Y Pwyllgor Cyfrifon Cyhoeddus a Gweinyddiaeth Gyhoeddus
Public Accounts and Public Administration Committee29/06/2022
Aelodau'r Pwyllgor a oedd yn bresennol
Committee Members in Attendance
|Mark Isherwood AS||Cadeirydd y Pwyllgor|
|Mike Hedges AS|
|Natasha Asghar AS|
|Rhianon Passmore AS|
|Rhys ab Owen AS|
Y rhai eraill a oedd yn bresennol
Others in Attendance
|Adrian Crompton||Archwilydd Cyffredinol Cymru|
|Auditor General for Wales|
|David Walters||Prif Swyddog Cyllid, Maes Awyr Caerdydd|
|Chief Financial Officer, Cardiff Airport|
|Jonathan Moody||Pennaeth Hedfanaeth, Porthladdoedd a Logisteg, Llywodraeth Cymru|
|Head of Aviation, Ports and Logistics, Welsh Government|
|Spencer Birns||Prif Swyddog Gweithredol, Maes Awyr Caerdydd|
|Chief Executive Officer, Cardiff Airport|
|Stephen Rowan||Dirprwy Gyfarwyddwr Cysylltedd Cenedlaethol a Rhyngwladol, Llywodraeth Cymru|
|Deputy Director National and International Connectivity, Welsh Government|
|Tracey Burke||Cyfarwyddwr Cyffredinol, Newid Hinsawdd a Materion Gwledig, Llywodraeth Cymru|
|Director General, Climate Change and Rural Affairs, Welsh Government|
|Wayne Harvey||Cadeirydd, Maes Awyr Caerdydd|
|Chairman, Cardiff Airport|
Swyddogion y Senedd a oedd yn bresennol
Senedd Officials in Attendance
|Elizabeth Foster||Dirprwy Glerc|
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.
Cyfarfu’r pwyllgor yn y Senedd a thrwy gynhadledd fideo.
Dechreuodd y cyfarfod am 09:16.
The committee met in the Senedd and by video-conference.
The meeting began at 09:16.
Okay. Bore da, croeso. Good morning and welcome to the Public Accounts and Public Administration Committee in the Senedd. No apologies for today's meeting have been received from Members. Rhianon Passmore has indicated that she'll be joining us around 09:30. Do Members have any declarations of registrable interests that they wish to make that are not otherwise declared on the Members' register of interests? No. Thank you.
For participants in the room today, headsets are available for translation and sound amplification, with translation on channel 1 and the amplification on channel 0. Please make sure that your electronic devices are switched to silent and note that in the event of an emergency, an alarm will sound and ushers will direct everyone to the nearest safe exit and assembly point.
We have one paper to note, which is a letter from the director general, climate change and rural affairs group, on the future of the Ynys Môn-Cardiff public service obligation air service. This letter draws our attention to the Deputy Minister for Climate Change's written statement on 8 June, which confirmed the Welsh Government's decision to cease all support for the Cardiff-Ynys Môn air service. This letter notes a current commitment of £2.93 million each financial year in support of the public service obligation, PSO. The service has been suspended since March 2020 because of the impact of COVID-19. Passenger demand is not expected to recover to pre-COVID levels until 2024-25 and it will not meet the demand estimated by 2025 had the pandemic not occurred. The decision follows the outcome of an independent study into the carbon impact of the service on the environment in addition. The committee will have an opportunity to consider these decisions with Cardiff Airport during this morning's scrutiny session. Do Members have any matters that they'd like to raise concerning this or are you simply content to note the contents of the letter?
Thank you very much indeed.
This moves us to the next item, which is focused on Cardiff Airport, and we have a number of witnesses in attendance remotely. We have Spencer Birns, Wayne Harvey and David—[Interruption.]
Excuse me, we seem to have gremlins in the room, repeating what I'm saying through the speakers.
I'll try to find out what's going on.
Okay. We'll just pause momentarily.
Gohiriwyd y cyfarfod rhwng 09:19 a 09:25.
The meeting adjourned between 09:19 and 09:25.
Okay. Well, we return to public session. Again, I welcome our witnesses from Cardiff Airport. Thank you for being with us today. Could you please introduce yourselves—name and role—for the record, perhaps starting with Mr Birns?
Good morning. Spencer Birns, Cardiff Airport chief executive officer.
Thank you. Mr Harvey.
Good morning, Chair. Good morning, committee. Wayne Harvey, chair of Cardiff Airport.
And Mr Walters.
Bore da. Good morning. David Walters, chief financial officer, Cardiff Airport.
Diolch yn fawr. Thank you. [Interruption.]
Sorry, we have the temporary gremlins again. We'll have another go.
Gohiriwyd y cyfarfod rhwng 09:26 a 09:33.
The meeting adjourned between 09:26 and 09:33.
Okay, croeso, welcome back. I thank our witnesses for introducing yourselves. We have a number of questions to cover. I'd be grateful if both Members and witnesses could be as succinct as possible, so that we can cover the wide range of issues this topic has generated. I'll begin with the questions, and then hand over to colleagues. How would you describe your financial performance for 2020-21 when
'demand and ability to fly was decimated',
in your words, and the airport reported a £12.8 million loss before exceptional items, compared with a £10.6 million loss for 2019-20? And how does this compare with projections for the year?
[Inaudible.]—give the opportunity for the three of us to walk Members through the last two years and also deal with the questions as they are put to us.
It is clear, as you say, that the ability to fly through 2021 was decimated. People do not need reminding of the pandemic, I’m sure, but the impact on the aviation sector generally, and specifically on us an airport, was immense. The lockdown started, as we all recall, the third week of March 2020, and from then on, restrictions clearly were introduced on flying. Whilst it was possible, it was severely restricted. In terms of passenger numbers, we were 97 per cent down throughout that 12-month period, and as a consequence, whilst the airport was still open and operational, and we were obliged to remain open and operational, it was extremely difficult and clearly we were not able to generate much revenue. Our tenants were still in situation, so that was helpful. We had some additional revenue, as many Members will know, from British Aerospace, because they were parking planes there during the pandemic, and also some of the 747s were being decommissioned, so that helped. But our income stream was virtually non-existent. I think it’s also important to note that the flying restrictions and movement restrictions were quite burdensome in Wales, and as a consequence, when there was an opportunity for people to fly, very few people did actually buy tickets from the airlines.
I will ask Spencer to say a little bit more about the detail, but our performance, I believe, in the circumstances, was very good. Before I finish, 'By what standards?', you might ask. Well, firstly, we battened down the hatches. We looked at our cost base, we restricted expenditure wherever possible. You will all appreciate that, from a regulatory and Civil Aviation Authority perspective, there are certain standards you have to maintain. So, for example, air traffic control was not restricted or reduced throughout that period, and that cost us several million pounds a year. But I think that we managed the cost base as best we could, and we took full advantage of furlough.
I would add that, following the end of the 2021 accounting year, we did, of course, look forward in our projections when we came to an agreement with Welsh Government for support, which, for the record, was in March 2021. In our projections forward, assumptions were made broadly across the aviation sector that flying would resume in the autumn on a reasonable scale, and of course Members will recall that, indeed, flying did resume, but then of course omicron reared its head in the autumn of last year, and furlough had at that stage stopped, so for the subsequent period it was equally challenging. We had no furlough contribution from Westminster, and we had an operational airport, but we had no passengers until the spring of this year.
Spencer, I wonder if you could just give a little more detail on the performance during 2021.
Thanks, Wayne. Yes, it was massively challenging. The biggest burden we have is the operating cost to maintain currency to maintain the ability to trade. In that particular year, when you’ve got limited flying activities due to the continued recommendation not to leave the country and not to travel unless it was essential, it massively impacts the demand. So, while there was flying operating, the numbers of people getting on the planes were really small, and the airline partners themselves were very patient. They understood that the situation in Wales was slightly different to the situation in England. But ultimately we were in a position where the finances were very, very, very tight, and we just had to keep a very close control on all of that.
I’m not entirely sure what else I can say in relation to that, Wayne.
Can you tell us what the projection had been for the year?
In terms of the projected passenger numbers?
In terms of the profit or loss.
So, in the run-up to the first year of the rescue and restructuring agreement, which was—[Inaudible.]—we kicked in the agreement from the beginning of 2021, the March period. Are we talking about the previous year, or are you talking about—
Yes. The 2020-21 forecasts were done pre pandemic. So, we would have been forecasting to continue with passenger numbers that were circa 1.6 million pre pandemic, and we had achieved more or less a break-even position from an EBITDA perspective—earnings before interest, taxes, depreciation and amortisation—for both year end 2019 and the year end 2020. That was expected to continue. When we went into the pandemic in March 2020—I joined in August 2020—we were constantly reviewing the forecasts and renewing them, because the goalposts were changing constantly with the restrictions.
Okay. But the only firm projection that you had for that year was based upon a figure established before the pandemic. Is that—
Absolutely, yes, because we have to submit and have the forecast approved before the previous year ends. So, before 31 March 2020, the forecast had to be approved.
And then you just, I think, indicated that you were periodically revisiting this after you joined, and were tweaking it. By the beginning of the financial year, what figures were you hoping to achieve?
