The company that operates Scotland’s lifeline airport services is facing a subsidy reduction that will create a “future funding challenge”, new finance documents reveal.
Highlands and Islands Airports Limited revealed a planned reduction in funding over the next three years at a time when communities and businesses are calling for increased air services as they struggle with the beleaguered ferry system.
Connectivity has been a key issue raised during our New Highland Clearances series over the last week.
The company that operates 11 airports and provides safeguarding services across a vast area of land and sea relies on the support of subsidies, which last year totalled £62 million, down from £76m the year before.
Newly released accounts show HIAL has increased passenger numbers and narrowed operating losses amid a recalibration of the service.
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The figures reveal a 39% increase on passenger figures last year compared to the year before for Scottish Government-owned HIAL.
However, there have been calls for more funding and targeted services from Hebridean communities such as Colonsay and Islay.
Transport Scotland told The Herald it had directed ferry funding towards air services and that aviation is key to its connectivity plans, and that it "understands the importance of aviation to the Highlands and Islands".
HIAL said in its strategic report: "The group is exposed to a variety of financial risks which are regularly monitored and reviewed by the executive team, audit committee and board.
"As the group relies on public funds to maintain operations across its 11 airports, it is susceptible to changes in public funding, which is influenced by the wider economic climate and decisions made at the UK and Scottish Government level.
"Indicative revenue and capital budget allocations point towards a reduction in the funding for HIAL over the next three years which presents a future funding challenge for the group."
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HIAL has been rebuilding services in the wake of the pandemic when most of the global fleet was grounded Passenger numbers were just over 1.4 million across all of its airports at the end of March 2023, which is 85% of pre-Covid levels.
Its sites cover Barra, Benbecula, Campbeltown, Dundee, Inverness, Islay, Kirkwall, Stornoway, Sumburgh, Tiree and Wick John O'Groats.
Directors said: "As a publicly funded company, HIAL is acutely aware that it must manage its resources responsibly and efficiently.
"Given the pressure on public sector budgets, this is a significant challenge, particularly in many of our smaller, more remote airports, where passenger numbers are low and fixed costs remain relatively high.
"The parent company loss after taxation from continuing operations amounted to £663,000, against 2022 loss of £1.1m."
This compared to £124,000 profit in 2021 at the company, which employs 693.
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Lorna Jack, HIAL chair, said: "In an ever-changing and unpredictable world, HIAL was impacted in the same way as many other businesses have been with considerable economic and financial pressures leading to us having to recalibrate our goals and reappraise our strategic priorities and spending decisions."
She added: "With the significant funding challenges we will continue to face for the foreseeable future, our strategic focus for the next five years is to operate as efficiently and effectively as possible, while at the same time maintaining the high level of service that HIAL’s customers expect."
Longstanding managing director Inglis Lyon stepped down from his role after 18 years, with Stewart Adams taking on the role of interim chief executive in June.
Jamie Manson joined HIAL in October 2022 as finance director and an executive member of the board, replacing Johanna Wallace who left earlier in May.
During the year the company invested £19.5m in airports and the head office which included expansion of the terminal building, vehicle store fit-out and riverbank defence works to protect the runway at Barra, rehabilitation works on the runway shoulder at Campbeltown, runway resurfacing works at Islay, coastal erosion works at Stornoway and runway lights at Tiree.
In terms of passenger traffic, Wick John O'Groats had the greatest increase with a 268% hike in passenger numbers to 9,182 to March 2023, with Inverness next at 63% to 749,908, then Islay at 60% to 27,740.
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HIAL said it plans to consult with communities over future provision with a "review of formal community engagement forums for all HIAL airports to ensure they meet the needs of individual airports and community groups moving forward".
It said: "A programme of airport consultative committee meetings has been agreed at Inverness, Wick and Stornoway, and meetings have taken place. A trial of suitable forums with the potential for scaling up or down to tailor to individual airport communities will take place during 2023/24."
A Transport Scotland spokesperson said: "We understand the importance of aviation to the Highlands and Islands, which is why the Scottish Government provides funding to support the operations of Highlands and Islands Airport Limited.
"Air services enable quick access to some of our remotest communities ensuring that residents can access major population centres timeously. This helps to safeguard these communities for the future by making them more attractive places to live and work.
“In 2022-23 we provided HIAL with over £62m in funding to maintain their operations. This funding means that HIAL’s airport charges are kept lower than they would otherwise be enabling the operation of commercial air services.
“We also operate the Highlands and Islands Air Discount Scheme which provides residents of the eligible area with a 50% discount on the core ticket price on eligible routes. In 2022-23 the scheme cost over £8m."
The spokesperson added: "We have agreed this year to a request from Orkney Island Council to switch some Scottish Government ferry funding revenue to be used to fund air flights for island travel this winter and this is an example of flexibility. The imminent Island Connectivity Plan also will recognise the role of aviation.
"We directly subsidise the Glasgow to Campbeltown, Tiree and Barra air services and we renewed the grant funding for this in October 2023 to ensure that the services are maintained. Some local authorities also directly subsidise services within their areas."
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