Examination of Witnesses (Questions 380
- 399)
TUESDAY 1 MARCH 2005
MR ALBERT
HARRISON AND
MR UEL
HOEY
Q380 Chairman: Finally on my list
of questions, I noticed in your evidence that you draw parallels
between your airport and Berlin Brandenburg. That was a difficult
one for me to get my head around because, of course, one is a
showcase airport in a capital city, owned by the Government, whereas
yours is a privately owned airport. They would not seem to be
similar in either management or organisation; how do you come
up with that comparison?
Mr Hoey: Albert has already mentioned
that we are where we are in terms of airports in Northern Ireland
and the ownership structure surrounding them, but we feel on a
larger scale that Berlin has been beset by some of the similar
types of problems as Northern Ireland as a region has faced in
recent years in terms of division and having to socially integrate
and develop the economy in the region. The opportunity which has
availed itself in Berlin is for them to take the Schonefeld site,
which is in the least environmentally sensitive part of the former
East Berlin, and take a decision backed by the various partners
of federal government, the Berlin and Brandenburg authorities,
to concentrate development on the site at Schonefeld for the greater
good of the region. They estimate that they will have 50% additional
traffic going through Berlin Brandenburg in 2010 than they currently
have going through the three airports. It is a hypothetical example
in that obviously we have a different set of circumstances in
Northern Ireland; however, we were using it to illustrate how
a region can work in a co-ordinated manner and how Berlin Airport
now as a single entity, as a single showcase entity, can be presented
as a much more attractive destination airport for prospective
carriers. A 20 million airport, as they foresee it will be by
2010, will become much more attractive and much more visible on
the radar of world airlines.
Chairman: Thank you. Mr Roy Beggs.
Q381 Mr Beggs: Good morning. Would
Northern Ireland have more or less air services if it had either
one airport or both its airports were in common ownership?
Mr Harrison: If there was one
airport, yes. There would be considerable economies of scale;
that would allow us then to kick on with benefits to grow the
market. Airports are high fixed cost base businesses; the more
passengers you can get through the more income you generate and
that can be pumped back into improving facilities and doing deals.
So my answer is if it is a single owner, one airport, yes, but
we are not there. In terms of common ownership, it is a hypothetical
question, my bosses might wish to take a view on it at some stage.
The answer is yes, again there are economies of scale that can
be achieved.
Q382 Mr Beggs: Such as?
Mr Harrison: You do not need two
managing directors, I can retire and Brian Ambrose can take my
job to start with, which would save a considerable amount of money.
Take air traffic control as an example: currently our primary
radar will need replacing in about two years time; Belfast City
Airport's primary radar needs replacing in two years time roughly.
They are £3.5 million each, under common ownership you could
buy one radar. Belfast International via NATS could handle approach
and take down aircraft all the way to the ground at Belfast City,
you do not need an approach control at Belfast City, you only
need one, so there would be some saving in manpower and there
would be a considerable saving in capital. Group procurement—for
example, we as part of our group get together and we buy in equipment,
vehicles, de-icing materials. There would be standardisation of
procedures and systems, once-over command, better training, one
training rig for the fire service. Every time you buy a fire tender
it is a third of a million pounds each; with the size of group
we have we gain economies of scale. There is a whole raft of things
with common ownership—marketing, for example. It would make
life an awful lot easier for people like Tourism Ireland, Northern
Ireland Tourist Board and Belfast Visitor and Convention Bureau
to go out and say as an entity, rather than having to pander to
the two organisations and the different airlines. All of that
actually creates money and that money can be reinvested in obtaining
new routes. You have to remember that our main competition is
Dublin, and I am sure that that will come up at some stage. There
is a considerable number of people who go to Dublin; we have had
some new data in from our friends in Aer Rianta that has proved
to us that there is a considerable number of people who actually
go to Dublin, and we can pull those people back.
Q383 Mr Beggs: Would further development
of Belfast City Airport help or harm the development of air services
in Northern Ireland, customers and the economy?
