Supplementary memorandum by the Airport
Operators Association (AT 08A)
I refer to the letter dated 21 December 2001
to my colleague Mr Andrew McCall requesting responses to a number
of questions arising from AOA's attendance at the Transport Sub-committee's
meeting on 19 December. Our responses to these points are as follows:
A number of regional airports are
concerned regarding the maintenance of air service links with
London, particularly Heathrow, and are working with their airline
partners who operate these services to ensure that these links
are maintained. The events of September 11 do not appear to have
had any significant impact on this position.
AOA supports moves to resolve the
UK US bilateral and to the development of an "open skies"
agreement. The implications for regional access to London are
not clear and there are differing views amongst AOA member airports
on this issue, particularly as regards protection measures such
as the "ring fencing" of slots.
AOA does not expect the government
to provide assistance on third party terrorism insurance on an
indefinite basis. However, as the rationale for this assistance
was prompted by a terrorist attack on a Nation State and not against
aviation, AOA firmly believes that government support was entirely
At some stage government will withdraw this support,
perhaps when the "war against terrorism" is concluded,
or perhaps more realistically, when an open commercial market
for this type of insurance is re-established. Once this occurs
any increase in overall premiums will be taken into account by
both airports, airlines and other service providers in assessing
their charges to customers in line with normal commercial practice.
Capacity constraints at busy airports
will always have an impact on the ability to accept increased
levels of business/activity. The key is to develop capacity where
it is required to meet demand and to make the most effective use
of existing capacity.
There is no evidence that the effects
of 11 September have had any impact on the development of "open
skies" but AOA believes that movement in this area could
stimulate the depressed transatlantic passenger market (down by
around 35 per cent) by encouraging the development of new and
AOA is not in possession of any knowledge
to enable us to comment on this question.
The impact of 11 September has been
substantial on a number of airlines and tour operators and their
ability to maintain services at the levels immediately before
that date. A balanced approach to encouraging new services and
preserving services affected by the effects of 11 September needs
to be found. Airports generally favour the targeting of exemptions
of services where there has been a demonstrable impact as a result
of the events of 11 September.
Any reduction in retail activity
at airports would reduce the commercial income generated by airports
and which is such an important element of the economic mix for
our members. Additionally, any reduction in income would have
to be considered in the light of increasing charges to customers
to offset this loss which would not be in the interests of either
the consumer or of the airline (or other customer) that had to
bear the offsetting increase in charges.
It should be noted that there is no evidence to date
that it would be necessary to reduce retail space to accommodate
additional security measures nor that there is any conflicting
pressures between commercial retail and security activities.
The provision, optimum use and development
of capacity is a key issue to ensuring the continued success of
UK aviation. Without sustainable capacity both in the air and
on the ground, UK aviation will not continue to develop nor make
its undeniable contribution to the social and economic success
of our nation.
AOA would not, as a general principle,
accept that airports are non competing entities. We believe that
any restructuring within the overall airline sector may bring
changes that will impact on airports and which will lead to airports
developing competitive strategies to meet the new circumstances.
The Sub-committee also requested further details
as to the additional costs incurred by airports since 11 September.
In our written evidence we estimated these additional annual costs
to be in excess of £15 million and we can confirm that this
represents an average percentage increase of around 20 per cent
on baseline security costs.
We also estimated that additional insurance
costs to be in the region of £4 million annually. Latest
information indicates that most airports are facing substantial
increases in the cost of insurance, instances of premiums doubling
are common and we have been advised of an increase as high as
600 per cent.
16 January 2002
by BAA plc (AT 12A)
As you are aware, I gave evidence to the Transport
Sub-committee on 19 December as part of the delegation from the
Airport Operators Association. During the hearing, the Committee
asked for some additional information which I am now able to provide.
The Committee asked me how many "bomb alerts"
(ie hoaxes) there had been at BAA airports and whether this was
an increase on previous years. I can advise you that there were
around 70 such alerts at BAA's seven UK airports in 2001 and that
was approximately twice the number recorded in 2000. I should
point out that this increase is not, in itself, an indication
of a higher level of threat.
I was also asked at the hearing which routes
British Airways had ceased to serve from London's Gatwick Airport.
BA have stopped flying the following routes from Gatwick since
11 September: Nairobi, Lilongwe, Seychelles, Dar-es-Salaam, Abidjan,
JFK, Stockholm, Zurich, Gdansk, Shannon, Cork, Gothenburg, Rotterdam,
Montpellier, Lyon, Baltimore, Charlotte, Damman, Milan and Accra.
We understand that they plan to stop flying the following additional
routes at the start of the Summer 2002 scheduling season: Abuja,
Entebbe, Nassau, Grand Cayman, Providenciales and Lagos.
