Covering topics from aviation regulation and taxation to climate change, a one-day conference in London this week drew opinion from the highest flyers in the industry. But one enduring theme prevailed, that the new UK Government has done little to prove it has a concrete strategy at all, let alone when it will be deployed.
Organised by Transport Times, a significant one-day conference was held in London on 26-Jan, entitled "A New Strategy for UK Aviation". Eyes were focussed on the keynote speaker, the Aviation Minister, who had an opportunity to give some desperately needed guidance on what the government’s strategy for aviation is going to be, but largely fluffed the opportunity.
Introducing the event, Chairman Rob Watkins (Regional VP North Europe and Africa for SITA) emphasised how much aviation needs to play its part in "UK plc" and its recovery from recession. It came in a week that negative growth figures for the last quarter of 2010 were announced – halfway to the dreaded double-dip recession – and the Bank of England referred to the worrying prospect of 5% annual inflation, that is, a return to the nightmare stagflation of the 1970s.
He identified five key subject areas he hoped would be discussed in the conference proceedings: Air Passenger Duty (APD) versus emissions trading; the "ash cloud sandwich" between the bad weather of Jan-2010 and Dec-2010; the government’s "better not bigger" philosophy towards airports; security (Is the balance right between finding bombs and finding bombers?); and aviation and the environment.
UK lags behind Obama and UAE in transport decisiveness
The keynote speaker was Theresa Villiers, the Minister for Transport, the second most important voice in government on the subject after the Secretary of State, and one whose presence, so far, has barely been felt, amidst accusations that the government has no aviation policy and has abandoned air transport. Her much-anticipated speech, "A new strategy for UK aviation", came the morning after US President Barack Obama’s State of the Union address in which he outlined the US desire to repair and rebuild airport infrastructure across the country and construct a high-speed rail network.
It was also the day that, thousands of miles away in the Middle East, Sheikh Ahmed Bin Saeed Al Maktoum, chairman of Dubai Airports, was declaring in no uncertain terms that the UAE’s "key to success has been its coordinated and supportive approach to aviation. Dubai, he stated, has a model, unlike Europe ... that recognises aviation’s strategic importance and promotes growth in the sector. It was the latest in a line of similar sentiments emanating from influential figures in the Gulf."
Underlining how aviation employs 200,000 people in the UK and is worth GBP11 billion to the economy each year, Ms Villiers reiterated that the government’s policy was to tackle the debt crisis but also support growth, for which the government is currently being accused of doing nothing. But growth must be tempered by sustainability. A task force is being established on airport resilience and delays, placing emphasis on resilience over capacity increases, for example the recent snow closures.
Expansion at Heathrow (a third runway), Stansted (a second runway) and Gatwick had been rejected because of unacceptable environmental effects and that the government’s mantra was to make the best of the available capacity. She also advocated that creating conditions of success for regional airports could help relieve pressure on south-east England airports without specifying how or what. That was as far as she went on the subject. A wide-ranging document is to be produced in the next few months as a precursor to a formal strategy proposal in 2012, a year in which the government’s attention will be fixed immovably on the Olympic Games in London and the last minute "fire-fighting" that is almost certainly to be required.
The CAA may be allowed to introduce a licensing system for airports, using the British rail system as a benchmark. The single five-year airport charges review will be replaced within such a system, with appropriate financial penalties where airports demonstrably let down airlines and passengers. There will be a stronger consumer focus within the CAA and the ATOL scheme (Air Transport Operators Licence) will be modernised. Attempts will be made to find a more balanced airline/passenger approach to the EC261 denied boarding regulations.
On the subject of the APD, Ms Villiers declined to comment further pending the outcome of the next Budget, which is due in Mar-2011.
At least one vote for more APD
Jeff Gazzard, a leading aviation environmental campaigner, intervened to make the case for more APD, admitting he was probably “the only person in the room that does”. The Minister batted away further questions from the floor on new airport capacity in the south-east by stating again that existing capacity should be made “to work better” while mentioning that an extension to night-time operations at Heathrow is under review but that “night noise has the greatest impact on residents”. A delegate challenged her about the suggestion the government is considering a reduced regional level of ADP, asking what she had got against the southeast airports. She rather vaguely suggested the use of bigger aircraft, or, again, greater use of regional airports.
