Transport and the Economy - Transport Committee Contents


Written evidence by the Royal Aeronautical Society (TE 02)

EXECUTIVE SUMMARY

There have been fundamental changes in the context of UK air transport since the publication of the Eddington Report. These include large increases in the cost of aviation fuel, the introduction of EU environmental policies, and the growth of powerful new international competitors. However, the provision of an adequate UK air transport infrastructure remains essential to national and regional prosperity. However, future development of the UK air transport system must be environmentally sustainable and better integrated into the UK transport system.

Improving the efficiency of existing transport systems can provide a quick-win in the war on greenhouse gas emissions without the need for major public sector investment and without compromising safety. The key is to exploit the technology of satellite navigation and satellite communications. Although the major impact would be on Britain's roads, the principle also applies to air and sea transport

INTRODUCTION

1.    The Royal Aeronautical Society (RAeS) is the world's only professional body dedicated to the entire aerospace community. Established in 1866, the Society has 17,000 members in over 100 countries (including 3,500 classified as young members), and is a leader and provider of foresight within the aerospace community. The work of the Society is supported by a number of specialist groups including an Air Transport Group and a Space Group.

2.    The Society's submission considers the continuing importance of air transport as an element in UK transport policy and the potential of space-based systems to resolve several major transport-related problems.

3.    In December 2006, Sir Rod Eddington produced a paper analysing the existing socio-economic and impacts of various transportation modes on the UK's economy[1]. Much has changed in the air transport sector since the Eddington report:

  • The extension of the EU "Cap and Trade" emissions policy to air transport.
  • A world-wide recession of epic proportions with significant profit impact to the airline industry that is still in the recovery phase.
  • Oil price increases from $63 a barrel to $79 a barrel — an increase on the order of 25%, and with the prospect of higher average prices in the future.[2]
  • London Heathrow's planned runway expansion and other plans for airports in the SE of England have been rejected or put on hold by the new UK Government.
  • Economic forecasters predict that the Mid-East carriers and their respective airport hubs may supplant Europe's in the coming five years due to friendly economic, investment and policy environments.[3]

4.    These seismic changes were not contemplated when Sir Eddington drafted his initial report in 2006. With regard to the impact on the UK's prominence and future in the area of air transport the above will likely have significant impacts on economics of the industry in the UK and for the UK consumer of air transport.

5.    Additionally, the UK's new government has made it clear that in an era of waning fiscal receipts and ever-growing financial requirements, reductions to spending must occur and that all sectors of the economy are at risk for cuts — in particular transportation. The government wishes to define those areas most likely to have the least impact to the overall health of the recovery should cuts be ordered.

THE ECONOMICS OF UK AIR TRANSPORT

6.    Since the publication of the Eddington Report, the economic importance of UK air transport has been revealed by a number of studies, including the Oxera Study of November 2009 prepared for the Airport Operators Association[4].

7.    The most salient features of this report were that the direct benefits of Air Transport to the UK economy were:

Wealth and Employment

  • In 2007, measured by Gross Value Added (GVA), the aviation sector (activities constituting airports, airlines and aircraft service providers in the UK) generated £8.8 billion of direct economic output or 0.7% of total GVA of the UK economy for that year.
  • Including the aviation sector's supply chain activity increases the impact by 115% to £18.4 billion, or almost 1.5% of the total UK economic output.
  • The number of air passengers has increased 81% and freight tones by 33% from 1995. Therefore, the overall economic value of the aviation sector of the UK economy has increased at a significantly faster rate than just the value of the sector's direct impact.
  • Aviation provides direct employment to 141,000 UK residents or 0.5% of the total employment. This rises to 0.85% or 234,000 jobs when indirect supplier employment is added.
  • Aviation employees generate £62,000 per employee of GVA versus the average of other UK employees at £46,000 GVA per employee. Therefore, aviation employees are over 35% more productive.

Tax Revenues

  • Aviation contributed approximately £4.8 billion in annual tax revenue to the Exchequer or 0.9% of total UK tax revenue in 2007-08. A further £3.1 billion is contributed by the taxes paid by the supply chain activities.
  • The sector pays about 32.5% of the wealth generated in tax. This compares favourably to the UK economy as a whole at an average of 32.1%.
  • When Air Passenger Duty (APD) is included, that figure rises to 54.5%. The tax revenue contribution by the aviation sector is therefore the highest in the EU.
  • The study showed that the sector's tax contribution is approximately £6 billion more than its environmental costs (this is before the impact of the EU emissions trading scheme is factored in).

8.    The report concludes that the direct economic impact of the aviation sector has increased 8.3% in real terms since the Eddington report of 2006 — an average of 4% per year, and one of the best results of any industrial sector in the UK economy.

