Aviation

The past 12 months have seen the aviation industry impacted like never before. The extended effects of the pandemic led to complete travel bans being in place for many months of the year unless for essential purposes.

There were a number of months of the past year when travel was allowed, but the continual changes to travel corridors meant there were very few destinations available without a quarantine requirement.

Esken continues to take a long-term view of aviation, with most analysts and aviation businesses expecting a return to
2019 levels in the mid-2020s.

Glyn Jones Chief Executive, Aviation

The ensuing uncertainty caused by continued changes created a lack of demand, with many customers delaying and cancelling holidays and airlines subsequently removing flights.

Esken, however, continues to take a long-term view of aviation, with most analysts and aviation businesses expecting a return to 2019 levels in the mid-2020s. The travel sectors in which London Southend Airport operates are those expected to return to 2019 levels the fastest; short-haul, leisure and visiting friends and relatives. Only 12% of London Southend Airport’s travel was business related in 2019. Although this percentage will grow in the longer term, in the short term it is an advantage not to be reliant on business travel.

In 2019, London remained the largest air travel market in the world. The London market has shown resilience to previous falls in global demand, with quick recovery and a growth trajectory which is above UK GDP. London will again become a constrained market as demand begins to recover from 2022. Low-cost airlines are expected to be at the forefront of this, and these airlines will all be aiming for market share growth. This will require slot growth across the London airports.

Many carriers, especially network carriers, shifted capacity to Heathrow in 2021, taking advantage of surplus slots created by a continued alleviation of the historic rights. This has in turn allowed further access at Gatwick and Luton. Some carriers have therefore been able to commence new services to Heathrow and Gatwick and some new carriers have entered the market. All of this will unwind over the next year or so, when airlines reclaim their historic slot rights from 2019. It’s likely that from 2022 there won’t be slot capacity for this to continue. Therefore, these airlines will need to relocate if they are to continue longer-term operations.

There have been slot transactions by easyJet at Stansted, selling based aircraft slots to Ryanair, and by Norwegian selling slots at Gatwick to easyJet. This again leads to a position of very little slot availability across the London airport system as there is unlikely to be any growth in airport slot or passenger capacity in the near future.

This puts London Southend Airport in a strong position in the coming years, with low-cost airlines and network carriers relocating traffic, and likely to be seeking available runway slots at the right price and the right service levels to aid their recovery.

The rate of growth is still undetermined as the market recovers from the coronavirus pandemic. However, with short-haul and low-cost airlines at the forefront of the recovery, there is a good opportunity for the airport to recover faster than some of its counterparts focused on network carriers and long-haul traffic. The rail connectivity direct to London Liverpool Street will continue to be a huge advantage to the airport and will play an important part in the attractiveness to both airlines and customers.


Energy

This has been a challenging year for everyone and the biomass supply market has certainly not been immune from the coronavirus pandemic.

There is now strong momentum within the sector. It is well placed to benefit from a green economic recovery from the pandemic.

Richard Jenkins Chief Executive, Energy

We have had to overcome unprecedented challenges. In a normal year, there are c.4.5 million tonnes of waste wood produced annually in the UK. A large proportion (c.75%) of this is processed into biomass and is used as a fuel in biomass plants to produce renewable green energy. Exports of waste wood from the UK are minimal. Indeed, there are increasing imports of material from Europe to meet the UK market demand following a period of major unpredictability.

The COVID-19 pandemic materially disrupted the availability of waste wood in the market at the start of the year, leading to disruption in the supply chain. The significant downturn in construction sector activity and the closure of the Household Waste Recycling Centres significantly impacted the availability of waste wood during the first lockdown at the start of the financial year. As a result, we experienced a 70% reduction in volume during the first lockdown.

Gate fees, a fee that we can charge suppliers for taking their unprocessed waste wood, were impacted significantly at this time. This reflected the scarcity of waste wood in the market and therefore the fee we could charge. We needed to draw in as much material as we could from wider geographical areas. Waste wood volumes tend to follow a seasonal pattern, with more available in the Summer months. Unfortunately, this coincided with this market disruption, adding further pressure on market gate fees.

Many fuel suppliers, including ourselves, opted to supplement normal supply routes with imported volume. This provided certainty for our customers at a time of challenge and enabled us to commence the new year on a solid footing as the UK market stabilises. The import of waste wood from Europe was not materially impacted by Brexit and we do not expect Brexit to present any significant challenges to our business in the future.

The reopening of the Household Waste Recycling Centres and recommencement of activity in the construction sector following the first lockdown led to waste wood volumes recovering. They have gradually normalised through the course of the year. The national lockdown restrictions that took place through November and from late December onward did not impact the construction sector as much as during the first lockdown.

Household Waste Recycling Centres also largely remained open. As a result, volumes of waste wood have continued to stabilise in the market. We are well placed to take advantage of the upturn in the market thanks to our established supply chain and first-class infrastructure, and in particular, our storage operations across the UK.

Gate fees and supply chain margins increased through the year, approaching pre-COVID-19 conditions by the end of the financial year. Gate fee pricing is regional and post year end, in some regions, prices are now at or marginally above pre-COVID-19 levels. However, nationally the gate fee recovery is expected to continue over the next 12 months. Management believe that the steps we have taken are proving effective in managing the gate fee and supply margin recovery. This margin optimisation will need to be sustained for a longer period of time, before we can assert that margins have fully recovered post COVID-19.

Due to the volume recovery and our asset base, we have been able to meet the demand needs of our partners at the biomass plants. Overall, supply was c.95% of last year’s volumes. However, this came at a cost of lower gate fee income. It is expected that plant performance will improve moving forward as the plants are now optimised following commissioning.

There is now strong momentum within the sector. It is well placed to benefit from a green economic recovery from the pandemic. The Energy White Paper continues to set the UK’s net-zero aspirations and the March Budget announced the creation of a new National Infrastructure Bank and a Net-Zero Innovation Fund. This puts us in a good position to assess all opportunities within the biomass sector and expand our fuel service offering where practical.