Memorandum submitted by Civil Aviation
Authority
SUMMARY
1. The Sub-Committee's examination of air
transport services in Northern Ireland concerns:
— The development of capacity at existing
airports;
— Specific challenges facing Northern
Ireland as a peripheral region of the UK;
— The effectiveness of the Route Development
Fund; and
— The potential impact for Northern
Ireland of wider air transport issues on the island of Ireland.
2. This submission addresses these points
in the context of what the CAA sees as the main issues facing
the Northern Ireland market. Our comments below are based on factual
statistical data, experience of the aviation market over many
years, and the messages emerging from a visit we recently made
to Belfast as part of a wider study of services at regional airports.
The principal points the CAA makes are as follows:
— Northern Ireland is clearly more
dependent on adequate air links to the rest of the UK than most
other UK regions because of the lack of a suitable surface alternative.
— The evidence suggests that the market
is currently providing adequate, frequent air services between
Northern Ireland and the UK, including London, without the need
for external intervention which could impose high and hidden costs.
— However, the network of international
scheduled services is very limited at present. In the main this
would seem due to the relatively small catchment areas which the
Northern Ireland airports can draw upon, but some limited intervention
may be justified in bringing forward direct international scheduled
services through the use of a carefully controlled Route Development
Fund so as to share the risk between airline, airport and those
directly benefiting from the service. The use of such a fund should
also ensure that only routes with a reasonable prospect of long-term
viability are funded.
INTRODUCTION
The CAA's role
3. The Civil Aviation Authority ("the
CAA") is responsible to the Secretary of State for Transport
for duties in the areas of aviation safety regulation, airspace
policy, consumer protection and economic regulation.
4. The CAA's Economic Regulation Group (ERG)
regulates airports, air traffic services and airlines and provides
advice on aviation policy from an economic standpoint. Its aim
is to secure the best sustainable outcome for users of air transport
services. ERG's main tasks are to promote liberalisation through
the removal of Government-imposed restrictions to entry to the
airline market and to facilitate the optimal supply and regulation
of aviation infrastructure. ERG acts as expert adviser to the
Government and collects, analyses and publishes statistical information
on airlines and airports.
Visits to Belfast
5. ERG is currently putting together a study
of regional air services in the UK, which it hopes to publish
early in the new year. As part of our research, on 21 September
2004 we visited Belfast and spoke to the Managing Director of
Belfast International Airport, the Chief Executive of Belfast
City Airport, and representatives from Invest Northern Ireland
and the Northern Ireland Chamber of Commerce. There were differing
opinions on some points, but there were other areas where a consistent
message came across.
THE DEVELOPMENT
OF AIR
SERVICES IN
NORTHERN IRELAND
Traffic in 2003
6. There are three airports in Northern
Ireland which report traffic statistics to the CAA. In the calendar
year 2003, these three airports had a total throughput of 6.2
million passengers, comprising 4.0 million at Belfast International,
2.0 million at Belfast City and 0.2 million at the City of Derry
Airport. 84% of the total were passengers on domestic flights,
14% were international charter passengers and 3% were international
scheduled passengers. The bulk of the international scheduled
passengers flew on the Belfast International-Amsterdam route,
but there were also services during the year between Belfast International
and Toronto and between Belfast City and Cork. Nearly one million
passengers at Belfast International were on international flights
but Belfast City is essentially a domestic airport at present.
Traffic development 1993-2003
7. Over the last 10 years the Belfast airports
have grown at an average annual rate of 7.9%, higher than the
UK average of 5.9%. The growth rate at Belfast City (8.8%) has
been greater than that at Belfast International but even the latter
at 6.1% has grown faster than the UK average (Figure 1 and Table1).
Figure 1: Traffic at Belfast
airports 1993-2003
Table 1
TRAFFIC AT BELFAST AIRPORTS 1993 AND 2003
|
| 1993 |
2003 | Average
growth rate %
|
|
| Belfast City | |
| |
| Domestic | 845,359
| 1,960,352 | 8.8
|
| International scheduled | 0
| 9,959 | —
|
| International charter | 919
| 3,725 | 15.0
|
| 846,278
| 1,974,036 | 8.8
|
| Belfast International |
| | |
| Domestic | 1,629,462
| 3,003,698 | 6.3
|
| International scheduled | 60,558
| 119,666 | 7.0
|
| International charter | 489,989
| 831,068 | 5.4
|
| 2,180,009
| 3,954,432 | 6.1
|
| City of Derry | |
| |
| Domestic | —
| 162,025 | —
|
| International scheduled | —
| 28,974 | —
|
| International charter | —
| 14,506 | —
|
| —
| 205,505 | —
|
| Total | |
| |
| Domestic | 2,474,821
| 5,126,075 | 7.6
|
| International scheduled | 60,558
| 158,599 | 10.1
|
| International charter | 490,908
| 849,299 | 5.6
|
| 3,026,287
| 6,133,973 | 7.3
|
| Total | |
| |
| Domestic | 82%
| 84% | |
| International scheduled | 2%
| 3% | |
| International charter | 16%
| 14% | |
| 100% |
100% | |
|
Source: CAA airport passenger-related statistics.
