Memorandum submitted by the Department
for Transport
THE FUTURE
OF AIR
TRANSPORT WHITE
PAPER
Introduction
1. The Future of Air Transport White
Paper, published in December 2003, provides a 30 year strategic
framework for the development of airport capacity in the United
Kingdom. Prepared in conjunction with the administrations of Scotland,
Wales and Northern Ireland, following extensive study and consultation,
it sets out the case for the future expansion of airport capacity
across the United Kingdom. It presents the Government's considered
view of where new capacity would be best located and the approach
required to ensure it is developed in a sustainable manner.
2. It is important to emphasise that the
White Paper does not itself authorise or preclude any particular
development but sets out a policy framework against which interested
parties can plan ahead and which will guide decisions on future
planning applications. It is for airport owners and operators
to bring forward specific proposals for airport development in
the normal way, through the statutory land-use planning system.
3. In the case of Northern Ireland, the
White Paper reflects the devolution of responsibility in certain
aviation policy areas. Issues such as safety and airspace regulation,
security, international negotiations including those with the
European Union, regional access policy and the overall strategic
framework for the sector in the UK remain reserved to DfT. However,
a number of important areas are currently the responsibility of
the Northern Ireland Administration, and if the Northern Ireland
Assembly were to be re-instated would be devolved. These include
land use planning, most surface access, assessment and mitigation
of local environmental impacts, the funding of aerodromes in public
ownership and economic regulation of Northern Ireland's airports.
The Administration would also exercise executive powers in relation
to designation of an airport for the purposes of s78 of the 1982
Civil Aviation Act (Noise Controls) should that be considered
necessary.
The White Paper Consultation
4. The consultation that preceded the publication
of the White Paper, which centred around seven consultation documents
covering all parts of the UK, was one of the largest and most
extensive policy consultations carried out by Government. A large
variety of events were held as part of the consultation process
(approximately 50 seminars/workshops and 16 exhibitions around
the UK) and around 500,000 responses were received.
5. The Northern Ireland Consultation Document
(NICD) was prepared in close consultation with the Department
for Regional Development. It invited detailed comments on a range
of issues, both national and regional, of relevance to the aviation
sector in the Province and a number of scenarios for future airport
development in Northern Ireland and the UK more broadly.
6. In Northern Ireland over 4,500 copies
of the main consultation document and over 10,000 questionnaires
were distributed. A conference was hosted by the Northern Ireland
Administration, at which the Northern Ireland Minister Angela
Smith spoke. The event was attended by some 60 stakeholder organisations
including airport operators, airlines, local authorities, community
groups and representatives of local business. Forty written responses
to the NICD and 220 to the accompanying questionnaire were received
and the analysis of these responses was published alongside the
White Paper, as were the responses to the consultation documents
for each of the other UK regions.
7. That analysis pointed to strong support
amongst key stakeholders for growth of air transport at a national
scale and in Northern Ireland. Key stakeholders recognised that
air services are important for Northern Ireland both in terms
of access to the main airports in London (Heathrow, Gatwick and
Stansted), but also for access to other destinations. Increasing
the number of direct services to major business centres in the
EU and access to other parts of the UK were identified as the
most important route priorities.
8. There was support for development at
all the Northern Ireland airports with different stakeholders
favouring one over another. But there were also some concerns
expressed about the environmental impacts of airport development,
most notably noise and air quality. However, weighing these against
the perceived benefits of further development of airports in the
Province, the majority of Northern Ireland respondents supported
development.
White Paper Policy of Relevance to Northern Ireland
9. The principal conclusions of the Air
Transport White Paper relating specifically to Northern Ireland
were as follows:
— the Northern Ireland authorities
should review the form of the planning agreement at Belfast City
should the airport operator ask them to do so;
— the scope to develop capacity within
Belfast International's existing boundaries is significant and
should be supported;
— the future development of City of
Derry Airport needs early consideration in conjunction with the
Government of the Republic of Ireland; and
— all developments will need careful
environmental assessment.
10. There are also a number of generic UK-wide
or regional policy provisions in the White Paper which have particular
significance for Northern Ireland, because of its unique geographical
characteristics within the United Kingdom (ie its physical separation
from Great Britain and its land border with another state). These
include policies on Public Service Obligations, Route Development
Funds, slot regulation, EU-US Open Sky negotiations etc, which
are addressed later in this Memorandum.