Your letter of 21 December raised two further
points relating to new entrants and slots. Your first point relates
to how new carriers might be able to replace BA services at Gatwick.
Without touching on the important subject of new runway capacity
in the South East, it is in BAA's interest to make the best use
of existing runway capacity. Whilst there are relatively few "spare"
slots at Gatwick, and only a very limited opportunity to increase
hourly runway capacity, BA have recently handed back a number
of slots at Gatwick and may well hand back additional slots. BAA
can benefit in three ways if these slots are taken up by the "no
frills" carriers: firstly, the slots will be used rather
than remain unused; secondly, the slots will be used by aircraft
with relatively high average loads (see below); thirdly, BAA will
benefit if the "no frills" carriers supplement these
services with services using available off-peak slots to maximise
their aircraft utilisation.
For the Committee's information, BA's average
load on their short-haul services at Gatwick in the year to August
2001 was around 95 passengers. By comparison, easyJet's average
load at Gatwick in that period was around 125 passengers.
The second point you raise in your letter refers
to the "use-it-or-lose-it" rule. Normally, under the
EU slot regulation, airlines operating less than 80 per cent of
services would not be able to claim the same slots in the following
equivalent season. Our understanding of the current proposed "exemption"
is that if airline services were disrupted at the end of the summer
2001 season as a result of the events of 11 September, airlines
will still be able to claim the same slots for the summer 2002
season. Furthermore, if an airline can show that they have had
to cancel a large number of their winter 2001-02 season slots
as a result of the events of September 11, and can prove the connection
with 11 September, they will be able to claim the same slots for
the winter 2002-03 season. (There is no suggestion of an exemption
from the "use-it-or-lose it" rule for summer 2003 season
slots). BAA has argued for a "targeted" exemption from
the "use-it-or-lose-it" rule for the current winter
season, ie airlines flying services to the USA and some other
specified destinations should be able to claim the same slots
for the winter 2002-03 season; this recognises the very real impact
of 11 September on certain routes, but seeks to prevent the over-protection
of slots by carriers undertaking more general re-structuring.
Our understanding is that about half of BA's initial hand-back
of slots at Gatwick were returned on a permanent basis, with BA
indicating that they may seek to reclaim the remaining half under
any exemption from the "use-it-or-lose-it" rule.
Finally, I have reviewed the transcript of the
AOA evidence at the 19 December hearing. In Question 155, I am
recorded as saying "we do screen all hull baggage anyway
and we screen the proportion of hand baggage as required by the
Department". In case of any confusion, I should make it clear
that all hold and cabin baggage is screened and a proportion of
cabin baggage is then additionally hand searched.
Please do not hesitate to contact me if I can
provide any additional information for the Sub-committee in regard
to this inquiry.
Group Planning and Regulatory Affairs Director
8 January 2002
by the Transport and General Workers' Union (AT 21A)
This is supplementary evidence from the Transport
and General Workers' Union in regard to aviation security. Most
of our evidence comes as a direct result of a recent meeting of
our Civil Air Transport National Committee which specifically
considered the issue of security within the industry after the
events of 11 September.
We believe, as a matter of urgency, that an
internationally agreed standard for aviation security is introduced
in order that the security chain is maintained, and there must
be no exceptions for Diplomats, Heads of State, Military and Royalty
and their entourage. This standard should include passports, because
not all countries have photographs in their passports.
In view of this we welcome the actions of Civil
Aviation Committee of International Transport Workers' Federation
(ITF) to develop a Security Policy for the industry, and hope
that it will be adopted at the ITF Congress in Vancouver in August
We believe that the security of the aviation
industry has wider benefits for other industries in the United
Kingdom who at the moment do not contribute to the cost of security.
The tourist industry is one example and business and commerce
is another that benefits from the spillover effects of security.
In view of this "market failure" we believe that the
security function for the aviation industry should be supplied
and undertaken by the state. The cost of security could then be
financed by the general taxation system.
We must approach aviation security as requiring
a comprehensive process, involving all aspects of airport and
airline operation, not one which gets caught up in a web of contracts
and subcontracts. Experience both in the USA and the UK indicates
that the quality of people employed in security declines if the
function is put out to competitive tendering. Costs must not be
a factor in the provision of security. It has been argued, and
we agree that profit-making security companies have an incentive
to cut pay, training and supervision.
In the USA pilots, flight attendants, airlines,
the entire Senate and a solid majority of the American people
have supported the federalising of airport security. Failing this,
airports should not be allowed to contract out security work.
