Select Committee on Environmental Audit Minutes of Evidence

Examination of Witnesses (Questions 220-239)

Wednesday 11 June 2003


  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

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