Future of aviation (HC 499-ii) Transport Committee 13 May 2009

Q120 Mr. David Clelland: You all appear to be in favour of additional capacity at Heathrow. Could you tell us what you think the principal benefits of that will be?

Ms Dee: We do support the provision of a third runway and passenger terminal capacity, but subject to the environmental criteria that Government has set. I suppose the principal reason for that is that Heathrow is absolutely full. When you are operating so close to capacity, and probably beyond what in an ideal world you would want to be operating at, then the resilience and service that the airport is able to offer to passengers is being undermined. We are also seeing that its effectiveness as a hub is diminished and we are seeing the number of UK destinations decreasing.

Q121 Mr. David Clelland: They are the problems, but what will be the benefits?

Ms Dee: You would be able to continue to enhance those links with UK regions. You would be able to provide more efficient services to the range of destinations that would be there to meet the needs of business.

Mr Snelling: I would certainly echo that. I think it is about the maintenance of Heathrow's status as a hub airport, about particularly maintaining that number of destinations. The majority of air freight goes in the hold of passenger planes so it is very important for freight that we should have a high standard of international destinations attracted here so that we can keep that freight network and things from all over the world can move in and out of the UK easily and efficiently rather than having to go through Charles de Gaulle or wherever. If you see a restriction on the capacity then, increasingly, what slots there are will focus on a small number of profitable passenger routes which will mean a narrower number of destinations which has particularly pernicious effects for freight because you lose that freight network and operators will start to orient out of other airports, which means everything being trucked across, and we become a branch line for the continent.

Q122 Chairman: Can I clarify with the CBI's position with you, Ms Dee. Last week there was a statement from a number of your members who were opposing the Heathrow expansion. How does that relate to the statement from the CBI

Ms Dee: The CBI's position has not changed. As most people would appreciate, when an issue is as important and controversial, if you like, as Heathrow, in an organisation you are inevitably going to have businesses that do not necessarily share your view. The view of the majority of CBI members through the process that we have for arriving at our position is that they will continue to support the third runway.

Q123 Chairman: Mr Wilson, did you want to add anything?

Mr Wilson: No, I think the arguments are well made.

Q124 Mr. David Clelland: I am not quite clear whether you see an expansion at Heathrow merely relieving the pressure at the moment, as it were, or whether there is an opportunity for using that expanded capacity for other purposes, new purposes. How would you like to see the expanded capacity used?

Ms Dee: We have not taken a view on exactly how that should be used, but certainly we would want to ensure that the regional links are enhanced and the range of destinations continues to grow. Clearly that is going to be market driven, so it is difficult for me to sit here and predict exactly how that will be in 30 years or whatever.

Q125 Mr. David Clelland: Is the business community united in its support for an expanded Heathrow?

Ms Dee: As I just said, clearly there are always going to be differences of opinion. The view of the majority of CBI members is that a third runway is important. Certainly that comes out in things like the most recent CBI London Business Survey where 73% said it was either important or very important.

Q126 Mr. David Clelland: Does the CBI or any of our witnesses have a view on high-speed rail as an alternative to domestic flights?

Ms Dee: The CBI thinks that high-speed rail is a very good thing and has a role to play in providing good transport infrastructure that the UK needs in the 21st century. Where we are sceptical is about its ability to substitute for a third runway. Certainly there are some flights that might easily transfer on to high-speed rail, but we do not see it as an either/or, we feel that they are compatible and it should be part of a network. There is a key role that we would see linking into Heathrow to increase the number of passengers that arrive by public transport rather than car, so that would be a good thing.

Q127 Mr. David Clelland: So the third runway and high-speed rail?

Ms Dee: Yes.

Mr Wilson: I want to support that very strongly. Erstwhile colleagues will recall that I have got a long record of supporting high-speed rail links and, indeed, I would very much like to see the tunnel link continuing into the north of the UK, which was the original intention. The more that can be done to speed up the West Coast or East Main Line, or any other main line, the better. Certainly I do not see any conflict whatsoever. What we should be moving towards is what we have now been talking about for decades, which is an integrated transport policy and a healthy network of airports and high-speed rail links should be part of that, there is no conflict.