All customers on Transatlantic route should
be verbal profiled prior to check in. A sample of people on other
routes should also be undertaken.
We would like to see a single standard that
strictly limits hand luggage with exception for families/babies
etc. There should be no exception for Business and First Class
passenger. Screeners are currently under pressure with too many
pieces of hand luggage, and because of that might miss suspicious
pieces of luggage. Screening of hand baggage should take place
at the last possible point before boarding. Screening for all
left luggage and lost property should be undertaken.
Introduce trained and certified bomb search
staff at all international airports. All airports do not have
this. This function should be handed over to professionally trained
and competent personnel.
Body checks of all travellers should be introduced
eg Berlin Airport, everybody is checked with direct body contact.
Checks should be made at the last possible point before boarding.
Staff are excluded at the moment from proper checks.
Panic buttons for staff working in remote areas
should be introduced.
Match all passengers to their bags. No bag must
be loaded on a plane without its owner; bags without the passenger
it belongs to must be removed. Bags should not be loaded until
the passenger turns up. Need to introduce security/safe procedure
for unaccompanied bags. The use of barcode guns should be considered.
Walls between the toilet and adjoining cockpit
should be reinforced.
by the Transport and General Workers' Union (AT 21B)
CURRENT SITUATION OF MANCHESTER AIRPORT
When giving oral evidence to the select committee
on 22 January 2002, we were asked by the chairman to supply a
briefing on the situation at Manchester Airport in regard to the
security staff. This document is our response to that request.
This dispute is about reducing the terms and
conditions of security staff and other staff at Manchester Airport
that were planned well before 11 September. In June 2001 the Manchester
Airport announced it was restructuring its business from a single
company to a group company with five trading company subsidiaries
to focus its activities and reflect its growing role as the second
biggest airport group in the UK. The company stated that by forming
a group structure and setting up new corporate governance arrangements
it would enable the group to take advantage of the enormous growth
potential for aviation in the UK and, in particular, for regional
airports. In fact, this simply amounted to them establishing two
Divisions, with separate managing Directors, so that they could
create an internal market. The reason for creating the internal
market was to subject the security and other functions to external
market forces, with the foreseen consequences of job losses and
the reduction of terms and conditions of employment of those remaining
as employees of Manchester Airport. It is against this background
that the controversial moves have to be seen, and that they are
part of a sweeping purge planned by the company to cut costs.
The owners of Manchester Airport are the 10
Greater Manchester Authorities, and contrary to management claims,
much of the company's growth has been through acquisition rather
than organic growth. It acquired East Midlands and Bournemouth
Airports from National Express in March 2001 in a deal worth £241
million. In June 1999 it acquired Humberside Airport and with
the opening of the second runway at Manchester in February 2001,
Manchester Airport controls a big stake in UK airport capacity.
It's group turnover has risen from £72.8 million in 1986
to £342 million in 2001.
On 2 October 2000 Manchester Airport announced
a restructuring, as part of a refocusing of its activities that
it claimed would put customer service, quality and passenger safety
at the heart of its business. The changes would result in the
Airport making more efficient use of its resources in the highly
competitive aviation industry. As part of this refocusing, up
to 90 jobs would be lost in its management, operational and administration
area, with some functions being combined to achieve efficiencies.
Our regional secretary David McCall has said
that, in the current climate of security consciousness following
the 11 September attacks, "you could argue that you should
be increasing staff, not reducing them". In our view the
real motivation for these moves is to provide a cut-price security
The Company began to implement job cuts on the
Information Desks and elsewhere. We had to threaten them with
legal action before they eventually consulted properly with us.
They also ignored all of their existing "no compulsory redundancy"
We finally resolved this particular issue simply
because there were enough volunteers to avoid a dispute.
The Company's next step was to announce the
establishment of a "new" security company (MAAS Ltd)simply
another wholly owned subsidiarythat would tender for work
competitively at the airport. Staff would receive significantly
lower pay and conditions than the existing security staff. Unsurprisingly,
they "won" the contract to provide security work for
We have said it was deplorable that 140 security
posts are to be phased out and pay for all other security staff
reduced to around £5.50 per hour. In a bid to slash its £17
million annual security budget, staffing levels would be reduced
from around 700 to 560 and top-earning security guards offered
new contracts that would cut their salaries by more than half.
Workers on up to £28,000 per year are being offered voluntary
redundancy worth £11,545 to £12,622.
The company proposed that their working week
will be increased from 38 to 42 hours, annual holidays cut by
four days, and sick leave entitlement halved. We would simply
state that with these rates of pay and some unsociable shifts
that will have to be worked, how do they expect to attract and
retain people who want to make security their career. However,
the company has said that the rate of pay remains higher than
private security firms employed at other airports and they would
continue to meet all the stringent standards demanded by the government.
