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Westminster Hall

Wednesday 17 June 2009

[Mr. Gary Streeter in the Chair]

Regional Aviation Policy

Motion made, and Question proposed, That the sitting be now adjourned.—(Mr. Watts.)

9.30 am

Phil Wilson (Sedgefield) (Lab): I thank the Speaker for selecting this important subject for debate and it is a pleasure to see you in the Chair, Mr. Streeter. I also welcome the Minister to his new post.

I shall be discussing the importance of regional aviation policy in the context of its impact on regional economic development. No one can deny that we live in a world where economic relationships between countries and continents are more globalised than ever before. In such a world, connectivity is paramount. Communications are now instant; we think nothing of turning on the news to watch a live TV interview with somebody on the other side of the planet. Likewise, reaching the other side of the world in person is much easier than it has ever been thanks to air travel. It is estimated that more than half the UK’s population fly at least once a year, whether on holiday, to visit family and friends or on business.

Business-to-business connectivity is part of what makes the globalised economy go round. It is important to the UK as a major trading nation and equally important to our regional economies. Aviation is a crucial part of the UK’s goods distribution network, playing a particularly strong role, for example, in the movement of high-value freight. Some 30 per cent. of UK exports by value are transported by air. Heathrow is the world’s second biggest cargo handling airport. More than half the UK’s total air freight passes through it, which means that the remaining 50 per cent. leaves through other regional airports.

Aviation plays a vital role in connecting the UK’s regions to London and, through direct international links, to the global markets. The Airport Operators Association estimates that the airports that it represents handle more than 228 million passengers. According to a CBI submission to the Select Committee on Transport inquiry into the future of aviation, CBI members, particularly in Scotland and Northern Ireland, regard air links with London as very important for their businesses. In fact, 73 per cent. of respondents to a survey of City of London businesses said that air services were either critical or very important in providing direct contact with clients and service providers, and 64 per cent. said that they were either critical or very important to internal company business.

The aviation industry makes a major contribution to the UK economy. Oxford Economic Forecasting demonstrated in 2006 that the industry contributed £11.4 billion to UK gross domestic product in 2004. In addition, the aviation industry directly and indirectly supports 700,000 jobs.

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Jim Sheridan (Paisley and Renfrewshire, North) (Lab): I congratulate my hon. Friend on securing the debate. To give a consumer perspective from the north, Glasgow airport is targeting people living in the north of England who tend to travel to Manchester to catch a flight. Glasgow is closer for some, as well as cheaper, given that Scotland and England have different school holidays. I welcome the initiative of targeting those people to get them to travel from Glasgow, rather than from Manchester, London or anywhere else.

Phil Wilson: I thank my hon. Friend for that intervention. What is absolutely apparent from my research—I have an airport in my constituency as well—is the importance of regional connectivity not just to Heathrow, but to other airports in the country and globally.

Assuming that aviation continues to grow in line with Government forecasts and historical trends of the past decade, aviation’s contribution to GDP will rise to some £19.7 billion by 2010. It is the backdrop to a vibrant industry, but it is also an industry that is itself facing challenges in the UK regions, and those challenges are having an impact on the UK’s regional economies.

There are 22 regional airports outside the south-east, and they carry more than 500,000 passengers a year. The main aviation challenge facing the regions is the lack of connectivity between their airports and Heathrow. In 1995, Heathrow served 21 domestic destinations. Today, it serves only six: Belfast, Manchester, Glasgow, Newcastle, Edinburgh and Aberdeen. Leeds Bradford in Yorkshire and Durham Tees Valley airport in my constituency ran flights to Heathrow until this February, when BMI withdrew those services. Today, Schiphol airport in Amsterdam and Paris Charles de Gaulle serve more regional airports in the UK than does Heathrow—Schiphol serves 19 UK destinations and Paris CDG 14.

I find it bizarre that UK regional airports must rely on international hubs outside the UK to gain access to the wider world. A briefing from BAA bills Heathrow as the UK’s global gateway. I cannot see how that is true when fewer UK regional airports have access to Heathrow than to Holland and France.

Lembit Öpik (Montgomeryshire) (LD): On that point, does the hon. Gentleman agree that there is an environmental irony at play? The environmental movement says that we should not provide access to internal aviation within the UK, but that simply forces people to fly east before going west, which is obviously worse for their carbon footprint than if they made direct journeys from here.

Phil Wilson: The hon. Gentleman is absolutely right. I will come to that point later.

David Taylor (North-West Leicestershire) (Lab/Co-op): What the hon. Member for Montgomeryshire (Lembit Öpik) says is undeniable, but what underpins planning for aviation is the aviation White Paper launched in December 2003 by the now Chancellor of the Exchequer, which discussed stringent environmental controls on regional airports, as the London airports, by and large, are designated, so the Secretary of State for Transport can do something about unacceptable environmental downsides such as night noise. Is that not the problem?