9.    There are also several subjective affects:

  • Connectivity — reduced travel times and wide selection of destinations lead to greater access to the UK market for foreigners and to foreign markets for UK products/citizens.
  • Trade improvement — lower transport costs and factors such as the ability of air freight to allow smaller inventory holdings and rapid shipment of "just-in-time" inventory/perishables leads to greater specialization in trade flows between the UK and its trading partners.
  • Investment — aviation permits UK businesses to make and better manage foreign investments, facilities and projects that create inward investment generating additional jobs and tax revenues.

10.  Access to a world-class air transport hub is especially significant to the City of London:

  • Globalisation of finance is a major driver of the need for London-based financial firm employees to travel to other world capitals/financial centres. Over three million trips were taken in 2008 on behalf of London-based employees — an amount which is 30% greater than in 2000. Business passenger aviation service is a driver in the continuation of London's future as a financial and business centre in the face of growing competition from emerging market cities such as Beijing, Dubai, Bahrain, Mumbai and Kuala Lumpur. All of these centres have seen massive public and private investment in airports.
  • The importance of the aviation offering in SE UK is not the total number of flights but the frequency of service to the other global financial centres that is of most importance to the business traveller. Business travel is likely to increase rather than reduce in the coming decade, although there is a trend away from high premium business traffic, in some cases increasing use of loss cost carriers.
  • The modernization and expansion of Gatwick and Stansted offer alternatives to the expansion of Heathrow but with substantially lower environmental and practical impacts. But the lack of coherence and linkage across London's airport network could have a detrimental impact on services. In the long term, a strategy which does not include some expansion of runway capacity at Heathrow is likely to be detrimental over the longer term to the City's role as a key global financial and business centre.[5]
  • The continued prominence of London as a top-tier financial and business centre is therefore in part contingent on the ability of SE-UK airports to provide for the increased passenger traffic expected from the London business community. This expansion of demand will require either a relaxation of the current curfew at Heathrow or additional runway occupancy through new runways or increased use of Performance Based Navigation approaches that improve acceptance rates.

11.  The importance of London notwithstanding, the role of provincial airports and the needs of regional travellers should not be neglected. While the London airports are still the dominant hubs for much of the UK, there has been steady growth in traffic from UK provincial airports to other international hubs in Europe, the Middle East and North America. In some respects, this may lead to a loss of direct revenue to UK-based carriers and erode the attractions of Heathrow as a global hub to UK originating passengers. On the other hand, the connectivity values of accessing a world transport system are as valid for the British regions as they are for the London area. This underlines the new economic geography of air transport, where competition between carriers and airports has become global. Policy should be mindful of this reality.

AIR TRANSPORT AND THE WIDER UK TRANSPORT SYSTEM

12.  There is a clear case for improving ground access to major airports and integrating air transport into a UK national transport system. There are several UK provincial airports with good rail connectivity, including Manchester, Birmingham, and Southampton. However, Heathrow and Gatwick are most notable for surface transport access delays and that policy initiatives to solve those issues remain a continuing challenge. Travellers from the West Midlands and the Northwest also face difficult public transport transfers to Heathrow from the centre of London. It should also be noted that some rail connections to Heathrow are more costly than most comparable airports elsewhere. As a minimum requirement, investment in the Cross Rail extension to Heathrow is essential and the wider importance of linking Heathrow more directly to the national long distance rail system, especially any dedicated high-speed network must be underlined for economic and environmental grounds.

PRIORITIES FOR UK AIR TRANSPORT

13.  As a result of the continuing economic turmoil in the global economy and its negative revenue impact on the Exchequer, the new Conservative Government has clearly signaled its intent to reduce budget outlays — particularly in the transportation sector of the economy. As a result, the DfT has requested advice on which sectors of air transport should be prioritized under a new programme and why.

14.  The Society takes the position that the principal areas of air transport spending that are supported by the current DfT budget programme need to be re-aligned. This re-alignment needs to occur within the following overall philosophies:

  • The polarized positions of some in government and the public that either the Government must focus on meeting increasing air travel demand without limitation or reduce environmental impact of air transportation at the expense of expansion are mutually exclusive philosophies. A creative, realistic and attainable strategic plan to meet both of these legitimate issues concerning the SE UK airports must be developed. This will require leadership and moderation by both extremes or the UK economy will suffer.
  • Due to increasing demand, both Heathrow and Gatwick runway capacity requires improvement. The consequent environmental impact can be mitigated by new methods of managing runway occupancy and noise without the need to reduce the existing curfew or further restrict the operational limitations of the airports or their user community.
  • Gatwick airport should be expanded to add an additional runway on the expiration of the Planning Agreement moratorium in 2019. The environmental and practical impacts are significantly less for the additional runway at Gatwick than at Heathrow. To facilitate this expansion, additional surface transport options into the City of London need to be explored.
  • The UK Government should seek therefore to minimize any costly expansion of Heathrow via additional runways in the short term but at the same time improve the current facilities and capacity via implementation of existing technologies and improved Air Traffic management.
  • Additionally, budgetary allocations should be made to reduce the delays associated with both the surface transport to all SE UK airports via improved rail links and other mass transit modes.
  • The Government should investigate the prioritisation of budget money to include the addition of a parallel runway at both Gatwick and Stansted whilst ensuring maximum mitigation of the environmental impacts of those improvements.
  • Care should be taken to ensure than actions taken to improve the links and capacity of the London airports should not negatively impact on Britain's provincial airports.