New recruits will earn the same money as existing employees.
The proposals caused major internal strife at
a time when 1,800 workers, including security guards, were being
balloted over a strike in a row over 90 earlier redundancies mainly
affecting clerical staff.
We have consistently warned that the airport
had planned to take on a smaller number of new staff on poorer
pay than existing security guards, and if implemented this would
undermine the morale and efficiency of the workforce and threaten
security at the airport.
The company also claim that the job cuts would
allow them to change shift rosters that currently meant extremely
wasteful working practices, and there will be no reduction in
the number of security staff on duty, and the same stringent security
standards will remain in force at all times.
Customer services director David Teale has also
insisted that safety would not be compromised. "What we are
talking about is the best and most efficient use of resources."
Yet existing customers such as British Airways have said "We
are happy with the level of cover provided at the airport . .
." So there would appear to be no pressure from existing
customers to change the current situation.
Meanwhile, government ministers have had meetings
with British airport and airline representatives in a bid to address
mounting public concern about continuing security lapses at British
airports. The Department of Transport, Local Government and the
Regions has said that ministers were anxious to ensure there was
tighter security before passengers boarded airlines in spite of
earlier government claims that measures introduced since 11 September
meant that it was safe to fly from British airports.
"This is an issue we are taking seriously,"
the department said.
The ease with which airport security can be
breached has been exposed on at least three occasions in recent
weeks by journalists with knives and other sharp objects boarding
But the real reason for these proposals have
recently been stated in a letter to the staff dated 16 January
2002 from John Donnison, business Manager, Fire and Security Services
"the need for the security business at Manchester Airport
to become more competitive with external security providers .
. . and terms and conditions of employment which far exceed what
the competitive market will except. I have explained that if we
do not change to become more competitive then the security work,
and the jobs that depend on it, will be lost to external security
The first phase in creating a new security business,
within a separate company called Manchester Airport Aviation Services
Ltd ("MAASL"), that can resist the competition from
external providers is nearing competition. As a result of its
terms and conditions of employment, MAASL is competitive [lower]
with external security providers against whom we compete for the
security at the airport . . . The principle objective is to achieve
a competitive security business which meets the requirements of
our main client Manchester Airports Division both in terms of
service quality and cost".
From this it is quite clear that it is the airport
itself that has induced this competition, by the creation of separate
operating companies that then have to tender to its parent company
for the contract. The parent company is comparing this bid against
other bids and it would be reasonable to assume, accept the lowest
bid. This is another example of where tendering can reduce employment
conditions in transport companies below an expectable market clearing
rate. Also the LEK Report made it quite clear that these cuts
did not arise from any financial crisis, but are designed to further
increase the Manchester Airports Division still healthy profits.
David Teale, has also said that the changes
were designed to ensure the airport became more competitive so
it could attract airlines such as easyJet, which operates out
of Liverpool. "We need to get our charges down. If we are
more expensive, why should airlines use us?" he said. He
claimed wages at Manchester were far higher than at other airports,
at present they earn about £22,000 (£28,000 for night
It is clear that the company has not learned
the lessons from across the Atlantic about reducing labour costs
of the security function. As in any other walk of life you get
what you pay for. If you want high quality security staff then
you have to pay for them. As we said in our evidence to you, ideally
we think all airport security staff should be employed by the
airport, if not at least directly employ state employees, in part
because of the spillover effect. The wages should reflect the
skill and responsibility of the job, not the lowest price some
firm is prepared to bid for the contract. It is wrong to leave
the setting of wages of this group of people to the vagaries and
imperfections of an imperfect market.
Our members have recognised that the Airport
may suffer as a consequence of the current difficulties in aviation
so they took the position that they would be positive and supportive.
They decided they would defer their annual pay rise of 2.5 per
cent for up to one year to deal with unknown damaging factors.
They also felt that the nine local authorities should accept a
similar 2.5 per cent cut in their dividend for the same reason.
In December last year the Airport was buoyed
by the news that passenger numbers nearly topped 20 million (the
figures are given below) and the return of services axed after
the 11 September attacks.
DECEMBER 2001 TRAFFIC
|Passengers||% Change vs December 2000
ROLLING 12 MONTHS TO DECEMBER 2001
The position is that the cuts in security jobs that have
been proposed mean that 590 workers have been told:
to take a pay cut of 40 per cent or be sacked;
to increase their working week from 38 to 42 hours;
to reduce their holidays from 27 days to 20 days
The reasons for these job losses are solely to increase the
profitability and do not add value to the provision of the security
function at the airport. As a responsible trade union we view
the actions taken at Manchester Airport as the worst kind of corporate
greed, and that the reduced level of the terms and conditions
of security staff will affect the professionalism and quality
of people working at the airport and will eventually impact on
the travelling public.
