Examination of Witnesses (Questions 220-239)
Wednesday 11 June 2003
MR ROGER
WILTSHIRE, MR
MIKE SMITH
AND MS
VANESSA TAMMS
Q220 Chairman: Welcome, Mr Wiltshire.
Thank you for your memorandum. Is there anything you would like
to add briefly before we take evidence from you?
Mr Wiltshire: No, other than to
introduce myself. I am the Secretary General of the British Air
Transport Association: I have with me Vanessa Tamms from Virgin
Atlantic Airways and Mike Smith from Monarch Airlines.
Chairman: Welcome to you all.
Q221 Mr Chaytor: Mr Wiltshire, do
all of your members report annually on emissions?
Mr Wiltshire: No, they do not.
They obviously manage their fuel burn very effectively and efficiently
and they probably have figures for that. We do not bring them
together as an industry at the moment.
Q222 Mr Chaytor: So which members
do and which members do not?
Mr Wiltshire: In terms of emissions
I do not know of any, other than British Airways who go very publicly
into publishing their emissions.
Q223 Mr Chaytor: So the follow-up
is if not, why not, in terms of Monarch and Virgin? What is their
reluctance to be more upfront in terms of emissions?
Ms Tamms: I guess it depends what
you are looking at. I admit we have not been that good in delivering
the message publicly on what we are doing as a company in environmental
terms but that is not to say we are not doing things. We certainly
invest in, for example, the latest aircraft technology and that
in itself obviously has a significant impact on outputs. In terms
of measurement I believe currently we tend to focus on inputs
in terms of data collection, but we certainly focus on outputs
when we make decisions pertaining to our fleet and so on.
Mr Smith: For us it is very much
the same story. We are concentrating very closely on improving
our fuel performance and thinking of returns we do, as do all
airlines, make returns to the CAA on fuel consumed but not specifically
on the amount of carbon dioxide.
Q224 Mr Chaytor: Could you envisage
it as a marketing advantage in time to be presented as a fuel
efficient airline committed to reducing emissions? If people have
a choice between, say, BMI or Monarch Airlines or Ryanair or a
choice between BA and Virgin Atlantic to fly across the Atlantic,
do you envisage there is a consumer market here who will say "I
want to go with the greenest airline and I need information to
inform my choice"?
Mr Smith: It is an interesting
concept, and something that has been loosely approached before.
I do not think there is really the opportunity there largely because
we are all so similar on a given route. You appreciate that fuel
performance varies widely over certain distances and on a given
route we are operating very similar aircraft types and it is difficult
outside of load factors perhaps to get any particular advantage
of one carrier over another.
Mr Wiltshire: It is fair to say
that in aviation compared with other transport modes, certainly
the car, the pilot, and the aircraft in particular, flies in a
very specified way and usually a way to minimise fuel burn.
Q225 Mr Chaytor: Could I ask about
your views on this concept of radiative forcing? Is there agreement
within the Association as to the full effect of this on total
emissions and how it should be compensated for and costed?
Mr Wiltshire: The IPCC report
that Andrew Sentance showed you before is still the Holy Grail
as far as aviation and the environment is concerned, and in that
you will see diagrams depicting a variety of gases and other emissions
that may or may not have an effect on global warming. The CO2
column is relatively clearly understood; certainly it is an output
that we understand because it is directly related to fuel burn
so it is easy to measure, and it is something that is being used
in the control of global warming worldwide through Kyoto. The
other emissions, NOx and the other impacts, are of a different
nature. NOx, for example, is pollutant at ground level and hence
it is an issue, but at high levels it has two effects—one
is benign and improving global warming and one is worsening it—so
one has through scientists to understand what the balance is.
As far as cirrus cloud production or con trails is concerned,
the jury is very much out. If you speak to the scientists, as
we do regularly, there is a huge level of uncertainty and the
altitude at which aircraft fly is critical in understanding whether
an impact at that level is going to have a positive or negative
effect on radiative forcing atmospherically. I think it is also
fair to say that the scientists need to do a lot more work, which
they are doing, to understand the sheer chemistry of atmosphere
at that sort of altitude.
