CloserStill Media and Nineteen Group chairman Phil Soar discusses the concept of show slots at venues and draws comparisons with how the airline industry operates. 

No doubt you will have read that ‘Rachel from Accounts’ is pushing the third runway at Heathrow. Given that nine of the 12 largest exhibition companies in the world (excluding the messen-like entities) are based in West London, this is of immediate, ear-splitting, interest to us all.

Given that it will cost somewhere north of £50bn (remember HS2) and at least a decade of planning rows, I certainly won’t see it built in my lifetime and would argue that no one reading this article will ever take off from any new runway.

But it has brought to the fore much argument about where any new ‘slots’ would be allocated. For those who don’t know, most airports in the world allocate take off/landing “slots” to airlines on a grandfather basis. Once the airline has the slot, no one can easily take it away. You can’t just turn up and land an A380 at any old airport.

This is of particular interest at Heathrow because it has no more capacity – 99% of all possible landing/take-off slots are already allocated. It is by far the most crowded “major” airport in the world. In 2016 Oman Airlines paid £76m for two daily arrivals and departures at Heathrow, buying them from another airline.

There are 650 take offs and landings at Heathrow each day. British Airways control 51% of these. At £40m per slot, this would suggest that BA’s slots at Heathrow are worth around £15bn. 

So the value of British Airways (the main part of IAG) is really its slots at Heathrow plus a few aircraft thrown in – its “Enterprise” value, or the value of all its shares minus its debts, is far less than £15nn.

What a new runway would mean for British Airways

First question: who would pay for this new runway? The simple answer is that the airlines using it would pay most of it (meaning us, the passengers). But for British Airways/IAG this doesn’t make very much sense. 

Why would it pay vast sums to create another 200 slots a day so that other airlines could land and compete directly? 

This has brought to the fore a recurrent discussion about airline slots – instead of just letting the same old airlines hang onto them, why doesn’t the Government auction them to the highest bidder (like it does with wavebands for mobile phone companies?)

What would happen if all the slots were sold?

What would happen if the Government decided to auction off the slots instead? Well, BA would obviously buy some of them – but how many and at what price? And other airlines would pay a lot for the lucrative Atlantic routes? (Emirates is unlikely to bid too much for London to Newcastle, but London to New York is worth a fortune, which is why there are 25 flights a day on that route). 

And if BA had to buy these slots, who do you think would pay the cost? Well, obviously, us, the passengers.

So what would you do if you were an investor in airline shares and the Government was trying to sell off Heathrow’s slots? Very simple. You would decide that BA’s future had become highly unpredictable in this changing landscape and you would sell your shares. 

So would most others. And what would the banks do – which provide the debt to buy planes etc? They would do the same – they would worry about what the future held and they would cut-back on their lending to any airline which had a lot of business at Heathrow.

The analogy with trade shows is not complex

The key value driver in the trade show industry is slots at the major venues. When they begin to understand slots, private equity invests large sums in our business. The closest analogy to the core value driver in our industry has long been British Airways at Heathrow.

I cannot stress often enough or loudly enough how the major value in our business lies in the slots at the larger venues.

Most major markets only have two really large venues – UK, France, Italy, Spain, even China with 25 big venues is really about Shanghai and Shenzhen, and in the US the majority of the largest events are in the destination venues of Las Vegas and Orlando.

Organisers which have core slots at these venues in Spring or Autumn have built a moat around their events. If they operate their subscription system (otherwise known as “the rebook”) competently, then they discourage any possible competition elsewhere.

The economics are such that there is very little argument for building another large venue (when ExCeL was opened in 2001 it was soon clear that Earl’s Court would close – there was not enough traffic for three big venues).

Are investors impressed by your marketing plans?

You might think that investors are impressed by your marketing plans, by the quality of your brand, by your excellent data bases, your winning smile and your diversity and inclusivity programmes – and perhaps they are. But what they really like are your slots.

Why do grandfather rights, or custom and practice, prevail in our industry? These rights are rarely contractual beyond a year or two. And it is clear that venues believe they will make more money by supporting one major show than, say, three smaller ones in the same business sector (and thus it is to the benefit of the venue not to allow too many competing shows).

And so the same question which is asked about Heathrow regularly arises. Why don’t the venues just auction off the slots?

There is always the danger that an owner arrives, not familiar with the business, and tries to make a quick buck by auctioning off the slots in major sectors (giftware, clothing, furniture, IT, security, construction, automotive etc).

Indeed, Robert Maxwell was encouraged to do exactly this (by Goldman Sachs I seem to recall) in the late 1980s. The suggestion was that he bought Earl’s Court, threw out all the existing shows and then ran them himself in the same calendar slots through the Mirror’s in-house show company.

If it happened, what might be the results?

Some would say that it would open up the market and we would have better events. One of the major problems that venues have is that they cannot control how well run a show is and can lose a lot of catering, car parking, security, etc etc revenue if organisers refuse to invest in their events.

If it were profitable, more venues would be built

The reality is that our current system, and the very large number of jobs it supports, is basically dependent on there being a small number of viable venues and the slot system. 

And if it were the case that more big venues would be profitable in the UK, France, Italy, Spain, Japan and indeed China – then, believe me, they would have already been built.

But the real effect would be rather the same as at Heathrow. Most serious investors in our business understand the way the slot system works (though very few do before it is explained). They appreciate that it offers quasi-monopoly status to many events. 

Believe me, they do not think that our best companies achieve 30%+ margins because we are staffed by the descendants of Albert Einstein. The slots are the number one value driver.

But if the slot system was disrupted, what would those shows and these companies be worth? Maybe more, probably less – but above all else an uncertain amount. And who knows what might happen next year or the year after that. Certainty disappears.

Investors dislike uncertainty more than they dislike bad news. They would pull their money from the sector. They would not bid to acquire more trade shows. Employment in the sector would become more fragile. The great majority of people employed in our industry in the UK actually work for the bigger companies (the top 10). 

We hear a lot about small, spunky companies who have great new ideas. But that is not where most of our people are and it is not where the revenue in our industry lies (the biggest 50 shows in the UK generate more than 75% of the total industry revenue – we are very top heavy). Suddenly everyone’s future would be at risk. Be careful what you wish for……………