Memorandum submitted by the Confederation
of British Industry, Northern Ireland
BACKGROUND
1. CBI Northern Ireland welcomes the opportunity
to contribute to the Inquiry established by the Sub-Committee
of the Northern Ireland Affairs Committee. Aviation plays a crucial
role in supporting the Northern Ireland economy and businesses
as they compete in the global economy. It is therefore vital that
policy makers are made fully aware of the importance Northern
Ireland business attaches to the development of appropriate air
services.
2. The benefits of aviation are now under
threat by a lack of airport capacity in Great Britain with demand
for aviation set to double over the next 20 years—if expansion
is constrained businesses will face a loss of air services, more
delays and higher prices. This will have particular implications
for Northern Ireland. Due to the increasing importance of air
services we welcomed the Department of Regional Development's
research undertaken into Northern Ireland air services in 2001
to help assess key issues and needs.
3. Air transport will become more important
to the Northern Ireland economy if we are to achieve the ambitious
medium term economic priorities set out by the Economic Development
Forum:
— exports (measured as value of exports
of goods per employee job) will need to increase from 83% of UK
level (in 2000) to 100% of UK level by 2010. This will represent
a doubling of exports over this decade; and
— tourism numbers will need to double
between 2000 and 2010.
In addition Northern Ireland manufacturers have
a major reliance on an external supply base—approximately
90% of supplies are imported. Current trends to outsource low
value-added manufacturing to Eastern Europe and Asia are also
resulting in the need for improved international air connections.
Likewise with growth in tradeable services also required for the
development of the economy, good air links will be an essential
requirement. We do recognise that the use of video-conferencing
facilities will grow in the years ahead—but this is unlikely
to offset the increasing demand for air services.
4. Air services will become increasingly
important to Northern Ireland in the future. Some of the key factors
driving the need for air services are as follows:
— the development of a knowledge based
economy servicing the needs of global customers;
— Northern Ireland will increasingly
have to compete in niche markets, on enhanced service capability,
on responsiveness, reliability and speed to market, etc—air
services both for passenger traffic and freight will become increasingly
important; and
— the need to be well networked with
other European regions—companies will increasingly work
in partnerships both formal and informal, and increasingly with
international partners to service global customers.
KEY REQUIREMENTS
FOR NORTHERN
IRELAND—CREATING
THE BEST
PLACE TO
DO BUSINESS
IN EUROPE
5. We have set out in Exhibit 1 the key
requirements for air services for the Northern Ireland economy
over the years ahead.
Exhibit 1
KEY REQUIREMENTS
|
| Issue | Comment
|
|
| —Good access and frequency of services to GB airports—essential requirement.
| —Well served—though some concern about over-capacity on some routes.
|
| —Good access to Heathrow for interlining—essential requirement in short/medium term.
| —Well served but lack of late night flight from Heathrow to Belfast is an issue for interlining passengers.
|
| —Direct European services to perhaps five/six key cities/commercial hubs—highly desirable.
| —The service to Amsterdam was bolstered by four new easyJet services launched in June 2004 and two Jet2.com routes.Route Development Fund now available.(There is also a Londonderr-Dublin service which benefits from a PSO provided by the ROI government.)
|
| —Direct access to a US hub—essential.
| —No direct services at present—New York (via Shannon) withdrawn in 2001.
|
| —Competitively priced fares—essential.
| —Traditionally air services have been expensive— but entry of low cost airlines has reduced prices over last few years.
|
| —Reliable flight times, good connections.
| —Generally has not been a problem. |
| —Competitive air freight services. |
—Potential for development to exploit world wide express operator growth—British Airways withdrawal in 2001 removed some bellyhold capacity.
|
|
6. Air services to/from Northern Ireland declined in
the period from the mid 1990s up to 2002— 10 scheduled airlines
had ceased operations while only three had been added, while nine
scheduled destinations have been lost and only one added. The
Foreign Direct Investor (FDI) respondents to the DRD commissioned
research generally considered that there had been a deterioration
in air services in this period.
7. However in the last two years there has been a significant
improvement in services (three UK/Ireland routes reinstated, much
greater capacity added to key GB business routes, and six new
direct scheduled European routes introduced albeit that several
have a strong outbound tourist focus) and airfares have continued
to reduce (in some cases significantly) on several routes and
this has been strongly welcomed by business. There has also been
considerable investment in airport facilities and infrastructure.