I didn't join until August 2020.
I'm sorry. I think, sorry, you indicated that figures were tweaked. Were you anticipating—
Well, there had been a number of revisions before I'd even joined, from what was done pre March—pre pandemic, basically. But, it was very difficult. To be honest with you, it was week-by-week, month-by-month survival at that point, because the passenger numbers were so low.
So, was the outcome pretty much what you expected?
It was, yes.
Thank you. In your letter to committee in January this year, you stated that you'd reduced your administrative expenses by around £9.5 million in 2021. How much of this reduction was the result of efficiencies or savings contributing to your future profitability, and how much related to one-off measures, cost avoidance or accounting entries?
Dave, I think it would be helpful if you picked that up, please.
There weren't accounting entries, as such. So, there weren't savings relating to accounting entries. Most of the reduction was due to lower activity. So, obviously, with lower activity you'd have lower fuel and lower operating costs associated with the lower activity at the airport. And we, as a board, obviously looked at what costs we could potentially save, then, through other measures throughout the pandemic, such as switching off lights in the terminal. We did have some natural erosion of staff, but we made a conscious decision not to make redundancies. There were furlough contributions. So, there were a lot of things that contributed to the reduction. But, in the main, it was just due to lower activity.
Okay. And were there any reductions that were the result of longer term efficiencies?
Yes, there have been some staff changes at a higher level, where we have a lower number of executive directors, which was taken as a conscious decision to reduce some of the higher level managerial costs. That was one of them. And generally we've just tried to pick each overhead line and see where we can make savings. It's very difficult to come up with specific items. But, we're obviously constantly looking at our costs across all overhead lines—all operating cost lines.
Chair, if I may add to that point, running alongside this—not as a direct consequence of the pandemic—we were looking very closely at our energy consumption, and so we have moved forward with a solar farm, which has received planning approval. So, that's one area where we are looking to at least minimise cost and, on a go-forward basis, we should be able to produce the vast majority of our own electricity requirements. Inevitably as well, as any business will have done, or certainly any business that was well run and well led during the pandemic and that has survived, we have certainly looked at processes and procedures—we had to—to make sure that we were efficient in terms of our use of manpower, particularly within the terminal. And it's probably helpful for Members to understand that our staff effectively are running a port, and so we're responsible for the flow of passengers through the port. We don't employ Border Force staff, we don't employ check-in staff; those are the responsibility of the airlines, and, of course, the Westminster Government respectively.
But we have, I think it's fair to say, improved our processes and procedures, and, as a direct consequence, we have also improved training. And whilst we have had challenges, which I'm sure we'll come to later in today's session, we believe that we have fared slightly better than the majority of UK airports—it's been well documented in the press—because our staff have been well trained and are really up to speed. So, in terms of the flow of passengers through the terminal, we certainly have made efficiencies. I think you would agree, Spencer, wouldn't you?
Yes, absolutely, Wayne. The focus has definitely been on how do we maximise efficiency and how do we utilise the resources we have. The teams, I would safely say, they've been hugely stretched. They've been working their socks off, but then we've got a very, very good workforce who we focus on and we make sure we keep them at the forefront of mind. They've been very flexible, and the key output of that is, ultimately, a focus on safety, security and customer experience.
And also, Chair, if I might add a final point, at board level, we took the decision to take a voluntary pay cut during the pandemic period, and that was only recently reinstated. That was not a gesture, that was done because we really felt that we wanted to minimise the cost base as we battled through the last 18 months. Thank you.
Okay. My final question in this section relates to your reported earnings before interest, depreciation and amortisation, which was around £5 million lower in 2020-21 than the previous year. Why is this the case, since your loss before tax and exceptional items for 2020-21 fell by only £2.2 million, and depreciation charges appear to have been higher for the year?
Dave, would you care to pick that up, please?
Sorry, just unmuting myself. So, the EBITDA was worse than 2020; 2020 was more or less a break-even position. EBITDA was obviously worse for 2020-21 as a direct result of the pandemic and the lower passenger numbers. That takes you down to the EBITDA line, which is effectively the cash effect of the accounting transactions. After that, there were entries, then, for the loan write-off and the valuation in March 2021 accounts, which came below the EBITDA line. Those are accounting entries.
Okay, thank you. Can I invite Rhianon Passmore to take up the questions?
Thank you very much, and obviously we're in the early stage of this evidence session, but I think the airport—and I know that many across the UK and beyond are really, really struggling around this—has seen a decrease of 66 per cent in turnover and 67 per cent in gross profit. It has had a very, very difficult time, and I would like to thank you for your management of the airport during this very difficult time. The airport's accounts include a sundry income of £1.5 million for 2020-21. So, to what does that relate, and is it likely to be an ongoing income stream for the airport? And I'm also very conscious that I've got a couple of questions, and if you could be brief in your responses, please.
You don't all have to answer.
Sorry, I'm not sure we can answer the specific line entries in the public session, or whether—. Sorry, am I muted?
No, you're here.
Sorry, I'm not sure we can answer the specific line entries in the public session, but we'd be happy to return to that question in the private session.
Okay, thank you. Obviously, Chair, we'll be interested in following that up. You may wish to do the same here, but I'm not going to put words in your mouth. How much of the £2.5 million Government grant included as income in the 2020-21 accounts relates to the UK Government job retention scheme?
Can we put that into the private session as well, please?
Thank you. The value of some of the airport's tangible assets, as has been stated, almost halved in terms of deprecation, which I think the Chair has just highlighted, at 31 March 2021, compared to the year earlier, through impairment and increased depreciation charges. Is there an explanation further to what's been said around the reasoning for these decreases in value?
In simple terms, the assets have to be shown at the lower of cost or net realisable value. We undertook a valuation by an external firm, Avison Young, who carried out a valuation for us, and we then impaired the assets to bring the value down from the cost value to the impairment value.
Thank you for that. Turning to why the airport—obviously, we do understand why—has taken advantage of an exemption and not included a statement of cash flows in its accounts—you've touched upon this—for 2019-20 and the following year, 2020-21, having included the statement in its accounts for earlier years, will you commit to doing so in future to improve the transparency within the reporting?
I think that that's a matter for the accounting guidelines. We follow the accounting principles, so if we are required to submit statutory elements to the accounts, we'll submit them. If we're not required to, then we don't necessarily need to submit them. But, obviously, there's a full information flow through to our holding company and to Welsh Government and Development Bank of Wales, who are the agents for any information relating to the accounts.
Obviously, the exemption is there for these purposes, but in terms of this committee seeking as much transparency as is possible in a commercial environment, obviously the statement of cash flows is of more interest and much more easy for us to scrutinise. So, I take it that you will not be doing that, from your answer.
No, I didn't say we wouldn't. We will follow the guidelines. We'll obviously discuss this as a board and with our auditors. But, primarily, we'll be following the guidelines.
Okay, thank you very much. My questions are done, Chair.
Thank you. Can I just follow up on that? Why was the decision taken to cease practice you'd previously exercised whereby you were including a statement of cash flows?
I'm sorry, I can't answer that, because that predates my tenure at the airport here.
Is anybody else present who was party to that decision who can shed a light?
I was on the board at the time, but I'm not clear on the reason for the accounting purposes of that, unfortunately, not being an area of my—[Inaudible.]
If I may say, Chair—it's a general response, I wasn't, clearly, in post before June 2020, so I can't comment on specifics—a large number of companies take advantage of this exemption. This is not an unusual exemption to take advantage of. It's common practice, and the vast majority of companies that are able to do that do so. To pick up on Dave's response, we'll go back to Holdco, who we obviously have to report back through, and we'll go back to the development bank, and then we'll return to that specific question at a later date, if that's acceptable.
Thank you very much.
Chair, can I just make a follow-up point? I think, in terms of what you've just said, that's absolutely the case, and many do, but in terms of the scrutiny from this place of yourselves, it would be very preferential if that were to be furnished to us as we move forward, bearing in mind the situation and the flow through. Thank you.
That point's well made and very well understood.
Okay, can I hand over to Natasha Asghar?
Thank you, Chair. Good morning, gentlemen. I'll start with a happy question today: what are the most profitable aspects of the airport so far? Yes, Wayne, I know you're laughing, but, still, I'm sure you can enlighten us on the committee. What are the most profitable aspects of Cardiff Airport?
Do you want me to talk, Wayne? Good morning, Natasha, good to see again. It's an interesting question—what is the most profitable aspect of the airport? It's more about where do we generate the most cash, because, at the moment, the airport's not profitable, and we're still quite a long way from getting there, particularly because of the recovery. So, there's a number of variable income streams that we focus on. There is a myth that we charge very high landing fees at Cardiff Airport. We do not. We actually, nine times out of 10, do not charge airlines for landing at Cardiff Airport. We offer incentives for them by maximising discounts on our landing fees. We actually encourage throughput so we can actually then generate cash through our car parks and our catering and our duty-free activities.
So, in terms of the most profitable income stream versus the cost to us, if you take it on a pure profit and loss basis, it's probably our car parks, where we generate the most income versus cost. And then versus other activities, I'd probably say we generate good income from our catering activities and from our duty-free activities.