Q128 Mr. David Clelland: Do you agree with the CBI that high-speed rail would not necessarily replace domestic airlines?

Mr Wilson: I do not think it would replace them because there are issues of convenience. It depends very much on the journey. What you see in practice between London and Manchester is a significant transfer from air to rail, and that is fine, that is people making their choice, but they have to have the choice before they can make it. The idea that you frustrate the aviation industry far in advance of these high-speed links actually existing does not make a lot of sense and certainly would be very negative for the kinds of places that you and I come from.

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Q178 Mr. David Clelland: The thing about aviation, particularly when it comes to tourism, is that it does not just bring people into the country but also takes people out of the country. How confident are you that aviation has a positive impact on the local economy?

Mr Mason: If I could speak from the point of view of the North-East of England. The first thing I would say is airports are jobs generators, and you are probably aware of that already. In the example of Newcastle there are 3,000 people who work at Newcastle Airport and all of their expenditure and the expenditure of the companies at the airport creates a contribution to regional GDP. Picking up on the point about connectivity, it is particularly important for a more geographically remote region. The companies within the North-East that we consider to be our partners, such as Nissan, Sage and Procter & Gamble, all require people to be travelling in and out of the region both on a UK and international basis. In order to deliver those services there needs to be an acceptance particularly for a regional airport that there are also going to be people going off on holiday. A regional airport needs to be a business that is balanced between the revenue generating outbound passengers but also the passengers who are coming in and out of the region for business purposes.

Q179 Mr. David Clelland: This goes for other regions as well, but is there a net inflow or a net outflow of spending as a result of aviation?

Mr Mason: I do not have the figures available to hand. If you were to look at the tourist element and you were to look at the example of North East England there would be more people going out of North East England on holiday than there are coming in, but if you looked at it from a business point of view, if the companies in the North East region and indeed the universities in the region put across the same message on this then it would be far more balanced between the two.

Q180 Mr. David Clelland: Any other region? Uel?

Mr Hoey: From a Northern Ireland perspective I would echo the same issues in terms of Newcastle. We are obviously more peripheral even than some of the other regions within Great Britain and certainly air links are vital. We have a sea to cross in order to get to mainland Britain and we have two seas to traverse in order to make it into mainland Europe. The issue in terms of the balance of outbound versus inbound, again on business it is probably reasonably balanced, but on leisure because of the history of Northern Ireland as much as anything else, much of the leisure has been outbound. There is a deficit certainly in terms of visitors.

Q181 Mr. David Clelland: There is a deficit in terms of visitors but what is the net deficit in terms of aviation, in terms of spending as a result of aviation?

Mr Hoey: Again, I do not have the figures to hand but I would not have thought it is a vast deficit.

Mr Duthie: If I could come in here, obviously in terms of air services in the Highlands and Islands of Scotland we are unique in that we have services working within the region to get people to and from centres. That is an issue for us which others do not have and therefore if you look at what you have in terms of air services as being the same for the Highlands and Islands as the rail services that they have elsewhere, we need those services to get to the hospital, to get to the commercial centres and also a lot of the inward investment we have attracted in the Highlands and Islands on the world stage has very much come on the basis of having good air links, particularly into Inverness, and as these have declined over the last 10 to 20 years there is a difficulty attracting more investment for that reason.

Q182 Mr. David Clelland: But again we do not seem to be able to quantify this at all. I do not know whether Mr Paul can help.

Mr Paul: I am sorry I cannot add anything in terms of quantification, but what I would like to add is that my understanding is that the bulk of tourists come into Heathrow when visiting this country and one of the objectives of all of the tourism organisations throughout the English regions is to get more of the visitors who arrive in London to get further. At the moment if you can get them to Stratford that is a start and you may get them to Edinburgh, that is another possibility, but really it is down to the regions to be attracting folk into them because they are arriving but they have focused on London thinking "We can do London in a day" and that is Britain.

Q183 Ms Smith: Oxford and Cambridge.

Mr Paul: Oxford and Cambridge and, as I say, possibly Stratford - I keep saying Stratford because it is in the West Midlands where I come from.