Ms Villiers operates within a very tightly constrained framework in which she is answerable not only to the Secretary of State but also, indirectly, to the Chancellor, especially where tax is concerned and that must be taken into account. Nevertheless, the upshot was that, again, apart from a nebulous "make do and mend" there were precious few indications of what the government’s strategy is, let alone a concrete date on which we might expect to see it in practice.
Next up was CAA Chief Executive Andrew Haines on the topic of "The future of UK aviation regulation". He opened with an advertisement for the UK airports business – "the world’s busiest international airport, the busiest single runway airport, a plethora of regional airports" and so on – and was pleased the government is committed to the reform of pricing criteria.
He spent some time discussing the snow closure that affected Heathrow Airport in Dec-2010 and how it was clear that British airlines had largely responded well to the demands, in terms of passenger relations, while foreign airlines had too often not done so, but stated he did not want to see an interventionist regime arising.
Reform of ATOL regulations urgently needed
In Mr Haines view, any government reforms must permit regional airports to compete. On the subject of ATOL protection he stated that a decade ago 90% of vacations were protected but that is now only 50%; reform is urgently needed and the public expects it. Passenger compensation requires a more rational basis. “A GBP1 fare that results in a GBP3000 claim to an airline (on the grounds of cancellation or delay) obviously needs to be reviewed. A strategic review of safety regulation is under way but 'overnight' transformation cannot be expected." On the Single European Sky (SES) he said that the CAA is "crystallising" it in its future airspace strategy and is working with the Department for Transport and National Air Traffic Services (NATS) on proposals to 2030.
The next speaker was the Councillor Daniel Moylan, the Deputy Chairman of Transport for London (the statutory corporation that oversees London’s transport needs – but mainly in the realm of bus, rail and roads - and, until Apr-2011 when it is joined by Manchester the only such body of its type in the UK). A former Foreign Office mandarin and investment banker, Cllr Moylan represents the upmarket Royal Borough of Kensington and Chelsea and was appointed by Mayor Boris Johnson to investigate his proposal for a new aviation ‘hub’ airport for London.
There is quite a lot of Mayor Johnson in Cllr Moylan. Speaking confidently without notes and self-deprecatingly referring (perhaps a little too often) to himself as an aviation inconnu amongst esteemed and knowledgeable company, he made possibly the most cogent case so far for the new London airport his boss covets, focusing on a forecasted rise in aviation demand in the UK to 450 million ppa within the next 20-30 years, 250 million of them in the London area, which would equate to an extra 85 million ppa in the London area too soon (an extra Heathrow +25%), while Heathrow is “99% full”, Gatwick “substantially full” and space available “only where people don’t want to fly”. He dismissed counter arguments put forward by Ken Livingstone, the (Labour) Mayor who was Johnson’s predecessor and may yet return as Mayor, to the effect that flying “is a middle class thing and shouldn’t be encouraged”, while revealing himself to be of the same middle class and aspiring origins; someone who is – like Johnson - apparently more concerned with creating and retaining “good jobs that make good money” in the capital (presumably for financial sector workers rather than London’s many poor) so that London retains its World City status.
'No decision yet made on location of a new hub airport' - Moylan
While claiming, in answering a question from the floor, that no decision had been made as to where the new airport would be sited (most delegates presumed, quite reasonably from earlier publicity that it would be somewhere in the Thames Estuary and found that hard to believe) Cllr Moylan made one telling point, namely that a decision was urgent and that the government needed to get a move on.