Sorry, I didn't catch the last creativity—
Okay. I just also have one other question—well, in fact, I have many questions, but the next one is: what aspects of the Welsh Government plan are commercially sensitive at present?
In terms of the risk and restructuring agreement you're talking about?
The risk and restructuring agreement is linked to a loan. So, the loan itself has got commercial sensitivity, and we put non-disclosure activity in there as well. But in terms of the rest of the risk and restructuring agreement, and the grant itself, we've got key performance indicators in there that we'll talk through in the private session, and the plan, following our chat with the Chair earlier this year. But, basically, the key points on the KPIs are how do we achieve the return to positive EBITDA, how do we achieve our focus on carbon net zero, how do we achieve our focus on making sure we maintain staffing levels to the best levels possible, while also maintaining suitable operating costs as a commercial business? There are a number of other KPIs in there that we'll furnish you with as we are going through that session.
Okay. Thanks for that. Just for clarity's sake, for myself and the committee, I'd like to know if the airport has signed a confidentiality agreement with the Welsh Government for the financial support package announced in March 2021. And if you could elaborate, if this is the case—can you tell us a bit more about why you were asked to do so?
Dave, do you want to come in?
Yes. The confidentiality agreement links to the loan agreement we have with Welsh Government. The grant agreement is a standard Welsh Government grant agreement.
Okay. Thanks for that. I'd like to have a bit more insight now. Now, Cardiff Airport has spent £19 million—sorry, I believe it's spent the £19 million that it has received to date from the Welsh Government grant of £42.6 million. How does this compare with the agreed profile and plans for its use moving forward now?
Can I just come in there? First of all, the committee should appreciate that the grant agreement was signed and agreed in March 2021, and that was on the basis of a return to flying in September 2021. Of course, omicron, as I mentioned at the outset, then ensued, and so we were not anticipating drawing down as much as we did because omicron arrived. So, we had an extra six months where there was no income. And there were passenger number predictions, which we will pick up in the private session, which clearly we had no opportunity to reach. Dave, I'm sure you can add more detail, but I think that's important to position.
Yes, the debt profile that we've drawn to date, which is £19 million, is as per the original grant agreement. So, we've not accelerated any draw of grant. The passenger numbers were lower than forecast through until March 2022. We'd be happy to discuss some of those figures with you in the private session, because, obviously, the March 2022 accounts have not been made public yet. But we can share some figures with you in the follow-up private session. Whilst the passenger numbers were lower, we have not accelerated any grant drawdown. So, at the moment, we're on track for the profile of the grant over the five-year period.
But to fundamentally answer your question, Natasha, of what are we using the money to do, ultimately, it's a combination of our operating expenses and capital expenditure. And that money alone isn't actually all the money we're using. We're generating cash; we’re using a proportion of the money we get from grant to run the business along with the cash we’re generating. But if you look at our regulatory cost burden, 80 per cent of our operating cost is safety and security related, and that is fundamentally determined by the authorities—the DfT and CAA tell us what levels we need to be at to make sure we can keep the doors open, so that’s where a big part of that cost burden comes in. We have to maintain staff to a certain level of currency to be able to deliver that regulatory authority. And then there’s also another regulatory authority, which, while it doesn’t necessarily say, 'You have to have so many x-ray machines or so many lights on the runway', we do have a huge amount of respect and focus on it, which is the Health and Safety Authority. So, we have to spend money on a number of areas to make sure we are providing a suitable, safe environment for customers to use our airport to get on their flights.
Okay. Thank you for that, Spencer. On 4 April 2022, in comments to Business Live, the chief executive said that the airport had handled 180,000 passengers for the rolling 12-month period to February 2022. It's come to my attention that the figures do not appear to be consistent with the CAA figures, which show under 152,000 for the same period. So, I just wanted to clarify—if you could kindly clarify for me and the committee—the discrepancy in the number of under 30,000.
I think what you might find is, depending on the date of the interview, that the CAA figures are done on the calendar year and we’re doing our figures on the financial year. So, depending on where you’re looking at and at which particular point in time, it varies—we’re averaging currently 25,000 to 35,000 passengers a week coming through the building. So, if, for example, the interview was done on 4 April, we’re looking at figures from probably a week before. That may not be the same figure that’s published by the CAA, which is based on a four-month figure.
And the final figure to March 2022 is 189,000—that's the financial year of 1 April 2021 to 31 March 2022.
Okay. In the same interview, it was said that the airport had expected more recovery in the first year of the rescue and restructuring plan. Can you kindly expand on this a little bit for us and summarise the airport's performance against the measures or targets in the plan, as reported each quarter to its board?
Actually, in terms of the reason why we didn’t get anywhere near what we were originally predicting is, when we signed the agreement back in March 2021, we were expecting COVID to be over by the summer. Most people were expecting to be having freedom to travel. The subsequent situation was that it didn’t recover quickly because the Welsh Government’s health view was that we weren’t going to encourage people to travel overseas. That was the Government's view. We have to respect that. So, actually, the numbers didn’t materialise in any way, shape or form to where we were originally predicting. And then you had the subsequent knock-on effect of countries putting the UK on red lists and the UK putting countries on red lists. I don't know if you recall last summer—there was a huge amount of confusion as to where you could go, what tests you needed to do. Did you have a COVID vaccination? Didn't you have a COVID vaccination? All of that led to a huge amount of turmoil in terms of demand, which resulted in much lower numbers. And then, in addition to that, we then hit omicron in December, which completely set us back.
You may recall, in November last year, when I saw you, we were expecting—. We’d actually experienced in the October 30 per cent recovery, and in November we were still expecting to maintain that 30 per cent recovery. By the time we got to December, we were back at 98 per cent down, and we had a really, really quiet winter. The 11 February came, which was actually almost nicknamed 'freedom day', and that was the date that we were actually told that people can actually travel again, post omicron, and actually all of the freedoms started to come in terms of the handcuffs. So, that's when we started to see an uptick in demand. And if you look at March, which was the last month of the financial year, we were lucky enough to have the French visit, and that was a really good test for our teams, because we’d been training the teams all throughout winter. We were able to provide a really good operation for the French fans coming through, as well as our normal holidaymakers that went through in March.
And then, looking to this year, it actually started to uptick very well, and we’ll go through more details with you later on, but if you just look at it from an anecdotal position, in April we were 47 per cent recovered. We were averaging 13,000 passengers a week through the building. That, compared to 2019, was 27,000 a week, but when we finished April at 54,000 passengers, that was a good month for us. In May, we finished at 56 per cent recovered, and we were up to 24,000 passengers a week through the doors, and again it's showing the right trend. So far, the first three weeks in June have been 60 per cent recovery, and 26,000 passengers a week through the doors is actually quite a lot of customers compared to what we've experienced in the last two years, but going back to 2019, when we were at 44,000 a week, that's still a long way to go.
Thank you, Spencer. I appreciate COVID and I understand that you've had struggles and difficulties along the way, but, looking forward, it's clear that the world is opening and it's evident from seeing how many people are travelling abroad from all different airports across the UK that, very much, people are keen to travel now and get out there to different counties, whether it be for work, pleasure, or otherwise. So, you've mentioned all the stats up to date, but, from your experience, from seeing what you're seeing and the footflow that you're currently having, what do you see are the current forecasts, moving forward now, for Cardiff Airport?
For this financial year, April though to March, we're targeting 50 per cent recovery. I've already said to you that May and June have exceeded that. What we will see for July through October is pretty similar figures to what we've seen in June. What we will see is a drop-off again from November through March, and that's primarily due to the capacity the airlines are deploying being trimmed back for the winter months, and that's primarily relating to viability. They're looking at whether they're going to make money or not. There's been a huge spike in fuel costs. I think you're probably all aware of this. In terms of a cost to airlines, the majority of them have not had the cash to hedge their fuel. There is only one significant airline at Cardiff that has a major hedging position, which is Ryanair. All the others are living on a cash basis, which is challenging in itself. Plus, their fuel is effectively 100 per cent more than what they had originally gone into the financial year with, as a cost base. The supply chain costs are also impacting on viability. And then we've also got the other forward-looking challenges that we've just got to be cognisant of, which ultimately are cost of living related, plus also there are the results of the conflict; if the conflict escalates, what does that do to demand? So, all of these things are factors we take into account as part of our forecasting, but, as we sit here today we're aiming to get to just over 800,000 passengers. In terms of our agreement with the Government, we're expected to get over 700,000, but we're expecting around about a 50 per cent recovery this year.
Okay. I just have one final sub-question to ask. You said that you're on track to get the 800,000 passengers by the end of 2022. Are you on track for that? I know you mentioned cost of living. You mentioned the fuel prices. I accept all of those; I don't have any quibble with it. But based on what you're seeing and the footflow that you're having, are you on track to hit that 800,000 now?
That's our focus for this year. Ultimately, it depends on whether the airlines trim their capacity further or not. It's not unheard of that the Secretary of State for Transport is actively encouraging airlines to cut their capacity. I was actually on a call with him yesterday with airline CEOs and airport CEOs, where he was actively encouraging airlines to cut their capacity for the summer, to make sure they can operate viable services. We're not encouraging that at all. We're saying, 'We've got plenty of capacity for you to operate and fulfil the demand in our area.' There could be a knock-on effect from that, but, for us, the biggest knock-on effect, we think, is going to be the cost of living and the impact for viability for airlines. But based on the ex ante position today and the capacity that's currently on sale for Cardiff up until the end of March 2022, we expect to be at the 800,000-passenger mark.
