Select Committee on Transport, Local Government and the Regions Appendices to the Minutes of Evidence

Memorandum by TBI PLC (AT 10)


  TBI plc is the owner and/or majority shareholder of three major UK airports—Belfast International, Cardiff International and London Luton.

  In the year 2000, these airports handled some 11 million passengers and some 230,000 aircraft movements. By way of comparison, the seven airports operated by BAA handled 124 million passengers and 1.1 million air transport movements. Each of the airports within the TBI group plays an increasingly important role in the region it serves. In the case of Belfast International, the airport has a major strategic role as it also serves as the base for RAF Aldergrove and provides the only 24 hour airport operation in Northern Ireland.

  TBI has witnessed the recent tragic events in New York and Washington and their subsequent impact on the air transport industry with growing concern. With civil aircraft and their passengers being commandeered to become human grenades, it is in no way surprising that many people have become too frightened to fly or even to travel far away from home.

  Added to this human concern, companies in the aviation industry are developing a broader concern that some groups in the industry have been using the events of 11 September as a smoke screen to hide broader actions taken to recover from longer term trends in the industry.

  We understand that your Inquiry is to focus on the following topics:

    1.  The economic and political implications in the downturn in passenger numbers.

    2.  Security.

    3.  The role of international subsidies and the proposals for Government assistance for the industry.

    4.  The effect on the rules of ownership on the UK air transport industry.

  In responding to these primary topics there are a number of other specific issues which relate to the impact of the actions and proposed industry responses on our regional airports. We also recognise that this is a short Inquiry with the prospect of a more detailed investigation in the New Year. To that end we have aimed to keep our remarks brief.

1.   The economic and political implications in the downturn in passenger numbers

  TBI is aware that the rapid decline in transatlantic passenger numbers has caused a great deal of pain to those airlines that are heavily dependent on such routes, including BA and Aer Lingus (which operated scheduled services between Belfast and the USA). It has also caused significant pain for airlines such as Swissair and Sabena, amongst many others, who were already having difficulty surviving because of pre-existing conditions related to the slow-down in business in line with the predicted recession, and also due to certain management decisions taken long before 11 September.

  The regional airports of the UK have not been hit as hard by the downturn because, although interlining traffic for the USA and Asia may have decreased significantly, domestic and European traffic has held up much better.

  The political implication for offshore and peripheral parts of the UK—such as Northern Ireland and northern Scotland—is that routes to and from London are almost entirely in the gift of British Airways, now that most of its competitors have been bought out. These routes are of minimal significance to the airline—a minor irritant in the world of Concorde, of high frequency B747s to the States, and the optimal use of two congested airports in the South East. Even their valuable interline traffic is of little consequence compared to the value of interline traffic from the Far East.

  These far-flung provinces that rely desperately on air links to their capital city—and via its hubs to the capitals of Europe and the world—are finding themselves flung even further from contact with the world.

  11 September has caused BA and others to retrench, but this process is causing severe "collateral" damage to Northern Ireland and is putting at risk all the attempts of the British Government to defeat terrorism in its own back-yard. Northern Ireland is not responsible for the downturn in trans-atlantic passenger numbers, but the whole community is being asked to bear a disproportionate share of the pain.

  The BA decision to terminate the Heathrow-Belfast International route in the immediate wake of the events of 11 September is dealt with in more detail below.

2.   Security

  TBI takes its responsibility to airport security seriously, as would be expected of any airport company operating in Northern Ireland. We would agree that the CAA should do its utmost to ensure that all British airports learn from any lapses in security that assisted the terrorists to cause havoc on 11 September.

  It is acknowledged that a completely new set of measures probably now needs to be adopted—the security industry had always assumed that suicide bombers were unlikely, and procedures were adopted on the assumption that terrorists would seek to retain their own lives. Now that has to change, and no-one is yet fully aware of the additional costs that this is going to imply for airports and for airlines.

  We would however seek to raise before this Inquiry the possibility of the Government becoming responsible for airport security in the light of the possible massive escalation in costs.

  The terrorists are attacking Governments and citizens rather than airlines and passengers, and we believe it is right for the Government to take on the costs of defending its citizens from terrorist attacks, as it does already in Northern Ireland by the provision of armed forces and police.

  It is recognised that this extra expense will have to be found from somewhere, and that some of the beneficiaries will obviously include airline passengers and shippers of goods. In that light, we would request the DLTR to consider the hypothecation of Air Passenger Duties, or any other tax on air travellers, to assist with necessary expenditure on airport security.

  The alternative is that airports will be obliged to increase expenditure significantly, and to pass on these costs to a small minority—air passengers. In our case, this would probably lead to further cuts in air service across the Irish Sea, and the residents of Northern Ireland finding themselves even further cut off from the mainland.

3.   The role of international subsidies and the proposals for Government assistance for the industry

  TBI understands the desire of airlines to obtain additional subsidies at this time, and the problems of Governments—especially in the EU—in acceding to them.

  TBI would argue that specific assistance might be given to offset the immediate impact of the events of 11 September—notably assistance to cover the additional costs and the loss of revenues for the period of the closure of US airspace and a short period afterwards; and for the necessary payments of increased aircraft insurance cover. Should the cost of aircraft insurance remain high, TBI would argue for a sliding scale of Government assistance, paying 100 per cent of the increased insurance initially, and reducing to zero over a period of around a year, allowing airlines to slowly adjust to the new global realities.

  We would wish to ensure a level playing field for such payments, within the UK, within the EU, and in parity with action taken in the USA. However, it is acknowledged that the problems for US carriers are of a different order of magnitude, with every one of their markets still in deep decline.

  TBI is not convinced that charter carriers and air cargo carriers between the UK and the USA received the same degree of assistance from the UK Government as the scheduled carriers in the immediate aftermath, and would argue that scheduled carriers should not be treated preferentially.

4.   The effect on the rules of ownership on the UK air transport industry

  TBI recognises that BA and others are using the current situation to argue for the removal of all ownership controls, so that carriers can merge, strengthen and survive such major events.