8. However, underlying these relatively similar growths
at the two Belfast airports there have been some significant gains
and losses by each airport. These are summarised in Table 2 which
shows the domestic traffic at the two airports in 1993 and 2003.
Table 2
DOMESTIC TRAFFIC AT BELFAST AIRPORTS 1993 AND 2003
|
| | Domestic passengers
|
| between: | and:
| 1993 | 2003
|
|
| London | Belfast International
| 1,255,987 | 1,060,533
|
| Belfast City
| 169,418 | 1,026,880
|
| Other UK | Belfast International
| 431,849 | 2,054,471
|
| Belfast City
| 671,939 | 940,421
|
|
Source: CAA airport passenger-related statistics.
9. In 1993 nearly 90% of the passengers travelling to/from
London used Belfast International; by 2003 this share had fallen
to 50%. In contrast, over the 10 years Belfast International's
share of the passengers to other regional UK airports rose from
39% to 69%.
10. Underlying these changes are two important developments;
a change in the way the London market is served and the entry
of low-cost carriers, which first emerged in the mid-90s following
the liberalisation of the EU air transport market.
THE LINK
TO LONDON
Recent market developments
11. Until 2001, British Airways and bmi British Midland
both offered services between Belfast International and Heathrow
(six and eight per day respectively). Their combined traffic was
around 1.2 millon passengers a year. However, these services were
said to be unprofitable. In August 2001 bmi announced it was moving
its service to Belfast City as from the winter season. Following
the effects of September 11, BA decided to withdraw its service
altogether,[1] also effective
from the winter season. Consequently bmi maintained a limited
additional service at Belfast International to replace BA, until
the summer 2003 season when it withdrew altogether, leaving Belfast
International without a Heathrow service. Since these changes
bmi has increased frequency at Belfast City to eight per day and
now uses larger aircraft (Airbus A321). It carried just under
0.8 million passengers in 2003 and the route is reportedly a good
performer. CAA origin and destination survey data shows that in
2003 some 37% of bmi's Heathrow passengers were connecting to
other flights.
12. It would, however, paint an unbalanced picture to
say there had been a reduction in service to London. Low-cost
carriers entered the Belfast-London market in 1998 (easyJet to
Luton) and 2000 (Go to Stansted).[2]
Having absorbed Go and introduced Gatwick services in 2003, easyJet
now offers five services per day to Luton and Stansted and four
per day to Gatwick. In addition, British European, which (as Jersey
European) began operating to Gatwick in 1993 (and between 2001
and early 2003 to London City), re-branded itself as a low-fare
airline, Flybe, in 2002. Figure 2 shows how the BA and bmi Heathrow
services dominated the London-Belfast market in 1992, and how
easyJet has increased its presence in the market since 1998. Note
that easyJet's traffic to London now exceeds 1 million passengers,
and is approximately equal to the carryings of bmi and Flybe put
together.
Figure 2: Traffic on London-Belfast routes
by airport-pair 1992-2004
13. When visiting Belfast, the CAA asked about customers'
perception of these non-Heathrow services. The consensus was that
London was well-served, with a choice of airports at each end,
a choice of airlines, and, most significantly, value for money
that was lacking a few years ago. No longer did business passengers
regard other London airports such as Luton and Stansted as inferior
substitutes for Heathrow; indeed rail links from those airports
could be more convenient than Heathrow for meetings in the City
of London. Nor were business passengers deterred by the "no-frills"
service to those airports. The overriding factor, given a convenient
and frequent schedule, was cost. As a result of the competitive
changes in the market and consumer expectations, bmi also now
offers lower fares to Heathrow without the restrictive Saturday-night
stay and other conditions that previously denied those fares to
business passengers (a typical business trip would previously
have required a fare well in excess of £200 return).
14. Our conclusion is that services have developed such
that airlines are delivering products well attuned to the demands
of the market. Although Belfast International clearly would like
to see a Heathrow service reinstated, it is not apparent to us
that there is evidence of "market failure" and we see
no obvious call for government intervention in this market, at
least at present.
Access to the global air network
15. CAA origin and destination survey data for 2003 shows
that 37% of passengers departing Heathrow for Belfast on bmi's
service were connecting from another flight. About two-thirds
of those were connecting from services from the USA. The survey
also reveals that the vast bulk of business passengers who were
connecting at London did so at Heathrow; indeed, they outnumbered
the total of the other London airports combined by more than two
to one.