Okay. Thank you so much. Thank you, Chair.
Thank you. Rhianon.
Just as a very quick follow-up to that, pre COVID we were having these discussions in terms of how difficult it was for airlines. We were talking about Brexit, and now, obviously, with other world events—Ukraine and climate change and all of these external events—impacting on airlines, how do you feel holistically all of these external events, coupled with the recovery, with COVID, and you've mentioned the cost-of-living crisis, are going to impact on your longer term projections?
Effectively, it's a very fluid situation. We're taking it every month at a time in terms of the board. Every time we sit down and talk, we're going through the strategy of our risks, and we're cognisant that we're so reliant on third party activity. Ultimately, the port, as the airport, is reliant on airlines selling their seats and customers buying those seats and ultimately using those flights. So, the direct answer to the question—. I don't think I've ever known a time when it's not a challenging time for an airline. It is acute at the moment; they do go in cycles, and we're currently in an acute recovery cycle. I would like to be more positive and say, 'Well, actually, if everything weathers the storm, we'll see further increases in capacity and we'll see more demand accordingly,' but if we think with an optic of looking at the cycles, there's probably a situation coming, I would have thought, into the next financial year, where there's going to be a challenge on demand. There are going to be affordability issues, but, ultimately, the products we have available in Cardiff and the demand for that kind of product are quite strong, particularly the leisure demand where people want to go on their holidays—they do want to save up to go on at least one holiday a year from our communities. So, we see that that is stable and is likely to remain robust. So, as a direct answer to the question, currently as we are today, we're expecting to achieve the targets that we set out to achieve in the rescue and restructuring agreement.
Thank you. I'm going to hand over to Mike Hedges.
Diolch, Cadeirydd. The first question I've got is about Wizz Air. You described it as a real turning point for the airport post COVID. You've got nine routes currently running by Wizz Air, as far as I'm aware. Has that number increased or decreased, and have you agreed any further routes with Wizz Air?
Good morning, Mike. Thank you for the questions. Wayne, are you happy for me to answer? So, the nine routes that Wizz Air launched the services on from Cardiff are selling well. The airline themselves will take three years to make their Cardiff operations profitable. It's going to take time, as we said; they've got some challenges, particularly with the costs of fuel. From what we are hearing from customers, the vast majority of customers are happy with the products. They're buying them, they're happy with the service, and that is a positive indicator. So, our discussions with Wizz Air about how to add extra aircraft to add more routes—. The current one aircraft is already stretched to deliver those nine routes, so, ultimately, to add extra routes, it either sacrifices one to put another one on, or it brings extra aircraft in, and they won't deploy extra aircraft until they're profitable.
If you don't mind, gentlemen, I'd like to ask a sub-question, because I'm glad Mike has touched upon Wizz Air. Can you please provide some further information as to the progress and discussions that you may have had with Qatar Airways about restarting operations? And if you can please enlighten the committee with some details as to the marketing agreement that you have in place with them, I'd be really grateful.
Spen, I'll pick up the first part of that. We've had detailed discussions over many months with Qatar. I think it's fair to say that they are very keen to return to Cardiff. However, there are some challenges. One of them is subject to court action, so I won't go into the details. Suffice it to say that Qatar have a little bit of a restriction on their fleet of planes at the moment because of some challenges with one particular type of plane. And so, as a consequence, they've got limited capacity. As a result, they are looking very carefully as to where they allocate their planes. I'm sure members of the committee will appreciate that airlines effectively are running something akin to a bus service, and so you move those assets where you can make most money and, indeed, where there's most demand. So, with Qatar, we fully expect them to return, but it is a little way off. Spen, you may want to add a little more detail to that.
Yes, absolutely. So, there's a very public dispute going on between Qatar Airways and Airbus, and that dispute has resulted in—. Basically the Qatari CAA has grounded a particular part of their fleet, which has resulted in the airline themselves having a shortage of aircraft. The aircraft they were planning to use to restart routes like Cardiff they were expecting deliveries on in 2023, but Airbus has unilaterally cancelled that order as part of the dispute about the other aircraft. So, that's in the courts; it's not something that we can influence or delve into.
We have met with senior people from the airline many, many times in the last couple of years, through Zoom calls and actually directly in person. We went with the Minister for Economy to actually directly appeal to the CEO to double-check with him their intent, and he made it very clear he does want to come back to Cardiff but the timing is not right from his perspective. He also made it clear that when he does restart routes, he will be looking at the ones that are most viable, or the most likely to be most viable sooner will be the ones that get the routes first. So, that is his intent. We are fully engaged and we continue that engagement. We do have the British ambassador for Qatar regularly engaged with us as well, and he's currently due in Cardiff this week for further discussions with us. We understand the Qatari ambassador to the UK came to Cardiff the other week as well to talk to the Government, and congratulated the Government on Wales qualifying.
On the point you raised about the marketing agreement, there's a marketing agreement between Visit Wales and Qatar Airways, which, ultimately, is an agreement with Visit Wales to promote Wales on the Qatar network when the flights are operating. The intent, through our discussions with Visit Wales and through discussions with Welsh Government and the airline, is to continue that positive, active work that was working well ahead of COVID. We did see a lot of customers coming in on the services, particularly from Australia and New Zealand. We saw customers coming from Kuwait, from Oman, from China and Japan, where a lot of that activity with Visit Wales had been taking place. So, that was proof that actually it was productive. And then, in terms of our own commercial activities with Qatar Airways, those are commercially confidential activities.
Thank you for that, Spencer. My last sub-section question on this is: what are the chances of the airline resuming services? Because this is a question that sports fans from north, south, east and west Wales have been asking me. The world cup is upon us, and there a lot of people from Wales who want to travel. So, what's the likelihood of this resuming in time for the world cup starting?
It's absolutely clear from the airline that they have no intent to operate that service before the world cup. They've told us it's going to be at least 2023, if not 2024. We've been asking the airline many, many times, 'Will you change your mind?', and they've 'no'. They've got no spare capacity to do it. There are aircraft available for charter. We've been working with the tour operators the FAW have appointed to take their fans to the world cup, and we understand that they're in the process of chartering aircraft to be able to take fans from Cardiff to Qatar.
Thank you so much. Thank you, Mike.
Thank you. You don't work in a vacuum; you're in competition with Bristol Airport. I live in Swansea. Our airport of choice is Cardiff, but too many people, even when the routes are flying from Cardiff, are going via Bristol. How are you going to reverse that?
It's a big conundrum. It's not something that we can easily reverse. It takes time. A large majority of the people who are going to use the flights out of Bristol are doing it primarily because it's a habit that they have built over the years, because they have not had the choice to fly from Cardiff, because we've not had a low-cost carrier offering significant choice out of Cardiff since 2011. As Wizz Air builds their programme to Cardiff, as Ryanair continues to work with us, and Vueling continues to work with us, there is choice for customers. The vast majority of people that do go to Bristol are flying to destinations that are directly served from Cardiff, and it's primarily Alicante, Málaga and Mallorca. The vast majority of those customers are just naturally choosing to use one airline based at Bristol, which is EasyJet, because it's a force of habit. So, to directly answer your question, the only way we can actively encourage people to use flights from Cardiff is through promotional activities with the airlines, and then, when the customers use the service and realise how good it is, they then continue to change their habits and then do so accordingly.
I would say, as someone who uses airports and normally uses Cardiff Airport, the reason people like Bristol is because it's cheaper, and they've got better flight times. Cardiff flight times tend to be—on the flights I've been—at the less popular times. This morning, I had an e-mail from Bristol Airport. Last week, I had an e-mail from Bristol Airport, and a quick guess, next week I'll have an e-mail from Bristol Airport. They contact me every week. They tell me I can have 15 per cent off parking. They are promoting it continually. I've never been contacted by Cardiff Airport. Why?
Under GDPR rules, we can't just contact you; you need to request that we share information with you. We do have regular communications going out to the customers on our database that have asked for that information, and we do, pretty much every week, send out promotions, doing exactly what you've just explained with Bristol. So, somewhere in the past, you've probably signed up to that at Bristol, and we'd welcome all committee members to sign up to us too, so we can share the information with you.
Bristol, though, just asked me to tick or not tick something. You have not done that. I haven't consciously contacted Bristol Airport asking them to contact me; I don't do that sort of thing. Too many people contact me who I don't ask or don't remember asking. But you've never asked me. I will probably be flying from Cardiff Airport this summer, will I, when I have a form, have an opportunity to tick a box that asks, 'Do you want us to regularly contact you, and which way?' If that's the case, the next time we talk to you, I'll be able to tell you if it works or not.
Absolutely. We do ask for that as part of our engagement, in particular when you book our parking, where there's a touch point, or when you use our services like the Wi-Fi or the lounge. You've got to remember that the majority of the customers do not communicate directly with the airport, they're actually sharing their information directly with the airline and the only touch points that we have with the customer fundamentally are either verbal when they're actually in the buildings, or actually through selling products where you can then have the choice to sign up to our marketing activities. But we will be very happy to communicate with you directly and sign you up—that's not a problem.