Ms Tamms: Adding to that, as I
understand it, the IPCC report says that we are not quite sure
what the effect of radiative forcing is at the moment. It could
magnify the effect of CO2, by a factor of two; conversely it could
decrease it by about minus five times. The figure in the HMT and
DFT Aviation and the Environment paper assumes the effect
of radiative forcing is between 2.7 and 3.0, but at the moment,
given current aircraft technology, the only way we can reduce
the impact of radiative forcing is by increasing CO2 emissions
so if you impose a charge which is effectively CO2 times three
you would be incentivising airlines to produce more CO2.
Q226 Mr Chaytor: Moving on to the
current consultation exercise on environmental cost, do all of
your members support emissions trading as the solution and, if
so, what is your view?
Mr Wiltshire: In general we do.
We see it as the most efficient and the most focused way of dealing
with the issue.
Ms Tamms: Absolutely. Virgin Atlantic
certainly does for two reasons. One is that it not only over time
meets environmental objectives but it also does so at least cost,
and if you believe that one of the objectives of government is
to foster competitive industry, then that is the policy approach
you should be adopting.
Q227 Mr Chaytor: It meets environmental
objectives in terms of CO2 emissions but it does not deal with
traffic congestion or noise or biodiversity or quality of life
around airport, and these intangible things. Are you therefore
ignoring the other environmental dimension? What is your solution?
Mr Wiltshire: We see environmental
issues as being of two types—the local type such as noise,
local air quality and some of the other things you mentioned,
and the global one—and because of the local v. global aspect
they are best dealt with in a local or an international context.
If we go into local areas noise is currently a highly regulated
issue anyway, and we believe the industry has a good track record
of bringing down noise impact and will continue to do so as technology
continues to improve over time. There are also regulations on
us in that area and there are incentives. In the case of local
air quality, it is a newcomer to the scene; the European regulations
that will take effect in two or seven years' time are relatively
new to a lot of people, not just aviation, and we see an issue
there that will need to be dealt with in central London, for example,
as well as at Heathrow. We are very keen to understand the nature
of the problem so we know how to tackle it but we are committed
to dealing with it and to keeping within the health targets set
within the European regulations. As far as the other local issues
are concerned, often these are issues resulting from a step change
in infrastructure, so additional terminals, airport expansion
or even a new airport, for example, are areas where you would
get into the trade-off and the issues about ecology and biodiversity.
Q228 Mr Chaytor: Finally, can I ask
about the future and the question of this projected growth in
demand? Do you think there needs to be some demand management,
or do you think growth is infinite? Where do you stand on this?
If you believe in demand management, how do we manage the demand?
Mr Wiltshire: We do not believe
in demand management; we believe we are an industry that is there
to serve the public. It is the public's need to travel, be it
for business or other reasons, that we are trying to serve and
as efficiently as we can. We see a relationship between economic
activity generally and GDP and air travel demand. So in countries
that are fairly advanced we may see a topping out, a plateauing
effect, but there are many countries in the world, China for example,
where the potential for air travel demand is quite large and if
you are talking of a global warming issue then one has to consider
demand from that country. Also, it is important to say that air
travel provides an important linkage across the world which probably
has a socio political impact that is understated, and I think
it is important to maintain links in the world for sustainability
reasons at a political level.
Ms Tamms: Virgin Atlantic does
not support demand management. What we do support is meeting environmental
costs and, indeed, improving environmental performance over time
at minimum costs. What seems to be the meaning of the term "demand
management" is above and beyond what is necessary to meet
environmental costs somehow penalising the industry and I would
argue, if industry is meeting these environmental costs, why should
it not be treated like every other sector and be allowed to grow?
Demand management seems to be a way of somehow imposing punitive
damages on the industry for no apparent reason, or a reason which
seems to be that aviation is somehow "bad".
Mr Smith: I fully support that
and, at the risk of moving slightly to another aspect of this
because everything is interlinked, it is our understanding that
the government's policy is for social inclusion, and from my particular
sector of the market I would be concerned that if demand management
were used it would disproportionately hit perhaps those who are
less able to pay in air travel. To give you an instance, 80% is
the current accepted figure of air travel in the United Kingdom
for leisure and of that group some 65%—it is slightly higher
at the moment, 70%—of those people are in the C, D and E
socio economic groups, so we feel that demand management would
hit that sector heavily.
