Examination of Witnesses (Questions 20
- 39)
WEDNESDAY 10 NOVEMBER 2004
SIR ROY
MCNULTY
AND MR
ALEX PLANT
Q20 Mark Tami: Did the survey reveal
anything else? That is a bit of a catch all question.
Mr Plant: The thing for me that
was the most striking element of the passenger survey—and
actually we can set some matters out in more detail for you in
writing if it is helpful regarding looking at what the passenger
survey said—was this sort of rather more diverse range of
connecting airports that passengers were using compared to perhaps
what the story would be from other destinations, which I suppose
fits with the greater diversity of low-cost services available
from Belfast into various airports. Again obviously coming back
to the basic data, the other factor I would look at is the overall
growth being quite strong. It is a very wide question but the
one other thing that I think stands out when you look at the figures
is that it demonstrates that the inbound tourism element coming
into Belfast is not particularly strong when compared to other
regional centres such as Edinburgh, for example, and I suspect
that would be the case if you compared it with Dublin. What that
means is that from an airline's perspective, the yield you are
going to get on any particular route is reduced because again,
if we come back to the choice, if you are a Czech airline and
you are deciding to run a service and you have one aircraft and
you have a choice of running it to Belfast, Edinburgh or Dublin,
because Dublin and Edinburgh give you more inbound tourism traffic
upon which you can rely, it makes the whole route more viable
because you can fill it both ways. It would appear from the statistics
that Belfast is under-performing to some extent in terms of that
inbound tourism market.
Q21 Mark Tami: I think I am correct
in saying that you do not survey people at the Belfast airports
themselves but rather it is the other end, it is where people
might go.
Mr Plant: No, we do run surveys
at the Belfast airports but not every year.
Q22 Mark Tami: Are you doing it this
year or not?
Mr Plant: I cannot remember our
schedule. I will have to come back to you on that. We have a rolling
schedule where we cover the regional airports.
Q23 Mark Tami: It says "no"
down here.
Mr Plant: That must be right.
I am sorry. I can confirm that but I just do not have at my fingertips
the order of airports at which we are carrying out surveys.
Q24 Mark Tami: I am just interested
on where you are getting the initial findings from.
Mr Plant: The ones I was actually
quoting from are our kind of CAA surveys which we did at regional
airports and London and I think that was back in 2003 but it may
be picking it up from the London end rather than the Belfast end.
There is a slight problem in that we do not cover every airport
every year, we simply could not sustain that.
Q25 Mark Tami: You do not have a
strict policy.
Mr Plant: No, quite the opposite.
I am pretty sure that Belfast is on the list but may be it has
not been done for a while, so I will have to come back to you
on that.
Q26 Mark Tami: I will wait until
the next time someone hands me something at the airport!
Mr Plant: Yes, when you are in
Belfast. I will check and come back to you and tell you what the
order is.
Q27 Mr Bailey: Can we just cover
links with Heathrow. Concern has been expressed to us about the
maintenance of the links with Heathrow over the medium and longer
term and there is a view that action should be taken to safeguard
or ring fence the slots. We recognise that travellers have alternatives
for point-to-point journeys into the London area but you note
in your evidence that some 37% of the passengers on this route
connect to or from a flight beyond Heathrow. Do you think there
is a case for PSOs to protect slots at Heathrow?
Mr Plant: We have published our
own response to the Government's consultation on this issue of
which you will be aware. This looks at the whole issue of services
to and from London and the possibility of using PSOs to protect
them. What we say in that response is that we note that essentially
PSOs are very much designed, in our opinion, in the European legislation
to protect true lifeline routes and, if you look at their usage
traditionally, they have been around ensuring that places like
the Orkneys and Shetland Isles have connections to the mainland.