11. The Department's view on aviation policy
affecting Northern Ireland has not changed materially since publication
of the White Paper, although we recognise that the air transport
market within the Province has continued to evolve. The Government
is committed to reviewing implementation of the White Paper in
2006.
12. DfT has established good working relations
with DRD (who co-ordinate work on aviation policy for the Northern
Ireland Administration) and are liaising closely with them to
implement the White Paper. DRD lead on local and devolved issues,
DfT retains lead responsibility for a range of generic issues
and will remain closely engaged, particularly where high-level,
supra-regional or politically significant issues arise.
FORECASTS
13. In 2004 over 216 million passengers
passed through UK airports. By 2030, the White Paper predicts
that demand will have increased to between 400 and 600 million
trips with a mid-point forecast of 500 million. Our forecasts
suggest that mid-point demand for air travel at Northern Ireland
airports will reach 12.9 million passengers per annum (mppa) in
2030 as set out in the table below, with a further 0.9mppa travellers
to/from Northern Ireland using Dublin Airport.
|
| Airport | 2004
Passengers(mppa)
ATMs(000s)
| 2030
Passengers(mppa)
ATMs(000s)
|
|
| Belfast City | 2.1
| 33 | 2.2
| 42 |
| Belfast Intl | 4.4
| 43 | 9.8
| 115 |
| City of Derry | 0.2
| 3 | 0.9
| 10 |
| NI Total | 6.7
| 79 | 12.9
| 167 |
|
14. These figures assume that two new runways are built
in the South East of England and new capacity is provided to facilitate
airport growth in other parts of the UK as outlined in the White
Paper. They also assume that the planning agreement at Belfast
City is retained in its current form. Were the agreement to be
revised to allow more seat capacity it is highly likely that passenger
throughput at Belfast City would exceed this forecast and the
overall outturn forecast for Northern Ireland as a whole may rise
slightly as a result. Our forecasts suggested that demand at an
unconstrained Belfast City could reach up to 4mppa by 2030.
Leakage to Dublin
15. The NICD addressed this issue at paragraphs 7.3.1-7.3.11;
that remains our best assessment of the situation. However, the
outturn forecast discussed above could also be influenced by the
strong performance of the Northern Ireland Route Development Fund
in attracting new direct services, helping to develop the low-cost
airline "offer" in the Province as a counter-balance
to the draw offered by Dublin. Over time this could contribute
to reducing the potential levels of leakage of Northern Ireland
traffic to that airport which have been forecast.
NORTHERN IRELAND'S
AIRPORTS
Belfast City Airport
16. With its location close to the centre of the dominant
business community in Northern Ireland, Belfast City is ideally
suited to servicing domestic and near European International routes
with a high-frequency, full service business product focussed
on regional jets and narrow bodied aircraft. The planning agreement
at Belfast City, which restricts the number of outbound seats
for sale to 1.5 million per year, is estimated to restrict throughput
to 2.2mppa, and as the earlier table indicated it is already operating
at very close to this level, although it remains some way below
its ATM limit of 45,000 per year. Belfast City's runway length
also tends to favour this sector of the market.
17. In discussion with DRD, it was agreed that the NICD
should not seek views on the removal of, or amendments to, the
planning agreement at Belfast City. This was because the agreement
was considered to be essentially a local planning issue and at
the time of preparing the NICD it appeared unlikely to impose
constraints on growth at Belfast City for some time to come. The
airport operator also did not press for the issue to be raised
by the NICD. But in the period since then, the airport has experienced
strong growth so that by the time of the White Paper it became
clear that the restriction on the sale of seats in particular
could soon become a significant restraint on the airport.
18. We take very seriously the environmental impacts
of airport operations, and in particular noise impacts on local
residents. We also support in principle the use of agreements
which limit operations at airports such as Belfast City, where
there is a significant concentration of population very close
to the airport. Recent practice elsewhere in the UK, for instance
in the decision on Heathrow Terminal 5, is to impose limits on
operations based upon a combination of a cap on Air Transport
Movements and noise contours; restrictions on operating hours
are also a legitimate measure. In this context, the relevance
of a limit on the sale of seats in achieving this objective is
more difficult to understand.
19. We recognise that the weighing of the potential economic
benefits for Northern Ireland of amending the planning agreement
against the resulting environmental impacts is best addressed
at a regional level. The White Paper accordingly acknowledged
the importance of this issue to the development of air services
in Northern Ireland. It went on to remit any future consideration
of the issue, should the airport operator request it, to the Northern
Ireland Administration. The airport operator has since sought
a review of the limit on the sale of seats.