National Secretary, Civil Air Transport
22 February 2002
Supplementary memorandum by the Department for Transport,
Local Government and the Regions (AT 25A)
THE AIR TRANSPORT INDUSTRY: IMPLICATIONS OF 11 SEPTEMBER
1. Paragraph 37 of the Government's recent Memorandum
on the effects of the terrorist attacks of 11 September on the
UK air transport industry stated that the Government was considering
requests from UK airlines for financial assistance in line with
the "de Palacio package" of support measures which the
European Commission would regard as compatible with Article 87(2)(b)
of the Treaty, which refers to aid "to make good the damage
caused by . . . exceptional occurrences".
2. The Government has now decided to provide compensation
to UK airlines for losses directly attributable to the closure
of US airspace following the terrorist attacks, and has issued
detailed instructions to UK airlines on how to apply. The Government
believes that making payments of this kind will ensure that those
UK carriers which are particulary exposed to variations in demand
on the North Atlantic market will not be disadvantaged in relation
to their European competitors, The Government also considers that
those UK airlines affected by the temporary closure of Israeli
airspace and London City Airport following the attacks should
be compensated for losses directly arising from those closures.
The total amount of compensation will not exceed £40 million.
3. By drawing the terms of the assistance tightly the
UK will be supporting the Commission in its firm stance on state
aid, and by taking a lead in Europe be setting a benchmark against
which it hopes payments by other States will be judged. In line
with the long-standing principle that users should pay the full
costs of airline services the Government is not proposing to meet
any costs of enhanced security measures. It is conscious that
BA and many European carriers have already imposed ticket surcharges
to reflect increased insurance and security costs.
Department for Transport, Local Government and the Regions
Supplementary memorandum by the Department
for Transport, Local Government and the Regions (AT 25B)
THE AVIATION INDUSTRY POST 11 SEPTEMBER
Mr Jamieson was asked to respond on "the situation with
regard to the cargo market, both your impressions on the consequences
of 11 September on the cargo market-place and the consequences
of reaching an Open Skies agreement for the cargo industry in
Freight tonnage through UK airports in 2001 was at lower
levels than 2000 before September. For example, it was down almost
12 per cent at BAA airports before 11 September, when it then
declined by 27.5 per cent in the latter half of the month. Tonnage
had recovered to a decline of 15 per cent in October and since
then, published BAA figures have shown a gradual improvement until
December when the decline in tonnage was back to pre-September
levels. A similar picture is painted by published BA figures and
it seems reasonable to assume this is also the overall picture.
The UK recognises that Open Skies would confer a more valuable
benefit on US all-cargo carriers than it would on their UK counterparts,
as a result of the UK's geographical position and the scale and
nature of the operations of the US all-cargo carriers. The government
recognises too that UK all-cargo carriers may find it difficult
to compete with the much larger US carriers. Against these points
the government must set other considerations. Liberalisation,
whether partial liberalisation under Open Skies, or the full liberalisation
for which the UK will continue to strive, would bring benefits
to UK consumers and to the wider UK economy.
Mr Jamieson stated that the role of government "is to
make sure that the security and safety issues are being met and
we in the Department have inspectors that go out and check that
security is at the levels we want." The Committee asked for
more information about the level of security checks in the UK.
Transec employs 22 aviation security inspectors, whose job
it is to monitor the industry's compliance with the UK National
Aviation Security Programme. Inspections are carried out at any
time when the industry is operational.
During the period 11 September to 31 December 2001, 309 inspection
visits were made to airports and 239 to air cargo agents to check
compliance with the regulations. During the course of airport
visits, 1,102 airline security functions and 536 airport security
functions were inspected. In the corresponding period for the
previous year 279 inspection visits to airports and 279 [sic]
inspection visits to air cargo agents were made.
The frequency of visits to particular locations is determined
by a number of factors, such as passenger traffic, the results
of previous inspection data, the profile of the carriers operating
from that airport and the assessed threat against them. Since
11 September we have increased inspection activity at major airports.
SUPPLEMENTARY 12 QUESTIONS
(a) Is the Department monitoring the changes in slot allocation
and exemptions granted under the "use it or lose it"
waiver at Heathrow and Gatwick? If not, how is the system being
No, monitoring is undertaken by Airport Co-ordination Limited
(ACL), the independent co-ordinator responsible for the allocation
of airport slots. ACL monitor the use of slots retrospectively
at the end of each season. Airlines which have not used their
slots for 80 per cent of the period for which they are allocated
will lose their slots in the next equivalent season (under the
"use-it-or-lose-it" rule) unless they justify to the
satisfaction of ACL that the slots in question should be exempted
form the normal working of the rule. We know that at Gatwick BA
have returned a number of slots to the pool for re-allocation,
and that this has enabled easyJet and a number of other carriers
to start some new services.