And that is true if you look at the way in which they are used
in Norway and other countries as well. The Government's consultation
raises an interesting issue about the connection to London and
broadly our position is that we can see that if a peripheral region
had no service to London—and I stress London here rather
than a particular airport—then that would seem to be potentially
an argument for saying, yes, you need a PSO to ensure that you
have those services available. In fact, they become lifeline at
that stage. We concur with the Government's own consultation in
limiting it to London rather than a particular airport partly
because we see there being risks attached to ring fencing slots
in particularly congested airports because there is a sort of
hidden cost in there if you are ring fencing something that could
be used for another service. So, we agreed with the Government
in restricting it in that way. Just coming back to whether there
is a threat to the Belfast/Heathrow service, we did try and touch
on that with some of the people we interviewed and it would appear
that the bmi service which runs City to Heathrow is a pretty good
earner, from what we could glean, and does not look to be particularly
threatened. Of course, the best scenario is if essentially the
market can sustain that route, that is great and that provides
benefits, but we would be a little nervous about using PSOs in
an extensive way. We see them rather as a last resort rather than
something you should default to as a first option.
Q28 Mr Bailey: We certainly provide
it with enough trade! Just to continue, you say in your submission,
"under European law, factors such as interconnectivity or
the final onward destination of passengers are not relevant to
the consideration of adequacy"—and that is a classic
case of report speak—which is one of the tests for PSO designation.
Are you aware of any routes in Europe where, despite this restriction,
the route is funded by a PSO to sustain that interconnectivity?
Mr Plant: I do not have information
to hand as to what is happening in other European countries in
relation to PSOs and whether there are some PSOs in other countries
where that has been the case, I am afraid. We have concentrated
more on the principles around PSOs in our response. It is actually
quite hard to get information out from other European countries
about exactly what is happening. We did ask the Commission for
some information on this but they equally have not been particularly
forthcoming. So, we have some idea about some of the services
that are PSO'd, just purely the routes that are around, but as
to whether they have somehow ignored these or included these factors
which we consider are excluded from European law, I just do not
know.
Q29 Mr Bailey: I appreciate the difficulties
in obtaining this information but is there any chance of at least
getting the information you can get on it?
Mr Plant: There is a limit to
the extent to which we can really obtain it. I suspect that the
Department for Transport may have looked a little more deeply
into this than we have, given that they will be ultimately making
a decision on PSO consultation. Or indeed the European Commission
should have the information. It is not something that we would
necessarily see as a priority for our own work programme at the
moment in terms of diverting a lot of resource in trying to get
hold of this information, albeit that I can see the interest in
it from the point of view of whether this law is being applied
fairly across the piece and of course what we would like to see
is a consistent application of principles across Europe. It is
not helpful to have a situation where one country bends the rules.
Clearly, if that were to happen, that is not a positive development.
Q30 Mr Bailey: In effect, you are
saying that we should be able to obtain this information via other
routes more easily.
Mr Plant: I do not know.
Sir Roy McNulty: I would think
there are better sources than us.
Q31 Mr Bailey: Obviously we understand
and recognise that we have to uphold European law but do you consider
that exception should be made due to the particularly peripheral
nature of Northern Ireland and, to paraphrase your evidence, where
the externalities are more important than the profit motive? I
suspect from your previous comments that I know your answer but
I am asking it anyway.
Mr Plant: I think the position
of Northern Ireland, because of the lack of service access alternatives,
changes the nature of the question and that must be recognised
when you are thinking about these issues and I come back to what
I said at the beginning. If there were a scenario where essentially
there were no services from Belfast to London, that would strike
me as being a very good argument for imposing a PSO to ensure
that there were services to London and actually that would be
a stronger argument than I think would be the case if you were
thinking about Manchester where there would be a rail service.
So, yes, it does change it but I am not sure that it takes you
to a different conclusion in terms of whether you ring fence slots
at Heathrow, for example.
Q32 Mr Campbell: I just want to continue
with the question of your input into the consultation regarding
the protection of regional air services to London. In part of
that input, you had suggested that it would be worthwhile to consider
whether market-based solutions might provide possibilities for
regions to secure access at congested London airports. I am just
wondering how that might work in an environment where it is the
economic return from the route in question that is really the
central issue, the main issue, rather than whether or not a slot
is available.
Mr Plant: I think essentially
what we have long proposed is that there will be benefits in having
a sort of secondary trading market for slots at very congested
airports and this being a better way of achieving an efficient
allocation of what essentially is a very scarce resource rather
than that being decided through administrative allocation purposes.