Belfast International Airport
20. The period since the publication of the White Paper
has seen considerable expansion of services from Belfast International,
particularly by easyJet, which will operate 17 routes by July,
and with the notable addition of a scheduled service to New York
Newark by Continental Airlines in May. It has also, unusually
in the UK market, shown a continued growth in charter operations.
We expect Belfast International to further strengthen its position
as Northern Ireland's busiest airport. It has the runway length,
capacity, scope for development within its boundaries and a better
constraints environment to serve the scheduled no frills, charter,
long haul and freight sectors. We believe that in the longer term
it may develop a wider range of full scheduled services, and can
grow to handle a throughput of up to 10mppa by 2030. It will also
remaining the principal airport for cargo (ie freight and mail)
operations by virtue of its ability to handle larger aircraft
and to operate on a 24-hour basis.
Roles of the Belfast Airports
21. The physical and operational constraints at Belfast
City, together with recent market developments, particularly BA's
withdrawal from many Belfast routes, bmi's concentration of its
services at Belfast City and the rapid build up of no frills carriers
(especially easyJet) at Belfast International, have driven Belfast's
airports to develop in a largely complementary manner. However,
it is necessary to have regard to the fact that both are privately
owned operations driven by commercial pressures and consumer demands
and they do continue to compete in a number of key markets (eg
for point to point traffic to London and UK regions).
22. The recent addition of number of direct routes from
Belfast International to continental destinations has been spearheaded
by no frills carriers. The Government recognises the importance
of no frills carriers in bringing air travel within the reach
of more people and stimulating demand for air travel across the
UK. They are increasingly important for business travel, especially
for small and medium-sized businesses, providing the rapid connectivity
that is vital to many modern businesses.
23. Experience suggests, however, that at airports where
no frills carriers establish a significant presence, the effect
is to drive down yields to the extent that full service carriers
have difficulty in competing effectively. The effects can be seen
at Belfast International, where the introduction of services to
Luton and Stansted by easyJet (formerly Go on the latter route)
probably contributed to British Airways' decision to withdraw
from the Belfast-Heathrow route and in bmi switching their operations
to Belfast City.
24. While no frills carriers have been effective in expanding,
in some instances with the assistance of the Route Development
Fund, direct connections to continental destinations, they do
not make provision for interlining passengers wishing to connect
with onward services, for instance though Stansted or Luton. Neither
do they serve intercontinental destinations. There is considerable
demand for such services; in 2003, some 361,000 passengers on
bmi's Belfast-Heathrow route interlined with other services, 46%
of those travelling. For Gatwick, served by easyJet from Belfast
International and FlyBe from Belfast City, the figure was 140,000,
or 31% of those using the services.
25. These points suggest that there will be a continuing
need for full scheduled services connecting with onward services,
not only at Heathrow but also at European hubs. This will particularly
be the case in the next 10 years as Heathrow becomes increasingly
congested, but also in the longer term if South East airports
remain capacity constrained.
26. There is competition on their domestic and international
routes between full scheduled and no-frills carriers operating
from their preferred airport, and the prospect of similar competition
on a small number of core near Europe routes. But with a population
of 1.7 million the Northern Ireland market will not be able to
sustain competition between carriers at a route level to second
tier destinations. The key issue will be, therefore, whether single
carrier routes are best served by full scheduled services from
Belfast City or from Belfast International. The answer will be:
— dependent on the characteristics of the market
(ie whether it is best served by full scheduled or no-frills carriers);
and
— operational parameters such as sector length,
runway requirements for the most suitable aircraft, and opportunity
for airlines to optimise aircraft utilisation.
27. Competition will also play an important part (ie
the kind of charges or initial discounting that the two airports
are willing or can afford to offer), as will the influence of
the current planning constraints at Belfast City.
28. The fact that Belfast has two profitable airports,
each serving its particular market effectively, suggests that
the competition between them is beneficial for air services in
the Province. The Monopolies and Mergers Commission Report found
that a 1995 offer by Belfast International to acquire Belfast
City was against the public interest. Despite the recent sale
of Belfast City Airport, the issue could conceivably arise again
in future years. Should it do so, questions such as whether single
ownership would bring about a material reduction in competition
between the airports, or whether competition between airlines
would continue to drive consumer benefits, would have to be considered
again in the context of a market which has changed significantly
over the last 10 years.
