PSO case studies in the UK

Dundee

Dundee is the fourth largest city in Scotland, and Dundee City Council is one of the 32 local authority areas (LAAs) that Scotland is divided into. It is a city

Public service obligations in air transport 167 region situated on the north bank of the Firth of Tay estuary, on the east coast of Scotland. It is neighboured by three LAAs along the Firth of Tay - Angus, Fife, and Perth and Kinross — which between them form a partnership known as the ‘Tay Cities’ that cooperates in securing inward investment and greater local powers. The Tay Cities region has a population of 488,000, 50 per cent of which live in the region’s two largest settlements - Dundee and Perth (National Records of Scotland, 2019; Tay Cities, 2019).

The region is well situated on Scotland’s strategic road and rail networks, providing it connectivity with all seven of Scodand’s city regions and with the international airports at Aberdeen, Edinburgh and Glasgow. However, the journey time to Aberdeen and Glasgow airports is over two hours, as it is to Edinburgh Airport for large areas of the region (York Aviation, 2018). Capacity constraints and congestion at key points on the local transport network are cited as reasons why the transport network is described as suboptimal (TACTRAN, 2015; Tay Cities, 2019). Dundee is also well served with overland connections to London, but the distance between the two cities means these journeys inevitably take a long time. The distance between the two by road is 480 miles, and the direct rail service from Dundee takes five hours and 44 minutes (LNER, 2019).

Dundee airport began as a grass airstrip in 1963, on land reclaimed from the Firth of Tay. In 1977, the then Tayside regional council determined the region needed a publicly subsidised airport. It replaced the 500-metre grass strip with a 900-metre asphalt runway, which was quickly extended to 1,100 metres and again to 1,400 metres in 1995. The current length of the runway restricts the aircraft able to use the airport to the small jet and turbo prop aircraft typically used by regional operators and prevents the types of jets typically used by low-cost carriers (LCCs), such as the Boeing 737 (Transport Scotland, 2014). The airport’s proximity to the banks of the Tay means that the runway cannot be extended any further without significant investment in land reclamation, for which there is little prospect, as the investment needed has been estimated to be between /)40 million and £50 million (TACTRAN, 2014). In 1996, Dundee City Council took on the responsibility for the airport, following a reorganisation of local government.

Since 2004, the airport has been making losses and has required significant subsidies to continue operations. The financial burden became too large for the council in 2007, and the airport was offered to Highlands and Islands Airports Ltd (HIAL). Since then, the airport has continued to require financial support annually, which is now paid by the Scottish government via HIAL and to which Dundee City Council has not been required to contribute (Companies House, 2019b). HIAL is a private limited company wholly owned by the Scottish government and responsible for operating 11 small regional airports across Scotland. It pays Dundee City Council a peppercorn rent for the use of the airport and the council retains ownership of the airport land (TACTRAN, 2014).

The Dundee-London route commenced in 1999, and it is currently the only commercial service that operates from Dundee Airport. The route was

Figure 9.2 Annual passenger numbers on the Dundee—London air service route

Source: Devised by author from Civil Aviation Authority (2019)

launched by Suckling Airways, and then starting in 2007, it was operated by the Air France subsidiary Cityjet, after a series airline acquisitions. The peak year for the service was 2006, when it handled 50,000 passengers, after which there was a steady annual decline, and by 2013, passenger numbers had almost halved, to 26,000 that year (Figure 9.2). In 2013, Cityjet announced that because the route was no longer viable, it would be discontinuing the route in 2014. As HIAL and Dundee City Council were unable to secure a replacement airline, the region was at risk of losing its only air route to London. Dundee City Council and subsequently the Tay Cities partnership maintain that the airport is essential to achieving the region’s economic potential through business and tourism growth (Tay Cities, 2018).

The Dundee PSO was the first to be funded from the government’s new regional connectivity fund and the first to serve a route to London. It was awarded to Loganair and commenced in July 2014, when the route switched from London City Airport to Stansted Airport. The initial funding package for the PSO was £3.25 million over two years, 88 per cent of which came from the DfL regional air connectivity fund (RCF) and the remaining 12 per cent from Dundee City Council (UK Government, 2014b). The funding secured two rotations on weekdays and one evening rotation on a Sunday, but none on a Saturday. In 2017, the PSO funding was extended for a further two years, at a cost of £3.7 million, to which the Scottish government at this time contributed £1.4 million (38 per cent) and Dundee council contributed £400,000 (12 per cent). The remaining 50 per cent was provided by the DfL (UK Government,

Public service obligations in air transport 169 2017e). In the year following the imposition of the PSO, passenger numbers on the route grew slightly, and since then, they have remained at around 20,000 a year.

A new tender process to renew the PSO commenced in April 2019 for an additional two years of funding, with a review of the service midway through. London City Airport has been lobbying for the PSO to use it as a destination, because it believes future passenger numbers could reach similar levels to those when the Dundee service last flew from the airport (London City Airport, 2019).