Q229 Mr Chaytor: I would not have
thought that fits in with our experience because I would have
thought, and I cannot speak for my colleagues, of total journeys
the proportion of people in the lower socio economic groups is
going to be pretty small. Maybe of leisure journeys that you identified
it is slightly higher because of the package tour industry but,
in terms of total journeys, air travellers are overwhelmingly
more affluent groups of people.
Mr Wiltshire: There are many economic
activities that are undertaken by the more affluent than the less,
but—
Q230 Mr Chaytor: But which other
activities have such huge fuel emissions as air travel?
Mr Wiltshire: I think most human
activities have a global warming impact—almost all activities
do. We believe that air travel is a positive thing. As BAA said
earlier, growth in air travel is not bad, it is good; it is socially
inclusive. The normal method of demand management is through taxation,
and that is bound to hit not only the people in this country who
are least able to afford to travel but a whole sector called tourism,
which depends to a large extent on people flying into this country
to visit us. Some 65% of the visitors to the United Kingdom come
by air and they spend about 75% of the UK inbound tourism spend.
They are very price sensitive, and if they find the United Kingdom
has become expensive because of a barrier around it they will
go to another country instead, or spend less time in the United
Kingdom.
Q231 Mr Ainsworth: On that point,
is it not relevant that the balance of trade deficit in tourism
is £15 billion, and expanding the opportunity to fly is expanding
the opportunity for people in Marbella to make more money.
Mr Wiltshire: I think again this
is a misunderstanding of the situation. These are two totally
different markets. Although on an aircraft out from Heathrow today
to America there may be some British people travelling for leisure
reasons, there may be dozens of American people travelling back
from a holiday in the United Kingdom or Europe. They are totally
different markets and will react differently. The United Kingdom
outbound market will want to travel one way or another: they may
be deterred from travelling by air from the United Kingdom. If
a barrier is put around the United Kingdom, they will just get
in their cars and drive to France where there is an airport to
service their needs, or fly in multiple sectors depending on where
they want to go. On the other hand the inbound tourist will decide
to go elsewhere, so the gap rather than shrinking will become
larger.
Mr Smith: I do not have the figures
with me but a similar question I understand was answered by colleagues
of mine to the Select Committee for Transport which showed that
there was a net benefit to the United Kingdom economy through
tourism and, if you would like, I will supply those to you.[6]
Q232 David Wright: Was it the chief
executive of easyJet a couple of weeks ago who was suggesting
that we should all fly for free on the back of our retail footfall
in airports? What was your reaction to that? That seems to be
an incredible statement and there is dispute over whether it would
happen. Is the industry moving in the direction where retail footfall
is incredibly important in terms of airports and we are moving
to reduced price travel, because if we are then the air market
is going to knock all other forms of what you would claim to be
public transport out of the system?
Mr Wiltshire: It is fair to say
that the retail element of an airports operation can be quite
significant. BAA is an example and have developed their airports
into quite large shopping areas. The extent to which that contributes
to the industry depends how much air passengers spend, because
most of this spend is done on the airside where most of the shops
are and where most of the time is spent, so that will depend on
demand from customers. It is true that airlines wishing to open
up small airports often talk to the airport in terms of coming
to start a route and the debate, compared with the discussion
earlier about single versus dual till, is totally inclusive. All
activity—not just the retail but the car park, everything—is
all bundled into the pot when they are negotiating a deal. In
terms of the net airport charge, therefore, this may well be an
issue but airport charges are still a relatively small proportion
of overall airline costs.
Ms Tamms: Based on the testimony
of BAA given before those of us who adopt that strategy would
do so at our peril because it is quite clear that BAA intends
to remove retail income from airport charges over the next five
years.
Q233 David Wright: The airline industry
is a bit odd, if you will excuse that phrase, in the sense that
there is a lot of ex national monopoly players within the market
really with significant brands—BAA is an example but there
are other international players. Do you think there are other
areas where we could try and promote more environmentally friendly
carriers perhaps by looking again at the way that airport take-off
slots are used and whether there are other initiatives that could
be used by the industry or, indeed, that government could take
to promote a different perspective and a more green approach,
if you like?
