Select Committee on Transport Written Evidence


APPENDIX 8

Memorandum submitted by A J Lucking

  This note argues that there is an urgent need to reform the UK airport regulatory regime, which is administered by the CAA. The present Single Till" regime flouts a basic principle of privatised business—From each and every asset, 15%, or you're fired"....Is your priority to the British taxpayer to provide a high quality airports authority or are you looking at yourself solely as as a commercial company needing to give a very high return to your shareholders?"

  Our number one priority has to be our shareholders"

  (Then BAA Director Michael Maine, questioned by Mrs Dunwoody MP).

  Professor de Neufville, an American aviation economist, addressing the Royal Aeronautical Society, said that Britain had made a mess of airport policy. Airports are too important to be privatised: they should be bond financed public utilities. Whilst agreeing with his first point, the writer believes that the problem can be solved by reforming the regulatory regime to achieve a commercial return on the operational assets.

  In his 2004 Brancker lecture, Mike Clasper, Chief Executive of BAA, said that ...we will not see a return on Heathrow's Terminal 5 for the next 50 years!" (ILT journal, June 2004, p 47). Perhaps when T5 was planned, BAA was confident that the CAA plan to switch from the single till to the dual till would be implemented, and the Competition Commission's rejection of the proposal came as a nasty shock. The worry now is that having been caught out once, BAA will not be prepared to invest in the desperately needed third runway. In an address to the Heathrow branch of the ILT on 13 September 2005, Mr Clasper said that the shortage of capacity at Heathrow meant that 737 size aircraft must be displaced by A380s etc to maximise the number of passengers served, ie the performance of Heathrow as our national global gateway will deteriorate further. In answering a question from the writer, he agreed that there has been a lack of urgency in dealing with the need for more business airport capacity. (Leisure passengers will travel long distances to an airport, eg Bournemouth or Manston. Gatwick, Stansted, and Luton still have spare capacity, and high profit Luton plans a major expansion).

  The White Paper on airport policy did not attempt to evaluate the wider economic value of air transport, quantifying only passenger benefits, such as lower fares, and access costs (50%): APD for the Chancellor (37.5%) and minor savings for the airport (12.5%). The percentages are for Stansted (Passenger Forecasts: Additional Analysis p 47. DfT December 2003). In the case of Heathrow, these benefits totalled £5.5 billion, discounted over 50 years. The 1993 RUCATSE figure was £48.6 billion, and Oxford Economic Forecasting's (1999), £37 billion—after deducting £7 billion for optimism bias", and global warming costs. Chicago values its O'Hare airport at $38 billion per annum, and the forthcoming eighth runway and re-alignments at a further $18 billion pa.

  A further illustration of an American assessment was that the owners of property displaced by Atlanta's fifth runway were paid five times the valuation (Mrs Dunwoody MP, Civil Engineers' airport conference). BAA's current Stansted offer is pre-blight valuation plus 10%, and removal expenses.

  In a 2004 presentation to the Royal Aeronautical Society, Liverpool claimed that re-connection to Heathrow would generate 40,000 jobs (in an objective one area)—though some claim they would merely move there from elsewhere in the UK. Since the Plymouth service was moved to Gatwick, two of the four Japanese companies have moved out, and the others have ceased investing. Some complained that they had been assured that the air service would be maintained. Inverness has lost its high value Japanese tourists, though some have moved to Edinburgh. A company whose main business was in India and South Africa has closed its factory there, and the Chamber of Commerce has expressed concern about a major overseas employer (it is to be hoped that the restoration of a daily service by Bmi may help). To the writer, interviewing US and Japanese investors during the 1994 BCC survey, made it clear that for them If you can't fly there, you can't get there", and that In Texas, only cattle travel on trains... No air service? That's third world stuff!". The US system of Essential Service Orders applies to any community that is more than 60 miles from a major air hub.

  We need a comprehensive study of the economic value of the Heathrow feeder services. The CAA has suggested that Amsterdam could fill the gap (sixth report of the Committee, July 2003, para 156), but inward investment agencies have pointed to the dangers of routing foreign investors and licensors via competing countries. During the BCC survey, Rolls Royce Industrial and others underlined that Amsterdam's low frequency services to the Middle East and the Old Empire" wasted time.