  We would wish to ensure that the House of Commons Committee takes full cognisance of the impact upon the finances of US airlines following the introduction of de-regulation in the USA. In our view, de-regulation led to a sudden flurry of new airlines and new methods of operation, with only one new, long-term survivor—South West Airlines. The big got bigger, and the small went into receivership. At the end of the day, competition between the remaining large carriers is no less intense than it had been previously; profits remain wafer-thin; and these carriers are all now in a precarious situation.

  On behalf of communities that we serve in Northern Ireland and Wales, we are not convinced that fewer and bigger means better. Over the past 15 years, BA has acquired five British scheduled airlines—British Caledonian, Dan-Air, Brymon, Cityflyer and British Regional. Through franchising arrangements, they also have a measure of control over Maersk (UK), Loganair, GB Airways and British Mediterranean. With Gill Air being declared bankrupt within days of 11 September, the only significant British scheduled airlines still operating domestic routes in the UK are bmi and British European.

  We are not convinced that it is in the best interests of consumers in the UK to have so few independent airlines, and believe that the extension of such ownership rules to Europe and elsewhere could lead to the same diminution of service away from the major international routes.


The Route from Belfast International to Heathrow

  The Inquiry will be aware that on 27 September, BA gave four weeks' notice of its cessation of this route after 50 years of continuous service. While any airline has a duty to its shareholders to terminate loss-making routes, it should surely also have a duty to its other major stake-holder, the customer. BA have ensured that the route was not offered to any other airline—it is known that most other airlines could comfortably make a profit on this route, as does bmi. BA has several lower-cost subsidiaries that could operate the route in the same way that the Inverness-Heathrow route was transferred to the (then-independent) British Regional, albeit to be operated from Gatwick.

  The slots at Heathrow used for this route were not offered to other carriers prepared to operate the route but have been handed over to non-vital holiday routes from Gatwick in order to keep them "warm" for BA. When conditions have improved again, BA will surely use these slots to re-introduce suspended routes to the USA while the routes to Grand Cayman, Providenciales and Nassau will be "relegated" once more to Gatwick. TBI does not expect to see the Belfast route re-introduced at the same time.

  Northern Ireland. It can only be a matter of time before the slot values at Heathrow reach such a level that service is discontinued to Aberdeen, Newcastle, Teesside, Leeds Bradford and the Isle of Man. This would leave service to just three domestic airports—Glasgow, Edinburgh and Manchester.

  The Sub Committee has long been aware of the impending crisis of the slot situation at Heathrow and Gatwick. Year by year the "casualties" have mounted—first "minnows" such as Dundee, Carlisle, Norwich, East Midlands and Exeter were axed, while others (Plymouth and Newquay) were eased out to Gatwick. Then came the mid-size routes—Liverpool axed; Leeds-Gatwick axed; Inverness, Guernsey and Jersey displaced to Gatwick; Teesside reduced. And now the first major route casualty—Belfast International.

  Others are still at risk. BA have stated publicly that Inverness-Gatwick is safe. These words sound familiar, and they are cheap.

  TBI would like to use the medium of this Inquiry to urge once more that the UK Government seek a way to preserve domestic routes to London's hub airports. The options are various:

    —  by the use of PSOs;

    —  by purchase of the necessary slots from BA;

    —  by creation of more slots at Heathrow through mixed-mode runway usage;

    —  by the urgent planning of additional runways adjacent to LHR or LGW;

    —  by the provision of airline subsidies.

  It strikes us as supremely ironic that the Irish Government see fit to support an International route from Londonderry to Dublin with PSO protection, yet the UK Government do not afford any protection to key services to London.

The ECHR Ruling on Aircraft Noise at Night

  It is recognised that this development occurred independently of the events of 11 September, but in its own way, this event could have a similar scale impact on airport operations, on airline costs, even on business and commerce.

  Lord Macdonald asked the industry last year to "make best use of its assets". This was partly an attempt to delay the construction of additional runways until the existing ones were fully-utilised.

  It seems to us counter-productive that airports and airlines are now having to countenance the closure of runways for up to a third of their availability in order to meet the conclusions of this ruling.

  This will increase the unit costs of airports and of airlines and once more reduce demand. An additional concern for Northern Ireland is that it is separated from the United Kingdom by a stretch of water. With no night flights allowed, this would affect the Province's ability to send and receive mail, newspaper and fresh produce overnight, while those growth industries that are reliant on the express package integrators will be put at a severe disadvantage compared to their competitors on the mainland of the UK let alone the mainland of Europe.

  It is assumed that RAF Aldergrove would be allowed to continue its fight against terrorism during night hours.

  TBI would urge the Government to appeal strenuously against this judgement.

  If the subject matter is not appropriate for the terms of this Inquiry, TBI would wish to suggest that this ticking time-bomb could well form the basis of a subsequent Inquiry by this valued Committee.

Competition amongst airports

  Although we recognise that this may be an issue to be considered in a more detailed Inquiry into the state and organisation of the air transport industry, as an independent PLC TBI are concerned that the "airports playing field" in the UK is far from even.

  TBI competes in London with the BAA whose airports carry over 90 per cent of air traffic in London and the South East of England. We believe that London Luton plays an important role in provision of additional airport capacity for London. It also provides a real benchmark against which the performance of the BAA can be judged.

  We remain concerned that BAA's ability to cross subsidise the development of Stansted from activity at Heathrow and Gatwick leaves TBI at a competitive disadvantage. BAA's apparent ability to influence Government—as it is still often perceived as an arm of Government—leaves us to believe that development of Stansted will be given priority over further development of London Luton. We would ask the Committee to recognise the important role and alternative capacity development opportunity that full scale development of London Luton would bring to helping to resolve the crisis in airport capacity in the South East of England.

  We are also concerned that in Northern Ireland, the close and influential relationship between Bombardier/Shorts and the Government may have resulted in UK Government funds and grants, originally allocated for job creation and new product development, being instead diverted into developing new terminal facilities at Belfast City Airport. The committee will be aware that Belfast City is in competition with Belfast International Airport owned and operated by TBI, and not the recipient of such grants.

