Examination of Witnesses (Questions 1
- 19)
WEDNESDAY 10 NOVEMBER 2004
SIR ROY
MCNULTY
AND MR
ALEX PLANT
Q1 Chairman: Welcome to the Committee.
We have decided to start a little earlier than perhaps was originally
forecast. I take it that you are ready and prepared and that is
not a problem.
Sir Roy McNulty: We are as ready
as we ever will be.
Q2 Chairman: Thank you very much
for attending the Committee and helping us with our inquiry. You
are the first witnesses to come before us in respect of the inquiry
into air transport services in Northern Ireland and it does seem
that the CAA is the place to start in terms of taking your views
and testing those against the other interested parties and others
who I am sure will want to talk to the Committee. I wondered if
I could start the questioning by asking a number of general questions,
my first being that I see you have indicated in your submission
that you are undertaking a study of regional air services throughout
the UK and, as part of this, you have looked at the existing services
in Northern Ireland. Can you elaborate on your conclusion that
having competition between the two main airports in Northern Ireland
is preferable to there being a monopoly position because obviously
that is one of the issues that is going to repeat during the inquiry
and you have come up with that conclusion, that competition is
better than a monopoly in respect of the two airports. Could you
explain that a little further to us.
Sir Roy McNulty: If I may on that,
as I will probably on most subjects, defer to Alex Plant who is
doing that study but I might add a few comments of my own at the
end.
Mr Plant: Just to give a little
background about the study, essentially we launched that partly
because we felt that, as the CAA, we could usefully improve our
own evidence base about what was happening in regions across the
UK and of course Northern Ireland is an important part of that.
Also, because of this Committee hearing, we actually advanced
the Northern Ireland part of the process earlier to give us some
helpful information that hopefully meant that we could give you
a more informed response in our written reply. To answer your
question specifically on the airport point, we spoke to both airports
and talked to a number of interested stakeholders in terms of
how one or two airports would affect the consumer benefit arising
from air services to and from Northern Ireland and our conclusion
on it really was driven by the fact that we actually saw a situation
where both airports could be profitable, and this seemed to be
the case from our conversations while we were in Northern Ireland.
In general in that sort of situation, and taking account of the
economic principles which we try to adhere to in most of the policy
work that we do, we would see competition as driving some benefits
in terms of there being more price competition, increases in quality,
and driving a slightly more diverse set of routes that will be
available from two rather than from one airport. We thought that
would all act in the interests of, in the end, the final user
in terms of the air passenger travelling to or from Northern Ireland.
That broadly was our conclusion on that point and we saw the evidence
of what was happening in Belfast particularly as showing that
there were benefits in having both airports. But perhaps, Sir
Roy, you would like to expand on that.
Sir Roy McNulty: The brief comment
I would like to add to that—and I should perhaps declare
a past interest in having worked for Short Brothers and Bombardier
Aerospace in the period in which Belfast City Airport was started
up again in the early 1980s—is that I think it is true to
say that, at the time the City Airport was restarted, Aldergrove
had among the highest landing charges of any airport in Britain.
Competition radically changed that; I would not say that Belfast
International has always appreciated it but, for sure, competition
did lower the landing charges ultimately to the benefit of consumers
and the airlines.
Q3 Chairman: The reason I ask the
question is that I think the Committee would want to know how
real the competition is given that both airports have a different
approach in terms of Belfast International has its emphasis very
much on low-cost services, charter flights, whereas City Airport
tends to concentrate more on scheduled services within the UK.
So, you are two airports that are really offering two different
products and yet we are saying that they are in competition. Is
there not a confusion there as to whether or not it is real competition
or it is managed competition by the fact that they are chasing
different parts of the market?
Sir Roy McNulty: I agree with
your analysis that that is the way in which it has ended up but,
in a sense, City Airport is more an airport for business people,
it has the services into Heathrow; International has all the charter,
it has quite a lot of regional services into other places in the
UK. But I am certain that the competition is real, I am certain
that it has a significant effect on the landing charges that either
of the airports is able to levy because, if they hike charges
sufficiently, the airlines can move and that has proved to be
the case in the past, and indeed in the not too distant past.
Q4 Chairman: Similarly, there are
at present restrictions on Belfast City Airport. How big a factor
is that in reducing competition because surely if we are suggesting
that open competition is better than any monopoly, then if the
restrictions were lifted, that would be real competition, would
it not?
