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Strathclyde Business School

Prestwick Airport: A decision which isn’t ‘Pure Dead Brilliant’

By Stuart McIntyre - Posted on 11 October 2013

Stuart McIntyre, Lecturer in Economics at Strathclyde Business School looks at the economic case for and against the public ownership of Glasgow Prestwick Airport…

The Scottish Government’s decision to, in effect, nationalise Glasgow Prestwick Airport will surprise many. True, the airport is now served by only one passenger airline, Ryanair, and has been struggling for passenger numbers for some time, but for the government to step in is definitely unexpected.

The airport has a number of unique features – the most obvious being it’s the only airport in Scotland’s central belt to be served by a direct rail link, to Glasgow Central Station.  It is also rarely fog-bound and therefore very reliable for landings which, together with its current limited flight schedule, would presumably make it relatively easy (and cheap) for it to accommodate additional traffic.

Which begs the question – if it hasn’t succeeded so far, what should make us think public sector intervention will make it do so now? Would the investment and resources of the Scottish Government be sufficient to make Glasgow Prestwick Airport able to compete with Glasgow and Edinburgh airports?

If a direct rail link – something which has been cited as having the potential to drastically improve both Glasgow and Edinburgh airports – isn’t enough to make Prestwick Airport a commercial success, what will?

Of course many arguing for state intervention in Prestwick have pointed to other instances where it has been a ‘success’, but none of these bear any resemblance to this situation.

Take, for example, the Highland’s and Islands Airports Limited (HIAL), through which the Scottish Government owns and manages 11 airports across the north of Scotland. This provides a valuable service where airports are essential to day-to-day life of remote communities, but it’s not profitable. Last year, while recording the highest passenger numbers for four years, HIAL made an operating loss of £896,000.

The Welsh Government also operates Cardiff Airport, although this too is difficult to compare to the Prestwick situation, as the motivations are completely different. There is an understandable and intuitive, although likely economically difficult, political argument for state intervention to ensure the country retains its only airport.

Perhaps the most difficult example to reconcile with this case is that of Manchester Airports Group Plc (M.A.G). Majority-owned (although less than 2/3rds) by a consortium of Local Authorities, the owner of Manchester Airport has been successful enough to expand and now also owns Bournemouth, East Midlands and Stansted airports. But not only is M.A.G 35.5% owned by an Australian private investment fund, it owes its current status to legacy rather than design.

It was built by Manchester City Council and has always been commercially successful. Now the third busiest airport in the UK, Manchester is not an example of the state stepping in to provide something that wouldn’t otherwise be provided, it’s an example of historical government ownership being continued because it’s profitable.

Which is why the intervention of the Scottish Government in purchasing Prestwick Airport strikes me as a decision that, to put it mildly, lacks a coherent macroeconomic rationale.

If it were to close there would naturally be a significant impact on the local community, and I expect the Scottish Government would stand ready in such circumstances to offer a range of training and support opportunities to those affected. But is that reason enough to take on a loss-making operation?

It is sad Prestwick Airport finds itself in this situation, and needless to say there will be many places where the historical blame can be placed for the current situation. That isn’t going to help the workers and those in the surrounding community, but nor though is delaying the difficult decision that the market has already made; that Prestwick Airport is no longer commercially viable as a passenger airport. Keeping the airport on state-sponsored life support because we wish to deny reality is not a long-term strategy.

Government does have a role to play in providing vital infrastructure, but it also has a responsibility to look to the long-term needs of the country, and to ensure that we are not maintaining, at huge expense, completely redundant infrastructure.

One interesting option for the airport’s future may be as a cargo hub, but that would require a yet longer blog post!

Should the state step-in to support failed businesses? Or should the decision of the market be respected? Let us know in the comments below. 

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