His speech was well received but, together with that of a supporting speaker, Baroness Valentine (see below) contained a number of non-sequiturs or debateable points. Like many others he refers to London’s airports being ‘full’ without recognising that is only in terms of runway capacity, not terminal capacity. He championed airports like Paris Charles de Gaulle and Frankfurt for leaving London behind without acknowledging they are old airports that have been continuously expanded, not new turnkey ones like the one he proposes in London. Like Boris Johnson he referred to the declining number of direct routes from Heathrow (now down to 157 from well over 200 in the 1990s) compared with other airports like Paris CDG and Frankfurt, but failed to recognise the growing importance of alliances (which don’t like to duplicate routes), all three of which are very well represented at Heathrow. Neither did he recognise that the UK has very few domestic routes (and they continue to be in decline). He might have considered that Moscow’s Domodedovo Airport, very much in the news this week, has 241 direct routes, but Russia has a considerably bigger domestic network and many routes to and from the CIS and west Asian countries that are of limited attraction to the UK. He strangely suggested that without the new airport foreigners would not be able to get to London from Europe as the existing airports ‘seized up’ without any recognition whatsoever of the fast-growing European rail network and projected expansion of use of the Channel Tunnel. Finally, he made the mistake of focusing too much on forecasted traffic well into the future. It was pointed out from the floor that there have been several prior investigations into the provision of an eastern London airport (Maplin Sands, Cliffe), which have come to nothing. He argued that the former, in the 1960s and investigated by the Roskill Commission, would have gone ahead had it not been for a change of government (also that Cublington in Oxfordshire was considered) but was perhaps not aware that the Commission had envisaged traffic at Heathrow would reach over 80 million by 1985 (in 2010 it was 65.7 million). As a politician he will recognise that there are lies, damned lies and statistics and that perhaps not too much emphasis should be put on forecasts stretching three decades into the future.
Following on, Baroness Jo Valentine, Chief Executive of London First, a business pressure group that ‘works to make London the best city in the world in which to do business’, trotted out a plethora of facts in support of the supposition that London is a separate entity, a sort of city state like Monaco or the Vatican City but on a much grander scale that demands constant attention from the government. (There was a Minister for London in the previous Labour administration but it was scrapped, like the third Heathrow runway, within a month of the Coalition taking power in May-2010).
Northern voices fail to step up to the plate
At this stage, representation from the UK ‘regions’ was sorely needed to try to redress the balance, but John Jarvis, Transport Director of the Northern Way, an initiative that brings together partners across the North of England “to work together to improve the economic performance of the North, and re-balance the UK's economy” had been wrongly identified as an airport, rather than government or pressure group, spokesman and scheduled for a late afternoon slot together with Heathrow Airport and Gatwick Airport. (Equally strangely, none of Manchester Airport Group, Birmingham Airport or Peel Holdings/YVRAS made presentations though the former was represented amongst the delegates along with Leeds Bradford, London City, Manston-Kent International, and Edinburgh airports).
When he did get to speak, in the final session and when a third of the delegates had already left, Mr Jarvis offered a dispiritingly downbeat presentation that bemoaned the ‘lot’ of the north, with none of the panache of Cllr Moylan or tub thumping verve of Baroness Valentine and with little in the way of suggested solutions. He focused on the fact that 20% of business in Yorkshire is foreign (import or export) business and that airports have benefitted enormously from new long haul routes (for example Emirates at Newcastle) but that while FDI (foreign direct investment) is growing the London economy it is merely maintaining employment levels in the North. FDI is not helping close the North-South divide.
He put that down to lack of connectivity at northern airports by way of an example involving three key (for business) European and five intercontinental airports. At Manchester connectivity is 42% that of London, but reducing to only 24% in the case of Newcastle, and going down to virtually zero at Doncaster-Sheffield Airport. Direct links (especially at Manchester) can be introduced to just about anywhere but are inherently unstable compared to Heathrow because of factors that include lower than average incomes; a lower proportion of business travellers; and higher than average price elasticity of demand. Furthermore, only Manchester and Newcastle have direct flights to Heathrow (and they are to be reduced by British Midland International at Manchester), while high speed rail (with a connection to Heathrow) is too far in the future.
Too dependent on European hubbing
The result, he said, is that the north is too dependent on connections via European hubs and that there is a time penalty for business travellers using those hubs (without him supplying documentary evidence). He might have mentioned also that Manchester currently has 190 direct routes (compared to Heathrow’s 157) even if around 45% of them are charter routes.
The ‘policy recommendations’ he made were almost entirely negative:
- Public Service Obligations are not a viable option
- Route development funding and support has “limited impact” as market support deals offered to airlines can only last three years (but that should be long enough to build a route)
- APD currently has a disproportionate impact on the North (and should be altered to negate that impact perhaps through banding)
- Evidence suggests that PPD (per plane duty) would further amplify disproportionate impact on the North
But he did suggest that regional banding of APD should be explored and how links to Heathrow can be protected through revised European slot allocation regulation.