  Heathrow—The world's greatest money making machine!"—Robert Milton, when CEO Air Canada. Financial Times report.

  The failure to expand Heathrow in a timely way has led to large scarcity value" profits for the airlines, and the writer has wondered if these are higher than those resulting from extra runway capacity, which would enable fresh competitors to enter the market. For most of the airlines too, shareholders have to be the number one priority. Could it be that whatever their public stance, these airlines would be best served by preventing expansion of the airport? Reportedly, slots are worth £10 million each—BA has invested £118 million in them (2005 accounts, note 13).

  Examples of the annual profits achieved:

    £38 million for BA's Heathrow—Mumbai slot pair before Virgin and Bmi were allowed on the route. (Cross-examination of the then Mr Rod Eddington, Indian route case.) This could have been up to £200 per passenger.

    £21.7 million  Heathrow to New York, per slot pair.

    £7.56 million    Heathrow to Dubai, per slot pair.

    £3.3 million    Heathrow to Nairobi, per slot pair.

    CAA Nov 2001 report Estimating Demand Valuation. Annex.

  Table 4.4 of CAP 754, the Feb 2005 CAA report on regional services, illustrates the relative valuations of the five SE airports:

  Average business air fares (return) from London to:
Edinburgh £ Glasgow £   Edinburgh % business
Heathrow194 20254 BA,48 Bmi    
Gatwick128163 44 BA,39 Easyjet.
Stansted  90  81 38    
Luton  91  84 45    
London City210231 69    
Rail (average—journeys over 350 miles) 11    
(NTS report)

  These figures illustrate both the scarcity value of Heathrow, and also that it commands higher fares than three of the other airports. The airlines' opposition to the Dual Till" centred on the addition of circe £3 to BAA's then operational charge of about £6 per passenger. Currently, BA's US fuel surcharge is £40. Hence, the increased charge appears to be pocket money to Heathrow users.

ENVIRONMENTAL ASPECTS

  Another important aspect of this demonstration of the willingness of Heathrow users to pay up is that they can be expected to fund the works needed to solve the NOx problem, and to acquire properties. A Stansted type" property purchase scheme could result in acquisition of about half the properties as routine moves take place over the next ten years, thereby reducing the pain (half of us move house over this period).

  The writer believes that modern planes produce similar amounts of CO2 to trains (detailed reasons attd. at A), though he accepts that discharge at height is more damaging. However, domestic flights do not fly as high as intercontinental services: recent German research has established that 30% of surface transport emissions are found at aviation heights: and contrails can be halved by flying 6,000 ft lower—albeit at a cost of 6% greater fuel consumption (recovered by five years technical advance). And as the table on p 3 shows, air carries far more of the business passengers London to Scotland (total traffic, 2003-04, air 8.2 million, rail 1.16m. CAA and SRA reports). The 2003 CAA survey showed that 63% of the point-to-point Heathrow domestic passengers were on business (all traffic, including connecting passengers, 47%).

CONCLUSIONS

  The writer is uneasy that the CAA has proposed to delegate initial agreement of airport charges to BAA and the airlines. For both, shareholders have to be the number one priority, rather than the national economy, and the passengers. There is a need to assess the economic value of regional access to the national global gateway at Heathrow. All our major Continental competitors will soon have four or five runway national hubs. Most have informal" safeguarding arrangements for regional services (evidence to the Committee from Mr Andrew Clarke).

  Under the single till regulatory regime, BAA may not press ahead with the third runway that is needed, and the change to a dual till should be re-examined. The airlines may have opposed the introduction of the dual till because it would result in more effective price competition. But Heathrow business passengers are not price sensitive, and this has the additional advantage that they will pay a few pounds extra to deal with the environmental problems.

22 October 2005

Annex

ARE PLANES TEN TIMES AS EVIL AS TRAINS?

  For rail travel, carbon dioxide emissions and fuel use per passenger-kilometre are typically at least an order of magnitude lower". Royal Commission on Environmental Pollution, 2002 report, para 4.39. The Commission for Integrated Transport reached a similar conclusion, but its report does not detail the load factors etc on which it is based.

