we must learn from them. They grew up from just ground and now look at where they are on the world map. So, basically, you're also mentioning—. I just gather in your statement that you're still looking for further funding for future development.
Sorry, if you could repeat.
There's still some funding that is required for further development in the future.
There's no question that Cardiff Airport requires significant investment, no question whatsoever. The facilities there are in urgent need of further investment.
I think the other thing—you know, obviously, Doha and Dubai grew with enormous, enormous, investment from their owners. They didn't grow up overnight without that massive capital injection. I think the other thing we've got to take into account is that Cardiff Airport is, on the scale of things across the UK, a small regional airport. We have 1.6 million passengers. If you look across—globally, actually, for airports under 3 million we are hit disproportionately by externally imposed regulatory charge. So, we are always going to need capital available to meet the requirements of our regulator. For instance, we've just changed out the whole baggage system—x-rays, screening machines—last year, at a cost of £3 million. That wasn't a choice by Cardiff Airport; we were mandated to do it and we were told when we had to do it. If you read—. The Department for Transport are just consulting now on the aviation strategy. If you read that document, there's going to be a thing implemented called the passenger charter, which, quite rightly, is putting the passenger at the heart of everything that we do, which is actually our mission anyway. But that is going to impose again significant capital costs on all airports. Now, for airports under 3 million, we have obviously a much smaller base of passengers to spread that cost across, and we also can't get it back from airlines, because of the competitive tension in which we work. So, I think, for Wales to sustain a national airport, we have to all recognise that we have to be able to meet the capital programme imposed on us by our regulators, and that's always going to happen.
And one other point I'll briefly mention—. And we've begun work on this; I commissioned a team to produce a master plan for the airport. So, we have begun a significant amount of work on this to discuss with—not only with Welsh Government and potential investors, but we have a phased strategy for how we will develop the enterprise. Again, this makes, I think, our investment case so exciting because of the numbers that Huw mentioned earlier on in terms of the acreage we have around us, the opportunity for development and also the strategic relationship we're developing with freight, with training, with education et cetera with St Athan.
After four years of your reign—you've done a wonderful job, don't get me wrong, but you're talking about this master plan for future development. And there are certain areas in airports where there is the passenger—we've been talking about—maintenance, cargo and transit. So, there are a lot of areas. An airport is like a complete city; that's what I normally tell my friends. An airport is not for passengers; it's for the whole nation. Actually, that is the only airport in Wales, which should be carrying our flag. The financial assistance that we are having also must contain, somewhere along the line—. The fact is that public funding or public money is going into the pot on Cardiff Airport—. And certain countries—. We went to Jersey and Guernsey last week. To be honest with you, Roger, the airport looks like an airport when you go there, in a very small way. But when you go to Cardiff Airport, it doesn't. It is still in a good old 1970s and 1960s type of building, which definitely doesn't look like a modern airport.
And I assure you that we're acutely sensitive of this. We've been fixing the car and driving it at the same time, and we now—. We realise that we need a new car. If you want to mention—. I was in the Gallapagos Islands on Friday and the airport there has got some—[Interruption.] Yes. And I was in Guayaquil in Ecuador last Saturday and their airport is better than ours as well. We're all acutely aware of this.
I'm not saying the airports are better than us, I said they look like airports. And our airport doesn't look like an international-standard airport as yet. So, what—you know, that is a business plan you're talking about, financial planning, which should be based—
I don't think we can expect Roger Lewis to commit to a whole new airport building in this afternoon's session. [Laughter.]
The good news is, Chair, we have a plan.
This is something—. Okay, we will—. Roger, in your statement in the 2017-18 accounts, you said you have strengthened the financial position of the airport. Can you explain what changes have been made and their impact, also, to date?
Please, if you could repeat the question. I beg your pardon.
I'll repeat again, yes. In your statement in the 2017-18 accounts, you said that you've strengthened the financial position of the airport. Can you explain what changes have been made and their impact to date?
The changes in our financial performance—?
Yes, financial. You said—. Can you explain what changes have been—? The financial position in the airport—you are going to strengthen—.
Okay. So, basically, what's driven our financial performance—is that what we're looking at? Is that—?
I'll repeat again. In your financial statement in 2017-18, you have said—
Oh, right. I beg your pardon. So, what's improved in the financial performance. Well, fundamentally, it's been more passengers; that's been the fundamental driver of the business. Around that, it's been a range of new carriers that have provided those new passengers. Debra mentioned TUI, Thomas Cook. Obviously, Qatar Airways—we celebrated a year with them; that's been significant. And then what's improved the financial performance has been that we've looked very hard at our relationship with passengers and how we've improved the passenger consumer experience at the airport. So, we've invested significantly in the duty-free offering, our food and beverage. We've put in a new Costa, we've put in a new business lounge, we've put in other new food and drink offerings. We've also improved our offering for car parks. We've significantly looked at online activity. Fuel, I've mentioned. Cargo is starting—a lot more work to be done on that. But, Huw, what else would you add to that list?
I think Roger's covered most of the detailed list that I would have jerried, but I think where we're really focusing is—. All this investment in additional activity is really about generating that extra pence, pound, multiple pounds per passenger. It's really focusing on not just the customer experience, but making sure that we leverage as much as we potentially can, from a value perspective, from our customers as they come through.