Mr Hoey: We would consider that
further development would be harmful to the overall prospects
for Northern Ireland, it would just lead to further fragmentation
of effort. In the long run we believe that Dublin would continue
to grow and would continue to gain from the fragmentation that
would occur. We have already mentioned that we have lost 56 air
routes in the last 10 years; that again would be likely to continue.
We currently have, almost by default, airports in Northern Ireland
operating in a pseudo-complementary manner and City Airport market
themselves as a niche business operation where the volume traffic
tends to go through Belfast International and City of Derry has
its own catchment. If you brought all the airports onto the same
footing in terms of how they operate, we believe you would end
up with carriers operating head to head in a small, constrained
market, and that may lead to a compound effect in terms of route
failures. The difficulty we believe we have in Northern Ireland
as a region is historically we obviously have an image problem,
we have a small catchment, albeit that the catchment around Belfast
International within a 60 mile radius is similar to the catchment
around Dublin. However, clearly the impact on air traffic is not
the same in terms of our capacity to attract inbound visitors
into the market, but we believe as things stand that the City
Airport niche operation serving business commuters actually does
complement Belfast International. If they moved to larger aircraft,
as is suggested in some of the recent press coverage, then we
have our concerns as to whether the market can sustain that with
two competing airports in a small catchment.
Mr Harrison: Basically, where
would they grow? Their current aircraft types and the length of
runway do not allow them to go long haul. They do not have the
aircraft type that would operate effectively into Europe, so the
only place that they could basically grow is into the UK. If they
grow into the UK and you compare ourselves with Dublin, the number
of carriers that operate out of Dublin to the major cities and
compare what we have, it would actually mean that you would have
more people operating into the UK than Dublin would have. There
would therefore be displacement; displacement means it has an
effect on airline profitability. Our current operators would then
be looking at the bigger picture and saying should we continue
to operate out of Belfast because of the big picture type of thing.
Basically, therefore, the displacement, if any were to take place,
would weaken us, damage the airlines and in all probability would
end up with more services cancelled. A good example is Jet 2 wanted
to go to Cork. If you actually have a look at the document we
prepared, we highlighted that Cork would be one of our concerns.
We are a public licence airport, somebody wants to operate to
Cork, we cannot stop them. They did not get a deal in Cork, they
have pulled the route before it started. It was not exactly rocket
science that two carriers was not going to work in Cork. We have
a service to Aberdeen with small aircraft, Flybe want to go, but
two carriers is too much for Aberdeen, so there will be a failure
and we will go from 56 to 57. Whenever airlines look at flying
in and out of Northern Ireland, they are faced with a situation
of Aberdeen having been tried and started 10 times and failed.
Q384 Mr Beggs: We are pleased that
there is growth and development and we welcome the fact that Continental's
service to Newark is starting in May. Are there any other services
to North America under active discussion, and if so which destinations
are likely to be served? How important would support from the
Route Development Fund be for this?
Mr Harrison: I will answer your
last question first. The Air Route Development Fund was absolutely
essential in obtaining a service to North America, we could not
have done it without it, it made a big difference, without it
we would not have got the service, we simply could not have afforded
to take the hit that was required. Yes, we are under further discussion
for the North American destinations, we have been approached by
American Airlines— they have actually approached us—and
they are considering Boston and/or Chicago currently. It is unlikely
that such a service would start before 2006-07 but they are interested.
We have worked with the air route development people and the exercises
that have been carried out by the consultants prove that there
is a market. I am pleased to advise you that the forward bookings
on the Continental service to Newark are good; we actually got
the latest figures this week, they have substantial bookings already
for Business Class, Economy, some of the flights are almost full
in June and July already, we are ahead of our close friends from
Bristol.
Q385 Mr Beggs: We understand that
in November Aer Lingus was close to announcing a number of services
from Belfast International, including probably one to Heathrow.
Given the developments at Aer Lingus since then, are you still
expecting that they will establish services from Belfast
International and, if so, which routes are they likely to consider?