I wouldn't want this to get into an open discussion and debate about the merits of Bristol Airport and Cardiff Airport, but I think it's important that committee members appreciate that the ownership structure does impact us and does impact Bristol. I'm not sure that this is well understood, but put briefly, as I think committee members know, we're not able to borrow in the markets to invest, whereas, if you look at an airport like Bristol, they are able to borrow, and if you look at their accounts, they have debt in excess of £400 million; we clearly do not have debt at that level in any way, shape or form. I think it's an important point to make, particularly when one is looking at how investments are made and how one develops and markets an airport's services.
Thank you for that answer. It wasn't anything to do with any of the questions I've asked, but thank you anyway. The point I was trying to make, obviously very unsuccessfully, was that the marketing strategy of other airports, which has got nothing to do with their debt or anything else, their willingness to contact people and their willingness to sign up people is one that you have not been as good at in the past. I've never gone to Cardiff Airport and not parked there. Trying to get to Cardiff Airport by any other means than by car is incredibly difficult and expensive. I've always gone there and booked the parking and when I've paid for the parking, no-one has ever asked me to sign up to have further contact. You've said that that's going to happen in the future; I'll be able to report that back the next time we meet.
The next question I've got is on the safety and security measures that relevant authorities are to introduce. How will the airport meet these costs and will they be different to other airports?
In terms of safety and security measures, we are prescribed by the Department for Transport through the Civil Aviation Authority as to what levels of security need to be achieved, and then we have to procure the equipment accordingly. There are a number of providers who sell that equipment and it's got to be up to the same standards. So, each airport may have different equipment; you may see different equipment when you travel through one airport to another one. That is one part, but ultimately, the standard of what we have to do to deliver the service is the priority. The direct investment that we focus on, the capital investment that we focus on, is absolutely part of our plan—the rescue and restructuring, the five-year plan—as to how we deliver the safety and security regulations that we knew about, and at the level that was legislated at the time. However, things happen in reality and we may find, in two years' time, that they've changed the rules again and we have to invest more. If that is the case, we then have to figure out how we then fund that. At the moment, based on the current regulations and the current understanding of what we need to achieve, we've got it as part of the rescue and restructuring to deliver that accordingly.
Thank you. I'll just comment that, although I represent north Wales and have travelled from the airport only by bus or in someone else's car, I do receive your bulletins. So, I don't know why I should and Mike shouldn't, but there we are. I'm going to hand over to Rhys ab Owen, please.
Thank you very much. I'll also say that Cardiff Airport is my airport of choice as I live very nearby, but unfortunately, I can't remember the last time I did use Cardiff Airport. For example, my brother and his family went to Amsterdam this week. He lives very near to Cardiff Airport, but used Bristol because the prices there have been so much lower. It's a real shame, because Schiphol could be a real holding airport, couldn't it; you can go from Cardiff to Schiphol, and you can go from Schiphol to wherever in the world.
But I want to concentrate on capacity now. We've read and we've seen some incredible footage recently of some very chaotic scenes and some very angry scenes in airports. There have been some reports about issues in Cardiff. How are you equipped to cope with any capacity issues over the summer months?
Spen, do you want to pick that up?
Absolutely. Thank you for your comments. On the Amsterdam point, we do have flights to Amsterdam. At the moment, it's been reduced on frequency by KLM, due to an instruction of the Dutch Government to cut capacity on a number of routes, and what that does is it's leading to flights being full and the airline charging high prices, because they've got few seats left to sell, whereas at Bristol, unfortunately, there are two airlines flying that route, which is driving competition and keeping the prices lower. So, we agree with you: we would love for you and your family to fly from Cardiff, and that's a good example of where you can actually fly from Cardiff but you're actually choosing Bristol because of price, and it's well beyond our control.
Just in terms of the capacity point, you may be interested to hear that between 1 April and 31 May, we had 3,436 flights using Cardiff Airport. We had six cancellations, and we had seven flights delayed more than three hours. So, that's less than 1 per cent. And, you know, in a typical year, you would expect probably 1 per cent of flights to be disrupted. What is heartbreaking is when it does happen. It's horrible for not only the customers who are caught up in the upset, but also it is very challenging for the staff as well, because you've got a lot of very emotional customers going through turmoil, trying to reschedule their holidays, and we actively encourage the airlines to look after their customers when there's disruption. It is very challenging as a port to actually step in and say, 'We'll look after the customers', because they're actually not our direct contracted customer; it's actually the airline they purchased the ticket from, and it's normally the airline that suffered the disruption.
In terms of the capacity, we're capable of handling all the flying needed. We demonstrated that in the couple of days over March, when the French came. We effectively handled the equivalent going through the building that there would've been at almost 2 million passengers a year coming through. So, you know, that volume that we handled in those periods, where we had mass volumes coming through, all of our security equipment up and running, all of our staff deployed—we were handling big volumes through. So, we're easily capable of doing that through our capacity.
What most people don't see is behind the scenes at an airport, obviously. You see our front-facing staff, which are our security teams, our cleaning teams, our teams that handle the passengers with reduced mobility, that need assistance to aircraft, you see our car park teams, our lounge teams, and you'll also see some of our management staff. But, behind the scenes, we've also got a lot of activity going on, in particular the fire and rescue team, making sure they're fully recruited. We've got a team that looks after health and safety, we've got a team that looks after the facilities maintenance to make sure the lights are working on the runways, to make sure the radars are turning, to make sure the security equipment is all working. We've got the finance team, the HR team, the administrative teams, the marketing team, which, clearly, is getting messages to some people but not all, and we've also got the PR and business development team. All of those people are flat out working, and we've actually been recruiting quite heavily in the last couple of months, making sure we're full, where possible, to deliver, particularly in the front-of-house teams, where we've got the biggest demand.
We're at over 330 direct staff currently working for the airport, but actually, there are a lot of other third party operators at the airport employing their people, and there are over 2,000 staff working at the campus of the airport. It is a big employer for the area. Of those third parties that you wouldn't typically understand are not actually our direct employees, there's obviously the airline staff—so the cabin crew and the pilots—but there are actually the agents that the airlines appoint to represent them to check in and move their bags—that's the handling agents. They're a big cohort of people. Currently, the majority of that is Swissport at Cardiff Airport; there are a number of private ones that do activities. But there's the catering companies, the duty free company, the air traffic control company, the engineering companies, the fuel operators, and there's also people like British Airways, who do big heavy maintenance and engineering. All of that in itself is a big capacity.
Pinch-points are primarily, at the moment, relating to cabin crews' short-term sickness, which has had a couple of spikes, particularly recently with COVID still around. It's quite hard, when you've got a plane due to take off at 10 in the morning when the cabin crew phones in at 8 in the morning and says, 'I'm sick.' They've got to have their replacements ready; having that bandwidth for the airlines has a knock-on effect.
The other capacity constraint has been the baggage handling companies struggling to get the numbers through in terms of their recruitment. They did cut very hard during COVID in terms of their teams, and they've struggled across the UK to replace. I was on a call yesterday where we heard that airports like Heathrow are expecting they will have major issues all the way through August, airports like Edinburgh also expecting heavy challenges and airports like Bristol expecting heavy challenges, along with Birmingham.
From our side, we're not expecting heavy challenges; we're expecting to continue to provide a good service. The queueing times have not been long at Cardiff. The biggest disruption at Cardiff has ultimately been where there's been the odd flight cancelled that's been making the news, because we've had long delays and customers have been really upset. But in the grand scheme of things, it's less than 1 per cent and—
Brilliant, and that's a real selling point, isn't it, that you're not experiencing the difficulties that other airports are so publicly experiencing. Though it must have been around eight years ago that I last visited Cardiff Airport, one of the huge positives was that you don't have to park that far away, you can walk to the departure lounge and the queues, as you mentioned in your answer, weren't very long. It was, all in all, a very pleasant experience. My heart always sinks when I arrive at Gatwick and Heathrow and look at all the queues, and, thanks to my Conservative colleagues, longer queues now due to Brexit, but there we are, we won't go into that little chestnut. So, there is an opportunity there to market the positivity about the fact that there's no real capacity issues with you.
I just want to touch on—. We've mentioned the obvious issues of COVID, the obvious issues of the cost-of-living crisis making passenger numbers lower. What about inflation with regard to the airport? We're facing the worst inflation in well over a generation, since the mid-1970s, before some members of this committee were born. How are you dealing with this huge rise in inflation?
If I just pick up initially that question, and it's a very pertinent one. All of us are aware of what's going on in the global economy and in the wider UK economy. I have to say one of the advantages that we generated out of the pandemic, as we said earlier, was that we did look at our costs with a very focused eye, and we were able to reduce our costs in many areas. We've looked at efficiencies, and so we've done what any good business would do, which is—and should be doing anyway—just making sure that the overhead base is as tightly controlled as possible. We've looked at alternative sources of energy, as I mentioned earlier.