Q184 Mr. David Clelland: If we can focus on Newcastle for instance, we have had some figures about Newcastle. In the evidence, Mr Mason, you say that the airport contributes £400 million or 1% of total GDP in the North East region. Does that include the impact of outbound tourism?

Mr Mason: It does not, that figure does not; we have not calculated that. It is a fair question and it is something that should be looked at but I do not have that information available.

Q185 Chairman: Is it something you have thought about? Is this an area you have considered at all?

Mr Mason: It is not something that we have considered because it is clearly a pan-industry issue, but it is certainly something in the work that we are doing with the Airport Operators Association at the moment that we can build into our work programme going forward.

Q186 Mr. David Clelland: Given the fact that it would appear - although we have not got the figures - that because of outbound tourism we may not be in a net gain position so far as aviation is concerned, would it not be better for airports to be encouraging business and freight rather than outbound tourism?

Mr Mason: For a regional airport business the nature of the business is that we are reliant upon broadly four types of income - income from airlines, and that might be a landing fee or a per passenger charge, and that as a percentage of a regional airport's income is declining because of the competition within the marketplace. The second element is expenditure by people travelling through the airport, in the shops and in the restaurants, the third element is in relation to what they pay to park their car and the fourth element is in relation to rent that the airport gets from tenants and property developments. Really for a regional airport business to survive, particularly in these very challenging times, they need to maximise all of those elements.

Q187 Mr. David Clelland: I can see how they would all make a positive contribution to making a successful business out of the airport, but in terms of the impact on the regional economy it would not appear that we are too clear as to whether there is a net benefit or not.

Mr Mason: What I am saying is that in order to deliver the facilities that are required and make the deals with the airlines that provide those critical scheduled services from a business point of view, the airport needs to generate income from customers who want to travel overseas on holiday.

Mr Paul: Again coming back to the regional development agencies, all our efforts in conjunction with airports and regional airports are focused around the business routes and the freight routes. We have little or no interest in the tourism element of outbound; we have a lot of interest in tourism on inbound so when we are working with airports that is what we focus on.

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Q215 Mr. David Clelland: Will additional capacity at Heathrow be beneficial and, if so, what will the principal benefits be?

Ms Tietjen: We advocate additional capacity at Heathrow. We put forward our view that in terms of sustainability the polluter pays, therefore the passenger would pay, but we believe in terms of economic arguments as well as passenger arguments increased capacity would be helpful to the economy as well as helpful to the passenger in terms of increased choice.

Mr Evans: That is absolutely the view we have and if you look at the number of destinations that are served from Heathrow compared with some of the competing hubs - which I am sure you have done in your inquiries - there is plenty of timeline reporting that shows how the number of destinations has gone down. That is a subjective decision and a discussion as to whether or not it is desirable to have more destinations, but clearly the hope would be that passengers will be offered a greater choice of destination and possibly additional capacity would facilitate greater competition so we might have competition between carriers at the airport in terms of fares competition and perhaps competition of product, but in the liberalised environment in which we operate there is no guarantee that what you hope for from additional capacity will transpire and who knows that you would not just have the incumbent carriers using the capacity to increase frequencies to the destinations on which they make more money. It would come with caveats, therefore, and the discussion in the earlier session was particularly interesting because of course part of the rationale for a third runway is that you could facilitate improved services to the UK regions. The jury would be out as to whether the airlines would decide that was the best use of the slot.

Q216 Mr. David Clelland: Is that how you would like to see the additional capacity used?

Mr Evans: It is a question that, as an organisation, we have ducked in a way because we have tried to avoid putting ourselves in a position of choosing between different sets of air passengers because obviously if we promote the interests of one we possibly are prejudicing the interests of another group of passengers. In the response as I remember to the discussion over runway 3 our formal position was that we would not object to some mechanism being put in place to hypothecate some of the slots for regional services. As I say, that is our position with caveats.

Mr Cooper: One of your witnesses made the comment earlier about the fact that Heathrow is effectively a completely full airport as it stands. Adding additional capacity at the very least enables it to be a more resilient airport. One of the big problems we experience at the moment is that at the first hint of bad weather, the first hint of any problems at all, flights are taken out of Heathrow just because they cannot physically fly. From a simple commercial perspective an airline like British Airways is going to focus first of all on taking out its more easily replaceable routes so the domestic and short haul flights are the first ones that are dropped if bad weather hits. At the moment it is domestic and short haul passengers who lose out at the time of bad weather. If you have more capacity you have more resilience, therefore you have less risk of that type of problem occurring, irrespective of any overall increase in the volume travelling through Heathrow.