So, we proposed that and I think we will continue to propose that
in our response to the European Commission's consultation on what
to do about slots which is due to be completed later this year.
Potentially, there are market-based solutions for securing services
from regions which currently do not have a service because the
airline is not prepared to run it because it either does not see
it as profitable at all or sees it as insufficiently profitable
given the potential use of its Heathrow slot to fly to New York
or something which may give you a bigger yield. What we have considered
possible was that, if you had a market in slots, and if it was
the view of a development agency for a particular region that
there was such added value in terms of the economic value of the
service above and beyond the commercial value of the service to
the airline in question, if you see what I mean, essentially there
would be a way in which the region could buy a slot and then invite
airlines to come and operate from that slot that it held at Heathrow.
If essentially the calculation from the region was that there
was sufficient value in it for them to do that, why should there
by any reason to not allow that to happen? That is what we were
referring to when we talked about market-based mechanisms potentially
offering a solution to these issues.
Q33 Mr Campbell: Turning to the issue
of the suggestion that changing to a mixed-mode operation at Heathrow
would increase the number of available slots by 30%, are you aware
of any progress on that proposal?
Sir Roy McNulty: I think that
mixed mode is currently being worked on in the aftermath of the
White Paper. The White Paper said that the Government would like
BAA and NATS, the air traffic services provider, and ourselves
to look at this issue and, if we thought it sensible, to come
forward with proposals which Government would then consider. It
is an extremely complicated problem, not only from an aviation
operational angle, but it also brings into issue a lot of environmental
aspects around Heathrow because the present pattern of operations,
the Cranford Agreement and a number of other understandings and
agreements as to how aircraft will come in and out of Heathrow,
could possibly need to be changed if mixed mode were introduced.
That work is currently in progress. I think that, probably within
the next year or so, Government will be seeking to come to some
conclusion on it when they have balanced all the aspects. We are
looking solely at the operational aspects and the implications
for the environmental issues. Government, in the end, have to
arrive at a balance between those.
Q34 Mr Luke: You have highlighted
the importance of Heathrow in providing onward connecting flights.
You state in your report that 37% of passengers using the bmi
service to Belfast were connecting from another flight and that
some two thirds of them were connecting to or from the USA. Are
you able to provide us with a more detailed breakdown for the
traffic across Heathrow and, in particular, the initial origin
or ultimate destination depending upon the direction of the flow
as well as at other mainland airports?
Mr Plant: Possibly but not now.
I think it will be useful to have the question in writing. I can
then go back and talk to my team who do a lot of work on the data
analysis interrogation and try to answer it.
Q35 Chairman: The Committee is hungry
for facts and statistics. I am sorry to cut across you Mr Luke
but, when we started, we talked about the growth rate in respect
of the Belfast airports being greater than UK and I noted that
we also spoke about the City of Derry Airport and I noted that,
last month, their passenger numbers increased by 22.9%, which
is a colossal increase. I wondered if you had done any analysis
including the increase in growth of Derry to add to that in Belfast
which would give us a larger figure than that which is currently
here. I do not want to suggest or put words into your mouths but,
if that data were available, that would be very helpful to us.
Mr Plant: Certainly I am very
happy to go back and see what we can sensibly extricate. We have
reasonably good data on airport statistics and the CAA database
is probably the best available. So, in terms of both how far we
can drill into exactly what is happening on the US market and
indeed what the story is on Derry, by all means we will endeavour
to give you the facts for which you are hungry.
Q36 Mr Luke: This is a much less
statistic-driven question. What impact do you think the introduction
of direct flights, which I welcome, by Continental Airlines from
Belfast to New York starting next year will have on the traffic
through Heathrow?
Mr Plant: I suspect what will
happen now is that if there is a direct service available, depending
on the frequency and so forth, what you will see is a diversion
of particularly business traffic away from a connection via Heathrow
and on to New York to take the direct service. It is a more attractive
product. Again, if you look at what has happened with the direct
services that have been supplied from, say, the two main Scottish
airports, both to the US and indeed other long-haul operations,
those services are doing extremely well. They are getting very
high load factors, numbers of seats occupied, on the aircraft
and inevitably they will take traffic that formerly used to connect
via Heathrow and it will be replaced on to the direct service.