City of Derry Airport
29. City of Derry Airport, in addition to serving the
sub-region around Londonderry itself, is increasingly seen as
an airport serving the north west of the island of Ireland. The
Irish Republic operates an "Essential Air Services Support
Programme" which is similar to PSO support and provides financial
support for regular scheduled services between Dublin and a number
of regional Irish airports. They have established such a service
between Dublin and City of Derry in order to serve County Donegal;
this service is currently operated twice daily by Loganair, a
British Airways franchise carrier. These subsidised services provide
an opportunity to inhabitants of the north west of the island
of Ireland to make connections via Dublin rather than Belfast.
30. We note that Ryanair has recently committed to using
Boeing 737-800s on the City of Derry to London Stansted route,
albeit with a restriction on the number of passengers carried
on each flight because of runway length, thus securing the route's
immediate future following the forthcoming phase out of the airline's
smaller 737-200s. In order to secure the long-term development
of the airport, however, Ryanair have publicly stated that a package
of improvements to the runway is needed. The improvements the
airport has put forward would in their view help to secure the
future of the Stansted route, which carries some 66% of the airport's
total traffic, but also potentially attract additional services
operated by Ryanair or other no frills carriers.
31. DfT is currently considering with DRD whether the
runway enhancement proposals for City of Derry Airport fall within
the Commission's rules on state aid. In particular, we will be
examining whether the proposed works are necessary to permit the
safe operation of the larger families of narrow-bodied jets and
whether there will be any material anti-competitive effects resulting
from their implementation.
AIRPORT MASTER
PLANS
32. The Air Transport White Paper introduced an expectation
that the operators of larger airports should produce master plans
setting out their proposals for future development. This would
inform the regional and local planning processes, enable local
people, businesses and other interested parties to assess the
scale and timing of development proposals, and enable the Government
to assess progress in delivering the White Paper.
33. DfT published guidance in July 2003 which gave an
indication of the Government's thinking on the scope and content
of master plans, and the timescale and process of producing them,
with a view to achieving a consistent approach by all airport
operators.
34. Airport operators were encouraged to produce at the
least a master plan statement outlining their proposals by around
the end of 2004, to be followed by a fully worked-up master plan
by December 2005.
35. The guidance suggests that master plans should address
the following core areas:
— infrastructure proposals;
— safeguarding and land/property take;
— surface access initiatives; and
36. Belfast City Airport has produced its Outline Master
Plan which is to be published on its website very shortly, to
be followed by consultation with a wide range of stakeholders
to inform the final version. We understand that Belfast International
Airport is currently preparing a similar document.
ROUTE DEVELOPMENT
FUNDS
37. Future of Air Transport White Paper supported
growth of regional airports (for the purpose of the White Paper,
all UK airports outside the London system) to serve regional and
local demand, subject to the satisfactory addressing of environmental
constraints. The benefits of regional airports were seen as:
— supporting the growth of local economies;
— relieving congestion at crowded South East airports;
— reducing the need for long surface journeys to
airports;
— making the best use of existing capacity wherever
possible, thereby reducing need for airport development in new
locations; and
— giving passengers greater choice.
38. The White Paper recognised the valuable role Route
Development Funds (RDFs) could play in stimulating the growth
of regional airports. It noted the success of the Scottish fund,
in its initial investment period, and the Northern Ireland Administration's
then recent decision to establish a similar fund.
39. The Department considers that the operation of an
RDF should be targeted toward the support of services of marginal
viability in their start-up phase that will assist in establishing
new direct business links and stimulating inward investment and
tourism. Such routes invariably entail a higher level of risk
for airlines than those to traditional leisure destinations. Additionally,
we consider that new services should only receive RDF support
if it will generate additional traffic, rather than diluting existing
traffic, for instance from a competing airport. We welcome the
success of the Northern Ireland fund in securing new services,
and regard it as having been effective in targeting destinations
which comply with our policy objectives.
40. The Department will monitor and offer guidance on
the structure and operation of both existing funds and others
that are brought forward in other parts of the UK. To this end,
DfT is developing a UK-wide protocol and appraisal framework for
RDFs. The key objectives of the Protocol and appraisal framework
are to ensure that RDFs across the UK:
— are run consistently, with sound governance arrangements;
— secure good value for money;
— work with the market rather than distort it; and
— are operated within state aid rules as set down
in the Manchester case and Charleroi decision.