Latest figures indicate that the two main Northern Ireland airports
will have around 6.5 million passengers this year.
8. In terms of gaps in provision and general concerns
regarding the development of air services, the key issues identified
by CBI Northern Ireland members are as follows:
— Continuing access to Heathrow—with
Northern Ireland's limited direct European/US air services, Heathrow
remains an essential route for interlining. While there is little
immediate threat to this route (with 800,000 passengers per annum,
and good capacity utilisation on aircraft) there are some concerns
that valuable landing slots at Heathrow could be used for more
rewarding transaltantic traffic. Experience from 2001 with the
withdrawal of British Airways' services suggests we cannot be
complacent. We have previously asked for consideration of the
creation of a Public Service Obligation in respect of Northern
Ireland's current Heathrow slot pool.
— Lack of direct European air services—currently
eight routes exist (Amsterdam well established, together with
new routes developed since June 2004 to Paris and Nice (both supported
by the RDF) and Malaga, Alicante, Barcelona, Prague). This compares
with around 50 from Dublin, together with nine north American
services. CBI Northern Ireland has previously recommended that
Northern Ireland should set a goal of developing five to six direct
services over the next three to four years to different European
capital cities or commercial centres. This would provide a significant
boost to the tourism industry and to NI based companies trading
in Europe. The new European routes are welcome but many are clearly
focused at "outward bound" tourism.
— A direct service to New York (or a GB/Europe
flight involving a Belfast stop-over) or other key US hub.
— The availability of competitively priced air
freight services both to and from Northern Ireland—CBI
is contributing to a current study on the feasibility of developing
"low cost" air freight services. At 50,000 tonnes per
annum Belfast International Airport is the third largest air freight
facility in the UK.
9. From a Northern Ireland perspective the key issues
CBI wish to draw to the Sub-Committee's attention are summarised
below:
— Good quality airlinks are essential for the development
of Northern Ireland's economy—these will become more important
in a more networked and knowledge-based economy. Concerns have
been expressed about the proliferation of low cost operators serving
Northern Ireland. Lower prices have certainly followed their introduction
but questions have been raised regarding their sustainability.
— Recognise the importance of maintaining Heathrow
services—these will remain essential in the short and medium
term. Northern Ireland is unique within the UK due to our location
with no other means of accessing Heathrow—we have argued
for a PSO to ensure Northern Ireland has the necessary landing/take-off
slots
— Recognise the benefits of more direct European
services—beneficial to the economy and will help take some
pressure off Heathrow (suggested routes of interest to business
include: Brussels; Frankfurt/Cologne; Geneva). It will be important
to ensure that any initiatives to develop these services follow
market-led principles—we strongly welcomed the establishment
of the Route Development Fund. These European routes also have
the potential to offer international interlining opportunities.
— Manchester and Birmingham may increasingly offer
the potential to become important hub options for NI as these
airports expand and develop services. Gatwick will also remain
as an important hub. It will be important for Northern Ireland
to retain/develop good links with these airports.
— We need to maximise the use of existing assets.
— Ensuring good surface access, including appropriate
public transport services, to the Northern Ireland airports are
maintained and where necessary improved.
10. It is also important to understand some of the broader
issues which impact on service provision. We have attempted to
summarise some of these key issues below:
— aircraft are very mobile assets and routes can
be easily opened/closed to take advantage of more attractive economic
returns—Northern Ireland will remain exposed to this. It
is clearly important that airline operators do make a satisfactory
return on their investment.
— low cost airlines are dramatically changing the
airline landscape—it is unclear how this will fully develop
in the longer term and their impact on traditional carriers, who
have begun to respond aggressively. The recent enlargement of
Europe has resulted in a significant interest by low cost airlines
in Eastern European routes—this may increase the risks further
of maintaining and developing Northern Ireland routes
— London airports, and particularly Heathrow are
almost certain to become more congested in the medium term—leading
to less reliability and rising costs with the potential for some
form of congestion charging.
11. Finally there is also the issue of Northern Ireland's
two main airports—Belfast International and Belfast City.