Mr Jarvis sees that Government Policy Imperatives for the North are:
- Promoting private sector led growth in areas with currently a high public sector share of the economy
- Rebalancing the UK economy away from the South East
- Supporting the sustainable growth of the UK Aviation sector
- Relieving pressure at the over-capacity airports in the South East
2 and 4 seem to be complementary but imply the co-operation of government departments that is virtually unimaginable at the moment.
The second session in the morning was given over to a debate on the future of aviation taxation and brought into conflict the experienced Steve Ridgway, Chief Executive of Virgin Atlantic, who supported the argument that switching from APD to per plane duty (PPD) is the wrong approach for the industry and Chris Gadsen the Head of Regulatory Affairs at easyJet, who argued a case for shifting towards a PPD, supported by a surfeit of detailed slides.
Ridgway questions assumptions about PPD prompting fuller and ‘cleaner’ aircraft
Mr Ridgeway questioned how PPD can contribute to economic growth or how it helps the environment and particularly the assumption that PPD will encourage fuller and (environmentally) cleaner aircraft. “UK airlines don’t fly ‘dirty’ or empty”, he stated, pointing to 2009 CAA data that indicated average load factors of 82%, and 79% for Virgin Atlantic. Furthermore they need no initiatives to change with oil prices possibly to exceed USD100 per barrel and ever-growing competition. The (eventual) arrival of the B787 will ensure ‘cleaner’ aircraft still. Should we care about airlines transferring passengers elsewhere (if the PPD drives cost up further)? Yes, we should as transfer passengers can make routes viable. He also stressed the contribution made by airfreight, which would be adversely affected by a PPD. He concluded by saying that in an ideal world APD would be phased out as the emissions trading scheme (ETS) is coming anyway, but it won’t be. It is a botched job, a ‘sop’ to the low cost airlines. However, he admitted that APD is doing great damage to regions like the Caribbean (where the rates are the highest) as they are “no more than subsistence economies without the jet engine”, perhaps a slightly patronising remark, while renewing calls for more taxation on short haul flights (of which Virgin Atlantic has none).
EasyJet claims Cameron prefers PPD
EasyJet’s Gadsen argued that it is long haul services that are under-taxed, favouring the PPD. Name dropping the UK Prime Minister David Cameron, who had recently visited easyJet, he said that Cameron had spoken in favour of PPD there. Mr Gadsen went on to say that APD would be a worse case for airlines than ETS, that it taxes people not flights (i.e. poor people), that it does not incentivise efficient behaviour and acts as a cross subsidy from short haul to long haul flights (of which easyJet has none).
He produced figures to support the thesis that short haul routes carry more passengers (80%) whilst producing fewer emissions (33%). The figures for long haul flights are 20% and 66% respectively and all parties agreed that emissions increase in relation to the length of a flight (the opposite of costs).
Summing up his presentation he said APD is a bad tax and PPD will help most UK passengers. Long-haul services are “under-taxed”.
Fundamentally, the difference between the two positions depends on what type of passenger is being carried and for the majority of delegates the two protagonists had fought out an honourable draw though no vote was taken on the ‘winner’.
ABTA Chief paints bleak APD nuclear winter scenario
Trying to bring some external perspective, but ultimately supporting PPD, was the Chief Executive of ABTA, the Association of British Travel Agents, Mark Tanzer. In his opinion, if APD continues to rise to the levels anticipated by 2015 there will be one million less visitors to the UK per annum and two million less Britons going abroad with an overall direct loss to the economy of GBP1.35 billion, compounded by the ‘multiplier effect’ as it passes through the economy, and the loss of 31,000 jobs. He also made specific reference to the Caribbean, where the contribution of tourism to GDP can often be over 50% and pointed to Antigua where eight out of ten jobs are tourism related. Already visitor numbers there from the UK are down by 20%. The government is sending out a “bad message” about tourism. Together with the lack of an aviation strategy it is, he says, “a disaster” for the UK.