Mr Harrison: I think all I am
prepared to say at the moment is that we are discussing various
opportunities with Aer Lingus. We met them last week.
Q386 Chairman: Mr Harrison, we appreciate
that a lot of this is commercially sensitive; please, do not feel
that you must answer some of these questions.
Mr Harrison: That is okay.
Mr Hoey: I can add to that in
so much as we would say that we see Belfast as being very much
a natural extension for Aer Lingus as a carrier. They have been
in the market before, they have changed their business model and
there are a number of opportunities that we would foresee that
would be advantageous for Aer Lingus to take up from Belfast.
Mr Harrison: We are discussing
other European destinations with other carriers. Brussels is something
we are quite keen to get and also Frankfurt, because to connect
with another hub going east is important for Northern Ireland.
We are doing our best in that area.
Q387 Mr Beggs: In your evidence you
suggest that there will be "casualties" on routes to
the United Kingdom in the coming year. What has led to this conclusion
and which routes in particular do you consider at risk? Do you
think services from Northern Ireland to the rest of the United
Kingdom have now reached saturation point?
Mr Harrison: The UK is very well
saturated. If you compare where Dublin have services, we have
concerns over Aberdeen as I mentioned previously; Dublin have
only one carrier, it is a small number of people who want to go
to Aberdeen and to have two carriers operating on the route we
think is not sustainable. We have mentioned Cork already and we
actually had identified Cork as being somewhere where two carriers
would be too many. In Newcastle there is only one operator from
Dublin and we have got two; my gut feel is that in the next year
we will be down to one. Bristol—I think there is a little
bit too much capacity on Bristol and two carriers on Leeds Bradford
is a little bit too much. The question you have to ask yourself
is, is it better to have two flights a day from Airport A and
Airport B with poor timings, or three flights a day from Airport
A/B with better timings. It makes more sense for the airlines,
for the population as a whole, to have greater frequency. Greater
frequency and one carrier does not mean to say that fees and charges
necessarily go up; there is always the fear in the background
that if there is only one carrier on a route that fees and charges
are actually going to go through the roof. There is only one example
where fees and charges are fairly high at the moment, and that
is to Heathrow; everywhere else where there is a single carrier
the fees and charges are actually quite low and it is the mantra
of low cost airlines to continue to keep fees and charges low,
otherwise people will not fly.
Mr Hoey: Just to add to that,
the issue that we would see from a competitive point of view—and
we have already touched on competition within the local market—is
that we would see our competition very much on the basis of the
European and global arena. We compete with airlines right through
Europe for assets, and to take our principal customer, Easyjet,
as an example, Easyjet has over 100 aircraft on order. They already
operate to 60 airports in Europe, every time there is an opportunity
to place an aircraft they consider the 60 airports that are already
within their portfolio in terms of how they link up. Belfast is
in there competing, but I suppose our issue from a strategic point
of view or part of the point that we are making is that a weakening
of the traffic base weakens our capability to compete with the
other airports in Europe for service development. We are competing
in a very wide arena and, more pertinently, close to home we are
competing very directly with Dublin. As I say, I am sure we will
touch on this but Dublin has a number of major advantages over
Northern Ireland as a region in terms of attracting air services.
Q388 Mr Beggs: You have concluded
that Northern Ireland citizens make fewer journeys per capita
than citizens in the Republic; does this not suggest that there
is scope for further growth?
Mr Harrison: Clearly there is
scope for growth into Europe, and if you look at some of the initial
evidence that we gave and you compare the range of destinations
served out of Northern Ireland, there is still a long way to go
in Europe. There is scope to grow and there are advantages that
Dublin has over us: airport departure tax, they do not have any;
VAT, there is a difference in VAT. If you take a family of four—and
this one gets mentioned to me by several of my friends on a regular
basis—for those Northern Irish in this room just ask yourself,
how many people do you know who have flown out of Dublin in the
last year. I can assure you that everyone will know someone. Why
have they done it? (A) The range of destinations, and (B) it is
cheaper. Airport departure tax is expensive, we are an island
to the west of an island so operating costs are actually quite
high, so we need to get the cost of overall tickets down, which
is why we suggest that the Government have a look at disposing
of airport departure tax. An exercise that we did showed that
it would more than wash its face because of growth of jobs—going
back to the 1,000 for every million passengers carried etc.