At the same time, we've walked a very tight tightrope here because we've insourced most of our activity, where most commercial airports would outsource their commercial activity. And we're very proud to have insourced our activity, and that has come at a cost. We're also very proud that we have introduced the real living wage into the airport a year earlier than we planned. So, we've brought that forward a year. And—. Sorry.
If I could just touch on the insourcing of the team—so, we insourced security and our terminal team, effectively, in 2015. That's given us the opportunity to generate additional opportunities such as the work that we're doing with St Athan, which is all strengthening the airport as a business, but also providing a greater service to the region.
Huw, I can ask you now, in this one other report, the airport generates £4.78 per passenger— commercial income per passenger. On the other hand, the airport administration cost for one passenger is £14.65. So, there's a very big difference there. So, could you explain?
So, if you look at the administration costs, the big bulk of that charge is actually the depreciation and amortization.
Depreciation is wear and tear. You're trying to tell us—. It's not a cost; depreciation is actually the wear and tear of any asset.
Within that £19 million of operating cost there is £5 million of depreciation that's incurred within it. So, as we saw historically, bringing the team in has incurred additional cost. Additionally, when we've invested in our facilities, there's also additional costs that have become associated with that. We fully acknowledge the gap between expenditure and income, and, as we've done with investment going forward, it's really bridging that gap and looking for the additional opportunities for revenue, because, clearly, going forward as a business where operating cost is greater than revenue is not sustainable, hence the reason for diversification—moving into things like fuel, expanding with the airport masterplan, increasing the variety of airlines and routes that we can offer are all there for driving the future sustainability.
And within the masterplan, for instance, is that we want to build our own hotel at the airport, we want to be able to create a range of retail facilities. By the way, that will come sooner rather than later.
I think the point you make though about cost goes back to my point about the disproportionate impact on small airports. There's a group called the Regional and Business Airports Group, which has done a huge big study on this recently, and it's showing that for the smaller airports—so, the very small airports—their cost per passenger can be £25 to £35 a passenger, which, as I say, takes into account everything that Huw said, but also the fact that you've got far fewer numbers to spread regulated, fixed costs across. The biggest airports can actually absorb all that cost within about £5 to £10 a passenger. This is one of the huge, huge issues the smaller airports have and we, with RABA, are lobbying the Government to try and create a more level playing field across the UK airports so that whereas you quote, quite rightly, the £14 per passenger that we're paying, Bristol will be paying—. I don't know what their figure is, but it will be considerably less than that, because, the fixed part of their cost, they're spreading across 10 million passengers. So the regulatory hit that we have in exactly the same way as Bristol, we've got to cover over 1.6 million passengers.
And the definition of a smaller airport is under 3 million, and we were voted last year by our peers as the best small airport in the United Kingdom.
Okay. We need to make progress. Oscar, are you going to ask some questions about administration?
I'm going to ask the other one, Chair. In the Economy, Infrastructure and Skills Committee, Roger made the statement—reinvestment and everything again. Yes. Thank you very much. My question, for Roger again—. You told the EIS committee in April 2018, last year, that the airport approach is based upon a reinvestment model—that's what you said. Can you expand on this and explain how you are investing profit back into the airport given the financial performance to date? There's no profit being made.
The first thing is we have focused on our people—on our staff. We've brought forward the real living wage by a year, and that was very, very important for us. That was a big decision, which, dare I say, many, many other enterprises of our scale and size have not done.
We have invested significantly, in terms of management time, in a range of new opportunities—St Athan would be, most probably, No. 1. We were invited and asked to do this by our shareholder, the Welsh Government. That has taken up—I think it's fair to say, Deb—an incredible amount of management time. I pay tribute to the team at the airport, who presented to us last month at St Athan. They managed to absorb St Athan in an incredibly short space of time. I would recommend you all going down to have a look at the St Athan enterprise now—it is changing literally by the day.
We have then invested a huge amount of management time in terms of improving the facilities at the airport. Those who've been there recently will have seen a fundamental change in terms of the areas for passengers. It's about enhancing the passenger experience. It's about, actually, treating the people of Wales with respect—that it's not just a shed, and that if you are going away on business or you're going away on holiday, this has to be an experience and it needs to be worthy of the people of Wales.
We have spent a considerable amount of time on the things that Deb's mentioned, in terms of e-gates. That was a challenge for us, because we didn't get the funding that we felt was deserving of ourselves—
—and the bigger airports did.
The bigger airports did. We did not get that from the UK Government. We've then improved the arrivals hall considerably. I was there in the arrivals hall on Saturday night, and I was really knocked out by what we've done there.
Dare I say—this is, I know, a rather personal point, but hey—I flew from the Galapagos to Cardiff on Friday. Now, that is, if you like—wow. You can all enjoy that. You can go from the Galapagos to Cardiff Airport. Galapagos, Guayaquil, Amsterdam, Cardiff—put the luggage on and there you go. Wow—that is the opportunity available to the people of Wales, and that's what's at the heart of what's been achieved here.
We've not mentioned the purchase price of £52 million. I think that now looks like a bargain. Wow—fantastic. The amount of money we've borrowed off the Welsh Government on commercial terms, compared to what our competitors are doing, is a fraction. Dare I say, the things that you addressed as a committee—the scale of the investment that has been made by the Welsh Government into Cardiff Airport, versus the success that we've delivered for you—it's something, I think, you can all feel proud of, because you did it and we've delivered on your behalf.