Oddly, no-one mentioned the request from authorities in the Caribbean and Africa that the UK instigate a simple two-band system of APD, short haul and long haul (the dividing line, obviously, to be determined) so it was not discussed. But from the floor a senior executive of Cathay Pacific pointed out that APD already covers the economic cost of emissions so why seek even more? He had recently returned from a lengthy posting in Hong Kong and was perhaps not yet aware of the size of the UK’s deficit or of how British governments are attracted to ever more indirect taxation to try to solve it.
The first afternoon session saw presentations from David Kennedy, Chief Executive of the Committee on Climate Change and Tim Johnson, Director of the Aviation Environment Federation, debate the government’s role in decarbonising the transport sector and whether bringing aviation into the Emissions Trading Scheme “should be enough to safeguard the environment”. Debate is probably the wrong word as both parties, in the main, were singing from the same hymn sheet as environmentalists are wont to do.
Mr Kennedy’s presentation concerned itself with the fact that the previous government’s target for CO2 emissions (set at the same time as the agreement to proceed with Heathrow runway three) is for them to be the same in 2050 as they were in 2005 (not an actual reduction but one in real terms) and the implications arising. Terminal passenger growth will be from 115% to 200% during this time according to forecasts. Only a 60% increase is compatible with the 2050 target. The least emissions come from short haul flights of less than 500 km (5%) and the most from long haul flights of over 3700 km (66%).
Maximise growth at Heathrow by curtailing it at other airports?
Thus ‘other instruments‘ may need to be applied to constrain growth apart from carbon pricing. One of the more interesting, and contentious, ones is a suggestion that in order to restrict air traffic movements to no more than 3.4 million in 2050 the limit could be achieved by a prescriptive method of maximising ATMs at Heathrow by in turn minimising them at other UK airports.
He also dealt with modal shifts, for example to rail, envisaging a rail market share of 90% on UK trunk routes and even 60% on European rail journeys from and to the UK such as Amsterdam, Dusseldorf and Frankfurt. The most recent analysis of the potential to substitute (technically much improved) video conferencing for business travel indicates that the substitution rate could be as high as 30%. Already, evidence from the Institute for Travel & Meetings indicates expectations of communication technology driving an 18% reduction in business travel. Under the World Wildlife Fund’s ‘One in Five’ challenge, organisations aim to reduce business flights by 20% within five years and companies such as BT and Vodafone have already achieved reductions in business flights of 20-30% in recent years. Academic literature suggests videoconferencing could reduce business flights by up to 35%.
In summary, the policy challenges going forward are:
1. Create an international framework
2. Take decisions on airport expansion
3. The influence of other instruments (demand constraint)
4. HS2 (high speed rail) and EU high-speed network integration
5. Assess the evidence base on video-conferencing, and the business response to opportunity
Tim Johnson’s presentation nearly summarised the Emissions Trading Scheme (ETS), a subject that remains a grey area to many people:
- Who? All flights to and from EU airports (some exemptions)
- Level of cap? 97% of 2004-6 emissions in 2012, decreasing to 95% from 2013
- Which gases? CO2 only
- How will permits be distributed? 15% auctioned, the rest allocated free
- Impact? Forecast demand: a minimum of 135% growth in passengers (by 2020 over 2005) compared to 142%. Cost EUR0.9-EUR40 per ticket based on price range of EUR6-EUR30 per tonne of CO2 (price today EUR14.5)
ICAO still encouraging regional response to GHGs
The EU ETS is the only regional scheme in place to control ‘greenhouse gas’ (GHG) emissions. There is a preference for a global scheme but no consensus on the need or timing within ICAO. Instead, the ICAO Resolution on Aviation & Climate Change merely provides aspirational goals. In this context, and until global measures can be agreed, the framework agreed by ICAO has the effect of encouraging regional approaches to GHG mitigation.
The UK 2050 CO2 target for the aviation sector must be retained, and supplemented with interim targets. It provides long-term certainty and planning that should serve as a model for other environmental issues. There is a need for regulatory and fiscal measures to achieve maximum benefit. In this context, he welcomed the Department for Transport commissioning a Marginal Abatement Cost (MAC) Curve for the aviation sector.