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East Midlands airport is one such regional airport. We welcome its jobs, low-cost flights and other benefits, but we do not welcome the freight noise that affects communities around the periphery of the airport and under its flight path. However, there is no respite and no control from an effective local master plan.

Phil Wilson: The environmental aspects are important, but looking into the future, the technology and the kinds of aircraft coming on stream might help to mitigate those environmental impacts. It is an issue, but the industry is trying to tackle it.

Mark Lazarowicz (Edinburgh, North and Leith) (Lab/Co-op): I pay tribute to my hon. Friend’s optimism about what the industry might do, but the proposals and suggestions for improvements are still on the drawing board and the practical consequences are very much of the type suggested by my hon. Friend the Member for North-West Leicestershire (David Taylor). I suggest that my hon. Friend the hon. Member for Sedgefield (Phil Wilson) take more account of those concerns in relation to the policies that he is advocating.

Phil Wilson: I will take account of them, but the main point that I want to convey concerns the future growth of regional economies and the importance of regional airports to that. Because of the lack of capacity at Heathrow, aeroplanes are now stacking above London, which has an impact on the environment as well. There are a lot of issues that we need to take into consideration.

Moving on to the reasons for the anomaly, many UK airports are operating at the limit of their capacity. Heathrow is full up, operating at 99 per cent. of capacity, compared to other European hubs, which operate at about 70 per cent. Heathrow has only two runways, while Frankfurt and Paris CDG have four and Schiphol five. That has implications for Heathrow’s ability to continue functioning effectively as an international hub. Operating so close to the limits of capacity means that the airport’s resilience—for example, the ability to cope with unforeseen circumstances such as adverse weather conditions or significant flight delays—is limited.

Air traffic is predicted to continue growing, so it is essential that action is taken to ensure that the UK’s competitiveness is not undermined. The macro-economic benefits of capacity expansion at Heathrow were quantified by Oxford Economic Forecasting in its October 2006 report, which found that a third runway at Heathrow would generate wider economic benefits estimated at £7 billion in additional GDP per year. More recently, the Government’s consultation document estimated net benefit of about £5 billion a year. That is why the third runway at Heathrow is, in my view, essential. However, construction of the runway will take until 2018 or thereabouts to complete, so what do we do between now and then to help UK regional connectivity with Heathrow?

Bob Spink (Castle Point) (Ind): The economic factors must be balanced with the societal and environmental considerations. We must always listen carefully to local communities. Does the hon. Gentleman agree that, as a measure to tackle the shortage of capacity, an estuary
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airport would be a disaster on virtually every level? Despite that, it is being promoted heavily by many Conservative MPs from Essex and the Conservative Mayor of London?

Phil Wilson: I agree with the hon. Gentleman. We should consider existing flexibility in airport infrastructure, so that we can make what we have work.

I will use Durham Tees Valley airport in my constituency as an example. There are important links between the Tees valley and Heathrow. The economy of the Tees valley is based on the largest integrated process industrial complex in the UK. It contains industries specialising in petrochemicals, energy, renewable energy, biofuel and steel-making. It has the third largest port in the UK. There is also a world-class advanced engineering industry, which is based on the design, construction and maintenance of petrochemical plants, steel works, power stations and major infrastructure such as bridges. In addition, the region has the Wilton centre, which is Europe’s largest non-military private sector research centre. The petrochemical industry alone contributes £3.5 billion to the UK economy and 70,000 UK jobs depend on it.

In Sedgefield, NETPark boasts cutting-edge technology in high-value goods production that is showing the way in new industries such as printable electronics and nanotechnologies. The Saudi Basic Industries Corporation—SABIC—is constructing the world’s largest low-density polyethylene plant at Wilton, with an investment of £200 million. The Biofuels Corporation operates the world’s largest biodiesel plant at Seal Sands and Ensus is constructing the world’s largest bioethanol plant there. A pipeline is expected, which will deliver £4 billion through renewable energy plants, biofuel plants and advanced engineering. The integrated chemical complex, which was formerly owned by ICI, is now owned by 26 multinational companies such as SABIC, Dow, Huntsman, Avecia, Johnson Matthey and GrowHow.

We must consider the jobs provided and exports produced by world-class multinational companies such as AMEC, Whessoe, Aker Kvaerner, Cleveland Bridge and K Home Engineering. The north-east is the only English region that exports more than it imports, yet the local airport does not have access to Heathrow—the UK’s global gateway.

Mr. Alistair Carmichael (Orkney and Shetland) (LD): Does the hon. Gentleman intend to speak about aviation in the context of other modes of transport? Lord Adonis is a great advocate of high-speed rail. The region that the hon. Gentleman represents is exceptionally well placed to benefit from the development of high-speed rail within a short time scale.

Phil Wilson: I welcome any ideas on high-speed rail, but the current proposals will not be connected to the north-east. I think I am right that if all the trains we have were filled with passengers who would otherwise have taken flights, Heathrow would still run at 90 per cent. capacity. High-speed rail might be part of the solution, but it is not the whole solution.