Q389 Mr Beggs: Finally, chairman,
what do you consider to be the key priorities for the development
of air services in Northern Ireland?
Mr Harrison: Get rid of airport
departure tax. We have to recognise that our main competition
is Dublin, the Government should actually focus in on the fact
that Belfast International Airport has no constraints, we should
be the focus of further growth and for City Airport it should
be suggested or proposed that the Planning Agreement stays and
we work together on a more complementary basis. Each airport should
stand on its own feet; if the citizens in the North West want
to continue to keep the City of Derry going at a loss then that
is their prerogative, but we would be unhappy with any funding
or state subsidies that break EU legislation, especially when
we are paying for a £1.2 million a year police force. Roads
and rail should be improved; we have just seen in today's paper
an £84 million improvement on the road from Newry to Dundalk;
the southern Government have spent over £500 million improving
the Dublin-Belfast road in the last number of years and the roads
to Dublin are getting better, our roads to the North West need
to be improved and we need bypasses through Templepatrick and
links to the motorway. We should have a look to see what could
be done about harmonisation of VAT; if that is not possible can
the difference between the 13½ and the 17½ be pumped
back into tourism, and we need to have a long, hard, serious look
at airport departure tax—and I know the Chancellor would
have a cardiac arrest but the sums stack up. The guys in Dublin
did their sums and they figured out that you can actually make
more money by getting rid of airport departure tax, by jobs being
created, people coming in and spending money in the economy.
Mr Beggs: Thank you.
Q390 Mark Tami: turning to the Route
Development Fund, you indicated that you think the Fund is a good
initiative, but I think you have some concerns about it too, would
that be fair to say?
Mr Harrison: Yes.
Q391 Mark Tami: Just before you explain
that, you used the term "scatter-gun approach" particularly
in connection with Scotland; could you elaborate on that and do
you feel that that is the same for Northern Ireland?
Mr Harrison: Mr Hoey will answer
the scatter-gun. Back in 2001 we actually approached Government
at that time and said "We believe that Northern Ireland needs
an Air Route Development Fund." We approached Sir Reg Empey
who was then the minister responsible for DETI and Sir Reg I believe
then spoke to the civil servants, spoke to the Northern Ireland
Tourist Board and said "This sounds logical, please let us
get on with it." The Assembly died, the civil servants continued
to develop the concept and the idea and my chief executive, Keith
Brooks, and I met Mr Pearson in London and we pushed for the Air
Route Development Fund. Mr Pearson, we are delighted to say, said
"Yes, we are carrying it forward and we will develop an Air
Route Development Fund, but it will be very focused, it will have
to be of economic value to Northern Ireland PLC, which was what
we were after. Whenever we talked about it originally, we were
talking about Northern Ireland PLC as a whole and we were quite
happy for either City of Derry Airport or Belfast City Airport
to benefit from it, no odds, provided that there was no displacement.
Whenever we are talking about a 60 miles one hour radius we are
talking about the inner catchment area of an airport. City of
Derry is 57 miles away from Belfast International, Manchester
is served from Belfast International, Birmingham is served from
Belfast International, so it just seemed to me that we are putting
money into a region that is 57 miles away when it is already served
with greater frequency by bigger aeroplanes and reasonable fares,
so that does not actually sound logical to me. It does open up
the window of opportunity for Mr O'Leary or someone like that
to come in and say "Okay, we now want to go to Amsterdam."
Northern Ireland will not be able to sustain two such operations
on Amsterdam so there will be another casualty. Belfast City Airport
to Norwich, Norwich is not served, not a problem.