(b) When the expected recovery comes, how will the allocation
be restructured to take account of those airlines that have expanded
their operations during this period?
Where airlines have cut services because of the post 11 September
downturn in demand, they have given back slots to ACL to re-allocate.
Some of these slots have been handed back "permanently"
and these have been re-allocated to other airlines who will not
earn "grandfather rights" to them once they are operated.
Other slots have been handed back "temporarily", ie
the airline is claiming that its justification for failing to
use the slots is a result of the events of 11 September, and ACL
have re-allocated these on an "ad hoc" basis. If, at
the end of the season, and subject to Commission guidance, ACL
is satisfied that they should be exempted from the "use-it-or-lose-it"
rule, they will revert in the next equivalent season (Winter 2002-03)
back to the original airline user.
(c) Does the Department accept, and have an explanation
for, the fact that while there may be less pressure on slots at
Stansted, according to ACL the pressure on slots for Heathrow
and Gatwick for Summer 2002 is markedly worse than for Summer
2001, even before any resolution of the UK US bilateral?
The Department understands that the demand expressed at the
November 2001 slot conference for slots at Heathrow for Summer
2002 was buoyant and that the demand for slots at Gatwick was
much higher than that expressed in November 2000 for Summer 2001
slots. This may be because knowledge of BA's plans to reduce operations
at Gatwick stimulated an unusually high number of opportunistic
bids from airlines, particularly from low cost operators.
(d) Does the Department intend to secure vital regional
links to Heathrow and Gatwick from Scotland, Northern Ireland,
the West Country and Channel Islands by designating them under
Public Service Obligation (PSO) protection?
The Government understands the importance of regional air
links and is currently undertaking a policy review on options
available to address the protection of London airport slots for
regional air services. The UK has to date interpreted the European
Regulation on PSOs tightly, and has only imposed PSOs within Scotland
on certain lifeline routes serving the Scottish Highlands and
Islands. There are currently no PSOs on routes to London.
(e) In the context of the UK US bilateral, has the Department
given any undertaking to provide slots at London Heathrow to meet
the demands of the United States? If so, has the Department formed
a view on which routes and services should provide those slots?
The Department has not given, and does not intend to give,
any undertaking to provide slots at London Heathrow to meet the
demands of US carriers. It would not be within its powers to do
(f) Press reports suggest that British Airways is considering
withdrawing from its regional operations at Glasgow, Birmingham
and Manchester. What would be the implications of such retrenchment
by British Airways?
BA's chief executive has described all such reports about
its current review of strategy as speculation. If BA were to withdraw
from markets where there remains a substantial demand, we would
expect other airlines to move in to meet it, just as BMI British
Midland increased their services to Belfast when BA withdrew their
(g) Will the long-term investment required by NATS be delayed
because airlines are focusing on their own short-term financial
NATS are reviewing their financial plans, including their
capital investment programme, in the light of the events of 11
September. The downturn in traffic has reduced NATS' resources,
but has also made some capital projects less urgent than they
were. We and the Airline Group, as the two main shareholders,
are in close discussion with the company on these matters. David
Jamieson said at the hearing on 9 January that the Government
would act as a responsible shareholder in contributing to a resolution
of NATS' financial position. We are confident that the Airline
Group will do so too, whatever the situation of individual companies
within the Group.
(h) How will the events of 11 September effect the timetable
for the opening of Swanwick?
They will not affect the timetable. The decision has been
made to proceed with the move of services from West Drayton to
Swanwick, and the new centre remains on course to open on 27 January.
(i) Is this the right time for terminal and runway capacity
enhancements to be considered given the current uncertainty of
the future size and shape of the air transport market?
Yes. The Government is committed to providing a framework
for the long-term, up to 2030. We do not consider it necessary
to amend our long-term air traffic forecasts in the light of the
terrorist attacks on 11 September. The Department's published
forecasts recognise that demand in the short term may be subject
to factors such as wars or terrorist action.
In considering the need for future infrastructure we are
primarily concerned with the size and nature of the end-user markets,
rather than the precise structure of the airline industry serving
(j) Is runway, terminal and airspace (ATC) capacity the
most important deciding factor in the future of the United Kingdom
Yes, but the structure of international regulation governing
aviation and the commercial strategies of the UK's aviation businesses
will also have a significant impact.