  We have broader concerns on the current organisation, ownership and management of airport capacity, and resulting air services, in Northern Ireland. Many of these concerns were raised with the Transport Committee at the time of the 1998 Inquiry into Regional Air Services. The situation has worsened since that time, with a marked reduction in International air services from Northern Ireland whilst, in comparison, the level of service from Dublin has increased significantly. This development at Dublin Airport is actively supported by the Irish Government.

  Having two airports to serve a population of just three million and total passenger traffic of under five million a year means that Northern Ireland has worse air service provision than would be the case with only one airport. There are no economies of scale or market density that can result as in the case of London with its market of over 100 million passengers per annum.

  TBI plc would be pleased to provide the Committee with any additional information or clarification of any of the points we have made if required.

  We wish the Committee well with its deliberations.

Keith Brooks

Chief Executive

16 November 2001

Memorandum by the States of Guernsey Board of Administration and States of Guernsey Transport Board (AT 11)



  The States of Guernsey's Board of Administration and the Guernsey Transport Board noted with interest the press notice from the Transport Sub-Committee of the House of Commons' Transport, Local Government and the Regions Committee with regard to the Sub-Committee's intention to undertake a short inquiry into the immediate implications of the current situation on the air transport industry.

  The Boards offer the following information in order to assist the Sub-Committee in its consideration of the implications of the terrorist attacks for 11 September 2001 and the responses to those events by the industry, regulators and governments. The Boards note that the inquiry is particularly to consider the economic and political implications of the downturn in passenger numbers, security, the role of international subsidies and the proposals for Government assistance from the industry and the effect of the rules of ownership on the United Kingdom air transport industry

  The Boards also note that the Transport Sub-Committee intends to consider a wider-ranging inquiry into the state of the air transport industry, in the future. The Guernsey Transport Board, in particular, would welcome the opportunity to make a submission to such an inquiry. The Guernsey Transport Board hopes that the Transport Sub-Committee would include, as part of that broader inquiry, consideration of the proposed revisions to the EC Slot Regulations. This is particularly in regard to the Board's view that the proposed revisions are contrary to the thrust of the Transport Sub-Committee's findings in respect of regional air services. There are already difficulties which the Island faces with regard to slots at major UK hub airports and these are exacerbated by the events of 11 September 2001.


  The States of Guernsey's Board of Administration has a diverse and wide-ranging mandate. It is responsible for provision and administration of port facilities in respect of Guernsey's airport and harbours together with Alderney's airport and for the insurance and management of risks to States' assets and activities. The States of Guernsey's Transport Board is responsible for advising the States and implementing policies on matters relating to the promotion, provision and regulation of air and sea links to and from the Bailiwick. Therefore, the tragic events of 11 September 2001 and their effect upon the air transport industry relates directly to the responsibilities of the two Boards.

  The air transport industry and the United Kingdom's air transport policy are crucial to Guernsey, especially insofar as it affects air services between Guernsey and the UK. The social and economic welfare of Guernsey is inextricably linked to that of the United Kingdom and therefore many of the matters under consideration are of vital importance to the 60,000 residents of this Crown Dependency. The provision of a network of air services is of vital importance to the sixty thousand British citizens who are residents of the Crown Dependency of Guernsey.

  Two thirds of all passenger movements to, and from, Guernsey are to, and from, the UK and—as a result of the 80-mile width of English Channel between them—three quarters of these are by air. In 1999, there were 586,000 passenger movements between Guernsey Airport and the United Kingdom, of which 300,000 were to Gatwick, and a further 138,000 to the closest UK airport, Southampton. In 1997, the last full calendar year in which there were services between Guernsey and Heathrow, there were 243,000 passenger movements to Gatwick and 119,000 to Heathrow.

  All island economies are critically dependent upon aviation and shipping for both economic sustainability and social sustainability. Guernsey is crucially reliant on links with the UK for employment and for access to services not capable of being supplied locally for small island populations.

  Whereas the remoter mainland regions are able to access London and the other major population areas by road and—sometimes—by rail, these options are not available to island economies. Normally, the best part of a day has to be allowed to make a journey from Guernsey to London by surface—the catamaran service to Poole provides the fastest total elapsed time of approximately five hours but is frequently subject to cancellation due to inclement weather conditions.


  Any changes which might occur to the air transport industry as a result of the events of 11 September 2001 have a potentially significant impact on the transport links which the Bailiwick has with the United Kingdom and the rest of the world.

  The two Boards perceive that the tragic events which occurred in the United States of America on 11 September 2001, have impacted on the air transport industry—as it relates to the Bailiwick of Guernsey—in a number of ways: passenger and aircraft movements; security issues; insurance covers and costs; and the future certainty of ensuring services to vital destinations and hub airports being aggravated beyond the current difficulties in maintaining regional access to airport slots.


  Passenger traffic levels recorded at Guernsey Airport during the last five years are as follows:






  For 2001, from 01 January to 31 October, a total of 743,822 passengers passed through Guernsey Airport, compared with 763,158 for the same period in 2000. This is a reduction in passengers of 19,336 or a downturn of 2.53 per cent.

  At 30 June 2001, the passenger movements for the first half of 2001 were noted as being within 1 per cent of the same period in 2000 (+3,853 passengers). The most significant month with regard to that particular increase was January 2001, when there was an increase of 2,473 passengers compared to figures in January 2000 (+5 per cent).

  From 01 July 2001, passenger levels showed a significant downturn, compared to the same period in 2000:
July-5,185 passengers -5.68 per cent
August-5,879 passengers -5.98 per cent
September-7,436 passengers -8.25 per cent
October-4,689 passengers -6.01 per cent

  The above table shows that there was a substantial reduction in passengers during September 2001 (as compared to September 2000). However, this cannot be attributed solely to the events of 11 September 2001. Indeed, the downturn in passenger movements recorded at Guernsey Airport commenced in July and continued through both August and October at approximately the same level. If this same loss in passenger traffic is assumed to have also occurred in September, then it might be argued that the loss of traffic which could be attributed to the events of 11 September was approximately 2.5 per cent.