Thank you, Chair, and thank you, Roger. One area in your accounts I would like to look into in detail is administration costs. Since 2014-15 to date—last year—it has increased every year. Why?
Huw will pick up on this, but there are a couple of things I'd mention. I pay tribute to Deb, Huw and Spencer, our three executives. Again, I'll be perfectly upfront with you all; they're paid under the market rate for executives in this industry. If you look at our staffing—this is something we're so focused on. That's why we decided to focus on the lowest paid in the organisation to bring up the real living wage. No-one in Cardiff Airport—no-one at all—is paid in any sense of the word excessively, just to reassure you. There is no bonus scheme that exists within Cardiff Airport—very different from any other enterprise. If you look at the exponential growth in passenger numbers and the improved financial performance, this is pretty exceptional for what is, at the end of the day, a commercial enterprise.
The last thing I'd say, before I hand over to Huw on admin costs, is that the staffing levels at Cardiff Airport are absolutely to the bone. What I would say is that our priority is safety, security and the health of our passengers and staff. So, our fire and our security—on all of those, we hit all of those targets. You know, we employ over 40 firepeople at Cardiff Airport, and these are some of the fixed costs that exist for airports of our size.
The point I'm making here, Mr Asghar, is that there are no fat cats at Cardiff Airport—there's no excessive salaries being paid and there are no bonuses being paid whatsoever. In terms of the admin costs—Huw, do you want to just expand on that?
Looking within the accounts, there are three major factors that have driven our admin cost. Admin is where we charge our depreciation and amortisation. As we've invested in the facility, making up for the underinvestment in the past, clearly the more investment you make you have to write that off over a period of time and that goes through that line. Debra has mentioned the cost of regulation as well. As we expand and invest in things like hold baggage screening systems, baggage reconciliation systems et cetera—stuff that go on behind the scenes that the passenger doesn't see but ultimately keeps them safe and secure—there are annual maintenance charges, which are incurred on top of the capital investment. Additionally, looking in terms of the insourcing, whilst we've been as efficient and effective as we possibly can and we're seeing the synergies out of that by the ability to provide other services, when you've taken people out of zero-hours contracts, when you're paying them a fair wage, giving them fair shift patterns, that comes with an increased cost. Historically, when that was provided by outsourced providers, there was no certainty of hours. So, whilst we are efficient and—. And, you know, people have sick pay within the business, where they didn't when it was outsourced. So, there are three significant contributing factors there. Additionally, investing in things like our new fuel facility—as that starts up, that inherently will have some inefficiencies, which we worked through first, and in the accounts that are published, that was the first year of operation. So, it's a combination of factors, but actually it is, if you like, putting right a lot of the sins of the past that we inherited when we took over the business.
I think if you look at our purpose, the company purpose is about transforming the airport business and putting the team and the customer at the heart of everything that we do. We now have 1.6 million passengers. When we started the period that you talked about, we had 1 million passengers. Now, to provide the same level of service to 1.6 million passengers, it's inevitable you've got to employ more staff. You've got to open more security lanes. You need more people to help people who need assistance around the airport. So, you know, we've got to accept that when we grow the business we are going to grow costs as well, because inevitably, we've got to employ more people under fairer conditions, as Huw has said.
It's a very small one. The thing is, there are national airlines and private airlines. You have attracted Qatar Airways to Cardiff Airport—great—but the fact is, this all comes at a cost. You just earlier said that you've spent nearly £5 million on redevelopment of Cardiff Airport to attract them—because of ablution and cleaning rooms and prayer rooms and so on. So, basically, have you ever thought to attract other airlines, privately owned rather than state owned, to Cardiff Airport? Because there are more than 100 top-class airlines in the world, and one can change the whole spectrum in Wales.
I promise you and reassure you that we are talking to everyone and anyone, and we're doing that literally week in, week out. Again, one of our reports—. Every single board meeting is a detailed report on every single contact that we are looking to develop and make. Deb and I feel like, at times, two carpet salesmen with our little bag; we're going around and knocking on the doors of various people. We've been told 'no', and okay we say, 'Right, in six months' time we'll come back,' and they say 'no', so we say 'We'll come back in six months' time.' We will do that with anyone and everyone. I reassure you on that.
Okay. Just before I bring in Jenny Rathbone, a very quick question from me, and relating to this whole issue of financial performance. There was an operating loss in each financial year between 2013 and 2018. Now, I'm not talking about all the other mitigating factors, but in terms of that direct statistic. What are the accounts going to be like for the 2018-19 period? Are we still expecting an operating loss, and if so, at what point in time, or would that ever be resolved?
It certainly would be resolved, but Huw, do you want to—?
We will see an operating loss for 2018-19. We'll make a modest EBITDA, as we've referenced. The reason being is, as we continue to reinvest, there's a significant amortisation and depreciation charge, which hits the accounts. So, that's why we use EBITDA as our key measure, because in essence that's a measure of cash generated by the business. So, to answer your question, yes, we will continue to see that loss, but we will see an improvement in the profitability at EBITDA level.
So, that takes out of the equation the issue of what you were just saying about the spending on things that are then depreciating.
That's it. So, as you're spending on infrastructure, that sort of takes out the impact of that into the results.
And I think it ties in as well to what we were saying about fixed cost and passenger numbers, which is why the growth in passenger numbers is so critical, because you do reach a kind of tipping point around the 2 million mark where those fixed costs start to be balanced out and then the profitability starts to pick up really quickly. So, it emphasises again the importance for us of getting passenger numbers back up to that level.