SPACE-BASED SYSTEMS AND UK TRANSPORT POLICY

15.  Space systems are already central to the efficiency and safety of maritime transport, are becoming so for aviation, and are emerging as a game-changing technology for road transport. UK industry is playing a central role in the development of these space systems, thus enabling the relevant UK transport policies to be based on a sound understanding of technical trends.

16.  Maritime transport relies on satellite communications as the basis for the Automated Identification System (AIS) on a global basis. Mariners world-wide rely on the space-based Global Maritime Distress & Safety Service (GMDSS). The UK's Inmarsat is the world leader in providing the relevant communication services.

17.  The operator of Europe's EGNOS satellite navigation service has recently been awarded a certificate of Air Navigation Service Provider pursuant to the Single European Sky Regulation 2096/2005. Europe can now join the USA in applying satellite navigation to the improvement of flight efficiency and safety across Europe. EGNOS ensures that defects in GPS satellites are detected and immediately reported. The UK's Logica designed and supplied the essential intelligence at the heart of EGNOS that verifies the integrity of its information and thus underpins the certification of the service.

18.  Europe's Galileo will be similar to GPS but will be independent of it. Users will obtain position and timing information from both systems and thus get a more robust, accurate and reliable service. Surrey Satellite, Astrium and Logica are among the UK companies providing major elements of the Galileo satellites and the associated ground infrastructure.

19.  The use of satellite navigation to provide in-car navigation information is proliferating. The potential to deliver public benefits using this same technology can now begin. Road tolling on a regional, national and international basis is now feasible and can help reduce congestion and thus deliver economic and environmental benefits. The investment in EGNOS and Galileo has been an essential enabler for road charging and any other safety-related transport applications of satellite navigation, as without this GPS alone does not have the integrity or accuracy needed for these applications. The UK's Avanti is leading a group of British companies defining how to deliver suitable services affordably and fairly (e.g.: no urban-rural divide).

FIVE SPECIFIC ISSUES

20.  Space-based systems will play a key role in achieving reductions in the carbon footprint of transport through the optimal use of all modes without compromising safety. Satellite services are one of the key technologies for improving the efficiency of road transport — and without the need for expensive and slow-to-deploy gantry-based sensors. Furthermore, once in orbit, satellites run on sunlight and are thus inherently eco-friendly.

21.  Priority should be given to investments that both improve transport efficiency and reduce its carbon footprint. Furthermore, preference should be given to solutions that minimise public sector spending. Road tolling based on in-car satellite navigation devices is an example that meets these three criteria: (i) reduced road congestion, (ii) consequential reduced carbon footprint, (iii) sensor systems financed by users rather than by the public sector. One important step for central government to take is to negotiate national standards for in-car systems and thus avoid the need for users to purchase multiple in-car devices.

22.  Satellite navigation technology enables a charge to be levied for road use when and where it is in short supply, ie: congested. This is an important and logical extension of the use of fuel tax to charge road users for the nation's road infrastructure. The user of roads in congested areas and/or at peak times pays a premium, as is already the approach with travel on trains, ships and planes.

23.  Under the previous Government, the DfT stated that its strategy took full account of transport's wider impact on climate change, health, quality of life and the natural environment[6]. However, decisions on funding relevant space programmes have not always reflected this. The DfT initially declined to fully fund the early phases of the EGNOS navigation system, which has recently been certified for aviation use, relying on BIS to provide the bulk of the funds. The same is true of the Galileo satellite navigation programme. Both will be critical for road and other safety-related applications.

24.  Satellite-based services are most economical when defined as continental or at least national systems. Furthermore, a system that delivers benefits to ships, aircraft, lorries, buses and cars may not easily match individual compartmentalized sectoral DfT units. Better cross-sectoral coordination is essential to maximise the opportunities afforded by space-based systems.

25.  Britain's transport users and Britain's economy will enjoy the benefits of satellite technology if suitable standards are laid down at national level, thus avoiding the need for users, operators and manufacturers to provide a plethora of in-car devices for each region or local area. The benefits will be improved further if the standards are harmonised at international level, thereby extending the economies of scale.

September 2010


1   The Eddington Transport Study, HM Treasury and Department for Transport, TSO, December 2006. Back

2   UK AA Fuel Report, December 2006 and June 2010 as seen on the web site shown below: http://www.theaa.com/motoring_advice/fuel/fuel-price-archive.html Back

3   Business Intelligence - Middle East, December 2009. Back

4   What is the Contribution of Aviation to the UK Economy, Oxera Consulting Ltd, November 2009. Back

5   Aviation Services and the City, York Aviation, July 2008, Introduction and Executive Summary.  Back

6   Delivering a Sustainable Transport System, DfT, Nov. 2008. Back


 
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