The other thing that you tend to get is some stimulated demand;
people who previously would not have travelled because of the
undesirability of going via a connecting point such as Heathrow
who would actually be newly attracted, particularly on the leisure
market. Clearly, business tends to be more of a forced journey
so they may travel whatever, but I suspect you will see some of
those passengers, indeed many of those passengers, who previously
went via Heathrow using the direct service. It depends on frequency.
Q37 Mr Luke: You refer to links to
other UK airports and, not being London base, I travel to Belfast
City from a variety of airports—I have flown from the Isle
of Mann with British European which was an experience as well
as Glasgow and Edinburgh—but you state that these links
can be just as important to Belfast business as London. Another
dimension of these routes is that they might offer an alternative
to London to transfer at least on a number of key routes. Has
the CAA examined this alternative?
Mr Plant: We have not gone into
it in too much detail but it was a point that came across again
in our visit to Belfast, firstly just in terms of the point-to-point
services, for certain industries, it may be that the natural home
and the better business connection was, say, Manchester, given
the particular sector involved, more so than London, and actually
that was an interesting point that perhaps was new to us in terms
of the conversation. You are absolutely right that the connection
services are not just a London story but, other than the figures
I gave you a little earlier on when I said that the other UK airports
figures, which I think in terms of connections would include of
course Luton and Stansted, were higher than perhaps is normal
on other sort of routes, we have not yet drilled down into that
figure to see how much of that other UK airports is, say, Manchester
or Glasgow as opposed to Stansted or Luton, but I think it is
something that we could probably do quite easily and again come
back to you on that particular question. I do not want to promise
something that I cannot absolutely definitely guarantee but I
think that we must be able to get from that aggregate figure of
other UK airports down into how they are made up, I think . .
.
Chairman: We hope you are right!
Mr Luke: I was interested to see in your
report that you were talking about the success of the Scottish
route development fund. I represent a constituency which has a
small airport, Dundee, which we want to build up. We have an international
departure lounge but no international flights. The departure lounge
was funded by the European Union. We are chasing obviously route
development funds and have not had that much success through the
Scottish Executive. Are there any lessons for Northern Ireland
from the Scottish experience?
Q38 Mr Campbell: Positive ones.
Mr Plant: What Scottish Enterprise
and the various people who have worked on the Scottish route development
fund have done is to attempt to work through all the issues you
would want to be considering before you decide to give public
funding to something. So, they tried to address issues such as,
is this sustainable? You do not want to give money to an airline
that disappears after three years because that is a waste. The
point is that you are trying to bring something forward that will
be sustainable on its own basis, as a commercially viable route,
to get that happening earlier. They have tried to think through
ways of ensuring that you are not wasteful of money from that
point of view and that it is truly additional as well. I think
that they tried to address these in their appraisal framework
which the Department for Transport is trying to look at to consider
what messages there may be for all regions who may be interested
in using this, firstly to say, can you get the appraisal as right
as you can? My own view is that you can never extinguish risks
of wasting money—it is impossible; there is always a risk
there—but can you minimise the risk as much as possible?
I think the work that the Scots have done is helpful in identifying
some of the indicators that you would want to think about. The
second element that the work that the Department for Transport
is doing, which again is helped by the work that the Scots have
already done, is making sure that you do not fall foul of state
aid law, for example, in terms of unjustifiable subsidies which
would be ruled illegal by the European Commission. The Scots did
a lot of work, as I understand it, to make sure that what they
were doing and the way in which they were addressing this did
not offend European law. So, again, good messages there about
making sure that, if you are going to go down this road, you do
not trip up on European legislation. Those are positive messages
and there are things to learn from the experience of Scotland
and indeed hopefully the department will be promulgating some
of this itself in the coming months.
Mr Luke: I think this is especially true
regarding Londonderry given its peripheral situation in Northern
Ireland and comparing that to some of the developments in Scottish
airports and Inverness specifically which have done reasonably
well.