Q217 Mr. David Clelland: Would it, for instance, provide greater reliability or more destinations?

Mr Cooper: It should do. There are two aspects: one is that if you have more capacity you have more opportunity to travel to more places so there is potential if the market demanded for the airlines to supply because quite clearly it is a simple economic model. From the resilience perspective as well there has to be an improvement in overall service if there is more capacity, there is more opportunity to deal with problems.

Mr Smith: It would be interesting to draw an analogy with what is happening on the railways. As you know, there are parts of the railway system which are absolutely bursting and have been highly successful, and the attempts to produce more capacity are proving quite painful. One of the debates that is going on at the moment is about how you allocate some of that extra capacity and it is interesting that on the railways the Government takes the view that it is the one that hypothecates the long distance routes and it is the smaller operators who are trying to provide the direct services which we heard a lot about this afternoon. Given the consumer viewpoint it is difficult because everybody wants a direct train, but some of these hard decisions have to be made on a better basis than they have been made in the past.

Q218 Mr. David Clelland: Talking about trains do you think that high speed rail is likely to merely reduce the demand for domestic flights or will it add to the demand?

Mr Smith: All the history of adding extra capacity to the railways shows is that it is soaked up very, very quickly. The increases we have seen in Welsh rail services and in Scottish rail services - they have been massively over-subscribed and there is a huge untapped demand for rail travel. The provision for high speed rail as previous witnesses have said is not an either/or, it is something you would probably do in addition, but the facts show that these are consumer issues; people choose the mode of transport that is the most convenient, the most cost-effective, the fastest for them or whatever. In many cases where higher speed rail is put in air markets do decline, but that is not always going to be the case, it is very market-specific.

Mr Evans: We would agree with that analysis. The one point I would add is this rather inconvenient factor of us being an island, and an island on the periphery of the continent, so there is always going to be a limited extent to which rail services really give viable alternatives for journeys into Europe, particularly for people who would have to travel a long way south in England to access the high speed rail. The complementarity, yes; substitution possibly but not for all passengers who want to get into Europe.

Q219 Mr. David Clelland: Should we be concerned if other European hub airports were used as an alternative to Heathrow?

Mr Evans: Not significantly, and for the users in the regions if what they want is access to a hub through which they can connect to international destinations, then nobody should be prescribing which hub they should travel through. In some cases the choice would be based on geography - if they were going East it might be more convenient for them to transfer at Frankfurt for example, whereas if they were going West they might prefer actually to transfer at Heathrow or something like that. There are the regional development and the economic arguments which of course we understand, but in terms of passengers it is a moot point whether they should need to fly over Heathrow as opposed to somewhere in Europe.

Mr Smith: It is quite interesting to see the way that the pattern of use of Eurostar services has changed completely since its terminus altered from Waterloo to St Pancras. Now when you look at the spread of how passengers are using Eurostar the boost from the east of England and the North-East of England has been immense whilst the use from the south-west of England has declined. The use in Kent: the jury is still out as to what might happen, but clearly the location of those types of hubs makes an enormous difference to the choices that people make.

Q220 Mr. David Clelland: What difference do you think it would make then if these hubs were used as an alternative to Heathrow?

Mr Smith: It is a consumer choice issue. If consumers are best served by that well so be it because as previous witnesses have said if the air industry is not driven by consumers who is it going to be driven by?

Q221 Mr. David Clelland: What would be the economic impact in terms of the UK?

Mr Smith: I am not sufficiently qualified, sorry, to answer that question.

Q222 Chairman: You are answering this purely from the point of the traveller, Mr Smith.

Mr Smith: Yes.

This is an uncorrected transcript of evidence taken in public and reported to the House. The transcript has been placed on the internet on the authority of the Committee. Neither witnesses nor Members have had the opportunity to correct the record. The transcript is not yet an approved formal record of these proceedings.

The full transcript may be read here.