Written evidence from British Airways
plc
EXECUTIVE SUMMARY
Aviation is one of the most successful industries
in the UK. It enables international trade and tourism and is a
vital ingredient in maintaining the UK's core economic base and
its competitiveness with other nations.
British Airways employs about 40,000 people mostly
based in the UK. We have many highly-skilled employees, such as
engineers, pilots and IT specialists and we are determined to
help improve the quality of the British workforce through apprenticeships
and skills training.
As the UK's only global network carrier, we wish
to support the UK economy through the provision of improved connectivity
to and from this country. However, we are restricted in improving
UK connectivity, as our hub airport, Heathrow, is full.
The continued success of the UK economy demands expansion
of the range and breadth of the established network of routes
offered to and from UK. Lack of capacity at our hub airport will
diminish the nation's competitiveness, as London will become a
less attractive location for international business. There have
been marked increases in airport capacity in other European and
Middle East countries in recent times and these countries stand
to benefit from their improved connectivity.
It is of key importance that the government recognises
the relationship between a hub airport and the ability of air
carriers to operate to a wide and extensive network of routes.
Without transfer passengers many routes are simply not sustainable
as there is insufficient point to point traffic to make them viable.
Changes to aviation taxation need to be transparent
and trustworthy and most importantly, they should help and not
hinder the UK aviation industry. Aviation is a key sector that
can aid the country's economic recovery and we need to send a
message to the world that Britain is open for business. British
Airways' concern is that the current unacceptably high levels
of APD, and plans to introduce a per plane tax, do exactly the
opposite.
The UK's visa regime can impact our ability to compete
internationally. We recognise that immigration must be controlled
but our visa rules must be designed to avoid discouraging people
from visiting the UK on business.
INTRODUCTION
1. British Airways welcomes the opportunity to
submit comments to the Business, Innovation and Skills Committee
inquiry - Rebalancing the Economy: Trade and Investment. It should
be noted that several of the points made in this submission are
included in our earlier response to the Trade White Paper - Call
for Evidence as opened by the Department for Business, Innovation
and Skills in November 2010.
2. British Airways employs around 40,000 people
mostly based in the UK, and we are determined to help improve
the quality of the British workforce through apprenticeships and
skills training. We already have several apprenticeship schemes,
including 125 student engineers, in place and more are planned.
We undertake all of our engineering work in-house and here in
the UK. This is unlike many other airlines that outsource their
maintenance to companies abroad. We want to continue this practice
but we will only be able to do so if we are able to remain competitive
and maintain profitability in the longer term.
3. Our joint business venture with American Airlines
and Iberia offers customers a network of 433 destinations in 105
countries and more than 5,100 daily flights. Last year British
Airways alone carried nearly 32 million passengers and 760,000
tonnes of cargo on our fleet of 238 aircraft.
CONNECTIVITY AND
THE UK ECONOMY
4. Aviation is one of the most successful industries
in the UK. It enables international trade and tourism and is a
vital ingredient in maintaining the UK's economic base and its
competitiveness with other nations. Aviation supports the export
of services such as those in the consultancy, financial and creative
industries and balances that by facilitating inward foreign investment
to the UK. In a recent year, measured as Gross Value Added (GVA),
the aviation sector generated directly £8.8 billion of economic
output, or 0.7% of the total GVA of the UK economy. Aviation provides
141,000 jobs in the UK, or 0.5% of total UK employment; this rises
to 0.85% when the supply chain employment is taken into account[9].
Unlike road and rail transport, aviation is not a burden on the
taxpayer or Government as it funds its own infrastructure, including
airports and runways.
5. A strong, successful aviation industry is
vital to maintaining the UK's international competitiveness and
its position in the global economy, especially in these challenging
and difficult times. As the UK's only global network carrier,
we support the UK economy through the provision of global connectivity
to and from this country. Good connectivity is important as it
reduces travel times and provides a larger choice of destinations
therefore providing benefits to the economy through better access
to existing and new markets. However, we are restricted in improving
UK connectivity, as our only effective hub airport, Heathrow,
is full. It will therefore be difficult, if not impossible, to
offer our customers direct flights or increase frequencies to
the new and important developing markets in countries such as
China, India and Brazil. Those wishing to travel to destinations
not served by Heathrow have to fly by way of other hub airports
outside the UK to reach their destinations. Our concern is that
the Coalition government does not appear to have a coherent policy
for aviation expansion in the UK; and, its aviation taxation policy
(Air Passenger Duty) can act as a disincentive for those doing
business with the UK. Given the long lead times associated with
providing new airport and associated infrastructure, this concern
must be addressed urgently. Otherwise, Heathrow will lose its
status as a primary hub airport and will be served at the end
of a branch line from larger and more important overseas hubs.
6. The continued success of the UK economy needs
expansion of the range and breadth of the established network
of routes offered to and from UK. British Airways cannot stand
still as it faces increasing competition from other airlines in
Europe whose networks have expanded greatly in recent times. We
must match their offering if we are to remain a sustainable business
and serve the needs of our customers and the UK economy. Lack
of capacity at our hub airport will diminish UK competitiveness,
as London will become a less attractive location for international
business. There have been marked increases in airport capacity
in other European and Middle East countries in recent times and
these countries are benefitting from their improved connectivity.
Without a coherent aviation policy that recognises the global
nature of the industry and the role of UK aviation in facilitating
international trade and investment, the UK risks being marginalised
as a global trading power. We believe this is already in evidence:
Chinese inward investment to Europe is becoming skewed towards
Germany and France in part because of the better air connectivity
to those countries. Chinese airlines are tending to partner with
the Star and Skyteam alliances because of better airport slot
availability at the Paris, Amsterdam and Frankfurt hubs.