Q39 Mr McGrady: I want to go on to
the loftier subject of Open Skies, no pun intended. It
seems to be that this item has gone down the international political
agenda somewhat because of the US elections and indeed the failure
yet to appoint an EU Commission, but no doubt it is going to come
on to the screen very soon again. Have you any idea of what the
likely time and indeed possible crystal ball outcome might be
and how a fully liberalised transatlantic regime would impact
on the regional services?
Sir Roy McNulty: Again, could
I ask Alex Plant to comment on that because he has been a member
of the UK and European team; he has been involved with this, and
is reasonably close to it.
Mr Plant: You are absolutely right
that we have been in a hiatus as a result of both the US election
and indeed the new Commission being appointed. What has happened
most recently is that there have been some technical discussions
between the negotiating teams on the US and the EU side, but resuming
the talks in earnest I suspect will not happen until late spring.
That is my guess, it may be earlier, but it will be some time
next year. Predictions about an outcome are very, very difficult
to give you. There are a host of issues, very difficult issues,
about the extent to which the US is actually willing to embrace
the kind of open aviation concept that the Commission, supported
by Member States, has been keen to pursue. What essentially that
means is almost like adding the US to the current single market
in aviation that we have in the EU, so you sweep away all nationality
rules and all restrictions on frequencies and essentially just
have a free market operating between Europe and the US. That has
some difficult issues for the Americans in it. Some of the American
demands on the other side are difficult for the Europeans. Whether
there is the political willingness, perhaps particularly on the
US side, to go far enough for the Europeans to accept that the
deal being framed is something that is of mutual benefit and of
sufficient benefit to the EU is very, very hard to judge. So,
I am loath to give you a prediction on when you will get some
conclusion other than to say that there is willingness on both
sides to come back to the table but it is impossible to tell you
when. If I come to the second part of the question, let us assume
that we got there or we got to some greater level of liberalisation
of EU/US services perhaps that stopped short of an open aviation
area, which is the more likely outcome—it is more likely
that we will get a phased deal and there will be something in
a first step which will remove some of the restrictions but not
get all the way. That is the way in which the negotiation is being
framed at the moment, but if you removed restrictions on who can
fly to and from Heathrow and so forth, what I suspect you will
see is that those airlines that currently are not able to service
the US from London will seek to do so because some of the routes
are incredibly attractive and clearly the rules at the moment
restrict that market, say Heathrow to JFK, which can only be operated
by Virgin and British Airways from the UK side and United and
American from the US side. If you get rid of those rules, you
will see more competitors come into that route, both US and other
UK carriers but indeed possibly other European carriers if you
remove the rules on nationality and so forth. What does that do
for regional services? It is difficult to judge. To some extent,
the worry would be that everything will just go to the US and
then you do not get any regional services anymore. That is one
extreme. I think that is unlikely to happen not least because
the viability of a lot of the routes actually depends to some
extent on having the connecting traffic coming in. So, you cannot
turn Heathrow into a point-to-point US/UK service because actually,
to make the whole thing work, you need to be bringing feed traffic
in from other points including from the UK regions. Potentially,
if you combine it with slot trading, it gives UK airlines the
possibility of buying of a greater portfolio of slots which may
actually in some ways ease the pressure on some of the regional
airlines. If the result is that, say, bmi gets another 10% of
slots, which is unlikely, but if they increase their slot holding
by some extent, they have more slots in total and they need to
have some of the regional services coming in to satisfy their
feed requirements if they were then operating US services for
example. So, I think the effects are potentially positive in some
ways and potentially negative in others and it is very difficult
to predict exactly what would happen in that scenario. I would
come back to the point that there is actually an underlying need
for some feeder traffic to make these things viable. I suppose
another question is whether direct services to the US which are
operating from regional points would somehow be converted into
Heathrow services because the yield is bigger and I think there
would be some risk of that. I cannot speak for the airline, but
If bmi could fly Heathrow/New York, would they then do that and
not fly Belfast/New York? They may do except for the fact that
Heathrow is still going to be a congested airport. Belfast is
not and it may that the route itself stands up on its own commercial
viability. I am speculating to some extent here about some of
the things that may be in the minds of airlines but ultimately
the decision is going to be down to how the airline views its
commercial success.
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