  A number of airlines which serve the Island also offer onward travel for interlining passengers through UK hub airports. Those airlines either offer international services themselves or have codeshare or partnership agreements with larger airlines. The airlines are not named here for commercial confidentiality reasons. It has been noted that those airlines which offer such interlining options have been more severely impacted, on their Guernsey services, than those which do not offer such an option.

  The total aircraft movements, to and from Guernsey, for 2001 (to date) have remained similar to the same period in 2000. There was a loss of less than 200 flights. Commercial aircraft movements show an increase of 173 flights or 0.51 per cent from 2000 to 2001. Private aircraft show a reduction of 261 flights in 2001, compared to 2000. [There was a decrease of 373 flights from visiting private aircraft (-8.1 per cent) but an increase of 112 flights from locally-based private aircraft (+2.38 per cent)] Passenger aircraft movements were recorded with a reduction of 26 flights since 2000 (-0.08 per cent).

  An analysis of aircraft types operated to, and from, Guernsey Airport for commercial purposes shows no obvious pattern of change, in the use of those aircraft types, which could be attributed to the events of 11 September 2001. An analysis of other aircraft types (namely, multi-engined, single-engined, or helicopters) also show no obvious pattern of change during the months July-October.

  It is believed that the events of 11 September 2001 affected the traffic levels at Guernsey Airport to date and will continue so to do in the future. The precise nature of the effect and the period of time involved is very difficult to identify at this time.

  Passenger movements declined in September 2001 compared to the previous year. The downturn in passenger movements commenced in July 2001 and continued through to October. The reduction in passenger movements during September was greater than for the other three months and this might be attributable to the events of 11 September 2001.

  The Board of Administration intends to continue the monitoring of passenger and aircraft movements on a monthly basis as part of its normal data collection and in an attempt to assess the impacts of 11 September on air traffic movements in the Bailiwick.

  The Boards have not yet had an opportunity to gather information directly from the airlines which operate routes to, from and within, the Bailiwick. Therefore, they do not have information from those airlines of the expected passenger movements for those routes in the future nor any details of forward bookings. There is also no information available to the Boards at this time as to any impact on the pattern of bookings for flights to, and from, the Islands.


  In accordance with an agreement between the Board of Administration and the UK's Department of Transport, Local Government and the Regions (DTLR), security standards at Guernsey Airport comply with the United Kingdom's National Aviation Security Programme. The agreement also provides for the Airport to be subject to inspection by one of the DTLR's Security Inspectors on three occasions per annum.

  The cost of the security work, carried out under contract by Securicor (Guernsey) Limited, is recovered by a security fee. That security fee is levied on passengers arriving on all flights which have originated from airports outside the Channel Islands. The Aerodrome Licence for Guernsey Airport, which licence is issued by a local authority, was varied during the spring of 2001. This change required all departing passengers to use the central departure lounge and includes all inter-island flights. Therefore, inter-island passengers are also subject to full security screening.

  As a result of the increased throughput of passengers to the central departure lounge there was a consequent increase in the number of security personnel utilised by the security contractors.

  Additionally, following the events of 11 September 2001, the DTLR required all airports, including Guernsey, to introduce enhanced security search/screening procedures for passengers, hold and hand baggage. These revised requirements also meant that aircraft of less than 15 metric tonnes were no longer exempt from security screening. The aircraft which serve inter-island routes fall within that category. The revised DTLR security requirements, therefore, meant that the enhanced security arrangements for inter-island passengers will now remain in place.

  As a result of these increased security requirements, security costs have increased substantially. It is intended that there be a change in both the level and the applicability of the security fee. The security fee is currently applicable only to passengers arriving at Guernsey Airport on flights that have originated outside the Channel Islands. It is proposed that the fee be applicable, in future, to all arriving passengers, regardless of the origin of their flights. It is estimated that the security costs for Guernsey Airport will increase by 25 per cent for 2002 as compared to 2001, as a result of the enhanced security measures.


  The States of Guernsey is involved in aviation insurance in two respects. Firstly, it arranges insurance cover for the airport itself, as the Board of Administration is the airport operator. Secondly, it has taken the decision that it may need to become the ultimate indemnifier for the critical ground handling services following the withdrawal of insurance cover after the events of 11 September 2001. This latter provision has not required to be activated at this time.

  As for every other jurisdiction, the insurance cover for Guernsey's Airports was withdrawn at midnight 24 September 2001, with respect to war, hijacking and associated perils. The Board of Administration was recently able to reinstate part of that cover for the remainder of 2001. However, that reinstatement was subject to a reduced limit of liability and increased costs.

  On 26 September 2001, the President of the Board of Administration made a statement to the States of Guernsey (the Island's parliament) during its Meeting of that date. "Following the tragic events of 11 September 2001 in New York, insurers have notified the aviation industry that insurance cover for war, hijacking and other associated perils would cease. This occurred with effect from midnight, Monday 24 September 2001.

  Guernsey and Alderney Airports remain insured for all normal operations except for this one clause. Jersey and the Isle of Man are in similar situations.

  The United Kingdom government has set up a short-term war, terrorism and associated perils scheme for the next 30 days that covers airlines, airports, refuelling companies, security companies and other agencies operating at United Kingdom airports. The Channel Islands are not party to this arrangement.

  After consultation with the Advisory and Finance Committee, I have to notify members that the States itself is now covering the war, terrorist and related risks in respect of the Airports in Guernsey and Alderney and their associated activities. All other areas of the Airports' insurances remain in place in the sum assured..."

  Indications from the world's insurance markets are that the higher insurance costs are likely to be repeated for cover during 2002, at a similar or increased level. Consequently, the States of Guernsey will be exposed to an increased liability with regard to airport insurance costs for 2002. It is likely that the Board of Administration, as the Airports' operator, will see unprecedented premium costs increases in 2002 of between 350 per cent and 400 per cent.