Sir Roy McNulty: I agree, you
could argue that, but equally every airport lives with the balance
between economic drivers and environmental drivers and the effect
that these have on the community around them. City Airport was
developed under a series of constraints including the curfew on
night flights; it has a limit on the number of aircraft movements
and it has a limit on the number of seats offered. I think it
is arguable that the latter two constraints duplicate each other
to some extent and, if the constraints on movements and/or on
the number of passenger seats offered were lifted, then potentially
there is a little more competition but I think ultimately people
will be cognisant of the importance of living within that community
in a reasonable environmentally friendly and reasonably neighbourly
friendly manner.
Mr Plant: My perspective when
in Belfast and discussing this issue particularly with City Airport
was that particularly the cap on seats struck me as being an odd
restriction to have in place if the main concern was about the
environmental impacts of increased services. Clearly, capping
the number of movements of aircraft is something that achieves
that desired effect of minimising noise disturbance and so forth,
but planes are not necessarily noisier just because they are bigger.
So if, in a sense, you are just not allowing more passengers to
come in, I could not see what purpose the seat cap was really
serving.
Sir Roy McNulty: It is possibly
a historic relic, so to speak, in the sense that I think the limit
on seats was applied at the time when the passenger terminal facilities
at City Airport were somewhat less deluxe than they are today.
Q5 Chairman: Our Committee members
who travel frequently on that route I am sure would want to comment.
The Committee always welcomes figures and facts that show that
the economy in Northern Ireland is growing and we just talked
about the number of seats and one of the things that is quite
clear is that the number of people flying to and from Belfast
Airports is on the increase and is increasing at a greater rate
than would be the case of the UK average. You pointed out that
the UK average growth rate was 5.9% whereas, within the Belfast
airports, we had a growth rate of 7.9%. Could you just open that
figure up a little more for us in terms of saying whether or not
that 7.9% is reflected across both airports and also why you think
there is such an increase and a faster growth rate than the rest
of the UK.
Mr Plant: I can perhaps partially
answer that. We did look at what the growth rates were at each
airport and City has had a greater level of increase than International,
but both are actually ahead of the UK average. So, in terms of
the contribution to the total growth, you see City as a bigger
contributor than International. The story about the total Belfast
traffic increasing at a rate faster than that of the UK average
I think partly actually just reflects the general story on regional
air services which we are picking up. I should add that we are
midway through the study, so some of this reflects emerging conclusions.
The general view is that regional growth is outstripping London
growth quite substantially. So, part of the story is simply that
one would argue that there has probably in the past been an under-supply
of regional services to some extent, which has now been stimulated
perhaps more by the low-cost carriers particularly where you do
not have the capacity constraints that, say, Heathrow Airport
faces in terms of growth. We have regional airports across the
country which were able to grow and then did grow, as low-cost
carriers came in offering a different sort of product which stimulated
people who had previously not flown before or perhaps not flown
as often before. So you are seeing regions picking up part of
that very strong underlying demand growth and I think what we
are seeing here at Belfast is part of that story. I suppose the
other element which perhaps is always the case when you are looking
at Belfast compared to maybe other regions is that lack of suitable
surface access alternatives drives the air transport services
slightly harder than if you are looking at, say, the north west
of England where essentially there are train connections to other
parts of the UK. But, if you are looking at Belfast, you have
to fly if you want to get to London, Manchester or wherever. I
mean that realistically—obviously there are some sea services
but effectively it is an air travel journey. I think they would
be some of the factors that I would pick out in terms of the underlying
growth drivers.
Q6 Chairman: Is there any significant
difference between the growth at the two airports?
Mr Plant: The figures we had was
that City was growing at 8.8% and International at 6.1%. So, it
is a difference.
Q7 Chairman: So, International is
growing about at the UK average.
Mr Plant: Slightly higher but
yes.
Q8 Chairman: And City is quite a
bit higher.
Mr Plant: Yes, stripping ahead.
Q9 Chairman: The other issue that
the Committee is determined to take seriously is the role that
perhaps City of Derry Airport can play in the future of air transport
within Northern Ireland. We shall be visiting Derry Airport as
part of the inquiry. Do you have any views on the services currently
provided at City of Derry and could you give any views as to what
will happen if we get the proposed extension of the terminal and
runway?
Mr Plant: We did not visit Derry
as part of our visit which perhaps is regrettable; it was simply
that we could only devote a day to the trip and it was difficult
to fit all the meetings we had in Belfast in and get over to Derry
and back, so we did not explore it in as much detail. Clearly,
there is an element to which the catchment areas are constrained.