And the key metric for evaluation of an airport is a multiple of EBITDA, and that's why we're particularly focused on that. And just to emphasise, as Deb said, the radar is on 365 days of the year, 24 hours a day, regardless of whether you've got 1 million passengers or 5 million passengers, and if you run that through all of the other fixed costs we've got, again, that's why, I think, the investment opportunity here is so attractive, because we're on 1.6 million, we're heading to 2 million, we feel we can hit 3 million. Yes, it requires further investment, but I think the returns on that are going to be very significant, because there comes a moment where it all falls to the bottom line.
So, very briefly—you anticipated my question, then. So, in regard to the 2 million mark, and in regard to your careful monitoring and projections as you move forward in terms of that turnover and in terms of that profit-or-loss scenario, at what point in time—? I know you're going to say it's variable in terms of investment infrastructurally, but what is your current guesstimate in terms of your very careful monitoring and your very careful projections?
I'll share with you—. We've all got a different view on this, but we'll be very honest with you on it. Deb, do you want to kick off?
I think we'd hit it in 2021 or 2022.
We've just gone through our business planning cycle and we would look from a business perspective to be doing that in 2022. We've put some conservative projections that indicate 2023, but 2022 is certainly the airport's ambition.
But, like I said, I think the most important thing with any of our forecasting is it's very difficult beyond two to three years because of all the external factors that we've talked about that we really have no control over. So, it's a question of—.
But to answer your question directly, we're saying 2021-22. I think we could have got there a bit earlier, but we had a little bit of wind taken out of our sails because we put together a really robust business case for a big opportunity, but the airline in question is saying, 'I want to wait until there's clarity in the UK on what's occurring'.
I think Brexit uncertainty was a really big factor in that, to be honest.
And that's what's taken the wind out of our sails on a couple of things. The headline is, though: am I confident about the future of the enterprise? Yes. Will we get the 2 million? Yes. Again, I want to get there as quickly as possible, but we're saying now 2021-22, and I'll settle for that.
Obviously, the Welsh Government's putting quite a lot of money into Cardiff Airport and there are many other demands on its finances. So, I just wanted to look at the governance arrangements. How can the public and, indeed, the National Assembly be assured that the relationship between the airport, Holdco and the Welsh Government is sufficiently transparent?
Thank you. I sit on the board of a number of companies and have sat on the board of a number of companies—public limited companies and limited companies—and I'm absolutely totally satisfied with the governance arrangements that we've got here at Cardiff Airport. We have a board of seven executives and three executive directors—Debra's the chief executive, Huw's the finance director, and Spencer Birns is the commercial director.
I've beefed up the board of non-executive directors over the last few years. So, I brought in someone with specific aviation and airport experience in terms of Terry Morgan. So, I brought in Terry Morgan to join the board as a non-executive director and then brought in Fiona Gunn last year to beef up our consumer, marketing and commercial expertise—and then alongside Geraint Davies who is our financial expertise. So, in terms of the board, we have a very, very strong board indeed. Our reporting structure is very robust. We have a detailed set of accounts published every month, which we debate and digest as a board—our next board meeting is tomorrow morning at 9 o'clock—and within that board there are a number of key performance indicators. There are a number of critical success factors. It is all based upon a strategy, and we've initiated over the last recent years an annual strategy session in which we debate fully our strategy for the year and years ahead. Out of that strategy comes a business plan. We present the business plan to something called Holdco—the holding company—and the holding company is, if you like, the scrutineer, the filter and focus between us and Welsh Government. And within that agreement, there are certain areas for consent. There are certain things we can and cannot do, and then most importantly, every month, we report to the holding company, which is chaired by one of your senior civil servants and has a number of other senior civil servants around the table, and you—and I compliment Welsh Government on this—have brought in an independent non-executive director as part of Holdco, and we report every month to Holdco on 16 key performance indicators, and those 16 key performance indicators are: passenger numbers; revenue; operating expense per passenger; EBITDA; seats available; average load factor; customer satisfaction; on-time performance; health and safety performance; safety and security compliance; media activity; and social media.
So, every single month, we report back to Holdco on the 16 key performance indicators. And, dare I say, I'll be sitting at another board meeting in London on Thursday, and the—[Inaudible.]—I pay tribute to Deb and Huw and the team, that they've embraced the philosophy of vision, purpose, strategy, structure, system, staff, skills, style and values and beliefs, and we've created a very robust—. I'm so chuffed with this; it's such a good model.
Your original KPIs—there were five of them. So, who decided to increase them to 16?
Since I joined the company, we've discussed and debated our KPIs with Holdco, and we've encouraged each other to improve our game, sharpen the saw—we're continually sharpening the saw. So, not only do we have our regular monthly reporting to Holdco, we then attend the Holdco meeting, and we will be in regular dialogue with Holdco. So, for instance, to make this come alive, during the Flybe issue, we were monitoring this. We'd been monitoring this since the start, but as soon as we could see on our dashboard that certain red lights were flashing, we picked up the phone. We will not wait for the formal meeting; we will discuss this with them. I think that is an example of a good, mature organisation.
So, just to go back to my question: the original five KPIs—whose decision was it to increase them to 16?
Well, ultimately, any fundamental decision in terms of reporting will be held by the shareholder, which is Holdco. We, as a limited company, with fiduciary responsibilities and our responsibilities in company law, will create what we think are the key performance indicators and the critical success factors that will drive the enterprise forward.