  Attempts were made immediately following the withdrawal of insurance cover, for the Bailiwick's airports to be included in the United Kingdom's short-term contingency measures, but all efforts in this regard were unsuccessful.

  The States of Guernsey held a special Meeting at the beginning of October 2001 in order to consider the difficulties which faced the Island relating to insurance and the air transport industry.

  The President of the Board of Administration had been advised on the evening of Thursday 27 September 2001 that the tragic events in America had had further impacts on aviation-related insurance. As a consequence, a number of companies which provided ground services to airlines and airport authorities, including refuelling and baggage handling, might have been insufficiently insured in respect of war, terrorism and associated perils.

  The operation of airlines and their services to the Bailiwick would be compromised as a result of the removal of ground services and, therefore, the Board of Administration investigated options to ensure that essential ground services could continue to operate. A limited State of Emergency was declared in the Bailiwick on 28 September 2001 relating to the aviation industry, following a meeting of the States of Guernsey Emergency Council. That declaration was only necessary to enable regulations to be made to deal with this very restricted area and was made pending a special meeting of the States of Guernsey on 01 October 2001. The regulations enabled the States of Guernsey to agree to indemnify certain providers of services at Guernsey and Alderney Airports in respect of risks for which they found themselves unable to obtain cover themselves through the insurance markets.

  The onus to obtain insurance cover for any ground services based at Guernsey Airport remains with the companies themselves. Should those companies be unable to obtain insurance cover for war, hijacking and other associated perils, they can then make an application to the States of Guernsey for indemnification. The companies must meet certain criteria, which includes proof that they had such insurance cover prior to 11 September 2001, that the cover was subsequently withdrawn by their insurers, that they cannot obtain replacement cover from the commercial markets at any cost, and that the service that they provide is critical to essential lifeline service within or from the Bailiwick.

  Finally, the Bailiwick of Guernsey's air services were under threat of severe disruption when the sole operator on a number of key routes was almost grounded as a result of the withdrawal of third party insurance. That withdrawal of insurance cover was due to the terrorist attacks on the United States of America. This would have resulted in the loss of essential lifeline links to Alderney, because the airline operated the only route between Alderney and the UK mainland and the only services between Alderney and Guernsey. There were no other suitable aircraft to operate those routes and no scheduled ferry services at the time (27 September 2001). The airline operated the only essential lifeline services to that Island, including emergency medical flights. The airline was eventually able to reinstate the required insurance.


  It is difficult to determine accurately all of the impacts that the tragic events of 11 September 2001 have had on the air transport industry as it relates to the Bailiwick of Guernsey. However, it is clear that there have been effects to date and that the effects are likely to continue into the future. Those effects have substantial financial implications for the Island with regard to security and insurance provisions for the Airports and the associated activities of airlines and ground services. There are implications for the maintenance of essential air links between Guernsey and Alderney and between the Bailiwick and external destinations. The loss of those essential air links would have significant impacts on the Islands' communities.

November 2001

Memorandum by BAA plc (AT 12)



  BAA plc is the company which owns, operates and develops seven UK airports: London's Heathrow, Gatwick and Stansted Airports; Aberdeen, Edinburgh, and Glasgow Airports in Scotland; and Southampton Airport. BAA is committed to meeting the needs of consumers through the safe, secure and efficient operation of these airports, and through their sustainable development.

  Whilst the loss of life arising from the tragic events of 11 September still dominates everyone's thoughts, the events have had a profound impact on the aviation industry across the world. It is still too early to draw clear conclusions about the scale and length of this impact and there is therefore a high degree of uncertainty about the implications over the next year. However, previous difficult times for the industry have been followed by a return to growth and there seems little reason to doubt that this will not be the case again. It is therefore vital that the UK continues to plan for long term growth and that the UK Government does not defer important decisions on the sustainable provision of capacity to meet this expected growth.

  Despite the long term nature of our capital intensive business, and the inevitably high level of fixed costs. BAA will seek to be as flexible as possible so that we can react effectively to changing circumstances. BAA will be flexible in how we respond to the evolving needs of the airline industry, so that it can achieve its full business potential. We will also be flexible in where we deploy our highly motivated and well-trained employees; clearly efficient safety and security measures and reinvigorated passenger service standards will have to be even greater priorities.

  BAA's evidence to the Sub-Committee is in four sections:

    1.  Statistics showing the impact of the events of 11 September on traffic at BAA's airports;

    2.  The operational changes resulting from these events;

    3.  The financial implications for BAA of these events;

    4.  Comments on other issues that have arisen.


  Table 1 contains monthly traffic statistics for August 2001 for each of BAA's UK airports. BAA's overall passenger traffic grew by 2 per cent in the month, with passenger traffic up by 3 per cent in the 12 months ending August 2001. The main factor in the increase over August 2000 was outbound British tourism and UK domestic travel reinforced by the continued growth of low fare services. (For reference, BAA's annual passenger traffic in 2000 was 6 per cent higher than that in 1999 which, in turn, was 6 per cent higher than that in 1998).

  Table 2 shows the changes in individual markets where UK domestic traffic rose 5 per cent compared with August 2000. European scheduled services carried 4 per cent more passengers compared to the same month last year and European charter services rose 4 per cent. North Atlantic traffic declined by 4 per cent because of a drop in the number of US visitors to the UK, linked to both the slowing in the US economy and the UK's foot and mouth outbreak. Other long haul routes recorded a collective drop of 1 per cent. Among individual airports Stansted recorded a substantial increase of 17 per cent, Edinburgh added 8 per cent and Glasgow (+7 per cent) saw growth in all markets. Gatwick traffic rose 1 per cent. Heathrow saw a drop of 2 per cent but there was an increase of 3 per cent in its other long haul services.