ACCESS TO
LONDON
41. As stated in the Air Transport White Paper, the Government
recognises the importance of protecting regional air services
to London. The mechanism available is governed by European Legislation
which sets out rules for imposing Public Service Obligations (PSOs)
for air services.
42. The intent of this Regulation is to protect lifeline
services to peripheral or development regions, not commercially
viable regional services into congested hubs. The European Commission
intends to review this Regulation as part of its third package
revision. In the interim, the Government felt it was necessary
to develop clear guidelines, so that any application for the imposition
of PSOs on routes from regional airports into London can be processed
in an objective and transparent manner.
PSO Consultation
43. The White Paper committed the Government to carry
out a public consultation. This was launched in July 2004 and
ran until November 8. It proposed:
— the introduction of an early warning system whereby
airlines would agree to give notice of their intention to withdraw
services from a route. This would give regional bodies and the
Government time to consider whether and how the route concerned
could be protected. This may mean that a PSO would be imposed,
if the withdrawal of the service was to lead to an inadequate
service and the other criteria were fulfilled;
— the clarification of criteria, which are set out,
but not defined in European Regulations governing mechanisms to
protect regional air services. These are listed below.
1. The service must be to a peripheral region; development
region or on a thin route.
2. The PSO must be vital to ensure an adequate provision
of services.
3. The service must be vital to the economic development
of the region.
44. After the consultation closed, DfT officials then
met with stakeholders who had expressed an interest in discussing
their submissions in more detail. This included a meeting in Belfast,
attended by representatives from both Belfast airports and the
Northern Ireland General Consumer Council and officials from the
Department for Regional Development for Northern Ireland.
45. We are now considering all views expressed as part
of the consultation process. On the basis of the responses, Ministers
will then decide how the Regulation governing PSOs will be applied
in the UK and publish guidance.
46. There are currently 15 UK PSOs operating within Scotland,
but none to any London airport.
Interface with the review of the Slot Regulation
47. One of the key concerns for regional stakeholders
is retaining current levels of access to the congested hub airports
in the South East. Demand for slots at these airports is far in
excess of supply and this has placed pressure on airlines to use
the slots for higher value services, which tend to be long haul
services.
48. The European Commission produced a consultation document
in September 2004. It sought views on options for introducing
market mechanism into the slot allocation process during the second
phase of revising the original slot allocation Regulation 95/93.
These included:
— secondary trading with a possible redistribution
of a percentage of "grandfathered" slots;
— primary trading through higher posted prices or
auctioning; and,
— offsetting possible environmental impacts of commercial
slot allocation.
49. A copy of the UK's response is available from our
website from www.dft.gov.uk/aviation. The key messages from that
response were:
— we are strongly supportive of the Commission's
intention to formalise secondary trading;
— we favour auctioning in principle as the most
effective allocation method for new capacity and pool slots. However,
the practicalities of implementing such a system in addition to
secondary trading need further assessment; and,
— we believe that a full assessment of the impacts
of formalised secondary trading is required after an initial time
period before the Commission considers proposing any further,
more radical reforms.
50. The Commission is keen to address the potential risk
that formalising secondary trading might exacerbate the trend
towards long haul flights as regional operators might be incentivised
to sell slots and withdraw services or could alternatively be
outbid in the market place when trying to obtain new slots. In
our response to the Commission, the Government has highlighted
the need for the Commission to carry out a full Regulatory Impact
Assessment which would assess the impact of changes to the slot
Regulation on the provision of regional services.
51. The allocation of new capacity at London's congested
airports is also of interest to regional stakeholders. We have
been clear in our consultation response to the Commission that
whilst we in theory support the auctioning of new capacity, we
urge the Commission to undertake a study into the practicalities
and impacts of such a mechanism.
EU-US NEGOTIATIONS
52. Negotiations on a new air services agreement between
the EU and the United States are currently in abeyance, but we
anticipate resumption in the spring once the new US administration
has bedded down.
53. The EU's objective is to ensure that any agreement
leads to genuine liberalisation in the market for North Atlantic
air services, thus benefiting EU consumers and airlines. Securing
improved access for EU airlines to the US market is an important
policy aim for us.
54. Improved access to London airports, particularly
Heathrow, is an important objective for US airlines. It would
also enable more European airlines to operate trans-Atlantic services
from the UK. Should a deal be agreed, this could further increase
the level of demand for slots at London airports.
February 2005
| 