We have a very good working relationship with our staff, and in a moment I'll ask Dave to comment on that, and we were, I believe, a good employer throughout the pandemic, and so, as a consequence, there's been a great deal of goodwill from the team, and we've been able to use that to good effect, not only in terms of serving the customer base, but also in terms of recruiting, and that's been helpful.
But you are absolutely right, many of our costs are going up. There are many elements to running an airport, and if you look at, particularly, raw materials and physical product that one needs to buy in, whether it's looking at runway resurfacing, electrical systems or computer control systems, everything is going up, and it is inevitable that that will have to feed through and that there will be an ongoing debate, I'm sure, with airlines, as they've experienced fuel prices going up similarly. Dave, I don't know whether there's anything you want to add to that.
No, I don't think so. I think you've covered it there, Wayne.
Rhys, are you content?
I'm content. Thank you very much, Chair.
Thank you. Before we conclude this session, I've just got one final question, if I may, very briefly: what do you anticipate the estimated costs to you will be of the Welsh Government's decision not to continue with the intra-Wales air service from Ynys Môn to your airport, including redundancy costs for staff at Anglesey?
Thank you for that question, Chair. Spencer, would you like to pick that up?
Yes. I suppose there are two parts to the question. We won't, in a public session, talk about redundancy costs, particularly seeing as we're still going through a consultation process with the staff.
The impact to the business is around about 15,000 passengers a year. There are two parts. We were asked by the Welsh Government to facilitate running Anglesey airport for them because they couldn't get anyone to do it. At the time, there was no-one interested in operating it up in Anglesey. We deployed our teams and resource to go up there and help get that facility into a shape that could actually build and use a bigger aircraft and take more passengers. Prior to COVID, the demand was proving that, actually, that was worth doing. We're obviously disappointed with the fact that this is no longer going to materialise as a service, so we're dealing with the fall-out of that, but we've got to understand and respect that the Government needs to deploy their resource and assets accordingly and that's not our determination. I think the direct answer to the question is that we're probably going to lose about 12,000 passengers' worth of commercial income through the building, because the flying income is very, very little anyway.
Okay. Thank you very much indeed. In relation to Rhys ab Owen's comments earlier, I remember the 1970s very well, but I won't go into it further. [Laughter.] Shall I say, from punk rock back to glitter rock and from the power cuts through to hyper inflation and all the consequences, including to my own family—I won't go into that.
So, if I may, again, thank witnesses for their contributions to this session. A transcript of today's public meeting will be published in draft form and sent to you to check for accuracy before publication of the final version. This session will now be continued in private to allow for further scrutiny of confidential, business-sensitive matters.
bod y pwyllgor yn penderfynu gwahardd y cyhoedd o'r cyfarfod ar gyfer eitem 4 yn unol â Rheol Sefydlog 17.42(ix).
that the committee resolves to exclude the public from the meeting for item 4 in accordance with Standing Order 17.42(ix).
Cynigiwyd y cynnig.
So, I propose that, in accordance with Standing Order 17.42(ix), the committee resolves to meet in private for item 5 of today's meeting. Are all Members content? Thank you very much indeed.
I apologise to those who are in the gallery who've had to come in and leave very quickly. In the event of an emergency, an alarm will sound, as you know. We now please move into private session.
Derbyniwyd y cynnig.
Daeth rhan gyhoeddus y cyfarfod i ben am 10:38.
The public part of the meeting ended at 10:38.
Ailymgynullodd y pwyllgor yn gyhoeddus am 11:34.
The committee reconvened in public at 11:34.
Croeso, pawb. Welcome, everybody, to the final session of this morning's meeting of the Public Accounts and Public Administration Committee, which will be with Welsh Government officials giving evidence on Cardiff Airport. So, welcome to the witnesses. Could I please ask you to state your name and role for the record, perhaps starting with Tracey Burke?
Bore da, Cadeirydd. Good morning, Chair. I'm Tracey Burke. I'm the director general for climate change and rural affairs.
Thank you. Jonathan Moody.
Good morning, Chair and committee members. I'm Jonathan Moody, head of aviation, maritime ports, freight and logistics.
And Stephen Rowan.
Bore da, good morning, everybody. I'm Stephen Rowan, deputy director for national and international connectivity in Welsh Government.
Thank you. Well, as you know well, time is short. Members, I know, will be succinct in their questions; I'll ask you to be as succinct as possible in your answers. And I'm conscious that you have provided us with a lot of previous information regarding the matters in hand: in this context, the rescue and restructuring plan, grants and loans. But can I just ask before I open it up to my colleagues: has the Welsh Government published any information about its loans to the airport, which it agreed to do in March 2021, and if not, why not?
Thank you, Chair. So, we have published information on our loans to the extent that we've included that in our letter to you. And also, that information was contained in other public-facing documents, in particular in relation to a letter from the Deputy Minister for—I think it was economy and transport at the time—but the Deputy Minister, in a joint session between the Public Accounts Committee and the previous Economy, Infrastructure and Skills Committee. Our plan, Chair, is that, following this meeting, subject to any further information that we were requested to put into the public domain, that we will make that information available on our website following this meeting.
Thank you. Could I pass over to Rhys ab Owen?
Thank you very much, Chair. About the monitoring of the performance of Cardiff Airport, what has the monitoring told you about the performance of the airport?
Thank you very much, and I'll ask a colleague to come in at some point on this. It's clearly been a very difficult time for the airport—we heard that in the public session—because of a range of different factors; extremely challenging for the sector as a whole worldwide, really, and new challenges arising with rising costs, inflation and some of the other factors that we've heard. So, we receive quarterly reports on the airport, and whilst those quarterly reports have revealed challenges for the airport, I think there's been nothing to alarm us significantly in those reports. They're continuing to develop commercial relations with airlines. We've seen some positive recovery of lost routes. So, I think we're content with the performance of the management board, which is very focused and responsive on those ongoing challenges. So, as I say, at the moment, we're content that there's strong leadership in place in the airport and we've got confidence in that team to achieve the best possible results for our investment.
Have you taken any actions following the quarterly reviews?
So, we haven't taken substantive action as a result of those quarterly reviews. I should say that we don't wait until a quarterly review; it's a very fluid relationship with Holdco and with the airport—there are regular tripartite meetings. So, we've got an early warning system in there. We've also got very tight thresholds around the quarterly reporting, again, so that it would be an early trigger to pick up any issues. I don't want to disclose the particular detail in a public session, but there have been a couple of areas that we've looked at very closely, but we have not yet felt the need to take any substantive action as a result of that quarterly reporting.
So, I take it from that answer, despite the obvious challenges the airport has faced—and you've mentioned them—you haven't revised or changed the targets at all.
We haven't changed the targets in the plan, no.
We haven't felt the need to change them.
Thank you. Rhianon Passmore.
Briefly, in regard to the airport's previous comments in the previous evidence session, which you were witnesses at, they said there was no immediate plan to accelerate and draw down their loan in that regard, and that they were on track. So, from those comments now, you feel that, from your perspective, in terms of risk management, that that is the case, that you feel they're not going to imminently ask for more.
It is impossible to predict the future, but, currently, our assessment is that things are on track and we're not expecting to have an acceleration of the loan position, or, indeed, an acceleration of the grant drawdown.
Thank you, Chair.
Thank you. Albeit that the loans the company has are all through the Welsh Government itself, which is also the sole shareholder, is gearing the debt ratio a consideration for Welsh Government as lender and as shareholder material?
I think I would need to ask colleagues for advice on that. Obviously, we are working in partnership with the development bank, who provide us with their assessments on a quarterly basis in relation to the loan agreement. So, I don't know if either Jonathan or Stephen would like to come in on that gearing point.
Yes, thanks, Tracey. So, gearing is one of the metrics that we get reported to us in the reports we get from the Development Bank of Wales, but it is one of a number of metrics that we use to assess the financial health of the airport at each quarter. So, in the totality of that information that we've received thus far, as Tracey said, there's been nothing that we felt has required intervention on our part.
Could you share those metrics with us?
I think we could share the list of metrics we look at. I think we just have to be careful in terms of the commercial confidentiality of the numbers in that report.
That would be helpful.
Perhaps that's something that we could look at sharing confidentially through private letter or something like that, Chair.
That would be helpful, now and as we move forward. But, immediately and publicly, it would be helpful to know what the metrics themselves are. Gearing, as you indicate, is only one of them, although I remember from my days in commercial banking that gearing was a significant factor in the wider consideration of risk management and whether to lend or not and on what terms.
Chair, can you clarify for anyone who may be watching what you mean and what is meant by it?
Right. It's basically the ratio of, crudely, debt to assets, but it's a bit more complex. So, the size of the organisation—simply saying £400 million for a given place would be irrelevant if it was a huge organisation and that was only a tiny proportion of its total assets, but if the company was only worth £200 million and it had assets, effective assets, of £100 million, then it's in real trouble. So, there we are. Thank you. Could I then ask Mike Hedges to pick up the questions?
Two questions, one on airline development. I'm not going to ask you which airlines you have. Do you compare the development and the number of flights et cetera from Cardiff Airport to similar size and similar type airports and the growth of Cardiff or decline of Cardiff compared to such airports?