  Table 3 contains the monthly traffic statistics for each airport in September 2001 and shows that BAA's overall traffic dropped by 6 per cent when compared with September 2000. Again this masks variations between airports, between markets (see Table 4) and across the days of the month (see Table 5). Table 5 highlights the immediate effect of the events of 11 September, with growth of about 2 per cent in the first few days of the month being followed by reductions of around 12 per cent in the last few days of the month. Again, even this effect differs between airports with Heathrow bearing the brunt of the reductions but Stansted and Edinburgh continuing to grow strongly.

  Tables 6 and 7 contain the traffic statistics and market comparisons for October 2001. They show that BAA's passenger traffic was 12 per cent lower than October 2000, with air transport movements virtually unchanged and cargo tonnage 15 per cent lower. Among individual airports, growth continued in Scotland, with Edinburgh up 13 per cent and Glasgow up 7 per cent, and at Stansted up 5 per cent. Heathrow traffic fell 20 per cent, with North Atlantic traffic down 31 per cent and Gatwick was down 13 per cent, with North Atlantic traffic down 32 per cent.

  The North Atlantic and certain other long haul markets continue to be worst affected by the terrorist attacks of 11 September. The North Atlantic market was down 31 per cent in October and other long haul traffic declined by 16 per cent. Irish traffic grew by 5 per cent due to intense competition in Scotland. Domestic traffic fell by 3 per cent across the group although growth continued on domestic routes at Glasgow, Edinburgh and Stansted. Similarly European scheduled traffic was down 11 per cent but with growth at Stansted and in Scotland.

  It is extremely difficult to predict accurately air traffic levels in the short and medium term. The current confrontation is unprecedented in kind and unpredictable in outcome. BAA considers that it may take some time for people to fly in the numbers experienced until recently; this situation may also have been exacerbated for Americans by the shocking additional crash on 12 November in the Queens district of New York City.

  During the Gulf War air traffic fell by 25 per cent in the worst week, and it took about eight months to recover its momentum. By comparison the worst week for traffic since 11 September has been just over 12 per cent lower than for the same period in 2000. So, while the fall is significant, there is a precedent of a sort. BAA would stress, however, that the difference is that the Gulf War had a clear ending whereas this war with the terrorists is a more complicated one. Even when some kind of resolution of the crisis is achieved, it may well take longer for confidence in air travel to return.

  At the same time BAA will have to see how the airline industry rationalises and reorganises itself. Most believe an element of rationalisation was overdue before 11 September—and, in fact, beginning to happen. In particular, there is a burgeoning low cost airline industry becoming well established in the UK and seeking to expand. BAA seeks to provide the airport capacity that will enable them to grow.

  BAA believe that we should be positive, and assume the war on terrorism will be won and that people will fly freely once more, benefiting from an industry that has become better organised. We have to plan on that basis. We still see this as a growth industry, and we have a duty to create the capacity for it, and also to create the quality of airport experience people will expect.


  The immediate impacts of the events of 11 September were the closure of North American Airspace and the changes in security requirements at BAA's UK airports. BAA staff worked closely and rapidly with staff in airlines and other organisations to meet the needs of passengers who were diverted to BAA airports or who were unable to fly. Many staff acted above and beyond their call of duty and their efforts were widely appreciated by passengers.

  BAA has responded rapidly to the changing security requirements and cooperated closely with the directions and advice from the Department of Transport, Local Government and the Regions. Additional steps were taken to protect passengers and these have been implemented in ways which minimise the impact on passenger service. For example, many BAA office staff have volunteered to answer passengers' questions and help with the non-technical aspects of the security process. BAA is absolutely committed to the highest levels of safety and security commensurate with the level of risk, and will investigate carefully any suggestion that these high levels have not been achieved.

  BAA believes that an even greater emphasis on safety and security than before may mean people have to spend more time in airports. If so, the challenge to BAA, is to make that experience not only tolerable but enjoyable. That means adequate space, a greater variety of things to do, facilities to occupy children, and facilities that enable business travellers in particular to use their time well.

  BAA will also need to review carefully its investment programme. There may be a need to redirect capital expenditure as we have to manage and re-direct resources to respond flexibly—for instance, to the demand for even tighter security arrangements. Investment projects for safety and security purposes will of course continue, and any pause in capital expenditure on other projects would be temporary and intended to give us the flexibility to target areas calling for urgent work as the recovery begins.


  Clearly BAA has suffered financially as a result of the events of 11 September, with increased costs and reduced revenue. The costs of additional security, insurance costs and other costs are estimated to be as high as £10 million for the period up to the end of March 2002. But a greater impact arises from the reduction in income arising from the significantly lower numbers of passengers. In the 2000-01 financial year, BAA's revenue was about £8 per passenger at its UK airports from sources such as airport charges, car parking and retail. In October, there were 1.3 million fewer passengers at BAA's airports than in October 2000, indicating the scale of the reduction in income faced by BAA; particularly when this is balanced against the growth that was being experienced up to August. It is still too early to predict the full year financial position, but current estimates amongst some City analysts show a drop in BAA's profits before tax of between 15 per cent and 20 per cent on previous forecasts for 2001-02; this reflects just over six-months' worth of the downturn in traffic and higher costs.

  Whilst it is true that BAA's profits are not suffering as heavily as those of many of its airline customers, earnings are not the whole story. BAA reinvests a very large proportion of its earnings each year to fund part of its capital investment programme. However, BAA's capital programme is at a level which requires to us to find additional funding, over and above that provided through earnings and therefore increasing BAA's level of borrowing. Any downturn in earnings therefore makes it more difficult for BAA to invest in the airport facilities needed to meet the continuing needs of its customers in the years to come.

  The CAA is currently reviewing the way BAA's London Airports are economically regulated, with the Competition Commission's formal review taking place next year. In this context BAA view with some concern the CAA's current proposal to discontinue the established principle that airports may recover from airlines 95 per cent of the additional costs resulting from additional security measures. These costs must be met, and if the Government is not to meet them, then airports must be given the powers to recover them through user charges. The changed, and changing, circumstances will affect many aspects of the regulatory process; for example, BAA's cost of capital will need to be reassessed—a key component in determining the regulatory regime for the next five years.