Mr Hoey: Just to touch on the
scatter-gun issue, we would recognise, as Albert says, that air
route development schemes are very important in terms of driving
forward the air access for a region. We would see air access into
Northern Ireland and the development of a broad range of air access
as being absolutely critical for economic development in the region,
where we would see that from an investment point of view it is
almost like an intravenous injection of cash into the economy.
The issue in respect of the Scottish approach is that while we
would recognise that the Scottish scheme pre-dated the Northern
Ireland scheme and has been very successful in terms of development
of long haul routes—and some routes with Ryanair I believe
out of Prestwick, there have been a number of failures in a very
short timescale, notably the Snowflake operation between Stockholm
and Inverness which only lasted a matter of weeks, the Germania
service from Prestwick to Berlin and, I suppose, most notable
of all, the Duo operation from Edinburgh which saw the demise
of half a dozen routes, all supported by Scottish Enterprise funding.
We are not saying that the Scottish scheme has been poorly administered
in any shape or form; obviously the development of Edinburgh to
Newark, services into the Middle East with Emirates and others
have been hugely important, but we would hope that in terms of
how the Northern Ireland scheme is developed and administered
going forward, that the routes which are chosen on the basis of
economic merit would be sustainable through time and that we would
not suffer such short term casualties as have been experienced
in Scotland.
Q392 Mark Tami: Taking that point
a bit further, what would you see as the necessary changes, how
would you change the criteria to perhaps not have some of these
problems that you have identified?
Mr Harrison: We have to look at
Northern Ireland as a region; it is Northern Ireland as a region
that has to be served so if someone wants to operate from Belfast
International to Frankfurt, that makes sensible funding; if somebody
wants to operate from City of Derry to Frankfurt, Frankfurt is
not served, yes, give it funding, but look at the region as a
whole because everything is close, it is a very small place. There
are bigger game parks in Southern Africa than Northern Ireland,
we are a very small region. Scatter-gunning, duplication of services,
all it does is displace. It has to be more focused, it is new
routes.
Q393 Mark Tami: Particularly in the
light that the budget has been fully committed, what do you see
as needing pump-priming?
Mr Harrison: I do not think there
are many places that actually need pump-priming any more. To summarise
them I would say Brussels, one or two destinations further in
Germany, perhaps another Italian destination, perhaps one French
destination, but then I think that is it, the Government will
have done its job, will have moved us up the pecking order, so
I do not think there are actually that many more routes that need
pump-priming.
Q394 Mark Tami: Do you feel overall
that it is distorting the market, both in the short term and longer
term as well?
Mr Harrison: No, all it has done
is actually moved us up in the pecking order. Coming back to the
Easyjet scenario, aircraft number "67" comes off the
production line; where are we going to put it? They have 60 airports
currently that they have got to look at. They recognise that Northern
Ireland is an important market, that people want to travel out
of here, and tourism is picking up, we now handle over two million
tourists a year. It moves us up the pecking order, it makes a
difference. If you take Easyjet, the average profit per passenger
is £2.50, so if you can get a few pounds knocked off somewhere
on a cost then, yes, that actually makes a difference.
Mr Hoey: Could I just elaborate,
I think the issue for Northern Ireland that we faced prior to
the inauguration of the Route Development Fund, we had one
international scheduled route to Amsterdam which compared very
unfavourably to similar UK regions and extremely unfavourably
to Dublin. As I say, we perceive that Dublin is the principal
competition that we face, we struggle already with a number of
things that we have already outlined in terms of the image and
the attractiveness of Northern Ireland as a visitor destination,
and also a number of the measures which have been undertaken by
the Republic of Ireland Government in terms of supporting road
infrastructure, the abolition of APD, VAT reduction and suchlike.
The big issue that we faced as a region prior to the instigation
of routes to Paris, Rome, Berlin etc and New York in particular
was that Tourism Ireland, which is largely supported by Northern
Ireland funding, were spending multi-million pounds on marketing
in various countries and destinations across the world, but 75%
of the money that was being spent by Tourism Ireland in foreign
markets to attract tourists was gaining no benefit whatsoever
for Northern Ireland because we had no direct access. So we see
that actually acquiring direct access and having the channel to
actually sell to people and encourage them to visit Belfast is
a huge step forward and allows us to compete on a much more equal
level with Dublin as an entry point to the island.