I'm not sure that I can answer that question. I think I would need to go to colleagues with a little bit more aviation experience than myself, to Stephen and Jonathan, in terms of the extent that we look at, I suppose, the benchmarking of Cardiff in relation to other airports.
If I can come in here, we've not undertaken any studies ourselves to look at this kind of benchmarking, but, as Tracey alluded to earlier, we have very regular engagement with the team at Cardiff Airport, and we frequently discuss what's going on in the general UK and global aviation sector, including what's going on in other similar airports, to discuss how Cardiff is doing broadly relative to the competition across the UK.
The Civil Aviation Authority publish fairly regularly the number of passengers leaving each airport, they also publish the amount of freight leaving each airport. Can I urge you to run a comparator of Cardiff against similar types of airports, and therefore you could see whether they are doing well or badly? Because absolute numbers aren't much use at the moment when we've had a huge decline and a relatively quick increase, but you don't know: is my increase of 50 per cent comparable to people having 20 per cent or people having 100 per cent? So, can I urge you to do that?
The second question is Qatar Airways. We know Qatar Airways aren't flying at the moment. We expect them to fly sometime in the future, but we know it's going to be after the world cup, which is unfortunate. You invested money in joint advertising et cetera with Qatar Airways. What has that given us?
Thank you. Yes, we did have a joint marketing agreement with Qatar Airways, which ceased in March, actually just as the pandemic was starting in the UK—so, March 2020. I know that that campaign was well received. It delivered good results. They ran across a number of channels, through digital and social activity. And it changed over the years; I think the first year was about awareness raising, and the second year was a much more tailored approach. From what I understand, the campaign delivered good results and, as I say, good engagement, but the, I suppose, more formal evaluation of that contract was impossible, really, given the disruption of the aviation industry, because a lot of that up-front marketing was to generate future demand, and, because of the pandemic, it has not been possible to assess the influence, I suppose, that particularly the year 2 part of the campaign has had, really, on the situation.
We have the advertising campaign and all these campaigns, you know how well it's doing, but how many extra passengers do you have, and passenger numbers? A million people reading it, not much use. Twenty-thousand using it, very useful. Although the second number's substantially smaller than the first one, it's the passengers that count, because they're the ones that make money.
Thank you. Have you finished, Mike?
I don't think I'd get any more.
Well, I'm sorry, but I can't—. As I say, we haven't evaluated the contract. I know that there are some outputs, so some metrics, that have been generated. I'm more than happy to write to the committee with those, but that's not the same as evaluating the impact of the contract.
No, but actual numbers—will you be able provide us with the number of passengers using that airline?
I will ask the team when we finish this meeting, and we will write to you subsequent to that.
Yes. Thank you so much, Chair. Just following on from what Mike has just asked, from my understanding, Qatar Airways got involved with Cardiff Airport in May 2018. I completely accept and I'm sure we all respect the fact that the pandemic has had a profound effect from 2020 to 2022, but, just following on from Mike's request, I think it's not unfair for us to request further information, the productivity levels, the footflow levels, as well as the benefits the PR campaign has had for those two years and initial years at least. Because, if Qatar is not coming back, hypothetically, it's really important that we find another airline, a big budget airline that's actually willing to bring in that footflow if it hasn't been productive and hasn't been seen in those two years. Because, as you said, Tracey—and I was there when the campaign started—there was this big campaign, 'Yes, we're going to have an amazing flight from Cardiff to Qatar, and it's going to create a huge buzz amongst the people across Wales who travel internationally from our own airport.' But if it's not proven viable and it hasn't—you know, if we can't see the proof in the pudding, why continue with it?
Okay. So, if I could just come back on that, just to be clear that we are really keen to see the reinstatement of the Doha route, and, as has been outlined earlier in the public meeting, there have been a number of discussions on that, very positive discussions, with Qatar Airways. As I say, the Minister for Economy met with them only last month in Qatar. So, we are very keen to see that route reinstated.
As for the detail as to footfall and the outputs that have been generated from that campaign, we will take it away. I do know that there was a confidentiality agreement on some aspects, which was signed with Qatar Airways at the time, but certainly we'll be able to write to you privately on those matters.
Great. Thank you so much.
Mike Hedges, have you concluded your questions?
Thank you. Could I ask a quick supplementary? What, if any, are the financial implications for the Welsh Government of the decision of the Welsh Government to discontinue the air link from Ynys Môn to Cardiff Airport?
So, the financial implications for us?
Yes, including the contract you have with Eastern Airways.
Yes, of course. So, I think that there are not significant cost implications for us. I'm just going to ask Stephen, if I can, to come into this, because I suppose there are financial implications to the extent that there are cost savings for us, Stephen, in the region of about £2 million, I guess. But are you able to say a little bit more about that? Because I think it varies, doesn't it, depending on the costs of closing down certain things.
And the fact that, originally, the contract was due to run to 2023, so—
That's right. Indeed.
—effectively there's a contract break. So, is there a cost involved in that?
Stephen will be across that, so—.
Yes, thank you, Tracey. So, as you say, yes, the main financial impact for Welsh Government will be manifested as a cost saving. So, there are still some uncertainties around some of the close-down costs associated with terminating the service, but we do anticipate a net saving for Welsh Government, which we'll be able to quantify in due course.
Okay, thank you. If I can invite Rhianon—Rhianon Passmore.
Thank you very much, Chair. Just on the tail end of that, as I'm asking the next round of questions—and it picks up on Natasha and Mike's points, actually—bearing in mind the actual, real significance of securing a five-star airline like Qatar to Wales, and the external events that have caused this in terms of the capacity and the dialogue with Airbus, from your perspective, is the will still there from Qatar and it's just their lack of capacity that's halting this, or do you think they're having second thoughts?
I have not been party to those discussions, neither has Stephen, nor Jonathan. So, I really don't want to over-interpret the discussions that the Minister and the airport executive have had with those, but the readout that I've seen from those is that they were very positive and encouraging discussions with Qatar, and, as I say, we remain committed to welcoming them back, if that is their commercial decision to do so.
Thank you very much. I'm going to move on, then, to areas of development within governance itself. We've mentioned the Welsh Government's shareholding capacity within Holdco board and the relationship with the airport. What was the scope of the Welsh Government's governance review? Because the written evidence, as far as I can tell, only refers to Holdco, and in March 2021 the Welsh Government told us—this Public Accounts Committee as it then was—that the governance arrangements were also being reviewed at the airport, not Holdco. Is there some clarity on that, please?
Of course, yes. I'm happy to, because this is an area that's been handed over to me since I've joined, so I've been able to have a look at this myself. So, to clarify, the review wasn't about the review of the airport's governance at all; they've got their governance and control mechanisms in place. So, this was a review to look at the Holdco governance. So, I suppose, it's the Welsh Government's relationship with the airport; that is what the governance review covered. So, looking at improving and strengthening the governance arrangements between the Welsh Government and the airport through Holdco—that was the scope of it.
Thank you. So, to clarify, then, the scope was purely on Holdco in terms of the review, but, within that, it covered the relationship with the airport.
Yes, I suppose. I'd like to ask Jonathan to come in, because Jonathan was much more closely involved in this, but it was—. A range of options were looked at in terms of the Welsh Government's governance relationship with the airport, and the preferred governance model for that is a continuation but a strengthening of Holdco. So, that is what the governance review covered. Jonathan, did you want to say anything more or steer me a little bit in what I've said?
Yes, sure. So, we looked at strengthening the governance of Holdco as the holding company and the interface with the airport directly, in terms of improving its governance and strengthening its commercial expertise. So, we looked at a series of options in terms of maintaining the status quo, which is the existing system in place. That was a compliance system that was put in place back in 2013. It's a model that's very familiar in terms of how publicly owned airports are structurally developed. It's a model that's used, for example, with Schiphol airport, which has state funds in it there. We also considered a sponsorship model—so, similar to that by which the Welsh Government manages its subsidiaries in terms of Transport for Wales and the Development Bank of Wales. The outcome of that review was that the Minister has made a decision to actually strengthen the existing board by removing the two senior civil servants off that board and replacing them with two non-executive directors, but retaining an interest on that board in terms of one senior civil servant. We are yet to go through a formal public bodies process to recruit those two non-executive directors, and we'll happily keep committee abreast of that as thing develop over the next six to 12 months, which a process of that nature usually takes.
But, aside from that, Tracey has quite rightly pointed out the differential between the actual governance arrangements at the airport, which are separate, and for the CIAL, the Cardiff airport board side of things, versus the governance arrangements of Holdco. At the time of implementing the restructuring plan, we had taken independent advice in terms of just strengthening some of the governance arrangements around our grant agreements with the airport, and that was implementing things such as sharing weekly cash flow projections with the Government, monthly accounts—so, this is the airport sharing them with the Welsh Government—and quarterly reports on performance, and they're independently evaluated by our loan agents, the Development Bank of Wales. It was split into two actions. When we originally implemented the restructuring plan and agreed that, we made some immediate changes to our governance arrangements in terms of closer monitoring arrangements, given how volatile the aviation industry is at the moment in terms of passenger numbers. But then, aside from that, when Ministers agreed to the restructuring plan, they also agreed to us looking at WGC Holdco as the holding company, and the arrangements there. And, as I said, we looked at a range of three different options, and Ministers agreed to strengthen the existing board, which comes off the back of this committee's and the previous committee's calls for greater independence on that board and commercial expertise. So, we'll be going through that process, and I'm sure Tracey would agree that we'd be happy to keep committee updated on that as it progresses. Thank you.