Airport slot allocation

  The severe impact of the events of 11 September on airlines has led them to review their flying schedules and associated airport slots. Slot allocation at "fully coordinated" airports, which include BAA's Heathrow, Gatwick and Stansted airports, is governed by an EU Regulation. This requires airlines to use a slot 80 per cent of the time in order to retain their "grandfather rights" for that slot in the next equivalent scheduling season. This "use it or lose it rule" includes provision for some force majeure situations, but its application in this situation is unclear.

  Many airlines have called for a general suspension of the "use it or lose it rule" for the current Winter 2001-02 season; other airlines have pressed for the existing rule to be applied as it stands. There is a fine line to be drawn with this issue. On one hand, BAA wants to support those carriers which are facing turmoil in a difficult business climate made significantly worse by the tragic events of 11 September. On the other hand, we want to give airlines the opportunity to start up new services using slots which might not otherwise be used this winter.

  BAA's view has been that any suspension of the "use it or lose it" rule should be targeted just at services directly affected by the events of 11 September, ie routes to the USA and other specified services. We believe that such an approach, which should be restricted to the existing Winter schedule, is the most appropriate response to the conflicting pressures described above.

  Interested parties such as Europe's airlines, airports and slot coordinators have asked the European Commission to clarify the situation but their guidance has not provided sufficiently clear. The EC have suggested that coordinators should look favourably on applications from airlines for a suspension of the rule. But, in the absence of a change in the Regulation, coordinators will have to think very carefully about action which might be taken to be a breach of the existing Regulation.


  Prior to 11 September, BAA held £1 billion insurance cover against acts of war or terrorism; this is thought to have been perhaps the highest level of cover for any airport in the world. BAA's insurers served notice to cancel this cover, alongside cover to the rest of the industry, with effect from 25 September. BAA joined the call for the UK Government to take action, and we were grateful for the speed with which the Government set up its comprehensive scheme. The initial 30 day scheme has since been extended and BAA will be pressing for further extensions as there is no sign that the commercial insurance market is ready to offer the sort of cover BAA had held. BAA has continued to note with concern that, whilst the Government has waived airlines' premiums under this scheme, airports and other service providers are having to pay the significant increases in their insurance costs.

Government support

  The UK Government is considering whether further support, in addition to the insurance support, should be made available to the aviation industry within European Commission guidelines. We note that the Airport Operators Association has called on the Government to meet the additional security costs arising since 11 September. BAA believes that the Government should announce its conclusions as soon as possible.

Table 1

Month% change Financial year to date:
April 2001 to August 2001
% change12 months to
August 2001
% change
Heathrow6,042.0¸1.8 28,026.4¸3.463,311.1 ¸0.5
Gatwick3,647.40.8 15,813.61.832,417.3 3.6
Stansted1,566.217.3 6,674.919.313,338.1 20.6
London Area Total11,255.6 1.450,514.90.7 109,066.52.9
Southampton86.4¸0.5 398.91.3872.1 7.0
Glasgow751.76.6 3,515.04.47,116.5 4.0
Edinburgh595.08.2 2,733.99.15,833.1 9.0
Aberdeen240.53.7 1,168.66.32,583.7 6.4
Scottish Total1,587.3 6.87,417.46.4 15,533.36.2
BAA Total12,929.32.0 58,331.21.4125,471.8 3.4
Heathrow40,4930.7 197,8171.0461,501 0.8
Gatwick24,6890.8 113,4970.6252,544 0.9
Stansted14,9946.6 71,13810.9154,448 6.9
London Area Total80,176 1.8382,4522.6 868,4931.8
Southampton2,710¸1.1 12,467¸0.428,082 5.2
Glasgow8,5624.2 41,0234.191,117 3.7
Edinburgh8,79912.4 42,73115.395,033 9.6
Aberdeen8,0467.2 37,8049.085,554 8.2
Scottish Total25,4077.9 121,5589.4271,704 7.1
BAA Total108,2933.1 516,4774.01,168,279 3.1
Heathrow96,183¸10.7 503,363¸8.51,244,023 ¸6.3
Gatwick23,906¸8.2 120,660¸8.4306,309 ¸3.4
Stansted13,409¸10.3 70,3225.0174,910 4.8
London Area Total133,498 ¸10.2694,345¸7.3 1,725,242¸4.8
Southampton2938.1 12430.5328 ¸11.1
Glasgow675¸24.0 3,118¸24.47,664 ¸17.0
Edinburgh1,265¸14.5 6,624¸12.216,934 ¸10.9
Aberdeen4192.6 1,921¸1.65,123 12.1
Scottish Total2,359¸15.0 11,663¸14.429,721 ¸9.4
BAA Total135,886¸10.3 706,132¸7.41,755,291 ¸4.9
Above data excludes Air Taxi passengers and Air Taxi movements.

Table 2

MarketBAA Total
August 2000
BAA Total
August 2001
Domestic1,9762,085 5.5
Eire621617 ¸0.5
European Scheduled4,452 4,6193.8
European Charter*1,787 1,8563.9
North Atlantic2,072 1,998¸3.6
Other Long Haul1,771 1,753¸1.0
Total12,67812,929 2.0

*  Includes North African Charter.

Origins and destinations are classified according to ultimate origin or destination of aircraft in the case of multi sector flights.

Figures for the market sectors have been rounded. Totals as per Traffic Summary.