7. Last year David Cameron said: "he was
proud to have taken a 'really big' trade delegation to China to
try and forge deals between UK and Chinese companies". He
expressed similar sentiments during his trade mission to India
earlier in the year. British Airways supports the Prime Minister's
ambition to promote and encourage trade between the UK and emerging
trading countries such as China, India and Brazil. However, we
believe that the Coalition's absence of a coherent policy on UK
aviation undermines the UK's ability to trade on a global basis.
British Airways wants the opportunity to serve more destinations
and on a more frequent basis than we do today, but we are unable
to do so because there are no plans for expansion of aviation
in the South East.
8. It is of key importance that the government
recognises the relationship between a successful hub airport and
the ability for carriers to operate to a wide network of routes
including flights to new markets and to existing routes that return
marginal profitability. Without transfer passengers many routes
are simply not sustainable as there is insufficient point to point
traffic to make them viable. That is why only Heathrow serves
certain key international trade routes and why it is highly unlikely
that other major UK airports such as Stansted, Gatwick or Birmingham
will ever serve them. Heathrow is a successful hub airport - the
others are not.
9. However, Heathrow as a hub airport is falling
behind competitor hubs such as Amsterdam, Paris CDG, Frankfurt,
Munich and Madrid in Europe; and, is threatened further by new
hubs in the Middle East, for example, Dubai. The chart below illustrates
how Heathrow has declined against other EU hubs in terms of the
number of destinations served since 2005.
HEATHROW IS FAST LOSING GROUND TO COMPETITOR
HUBS IN EUROPE
| Airport | Runways
| No. Destinations served (2005) |
No. Destinations served (2010) |
| Frankfurt | 3 | 293
| 288 |
| Amsterdam | 5 | 245
| 264 |
| Paris CDG | 4 | 233
| 259 |
| Munich | 2 | 211
| 225 |
| Madrid | 4 | 151
| 194 |
| Heathrow | 2 | 200
| 183 |
10. Because Heathrow is now full, carriers operating from
the airport are very limited in the number of destinations they
can add to their schedules. As a result Heathrow has become less
competitive and over time it may well become an airport on a branch
line. Those wishing to travel to destinations not served by Heathrow
will have to fly by way of other hub airports outside the UK to
reach their destinations. This is already the case for those wishing
to travel to some cities in China. Lufthansa already serves more
cities in China directly than do carriers from Heathrow. Furthermore,
British Airways has stated that if it is not able to expand at
Heathrow, it will focus on growth at Madrid airport. Not only
will this make it more difficult for those travelling to and from
the UK in the future, it will influence companies when deciding
where they will locate their headquarters. A key influencing factor
in their decision making will be accessibility by air.
11. Stagnation of Heathrow will be detrimental to the UK economy.
A recent report published by the British Chambers of Commerce[10]
stated that not adding capacity at Heathrow would cost the economy
between £300 million and £500 million per annum in lost
productivity. Some commentators believe that Heathrow is already
a second tier hub and that risks the UK becoming less competitive
as a trading nation.
AVIATION TAXATION
12. Air Passenger Duty (APD) is another factor which can act
as a disincentive for business to trade with the UK. British Airways
supports the Government's determination to oversee the recovery
of the economy. We recognise that to tackle the budget deficit,
there must be an economic rebalancing with cuts and tax rises.
However, it is essential that tax rises are both targeted and
fair. If the UK is to maintain international competitiveness,
attract investors to Britain, and create jobs, we need the best
environment to do that.
13. British Airways is keen to play its part in driving the
UK's recovery. There is a risk that the current levels of air
passenger duty and the threatened per plane tax will damage the
recovery. In a recent poll[11]
undertaken for British Airways, the overwhelming majority said
that they were concerned that an increase in aviation taxes would
hurt our vital tourism industry and that of our economic recovery.
14. As an island trading nation we are heavily reliant on
aviation for business links. Changes to aviation taxation need
to be transparent and trustworthy and most importantly they should
help and not hinder the aviation industry. Aviation is a sector
that will aid the economic recovery and British Airways wants
to work with the Government to assist the economic recovery and
send a message to the world that Britain is open for business.
Our concern is that the current unacceptably high levels of APD,
and plans to introduce a per plane tax[12],
do the opposite.
UK Visa Regime
15. One final domestic factor, which frustrates our ability
to compete internationally, is that of our visa regime. We recognise
that immigration must be controlled but our visa rules must be
designed to avoid discouraging people from visiting the UK on
business. A business visitor to the UK must pay £70 for a
short term visit visa, £230 for a visit of up to two years,
£420 for up to five years and £610 for up to 10 years.
These fees are considerably higher than those wishing to visit
other countries in Europe and applying for a Schengen visas.
16. Visas are of particular concern for those visiting Europe
and wishing to include UK in their itinerary. A short stay Schengen
visa costs £50 and will facilitate travel to several EU countries,
whereas visiting the UK will require a further visa application
at a cost of £70. The cost and inconvenience associated with
applying for a second visa will discourage many from including
the UK in their travel plans.
January 2011
9
Statistics in this paragraph extracted from Oxera report - What
is the contribution of aviation to the UK economy? Nov 2009. Back
10
British Chambers of Commerce: Economic Impacts of Hub Airports
July 2009 Back
11
CTF Partners: APD and PPD Research - October 2010 Back
12
A per plane tax will drive transfer passengers and air cargo from
UK hub airports to those located in the EU and Middle East It
will also encourage UK passengers to fly long-haul from EU hubs
and threaten UK routes and connectivity. Back
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