So, what City of Derry could realistically be expected to do may
be constrained by the fact that there will always be somebody,
particularly on the eastern edge of the city, who will be willing
to travel across to Belfast and that Belfast, as a bigger airport,
will always be able to sustain a broader choice of routes and
so forth. Nonetheless, there is a substantial catchment area around
Derry and you would expect the customers' first choice would be
to travel from Derry if they possibly can. It is difficult to
draw a precise parallel but there are perhaps parallels with smaller
airports in other parts of the UK which have a larger airport
within their reasonable catchment area. It does not mean that
those airports cannot develop and in fact the generalised growth
of air transport, if you believe any of the forecasts suggests
that, yes, smaller airports can take part in that and actually
provide services to customers who did not previously travel simply
because it is the first preference if you live near that airport.
However, it will always be, I suppose, limited to some extent
simply by the population around it and the presence nearby of
a bigger airport.
Q10 Chairman: And the transport links
as well I should imagine.
Mr Plant: Yes.
Q11 Mr McGrady: To what extent does
the CAA view Dublin as a complementary airport to the Belfast
airports?
Sir Roy McNulty: I am not sure
that the CAA has a very definite view on that. Obviously, our
focus is on UK aviation. I think it is a fact of life that Dublin
is a sizeable international airport, more so than Belfast International.
It has a bigger population catchment area than anyone in Northern
Ireland can have and, with improved road links down to Dublin,
it clearly makes access to services from Dublin that bit more
attractive to people from Northern Ireland. Dublin is a little
competitive and, to an extent, I suppose you could argue that
it is a little constraining to growth in the Northern Ireland
airports, but it is a fact of life and I think our general view
would be that the more services that are available to a given
population the better, so services from Dublin are available as
well as services to Heathrow and beyond.
Q12 Mr McGrady: Perhaps I did not
emphasise the word sufficiently. I was asking if you viewed Dublin
as complementary not competitive to Belfast and, if you do, would
that in some way impact on the attitude of Government in terms
of funding supporting the Belfast airports?
Sir Roy McNulty: If you are talking
about the attitude of the Northern Ireland Regional Government
to route development funds, I am not sure that we have a view
on that. To try to answer your question more accurately than I
did the first time round, I think that Dublin is both complementary
and competitive. It is complementary in the sense that there will
always be a range of particularly international services available
from Dublin which is greater than any of the Northern Ireland
airports can offer, but it is also competitive and constraining
in that there is a bit of demand that goes to Dublin which, if
it could only get out through Northern Ireland, might give you
a slightly better service. On the whole, having lived in Northern
Ireland, I would view the access to Dublin as a gain rather than
as a loss overall.
Q13 Mr McGrady: I think that just
flows into my next point. The Northern Ireland CBI have indicated
to us that all airports lose over 500,000 potential customers
a year to Dublin and you have referred to the better and therefore
quicker road route to Dublin Airport but the CBI seems to argue
that because of that better road communication, we should be able
to entice more customers from the Republic to the Northern Ireland
airports. Do you have any view on that?
Sir Roy McNulty: I think it is
a fact that, because of the much larger population around Dublin,
Dublin will always have a better range of services than Northern
Ireland airports could have even if you shut the border and did
not allow anybody to go south. Given that there is a bigger range
of services from Dublin, it will always be more attractive to
people living in the south than travelling up north to go through
Belfast International or Belfast City. So, I tend to think it
is just a fact of life that Dublin will be a rather more attractive
outlet for people in the south than anything Northern Ireland
can offer.
Mr Plant: Dublin is clearly a
hub airport of sorts. It is not as big a hub as somewhere like
Heathrow or Frankfurt or Charles de Gaulle. Nonetheless, it has
those hub characteristics which are partly driven by the catchment
area. Given that, essentially, there is generally only room for
one hub in a geographical area, it is very hard to have a duplicate
hub, even in the south east of England with the very large population
in that region, Heathrow is the hub really. Other services develop
from other airports but if you look at somewhere of a similar
distance away from a hub airport such as Birmingham, that will
always be constrained by the network effect that is available
at Heathrow and which cannot be replicated. Therefore there will
be some services that may otherwise have gone to Birmingham directly
which will instead come via Heathrow. From the point of view of
the people living in Belfast or in the West Midlands, the ability
to access a kind of multi-airline/multi-destination hub is a plus
rather than a minus. So, the better the connection services between
Dublin and Belfast I suggest would be something to be welcomed
rather than to be suspicious of.