Table 3


Month % changeFinancial year to date:
April 2001 to
September 2001
% change12 months to
September 2001
% change
Heathrow5,106.8¸13.0 33,133.2¸5.162,546.1 ¸2.0
Gatwick3,159.8¸6.2 18,973.40.432,209.7 2.2
Stansted1,346.511.4 8,021.317.913,475.6 19.5
London Area Total9,613.0 ¸8.060,128.0¸0.8 108,231.41.5
Southampton81.5¸2.2 480.30.7870.2 5.5
Glasgow747.36.9 4,262.34.97,164.8 4.7
Edinburgh574.613.4 3,308.49.85,900.8 9.8
Aberdeen225.20.5 1,393.85.42,584.9 6.4
Scottish Total1,547.1 8.28,964.56.7 15,650.66.9
BAA Total11,241.6¸6.0 69,572.80.1124,752.2 2.2
Heathrow37,925¸2.2 235,7420.5460,663 0.5
Gatwick23,162¸1.6 136,6590.2252,165 0.4
Stansted13,6621.3 84,8009.2154,620 6.5
London Area Total74,749 ¸1.4457,2011.9 867,4481.5
Southampton2,478¸0.1 14,945¸0.428,079 4.0
Glasgow8,4576.8 49,4804.691,658 4.3
Edinburgh8,60114.4 51,33215.296,113 10.8
Aberdeen7,2213.8 45,0258.285,817 8.3
Scottish Total24,2798.4 145,8379.2273,588 7.8
BAA Total101,5060.8 617,9833.51,169,115 2.9
Heathrow85,254¸21.2 588,617¸10.61,221,140 ¸7.9
Gatwick20,359¸25.4 141,019¸11.3299,390 ¸5.9
Stansted12,014¸24.7 82,336¸0.7170,971 2.0
London Area Total117,627 ¸22.3811,972¸9.8 1,691,501¸6.6
Southampton2735.0 15131.3335 ¸0.6
Glasgow593¸40.8 3,711¸27.67,255 ¸20.2
Edinburgh1,286¸5.4 7,911¸11.216,861 ¸9.6
Aberdeen321¸11.5 2,242¸3.25,081 11.9
Scottish Total2,201¸19.2 13,864¸15.229,197 ¸9.6
BAA Total119,855¸22.2 825,986¸9.91,721,032 ¸6.7
Above data excludes Air Taxi passengers and Air Taxi movements.

Table 4

MarketBAA Total
September 2000
BAA Total
September 2001
Domestic1,8721,889 0.9
Eire558568 1.9
European Scheduled4,243 4,076¸3.9
European Charter*1,742 1,7661.4
North Atlantic1,906 1,413¸25.9
Other Long Haul1,642 1,530¸6.8
Total11,96111,242 ¸6.0

*  Includes North African Charter.

Origins and destinations are classified according to ultimate origin or destination of aircraft in the case of multi sector flights.

Figures for the market sectors have been rounded. Totals as per Traffic Summary.

Table 5


7 days
3-10 September
7 days
12-18 September
7 days
19-25 September
5 days
26-30 September*
Heathrow¸2.3¸21.7 ¸17.4¸20.4
Gatwick¸1.3¸10.9 ¸7.5¸12.7
Stansted15.311.8 9.27.2
London Area Total0.1 ¸14.4¸11.1¸14.8
Southampton¸1.8 ¸
Glasgow11.71.4 8.74.1
Edinburgh17.79.1 16.913.2
Aberdeen10.8¸1.7 ¸0.5¸1.8
Scottish Total13.73.7 10.26.4
BAA Total1.7¸12.2 ¸8.4¸12.2

*  Compared with the equivalent trading days in September/October 2000.

Traffic on 11 September itself was down 3.1 per cent.

Table 6

Month% change Financial year to date:
April 2001 to October 2001
% change12 months to
October 2001
% change
Heathrow4,485.5¸20.1 37,618.7¸7.161,419.0 ¸3.8
Gatwick2,529.8¸12.7 21,503.2¸1.331,840.2 0.7
Stansted1,205.14.9 9,226.516.013,532.2 17.9
London Area Total8,220.4 ¸14.968,348.4¸2.7 106,791.4¸0.1
Southampton73.6¸5.8 553.9¸0.2865.7 3.4
Glasgow710.16.6 4,972.45.17,208.5 5.3
Edinburgh560.513.4 3,868.910.35,966.9 10.6
Aberdeen223.5¸2.1 1,617.34.32,580.2 5.5
Scottish Total1,494.1 7.610,458.66.8 15,755.67.3
BAA Total9,788.1¸12.0 79,360.9¸1.5123,412.6 0.8
Heathrow37,886¸3.5 273,628¸0.1459,286 0.1
Gatwick21,453¸4.6 158,112¸0.5251,133 ¸0.3
Stansted13,265¸1.4 98,0657.7154,428 5.8
London Area Total72,604 ¸3.5529,8051.1 864,8471.0
Southampton2,5163.3 17,4610.228,159 3.0
Glasgow8,78810.2 58,2685.492,474 5.0
Edinburgh9,36420.3 60,69615.997,695 12.1
Aberdeen7,5875.9 52,6127.886,238 8.0
Scottish Total25,73912.3 171,5769.7276,407 8.4
BAA Total100,8590.3 718,8423.01,169,413 2.7
Heathrow97,675¸14.6 686,292¸11.11,204,486 ¸8.6
Gatwick22,496¸22.6 163,515¸13.1292,833 ¸8.3
Stansted14,985¸5.0 97,321¸1.4170,186 2.4
London Area Total135,156 ¸15.1947,128¸10.6 1,667,505¸7.5
Southampton3357.1 18435.3347 11.2
Glasgow470¸49.2 4,181¸30.96,800 ¸24.5
Edinburgh1,466¸9.0 9,377¸10.816,716 ¸9.1
Aberdeen344¸12.7 2,586¸4.55,031 10.4
Scottish Total2,280¸22.2 16,144¸16.328,547 ¸10.7
BAA Total137,469¸15.2 963,455¸10.71,696,398 ¸7.6
Above data excludes Air Taxi passengers and Air Taxi movements.

Table 7

MarketBAA Total
October 2000
BAA Total
October 2001
Domestic1,9121,847 ¸3.4
Eire534564 5.5
European Scheduled4,049 3,594¸11.2
European Charter*1,288 1,249¸3.1
North Atlantic1,761 1,210¸31.3
Other Long Haul1,584 1,324¸16.4
Total11,1289,788 ¸12.0

*  Includes North African Charter.

Origins and destinations are classified according to ultimate origin or destination of aircraft in the case of multi sector flights.

Figures for the market sectors have been rounded. Totals as per Traffic Summary.

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