Okay. So it wasn't Holdco saying, 'We'd like to expand the number of KPIs'?
No. I think the original five were part of the agreements that were put in place during the due diligence in terms of the acquisition, so it actually laid out how they envisaged, pre-acquisition, the governance would take place. Post acquisition, and obviously as we developed and matured as a company, I think this was absolutely that our board felt that, actually, we should be reporting in more detail to Holdco. So, I recall that we proposed to Holdco that we should report to them on an expanding range and more relevant range of KPIs.
And they were accepting of that, but what I would say is that I don't want to be arrogant; it's a collegiate relationship.
For staff or for the business or for—?
For the business, yes. I think staff is a separate thing. For example, how much do you use the role of complaints to improve your performance?
The headline in terms of how we appraise the business is that we appraise the business every month. That's the first thing. So, tomorrow, we will appraise every aspect of the business. At the heart of it will be these 16 key performance indicators. In terms of customer satisfaction and on-time performance, we have a dashboard, which I'm pleased to say, looking at this particular dashboard, has all positives around it. So, how do we get that information? We get it through mechanical means. Also, we sit down with passengers, with boards, in the airport and we ask them, 'What do you think?'
Can I just come in?
Yes, go ahead.
We've been working on this process for a very long time. And, in fact, what we've done this year is we've just created a new department within the airport, which is a customer experience manager and executive. So, previously, customer complaints would come into the airport through various channels—I might get them directly or they might come in through our airport duty managers—and they'd be collated and then individual managers would respond and things like that. What we're doing with the new organisation is that we will have a manager focused entirely on customer experience, feedback process and customer insight, so that we start to understand the customer more, but most importantly it's going to be about identifying trends and then feeding back directly to the operational teams. So, if we do start to spot a trend in feedback, we can then directly link that into the operational teams and how we're performing within the terminal building. So, that has all been part of our maturing as a company over the last five or six years as we've brought everything in-house, and this is part of where we are going to get increases in administrative costs, because we identified that, actually, we need to be doing things in a different way to ensure that we continue to provide those standards as passenger numbers grow.
Health boards have a 'Putting Things Right' concept, so do you have something similar?
Yes, well, this is exactly the sort of thing we want to develop now with this new team that we've got, and it will be exactly really formalising the approaches that we've had to date.
I take your point. I think it's a good way; how we communicate that. I'm confident that we should communicate that publicly. Just to give you, again, some colour: we've invested in multifaith prayer rooms in the airport—they didn't exist before, so we have that—and PRM for elderly passengers or disabled passengers. We spend £0.5 million a year—£0.5 million a year—
Passengers with restricted mobility.
Yes. So, again, just to make this real, I'm taking my 92-year-old mum to Barcelona on Saturday because I missed her birthday last week, and I'm taking her in a wheelchair. I was discussing this with Deb earlier on. It's staggering, the quality of service that we've got to do that, and I can take my mum from Cefn Cribwr on a wheelchair, and there she'll be on to—
Absolutely. I flew to the Galápagos from Cardiff. [Laughter.] But the point we're making here is that—again, it's an interesting one for the demographic of Wales—an ageing population—. And this is why I'm passionate that this service is available to people in their 60s, 70s, 80s and 90s, who can travel to destinations, and we are investing, most probably, disproportionately higher than other airports because of the demographic of Wales.
Yes, things like we put in an adult changing room facility last year in response to feedback that we got. We're just introducing a new system for people with hidden disabilities and learning disabilities, with the sunflower lanyard so that people can very respectfully be assisted through the airport process and things like that.
Okay. Before we move on, could you just tell us how—? What information can you give us about how the airport's performing against these KPIs? How do you track progress?
We track them in an empirical way. So, passenger numbers is empirical. Revenue, operating expenses, EBITDA, seats available, average load factors—all of those are empirical. Now, the next—
Dare I say, everything—thank you—is going very, very encouragingly.
Okay. But these are not in the public domain, because they're commercially sensitive. Is that right?
Aspects of them are. The passenger numbers are. Ultimately, the revenue and EBITDA and operating numbers will be. Some of the things that are more sensitive will be average load factors, because other competitors will then be working out, 'Where should I be flying to or not flying to?' So, they're commercially sensitive. Customer satisfaction—I'm more than happy to put these into the public domain, because they're very, very positive. It is a subjective measurement because we're asking people either to mechanically push buttons, as you know, or we will then interview groups of people. And media activity is also empirically measured. So, all the indicators are pointing the right way. By the way, as Deb mentioned, safety and security is our No. 1 priority, and we have a safety and security record detailed at every board meeting. Deb, do you want to just expand on this, because it's such a fundamental point in how we capture this?
We also have a safety and security committee of the board, which is chaired by Terry Morgan, our independent aviation board member. So, the safety and security committee will meet quarterly and they will track the dashboard—we keep a dashboard—in great detail. But the board is presented with an overall dashboard of the whole airport operation on a monthly basis.
To give you a full answer, in terms of how we manage performance, then, I will sit down with the chief executive once a year, review the past year's performance, and then we set goals together for the year ahead. The chief executive will sit down with the finance director, the commercial director, likewise, to do that, and they, in turn, will cascade this down the organisation, so we have a very robust performance management system. That then all feeds back into our overarching strategy and our business plan for the organisation, which we present to Holdco—by the way, again, an important point: Holdco will, or will not, approve our business plan, again, in terms of the checks and balances for the Welsh Government. So, that then is presented to Holdco annually.