16. The message we derived from our visit to Belfast
backed up these figures. The Heathrow service was there for those
who needed connectivity.[3]
That didn't mean that airports like Stansted and Luton were not
used for connections, but Heathrow was the more obvious choice.
EasyJet, for example, does not offer a connecting flight service,
and requires two separate tickets; it will presumably not accept
responsibility if the connection is missed because the first flight
is delayed, and recommends a minimum two-hour connection time
because baggage is not through-checked (ie passengers need to
check-in again for the second leg). Similar considerations apply
to other connecting possibilities involving low-cost carriers
at regional UK airports such as Liverpool or Manchester.
17. Our visit to Belfast also revealed that flying from
Dublin was likely to be a feasible alternative to connecting at
Heathrow. This would depend on the destination, and the usual
considerations of price and schedule, but one noteworthy development
was Aer Lingus' re-structuring as a low-fare airline and recent
network expansion. Dublin was only two hours' drive away, and
this would soon be reduced further by road improvements. There
could, therefore, be a saving in both time and convenience by
cutting out the connecting flight.
LINKS TO
OTHER UK AIRPORTS
18. Belfast is also linked by air to other major UK business
centres. Our visit to Belfast made it clear that these links can
be just as important to Belfast businesses as London, and potentially
more important to them than say a direct service to a European
destination that might primarily cater for outbound tourism. The
link is particularly valuable if low fares allow a relatively
cheap day return that can potentially generate new business without
significant travelling costs. The current UK links from Belfast
are to Aberdeen, Birmingham, Bristol, Cardiff, Edinburgh, Exeter,
Glasgow, Leeds/Bradford, Liverpool, Manchester, Newcastle, Nottingham/East
Midlands, Southampton and Teesside, as well as Guernsey/Jersey
and the Isle of Man. Seven different airlines are offering services,
those with multiple routes being Flybe (10), easyJet (5) and bmibaby
(4). Eastern Airways, Air Wales, British Airways CitiExpress and
Jet2.com operate a single route each. In other words, the bulk
of services are now operated by low-cost carriers. A number of
these services are operated from both Belfast airports in parallel,
with a choice of airline, and some city-pairs enjoy a relatively
high combined frequency of seven or more per day.
LINKS TO
POINTS IN
EUROPE
19. The links from Belfast to international destinations
are, by comparison, relatively sparse. While KLM's service to
Amsterdam has been replaced by easyJet, currently offering a daily
service, Sabena's service to Brussels has not been replaced. There
is no service to Germany. There was no Paris service for some
years, until June this year, when easyJet, with assistance from
the Northern Ireland Route Development Fund (RDF), started a daily
service to Paris and also to Nice (four per week). At the same
time, but without RDF assistance, easyJet has begun services to
Alicante and Malaga (each five per week), and also this year another
low-cost carrier, Jet2.com, based in Leeds, has begun daily services
to Prague and Barcelona.
20. These new services are to be welcomed, but there
is likely to be a limit to the extent that the Northern Ireland
market can be expected to sustain direct services to international
destinations. With Northern Ireland's population of around 1.7
millon, plus perhaps catchment from Donegal and other areas of
the Republic close to the border, there has to be some limit to
the amount of traffic stimulation that even a low-cost carrier
can generate.
21. One scenario to be avoided is where an airline begins
a service, perhaps to much fanfare, only to withdraw it because
it is unviable in the long term (or the airline itself fails).
Businesses may have set up contracts and links that depended on
the service. On our visit to Belfast we were given the example
of Belfast-Cork, where a service by JetMagic was discontinued
when the airline failed after less than a year. The service was
in the event replaced by Aer Arann, but with an awkward gap in
service in between.
22. With Dublin reasonably accessible from Northern Ireland
by road, there is likely to be a degree of overlap. If a destination
is already only supporting a relatively low frequency from Dublin,
it would seem questionable whether a service to the same destination
would be viable from Belfast.
POLICY DEVELOPMENTS
23. Two Government policy initiatives concerning regional
air services that were mentioned in the December 2003 Future
of Air Transport White Paper are of particular potential relevance
to Northern Ireland.
Route development funds
24. The above analysis suggests that the air services
from Northern Ireland that may warrant assistance are those on
international scheduled routes. The CAA notes that the Northern
Ireland Air Route Development Fund has been used to launch services
from Belfast to Paris and Nice, and from Derry to Birmingham and
Manchester. The CAA sees certain circumstances where using RDFs
could be justified, if the market is reluctant to offer a new
air service because of risk aversion or the lack of awareness
of potential for example. The CAA also recognises that there may
be positive externalities connected to the provision of regional
air services, and because these may not be captured through the
decisions of carriers based solely on the profit motive, this
may justify short-term financial support. The CAA believes that
the support should be provided by those benefiting from the positive
externalities arising from the service (ie regional stakeholders)
so that they will accurately price the value of the service and
expose what they are truly willing to pay for.