(k) Will the historic lack of competition between airports,
particularly in the south-east, be diminished as the industry
restructures or will it be worse without provision of additional
The restructuring of the airline industry provides opportunities
for airports to compete to attract new and expanding airline customers.
However, if in future there was an inadequate amount of infrastructure,
the scope for meaningful competition between airports would be
(l) Are the SEERAS and RASCO consultations that are essential
parts of the new White Paper still on time for March?
We expect to publish our series of consultations documents,
between them covering all parts of the UK, in Spring 2002.
24 January 2002
Supplementary memorandum by Christopher
N G Tarry (AT 35A)
AIR TRANSPORT INDUSTRY
Members of the Committee requested information on the following:
the likely duration of the current downturn and
whether the impact will be the same for all carriers and market
the break-even load factors for the principal
the differences between the low-cost and charter
carriers, their respective future developments and their impact
upon the air travel market;
the key operating statistics for the airlines
within each group;
the relative efficiency of the various parts of
the airline industry; and
a view on the timing of the proposed change in
the charging regime at regulated airports leading to an increase
in the airports' charges to airlines.
1. The likely duration of the current downturn and the
nature of its impact by airline and market type
1.1 Whilst some commentators have sought to draw a parallel
with the period following the Gulf War this is of limited use.
It is impossible to assess the length of the traffic downturn
that has resulted from the attacks on the USA in September 2001
and the subsequent events. However, the following observations
may help the Committee in their deliberations.
1.2 Overall traffic has recovered from its lowest points
but remains well down from levels in the corresponding prior periods.
For the industry in Europe the latest figures from the Association
of European Airlines (AEA) show that in the first week of January,
total traffic for their members was some 12.5 per cent lower.
Within this figure intra-European traffic was 13.7 per cent lower;
North Atlantic 18.0 per cent lower; with Asian traffic 11.9 per
cent lower. This compares with the week before Christmas when
the corresponding figures were: ¸7.7 per cent; ¸7.0
per cent; ¸12.3 per cent and ¸6.7 per cent respectively.
1.3 The latest figures for the individual airlines that
publish monthly figures relate to December. Generally the figures
for this month were better than industry expectations but these
too reflect the "Christmas effect" and the continuation
of significant discounting. For the final quarter of 2001 the
figures show a mixed picture. For most of the mainline airlines
traffic remains well down, an exception in Europe is Air France
which has benefited, particularly in the African market, from
the demise of Sabena and the problems at Swissair and Air Afrique.
1.4 In the UK regular traffic figures are published only
by British Airways, Go-Fly and easyJet although those from the
latter airline are produced in a different form. Data for all
UK registered airlines is of course available from the CAA but
with a publication tag of some three months.
1.5 Prior to the events of September, BA was already
reporting falls in traffic, a consequence of their reductions
in capacity, which were having a positive effect on reported passenger
yields. The cart shows the experience of British Airways by traffic
type since the start of 2000.
1.6 Against this background there is an expectation that
BA's revenue in the October-December 2001 period will be some
£500 million lower than in the corresponding quarter in 2000.
1.7 For easyJet and Go-Fly, their business models are
based upon the capacity led growth and in December 2001, Go-Fly's
capacity was 19.7 per cent higher than in the corresponding period
in 2000. To a greater, rather than lesser extent these airlines,
to date have expanded into unserved or underserved markets. They
too huse price to generate traffic and whilst reported
traffic growth appears unaffected by 11 September and the aftermath
their financial figures will show the effect.
TABLE 1: PASSENGER NUMBERS FOR easyJet AND GO-FLYSEPTEMBER
TO DECEMBER 2001
|Source: Company reports
1.8 Looking to the future, whilst it is clear that the
airline industry is able to re-stimulate traffic overall it remains
well below last year's levels. Further recovery in the near term
is likely to be a reflection of market stimulation rather than
from any GDP driver. The longer-term issues are the extent to
which this in fact will result in a structural change in the pricing
environment. A meaningful recovery in business travellers in any
cabin is likely to take some considerable time. The recovery will
require a more favourable perspective on the economic outlook
and even then the widespread relaxation of travel budgets that
have been set for 2002.
2. An analysis of the break-even load factors for the
principal UK airlines
2.1 The break-even load factor is the load factor that
is required to equate total traffic revenue with operating costs.
As a consequence it not only reflects the volume of traffic that
is needed but changes in either the cost or revenue structure
also affect it.
2.2 British Airways publishes its break-even load factor
each year in its annual report. The experience of the last five
years is shown in Chart 3.