Ms Tamms: I guess this is related
to the previous question about whether you could see airlines
marketing themselves on the basis of their environmental credentials.
Unfortunately in practice passengers are very unwilling to pay
for environmental improvements. Those that are more price sensitive
will be primarily focused on the price obviously; those that are
travelling for business look for a number of different things—schedule
convenience and so on—but their companies still take price
into account, so I think while people would say all the right
things and say, "Yes, of course, we would like to support
airline X because they seem to be more environmentally friendly",
when it comes to putting their hand in their pocket they would
not be willing to pay for it.
Q234 David Wright: What about a regulatory
framework that was more aggressive in terms of charging on slot
access and embedding the environmental principle into that approach?
Mr Wiltshire: On slots, a lot
has been discussed over the years and will continue to be, I am
sure. At very congested airports like Heathrow and Gatwick it
is bound to be a major issue. If there is an environmental objective
one needs to think through any economic mechanism to determine
whether it would have the desired effect or, in fact, perverse
effects. There are dangers that any mechanism you think about
would have perverse effects. Without any particular government
intervention, the industry and the airports have generated very
highly utilised facilities in places like Heathrow and Gatwick
with every hour of the day full, the runway effectively full every
hour of the day with the only capacity left at night, but that
is a special case and is separately regulated, so the industry
through its pricing and its scheduling operation has managed to
get very high utilisation throughout the day. There is no need
for the incentive to get people off peaks into troughs. There
are no troughs left any more.
Mr Smith: One further thought
on that, depending on the criteria you would use to measure and
allocate, it is likely it seems to me that the losers, for want
of a better word, would be those movements that carry fewer passengers
and that would generally be short haul flights, and flights, for
example, to other regions in the United Kingdom.
Ms Tamms: Just adding to that,
as you know Virgin Atlantic has long supported a radical shake-up
of the slot allocation system that governs EEA airports. We believe
grandfather rights should be removed and market based mechanisms
should determine who gets to use slots each season, but ironically
the outcome of that will be that air fares will fall. Why? Because
it puts all carriers on a level playing field with regard to access
to slots so who should get them will be the most efficient airlines
and it will also increase competition. We all know the outcome
of increased competition is reduced fares, which is quite ironic
because those people who are in favour of slot auctioning as a
way of raising revenue seem to think that it will be a way of
taxing the industry further and therefore increasing air fares
and pricing people out of the market.
Q235 David Wright: I know you were
sitting in listening to the evidence that came from British Airways
and their involvement in the current United Kingdom trading scheme.
What was your view on Mr Ainsworth's line of questioning about
them getting £6 million for doing very little and doing what
they would have done anyway?
Ms Tamms: As a company that cannot
enter that scheme because international flights are not included
in that scheme, that is a bit of a sore point. Also, we would
argue that we have made significant improvements in the CO2 outputs
of our fleet by investing in the most efficient aircraft available
and we are not getting compensation for it.
Mr Smith: I would support that.
Mr Wiltshire: My understanding
is that no future scheme would involve an incentive. I do not
know the government's motivation but it may well have seemed necessary
to have an incentive to join the scheme. What is being discussed
in ICAO is for aviation globally to get involved in the scheme.
Q236 Mr Challen: I am just thinking
back to my flight to New York in 1990 which happened to be with
Virgin for around £200 and the fact that you can still fly
to New York for the same price. It seems to me that if we had
a graph you would start perhaps in 1990 and you would see a gradual
slippage in emission figures, a reduction, but you would see a
plummeting in the relative costs of these flights across the trans-Atlantic
routes. That plummeting of the cost of flying is increasing the
number of aircraft and increasing demand regardless of 11 September
I suppose. Does the government in those circumstances not have
a duty to step in and do something to protect the environment
to try and introduce measures which increase the reduction in
emissions, and are you not really flying in the face of common
sense when you are, from what we have heard this afternoon, being
fairly resistant to environmental taxes and charges and against
the indirect subsidies of what has been estimated at £9.2
billion in the absence of fuel duties and VAT, for example?
