Select Committee on Northern Ireland Affairs Minutes of Evidence


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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