The final session was given over, apart from the aforementioned Mr Jarvis, to Colin Matthews, Chief Executive of BAA, an engineer by training, previously at the Severn Trent Water Company and who, before BAA, had never spent more than two years in any one job; and Sir David Rowlands, now Chairman of (the divorced from BAA) Gatwick Airport, senior adviser to its owner GIP, and previously a senior Civil Servant in the Department for Transport and Chairman of the High Speed 2 (HSR2) rail project that will link London with the north of England and possibly Scotland, whenever.
Snow problems continue to distract Matthews
Colin Matthews was scheduled to speak on the pressing topic ‘can Heathrow be better without being bigger?’ but spent much of the presentation engaging not in a strategic discussion but a tactical defence of Heathrow’s failure to clear snow in Dec-2010. On that subject he argued that the airport had been misrepresented in the media. It had not been closed for five days, it did not run out of de-icing fluid and the volume of snow had been as much as 12 centimetres, twice the maximum level anticipated. But he did conclude that it “had to” get better. GBP24 million of income was lost. Heathrow had not been able to look after its displaced passengers and it must react quicker in the future. He was clearly troubled by non-UK airlines with infrequent schedules that had encouraged passengers to come to the airport and board for ‘good publicity’ purposes even though they were going nowhere.
He showed a chart that indicated Heathrow’s customer satisfaction profile was improving noticeably over four years, 2007-2010, and that it is in the midst of a GBP5 billion improvement programme including the new T2 for the Star Alliance, together with improvements to terminals 3 and 4.
Moving briefly on to strategic issues he rejected the idea of developing a second international hub airport in the south-east, saying the government was “dreaming” with the idea of developing a green field airport on the Kentish coast or the Thames estuary. The increasing trend towards airline consolidation increases the needs for single hub airports. He also defended the economic benefit of transfer traffic at Heathrow, despite, which Prime Minister Cameron having said it brought little economic benefit to the UK.
The final speaker, Sir David Rowlands, took a similar line, perhaps surprisingly and at times appearing still to be a DfT civil servant rather than the highest level representative of Gatwick Airport. He dismissed as "total nonsense" the government's claim that a 250 mph north-south rail link could replace a third runway at Heathrow or that it would benefit Heathrow, and this despite the fact of his involvement with that project previously.
Strong words in the conference room
He described the government’s aviation policy as “ludicrous”, the worst strategic decision taken during his time working in transport and, almost as if trying to pick a fight with everyone rejected the idea of regional airports absorbing demand for traffic into Heathrow, Gatwick and Stansted, describing that notion as “infantile” partly on the basis that the regional airports are “busy enough”, which is patently nonsense: there is not a single regional airport that does not have oodles of spare capacity. And even if they will grow more quickly than the London region airports that situation will remain the same. His argument that “international passengers wanting to visit London aren’t going to fly to Manchester or Birmingham and then take a train, they just won’t come” would not stand up to scrutiny at all had the government chosen to ensure that the rail stations at those airports were on the proposed high speed rail network, which as it stands is designed simply to carry UK passengers to Heathrow (or to London then on to Heathrow) as an alternative to them flying between the airports.
The main tenet of his presentation, entitled ‘Strategies without evidence are dangerous’ was that decisions have been taken already by government without supporting evidence, notably the cancellation of Heathrow’s second runway, even though net benefits had been identified.
Presenting himself ultimately as a champion of Heathrow Airport, Sir David epitomised the main drift of the conference (apart from the government’s inertia), which was that either Heathrow needs to be developed further come what may, or that it needs to be sacked in favour of a new Heathrow, probably out to the east of the capital. For everyone else, it is a case of making out as best you can, outside the protection of a formal government strategy. Perhaps that is why so few regional airports chose to attend.
BA should have been there
‘Aviation’ amounts to more than just airports of course and it would also have been useful, in a week in which British Airways formally merged with Iberia, to have heard the opinions of that new airline on a UK strategy for aviation, especially as BA has already abandoned the regions of the UK, seems tied irrevocably to Heathrow but, conversely, has indicated that it might now consider shifting some of its capacity elsewhere in line with its new-found global role. It will not have gone unnoticed either that just as this marriage is solemnised, the divorce of (the Spanish) Ferrovial from BAA (it is selling a 10% stake) has begun.