And we have an annex, at the back of the business plan, which details every single objective in the previous year's business plan and how we performed against it, so that every single objective is reported on in the following year's plan.
Okay. Just before I move on, obviously, you're not one of the 46 organisations named in the Well-being of Future Generations (Wales) Act 2015, but I just wondered what aspect, if any, you—
We are not subject to the well-being of future generations Act. Indeed, we're not subject to the Welsh language Act, but what we endeavour to do in every possible way is to stay as close as we possibly can. So, when we develop our business plan each year, we specifically look at the well-being of future generations Act and how we can incorporate it to the greatest possible extent, and the same with the Welsh language Act. We've just, in fact, with the Welsh Language Commissioner, put together our action plan for how we, not being subject to the Welsh language Act, can embrace the sort of philosophy behind it in as much—
Just to reassure you, personally, I'm a strong advocate of the future generations Act, and we're deeply committed to the Welsh language.
Good. So, things like the PRM and the prayer room, these sorts of things, you would cite as being how you are paying attention to the well-being of future generations Act. You launched a draft master plan, of which the final version still hasn't been published, even though it was planned for publication in autumn 2010.
I think the final version is just being published, because we're moving forward with the development of it into—excuse me if I get the term wrong, but—
Supplementary planning guidance.
—supplementary planning guidance, yes, with the Vale of Glamorgan, so it can be adopted into the local development plan.
And can I just say—the way we approached that, I think, was—. I'd like you to consider it as a really good model of public engagement, how we engaged with our neighbours, how we engaged with a range of stakeholders and how we launched and published that and have gone about our business on that. I think you will be encouraged by that.
Okay, all right. My final couple of questions are: what has the airport done to improve transport access since the report of the committee in the fourth Assembly, because you've talked about increasing your car park facility, but, obviously, in the light of the global emergency, that's not really what we want to hear? One of the key issues, it seems, for Cardiff Airport is the rail links.
Connectivity for Cardiff Airport has been front of mind, and if you recall, I chaired the board for the Cardiff capital region that developed the strategy that has now been embraced by the team that's taken that forward for connectivity throughout south-east Wales. So, that's been very front of mind for us. What we've endeavoured to do is keep very close to Welsh Government at literally every step, forgive the pun, of the way. In fact, the first meeting that Deb and I attended in early 2015 was with the then Minister to look at the improvement of Five Mile Lane. I'm pleased to say that work has almost been completed on Five Mile Lane, but it was four years ago that we sat down with the then Minister to discuss Five Mile Lane. We've endeavoured to keep close to Government in terms of the possibility of links between the M4 and the junction of Five Mile Lane on the A48, and we have submitted evidence to Welsh Government on the matter that you'll be discussing tomorrow, which is the M4 relief road.
In terms of rail access, again we've spent considerable time discussing the opportunities for rail access to Cardiff Airport, not only into the existing station—what is called 'Rhoose Cardiff Airport'—but also from Cardiff and beyond. For instance, how do you get the links from Portsmouth Harbour that would continue through to Cardiff mainline station and on to Cardiff Airport? So, those discussions have continued. We've put in some suggestions in our master plan.
The other one that's important is also the bus service, and we've worked with Welsh Government for the bus service from Cardiff into Cardiff Airport. And we've lobbied to suggest that Welsh Government should consider a bus link from west Wales, Swansea, into Cardiff as well, and that's something that Welsh Government may wish to consider.
The problem with buses in urban areas is that they potentially can be hit by congestion, and when you're anxiously wanting to get a plane, you tend to want to go by train because you know what time it's going to arrive. So there've been no discussions with Transport for Wales since the new franchise—
They've recognised us as one of their key stakeholders and we meet regularly with them. I think the key thing about access to the airport is integrated transport planning, and it's one of the things recognised by the Department for Transport in the aviation strategy—the importance of, obviously, the airport lobbying and driving, but recognising that the delivery of buses and rail is outside of the airport's direct power. They're actually recommending the setting up of airport planning forums for surface access, which will mandate a collective approach to improving access to airports.
But this is—[Inaudible.]—for transport in London. I'm keen to understand how you're liaising with Transport for Wales.
It's actually more granular and fundamental than that. Six years ago I chaired the Cardiff capital region board. We produced a strategy, and on that strategy was a rail link to Cardiff Airport. That was published in January 2015. Since then we've continued a dialogue with Transport for Wales and we have a very close relationship with the chief exec, because obviously that person was a senior civil servant who was party to those discussions, and also we have a very close relationship with the chair of that board as well. So it's very front of mind for them, published front of mind, as I say, in January 2015, and it's very front of mind for us. I agree with you that the most wonderful thing that could happen to Cardiff Airport would be to have a direct rail link that makes getting off whatever form of rail it is, whether it's—
Whatever it is, to get off and get into the airport would be absolutely fantastic.
A little stat, by the way—
Transport for Wales have committed to doubling the number of trains into Rhoose station, but I think that's by 2023. But as I say, we continue to lobby for enhanced services wherever we can.
And if you ever got round to rebuilding the airport, might you put it near Rhoose station?
We can't put the terminal on the south side of the airfield because of runway safeguarding.
We don't have the facility to do that.