Both airports are successful, providing a range of services and
demonstrating an ability to grow and invest for the future. Business
is concerned to ensure that the two main airports serving Northern
Ireland continue to operate to meet its needs, in particular to
maintain good linkages with GB and to support more direct international
services. A key issue will be whether the airports should operate
in a more complimentary or competitive way. Businesses in Northern
Ireland have an open mind on this issue, though one that is favouring
complimentarity rather than competition, recognising that Northern
Ireland is well served by its airports but less so by air services—how
best to increase service volumes and reduce costs should be the
main objectives. While Derry City airport provides a valuable
"sub-regional" service the sustainability of these services
is questionable without ongoing subsidy, and some of our members
are concerned that this fragmentation adds more cost and inhibits
achieving economies of scale.
KEY CHALLENGES
12. On the horizon there remain a number of potential
threats which could impact seriously on Northern Ireland's peripheral
position:
— Air Passenger Duty—this has become a much
more significant part of the cost of airfares following the introduction
of low-cost airlines. We would be concerned about the threat of
further increases to APD particularly as Northern Ireland customers
have no alternative method of travelling to say London within
a reasonable time frame
— Northern Ireland is already severely impacted
by high energy costs especially electricity costs and natural
gas costs. If decisions were made to introduce taxes on aviation
fuel this would further penalise Northern Ireland's peripheral
location
— The increasing reliance on low-cost airlines and
the increased risks and uncertainties that are associated with
these services. This is particularly the case as the market matures
and existing overcapacity within Europe is addressed. Northern
Ireland may be exposed with "lean routes" or on routes
where several different providers have resulted in overcapacity.
This may mean that airports, and in exceptional circumstances
Government, will need to be able to respond more rapidly to market
developments
— Lack of critical mass relative to Dublin, particularly
as Northern Ireland has two main airports (with some duplication
and costs of a range of services) and one regional airport (Derry
City Airport). While we have undoubtedly good access links to
most of Great Britain, this may make it more difficult to develop
and grow direct European and North American routes. The importance
of improving Northern Ireland's tourism product to entice people
to come to Northern Ireland will be an important element in developing
sustainable new direct European/North American routes.
AIR ROUTE
DEVELOPMENT FUND
(RDF)
13. This initiative has been strongly supported by CBI
Northern Ireland. It offers the opportunity to help overcome start
up costs and initial marketing costs of establishing new routes.
However the RDF is only a pump-primer and helps to move Northern
Ireland up the "attractiveness" league of potential
services which an airline could develop. It will only assist those
routes where the market demand is likely to exist. The fund will
not significantly reduce the risks being undertaken principally
by airlines, and to a lesser degree by the airports, in investment
in any new routes.
THE ISLAND
OF IRELAND
DIMENSION
14. Dublin airport is clearly the main point of entry/exit
onto the island of Ireland for international business travellers
and tourists. This has implications for inward investment, international
tourism etc Key issues in respect to the island of Ireland are
as follows:
— Northern Ireland loses over 500,000 passengers
to Dublin airport (and a further 250,000 tourists who overnight
in NI)—largely due to Dublin's direct European and US services—Northern
Ireland has an opportunity to capture some of this market.
— Considerable improvements to the Belfast-Dublin
road over the next few years will increase the propensity to utilise
Dublin airport (where significant growth is anticipated and is
being planned for)—wider range of services available and
prices at peak periods can be much less.
— Dublin airport—scale, critical mass, larger
capital city, much stronger inward tourism dimension, well established
low fare airlines, offering competitive fares (even at peak holiday
season).
— No Air Passenger Tax and lower VAT rates provide
important cost advantages in markets which are increasingly price
sensitive.
— Desire to encourage more intra-island traffic.
The Belfast-Cork service is well established (recent new service
provider). However we recognise that sustainable routes are required.
Belfast-Dublin has not been a commercial success, and with an
efficient and reliable train service, backed by a high quality
dual carriageway/motorway an air service on this route is unlikely
to be commercially viable.
Dublin will always have an enhanced range of services. However
the Route Development Fund will hopefully act as a catalyst to
improve the services available in Northern Ireland and reduce
this significant dependency and economic loss. There is an opportunity
for Northern Ireland plc to work together in order to attract
international airlines by offering uncomplicated access to the
island of Ireland.
30 September 2004
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