Loganair Subsidies: FOI release

Information requested

• The annual amount of subsidies provided to Loganair by Transport Scotland for each of the past 10 years.
• The controls and criteria imposed on service delivery that Loganair must meet to qualify for these subsidies.
• Any existing Service Level Agreements (SLAs) between Transport Scotland and Loganair related to the subsidies.
• Details of the Contract Management measures in place to monitor and track progress against the SLAs.

You subsequently clarified that you are particularly interested in the Glasgow to Barra route and that you wanted details of both payments made in relation to our Public Service Obligation (PSO) subsidies as well as in relation to the Highlands and Islands Air Discount Scheme (ADS).

Response

Question 1

The attached spreadsheet shows the subsidies provided to Loganair by Transport Scotland for each of the past 10 years. I have provided this in Excel to better facilitate your use of the data but if you would prefer a different format please let me know. The spreadsheet includes the following.

1. The subsidy provided during each of the years 2015-16 to 2023-24 for the provision of the Glasgow to Campbeltown, Tiree and Barra air services which are operated under Public Service Obligations (PSOs). Loganair makes a monthly grant claim in relation to these services and the spreadsheet shows each monthly payment broken down as per the claim.

• a.In 2017 Alternative Security Measures were introduced at Campbeltown, Tiree and Barra airports. This led to additional costs for Loganair at Glasgow Airport in relation to these services which could not have been anticipated when Loganair submitted their tender for the provision of the services. Given this, Transport Scotland agreed to provide additional subsidy to meet these costs until the end of that service period in October 2019.
• b. In July 2021 Loganair introduced their Greenskies initiative. This saw a surcharge placed on all tickets sold with the proceeds being used to mitigate the environmental impact of flying. Given the previous commitments given to the Campbeltown, Tiree and Barra communities in relation to fare levels, Transport Scotland agreed to meet these costs in relation to the Glasgow to Campbeltown, Tiree and Barra air services until the end of the service period in October 2023 in order to prevent fare increases during the service period.
• c. The Covid-19 pandemic had a profound impact on air services, including the Glasgow to Campbeltown, Tiree and Barra services. During the service period between October 2019 and October 2023, as a result of the pandemic, there were significantly fewer passengers, and hence commercial revenue, than Loganair had anticipated. In addition, costs were significantly higher than anticipated due to the pandemic’s impact on supply chains as well the wider inflationary situation. In order to ensure continuity of service until the start of the new service period in October 2023, Transport Scotland agreed to provide an additional £405,000 to Loganair to mitigate the losses they were incurring.

2. On a number of occasions over the last 10 years Transport Scotland has paid Loganair for the provision of additional flights on the Glasgow to Campbeltown, Tiree and Barra routes. This was separate from the PSOs. The spreadsheet shows each monthly payment broken down as per the relevant grant claim. Specifically:

• a. In 2015-16 Transport Scotland provided Loganair with £90,455.53 for the provision of an additional rotation on the Glasgow to Tiree service Monday to Friday from 1 July to 23 October 2015. This was ahead of the service moving to being permanently double daily on weekdays from 24 October 2015 upon the start of the new service period.
• b. In 2015-16 Transport Scotland paid £11,733.33 to Hitrans as a contribution to the total £35,000 cost of the provision of 44 additional rotations on the Glasgow to Barra service during summer 2015. As with Tiree, this was ahead of the service moving to being permanently double daily on weekdays from 24 October 2015 upon the start of the new service period. While this was not a payment by us to Loganair, and is therefore technically outwith the scope of your question, I’ve included it for completeness given your specific interest in Barra.
• c. In 2017-18 Transport Scotland provided Loganair with £13,600 for 17 additional rotations on the Glasgow to Barra service during the period June to August 2017. We provided £6,240 for the provision of 8 additional rotations (5 Twin Otter and 3 SAAB 340) to Tiree and the upgrading of 3 rotations from a Twin Otter to SAAB aircraft over the summer period. We provided £5,652.30 to meet the costs of additional out of hours airport charges to enable a sharing of the impact of the Barra tidal variations between Tiree and Campbeltown through timetable changes on the Campbeltown and Tiree services.
• d. In 2018-19 Transport Scotland provided Loganair with £18,480 for 22 additional rotations on the Glasgow to Barra service during May and June 2018.
• e. In 2019-20 Transport Scotland provided Loganair with £19,827 for 22 additional rotations on the Glasgow to Tiree service and 25 additional rotations on the Glasgow to Barra service during the period April to September 2019. We provided a further £2,520 for 5 more rotations on the Glasgow to Barra service during August 2019.
• f. In 2022-23 Transport Scotland provided Loganair with £21,254 for 28 additional rotations on the Glasgow to Barra service between June and October 2022.

3. At the onset of the Covid-19 pandemic, passenger numbers on air services dropped dramatically. This was initially a result of people being reluctant to travel and was then exacerbated by the travel restrictions that were put in place. Despite the travel restrictions, however, there remained a need for some people to travel from the Scottish islands to the Mainland for essential reasons e.g. medical treatment. As there were insufficient passenger numbers to enable the operation of commercial air services, Transport Scotland contracted Loganair to provide a skeleton service to maintain essential connectivity. While this was a contracted service rather than a subsidy, and therefore outwith the scope of your question, I’ve included the figures for completeness.