2.3 In the first two quarters of BA's current financial
year we estimate that its breakeven load factor was 62.4 per cent
versus 64.9 per cent in Q1 and 62.5 per cent versus 63.6 per cent
in Q2. The results for the third quarter are expected to be published
on 4 February 2002.
2.4 Using the standard industry formula the indication
is that in their first financial year the break even load factors
for both easyJet and Go-Fly were in the low 70s.
3. The differences between the low-cost and charter carriers,
their respective future developments and their impact upon the
air travel market
3.1 The UK airline industry is characterised by three
principal segments. The mainline or full-service airlines chiefly:
British Airways, bmi British Midland and Virgin Atlantic; the
no-frills or low(er) cost airlines chiefly: easyJet, Go-Fly and
the Irish registered airline Ryanair; and the charter carriers
the majority of which are the airline in a vertically integrated
inclusive tour provider offering surplus seats either to other
inclusive tour providers or on the open market.
3.2 It is reasonable to expect little change in the focus
of the charter carriers, which in 2000 carried some three times
the number of passengers of the UK-registered low-cost sector.
They will continue to provide competition for leisure passengers
with the low cost airlines to a number of holiday destinations
in Southern Europe particularly in Spain. Future capacity growth
in this segment is likely to continue to be largely determined
by the demands of the tour operators.
3.3 The low-cost/no-frills segment at this stage in its
development is based upon capacity-led growth and this will continue
although the focus and location of the capacity deployment will
change. Of the airlines, easyJet in particular has a substantial
number of orders in place and recent public announcements suggest
the acquisition of 45 to 75 more. Within this segment there are
differences in the business models pursued by easyJet and Go-Fly
and Ryanair. In particular easyJet and Go-Fly are focused on enriching
their traffic mix. In the first instance this has been at their
respective home bases before rolling the model into new markets
to provide either a new service where one did not exist before
or to provide an alternative to the incumbent carrier or carriers.
For easyJet this has involved setting up bases in mainland Europe.
Ryanair's model is based on low cost and low fares serving principally
secondary and tertiary airports other than in the UK or Ireland.
3.4 In the South East of England the moves by easyJet
and Go-Fly to build services out of Gatwick suggest that the business
traffic catchment areas at Luton and Stansted in terms of supporting
new routes may be close to exhaustion. This also reflects a move
closer to the principal traffic catchment areas in the region.
3.5 At the same time Go-Fly is expanding services in
the UK regions, most recently stimulating a response from British
Midland with its low cost/no frills offering to be launched at
East Midlands Airport. For any lower-cost/no frills carrier there
is a significant risk if there is direct competition between airlines
in this sector. The experience of Go-Fly and Ryanair on the Ireland
to Scotland route shows this clearly. A high rate of new route
offering with if necessary subsequent withdrawal has in the past
ensured the on-going development of new and underserved markets.
The moves by easyJet and Go-Fly to Gatwick reflect a different
4. The key operating statistics for the airlines and airline
4.1 The key operating statistics of importance are reflected
in the relationship between the break-even load factor and the
achieved load factor. Examination of the achieved load factor
in isolation, however, gives no guide to either the efficiency
or the financial performance of an airline.
4.2 The traditional approach to measuring productivity
has significant disadvantages. In this respect the use of measures
based on the revenue and cost per flying hour will give a better
guide to performance.
4.3 In any comparison between airlines it is necessary
to make adjustments or set the statistics against a meaningful
baseline to ensure that comparison is valid. Significant differences
can of course also reflect structural constraints. The CAA aircraft
utilisation statistics for Q2 2001 show that with an almost identical
average sector length the utilisation that British Airways European
Operations (Gatwick) achieved from its Boeing 737-300s was 53
per cent of that achieved by easyJet reflecting in large part
the Gatwick operating environment.
5. The prospect of an increase in the regulated airports'
charges to airlines
5.1 It is necessary to balance the needs of the airports
to fund expansion over the near/medium term. There is, however,
a risk that the increased charges will not result in a commensurate
benefit to the airlines even over the medium term. There is an
inevitability that when traffic is restored to at least the previous
levels, delays, both foreseen and unseen will further mitigate
against the efficient operation of airlines at congested airports
and result in additional cost being incurred. In this respect
the costs of the proposal by the CAA to incentivise BAA to increase
annual movements to 480,000 a year
at Heathrow would be borne directly by the airlines through additional
delays or expanded schedules and a consequent further reduction
in efficiency from this cause.
Christopher N G Tarry
18 January 2002
Heathrow, Gatwick, Stansted and Manchester Airports' Price Caps
2003-08, CAA Preliminary Proposals-Consultation Paper-November