And there are lots of other issues there. Housing: you'd have to basically—. And there's also a big issue, by the way, in terms of the quality of the land. We're built on a big rock, and that creates considerable issues for what we can or cannot do with the airport.
One point I'd make, though: connectivity is a huge issue for us, and addressing it is going to be absolutely enormous. Eighty-seven per cent of our passengers arrive at Cardiff Airport by car. And if you think of it, a young mum with a couple of kids who lives in Tonypandy isn't going to be able to get to Cardiff Airport with two kids and some suitcases and do it by bus. That's the tough one. And they're not going to do it by train either, so they unfortunately have to use some sort of vehicle. That is, again, the reality, and we need to figure out how we address this. It is a huge, huge issue. Again, the reason I'm saying that is that we've got to address what's in front of us at the moment, and what's in front of us at the moment is that 87 per cent of people travel to Cardiff Airport by car, and that, by the way, is not unusual for the majority of airports, Deb, throughout the United Kingdom.
No, absolutely. Absolutely.
That wouldn't be true, obviously, in the really big airports, like those around London.
Yes, but the regional airports in the UK.
Sure. Okay. All right. Just lastly from me, what progress has the airport made in delivering the savings available through joint airfield management with St Athan?
That's a really good question. I'm more than happy to answer it. Huw, do you want to come in on this?
I can't put numbers on the table, because I wasn't party to what the Welsh Government was paying for its original contract. All I do know is that we put a very competitive tender together and, because of our location, very close to St Athan with the management, the synergies between the two airfields—i.e., with fire, with security, with the airfield operations team—means that we certainly know that we can do it more efficiently. And, as Roger said, with the provision of radar services between the two sites as well.
And I think it's doing it more efficiently, but it's also doing it more effectively. Under the previous contract, it was a very rigid system. It was Monday to Friday, 9 to 5. Because we're a 24-hour operation, there is lots of activity going on at St Athan that was hampered by the fact that they had those inflexible opening hours. I think we've already had 20 or 30 requests for flexible opening, and we've been able to accommodate that. So, it's effectiveness as well as efficiency that we've been able to deliver, and we operate completely as one airport team across both sites. So, we've got a combined fire team now, for instance; we've got a combined security team; and air traffic will be done completely from Cardiff. So, we've been able to really build on the synergies of doing that.
I think, adding to that, we talked about efficiency and working across, but there's resilience as well. We've been able to complement that side, because where there's a security team of, say, 10 individuals at St Athan, we've got a pool of about 150, 160 people who we can—
I can see the benefits for St Athan, but I'm not quite clear what the benefits—
There are some great benefits for us. One is obviously we're now running a contract, so we've got the benefit of some revenue from that contract, but also things like, at the moment at Cardiff Airport we have to, for regulatory purposes, maintain four fire vehicles, because we have to have a huge amount of contingency. When we brought the two pools for fire together—. At the moment, I think we've got seven major fire tenders and one small one; we can now get rid of that contingency need at the airport, so suddenly we've got one fewer fire tender to operate, which is—
And of course, the great question is: how does one maximise the opportunity that's now been created?
We are pretty much out of time. Thanks, Jenny.
A couple of final questions from me. First of all, you've mentioned the final master plan a couple of times in today's session. We've not been able to find it. Is it published?
Yes. We actually—
It's on the website, no?
Yes, we actually handed it out, if you recall. When we did our briefing to—[Interruption.] We will send that to you, Chair.
Okay, if you can just send us some more details on that so we can confirm we're talking about the same master plan.
And finally, you're heading off in the autumn, I think. You're in your last few months in your position. So, as we always ask in these sorts of questions, what would you categorise as your most significant successes and failures as chair of the airport?
Okay. How much time have we got? [Laughter.]
Okay. What I'll do is I'll just emphasise five points: governance, culture—
—strategic planning, performance and then future issues. So, they're the five points: governance, culture, strategic planning, performance and future issues.
First of all, in terms of governance, I pay tribute to Deb and to Huw and to Spencer. I had the pleasure of being able to appoint a chief executive when I became chair, and Deb was the outstanding candidate for that, and Deb was appointed chief executive at the end of 2015. I then had the opportunity to appoint a new finance director, and appointed Huw in 2016. Then, to join the three-person executive team, I had the opportunity to introduce a new non-executive director, Terry Morgan, with extraordinary aviation and airport experience, working at Heathrow, working as the managing director of Stansted and advisor to Gatwick, and now also an advisor to Heathrow as well. So, expert aviation experience. And then, I could beef it up with Fiona Gunn, bringing consumer marketing and commercial experience as well. So, that would be No. 1 in terms of governance.
But then I'd expand the governance, which is to say that we put in place a succession plan. This is so important, and I think I surprised some of my colleagues when I said, 'Look, I will need to be planning to step down and, by the way, you'll need to be planning to step down as well.' And we have succession planning for executives and for non-executives. And so, we've managed to introduce new non-execs and say thank you and farewell to others.
The next one is that we've cascaded this attitude down the organisation, so Debra then, in turn, identified a senior management team in terms of the governance of the organisation, and then worked with the staff. So, working with the staff to keep the staff fully involved and informed of what's taking place, so they do not feel isolated from the strategy. Then, we worked with Holdco, very carefully with Holdco, to see how we could together improve our governance arrangement, which hopefully will be music to your ears around this table. And we were very supportive and welcoming of an independent non-executive director for Holdco as well.