Mr. Julian Brazier (Canterbury) (Con): Yesterday, we had a debate on Heathrow and we are covering much of the same ground. Intermodal links are crucial. It is no accident that Flybe, one of the most successful and
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profitable airlines in the current difficult market, has an absolute rule that it will not fly to airports where the rail links take more than three hours. I urge the hon. Gentleman to read the report of yesterday’s debate. We must stay on the regional factors today and look at the problems with the Oxford case.

The hon. Gentleman should ask himself why the number of flights to Heathrow has increased while the number of destinations has dropped. The airlines are maximising the use of a handful of extremely profitable routes.

Phil Wilson: I will come to that last point and consider the hon. Gentleman’s remarks.

Critics will say that Durham Tees Valley airport has access to Schiphol airport in Holland. That is true and welcome, but the problem with Schiphol is that it does not connect with Australia, and its connectivity has reduced by 45 per cent. to the middle east, 27 per cent. to Asia and 31 per cent. to north America. It is not a Heathrow substitute, but complements it. I understand that there is pressure on Schiphol to limit its capacity in the long term, which could reduce connectivity to the region even more.

Mr. Jamie Reed (Copeland) (Lab): Is my hon. Friend really telling me and the House that for his constituents to travel to Heathrow, they have to go via Schiphol?

Phil Wilson: That is true. If my constituents need to get to Heathrow to get to Australasia, they could do that. It seems odd that we have to travel to international hubs outside the UK to gain access to the rest of the world.

Lembit Öpik: Does the hon. Gentleman agree that any attempt to limit air travel by making it less convenient to make intercontinental journeys from the UK is utterly naive? Price is a consideration, but the desire to make the journey is much more significant. People will find ways to make journeys by making changes outside the UK, even if it is less environmentally friendly and more time-consuming.

Phil Wilson: The hon. Gentleman is right.

Paragraph 4.47 of the consultation document, “Reforming the framework for the economic regulation of UK airports” states:

If the experience of Schiphol is anything to go by, I do not believe that that statement is accurate. It is not in the interests of this country to encourage our nationals to use another country’s airport as a hub. What does that say about our faith in Heathrow and our commitment to the regions?

I believe that there is a way through the problem. The Government are listening. The draft regulatory framework has been put out to consultation. On 24 March, I had a meeting with the Minister’s predecessor, along with the Minister for the North East and my hon. Friend the Member for Stockton, North (Frank Cook) and my right hon. Friend the Member for North-West Durham (Hilary Armstrong). We were told that the Department has deemed it necessary to look at the wider economic
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impact on the regions, rather than focus narrowly on the regional airports. I look forward to hearing from the Minister when we will hear the results of the consultation.

Unlike the Opposition, the Government have not written off Durham Tees Valley airport, and thereby the Tees valley. One Opposition spokesman said that the north-east could not sustain two airports. We know that their commitment to the regions is minimal because they oppose the development of the third runway at Heathrow.

One of the key factors in BMI’s decision to terminate its flights to Heathrow from Durham Tees Valley was the charging policy at Heathrow. At most hub airports around the world, domestic and short-haul services co-exist with long-haul networks, and landing charges are based on the take-off weight of the plane, with smaller aircraft having lower landing charges than larger ones. At Heathrow, landing charges are the same, regardless of the size of the aircraft. I have christened that policy “the poll tax with wings”. Heathrow airport is operating at capacity. Airlines make more money from long-haul than short-haul flights and are therefore keen to use scarce slots for long-haul flights. The market strength of Heathrow therefore works against regional connectivity.

Central to BAA’s financial performance is its ability to maximise ancillary revenues from areas such as retailing and catering. That involves maximising passenger throughput at the airport. It is therefore in the interests of BAA to encourage larger aircraft to operate from the airport at the expense of smaller ones, because there are limited opportunities to grow the number of aircraft movements.

The charging structure at Heathrow before the recent increase reflected those incentives. For example, a 49-seater Embraer RJ145 from Durham Tees Valley cost each passenger £12.76 in landing charges, compared with £8.68 for an Airbus A330. The recent changes have made the differential much worse. The increase in charges has a substantially greater impact on operating margins for short-haul services. Combined with the substantial incentives for airlines at Heathrow to switch slots to long-haul services, that has resulted in the loss of flights between Heathrow and Durham Tees Valley. As a consequence, BMI made a commercial decision to withdraw its flights from Durham Tees Valley and is using those slots to fly larger planes from Kiev, Tel Aviv and Riyadh.

In response to these pressures, BMI puts pressure on regional airports to reduce their landing charges, and because those flights are important, the landing charges are reduced. There is no longer any scope for further reductions, and consequently, increases in landing charges at Heathrow make regional airports less profitable. The Department seems to be arguing against regulation in this area, which we should consider, because Heathrow’s capacity is constrained and because the prime concern is to ensure as many connections as possible between Heathrow and the rest of the world.

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