  The airlines claim to have achieved parity in fuel consumption. And a high level conference on railways and the environment in Berlin (19 November 2004) was told that the Airbus A321 consumes less energy than a Eurostar trainset (Railway Gazette, January 2005). Can this difference be explained?

  The 10:1 ratio applies to the total Radiative forcing", not the carbon dioxide production and fuel use alone, and it measures the total climate change impact of aircraft flying at altitudes of 9-13 Km. It is calculated by multiplying the fuel use ratio of c 3.5 set out in table 12.2 of the Commission's 1994 report by a factor of around 3", (The Commission's news release, 29 November 2002, para 3.1. It notes also that this figure contrasts with others generally in the range 1-1.5 for most human activities).

  Much of the difference in fuel consumption is due to the following factors.

  1.  In its 2002 report (para 4.40), the Commission accepted that because of rail tortuosity", trains have to travel greater costing distances than planes. This factor was not addressed in the 1994 report, and its effect on rail's fuel usage London to Glasgow is proportional to costing distances of 401.5 miles from Euston, vs 345 from Heathrow, and less from Luton.

  2.  In table 12.2 of the 1994 report, the load factor for long distance trains at typical occupancy" was given as 50%. British Rail 1993 data for Intercity trains showed 161 passengers—an average load of 33% for the 225 trains. When this difference was queried with the Commission, it stated that it had used a forecast of future occupancy. 2003 SRA data showed average loads of 201 for GNER, and 168 for Virgin Rail.

  3.  Since 1994, the advent of low cost airlines has increased the industry load factor from 65% to over 80%, (para 2.23 of the Commission's 2002 report shows that this improvement had not been included). BA stated that it too has achieved this figure for short haul flights (26 October 2004 R Aero Soc conference). Furthermore, Easyjet's 737-300s have 149 seats vs BA's 122. Ryanair's 737-800s have 189.

  4.  The R Aeronautical Society 2002 report Greener by Design" showed that between 1976 and 1994, aircraft fuel consumption per passenger-km halved. The improvement is continuing on budget towards the ACARE 2020 targets. The Rolls Royce Trent 1,000 will burn 12% less in 2008 than the 800 does now—and produce less NOx and noise (RR presentation to the HACC, 29 November 2004) At the same seminar, Boeing claimed that the 787 will burn 75% less fuel per seat-km than the 707.

  5.  The 1994 R Commission report (table 12.2) showed a French TGV burning 10% more fuel than a BR 225. The new Virgin Pendolinos have 439 seats vs 480 in the 225s, increasing fuel burn per seat by 9%. They need 6,800 HP vs 4,850 for the 225s, and have air conditioning: 200 on board computers: electrically operated doors: and tilting mechanisms.

  Greener by Design" stated also that high speed trains achieved 80 passenger miles per gallon vs 70 for short haul aircraft. However, this was 1997 data for aircraft achieving only 70% load factors. Adjusting this to 80% indicates parity in fuel consumption. A US paper by David S Lawyer reaches the same conclusion, and notes also a 25% deterioration in fuel usage per seat following the introduction of the new Amtrak Acela trains. He found also that in the USA, no allowance had been made for fuel used to carry cargo in passenger aircraft.

  The Radiative forcing" factor of c3 is believed to be due largely to contrail/cirrus formation by aircraft flying at heights of 9-13 Km. This is less of a problem at the lower altitudes used by short haul aircraft. ProfessorDavid Lee found that a 6,000 ft drop reduces contrail formation by 47%—albeit with some 6% increase in fuel consumption. And a Lufthansa report states that 30% of surface transport emissions are found at aircraft altitudes ie surface transport should not be rated at 1, and is perhaps one of the 1.5" activities (2002 report para 3.32).

  So there is persuasive evidence that planes use no more fuel per passenger than high speed trains: that the three times multiplier is too high for short haul flights: and that surface transport has a higher multiplier than one. At worst, planes are only slightly more evil than trains.

  Moreover, domestic air services carry far more business users than rail's 11% on routes of over 350 miles. The 2003 CAA survey showed that 47% of Heathrow domestic passengers were on business (63% of those flying point to point), and a further 15% were currency importing foreign tourists. The longer routes tend to carry more leisure passengers.

31 March 2005



 
previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2006
Prepared 8 November 2006