4. Transport Scotland reimburses airlines for discounts provided by the airlines in relation to the ADS. The ADS provides residents in the eligible area with a 50% discount on the core ticket price on eligible routes. Airlines provide ADS discounts to scheme members at the point of sale. Airlines are then reimbursed monthly in arrears by Transport Scotland for discounts that they have provided. From 2014-15 to 2016-17 Loganair submitted two monthly claims. One for tickets sold as a franchise partner of Flybe and one for tickets sold by British Airways as part of their codeshare arrangement with Loganair. During 2017-18 Loganair ceased being a franchise partner of Flybe and started operating independently. During the transition period Loganair submitted three monthly claims. One for tickets sold as a franchise partner of Flybe, one for tickets sold by British Airways as part of their codeshare arrangement and one for tickets sold directly by Loganair. From 2018-19 onwards, Loganair submitted two monthly claims. One for tickets sold by Loganair directly and one for tickets sold by British Airways as part of their codeshare arrangement.

• a. During 2018-19 Loganair discovered that they had not claimed for some tickets sold on their behalf by travel agents. While travel agent sales are usually amalgamated into their normal grant claims, they submitted a separate grant claim for the omitted bookings.
• b. At the outbreak of the Covid-19 pandemic, Transport Scotland provided Loganair with a £2 million advance on their ADS claims in order to assist them with their cashflow position. Although this was an advance on their ADS claims, and was accounted for as such, it was described as a loan.

Question 2

In relation to the Glasgow to Campbeltown, Tiree and Barra air services (both those operated by under the PSO and those subsidised separately), Loganair is required to operate the services in line with the aviation regulatory regime. Subsidy for the service is paid to Loganair monthly based on a payment schedule set through the procurement process. It should be noted that payment is not based upon services completed. The imposition of a PSO on an air route allows a public authority to provide subsidy to enable the operation of a service. That service, however, has no special status. It is an air service like any other and is required to comply with all relevant regulatory requirements. In terms of day to day operations, there is no difference between the Glasgow to Barra air service than, for example, the Glasgow to London Heathrow air service.

Part of operating an air service is dealing with disruption. The aviation regulatory regime requires airlines to provide support, and in some cases compensation, to passengers in the event of
disruption. If disruption does occur, and a flight is not completed, Loganair would still receive subsidy in recognition of the costs of complying with the regulatory regime. When developing their tenders, an airline would have to take a view on the likely cost of disruption to the service over the lifetime of the service period, as they would for all other costs.

In relation to the ADS, there are no requirements in relation to service delivery. Although administered through airlines, the ADS is for the benefit of individual passengers. Clearly is more convenient and administratively simpler for the discount to be provided by the airline at the point of sale rather than for scheme members to have to submit claims to Transport Scotland to be provided with the discount individually. An airline has to provide details of the discounts they have provided as part of their grant claim.

Question 3

Please find attached the grant award letter for the Glasgow to Campbeltown, Tiree and Barra air services for the period October 2023 to October 2027. While our aim is to provide information whenever possible, in this instance we are unable to provide some of the information you have requested because an exemption under section and 38(1)(b) of FOISA applies to that information. The reason why this exemption applies is explained in the Annex to this letter.

Question 4

Transport Scotland receives monthly management accounts from Loganair along with a copy of their Annual Report and Accounts. The purpose of this is twofold. Firstly, it is to ensure that the airline does not make excess profit in relation to the provision of the Glasgow to Campbeltown, Tiree and Barra air services. The subsidy awarded to Loganair, as set out in the grant award letter, is the maximum available. Loganair may receive less depending upon the financial performance of the service. As part of the procurement exercise, tenderers had to set out their anticipated profit margin based upon their forecast financial performance for the services (the Glasgow to Campbeltown, Tiree and Barra services are tendered together in a single package). In making the grant award to the successful tenderer, we accept the profit margin set out in their tender. Should the financial performance of the services be better than anticipated, grant funding would be lowered in order to ensure that the operator didn’t make excess profit. The financial risk over the term of the service period sits with the airline i.e. if they’ve underestimated the costs of running the service then their profit margin will be lower than they forecast. They are not guaranteed to achieve the profit margin they anticipated in their tender.

Secondly, monitoring of an airline’s management accounts provides reassurance that the airline is not in financial difficulties that would put their continued operation of the specified services at risk.

In addition, Transport Scotland receives a list each month of the scheduled Glasgow to Campbeltown, Tiree and Barra services which did and did not operate. For any service that did not operate, this includes a reason why.

Annex

Reasons for not providing information

An exemption applies

An exemption under section 38(1)(b) of FOISA (personal information) applies to some of the information requested because it is personal data of a third party, i.e. names and contact details of individuals, and disclosing this would contravene the data protection principles on Schedule 1 of the Data Protection Act 1998. This exemption is not subject to the ‘public interest test’, so we are not required to consider if the public interest in disclosing the information outweighs the public interest in applying the exemption.

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FOI 202400400176 - Information Released - PSO Grant Letter

File type

32 page PDF

File size

736.5 kB

FOI 202400400176 - Information Released - Subsidy data

File type

Excel document

File size

28.9 kB