Q395 Mark Tami: Thank you. Much is
made of the importance of demonstrating net economic benefit.
How do you quantify that, is it in terms of new airport jobs overall
or is it creating greater choice and obviously the benefits that
flow from that? It is a bit of a catch-all I know.
Mr Harrison: For every million
passengers grown you create 1,000 jobs on airport; Chris Tarry
will confirm that, I am sure. There is another statistic which
is about 3,500 jobs created in the wider economy for every million
passengers grown. Airports are economic drivers, we spend lots
of money. This year we are spending over £6 million upgrading
facilities at the airport; in the next five years we will spend
at least between £6 and £8 million a year upgrading
facilities, and in some years we will actually spend more than
that. So over the next five years we will pump £40 million
into the economy, which is not an insignificant chunk of change.
We create jobs to work on airport and for tourism, and we pump
prime money back into the economy. We are working right now to
develop our business park, we are working with a major integrator
to develop a facility which should be up and running hopefully
before Christmas of this year, and that in itself will make deliveries
for cargo etc much cheaper out of Belfast, it will create more
jobs on an annual basis and it will create jobs in the construction
industry in the short-term.
Q396 Mark Tami: Have you carried
out surveys of people who are using the new routes and, if you
have, how does that split between business and tourist type?
Mr Harrison: Overall business
is approximately 30 odd% of our business, but that includes charters,
everything. Of the new routes we have only basically had Paris
and Nice up and running, the others do not start until basically
July, Continental starts in May. If you have a look at the Continental
figures, it is 159-seater aircraft with 16 seats in Business.
I would say, based on the forward bookings, a quarter of the Business
seats are taken already for the period we looked at. It is difficult
to give an overall picture.
Q397 Mark Tami: Is the pattern changing
more towards business or more towards tourists, or are they both
growing?
Mr Harrison: Business is picking
up, more and more people are using low cost travel and the direct
services make a difference because people prefer to fly direct
rather than go through a hub, so there are more and more business
guys using the product.
Q398 Mark Tami: When we came to see
you in November we had quite a tour of all the retail outlets
that you had there. Is that growing, what sort of impact is that
having, and is that helping to offset perhaps some of the other
issues?
Mr Harrison: In the back of the
pack we gave you, we gave details of how things have changed over
the last year, if I can find it. Aeronautical charges are falling,
the amount of money that we get per passenger is shrinking. Most
of our deals are RPI minus, so basically in 2001 aeronautical
fees and charges were 68% of our income and commercial 31.7%;
that changed to 2004 to 52.7% and 47.3%, so we are more dependent
on making money on sticky buns and pints and pies and car parking
than we have been in the past. Aeronautical charges are coming
down, non-aeronautical revenues are going up.
Q399 Mark Tami: Where in that league
table, if you like, does that put the Route Development Fund?
How vital is that, and obviously you are looking to build throughput
to the airport so I suppose what I am looking for is how dependent
do you see yourselves on that?
Mr Harrison: We are not overly
dependent in the long run, once the three years are up then the
routes will be sustained, they are up and running.
Mr Hoey: The Fund is extremely
useful in possibly changing the timing of some of the route developments.
We have mentioned the Newark service in particular, from a purely
commercial perspective we could not have bridged the gap in terms
of the quantum required to compete in order to get that service,
given we were competing with airports all across Europe for it.
On the European services the Air Route Development Funding is
very welcome and very helpful, but we would certainly look to
be developing routes which would be sustainable three years beyond,
we do not see any merit in developing routes which would start
and stop as soon as the funding disappears, so it is an assistance
but hopefully not a critical assistance in the long-term.
Chairman: We are running slightly behind
the clock so we may need to speed up one or two of our questions.
Mr Gregory Campbell.
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