The boss of Loganair has warned the cost of weather-related compensation payments could make some routes unviable although the airline achieved a strong performance in the latest year.
Glasgow-based Loganair made £1 million profit in the year to March 31 after losing £9m in the preceding period when the costs of an acrimonious split with Flybe weighed on the bottom line.
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Loganair faced challenges following the end of a longstanding franchise agreement under which it served the Scottish Highlands and Islands under the Flybe brand.
Managing director Jonathan Hinkles said the business had effectively been required to build a new airline from scratch.
The company is having to deal with the fallout from strike action held this week at Highlands and Islands Airports, which has led to the cancellation of 74 flights.
But Mr Hinkles has been pleased by the progress the company has made under its own brand in recent months. Loganair launched new routes and took over some operated by sister firm BMI Regional, which collapsed in February.
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He is confident in the outlook for the company, which is considering adding new routes to serve Glasgow, Edinburgh and Aberdeen.
However, Loganair highlighted the potential for compensation claims to impose a significant burden on the industry.
“The rising cost of EU 261 [regulation]customer compensation for flight delays and cancellations – fuelled by increased customer awareness and the litigious activities of no-win-no-fee claims agencies- is a major challenge for the entire airline industry,” said directors in the firm’s accounts for the latest year.
They added: “We are defending several cases attempting to expand eligibility for these claims to flights delayed by adverse weather. The impact of adverse judgements would be material and in our view, hugely detrimental to the sustainability of lifeline air services in peripheral regions.”
Mr Hinkles is concerned the regulation referred to is being used to punish airlines for delays caused by weather-related factors over which they have no control. Airlines are not required to provide compensation for delays caused by exceptional circumstances.
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Noting some passengers had been awarded weather-related compensation payments of 250 euros (£220) each by the small claims court, Mr Hinkles said: “If that’s carried across the whole range a number of routes are potentially unviable.”
For example, he noted that Loganair operates a twice weekly service to remote Fair Isle where it is only possible to land in daylight. The cost of compensation could wipe out any income generated from ticket sales
Mr Hinkles said Loganair has been impacted by the fall in consumer confidence caused by uncertainty about what Brexit will mean, observing: “Some numbers are behind last year and from others, we are hearing the same thing.”
The renewed fall in the pound in recent days is a source of concern for Loganair, which pays for a range of essentials including aircraft fuel in US dollars.
The company is thought to have incurred more than £1m costs associated with strikes by air traffic controllers at six Highlands and Islands airports since the first walkout in May.
It is waiting to see whether the action will continue.
As strikes are classed as exceptional circumstances Loganair will not have to compensate customers. But it has helped people affected get to their destinations and had to deal with strike-related logistics issues.
Mr Hinkles remains confident Loganair will be able to make progress even if conditions remain challenging.
Some routes the airline started or took over in recent months have been operating “very well indeed”.
Loganair took over routes from Aberdeen to Bristol and Esbjerg in Denmark and from Derry to London Stansted previously operated by BMI Regional.
It has launched new services from Scotland to Germany and Norway and from Newcastle to Belgium and Norway.
Embraer jets acquired from BMI Regional have allowed Loganair to fly further afield. The £1m annual profit was stated after £3m one-off costs related to the increase in Loganair’s fleet size.
Loganair recruited 140 of BMI Regional’s pilots, cabin crew and engineers.
Turnover rose to £119.9m in the latest year, from £110.6m.
The load factor on scheduled flights rose to 63.4 per cent, from 59.8%.
Loganair is owned by entrepreneurs Stephen and Peter Bond through their Aviation Investments business.