25. The CAA does, however, urge caution. There is a need
to avoid a proliferation of subsidies because of the potential
distortion this creates in the market. Decisions need to be taken
against the backdrop of strong growth in unsupported regional
services, which suggests that the market can work well. Any support
should be based on non-discriminatory criteria and open to any
carrier, and should be no more than is necessary to kick-start
a route and support it for a short period while it becomes established.
In other words, it should accelerate development of a route that
might otherwise have been a marginal decision at present but which
would be viable in the medium term, with the risk shared between
airline, airport and those directly benefiting from the service.
26. Airlines are now much more sophisticated in the way
they deploy aircraft, and airports in Northern Ireland find themselves
in competition with other European airports to secure a new route.
In other words, with all the prime markets already served, there
is a so-called "European league table" of lesser routes
that have varying profit potential for, say, a low-cost airline.
We understand that the availability of RDF support moves the route
up the table, thus bringing forward when it will operate.
27. However, we would not want to see public sector funds
being used to encourage airlines to operate routes that are not
actually commercially viable in the longer term, such that when
the funding ends the route is discontinued or the airline's financial
position is more precarious. Any RDF policy should seek to minimise
these downside risks and, clearly, be compatible with State Aid
rules.
28. The CAA recognises the success so far of the Scottish
RDF and will follow developments with this and the much more recent
Northern Ireland RDF with interest.
Using Public Service Obligations to protect services to London
29. The Government is currently consulting on the criteria
that it should use to trigger consideration of whether and how
to maintain an adequate service on existing regional routes to
London using Public Service Obligations (PSOs). A PSO must meet
the criteria set out in European law. The consultation document
states that in assessing "adequacy" it is necessary
to consider the link provided between two cities or regions, not
between a city or region and a specific airport. Therefore a reduction
of service to Heathrow, for example, will not be enough to trigger
the consideration of a PSO as long as it is considered that there
is an adequate service provided by the combined services offered
to other London airports. It should be noted that, under European
law, factors such as interconnectivity opportunities or the final
onward destination of passengers are not relevant to the consideration
of adequacy.
30. The CAA recognises that there may be instances where
PSOs are a necessary and useful tool for delivering air services
to regional points. However, we believe that any proposals need
to be seen in the context of what the market has delivered already,
and the impact the imposition of PSOs would have on market development.
The CAA's view is that PSOs are primarily designed to protect
"lifeline" services such as flights in the Scottish
Highlands and Islands. A PSO on a London route would potentially
allow landing and take-off slots at congested London airports
to be ring-fenced for those services which would impose a high
and hidden cost on the airline industry and on the economy generally.
31. The CAA's formal response to the Government consultation
will explain our position in more detail.
AIRPORT CAPACITY
32. At present the annual number of air transport movements
(ATMs) to/from Belfast City's relatively short runway is limited
to 45,000, and there is also a limit on the annual number of seats
that can be provided which restricts the passenger throughput
to around 2.2 million passengers a year. The airport also has
a night curfew of 9.30 pm. In contrast, Belfast International's
runway is capable of supporting long-haul services and the airport
has adequate space to cope with foreseeable demand levels.
33. The CAA supports the sustainable development of regional
airports and of local solutions to local environmental problems.
However, given the existing operational restrictions at Belfast
City and the night curfew, from an economic perspective the CAA
is unsure what purpose is served by having both a cap on seats
offered and a limit on total movements. We would support the Government's
proposal that the form of the planning "cap" should
be reviewed if and when the operator of Belfast City so requests.
COMPETITION BETWEEN
THE AIRPORTS
34. If both airports are profitable we see no economic
reason why the two Belfast airports should not operate in competition
with one another, and indeed with the City of Derry airport where
catchments overlap. This should act in the interest of consumers
in promoting competition and providing a choice of airports. There
is an argument that competition between the airports exists only
to the extent that they compete for short-haul airlines for the
best deal to operate there; once the airlines are established,
competition is then between airlines rather than airports. But
maintaining a choice of airports and therefore the ability of
a short-haul airline to switch airports would seem a preferable
situation to creating a monopoly position.
35. Equally, we welcome competition between the Belfast
airports and Dublin. As noted above, residents in Northern Ireland
appreciate the ability to fly from Dublin to destinations which
may never be viable from Belfast and which save them the inconvenience
of having to take a feeder flight to London and of making a connection
there.
29 September 2004
1
BA's press release of 27 September 2001 said that the Belfast-London
route had a history of unprofitability and that over the previous
four years losses on the route totalled £38 million. Back
2
There were Luton and Stansted services by other airlines prior
to this. Back
3
And of course for those point-to-point passengers for whom Heathrow
was the more convenient or preferred London airport. Back
|