Mr Wiltshire: There are two things
to remember here. Since 1990 aircraft have become more fuel efficient
and the aircraft you flew on in 1990 is probably not the aircraft
you would be flying on today, although I cannot guarantee that.
Secondly, since 1990 you would have been paying air passenger
duty, £20 minimum for a long haul journey or £40 in
business class.
Q237 Mr Challen: That means the flights
are even cheaper, relatively?
Mr Wiltshire: What I am saying
is your contribution in terms of covering your environmental costs
and the efficiency of the operation has changed in the meantime.
I think it is a success story that aviation has become more efficient
over the years and has been able to hold prices down but I think
one must also be careful not to take fares into account that are
marketing offers in a particular period. One must look more at
the average fare charged because airlines have to survive on their
average fare. They may offer promotions but it is a very difficult
thing for them to do so for any length of time, so they have to
operate at an average level. I do not think, therefore, that reducing
the cost of flying is necessarily a bad thing but many things
have happened in the meantime and I would expect your journey
to have been much more fuel efficient now than then.
Q238 Mr Challen: I put to you an
argument which I think a collection of environmental groups called
Airport Watch have put forward that industry estimates are that
the intrinsic costs of flying will fall by about 1% a year over
the next 30 years, and they have run the Department of Transport's
so-called SPASM, passenger allocation model, and that model, if
you include the costs of putting on VAT and adding fuel tax comparable
to other transport taxes and charges, would equate to about 34%
over the next 30 years, so it has a neutral effect. Are they making
wrong assumptions there?
Mr Wiltshire: I think they are
making wrong assumptions about taxation as others have mentioned.
We ask only to be treated just like any other public transport
mode. Our tax situation is very similar to other public transport
modes. The only difference with aviation is we pay our way thoroughly
on infrastructure and we also, through the passengers, pay air
passenger duty which is a tax not charged to any other public
transport mode. They have created figures, therefore, in order
to adjust demand. When they reached the level at which they felt
environmental costs were internalised they also ran the model
and found that the demand increased to the extent that you needed
two more runways in the south east and they put that on the website.
So it is important to recognise that it depends what your assumptions
are and on taxation we would disagree.
Ms Tamms: May I just make a comment?
If air fares have decreased over time as a result of competition,
producing benefits for consumers, that absolutely should be encouraged
and not stopped. That is a separate issue from whether growth
in air transport is having a damaging effect on the environment.
Clearly, if that is the case, we should be doing something about
it and we should be minimising the impact on the environment absolutely,
but the two things can occur at the same time. We can have an
increase in competition and therefore a reduction in fares and
still meet our environmental costs. The reason we have opposed
substituting, as it were, a reduction in fares with an increase
in taxes and charges is again because taxes and charges do not
necessarily meet environmental objectives and, secondly, do not
do so at minimum cost. One of the reasons for that is that the
assets that we use—aircraft—have very long asset lives,
20 years or so, and we make fleet planning decisions years in
advance, so if you slap a tax or a charge on us with say three,
six or even twelve months' lead time we find it extremely difficult
to react to that. It is not like putting a directive in place
saying "All cars must have catalytic converters in five years'
time", because the time at which people change their cars
and their lifespan means you can change these things over a timeframe
of 5-10 years, but that is not the case with aircraft. With the
best will in the world, and even though we have been wanting to
do things which make meaningful improvements to the environment,
our hands are a bit tied by the nature of the assets, which is
why we have gone for longer term solutions.
Q239 Mr Challen: Actually you are
making my point really because clearly you have to run an aircraft
for 10-15 years or whatever to get full value from it; the costs
nevertheless continue to fall and the number of passengers continues
to rise, therefore the government has to step in. I would suggest
that that means they have to consider environmental taxes and
charges but you are setting your face against that, even though
the gap between environmental damage and the right of the consumer
to travel is, as it were, widening and creating more environmental
damage by the increase in numbers travelling by that method.
Mr Wiltshire: The environmental
damage I presume you are referring to is global warming.
6 See forthcoming report on Aviation, from the
Transport Select Committee. Back
| 