Q14 Mr McGrady: Just as a supplementary
to that, as you know, I am concerned about the differential in
taxations between the south and the north of Ireland and I think
there is no air passenger tax in the Republic and certainly the
value added tax rate seems to be lower. Do you think that has
any real and significant impact upon the travelling public in
terms of where they are going to exit from?
Sir Roy McNulty: Alex, you are
an economist, so will you please answer that!
Mr Plant: I think that is what
is called a hospital pass! It probably has some marginal effect.
I would come back to saying that there is a basic kind of a fact
of life argument here which gives Dublin the edge in many cases
ahead of anything that Belfast is likely to be able to provide
in the future, but when you do have 10% corporation tax rates
in the south compared to 30% in the north, then that plus APD
elements are going to have some effect potentially on airline
decisions, I suppose, if they were really genuinely thinking about
a marginal choice—you could run a service from Prague to
Belfast or could run a service from Prague to Dublin, I am going
to do one or the other—maybe some of those things tip the
decision, but I think they would be marginal rather than the main
driver of decisions.
Q15 Mr McGrady: Even though it is
marginal, do you think that governments should create a more level
or level playing field between the two sectors, Belfast and Dublin,
by somehow equating the tax not upwards but downwards?
Sir Roy McNulty: I think that
is way beyond the Civil Aviation Authority's remit or competence
to comment on!
Mr Plant: My background is in
the Treasury and the Inland Revenue, so I definitely concur with
Sir Roy's view on that!
Mr McGrady: If the tax rate issue was
so persuasive, I cannot believe that Mr O'Leary would have so
much of his operation in Stansted.
Q16 Chairman: I apologise for bowling
you a couple of bouncers there in terms of questions on Dublin
but I just remind the Committee that part of the inquiry's remit
is to look at the potential impact for Northern Ireland of wider
air transport issues on the island, so it is very important to
us to take account as to what is happening in Dublin and, as Mr
McGrady said, try to understand why, if the transport routes are
so good, the transport and the traffic does not flow in both directions
and maybe there is an issue there in terms of how airports in
the north of Ireland can make themselves more attractive and try
to recapture some of those lost customers.
Sir Roy McNulty: If I may slightly
restate what I said earlier, I think in the end, within a certain
reasonable range of prices at different airports, it is the variety
and frequency of services that will affect passenger choices most.
I do not think it is driven by £5 here or £10 there.
If there is a three times a day flight to New York from one location
and you have to make a connecting service from Heathrow from another
location, the answer is pretty obvious.
Q17 Mark Tami: Can I turn to passenger
surveys. In your submission, you report on customers' perceptions
of non-Heathrow services and state that the consensus was that
London was well served and that no longer did business passengers
regard other London airports such as Luton and Stansted as inferior
substitutes. Can you tell us what the basis of that survey is.
Was it taken from airlines or the airport operators or was it
a survey of passengers?
Mr Plant: What you have just read
out was some of the evidence we received when we went over in
person and talked to people like the Chamber of Commerce and the
development agency about how specifically they perceived it from
their perspective and those were the sort of messages we had back.
In looking at our passenger survey, we did do work in looking
at passengers on routes from Belfast to the UK who were actually
then going on to a connecting service and how they were connecting
and, despite the fact that Heathrow clearly has by far the biggest
range of connections because of the hub element, what was quite
interesting was that the figures that came out showed that, of
connectors coming from Belfast if you see what I mean, people
travelling mostly on to international services, which in the year
we looked at in 2003 were around about 650,000, there were about
325,000, about half the total, using Heathrow as the connection,
Gatwick taking up about 126,000 and the other UK airports, which
would include Luton, Stansted or indeed places like Manchester
that would have some connection, were picking up about 224,000.
So, that seemed to back up some of what was being said to us.
If you just want to come to and from London on a business trip,
the connections in and out of London, though it depends where
you are going, in some cases may be much better from, say, Stansted,
than they are from Heathrow if you are meeting in the City of
London for example, but also that people were using places like
Stansted to connect from an easyJet flight coming into Stansted
to another easyJet flight flying to Nice or wherever. That may
be the case given the quite wide range of destinations available
at least in Europe from that airport.
Q18 Mark Tami: Was it mainly passengers?
Mr Plant: Yes with regard to the
survey I just talked about.
Q19 Mark Tami: It was not the airlines
themselves?
Mr Plant: That was a passenger
survey data field and the questions we were asking of the folk
we spoke to in Belfast were again a sort of passenger perception
question, not an airline perception.
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