Then, in terms of our governance, we made sure that we didn't wait to be asked to come and speak to the Welsh Assembly. If you like, I initiated a formal briefing session every year in January with yourselves, but then we decided and I decided to go to Westminster and do the same with Welsh MPs, not least of all on the APD subject. So, every year, after we've briefed Assembly Members, we've briefed Welsh MPs as well. And most importantly, we've kept the public informed as well, so we've been far more public about our activities than ever before. So, they're the fundamental governance points.
In terms of the culture, I'll be very brief. I think there's been a significant change in culture. I've tried to encourage the organisation to be transparent, to be very communicative, to be hugely ambitious, and also customer focused, and, thirdly, acutely aware of the responsibility that you've placed on us. We're acutely aware we are responsible to you and, ultimately, to the people of Wales. So, that sense of responsibility is imbued throughout the organisation. I've also tried to de-politicise the airport, and that's why we are welcoming to all parties, and I think that is so important for the long-term future of the activity. And finally, culturally, to create a Team Wales approach—to align our strategies with Welsh Government, but also with the commercial and private sector, and public sector as well.
Finally, in terms of performance, we've created, I think, a very robust performance management system, which I've outlined. I've outlined the highlights of our performance, which is, as I say, over 60 per cent growth since 2013—22 per cent, 11 per cent, 10 per cent, 7 per cent, 7 per cent the year after. Without doubt, the jewel in the crown has been securing Qatar Airways. I embarked on that project literally on day 1 of being appointed, and the airport cut me slack to go and do that. I thank the support of Welsh Government for that. I thank the support of the Foreign and Commonwealth Office for that and in particular the British ambassador then in Quatar, who was Nicholas Hopton, who then went to Tehran to become ambassador in Iran, and then, of course, the current ambassador in Qatar who's now become a dear friend, Ajay Sharma. Ajay and his team were absolutely fabulous in that. I'll pay compliment to the then Secretary of State for Wales, Stephen Crabb, who was extremely helpful for me to develop a relationship with the Qatar ambassador to the UK, Yousef Ali Al-Khater, who's also become a close friend, and then Abdulbasit of the Qatar International Islamic Bank and, of course, His Excellency Akbar Al Baker. And they have become key friends of Wales, and that most probably is the jewel in the crown.
Now, to answer your question in terms of the future and issues—
Yes, in terms of pitfalls, if you were leaving a note to your successor, what would you say could have been done better, that you would say, 'These are the pitfalls to avoid and learning experience'?
We have failed to convince Westminster that APD should be our responsibility here in Wales, and we need to continue to discuss that, because I see it as an economic driver for not only Wales, but for the south-west of the United Kingdom because of what the Qatar route has opened up for us, not only in terms of passengers, in terms of business, but in terms of freight as well. We send fish from the west country to Doha. What's the price of fish? So, there we are. So, that opportunity is absolutely considerable, but we've failed on that.
I would never over-emphasise that you're working in a dynamic and volatile business. You cannot be complacent. You cannot be complacent. You need plan B, plan C and plan D as well. And I pay tribute to Deb, and to Huw, and to Spencer. In tomorrow's board meeting, we'll have pages on what has been discussed over the past month and what we're doing about it.
We need to develop our low-cost carrier opportunity. Yes, we've got a developing link with Ryanair, but we've haven't got the orange plane, and that's been the key driver of Bristol. That's been the fundamental, key driver at Bristol. EasyJet—that's what's driven it. And Cardiff Airport, unfortunately—before our time—missed that opportunity, and we've got to be totally focused on what is the low-cost carrier coming into the airport.
The next one is connectivity, which is the point you raised. We've got to work together. My goodness me, it's difficult, though. It's such a difficulty for us all in Wales, and we've got to be team Wales on this point, on connectivity, but connectivity is a challenge.
And the last one is investment. The airport needs investment, and it would be naive, unrealistic, and politically unachievable to say that all of the investment that's required for Cardiff Airport would come from Welsh Government. It needs a relationship with the private sector, but that can be the acceptable face of the private sector, as Huw mentioned, which is pension funds, who are traditional long-term investors in such an enterprise as this, who'll be looking for a long-term, slow-burn return on the investment, but, I'd always emphasise, with the controlling position being within Welsh Government.
And, finally, just to say, I am hugely confident on the future of the enterprise. I'm leaving it with forecasting growth next year, regardless of what's occurred in the last week. So, we're still forecasting growth in the year ahead. We've proved that there's a demand. We have a five-star carrier in Qatar Airways. And I'd like to end, Chair, by saying a personal thank you for the trust and confidence you placed in us to manage this on your behalf, and a personal thank you for allowing me the opportunity to chair the company. Thank you very much.
You've got a chance anyway because we're going to go into private, so I want to do that now, because otherwise we'll be really overrunning, and I appreciate time is short, so—.
bod y pwyllgor yn penderfynu gwahardd y cyhoedd o weddill y cyfarfod yn unol â Rheol Sefydlog 17.42(vi).
that the committee resolves to exclude the public from the remainder of the meeting in accordance with Standing Order 17.42(vi).
Cynigiwyd y cynnig.
I move 17.42 to go into private session, and you'll just stay with us for a few minutes.
Derbyniwyd y cynnig.
Daeth rhan gyhoeddus y cyfarfod i ben am 15:42.
The public part of the meeting ended at 15:42.