It would be an idea if we could have regular updates with regard to where this restructuring programme is sitting, because obviously it's very much dependent, even under this new proposed structure, on the information coming through, in a sense, as the governing body of a school—that you have the information that you need in terms of being able to do your job effectively in terms of monitoring that. And anything that strengthens that would be very, very beneficial and, in my view, absolutely critical, because if that flow-through of information isn't there, how can you do that? And, yes, I understand what you've said in terms of that.
The arrangements for the chair, however, of the new restructured body don't seem to be articulated within the written evidence. So, what is the thinking around that? We've talked about independence from Welsh Government, but, obviously, it's a very nuanced and balanced discussion point, isn't it, because we have a massive interest in this as well. So, in terms of the chair, what is the current thinking around that? It's not articulated anywhere that I can see.
No, it isn't, and I'm sorry about that. That's because we really haven't concluded our thinking on that yet. That's something that Andrew Slade handed over to me as part of the handover process when I started this role. I think there are pros and cons to the chair being a civil servant or a non-executive director being a civil servant, and we're just keep working those through. I'm very clear that we need a senior civil servant on the board of Holdco to protect Ministers' interests, but whether or not that person would be better to be the chair or not the chair I think is something we're still discussing. I very genuinely would welcome any views that the committee has on that based on your previous scrutiny in this area and we'll add it to our thinking.
I think it's something that we should discuss, because I've got a personal opinion, but it might not be the committee's.
Obviously, we'd be very happy to consider that in the round. Obviously, Ministers will have a view too. We'd be very happy to receive a view and would welcome, actually, a view from the committee on that.
Thank you. I have a personal view too, which I won't disclose at this point, but will in private. So, thank you for that. Can I invite, therefore, to conclude the questioning, Rhys ab Owen?
I've asked my questions.
You're quite right. It's Natasha Asghar.
Thank you very much. No problem. Okay, can I humbly request an update about the expected consequential funding for Wales following the support provided by the UK Government for regional airports in England?
Sorry, was that consequential funding—?
Yes, for Wales.
Sorry. So, I think this was the £100 million airport support package that was announced. It was actually one of my first questions, talking with the team, as to, 'Did we get a consequential from that?' I understand that we did. We received a £4.8 million consequential, which would be our share, really, of the £100 million. So, that has been received by the Welsh Government and became part of the Welsh Government's overall budget settlement.
I'll just ask a few little sub-questions. What progress is being made on the jet-zero initiative with the UK Government at present?
If I can, I'll ask one of my colleagues to come in on jet zero. I don't know whether Stephen or Jonathan is best placed on that.
I'm happy to pick that one up, Tracey. We as a department have regular dialogue with the Department for Transport. We're expecting them to publish their jet-zero strategy at Farnborough airshow in July of this year. In terms of the conversations that we've been having, I think it's fair to say that sustainable aviation fuel, SAF, has been very high on the agenda in terms of looking at feedstocks across the UK. Currently, there are two main facilities, one on Humberside, and another, an SR facility, in Stanlow. That represents about 2 per cent to 3 per cent of the market availability of SAF across the UK—sustainable aviation fuel—and that's predominantly being taken through offside agreements with the likes of British Airways. So, there's certainly a huge amount of work to be done in that particular area, and we look forward to working with our colleagues in the Department for Transport in terms of looking at expanding availability of that. I know that Cardiff Airport mentioned in their public session earlier that that's one of the areas that they're looking at in terms of fuel farm availability at the airport, and their commitments to net zero and making sustainable aviation fuels and hybrid flight available at Cardiff as a regional airport. So, certainly, we are keen, to summarise, as a Welsh Government to work as closely as possible with UK Government and with Cardiff Airport to ensure that the airport's achieving its net-zero targets, as is the aviation industry in general across the UK, and if, as part of that, we can help support developing those technologies within Wales, then we will be working quite closely to implement that.
Thank you. I'm a huge believer in working together and I do think that it's better that we work together than separately, to be very honest with you, especially when it comes to aviation.
Now, I'd like to know if there have been any outcomes to discussions with the UK Government specifically about the treatment of safety and security measures. We all know it's paramount to have adequate safety and security measures particularly in the field of aviation, and I'd like to know, from your experience, from what you're doing on a day-to-day basis, what do you consider to be eligible expenditure when it comes to aviation security and safety?
Thank you. Yes, I think this has been an ongoing discussion—again, one that I've inherited and been handed over from Andrew. As we heard earlier in the evidence session, there are significant cost pressures, really, especially for smaller airports. I have not heard that there's any intention to change the current approach to aviation regulatory compliance, but, Stephen, would you be able to add something on this?
[Inaudible.]—I can add on this, really, although we have regular discussions with the UK Government and I've certainly heard nothing that indicates there's any intention to move away from the 'user pays' approach to regulatory compliance in aviation and that includes security regulatory compliance as well. So, no indications of that so far.
Okay, thank you so much for that. Final question: how are you working, specifically again with the UK Government, to consider the union connectivity review recommendations? I'm sure you can appreciate that Peter Hendy's report states that the UK Government should do something in relation to aviation tax. So, I just wanted to know what conversations have you had? How far are you in making progress on this, particularly as it's something that's so important to all of us here, as well as Cardiff Airport?
Yes, absolutely. We're still waiting for the UK Government's formal response to Peter Hendy's report on the union connectivity review. So, I know that colleagues have regular meetings with DfT colleagues on a range of matters, including, I think, bids into the union connectivity funding programme. But, Stephen, do you just want to add a sentence or two on that?
Yes, of course. So, it is still early days in these conversations and a lot will hinge on what the UK Government decides to take forward when it publishes its formal response—the final union connectivity report. So, as and when we find out what is in there, we'll look to provide advice to Ministers on what the UK Government is intending to do, but also to work in close collaboration with all the other nations of the UK to try and find a mutually acceptable way forward on the recommendations.
Just to follow up in that regard, in regard to the call for aviation sectoral support in this regard and the importance of this connectivity report, when is it going to be published? You probably can't answer this in terms of the inter-governmental meetings of the nations, but my question really would be: is it anticipated that there will be some strategic support coming out of this and, obviously, consequentials for Wales? Because my final mop-up question, outside of that question is: is the £4.8 million consequential that we received in line with what is anticipated out of that £100 million? So, two separate questions.
Steve, do you want to come back in on the union connectivity review?
Yes, so we don't know when the UK Government is intending to publish their final recommendations and how they're going to take them forward. We keep asking our counterparts in the Department for Transport when it's going to come out, but we haven't got an indication yet as to exactly when that will be, nor do we have any insight into what the UK Government response might be and whether there will be any large financial package of support emerging from that. So, it's very much a case of wait and see for us.
And then, finally, on your point on the consequential, that would be in line with what we were anticipating. We would normally anticipate—. I think our Barnett consequential is normally about a 5 per cent share, so 4.8 per cent—that would be in line with what we would have anticipated the consequential to be.
Okay. I hope we get this date soon. Thank you very much, Chair.
Thank you. Natasha.
Thank you so much. I want to ask you the final question from myself, but it was the first question I asked the representatives from the airport. For yourselves, what are the most profitable aspects of Cardiff Airport?
Well, I suppose I can only really respond with what Cardiff Airport have told us ourselves, because we're not across their accounts and their different profitability ratios, so I could only really repeat that. I mean, if it's a broader question as to what's the benefit, I suppose, of having an airport, then it's a key piece of economic infrastructure from the Welsh Government perspective, and therefore that's the value that we see of the airport, but I certainly don't feel qualified to talk about profitability within the business. Unless either Stephen or Jonathan can give you a better answer, I'm afraid that's my response. So, Stephen or Jonathan?
I'd concur with you there, Tracey. We don't go into those kinds of discussions with the airport—not to that sort of granularity.
Well, thank you very much indeed, and that, you might be relieved to hear, brings us to the end of our questions for this session. So, I conclude again by thanking the three witnesses, Tracey Burke, Jonathan Moody and Stephen Rowan, for attending both the sessions you've been with us for today. A transcript of this session will be published in draft form and sent to you to check for accuracy before publication of the final version. So, again, thank you for being with us. I hope the rest of your day goes well.
bod y pwyllgor yn penderfynu gwahardd y cyhoedd ar gyfer eitemau 7 ac 8 yn unol â Rheol Sefydlog 17.42(ix).
that the committee resolves to exclude the public from for items 7 and 8 of the meeting in accordance with Standing Order 17.42(ix).
Cynigiwyd y cynnig.
We will now move back into private session, subject to Members' consent. So, I propose in accordance with Standing Order 17.42(ix) that the committee resolves to meet in private for the remaining items of today's meeting. Are all Members content? I see that all Members are content, so I'll be grateful if we could go into private session.
Derbyniwyd y cynnig.
Daeth rhan gyhoeddus y cyfarfod i ben am 12:12.
The public part of the meeting ended at 12:12.